REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NOs.8230 OF 2009

(Arising out of SLP© No.8218 of 2007) Bharat Sanchar Nigam Ltd. & Anr.      …Appellants VERSUS Shri Dhanurdhar Champatiray            …Respondent WITH  C.A. No.8231/2009 @ SLP(C)No.8222/2007 C.A. No.8232/2009 @ SLP(C)No.8224/2007 C.A. No.8233/2009 @ SLP(C)No.8226/2007 C.A. No.8234/2009 @ SLP(C)No.8234/2007

J U D G M E N T TARUN CHATTERJEE, J. 1. Leave granted.

2. These appeals by special leave have been filed  

against  the  orders  dated  5th of  January  2005  in  

A.R.B.P. Nos. 11, 12, 17, 18 and 28 of 2005 passed  

by the High Court of Orissa whereby the High Court  

had  appointed  Sh.  Bibhudhendra  Mishra,  a  Senior  

Advocate  of  the  Orissa  High  Court  as  the  sole  

arbitrator  on  the  application  of  the  respondent  

filed under Section 11 (6) of the Arbitration and  

Conciliation Act 2006 (hereinafter referred to as  

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“the  Act”).  Since  the  parties  and  the  subject  

matter of the dispute are the same, we have clubbed  

all these appeals and the same are being decided  

analogously by this common judgment to avoid any  

confusion.  

3. The relevant facts leading to the filing of  

these appeals as emerging from the records may be  

briefly stated as follows :

The  parties  herein  entered  into  a  contract  

pursuant  to  distinct  notices  inviting  tender  by  

BSNL [in short ‘the appellant’] for the work of  

construction of 4 Nos. of Type-II, 2 Nos. Type-III  

and 1 No. of Type-IV Staff Quarters at Bhanjanagar  

of vertical extension to combined building at Aska  

of 3 Nos. of Type III, 3 Nos. of Type II and 4 K  

type  T.E.  building  at  Jankia  and  of  vertical  

extension to 8 Nos. of Type II and 6 Nos. of Type  

IV  staff  quarters  at  CTTC  compound  Vanivihar,  

Bhubaneshwar.   

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4. The  said  contract  contained  an  arbitration  

clause  in  terms  whereof  the  Chief  Engineer,  

Telecommunication/ Postal Department in charge of  

the work at the time of dispute, or if there be no  

Chief Engineer, the Administrative Head of the said  

Telecommunication/  Postal  Department  was  to  be  

appointed as a sole arbitrator. The said provision  

envisaged  that  in  terms  thereof  no  person  other  

than the one appointed by such Chief Engineer or  

Administrative  Head  of  the  Telecommunication/  

Postal  as  aforesaid  should  act  as  arbitrator  to  

decide the disputes referred to him.  

5. The Respondent by letters, requested the Chief  Engineer (Civil) for appointment of an arbitrator  

to adjudicate the disputes between the parties in  

terms of clause 25 of the respective agreements.  

According to the respondent, letters were received  

by  the  Chief  Engineer  of  the  appellant  no.1  on  

different dates. The Appellants having failed to  

respond to the letters of respondent requiring them  

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to  appoint  an  arbitrator  and  to  appoint  an  

arbitrator in response to such letters within the  

stipulated period in accordance with Clause 25 of  

the  respective  Agreements,  the  respondent  was  

constrained to file petitions under Section 11(6)  

of  the  Act  for  appointment  of  an  Arbitrator.  

However,  according  to  the  case  made  out  by  the  

appellants, on 9th of March, 2005, Chief Engineer  

(Civil), BSNL had already appointed Sri. Gurbaux  

Singh, Principal Chief Engineer (Arbitration) BSNL  

vide  its  office  letter  No.  69-

41(05)/CE(c)/BBSR/205.  By the impugned order, the  

High Court allowed application under S. 11(6) of  

the Act, and appointed one Sri. Bibhudhendra Mishra  

in place of departmental nominee Sri. Gurbaux Singh  

who was appointed by Chief Engineer (Civil) BSNL of  

appellant No.1.  

6. Feeling aggrieved by the said order of the High  

Court, the appellant has filed these special leave  

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petitions which on grant of leave, were heard in  

the presence of learned counsel for the parties.

7. Before we consider the arguments raised by the  

learned counsel for the parties before us, it would  

be necessary to refer to Section 11 of the Act,  

which reads as under:

“Section 11. Appointment of arbitrators. (1)  A  person  of  any  nationality  may  be  an  arbitrator, unless otherwise agreed by the  parties.  

(2) Subject to sub-section (6), the parties  are  free  to  agree  on  a  procedure  for  appointing the arbitrator or arbitrators.  (3) & (4)…………..omitted because these are not  necessary for our purpose (5) Failing  any  agreement  referred  to  in  sub- section (2), in an arbitration with a  sole  arbitrator,  if  the  parties  fail  to  agree on the arbitrator within thirty days  from receipt of a request by one party from  the other party to so agree the appointment  shall be made, upon request of a party, by  the  Chief  Justice  or  any  person  or  institution designated by him.  

(6) Where,  under  an  appointment  procedure  agreed upon  by the parties,- (a) a party  fails  to  act  as  required  under  that  procedure; or (b) the parties, or the two  appointed  arbitrators,  fail  to  reach  an  agreement  expected  of  them  under  that  procedure;  or  (c)  a  person,  including  an  institution, fails to perform any function  

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entrusted to him or it under that procedure,  a party may request the Chief Justice or any  person or institution designated by him to  take  the  necessary  measure,  unless  the  agreement  on  the  appointment  procedure  provides  other  means  for  securing  the  appointment.  

(7) A decision on a matter entrusted by sub- section  (4)  or  sub-section  (5)  or  sub- section  (6)  to  the  Chief  Justice  or  the  person or institution designated by him is  final.  

(8) The  Chief  Justice  or  the  person  or  institution designated by him, in appointing  an arbitrator, shall have due regard to- (a)  any  qualifications  required  of  the  arbitrator by the agreement of the parties;  and (b) other considerations as are likely  to secure the appointment of an independent  and impartial arbitrator..."  

8. A plain reading of Section 11 [5] of the Act  

would show that if one party demands appointment of  

an arbitrator and the other party does not appoint  

any Arbitrator within thirty days of such demand,  

the right to appointment at the instance of one of  

the parties does not get automatically forfeited.  

If the appellant makes an appointment even after  

thirty days of demand but the first party has not  

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moved the Court under Section 11, that action on  

the part of the appellant would be sufficient.  In  

other words, in cases arising under Section 11 [6],  

if  the  respondent  has  not  made  an  appointment  

within  thirty  days  of  demand,  right  to  make  an  

appointment of an arbitrator is not forfeited but  

continues,  but  such  appointment  shall  be  made  

before the other party files the application under  

Section  11  seeking  appointment  of  an  arbitrator  

before the High Court.  It is only then the right  

of the respondent ceases.  In this connection, a  

three-Judge Bench decision of this Court in  Punj  Lloyd Ltd. v. Petronet MHB Ltd., (2006) 2 SCC 638,  may  be  referred  to.   In  this  case,  this  Court  

considered the applicability of Section 11 [6] of  

the Act and after considering the scope and object  

of the Act held that once notice period of thirty  

days has expired and the party has moved the Hon.  

Chief Justice of the High Court under Section 11  

[6] of the Act, the other party loses his right to  

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appoint  an  arbitrator  on  the  basis  of  arbitral  

agreement.  While taking this view, this Court in  

the Punj Lloyd’s case [supra] had relied on the  

judgment referred in Datar Switchgears Ltd. v. Tata  Finance Ltd. and Another, (2000) 8 SCC 151, wherein  in paragraph 19 at  page 158 this Court observed as  

follows:  

“So far as cases falling under Section 11(6)  are concerned such as the one before us no  time  limit  has  been  prescribed  under  the  Act, whereas a period of 30 days has been  prescribed under Section 11(4) and Section  11(5) of the Act. In our view, therefore, so  far as Section 11(6) is concerned, if one  party demands the opposite party to appoint  an Arbitrator and the opposite party do not  make an appointment within 30 days of the  demand,  the  right  to  appointment  does  not  get automatically forfeited after expiry of  30  days.  If  the  opposite  party  makes  an  appointment  even  after  30  days  of  the  demand, but before the first party has moved  the Court under Section 11, which would be  sufficient. In other words, in cases arising  under Section 11(6), if the opposite party  has not made an appointment within 30 days  of demand, the right to make appointment is  not  forfeited  but  continues,  but  an  appointment has to be made before the former  files application under Section 11 seeking  appointment of an Arbitrator. Only then the  right of the opposite party ceases.”

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9. Similarly in the case of Ace Pipeline Contracts  Private  Limited v.  Bharat  Petroleum  Corporation  Limited,  (2007)  5  SCC  304,  this  Court  went  to  observe that:

“But  in  sub-section  (6),  where,  the  procedure  has  already  been  agreed  upon  by  the parties, as in the present case, and in  that  event,  if  a  party  fails  to  act  as  required  under  that  procedure  or  the  parties, or the two appointed arbitrators,  fail to reach an agreement expected of them  under that procedure or a person, including  an  institution,  fails  to  perform  any  function entrusted to him or it under that  procedure,  a  party  may  in  that  event,  request the Chief Justice or a person or an  institution   designated  by  him  to  make  necessary measures, unless the agreement  on  the  appointment  procedure  provides  other  means  for  appointment  of  arbitrator.  Therefore, so far as the period of thirty  days is concerned, it is not mentioned in  Sub-section (6). The period of limitation is  only provided under sub-sections (4) & (5)  of Section 11. As such, as per the statute,  the  period  of  limitation  of  thirty  days  cannot be invoked under sub-section (6) of  Section 11 of the Act.”   

10. On a perusal of the above quoted observations  

of  this  Court  made  in  Ace  Pipeline  Contracts  

Private Limited (supra), the reasons advanced in  

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the orders passed by the High Court must be found  

to  be  a  correct  interpretation  of  the  aforesaid  

provision and so far as the period of 30 days with  

regard to Section 11(6) is concerned, there is no  

doubt at all that thirty days limitation cannot be  

invoked as mandatory period under Section 11 [6] of  

the  Act.  But  a  somewhat  different  view  was  

expressed in a latter decision of this Court in the  

case  of  Union  of  India  vs.  Bharat  Battery  

Manufacturing Co. Pvt.Ltd.  [2007 (7) SCC 684]. In  

view  of  the  difference  of  opinion  of  the  two  

coordinate benches of this Court, the matter was  

referred  to  a  three-Judge  Bench  in  the  case  of  

Northern  Railway  Administration,  Ministry  of  

Railway vs. Patel Engineering Company Ltd.  [2008  

(10) SCC 240] in which the decision in Ace Pipeline  

Contracts Pvt. Ltd. (supra) was also referred to.  

Arijit  Pasayat,  J.  (as  His  Lordship  then  was),  

heading the three-Judge Bench of this Court, after  

considering  the  scope  and  object  of  the  Act  

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particularly Section 11 of the Act, concluded the  

following :

“A  bare  reading  of  the  scheme  of  Section 11 shows that the emphasis is on  the terms of the agreement being adhered  to  and/or  given  effect  as  closely  as  possible.  In other  words, the  Court may  ask  to  do  what  has  not  been  done.  The  court must first ensure that the remedies  provided for are exhausted. It is true as  contended  by  Mr.  Desai,  that  it  is  not  mandatory  for  the  Chief  Justice  or  any  person or institution designated by him to  appoint  the  named  arbitrator  or  arbitrators.  But  at  the  same  time,  due  regard  has  to  be  given  to  the  qualifications  required  by  the  agreement  and other considerations. xxxxxxxxxxxxxx

In all these cases at hand the High  Court does not appear to have focused on  the requirement to have due regard to the  qualifications  required  by  the  agreement  or  other  considerations  necessary  to  secure the appointment of an independent  and  impartial  arbitrator.  It  needs  no  reiteration  that  appointment  of  the  arbitrator  or  arbitrators  named  in  the  arbitration agreement is not a must, but  while  making  the  appointment  the  twin  requirements of Sub-section (8) of Section  11 have to be kept in view, considered and  taken into account. If it is not done, the  appointment  becomes  vulnerable.  In  the  circumstances,  we  set  aside  the  appointment made in each case, remit the  matters to the High Court to make fresh  

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appointments  keeping  in  view  the  parameters indicated above.”

11. In  the  aforesaid  decision  in  the  case  of  

Northern  Railway  Administration  (Supra),  Arijit  

Pasayat, J. (as His Lordship then was), found that  

the High Court in the said case did not appear to  

have focused on the requirement to have due regard  

to the qualifications required by the agreement or  

other  conditions  necessary  to  secure  the  

appointment  of  an  independent  and  impartial  

arbitrator. In the aforesaid decision, this Court  

also concluded that since the requirement of sub-

section (8) of Section 11 was not at all dealt with  

by the High Court in its order, the appointment of  

an arbitrator without dealing with Sub-Section 8 of  

Section  11  of  the  Act  became  vulnerable  and  

accordingly,  such  appointment  was  set  aside.  

Similar is the position in this case.  In this case  

also, before appointing an arbitrator under Section  

11(6) of the Act, the High Court had failed to take  

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into consideration the effect of Section 11(8) of  

the  Act  as  was  done  in  Northern  Railway  

Administration (supra).   

12. In view of the discussions made hereinabove and  

particularly, in view of the principles laid down  

by this Court in Northern Railway Administration  

(supra), we set aside the impugned order and remand  

the case back to the High Court for fresh decision  

of the application under Section 11(6) of the Act  

and while considering the application afresh, the  

High Court is directed to take into consideration  

the aforesaid decision of this Court.   

13. The appeals are allowed to the extent indicate  

above. There will be no order as to costs.      

…………………………………………J. [TARUN CHATTERJEE]

NEW DELHI:                       …………….……………………………J. DECEMBER 11,2009.                      [AFTAB ALAM]

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