M/S Continental India Private Limited vs General Manager Northern Railway

M/s Continental India Private Limited …Appellant(s)

Versus

General Manager Northern Railway …Respondent(s)

JUDGMENT

M.R. SHAH, J.

1. Feeling aggrieved and dissatisfied with the impugned

judgment and order dated 15.09.2021 passed by the High

Court of Judicature at Allahabad in Arbitration Application

No. 15 of 2021, by which, while allowing the application

under Section 11(6) of the Arbitration and Conciliation Act,

1996 (hereinafter referred to as the “Act”) filed by the

appellant herein – original applicant, the High Court has Signature Not Verified Digitally signed by R Natarajan Date: 2022.07.27 17:20:01 IST Reason:

directed respondent herein to send a fresh panel of four

1 retired officers in terms of clause 64(3)(b) of the General

Conditions of Contract (hereinafter referred to as the

“GCC”) and thereafter, the appellant herein – original

applicant shall select two from the four suggested names

and thereafter the respondent shall constitute the Arbitral

Tribunal in terms of clause 64(3)(b) of the GCC, the original

applicant has preferred the present appeal.

2. That the appellant and respondent herein entered into a

contract/agreement which contains the arbitration clause.

As per clause 32 of the agreement, in the event of any

question, dispute or difference arising under or in

connection with agreement, the same shall be referred to

the sole arbitration of a person appointed to be the

arbitrator, by the General Manager of the Railway. A

request/prayer was made by the appellant herein – original

applicant to appoint an arbitrator in terms of clause 32 of

the agreement. However, the General Manager/Railway

failed to appoint an arbitrator as provided under clause 32

of the agreement. Therefore, the appellant herein – original

applicant filed the application before the High Court under

Section 11(6) of the Act and requested to appoint a sole

2 arbitrator. Though, the High Court has observed that the

respondent has failed to appoint an arbitrator despite

raising the demand of appointing an arbitrator, the

application was hence liable to succeed. However,

thereafter instead of appointing the sole arbitrator in

exercise of powers under Section 11(6) of the Act, the High

Court has directed to appoint an arbitrator in terms of

clause 64(3)(b) of the GCC. Feeling aggrieved and

dissatisfied with the impugned judgment and order passed

by the High Court in not appointing the sole arbitrator and

instead directing the parties to appoint the arbitrator as

per the GCC, the original applicant before the High Court

has preferred the present appeal.

3. Shri Ramesh Singh, learned Senior Advocate appearing on

behalf of the appellant herein has vehemently submitted

that the High Court has committed a serious error in not

appointing the sole arbitrator in exercise of powers vested

under Section 11(6) of the Act.

3.1 It is submitted that the parties to the agreement are

governed by the arbitration agreement/clause in terms of

the clause 32 of the agreement. It is submitted that despite

3 invocation of the arbitration clause in terms of the

agreement the respondent failed to appoint an arbitrator. It

is contended that therefore the respondent forfeited its right

to appoint an arbitrator under the agreement and therefore,

the High Court was required to appoint a sole arbitrator in

exercise of powers under Section 11(6) of the Act. Reliance

is placed on the decision of this Court in the case of Deep

Trading Company vs. Indian Oil Corporation and Others;

(2013) 4 SCC 35.

3.2 It is further submitted by Shri Ramesh Singh, learned

Senior Advocate appearing on behalf of the appellant –

original applicant that the High Court has seriously erred in

directing the parties to appoint the arbitrator in terms of

clause 64(3)(b) of the GCC.

3.3 It is contended that in the present case the General

Conditions of Contract is not applicable at all on the

grounds inter­alia that (i) neither the GCC has been signed

by the parties nor the governing agreement makes any

reference to the GCC; (ii) the parties to the original

agreement are neither signatory to the GCC nor the GCC is

4 made part of the original agreement entered into between

the parties; (iii) even as per the communication dated

16.07.2020, the GCC, July 2020 shall be applicable to

works contracts on Indian Railways with prospective effect.

It is submitted that therefore the High Court has seriously

erred in directing to constitute an Arbitral Tribunal as per

clause 64(3)(b) of the GCC.

4. Shri K.M. Nataraj, learned ASG appearing on behalf of the

respondent is not in a position to dispute that after the

invocation of the arbitration clause, the General

Manager/Railway failed to appoint the sole arbitrator in

terms of the agreement. He is also not in a position to

satisfy the Court as to how the General Conditions of

Contract shall be applicable with respect to the agreement

between the parties which has been entered into much

prior to the GCC coming into force i.e., July, 2020 and that

neither is there any reference to the GCC in the original

agreement nor the GCC has been signed by the parties.

Therefore, he is unable to support the impugned judgment

and order passed by the High Court directing to constitute

an Arbitral Tribunal as per clause 64(3)(b) of the GCC.

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5. We have heard the learned counsel appearing on behalf of

the respective parties at length.

6. It is not in dispute that the parties to the agreement agreed

to resolve the dispute as per clause 32 of the original

agreement which reads as under: ­

“32. Arbitration.

(a) In the event of any question, dispute or difference arising under or in connection with this Agreement (except as to matters the decision of which is specially provided for by this Agreement) the same shall be referred to the sole arbitration of a person appointed to be the arbitrator, by the General Manager or the Railway. It will be no objection if the arbitrator is a Government servant, that he had to deal with matters to which the Agreement relates or that in the course of his duties as a Government servant he has expressed views on all or any of the matters in dispute or difference. The Award of the arbitrator shall be final and binding on the parties to this Agreement.

Provided always that the decision of the General Manager of the Railway as to the disputes which fell within the “excepted matters” referred to above shall be final and binding on the parties hereto and such decision of the General Manager shall not be called in question before the arbitrator by either of the parties hereto.

(b) 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 it shall be lawful for the authority appointing the arbitrator to appoint another arbitrator in place of the outgoing arbitrator in the manner aforesaid.

(c) It is further a term of this Agreement that no person other than the person appointed by the authority as aforesaid should act as arbitrator and

6 that if for any reason that is not possible, the matter is not be referred to arbitration at all.

………”

The appellant and the respondent being signatories to

the agreement are bound by the aforesaid arbitration

clause/arbitration agreement. As the dispute arose

between the parties, the appellant invoked the arbitration

clause in terms of the agreement. However, the respondent

– General Manager/Railway failed to appoint the arbitrator

in terms of clause 32, reproduced hereinabove. That

thereafter, the appellant herein approached the High Court

for appointment of the sole arbitrator in exercise of powers

under Section 11(6) of the Act. Once the dispute has arisen

between the parties and despite invocation of the

arbitration clause in terms of the agreement no arbitrator

is appointed, it can be said that the authority has forfeited

its right to appoint the arbitrator in terms of the arbitration

agreement and thereafter the arbitrator has to be

appointed under Section 11(6) of the Act.

6.1 At this stage, the decision of this court in the case of Deep

Trading Company (supra) is required to be referred to. In

7 the said decision it is observed and held that once an

arbitrator is not appointed as per the agreed procedure

within stipulated time, right of the party concerned to

appoint an arbitrator is forfeited and therefore, Chief Justice

ought to have appointed an arbitrator under Section 11(6) of

the Act. In the said decision the Corporation therein

appointed the arbitrator as per the agreed procedure during

pendency of the proceedings under Section 11(6) of the Act

and to that it is observed and held that appointment of

arbitrator by the Corporation during pendency of the

proceedings under Section 11(6) of the Act was of no

consequence, as failing to appoint an arbitrator within the

prescribed time, the Corporation had lost its right to appoint

an arbitrator.

6.2 In the present case also, the respondent failed to appoint an

arbitrator as per the agreed procedure and in terms of the

agreement. Therefore, the respondent forfeited its right to

appoint an arbitrator in terms of the agreement and

therefore the appellant was justified in filing the application

before the High Court for appointment of a sole arbitrator in

exercise of powers under Section 11(6) of the Act. The Chief

8 Justice or his nominee thus was required to appoint the

arbitrator under Section 11(6) of the Act.

7. By the impugned judgment and order and while allowing

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

appointing the arbitrator in exercise of powers under

Section 11(6) of the Act, the High Court has directed to

constitute an Arbitral Tribunal in terms of clause 64(3)(b) of

the GCC. It is not in dispute that neither the GCC was

signed by the parties nor the GCC was made part of the

agreement between the parties. There is no reference to the

GCC in the main agreement entered into between the

parties. Even as per communication dated 16.07.2020, the

GCC, July 2020 shall be applicable to works contract of

Indian Railways with prospective effect. Therefore, the

parties are not governed by the GCC at all. Therefore, the

High Court has committed a serious error in directing to

constitute an Arbitral Tribunal in terms of the provisions of

the GCC, which are not binding to the parties.

8. In view of the above and for the reasons stated above the

impugned judgment and order passed by the High Court to

the extent directing to constitute an Arbitral Tribunal in

9 terms of clause 64(3)(b) of the GCC is unsustainable and

deserves to be quashed and set aside and is accordingly

quashed and set aside. The Chief Justice or his nominee

was required to appoint a sole arbitrator/arbitrator in

exercise of powers under Section 11(6) of the Act. The High

Court has failed to appoint the sole arbitrator in exercise of

powers under Section 11(6) of the Act. Therefore, as such

the matter is required to be remanded to the High Court for

appointment of a sole arbitrator. However, instead of

remanding the matter to the High Court and to avoid any

further delay, with the consent of the learned counsel

appearing on behalf of the respective parties, we appoint

Smt. Justice R. Banumathi, Former Judge of this Court, as

a sole arbitrator to adjudicate and resolve the dispute

between the parties. The present appeal is accordingly

allowed. No costs.

………………………………….J. [M.R. SHAH]

NEW DELHI; ………………………………….J. July 27, 2022 [B.V. NAGARATHNA]

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