TaxTMI 
TaxTMI 
2014 (9) TMI 1274
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....he General Condition of the Contract 2001 (for short 'the GCC'), contained an arbitration clause that is provided for deciding the dispute between the parties through arbitration by an arbitral tribunal to be constituted in terms of the said agreement. 3. Disputes arose between the parties with respect to the said contract and on the request of the Respondent an arbitral tribunal of the persons was constituted in the year 2007, in which all the members were Railway authorities. It is a matter of regret that inspite of expiry of four years, the said tribunal did not complete the arbitral proceeding and the matter kept hanging due to transfers/retirement/adjournments etc. 4. The Respondent felt exasperated due to the prolongation of the matter before the arbitral tribunal and chose to file Request Case No. 10/2010. Even at the time of filing of that case, there was a vacancy in the Arbitral Tribunal. When this case was taken up by the High Court on 09.03.2011, by that time, the Appellant had filled up the said vacancy. Taking note thereof, the said petition was disposed of by the High Court vide order dated 09.03.2011 giving the last chance to the Arbitral Tribunal to c....
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....a that it was not open to the High Court to appoint the sole arbitrator as it was not empowered to constitute Arbitral Tribunal of its own and, that too, contrary to the arbitration clause. Mr. Tushar Mehta, learned ASG appearing for the Appellant has made a vehement submission, in this behalf, that no such power is vested in the High Court under the Act. His submission was that as per the scheme of the Act even if the mandate of the Arbitral Tribunal was to be terminated, fresh Tribunal could be constituted only in accordance with the arbitration agreement. It was thus argued that the High Court could have, at the most, directed the Appellant to constitute another Arbitral Tribunal in accordance with Clause 64 of the GCC. 9. Learned Counsel for the Respondent, on the other hand, made an effervasive attempt to justify the decision of the High Court with emphatic plea that when the very purpose of arbitration is frustrated by the members of the Tribunal who, were dragging the proceedings, the Court was not powerless to travel beyond the framework of Clause 64 of the GCC and appoint a retired Chief Justice as the arbitrator. He referred to the specific findings of the High Court i....
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....Petitioner were found to be true, this Court would be constrained to pass appropriate orders in accordance with the Act. In the said circumstances and in view of the claim of the Petitioner having been found to be proved regarding the attitude of the tribunal, this request case is allowed and the arbitral tribunal appointed by Respondent-authorities is hereby set aside and a sole Arbitrator is appointed to decide the arbitral proceedings expeditiously without giving any undue adjournment to any of the parties. 10. He further submitted that in the case of North Eastern Railway v. Tripple Engineering Works, decided on 13.08.2014 in Civil Appeal No. 6275 of 2014 (arising out of S.L.P. (C) No. 20427 of 2013), in almost identical circumstances, this Court had approved the similar directions of the Patna High Court. 11. It is not in dispute that as per Clause 64 of the GCC, three arbitrators are to be appointed, in the manner prescribed therein in case of dispute between the parties. The relevant portion of Clause 64 with which we are concerned with the present conditions is extracted below: 64.(1)(i) Demand for Arbitration - In the event of any dispute or difference betwe....
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....cates his/their office/offices or is/are unable or unwilling to perform his functions as arbitrator for any reason whatsoever or dies or in the opinion of the General Manager fails to act without undue delay, the General Manager shall appoint new arbitrator/arbitrators to act in his/their place in the same manner in which the earlier arbitrator/arbitrators had been appointed. Such re-constituted Tribunal may, at its discretion, proceed with the reference from the stage at which it was left by the previous arbitrator(s). 12. At this stage, we may take note of the scheme of the Act as well, by noticing those provisions which would be attracted to deal with such a situation. Relevant provisions are extracted below for ready reference: 14. Failure or impossibility to act. - (1) The mandate of an arbitrator shall terminate if- (a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and (b) he withdraws from his office or the parties agree to the termination of his mandate. (2) If a controversy remains concerning any of the grounds referred to in Clause (a) of Sub-section (1), a party....
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.... act and it is unable to perform its function either de jure or de facto, it is open to a party to the arbitration proceedings to approach the Court to decide on the termination of the mandate. Section 15 provides some more contingencies when mandate of an arbitrator can get terminated. In the present case, the High Court has come to a categorical finding that the Arbitral Tribunal failed to perform its function, and rightly so. It is a clear case of inability on the part of the members of the Tribunal to proceed in the matter as the matter lingered on for almost four years, without any rhyme or justifiable reasons. The members did not mend their ways even when another life was given by granting three months to them. Virtually a pre-emptory order was passed by the High Court, but the Arbitral Tribunal remained unaffected and took the directions of the High Court in a cavalier manner. Therefore, the order of the High Court terminating the mandate of the arbitral tribunal is flawless. This aspect of the impugned order is not even questioned by the Appellant at the time of hearing of the present appeal. 14. However, the contention of the Appellant is that even if it was so, as p....
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....ate from the terms of the contract is obvious. The apparent dichotomy in Ace Pipeline (supra) and Bharat Battery Manufacturing Company (P) Ltd. (supra) was reconciled by a three Judges Bench of this Court in Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Co. Limited (2008) 10 SCC 240 where the jurisdiction of the High Court Under Section 11(6) of the Act was sought to be emphasized by taking into account the expression "to take the necessary measure" appearing in Sub-section (6) of Section 11 and by further laying down that the said expression has to be read along with the requirement of Sub-section (8) of Section 11 of the Act. The position was further clarified in Indian Oil Corporation Limited and Ors. v. Raja Transport Private Limited (2009) 8 SCC 520. Paragraph 48 of the report wherein the scope of Section 11 of the Act was summarized may be quoted by reproducing Sub-paragraphs (vi) and (vii) herein below: (vi) The Chief Justice or his designate while exercising power Under Sub-section (6) of Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause. (vii) If circumstances....
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....mercial Arbitration, 2001 companion volume to the second edition, have commented that this Act founded on four pillars. These pillars are described as: (a) The First Pillar: Three General Principles. (b) The Second Pillar: The General Duty of the Tribunal. (c) The Third Pillar: The General Duty of the Parties. (d) The Fourth Pillar: Mandatory and Semi Mandatory Provisions. In so far as first pillar is concerned, it contains three general principles on which the entire edifice of the said Act is structured. These principles are mentioned by an English Court in its judgment in the case of Department of Economics Policy and Development of the City of Moscow v. Bankers Trust Co. (2004) EWCA Civ 314. In that case, Mance, L.J. succinctly summed up the objective of this Act in the following words: 'Parliament has set out, in the Arbitration Act, 1996, to encourage and facilitate a reformed and more independent, as well as private and confidential, system of consensual dispute resolution, with only limited possibilities of court involvement where necessary in the interests of the public and of basic fairness'. Section 1 of the Act sets forth t....
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....t procedure is extended by this Court in such cases as well as is clear from the judgment in Singh Builders Syndicate (supra). 19. In the case of contracts between Government Corporations/State owned companies with private parties/contractors, the terms of the agreement are usually drawn by the Government company or public sector undertakings. Government contracts have broadly two kinds of arbitration clauses, first where a named officer is to act as sole arbitrator; and second, where a senior officer like a managing director, nominates a designated officer to act as the sole arbitrator. No doubt, such clauses which give the Government a dominant position to constitute the Arbitral Tribunal are held to be valid. At the same time, it also casts an onerous and responsible duty upon the persona designata to appoint such persons/officers as the arbitrators who are not only able to function independently and impartially, but are in a position to devote adequate time in conducting the arbitration. If the Government has nominated those officers as arbitrators who are not able to devote time to the arbitration proceedings or become incapable of acting as arbitrators because of frequent ....
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....that the Arbitral Tribunal is constituted promptly and arbitration does not drag on for years and decades. 18. As noticed above, the matter has now been pending for nearly ten years from the date when the demand for arbitration was first made with virtually no progress. Having regard to the passage of time, if the Arbitral Tribunal has to be reconstituted in terms of Clause 64, there may be a need to change even the other two members of the Tribunal. 19. The delays and frequent changes in the Arbitral Tribunal make a mockery of the process of arbitration. Having regard to this factual background, we are of the view that the appointment of a retired Judge of the Delhi High Court as sole arbitrator does not call for interference in exercise of jurisdiction Under Article 136 of the Constitution of India. 21. The appointment of arbitrator by the Court, of its own choice, departing from the arbitration clause, is therefore not unknown and has become an acceptable proposition of law which can be termed as a legal principle which has come to be established by a series of judgments of this Court. Reasons for debating such a course of action are not far to seek and alre....