PETITIONER:
G. RAMACHANDRA REDDY
Vs.
RESPONDENT:
CHIEF ENGINEER
DATE OF JUDGMENT29/04/1994
BENCH:
RAMASWAMY, K.
BENCH:
RAMASWAMY, K.
VENKATACHALA N. (J)
CITATION:
1994 AIR 2381 1994 SCC (5) 142
JT 1994 (4) 181 1994 SCALE (2)1057
ACT:
HEADNOTE:
JUDGMENT:
ORDER
1. Leave granted.
2. This appeal arises from the judgment of the Division Bench
of Madras High Court in OSA No. 281 of 1992 dated 5-1-1993.
3.The appellant’s contract was terminated by the respondent
and in consequence thereof, by notices dated 23-7-1991 and 21-8-
1991, the appellants exercising the option under clause 17 of
General Condition of Contract, called upon the Engineer-in-Chief
to appoint sole Arbitrator, in terms of the contract, to
adjudicate the dispute that had arisen between them. Since no
action was taken by the respondents, the appellant filed a suit
on 43-1992 under Section 20 of the Arbitration Act, 1940 for
short ‘the Act’, requesting the Court to appoint an arbitrator.
Learned Single Judge of the High Court by his judgment dated
23-9-1992 appointed Justice M.A. Sattar Syeed, a retired Judge of
the High Court as sole Arbitrator. On appeal, a Division Bench
of that High Court agreed with the Single Judge that despite the
issue of notice calling upon the respondent to appoint the
Arbitrator in terms of the contract, no action was taken by the
respondent. Its suggestion that the respondent could agree for
appointment of any one of the five arbitrators named in the list
given by the appellant did not find favour with the respondent.
Yet, the Division Bench directed the respondent to appoint an
arbitrator within 15 days from that date and declared that in
case the respondent failed to do so, the arbitrator appointed by
the Single Judge would be deemed to have been appointed under
Section 20. The appellant, feeling aggrieved against the
judgment of the Division Bench, has filed the appeal.
4.Shri K. Parasaran, learned Senior Counsel for the appellant
contended that once the appellant had issued notice to the
respondent calling upon him to appoint an arbitrator in terms of
the contract, the failure to do so had given right to the
appellant to invoke the jurisdiction of the civil court under
Section 20(4) of the Act and that court got jurisdiction to
appoint the Arbitrator of its choice. When the learned Single
Judge had exercised its jurisdiction under Section 20(4) of the
Act and appointed the arbitrator, the Division Bench committed a
manifest error of law in interfering with that appointment. Shri
A.S. Nambiar, the learned Senior Counsel for the respondent,
sought to support the Division Bench judgment relying upon the
judgment of this Court in Union of India v. Prafulla Kumar
Sanyal1 wherein this Court had observed that before appointing an
arbitrator by the court itself “it is desirable that the court
should consider the feasibility of appointing an arbitrator
according to the terms of the contract” and the issuance of the
notice giving 15 days’ time as contemplated under Section 8(a) of
the Act did not arise on the facts in the present case.
Therefore, his contention was that though the appellant (sic
respondent) had not appointed the arbitrator before the expiry of
15 days’ notice before the matter was decided by the Division
Bench the appellant was given an option to accept
1 (1979) 3 SCC 631
145
anyone among the five named persons to be a sole Arbitrator and
having failed to accept anyone, it is not open to the appellant
to impugn the correctness of legality of the appointment of the
Arbitrator by the Division Bench, in terms of the contract,
5.We find no force in the contentions of Shri Nambiar. This
Court interpreting Section 20(4) of the Act, has, in Prafulla
Kumar case’ itself, specifically laid down that sub-section (4)
requires “that the court shall make an order of reference to the
arbitrator appointed by the parties under the agreement or
otherwise if such arbitrator had not been appointed when the
parties cannot agree to appoint an arbitrator, the Court may
proceed to appoint an arbitrator by itself’. In that case, the
parties agreed before this Court, expressing their desire that
the President should be asked to appoint an arbitrator as
contemplated under clause 29 within two months from the date of
the order passed by this Court. In that backdrop this Court had
expressed the desirability or the feasibility to appoint an
arbitrator in terms of the contract. Those observations of this
Court cannot be understood or torn out of context and read in
isolation. The court should endeavour that the contract should
always be given effect to, though the contracting party had
failed to act according to contract. It is to be seen, whether
the contract provided for the appointment of a named arbitrator,
and if so, the parties normally would be bound by the terms of
contract and the court would not be justified to appoint any
arbitrator unless the arbitrator refused or neglected to enter
upon the reference, etc. In the absence of any named arbitrator
it would be open to the contracting parties to agree for an
appointment of an arbitrator by agreement even after the
proceedings were laid in the Court under Section 20 of the Act.
In the absence of any such agreement, the Court gets jurisdiction
and power to appoint an arbitrator. In Prafulla Kumar case’ no
notice was given to the appellant to appoint an arbitrator in
terms of the contract before the suit was filed and no action was
taken pending suit except contending that the matter was under
active consideration. In that context, it was held that in the
absence of any agreement, the court gets jurisdiction. In
Nandyal Co-op. Spinning Mills Ltd. v. K. V. Mohan Rao2 15 days’
notice was given to the respondent to act upon the terms of the
contract to appoint an arbitrator, but it was not done, although
it was stated that the matter was under consideration, It was,
therefore, held thus: (SCC pp. 660-6 1, para II)
“It would thus be clear that if no arbitrator had
been appointed in terms of the contract within 15
days from the date of receipt of the notice, the
administrative head of the appellant had abdicated
himself of the power to appoint arbitrator under
the contract. The court gets jurisdiction to
appoint an arbitrator in place of the contract by
operation of Section 8(1)(a). The contenti
on of
Shri Rao, therefore, that since the agreement
postulated preference to arbitrator appointed by
the administrative head of the appellant and if he
neglects to appoint, the only remedy open to the
contractor was to have recourse to civil suit is
2 (1993) 2 SCC 654
146
without force. It is seen that under the contract
the respondent contracted out from adjudication of.
his claim by a civil court. Had the contract
provided for appointment of a named arbitrator and
the named person was not appointed, certainly the
only remedy left to the contracting party was the
right to suit. That is not the case on hand. The
contract did not expressly provide for the
appointment of a named arbitrator. Instead power
has been given to the administrative head of the
appellant to appoint sole arbitrator. When he
failed to do so within the stipulated period of 15
days enjoined under Section 8(1)(a), then the
respondent has been given right under clause 65.2
to avail the remedy under Section 8(1)(a) and
request the court to appoint an arbitrator. If the
contention of Shri Rao is given acceptance, it
would amount to putting a premium on inaction
depriving the contractor of the remedy of
arbitration frustrating the contract itself.”
6.Thus when the notice was given to the opposite contracting
party to appoint an arbitrator in terms of the contract and if no
action had been taken, it must be deemed that he neglected to act
upon the contract. When no agreement was reached, even in the
court between the parties, the court gets jurisdiction and power
to appoint an arbitrator. Even if Section 8(a) per se does not
apply, notice was an intimation to the opposite contracting party
to act upon the terms of the contract and his/its non-availment
entails the forfeiture of the power to appoint an arbitrator in
terms of the contract and gives right to the other party to
invoke the court’s jurisdiction under Section 20. In the instant
case the respondent did not appoint an arbitrator, after the
notice was received. The respondent averred in the written
statement that it was under consideration. Even before the
learned Single Judge he did not even state that he was willing to
appoint an arbitrator. The learned Single Judge rightly
exercised the power under Section 20(4) of the Act and appointed
the Arbitrator. The Division Bench, therefore, was not right in
holding that the appellant has by giving option to the respondent
to agree for appointment of an arbitrator out of the five named
persons had left it to the respondent to appoint an arbitrator
and allowing respondent to appoint an arbitrator. On the other
hand, the appointment of an arbitrator made by the learned Single
Judge must be deemed to have been approved by us.
7.The appeal is accordingly allowed. The judgment of the
Division Bench is set aside and that of the learned Single Judge
is restored. In the circumstances, parties are directed to bear
their own costs.
147