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CASE NO.: Appeal (civil)  4251 of 2006

PETITIONER: National Highways Authority of India & Anr

RESPONDENT: Bumihiway DDB Ltd. (JV) & Ors

DATE OF JUDGMENT: 25/09/2006

BENCH: Dr. AR. Lakshmanan & Tarun Chatterjee

JUDGMENT: J U D G M E N T (Arising out of SLP (C) No. 8924/2006)

Dr. AR. Lakshmanan, J.

       Leave granted.

The appellant \026 National Highways Authority of India has  filed the present appeal against the judgment and order of the  High Court of Orissa at Cuttack dated 06.01.2006 in  Arbitration Petition No. 23 of 2005 whereby the High Court in  modification of its order dated 01.07.2005 substituted Mr.  Justice P. Chenna Keshav Reddy, former Chief Justice of  Andhra Pradesh and Gauhati High Court as the Presiding  Arbitrator in place of Mr. Justice Y. Bhaskar Rao.  

FACTS: The appellant \026 National Highways Authority of India (in  short "the NHAI") issued letter of acceptance to respondent  No.1, Bumihiway DDB Limited (JV), New Delhi for award of  the contract for widening to 4/6 lanes and strengthening of  existing 2-Lane carriage of National Highway\0265 from Km  233.000 to Km 284.000 between Ichapuram to Ganjam in the  State of Orissa, which was a part of the Chennai-Kolkata  Corridor of the Golden Quadrilateral connecting Delhi,  Mumbai, Chennai and Kolkata. On 11.06.2001, the appellants entered into an agreement  with respondent No.1 for the aforesaid contract.  The contract  agreement contained a mechanism for resolution of disputes  between the parties as contained in Sub-Clause 67.3  Sub-Clause 67.3 reads as follows: "Any dispute in respect of which the Recommendation(s), if  any, of the Board has not become final and binding pursuant  to Sub-Clause 67.1 shall be finally settled by arbitration as  set forth below.  The arbitral tribunal shall have full power to  open-up, review and revise any decision, opinion,  instruction, determination, certificate or valuation of the  Engineer and any Recommendation(s) of the Board related to  the dispute.  

(i)     A dispute with an Indian Contractor shall be finally  settled by arbitration in accordance with the  Arbitration & Conciliation Act, 1996, or any statutory  amendment thereof.  The arbitral tribunal shall consist  of 3 arbitrators, one each to be appointed by the  Employer and the Contractor.  The third Arbitrator  shall be chosen by the two Arbitrators so appointed by

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the Parties and shall act as Presiding arbitrator.  In  case of failure of the two arbitrators, appointed by the  parties to reach upon a consensus within a period of  30 days from the appointment of the arbitrator  appointed subsequently, the Presiding arbitrator shall  be appointed by the President, Indian Roads Congress.   For the purposes of this Sub-Clause, the term "Indian  Contractor" means a contractor who is registered in  India and is a juridic person created under Indian law  as well as a joint venture between such a contractor  and a Foreign Contractor.  

(ii)    \005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005 \005\005\005.

(iii)   \005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005 \005\005\005

(iv)    \005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005\005 \005\005\005.

(v)     If one of the parties fail to appoint its arbitrator in  pursuance of sub-clause (i) and (ii) above, within 30  days after receipt of the notice of the appointment of  its arbitrator by the other party, then the President of  Indian Road Congress both in cases of foreign  contractors as well as Indian Contractors, shall  appoint the arbitrator.  A certified copy of the order of  the President of Indian Road Congress making such an  appointment shall be furnished to each of the parties.

(vi)    Arbitration proceedings shall be held at Delhi in India,  and the language of the arbitration proceedings and  that of all documents and communications between  the parties shall be English.  

(vii)   The decision of the majority of arbitrators shall be final  and binding upon both parties.  The cost and expenses  of Arbitration proceedings will be paid as determined  by the arbitral tribunal.  However, the expenses  incurred by each party in connection with the  preparation, presentation, etc. of its proceedings as  also the fees and expenses paid to the arbitrator  appointed by such party or on its behalf shall be borne  by each party itself."   

During the pendency of the contract period, the appellant  noticed some defaults on the part of respondent No.1 who had       neglected the execution of the contract due to which the  project of national interest had been delayed by more than 5  years.  Thus action in terms of clause 63.1(d) of the conditions  of contract was taken by the appellants and respondent No.1  was evicted from the site on 14.01.2004.  The contractor, respondent No.1,  initiated proceedings  under Section 9 of the Arbitration and Conciliation Act, 1996  and filed Arbitration Application No. 2 of 2004 in the Court of  District Judge, Ganjam who, vide order dated 02.04.2004,  restrained the appellants from expelling respondent No.1 from  the work site till dispute between the parties are adjudicated  as per the contract agreement.  The Court further refused to  pass any orders restraining the appellants from encashing the  Bank Guarantees.  The said order was challenged by both the parties before  the High Court of Orissa.  The High Court, vide common order  dated 02.11.2004, disposed off both the appeals directing

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appellant No.1 to constitute Dispute Review Board within a  period of 6 weeks.  The order of restraint passed by the  District Judge was set aside and liberty was granted to  appellant No.1 to go for re-tendering process with liberty to  respondent No.1 to participate.  The aforesaid order was again  challenged by both the parties by filing separate special leave  petitions, namely: a)      SLP (C) No. 24813-24814 of 2004  b)      SLP (C) No. 25890-25891 of 2004  This Court, vide order dated 13.01.2005, directed both  the parties to maintain status quo in the meanwhile.   The Dispute Review Board gave its recommendations on  26.02.2005 against which respondent No.1 vide letter dated  03.03.2005 referred the disputes arising thereof to arbitration  under Clause 67 of the Conditions of Particular Application of  the contract.  Respondent No.1 nominated its arbitrator as  respondent No.3 herein.  In reply to a letter dated 03.03.2005,  the appellants also invoked arbitration clause vide letter dated  10.03.2005.  Thereafter, the appellant on 31.03.2005  nominated Mr. D.P.Gupta respondent No.5 herein as their  arbitrator.  Vide letter dated 09.04.2005, respondent No.3 requested  Mr.D.P.Gupta to concur with the name of the Presiding  Arbitrator as proposed by him.  This Court, vide order dated  15.04.2005, passed the following order in the aforesaid special  leave petitions: "Leave granted.  Heard Parties. The Portion of the impugned order whereby Applicant in Civil  Appeals arising out of S.L.P. (Civil) Nos. 24813-24814 is  permitted to participate in the re-tender process is stayed.   We clarify that the observations made by the High Court will  not be taken into account in other proceedings including the  Arbitration which may be invoked by the parties."

Mr.D.P.Gupta, vide letter dated 15.04.2005, disagreed  with the names proposed by respondent No.3.  Thereafter, in  view of the disagreement between the two nominated  arbitrators, respondent No.1 sought clarification from  respondent No.2 herein vide its letter dated 29.04.2005.   Respondent No.1 requested respondent No.2 if any judicial  arbitrator is available with them for the purpose of nomination  as Presiding Arbitrator.  It was pointed out that respondent  No.1 never sought any intervention of respondent No.2 for  appointment of the Presiding Arbitrator rather it only sought  clarification in this regard.  Vide letter dated 03.05.2005,  respondent No.2 - Indian Road Congress (IRC) informed  respondent No.1 that there does not exist any judicial  arbitrator in its panel.  Thereafter, respondent No.1 filed  Arbitration Petition No. 23 of 2005 before the High Court  under Section 11(6) of the Arbitration & Conciliation Act,1996  (hereinafter referred to as "the Act") requesting for the  appointment of the Presiding Arbitrator.  The said petition,  according to the appellants, was in gross violation of the  statutory provisions of Section 11(6) as also against the  contractual terms agreed to between the parties without  making any reference to respondent No.2 for the appointment  of the Presiding Arbitrator.   On 11.05.2005, the appellants requested respondent  No.2 to appoint the Presiding Arbitrator in view of the  disagreement between two nominated arbitrators as stipulated  in the contractual terms.  In the meanwhile, respondent No.2,  by a letter dated 31.05.2005, requested the appellants for  submission of 50% of the processing fee to enable them to  make the appointment as requested.  Respondent No.1, vide  letter dated 02.06.2005, informed respondent No.2 regarding

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the filing of the petition before the High Court for appointment  of the Presiding Arbitrator and asked them to wait for the  outcome of the judgment since the matters were subjudiced  before the Court.  On 01.07.2005, Arbitration Petition No. 23  of 2005 was listed for hearing before the High Court and  the  High Court ordered to appoint Mr. Justice Y. Bhaskar Rao as  the Presiding Arbitrator.  Respondent No.1, vide letter dated  06.07.2005, further clarified that the said appointment was  made since IRC had failed to appoint the Presiding Arbitrator  within the stipulated time of 30 days of the request made by  the parties.  On 11.07.2005, Mr. D.P.Gupta submitted his resignation  which was accepted by the appellants and one Mr. L.R. Gupta  was appointed as their arbitrator who, in turn, refused to  accept the appointment as made by the appellants.  On  26.07.2005, Mr. Justice Y. Bhaskar Rao informed the co- arbitrators that he has decided not to proceed with the  arbitration.  Thereafter, the appellants appointed one Mr.  Surjeet Singh as their arbitrator.  After resumption of the  proceeding in arbitration on the resignation of the Presiding  Arbitrator, appellant No.1 filed its counter affidavit in the  arbitration petition.  On 30.08.2005, since the two arbitrators  had failed to agree on the name of the Presiding Arbitrator,  appellant No.1 requested respondent No.2 for the appointment  of the Presiding Arbitrator.  In reply to the aforesaid letter,  respondent No.2 vide letter dated 06.09.2005, informed that  the meeting of the Executive Committee will be held on  09.09.2005 for the appointment of the Presiding Arbitrator.   Respondent No.3, vide letter dated 31.08.2005 to both the  parties, stated that in view of the failure of both the arbitrators  to appoint the Presiding Arbitrator, appropriate steps should  be taken in this regard.  Respondent No.1 filed its rejoinder  affidavit before the High Court.  The High Court, vide interim  order dated 09.09.2005 directed to list the matter on  23.09.2005 and directed respondent No.2 not to appoint any  arbitrator in the meantime till the next date of hearing.  The  High Court, vide final judgment dated 06.01.2006, appointed  Mr. P. Chenna Keshava Reddy, former Chief Justice of Andhra  Pradesh and Gauhati High Court as the Presiding Arbitrator,  which according to the appellants, is in clear and express  violation of the contract agreement entered into between the  parties.  Being aggrieved by the impugned order, the above  civil appeal was filed. We heard Mr. G.E. Vahanvati, learned Solicitor General  of India, appearing on behalf of appellants and Mr. Altaf  Ahmad, learned senior counsel appearing on behalf of the  respondents and carefully perused the pleadings, the order  impugned in this appeal and other records.   Mr. G.E. Vahanvati, learned Solicitor General made the  following submissions: a)      The High Court was not justified in making the  appointment under Section 11(6) of the Act ignoring  the statutory provisions as read under Sections  15(2), 11(6), 11(3) and 11(4) of the Act conferring  jurisdiction on the Court to make the appointment  only on failure of the persons/institutions  designated to perform the functions entrusted to it  and the agreed procedure; b)      When the arbitration agreement clearly envisages  the appointment of the Presiding Arbitrator by the  IRC and there is no specification that the arbitrator  has to be different persons depending on the nature  of this dispute.  It is not open to ignore it and  invoke the exercise of powers under Section 11(6) of  the Act.

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c)      The High Court was not justified in referring to the  principles of hierarchy and ignoring the express  contractual provisions for appointment of the  Presiding Arbitrator against the well settled law as laid  down by this Court.  The order in effect amounts to re- writing the contract against the text, spirit, fabric and  intent of the agreed terms.  Mr. Altaf Ahmed, learned senior counsel appearing for  the respondents, per contra, submitted that since the  arbitrators nominated by the respondent, namely, Mr. Justice  Ashok A. Desai and Mr. Justice K. Jayachandra Reddy had  rejected the proposal regarding appointment, the respondent  on 29.04.2005 wrote a letter to Indian Roads Congress and  sought information from the IRC as to whether any judicial  arbitrator preferably former Chief Justice of the High Court or  above positions was available in the IRC panel of the  arbitrators for the purpose of nomination of the Presiding  Arbitrator.  By communication dated 03.03.2005, IRC  intimated that they do not have any judicial arbitrator in their  panel.  Since the IRC failed to appoint the Presiding Arbitrator  in terms of the Act, the respondent on 05.05.2005 filed  arbitration application under Section 11 of the Act in the High  Court.  The High Court after taking into consideration of the  facts and by consent of both the parties by its order dated  01.07.2005 appointed Mr. Justice Y. Bhaskar Rao as the  Presiding Arbitrator.  Mr. Altaf Ahmed further submitted that  the appellants have never challenged the order dated  01.07.2005 appointing the Presiding Arbitrator till date.   However, Mr. Justice Bhaskar Rao, Presiding Arbitrator  expressed his inability to act as the Presiding Arbitrator and  accordingly intimated directly to the High Court of Orissa  regarding his inability to act as the Presiding Arbitrator.   Thereafter, when the matter was listed on 05.08.2005, the  High Court directed the counsel for the appellants to obtain  instruction from the appellants.  In the meantime, Mr. Ashok  Desai, arbitrator appointed by the respondents and Mr.  Surjeet Singh, arbitrator appointed by the appellants carried  out discussions regarding the appointment of the Presiding  Arbitrator.  On 06.01.2006, learned counsel for the appellants,  under annexure-9, had suggested the names of five retired  Judges of the various High Courts including the name of the  retired Chief Justice/retired Judge of the Supreme Court of  India for appointing one of them as the Presiding Arbitrator.   Learned counsel for the appellants herein  also submitted that  anyone from the said list may be appointed as the Presiding  Arbitrator.  Learned counsel further fairly submitted that he  does not like to suggest any particular name from the said list  though the Court may appoint any one of them as the  Presiding Arbitrator and appointed Justice P. Chenna Keshava  Reddy as the Presiding Arbitrator in place of Justice Y.  Bhaskar Rao with the consent of both the parties.  Learned  senior counsel for the respondents invited our attention to the  proceedings of the Court dated 23.06.2006 in Misc. Case No. 6  filed by the appellants in ARB Application No. 23 of 2005  which came up for hearing before the Chief Justice of the High  Court of Orissa.  By order dated 23.06.2006 on the  Miscellaneous Application filed by the appellants, it was  clarified as under: "By order dated 6-1-2006, I appointed Justice P. Chenna  Keshava Reddy, Former Chief Justice of Guwahati High  Court as the Presiding Arbitrator on a Fee of Rs. 10,000/-  per sitting which should be equally shared by both Parties.   It was further stipulated in the said order that the learned  Arbitrator shall be entitled to Rs.10,000/- per sitting  towards clerkage etc. Justice P. Chenna Keshava Reddy’s

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name was picked up from a list of various names under  Annexure-9 supplied by the petitioner.  In that order it was  inter alia, recorded that learned counsel for Opposite Party  nos. 1 and 2 fairly submitted that any one from the said list  may be appointed as the Presiding Arbitrator.  Now, learned  counsel for Opposite Party nos. 1 and 2 submits that it was  not submitted by him that any one from the said list may be  appointed as Presiding Arbitrator.  What learned counsel for  Opposite Party nos. 1 and 2 submitted is that he left the  question of appointing the Presiding Arbitrator to the  discretion of this Court.  May be what learned counsel for  Opposite Party nos. 1 and 2 submits is correct.  However,  that discretion having left with me to appoint any one as the  Presiding Arbitrator, I acted within my jurisdiction in  appointing Justice P. Chenna Keshava Reddy as the  Presiding Arbitrator.  This misc. case is accordingly disposed  of."

It was submitted by Mr. Altaf Ahmed that in view of the  clarification issued by the Chief Justice of the High Court  nothing survives in the present appeal and that the appellants  having not challenged the main order of the Presiding  Arbitrator cannot assail the order of mere substitute of name  of the Presiding Arbitrator more so, in view of the clarification  issued by the High Court of Orissa.  Learned senior counsel  further submitted that the appellants having accepted the  order of the High Court dated 01.07.2005 is thus  precluded/estopped from challenging the order dated  06.01.2006 as the subsequent order is nothing but  continuation of the proceedings dated 01.07.2005 wherein Mr.  Justice Y. Bhaskar Rao was appointed and he had expressed  his inability to accept the office.  Learned senior counsel  submitted that the appeal is devoid of any merit as the  impugned order is in accordance with law and is just and  proper in the facts and circumstances of the case.              We shall now consider the rival submissions made by  both the parties in extenso in paragraphs infra.  In the facts of the present appeal, the following questions  of law have arisen for consideration and determination by this  Court from the arguments of both the sides:-  

a)      What is the scope of jurisdiction of the Court on the  resignation of an arbitrator considering a specific  mandate and mechanism under Section 15(2) of the  Arbitration and Conciliation Act, 1996 and Clause  67.3 of the Contract? b)      Whether on resignation of one of the arbitrators, the  statutory provision that comes into play is Section  15(2) or Section 11(6) of the Arbitration and  Conciliation Act, 1996? c)      Whether an Arbitration Clause, which is a  sacrosanct Clause, can be rewritten by appointment  of a judicial arbitrator when no qualification thereof  is provided in the agreement?  d)      Whether the consent given by one of the parties (if  treated to be so on assumption) is enough for the  clause to be re-written?

The present appeal involves the issue relating to  appointment of the Presiding Arbitrator in accordance with the  agreed contractual terms between the parties.  As per Clause  67 of the contract agreement, a dispute resolution mechanism  has been agreed to wherein the parties agreed that any  dispute arising between them shall, in the first instance, be  referred to a Dispute Review Board (DRB).

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Clause 67.3 further stipulates that for the purpose of  constitution of the Arbitral Tribunal in respect of challenge to  the recommendation of DRB, in case of failure of the two  arbitrators appointed by the respective parties to arrive at a  consensus within a period of 30 days from the appointment of  the arbitrator appointed subsequently, the Presiding Arbitrator  shall be appointed by the President, Indian Road Congress.  In the present case, for the purpose of appointment of  Presiding Arbitrator, the respondent unilaterally approached  the High Court of Orissa at Cuttack under Section 11(6) of the  Arbitration and Conciliation Act, 1996, in express violation of  the contract agreement without first requesting the Indian  Road Congress being the designated authority for appointment  of the Presiding Arbitrator. It is evident from the record that after the appointment of  the Presiding Arbitrator on 1st July 2005, the arbitrator  appointed by the appellants Mr. D.P. Gupta resigned on 11th  July 2005.   The new arbitrator nominated by the appellants   did not accept the appointment on 20th July,2005.  Thereafter,  Mr. Justice Y. Bhaskar Rao resigned on 26th July, 2005.  On  the vacancy created by the resignation of Mr. Justice Y.  Bhaskara Rao, the process of appointment of the Presiding  Arbitrator started afresh in accordance with the agreed terms  of the Contract. The appellant appointed its arbitrator Mr.  Surjeet Singh on 28th July,2005.  Hence, the process of  discussion between the two nominated arbitrators was  reinitiated as per the agreed contractual terms and in  accordance with Section 15(2) of the Arbitration & Conciliation  Act, 1996.  The two arbitrators failed to arrive at a consensus  and, therefore, after 30 days, the appellants referred the issue  of appointment of Presiding Arbitrator to IRC on 30th August,  2005.  It is seen from the aforesaid facts that the situation  which existed prior to the resignation of Mr. Justice Y.  Bhaskara Rao and those which came about subsequent  thereto only affirm that the vacancy created by the resignation  of Mr. Justice Y. Bhaskara Rao was accepted by the parties to  be filled up in accordance with the original rules of  appointment, which is wholly in consonance with Section  15(2) of the Arbitration & Conciliation Act, 1996.  Reliance was placed on the case of Yashwith  Construction P. Ltd. Vs Simplex Concrete Piles India Ltd  & Anr., 2006 (7) Scale 48 (at para 4) wherein this Court had  held that "The withdrawal of an arbitrator from the office for  any reason is within the purview of Section 15(1) (a) of the Act  and therefore, Section 15(2) would be attracted and a  substitute arbitrator has to be appointed according to the  rules that are applicable for the appointment of the arbitrator  to be replaced."  However, the process which had been  reinitiated by the two nominated arbitrators was restrained by  the High Court vide order dated 9-9-2005. It is pertinent to  mention that the re-initiation of the process of appointment  was accepted by the Respondents as is evident from the  rejoinder filed by them before the High Court. It was submitted that the resignation and death of an  arbitrator mandates application of Section 15(1) and 15(2) of  the Arbitration Act. Section 15(1) and 15(2) are complete and  wholesome and contra distinct to Section 11(6). Mr. Justice Y.  Bhaskar Rao’s resignation brought the matter back from  vestiges of Section 11(6) though in the first place in law there  were none and brought the matter squarely within Section  15(2).  Any decision given under Section 11(6) is wholly  miscarriage in law and would tantamount to putting the Act  upside down.  It was also submitted that the matter on  Section 15(2) is no longer res integra as per the dictum in

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Yashwith Construction.  It may be further seen that the impugned order is not an  order merely to fill up the vacancy created by the resignation  but is a judicial order which takes into account all the facts  and circumstances before giving the judicial determination for  the appointment.  The said judicial order has, ipso facto,  replaced the earlier administrative order of 1.7.2005.  In this  regard, reliance was placed on the judgment of this Court in  the case of  SBP & Co. vs. Patel Engineering Ltd. & Anr.  (2005) 8 SCC 618.  In paragraph 47 of this judgment, this  Court held as under: "47.  We, therefore, sum up our conclusions as follows:

(i)     The power exercised by the Chief Justice of the  High court or the Chief Justice of India under  Section 11(6) of the Act is not an administrative  power.  It is a judicial power.

(ii)    The power under Section 11(6) of the Act, in its  entirety, could be delegated, by the Chief Justice  of the High Court only to another Judge of that  Court and by the Chief Justice of India to  another Judge of the Supreme Court.

(iii)   In case of designation of a Judge of the High  Court or of the Supreme Court, the power that is  exercised by the designated Judge would be that  of the Chief Justice as conferred by the statute.

(iv)    The Chief Justice or the designated Judge will  have the right to decide the preliminary aspects  as indicated in the earlier part of this judgment.   These will be his own jurisdiction to entertain  the request, the existence of a valid arbitration  agreement, the existence or otherwise of a live  claim, the existence of the condition for the  exercise of his power and on the qualifications of  the arbitrator or arbitrators.  The Chief Justice  or the designated Judge would be entitled to  seek the opinion of an institution in the matter  of nominating an arbitrator qualified in terms of  Section 11(8) of the Act if the need arises but the  order appointing the arbitrator could only be  that of the Chief Justice or the designated  Judge.

(v)     Designation of a District Judge as the authority  under Section 11(6) of the Act by the Chief  Justice of the High Court is not warranted on  the scheme of the Act.

(vi)    Once the matter reaches the Arbitral Tribunal or  the sole arbitrator, the High Court would not  interfere with the orders passed by the arbitrator  or the Arbitral Tribunal during the course of the  arbitration proceedings and the parties could  approach the Court only in terms of Section 37  of the Act or in terms of Section 34 of the Act.

(vii)   Since an order passed by the Chief Justice of the  High Court or by the designated Judge of that  Court is a judicial order, an appeal will lie  against that order only under Article 136 of the  Constitution to the Supreme Court.

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(viii)  There can be no appeal against an order of the  Chief Justice of India or a Judge of the Supreme  Court designated by him while entertaining an  application under Section 11(6) of the Act.

(ix)    In a case where an Arbitral Tribunal has been  constituted by the parties without having  recourse to Section 11(6) of the Act, the Arbitral  Tribunal will have the jurisdiction to decide all  matters as contemplated by Section 16 of the  Act.

(x)     Since all were guided by the decision of this  Court in Konkan Rly. Corpn. Ltd. vs. Rani  Construction (P) Ltd. (2002) 2 SCC 388 and  orders under Section 11(6) of the Act have been  made based on the position adopted in that  decision, we clarify that appointments of  arbitrators or Arbitral Tribunals thus far made,  are to be treated as valid, all objections being left  to be decided under Section 16 of the Act.  As  and from this date, the position as adopted in  this judgment will govern even pending  applications under Section 11(6) of the Act.

(xi)    Where District Judges had been designated by  the Chief Justice of the High Court under  Section 11(6) of the Act, the appointment orders  thus far made by them will be treated as valid;  but applications if any pending before them as  on this date will stand transferred, to be dealt  with by the Chief Justice of the High Court  concerned or a Judge of that Court designated  by the Chief Justice.

(xii)   The decision in Konkan Rly. Corpn. Ltd. vs. Rani  Construction (P) Ltd. is overruled."                 

Before the appellants could file an appropriate petition  against the order dated 1.7.2005, one of the arbitrators  resigned on 11.7.2005 and thereafter, the Presiding Arbitrator  also resigned on 26.7.2005.  Hence, the contention raised by  the respondents that the order dated 1.7.2005 had not been  challenged and that the impugned order only modifies a part  of the said order and is only filling up the vacancy created on  resignation is wholly erroneous and unsustainable.  It was  denied that the appellants have abandoned their right to  challenge the impugned order, as alleged by the respondents.   In the facts of the present case as enumerated above, the  process of appointment restarted in accordance with the  original contractual rules after the resignation of the Presiding  Arbitrator.  The judicial order which replaces the  administrative order is under challenge before this Court and,  therefore, there is no need to challenge the order dated  1.7.2005.  It may further be pointed out that the petition was  disposed of on 1.7.2005 after the appointment and hence, on  resignation of the Presiding Arbitrator,  Mr. Justice Y. Bhaskar  Rao, the respondent again approached the High Court for  appointing the Presiding Arbitrator leading to the impugned  order. It is pertinent to state that under Section 11(6) of the Act,  the Court has jurisdiction to make the appointment only when  the person including an institution, fails to perform any  function entrusted to it under that procedure.  In the present

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case, the relief claimed by the respondents by invoking Section  11(6) is wholly erroneous as prior to the order dated 1.7.2005,  the respondents only sought a clarification from IRC and  without making a reference to them, immediately filed the  petition under Section 11(6) on the purported ground that the  Indian Road Congress  had failed to make the appointment  within the stipulated time.  Therefore, the reliance placed by  the respondent on the judgment of this Court in the case of  Punj Lloyd Ltd. vs. Petronet MHB Ltd., (2006) 2 SCC 638  is  wholly erroneous and is not applicable to the facts of the  present case. It is also pertinent to notice that the order dated 1.7.2005  of the High Court is preceded by an erroneous finding that the  respondent, Bumihiway DDB Ltd. had approached the IRC  with the request and not having found a response have  approached the Court.  It was submitted that the letter dated  29.4.2005 is otherwise a mischievous clarification de hors  contractual provisions which were considered otherwise.  The  assumption of the Court being wrong, a consent read ejudem  generis therein is not consent in the eyes of law.  In any case,  Mr. Justice Y. Bhaskar Rao’s resignation 26 days after his  appointment i.e., on 26.7.2006 forecloses the chapter of  consent. Learned Solicitor General appearing for the appellants  argued that on the resignation of an arbitrator, the statutory  provision which steps in is only Section 15(2) and not Section  11(6).  Hence, after the resignation of Mr. Justice Y. Bhaskar  Rao, the process of appointment had restarted as per Section  15(2).  However, the concerned institution i.e. IRC being  restrained by the High Court from making the appointment,  there was no failure on the part of the concerned institution  i.e. IRC so as to justify invocation of Section 11(6). Reliance was placed on the case of Yashwith  Construction P. Ltd. vs. Simplex Concrete Piles India Ltd.  & Anr. (supra) wherein this Court had reiterated the well  settled law and held that there was no failure on the part of  the concerned party as per arbitration agreement, to fulfil his  obligation in terms of Section 11 of the Act so as to attract the  jurisdiction of the Chief Justice under Section 11(6) of the Act  for appointing a substitute arbitrator.  Obviously, Section  11(6) of the Act has application only when a party had failed to  act in terms of the arbitration agreement.  In the light of the  legal position, it was submitted that the impugned order is  wholly erroneous and liable to be set aside. In our view, the invocation of Section 11(6) of the  Arbitration & Conciliation Act, 1966 is squarely based on a  default of a party.  The ratio laid down in the case of Datar  Switchgear Ltd. vs. Tata Finance Ltd. & Anr.  (2000) 8 SCC  151 is the correct proposition and the case of Punj Lloyds  Ltd. vs. Petronet MHB Ltd. (supra) followed Datar  Switchgear.   The question arises for consideration here is  who had defaulted and on what basis of default has the Court  entered jurisdiction under Section 11(6).  This question  though raised by the appellant in the counter affidavit before  the High Court has not been answered at all.  Hence, the  assumption of jurisdiction and adjudication by the High  Court, in our opinion, is vitiated. It is reiterated by the learned Solicitor General appearing  for the appellants that there did not exist any concession on  behalf of counsel for the appellants as alleged.  Vide the  impugned order dated 6.1.2006, the High Court after detailed  discussions came to the conclusion that the Court was  justified in making the appointment of Presiding Arbitrator.   Only after the said judicial determination, a query was put to  the appellants about the selection of the name, which was

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categorically refused by their counsel.  On an application filed  by the appellants before the High Court, the Court clarified  that "what learned counsel for opposite party Nos. 1 & 2  submitted is that he left the question of appointing the  Presiding Arbitrator to the discretion of this Court.  May be  what learned counsel for Opposite Party Nos. 1 & 2 submits is  correct."  Therefore, the High Court accepted the contention of  the appellants that no consent was made in the appointment  by the appellant in the impugned order. It was argued by Mr. Altaf Ahmed, learned senior counsel  for the respondent, that there has been a judicial  determination by the High Court in the impugned order which  is based on the reasoning that hierarchically a judicial  arbitrator must sit with  another judge only.  This reasoning,  in our opinion, is de hors the sanction in the Contract.  The  appointment made by the High Court as per the impugned  order is against the express provisions of contract as held by  this Court in the case of You One Engineering &  Construction Co. Ltd. vs. National Highway Authority of  India, (2006) 4 SCC 372  reaffirming that once the arbitration  agreement clearly envisages the appointment of the Presiding  Arbitrator by IRC, there is no qualification that the arbitrator  has to be a different person depending on the nature of the  dispute.  If the parties have entered into such an agreement  with open eyes, it is not open to ignore it and invoke exercise  of powers in Section 11(6). It is beneficial to refer to the judgment of this Court in  the case of Rite Approach Group Ltd. vs. Rosoboronexport  (2006) 1 SCC 206 wherein this Court has clearly held that "in  view of the specific provision contained in the agreement  specifying the jurisdiction of the Court to decide the matter,  this Court cannot assume the jurisdiction, and hence,  whenever there is a specific clause conferring jurisdiction on a  particular Court to decide the matter, then it automatically  ousts the jurisdiction of the other Court." In the present case, by making reference to the High  Court under Section 11(6) and alleging that one of the  arbitrators is a retired judicial person, the respondent has  only admitted to rewrite the contract between the parties,  which is against the law of the land.     Mr. Altaf Ahmad, in reply to the arguments advanced by  the learned Solicitor General submitted that as the procedure  contemplated in the agreement between the parties had failed  to achieve the purpose, the respondents had rightly invoked  the provisions of Section 11(6) of the Act and the appellant  had given their consent and that the order being a consent  order is not amenable to challenge before this Court.  He  further submitted that the said order cannot be challenged for  the reasons that  a)      it is only a modification of the order dated 1.7.2005  which itself was an order based on consent given by the  appellants.   b)      The order dated 1.7.2005 was never challenged by the  appellants either by way of a petition under Article  226/227 of the Constitution of India before the High  Court or under Article 136 of the Constitution of India  before this Court. c)      The counsel for the appellants had submitted before this  Court on 1.6.2006 that any one from the said list for  which time was given on 5.8.2005 for obtaining  instructions, be appointed as the Presiding Arbitrator. d)      On 23.6.2006 counsel for the appellants once again  submitted that he had left the question of appointing the  Presiding Arbitrator to the discretion of the High Court. Mr. Altaf Ahmad further submitted that the decisions

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upon which reliance had been placed by the appellants are not  applicable to the facts of the present case for the following  reasons:- i)      You One Engineering and Construction Company  Limited and another vs. National Highways  Authority of India Limited, (supra)  is a case in which  the Indian Road Congress had appointed a Presiding  Arbitrator whereas in the present case the IRC had failed  to appoint a Presiding Arbitrator. The order dated  1.7.2005 was passed by the High Court after 52days of  the appellant moving an application before the  IRC(11.5.2005). ii)     Yashwith Construction Private Ltd vs Simplex  Concrete Piles India Limited and another, (supra) is  not applicable for the reason that it was a case in which  the Managing Director had initially appointed the  arbitrator and was right in appointing/substituting  another arbitrator as the first arbitrator had resigned. It  was a case wherein the question was whether Section  11(6) would operate or not and this Court had clearly  held that Section 15(2) saves the power of the Managing  Director to appoint/substitute an arbitrator even though  the agreement does not specifically say so. (iii)Right Approach Group Ltd vs. Rosoboron Export  (2006) 1 SCC 206 is not applicable to the facts of the  present case because that was a case in which the  arbitration agreement specifically provided to resolve the  dispute by negotiation, the dispute would be submitted  to the arbitration court under the Chamber of Commerce  and Trade of Russian Federation and the application of  Section 11(6) or 15(2) was not in question at all. He also invited our attention to the judgment of this  Court in the case of Datar Switch Gears, (supra) and Punj  Lloyd Ltd. vs. Petronet MHB Ltd. (supra) wherein this Court  has repeatedly held that once a notice period of 30 days in the  present case and the other party has moved the Chief Justice  under Section 11(6), party having right to appoint arbitrator  under arbitral agreement loses the right to do so.   Learned counsel for the respondents, therefore,  submitted that in the first place as the orders passed were  with the consent of the appellants, they cannot be subject to  challenge and secondly in view of Section 11(7) of the Act the  orders passed by the Chief Justice are final and binding and,  therefore, civil appeal is devoid of merit and does not call for  any interference in the exercise of powers under Article 136 of  the Constitution.  Before proceeding further, we may also consider the  salient features of the arbitration procedure as agreed to by  the parties under Clause 67.3 of the Conditions of Particular  Application (COPA) which reads as under:- a.      The dispute between the Contractor and Employer  is required to be settled under the Arbitration and  Conciliation Act, 1996 or any amendment thereof.  b.      The Arbitral Tribunal shall consist of Three  Arbitrators. c.      Out of the three Arbitrators to be appointed, one  each is to be appointed by the Employer and the  Contractor; d.      If one of the parties fails to appoint its arbitrator  within 30 days after receipt of the notice of the  appointment of its arbitrator by the other party,  then the President of Indian Road Congress shall  appoint the arbitrator.  A certified copy of the order  of the President of Indian Road Congress making  such an appointment shall be furnished to each of

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the parties.  e.      The third Arbitrator shall be chosen by the two  Arbitrators so appointed by the Parties and shall act  as Presiding Arbitrator which is to be appointed by  consensus of the two arbitrators within a period of  30 days from the appointment of the arbitrator  appointed subsequently.  f.      In case of failure of the two arbitrators, appointed  by the parties to reach upon a consensus within a  period of 30 days from the appointment of the  arbitrator appointed subsequently, the Presiding  Arbitrator shall be appointed by the President,  Indian Roads Congress.  As rightly pointed out by the appellants, the High Court  failed to appreciate that in accordance with Section 15(2) of  the Act on the termination of the mandate of the Presiding  Arbitrator, the two nominated arbitrators were first required to  reach a consensus and on their failure to arrive at a  consensus only respondent No.2 was authorized to make the  appointment.  Unless respondent No.2 failed to exercise its  jurisdiction, the High Court could not assume jurisdiction  under Section 11(6) of the Act.  Respondent No.1 has wrongly  invoked the jurisdiction of this Court without first following  the procedure agreed to between the parties.  Thus no cause of  action had arisen in the facts of the case to seek the  appointment from the High Court under Section 11(6) of the  Act and thus the said petition was premature.  The High Court  also is not correct in relying on the contention of the  respondent No.1 that in case one of the arbitrators is retired  Chief Justice, the Presiding Arbitrator should be at least a  retired Chief Justice or a retired Judge of a High Court with  considerable experience.  It was submitted by learned Solicitor  General appearing for the appellants that the said finding of  the High Court is self contradictory inasmuch as if the  Presiding Arbitrator is a retired Judge of the High Court and  one of the arbitrators is a retired Chief Justice of the High  Court, the member of hierarchy is upset.  Even otherwise,  there does not exist any such provision in law which requires  that if one of the arbitrators is a retired Judge the Presiding  Arbitrator also has to be a retired Judge.  The parties have  entered into a contract after fully understanding the import of  the terms so agreed to from which there cannot be any  deviation.  The Courts have held that the parties are required  to comply with the procedure of appointment as agreed to and  the defaulting party cannot be allowed to take advantage of its  own wrong.  If the reasoning of the High Court is accepted, then the  law laid down by this Court in the case of You One  Engineering as well as Right Approach Group will be  rendered nugatory.  Further, it will set a precedent which will  vitally affect the appellant which is a Central Government  undertaking in all the future contractual agreements.  Before  concluding, we clarify that the pleadings before the Arbitral  Tribunal are not complete and written statement is yet to be  filed by the appellant as the appellants have raised their  objections with respect to the appointment before the  arbitration proceedings which has been duly recorded by the  Arbitral Tribunal in the orders passed by them.   In view of the order now passed setting aside the  appointment of the Presiding Arbitrator by the High Court, the  appointment of the Presiding Arbitrator as per the procedure  contemplated under the contract agreement has to be followed  and IRC (Ministry of Shipping, Road Transport and Highways,  R.K.Puram, New Delhi should be approached.  The parties are  at liberty to approach the Arbitrators for any further interim

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directions. For the aforesaid reasons, we allow the appeal and set  aside the order passed by the High Court in ARB No. 23 of  2005.  No costs.