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The court cannot ignore the procedure to appoint the arbitrator when the same is specified in the co

UNION OF INDIA V. PRADEEP VINOD CONSTRUCTION COMPANY, with UNION OF INDIA V. M/S. BM CONSTRUCTION COMPANY CIVIL APPEAL NO.6400 OF 2016

The bench comprising of  Justice R.Banumathi , Justice A.S.Bopanna And Justice Hrishijesh Roy  held that the appointment of sole arbitrator to be invalid and upheld the appeal to appointment of arbitrator as per Clause 64 of the General Conditions Of Contract which stipulates that Railways’ Officers should be appointed as Arbitrator.

Power of the court to appoint the arbitrator under Section11 (6) of the Arbitration and conciliation Act, 1996.

Where, under an appointment procedure agreed upon by the parties,

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request .the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

It was contented in the case of Union of India V. Pradeep Vinod construction Company, that the court erred in appointment of an independent arbitrator instead of directing the General Manager, Railway administration to appoint an arbitrator as per the terms and conditions of Clause 64 of the GCC which stipulates for matters that cannot be referred to arbitration. The Section 11(6) empowers the court to deviate from terms of agreement if required by the appointment of an independent arbitrator, once the parties have failed to appoint an arbitrator under the terms of the agreement before the petition under Section 11 (6) of the arbitration Act, 1996 being filed before the court. It is to be noted that the request for appointment of arbitrator was made prior to the Amendment Act,2015. The court referred to the case of Sp Singla Pvt.Ltd V. State Of Himachal Pradeshand Another (2019) 2 SCC 488, in Union Of India V. Permer Construction Company 2019 (5) Scale 453, in the view of Amendment Act, 2015, shall not apply arbitral proceeding which has commenced in accordance with the provisions of Section 21 of the Principal Act,1996 before the coming into force of Amendment Act,2015,unless the parties otherwise agree. If the administration fails to make a decision within the stipulated time thereon, any of the “expected matters”, the General manager may nominate the officer by designation as referred to under Clause 64 (3)(a)(i) with further procedure being prescribed for the sole arbitrator or the Arbitral Tribunal to adjudicate the dispute arising under the terms of contract between the parties.

The bench also observed that:

Insofar as the plea of the appellant that there was settlement of final bill/issuance of “No Claim” letter, the learned counsel for the appellant has drawn our attention on Clause 43(2) – Signing of the  “No Claim”  Certificate and submitted that as per Clause 43(2), the contractor signs a “No Claim” certificate in favour of the railway in the prescribed format after the work is finally measured up and the contractor shall be  debarred from disputing the correctness of the items covered under the “No Claim” certificate or demanding a clearance to arbitration in respect thereof. On behalf of the respondent, it has been seriously disputed that issuance of “No Claim” certificate as to the supplementary agreement recording/ accord and  satisfaction as on 06.05.2014 (CA No.6400/2016) and issuance of “No Claim” certificate on 28.08.2014 (CA No.6420/2016) that they were issued under compulsion and due to undue influence by the railway authorities.  We are not inclined to go into the merits of the contention of the parties.  It is for the arbitrator to consider the claim of the respondent(s) and the stand of the appellant-railways. This contention raised by the parties are left open to be raised before the arbitrator.

The court observed that in the case of Union of India and another v. M.P.Gupta (2004)10 SCC 504, Union of India and another v. V.S.Engineering ltd (2006) 13 SCC 240, that the appointment of arbitrator should be in terms of the contract, it was however held that in para (6) of the case of public institutions which are slow in responding to the request made by the contractor for appointment of an arbitrator, the power of the high court to appoint an arbitrator under Section 11 is not taken away. The failure of the authorities in appointing an arbitrator and when the contractor approached the court for appointment of an arbitrator under Section 11 of the Act, it will then be in the discretion of the Chief Justice/designated Judge to appoint a railway officer as per the contract or a High Court Judge. As a result the Arbitration petitions No. 168 of 2015 and Arbitration petition No.531 of 2014 are set aside and appeals are allowed. The appellant is directed to appoint the arbitrator in terms of Clause 64(3) of the agreement within a period of one month from the date of intimation to the respondent contractors. As soon as the appointment of arbitrator is made to the respondent, the statement of claim is filed by the respondents within the six weeks thereafter with reply from the appellant four weeks thereafter.

To conclude, in our considered view, the High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of an arbitrator which has been prescribed under Clause 64(3) of the contract under the inbuilt mechanism as agreed by the parties.

This was written by:

Pranav M varma

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