M/s Continental India Private Limited Versus General Manager Northern Railway

M/s Continental India Private Limited Versus General Manager Northern Railway

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

NON­REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  4829 OF 2022

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

Versus

General Manager Northern Railway    …Respondent(s)

J U D G M E N T

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

directed respondent herein to send a fresh panel of four

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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

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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

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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

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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

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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

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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

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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

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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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