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CASE NO.: Appeal (civil)  3692 of 2007

PETITIONER: Union of India

RESPONDENT: M/s. Bharat Battery Manufacturing Co. (P) Ltd.

DATE OF JUDGMENT: 13/08/2007

BENCH: H.K. Sema & Lokeshwar Singh Panta

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO. 3692        OF 2007 ARISING OUT OF SPECIAL LEAVE PETITION (CIVIL) NO. 19881 OF 2006

H.K. SEMA, J.  

1.             Leave granted.  

2.             This appeal preferred by the Union of India is  directed against the judgment and order dated 26.5.2006 of  the High Court of Delhi in Arbitration Petition No. 213 of 2006.   By the aforesaid order the High Court appointed an arbitrator  on a petition filed by the respondent under Section 11(6) of the  Arbitration and Conciliation Act, 1996 (in short ’the Act’).  3.            To answer the question involved in this appeal, it  may not be necessary to delve the entire facts leading to the  filing of the present appeal.  Suffice it say that in response to  an invitation to tender inquiry No. A.M-5/RC-14100105/  072003/ WT/ BTYS/ Defence/ 2003-04/ 75 for supply of  battery secondary lead acid, an offer dated 7.10.2002 was  submitted which was revised by letter dated 8.4.2003.  On the  basis of the revised offer dated 8.4.2003 a rate contract No.  AM-5/RC-14100105/ 072003/ WT/ BTYS/ DEF/ 2003-04/  75/ BHARAT/ COAC/ 185 dated 5.5.2003 for the period  5.5.2003 to 16.3.2004 was executed between the appellant  and the respondent.  4.             Clause 12 of rate contract entered into between the  parties contained a price variation clause.  As the variation  factor of the batteries, on account of fluctuation of lead price  had not been incorporated, the respondent made a request to  the appellant to incorporate the same.  The respondent herein  also requested the appellant to issue amendment towards rate  of sales tax.  It appears that the said request was complied  with almost after one year by a letter dated 2.7.2004.    However, it is alleged that during the pendency of the rate  contract, the appellant issued a supply order No. 01/ RC/Z9/  BTY/ 047/ BHARAT/ 2004-05 dated 16.3.2004 for supply of  19,021 batteries.  The respondent herein supplied the same to  the appellant.  The respondent also submitted detailed  calculation of unit price of battery as per price variation clause  and the photocopies of Hindustan Zinc Price Circular.  It is  contented that although the appellant continued to receive the  batteries but did not issue the amendment with respect to  price variation clause for the quarter April to June, 2004, July  to September 2004, October to December 2004, January to  March 2005, April to June 2005, July to September 2005,

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October to December 2005 and January to March 2006.  As  the appellant did not issue the amendment with respect to  price variation clause, nor settled the dispute, which had  arisen between the parties, the respondent herein sent a  notice under Section 11 of Arbitration and Conciliation Act,  1996 on 7.6.2005.  Through the said notice the respondent  demanded that the appellant either issue the necessary  amendments on account of price variation with respect to the  above mentioned quarters or appoint an arbitrator within 30  days.  The notice dated 7.6.2005 was acknowledged by the  appellant vide acknowledgement slip bearing No. 26110 dated  9.6.2005.  Having not complied with the notice, another notice  dated 2.1.2006 was issued by the respondent invoking the  arbitration agreement and seeking appointment of arbitrator.   The second notice was also acknowledged by the appellant by  slip no. 33190 dated 3.1.2006.   5.            Despite the aforesaid notices and the receipt thereof,  the appellant neither resolved the disputes between the parties  nor appointed an arbitrator within 30 days from the receipt of  the request to do so, compelling the respondent to file a  petition under Section 11(6) of the Act on 30.3.2006.   6.            Clause 24 of the agreement deals with the arbitration  between the parties.  The relevant portion of Clause 24 reads  as under:  " i) In the event of any question, dispute or  difference arising under these conditions or any  special conditions of contract, or in connection with  this contract (except as to any matters the decision  of which is specially provided for by these or the  special conditions) the same shall be referred to the  Sole arbitration of an officer in the Ministry of Law,  appointed to be the Arbitrator by the Director  General of Supplies and Disposals.  It will be no  objection that the arbitrator is a Govt. Servant that  he had to deal with the matters to which the  contract relates or that in the course of his duties  as a Govt. servant he has expressed views on all or  any of the matters in dispute or difference.  The  award to the Arbitrator shall be final and binding on  the parties to this contract.  

ii) In the event of the Arbitrator dying, neglecting or  refusing to act or resigning or being unable to act  for any reason, or his award being set aside by the  Court for any reason, shall be lawful for the Director  General of Supplies & Disposals to appoint another  Arbitrator in place of the outgoing Arbitrator in the  manner aforesaid.  

iii) It is further a terms of this contract that no  person other than the person appointed by the  Director General of Supplies & Disposals as  aforesaid should act as Arbitrator and that, if for  any reason that is not possible, the matter is not to  be referred to arbitration at all."

7.             Having stated the brief facts in a nut-shell, we may  now note a few important dates, which are relevant for the  purpose of proper adjudication of the present controversy: (a)     Notices of appointment of arbitrator were issued on  7.6.2005 and 2.1.2006 respectively, which were duly  received by the appellant with acknowledgment.  (b)     The appellant failed to appoint an arbitrator within 30  days from the date of receipt of request to do so from  the respondent.

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(c)     On 30.3.2006, the respondent filed Section 11(6)  petition before the High Court.  (d)     The High Court, by the impugned order dated  26.5.2006, appointed Justice K.S. Gupta, a retired  Judge, Delhi High Court, as an arbitrator.  (e)     On 15.5.2006, the appellant said to have appointed  one Dr. Gita Rawat as a sole arbitrator, purportedly  in terms of Clause 24 of the agreement.  

8.        It is contended by Mr. P.P. Malhotra, learned Additional  Solicitor General appearing for the appellant, that the High  Court did not follow the procedure prescribed under Section  11(8) of the Act.  According to him, the appointment of Justice  K.S. Gupta as a sole arbitrator is not in consonance with  Clause 24 of the agreement inasmuch as Clause 24 of the  agreement provides that if any dispute arises, the same shall  be referred to the sole arbitration of an officer in the Ministry  of Law, appointed to be the Arbitrator by the Director General  of Supplies and Disposals.   9.           We are unable to countenance with the submission of  the learned counsel for the appellant.  Section 11(8) of the Act  could have come to the aid of the appellant had the appellant  appointed the arbitrator within 30 days from the date of  receipt of request to do so from the respondent or the extended  time as the case may be.  In the present case, as noticed  above, Section 11(6) petition was filed on 30.3.2006 by the  respondent.  The appellant stated to have appointed one Dr.  Gita Rawat on 15.5.2006, i.e. after Section 11(6) petition was  filed by the respondent on 30.3.2006, which is not permissible  in law.  In other words, the appellants are stopped from  making an appointment of the arbitrator in terms of Clause 24  of the agreement after Section 11(6) petition is filed by the  respondent.   Once Section 11(6) petition is filed before the  Court, seeking appointment of an arbitrator, the power to  appoint an arbitrator in terms of arbitration clause of the  agreement ceases.  10.          Mr. Malhotra, learned ASG referred to the decision of  a three-Judge Bench of this Court in Union of India And  Another (appellant) v. M.P. Gupta (respondent) (2004) 10  SCC 504, wherein this Court held that since there was  express provision contained that two gazetted railway officers  shall be appointed as arbitrators, Justice P.K. Bahri could not  be appointed by the High Court as the sole arbitrator.  This  case was not in a situation where Justice P.K. Bahri was  appointed after Section 11(6) petition was filed.  It appears  from the facts that Justice P.K. Bahri was appointed a sole  arbitrator dehors clause (3)(a)(iii) of the arbitration agreement  in that case.  It also appears that Justice P.K. Bahri was  appointed by the Court as the sole arbitrator on a petition filed  by the respondent therein by an ex-parte order. 11.   The facts of that case, therefore, are clearly  distinguishable from the facts of the present case.  The  aforesaid decision is of no help to the appellant in the present  case.  12.        Learned counsel for the appellant also referred to the  decision of this Court in S. Rajan (appellant) v. State of  Kerala and Another (respondent) (1992) 3 SCC 608.  In  that case, this Court was of the view that in a case where the  agreement itself specifies and names the arbitrator, the Court  has no jurisdiction to appoint an arbitrator not specified in the  agreement itself.    13.          In the given facts of this case afore-stated, the ratio  of this decision is also of no help to the appellant.   14.          A three-Judge Bench of this Court in Punj Lloyd  Ltd. (appellant) v. Petronet MHB Ltd. (2006) 2 SCC 638

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considered the applicability of Section 11(6) petition and  considered the facts which are similar to the facts of the  present case and held that once notice period of 30 days had  lapsed, and the party had moved the Chief Justice under  Section 11(6), the other party having right to appoint  arbitrator under arbitral agreement loses the right to do so.   While taking this view, the Court had referred to the judgment  rendered in Datar Switchgears Ltd. (appellant) v. Tata  Finance Ltd. and Another (2000) 8 SCC 151 wherein at  page 158 (para 19) SCC, this Court held as under:  "19. So far as cases falling under Section 11(6) are  concerned  - such as the one before us \026 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."  

15.            As already noticed, the respondent filed Section 11(6)  petition on 30.3.2006 seeking appointment of an arbitrator.   The appellant, thereafter, said to have appointed one Dr. Gita  Rawat on 15.5.2006 as a sole arbitrator, purportedly in terms  of Clause 24 of the agreement.  Once a party files an  application under Section 11(6) of the Act, the other party  extinguishes its right to appoint an arbitrator in terms of the  clause of the agreement thereafter.  The right to appoint  arbitrator under the clause of agreement ceases after Section  11(6) petition has been filed by the other party before the  Court seeking appointment of an arbitrator.   16.     We are, therefore, of the view that the order of  appointment of Dr. Gita Rawat by the appellant as a sole  arbitrator dated 15.5.2006 was passed without jurisdiction.   Once Section 11(6) petition is filed by one party seeking  appointment of an arbitrator, the other party cannot resurrect  the clause of the agreement dealing with the appointment of  the arbitrator, in this case Clause 24 of the agreement.   17.        In the view that we have taken, there is no merit in  this appeal and the same is, accordingly, dismissed with no  order as to costs.