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CASE NO.: Special Leave Petition (civil) 13812  of  2000

PETITIONER: DATAR SWITCHGEARS LTD.

       Vs.

RESPONDENT: TATA FINANCE LTD.  & ANR.

DATE OF JUDGMENT:       18/10/2000

BENCH: K.G.Balakrishnaan, M.J.Rao

JUDGMENT:

Balakrishnan, J.

Leave granted. L.....I.........T.......T.......T.......T.......T.......T..J

     The  appellant challenges an order passed by the Chief Justice  of  Bombay  High  Court, under Section  11  of  the Arbitration  and  Conciliation  Act, 1996 [for  short,  "the Act"].   The  appellant had entered into a  lease  agreement with  the 1st respondent in respect of certain  machineries. Dispute  arose  between the parties and the  1st  respondent sent a notice to the appellant on 5.8.1999 demanding payment of  Rs.  2,84,58,701 within fourteen days and in the  notice it  was  specifically stated that in case of failure to  pay the amount, the notice be treated as one issued under Clause 20.9  (Arbitration  clause)  of the  Lease  Agreement.   The appellant  did  not  pay the amount as demanded by  the  1st respondent.    The  1st  respondent   did  not  appoint   an Arbitrator  even  after the lapse of thirty days, but  filed Arbitration Petition No.  405/99 on 26.10.99 under Section 9 of  the  Act for interim protection.  On 25.11.99,  the  1st respondent   appointed  the  2nd   respondent  as  the  sole Arbitrator  by  invoking clause 20.9 of the Lease  Agreement and  the Arbitrator in turn issued a notice to the appellant asking  them  to  make their appearance before him  on  13th March,  2000.   Thereafter, the appellant filed  Arbitration Application  No.  2/2000 before Hon’ble the Chief Justice of Bombay  and prayed for appointment of another Arbitrator and the  1st respondent opposed this application.  This petition was  rejected  by  the  Chief Justice holding  that  as  the Arbitrator   had  already  been   appointed  by  the   first respondent,  the Lessor, the petition was not  maintainable. This order is challenged before us.

     We  heard the appellant’s Counsel Mr.  V.A.  Mohta and respondent’s  Counsel  Mr.  R.F.  Nariman.  The  appellant’s Counsel  questioned  the authority of the 1st respondent  in appointing  an Arbitrator after the long lapse of the notice period of 30 days.  According to the appellant, the power of appointment  should have been exercised within a  reasonable time.   The  appellant’s Counsel also urged that  unilateral appointment  of Arbitrator was not envisaged under the Lease Agreement  and  the 1st respondent should have obtained  the

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consent  of  the  appellant and the name of  the  Arbitrator should   have   been  proposed  to  the   appellant   before appointment.   On  the other hand, the Counsel for  the  1st respondent supported the impugned order.

     Learned  counsel for the appellant , Shri V.A.   Mohta argued  that  the  order  passed by  the  Chief  Justice  is amenable  to Article 136 of the Constitution of India.  Even if it is an administrative order as decided by a three Judge Bench  in  Konkan Railway Corporation Ltd.  Vs.   M/s  Mehul Construction  Co.   2000(6)  SCALE  71, it  is  amenable  to Article 136.  Learned Senior Counsel for the 1st respondent, Shri  R.F.   Nariman, however, stated that in this  case  we need  not  go  into this controversy and we may  decide  the matter  on  merits  on the assumption that  Article  136  is attracted.   In  view  of  the above  stand  taken  for  the respondents,   we   are  not   deciding  the   question   of maintainability.

     The  Arbitration  and  Conciliation   Act,  1996  made certain drastic changes in the Law of Arbitration.  This Act is  codified  in  tune with the Model Law  on  International Commercial  Arbitration  as  adopted by the  United  Nations Commission  on International Trade Law (UNCITRAL).   Section 11  of  the Act deals with the procedure for appointment  of Arbitrator.  Section 11(2) says that the parties are free to agree  to  any procedure for appointing the Arbitrator.   If only  there is any failure of that procedure, the  aggrieved party  can invoke sub-clause (4), (5) or (6) of Section  11, as  the  case may be.  In the instant case, the  Arbitration clause  in the Lease Agreement contemplates appointment of a sole Arbitrator.  If the parties fail to reach any agreement as  referred to in Sub-Section (2), or if they fail to agree on  the  Arbitrator within thirty days from receipt  of  the request  by  one party, the Chief Justice can be  moved  for appointing  an  Arbitrator  either under sub-clause  (5)  or sub-clause (6) of Section 11 of the Act.

     Sub-clause (5) of Section 11 can be invoked by a party who  has requested the other party to appoint an  Arbitrator and  the latter fails to make any appointment within  thirty days  from  the receipt of the notice.  Admittedly,  in  the instant case, the appellant has not issued any notice to the 1st  respondent  seeking appointment of an  Arbitrator.   An application  under sub-clause (6) of Section 11 can be filed when  there is a failure of the procedure for appointment of Arbitrator.   This  failure  of procedure  can  arise  under different circumstances.  It can be a case where a party who is  bound  to appoint an Arbitrator refuses to  appoint  the Arbitrator  or  where  two  appointed  Arbitrators  fail  to appoint  the  third  Arbitrator.   If  the  appointment   of Arbitrator  or any function connected with such  appointment is entrusted to any person or institution and such person or institution  fails to discharge such function, the aggrieved party  can  approach  the Chief Justice for  appointment  of Arbitrator.

     The  appellant  in  his application does  not  mention under  which sub- section of Section 11 the application  was filed.   Evidently  it must be under Sub-section (6) (a)  of Section  11, as the appellant has no case that a notice  was issued but an Arbitrator was not appointed or that there was a failure to agree on certain Arbitrator.  The contention of the  appellant might be that the first respondent failed  to act as required under the procedure.

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     Therefore,  the  question to be considered is  whether there  was any real failure of the mechanism provided  under the  Lease  Agreement.   In order to consider  this,  it  is relevant to note the Arbitration clause in the Agreement.

     Clause  20.9  of  the  Agreement  is  the  Arbitration clause, which is to the following effect:-

     20.9 " It is agreed by and between the parties that in case  of  any  dispute under this Lease the  same  shall  be referred  to an Arbitrator to be nominated by the Lessor and the  award  of the Arbitrator shall be final and binding  on all  the  parties concerned.  The venue of such  arbitration shall be in Bombay.  Save as aforesaid, the Courts at Bombay alone  and no other Courts whatsoever will have jurisdiction to  try suit in respect of any claim or dispute arising  out of or under this Lease or in any way relating to the same."

     The above clause gives an unfettered discretion to the 1st  respondent-lessor  to appoint an Arbitrator.   The  1st respondent  gave notice to the appellant and later appointed the  2nd  respondent as the Arbitrator.  It is pertinent  to note  that  no  notice  period is prescribed  in  the  above arbitration  clause  and  it  does   not  speak  about   any concurrence  or consent of the appellant being taken in  the matter of the choice of Arbitrator.

     The  question  then  arises whether  for  purposes  of Section  11(6) the party to whom a demand for appointment is made,  forfeits his right to do so if he does not appoint an arbitrator  within 30 days.  Learned Senior counsel for  the appellant  contends that even though Section 11(6) does  not prescribe  a  period of 30 days, it must be implied that  30 days  is a reasonable time for purposes of Section 11(6) and thereafter,  the  right  to  appoint  is  forfeited.   Three judgments  of the High Courts from Bombay, Delhi and  Andhra Pradesh are relied upon in this connection.

     Learned  Senior  counsel for the  respondents  submits that  the Bombay, Delhi and Andhra pradesh cases relied upon are  distinguishable.   It  is  also  contended  that  under Section  11(6) no period of time is prescribed and hence the opposite  party can make an appointment even after 30  days, provided  it  is made before the application is filed  under Section 11.

     The  appellant  contended that the 1st respondent  did not  appoint  the Arbitrator within a reasonable period  and that  amounts to failure of the procedure contemplated under the Agreement.  Our attention was drawn to a decision of the Bombay  High  Court  reported  in 1999(2)  Bombay  CR.   189 (Naginbhai  C.   Patel  Vs.  Union of  India).   There,  the petitioner,  a  Govt.   Contractor, as per the form  of  the Arbitration  clause requested the Secretary P.W.D to appoint the  arbitrator.   The Secretary, P.W.D.  did not  take  any action and the petitioner filed an application under Section 11(6) of the Act.  After the filing of this application, the respondent  appointed  an  Arbitrator and urged  before  the Chief  Justice that application under Section 11(6) filed by the  petitioner  became infructuous.  It was held  that  the petitioner  had  waited for 30 days for appointment  of  the arbitrator  and as the respondent had failed to appoint  the arbitrator  the  objection  was   not  sustainable  and  the

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appointment  of  arbitrator made by the respondent  was  not valid in the eye of law.

     The  above decision has no application to the facts of this case as in the present case, the Arbitrator was already appointed  before  the appellant invoked Section 11  of  the Act.   The  Counsel  for the appellant  contended  that  the Arbitrator was appointed after a long lapse of time and that too without any previous consultation with the appellant and therefore  it was argued that the Chief Justice should  have appointed  a fresh arbitrator.  We do not find much force in this  contention,  especially in view of the specific  words used  in  the Arbitration clause in the Agreement, which  is extracted  above.   This is not a case where  the  appellant requested  and  gave  a  notice period  for  appointment  of arbitrator  and  the  latter  failed  to  comply  with  that request.   The  1st respondent asked the appellant  to  make payment within a stipulated period and indicated that in the event of non-payment of the amount within fourteen days, the said notice itself was to be treated as the notice under the Arbitration  clause in the Agreement.  The amount  allegedly due  from  the  appellant  was   substantial  and  the   1st respondent  cannot be said to be at fault for having given a larger  period  for payment of the amount and  settling  the dispute.  It is pertinent to note that the appellant did not file  an  application even after the 1st respondent  invoked Section  9  of the Act and filed a petition seeking  interim relief.   Under  such circumstances, it cannot be said  that there  was  a failure of the procedure prescribed under  the contract.

     The  decision of the Delhi High Court in B.W.L.   Ltd. Vs.   MTNL & Ors.  [2000(2) Arb.  LR 190 (Del.)] decided  on 23.2.2000   is   also  distinguishable   inasmuch   as   the respondent,  in spite of being given opportunity on 11.10.99 by  the Court after filing of the application under  Section 11  to appoint an arbitrator, failed to do so and the  Court felt that it was a fit case for appointment of an arbitrator under  Section 11.  This case is also distinguishable as the appointment   was  not  made  before   the  filing  of   the application under Section 11.

     In   Sharma  &  Sons   vs.   Engineer-in-Chief,   Army Headquarters,  New Delhi & Ors.  [2000 (2) Arb.LR 31  (AP)], the  respondents were requested on 26.6.95, 6.8.95 and other dates  in 1997 to appoint an arbitrator.  Application  under Section  11 was filed after nearly 4 years on 21.4.99.  Only thereafter  the  respondent  appointed   an  arbitrator   on 13.5.99,  but only in respect of some of the disputes.   The respondent  felt  that the other disputes were  outside  the ambit  of the arbitration clause.  The High Court of  Andhra pradesh held that in view of Section 11(6) read with Section 11(8)  the respondent had forfeited his right to appoint  an arbitrator  after  the  expiry of 30 days from the  date  of demand  for  arbitrator.   Even  in   the  above  case,  the appointment  was  not  made  before  the  application  under Section  11 was filed.  Hence, the case is not applicable to the facts of this case.

     In  all the above cases, therefore, the appointment of the arbitrator was not made by the opposite party before the application  was  filed  under Section 11.  Hence,  all  the above cases are not directly in point.

     In   the  present  case,   the  respondent  made   the

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appointment before the appellant filed the application under Section 11 but the said appointment was made beyond 30 days. Question  is whether in a case falling under Section  11(6), the  opposite  party cannot appoint an arbitrator after  the expiry of 30 days from the date of demand?

     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 does 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, that 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.  We do not, therefore, agree with the observation in the  above  judgments  that if the appointment is  not  made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited.

     In   the   present  case   the  respondent  made   the appointment before the appellant filed the application under Section  11(6) though it was beyond 30 days from the date of demand.   In our view, the appointment of the arbitrator  by the respondent is valid and it cannot be said that the right was  forfeited  after  expiry of 30 days from  the  date  of demand.

     We need not decide whether for purposes of sub-clauses (4)  and  (5)  of Section 11, which expressly  prescribe  30 days, the period of 30 days is mandatory or not.

     While  interpreting the power of the Court to  appoint arbitrator  under  Section 8 of the Arbitration  Act,  1940, this Court in Bhupinder Singh Bindra Vs.  Union of India and Another (1995) 5 SCC 329, in para 3 held as under:-

     "It  is  settled law that court cannot  interpose  and interdict the appointment of an arbitrator, whom the parties have  chosen  under the terms of the contract  unless  legal misconduct  of the arbitrator, fraud, disqualification  etc. is  pleaded and proved.  It is not in the power of the party at  his own will or pleasure to revoke the authority of  the arbitrator  appointed with his consent.  There must be  just and sufficient cause for revocation."

     When  parties have entered into a contract and settled on  a  procedure,  due importance has to be  given  to  such procedure.  Even though rigor of the doctrine of "freedom of contract"  has  been  whittled down by  various  labour  and social  welfare legislation, still the court has to  respect the  terms  of  the  contract entered into  by  parties  and endeavor  to  give  importance and effect to it.   When  the party  has not disputed the arbitration clause, normally  he

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is bound by it and obliged to comply with the procedure laid down under the said clause.

     Therefore,  we do not think that the first respondent, in  appointing  the  second respondent  as  the  Arbitrator, failed  to  follow  the  procedure  contemplated  under  the Agreement  or  acted  in contravention  of  the  Arbitration clause.

     Lastly,   the  appellant   alleged  that  "nomination" mentioned in the arbitration clause gives the 1st respondent a  right  to  suggest  the name of  the  Arbitrator  to  the appellant  and  the appointment could be done only with  the concurrence  of the appellant.  We do not find any force  in the contention.

     In  P.  Ramanatha Aiyar’s Law Lexicon (2nd Edition) at page  1310, the meaning of the word ’Nomination" is given as follows:-  "The  action, process or instance of  nominating; 2.  The act, process or an instrument of nominating;  an act or right of designating for an office or duty.

     "Nominations"    is    equivalent    to    the    word "appointments",  when  used  by  a mayor  in  an  instrument executed  for  the purpose of appointing certain persons  to office."

     Nomination  virtually  amounts  to appointment  for  a specific  purpose  and  the  1st  respondent  has  acted  in accordance  with Section 20.9 of the Agreement.  So long  as the  concurrence  or  ratification by the appellant  is  not stated  in the arbitration clause, the nomination amounts to selection of the Arbitrator.

     Hence,  the  appellant, while filing  the  application under  Section  11  of  the Act had no cause  of  action  to sustain the same as there was no failure of the agreement or that  the  1st  respondent  failed to act in  terms  of  the agreement.   The  application  was  rightly  rejected.   The appeal deserves to be and is accordingly dismissed, however, without      any      order          as      to       costs.

NATIONAL FERTILIZERS VS PURAN CHAND NANGIA