Judgment · High Court · 2012

#5. The Chief Engineer in his response dated 1.1.2010 (Annexure-15) stated t hat the contractor failed to comply with the contract terms and accordingly risk and cost had to be invoked, in accordance with the contract procedure. The lett er also advised the petitioner to take up his case with the respondent No.2 i.e. the Director General of Border Roads (hereinafter referred to as (cid:28)the DG, Borde r Roads (cid:29)). Accordingly through a 2nd legal notice issued on 14.12.2010, the cont ractor made a demand before the DG, Border Roads for reference of the dispute to an Arbitrator under Clause 37. But as no Arbitrator was appointed, this petiti on was filed on 6.5.2011 under Section 11(6) of the Arbitration Act. Court issue d notice on the petition on 17.5.2011, but while the case was pending, the DG, B order Roads on 2.9.2011 appointed Mr. MANV Prasad, Superintending Engineer (Civi l) of the Border Roads organization, as the Arbitrator. The appointment order s hows that the DG, Border Roads had acted on the basis of the request made to him , for reference to the Arbitrator. Arguing for the petitioner, Mr. S. Shyam, the learned Counsel contends t 6.1 hat when the Chief Engineer, Project Setuk failed to act on the petitioner’s not ice and the DG, Border Roads also did not appoint any Arbitrator despite the de mand made upon him on 14.2.2010, the respondents forfeit their right to nominat e any Arbitrator, after the contractor moves Court under Section 11(6) of the Ar bitration Act.

6.2 He further submits that appointment of Mr. MANV Prasad on 2.9.2011 while the Court is in seisin of the case is totally unauthorized and the Arbitrator a ppointed by the DG, Border Roads is not empowered to adjudicate on the dispute b etween the petitioner and the respondents. Mr. Shyam refers to the definition Clause (e) of the General Conditions 6.3 of the Contract to project that Chief Engineer exercise the power on behalf of t he Government in respect of the contract in question and although the DG, Border Roads may be senior to the Chief Engineer, the latter is not the authority unde r the Contract to whom the demand for appointment of the Arbitrator has to be ad dressed. According to Clause (e) of Chapter-I of the Contract terms, the petitio ner submits that the Chief Engineer is specifically empowered to act on behalf o f the Government and therefore it is he who has to discharge the responsibility under Clause 37 and the burden can’t be shifted to the DG, Border Roads. In response, Mr. S. Chakrabarty, the learned Central Government Counsel 7.1 refers to the Arbitration Clause 37 to project that when the contract agreement is cancelled, until alternate arrangement is finalized by the Government to proc ure the balance supply, reference to arbitration can’t be made. Accordingly Mr. Chakrabarty submits that reference was prematurely sought by the contractor on 7 .12.2009 and the same can’t be construed to be a legitimate demand, for appointm ent of Arbitrator. The respondents further contend that since Clause 37 provides for refere 7.2 nce of dispute to arbitration by an engineer officer, only such a person can be appointed and even in a Section 11(6) petition, the Court has to adhere to the a greed terms for appointing the Arbitrator. He accordingly submits that since Mr. MANV Prasad, an engineer officer was appointed by the DG, Border Roads on 2.9.2 011, the Court should endorse his appointment since reference to such category o f officer, is envisaged under the Contract.

#8. Before proceeding to deal with the rival submissions, it may be appropri ate to extract Clause (e) from Chapter-I and Clause 37 of the General Conditions of the Contract for ready reference : (cid:28)e) (cid:28) (cid:29)Government (cid:29) means the president of India, his successor in off ice and assigns and the (cid:28)Accepting Officer (cid:29) means the duly authorized office who signs the contract on behalf of the president. Chief Engineer and Additional Chief Engineer (if specially autho rized by the Chief Engineer) shall exercise the same powers in respect of contra cts concluded by either of them on behalf of the president and Subject to as oth erwise provide in this contract, all notice to be given and all action to be tak en on behalf of Government in respect of such contracts may be given or taken by either the Chief Engineer or the Additional Chief Engineer. (cid:29) (cid:28)37. Arbitration All disputes between the parties to the contract other than those for wh ich the decision of the CWE/TFC or any (other person is by the contract expresse d to be final and binding) shall, after written notice by either party to the co ntract to the other of them, be refereed to the sole arbitration of an Engineer Officer to be appointed, by the authority mentioned in the tender documents. Unless both parties agree in written such reference shall not take place until after the completion or alleged completion of the supplies or termination or determination of the contract under condition Numbers 29, 30 and 30A hereof. Provided that in the event of abandonment of the supplies of cancellatio n of the contract under condition Numbers 25, 27 or 28 thereof, such reference s hall not take place until alternative arrangements have been finalized by the Go vernment to get the supplies completed by or through any other contractor or con tractor or Agency of Agencies. & & & & & & & & & & &. & & & & & & & & & & &. (cid:29) 9. A reading of the definition Clause (e) as extracted above shows that on behalf of the Government the Chief Engineer is the officer made responsible in r espect of contracts and all contractual action are to be taken on Government’s b ehalf by or against the Chief Engineer under the said Clause. In such circumstan ces, the demand made on the Chief Engineer on 7.12.2009 for appointment of Arbit rator can’t in my view, be construed to be a demand made upon an incompetent aut hority.

#10. Next, court is to consider whether reference to arbitration is permissib le until alternative arrangement is finalized by the Government for procuring th e balance supply. The proviso under Clause 37 envisages that when contract is ca ncelled, the reference to arbitration shouldn’t take place until alternative arr angement is finalized by the Government to get the supplies completed. But it do esn’t necessarily follow that the contractor is estopped from seeking a referenc e to arbitration under Clause 37 before the alternative arrangement is made. Ref erence to arbitration by the Government vis-à-vis the contractor seeking a refer ence to arbitration, operate at two different stages and consequence thereof acc ording to me is that, the contractor’s demand made on 7.12.2009 (before Governme nt made alternate arrangement on 1.2.2010), was a legitimate notice. Accordingly the contractor’s notice dated 7.12.2009 is held to be a valid notice under Clau se 37 of the Contract terms.

10.1. In so far as the authority of the Project Director, Border Roads to app oint the Arbitrator after the case was filed under Section 11(6) of the Arbitrat ion Act, the answer is given by the Supreme Court in Union of India vs. Bharat Battery Manufacturing Company (P) Ltd. reported in (2007) 7 SCC 684 where the Apex Court has held that, once a party files application under Section 11(6) of the Arbitration Act, the other party forfeits its right to appoint an Arbitrator in terms of the agreement. According to the ratio of the decision, the right to appoint Arbitrator under the agreement ceases, after Section 11(6) petition is filed by the party whose demand for appointment of Arbitrator was not considered .

10.2 The Supreme Court has taken a similar view in Datar Switchgears Ltd. vs. Tata Finance Limited reported in (2000) 8 SCC 151, where the Court declared th at right of the respondents to appoint an Arbitrator persist only till an applic ation under Section 11(6) of the Arbitration Act is filed and once the applicati on is before the Court, the opposite party loses its right to nominate an Arbitr ator. The respondents in the present case appointed the arbitrator 4 months af 11. ter this Court issued notice on the Section 11(6) petition and having regard to the law laid down in Bharat Battery (supra) and Datar Switchgears (supra), it is apparent that the appointment of Mr. MANV Prasad on 2.9.2011 could not have b een made as by that date, the respondents are estopped from nominating their own arbitrator. Since the appointment made on 2.9.2011 by the respondent No.2 is he ld to be without jurisdiction, in this case the Arbitrator should now be appoint ed by the Court.

#12. It may also be recorded that although the respondent’s Counsel contends that respondent No.2 never received the contractor’s 2nd notice dated 14.2.2010, this can’t be accepted since the appointment order dated 2.9.2011 itself acknow ledges that, the respondent No.2 nominated Mr. MANV Prasad as Arbitrator, by act ing on the request made to him.

#13. The contract agreement envisages an (cid:28)Engineer Officer (cid:29) to be appointed a s an Arbitrator and Mr. S. Chakrabarty relies upon Ace Pipeline Contracts (P) Lt d. vs. Bharat Petroleum Corpn. Ltd. reported in (2007) 5 SCC 304 and M/s Bel Hou se Associates Pvt. Ltd. vs. The General Manger, Southern Railway, Madras reporte d in AIR 2001 Kerala 163, to contend that Court can’t nominate anyone other than a departmental engineer. But while in certain cases the Court might nominate a departmental engineer, in the present case I feel that competency of the person to discharge the assigned task should be the determinative factor. Since the Cou rt has held that belated appointment made on 2.9.2011 was without jurisdiction, it would be more appropriate according to me, to choose another arbitrator who i s not serving with the respondent organization.

#14. Bearing in mind the nature of the dispute and the contracting parties an engineer with armed forces background should be the ideal arbitrator in this ca se. Since one of the empanelled Arbitrators of this Court fits the bill, Colonel (Retd.) Monoranjan Goswami, Advocate is appointed as the Arbitrator to adjudica te on the present dispute. The choice has fallen on Col. Goswami as he is a reti red army engineer and is also a practicing Advocate of the High Court. It is acc ordingly ordered. The Registry will intimate Col. M. Goswami, Advocate about his appointme 15. nt as an Arbitrator. The parties will fix the terms of the arbitration proceedin g in consultation with the Arbitrator, before proceeding with the matter.

#16. Case is disposed of with the above direction without any order on cost.