By means of this application, the applicant has prayed for appointment of arbitrator under section 11 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to as 'the Act') for resolution of dispute between the parties arising out of the agreement dated 7th April 2008.
The applicant firm entered into an agreement with Babasaheb Bhimrao Ambedkar University, Lucknow, for providing security services at University Campus. The period of agreement was from 1st April 2008 to 31st March 2009 and according to the applicant, it was extended up to 2nd July 2009. The applicant had deposited refundable security amount of Rs. 2,80,000/- The applicant firm provided security services without any complaint and the period of contract was extended up to 2nd July 2009, whereafter, it handed over the campus to the newly appointed security agency. However, its bill for the month of March 2009, June 2009 and July 2009 as well as the amount towards additional duties were not paid nor security deposit refunded to it. It made several representations to the Vice Chancellor of the University for clearing the bills. Ultimately, it served a legal notice dated 24th May 2010 through its counsel on the Vice Chancellor and the Registrar of the University calling upon them to pay the outstanding amount of Rs. 9,73,192/- along with 18% interest failing which it would be constrained to initiate legal proceedings. Thereafter, the respondents released a further sum of Rs. 2,50,782/- on 13th December 2010. Vide letter dated 24th January 2012, the Registrar of the University informed the applicant firm that remaining amount has been adjusted towards alleged losses due to theft, pilferage, etc. for which security agency is liable in view of clause 14 of the agreement. The applicant firm served the University with another legal notice dated `1st August 2012 invoking clause 22 of the agreement for appointment of arbitrator. It suggested three names and requested the respondents to give consent to one of the names failing which the applicant firm will approach the Court of law for appointment of arbitrator. The University did not respond to the said notice and, hence, the present application for appointment of arbitrator.
The application is opposed by the University by filing counter affidavit, in which it is asserted that the contract expired on 31st March 2009. Thereafter, the applicant firm continued its services up to 2nd July 2009 without any extension of agreement or fresh agreement. Thus, the dispute relating to payment of bills for the month of June 2009 and July 2009 relate to the period after the expiry of the contract and are not arbitrable. It is further contended that the entire amount stands paid to the applicant firm and the remaining amount was adjusted towards loss caused to the University on account of certain goods found missing due to negligence of security personnel, as per clause 14 of the agreement. A further plea has been taken that under clause 22 of the agreement, the applicant firm having not approached the Vice Chancellor, the present application is premature. The remedy provided under the agreement has to be exhausted before a party can approach the Court under section 11(6) for appointment of arbitrator. Learned counsel for the respondents opposed the application on the selfsame grounds. He placed reliance on the judgment of the Apex Court reported in -
i) Northern Railway Administration Versus Patel Engineering Company Limited, (2008) 10 SCC 240;
ii) Iron & Steel Co. Ltd. Versus Tiwari Road Lines, (2007) 5 SCC 703;
iii) Speech And Software Technologies (India) Private Limited Versus NEOS Interactive Limited, (2009) 1 SCC 475;
iv) Standard Corrosion Control Pvt. Ltd. Versus Sarku Engineering Services, (2009) 1 SCC 303.
Countering the stand of the respondent University and the contention raised by the learned counsel for the respondents, the counsel for the applicant firm submitted that the agreement was duly extended till 2nd July 2009, as per clause 19 of the agreement. It is further contended that the Vice Chancellor had not settled the dispute between the parties in spite of repeated representations and notices and, thus, it does not lie in the mouth of the respondents to contend that the applicant should have approached the Vice Chancellor for settlement of the dispute. In the alternative, it is submitted that the applicant was obliged to approach the Vice Chancellor, only if no settlement is made by the Registrar. However, in the instant case, the Registrar having settled the controvearsy vide letter dated 24th January 2012, there was no requirement of approaching the Vice Chancellor, once again. In support of its contention, learned counsel for the applicant placed reliance on the following judgments of the Apex Court : -
i) National Insurance Company Limted Versus Boghara Polyfab Private Limited, (2009) 1 SCC 267;
ii) Lufthansa German Airlines Versus Airport Authority of India, (2012) 11 SCC 554;
iii) M/s. Deep Trading Company Ltd. Versus M/s. Indian Oil Corporation, 2013 AIR SCW 1891.
I have considered the submissions made by learned counsel for the parties and perused the record.
The first question which falls for consideration is whether the applicant firm having not approached the Vice Chancellor is precluded from getting the arbitrator appointed by taking recourse to section 11 of the Act and such application is to be rejected as premature.
Section 11 of the Act reads as under: -
"Appointment of arbitrators-
(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.
(4) If the appointment procedure in sub-section (3) applies and--
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or
(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
(6) 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 Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or subsection (6) to the Chief Justice or the person or institution designated by him is final.
(8) The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to--
(a) any qualifications required of the arbitrator by the agreement of the parties; and
(b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator.
(9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.
(10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters entrusted by sub-section (4) or sub-section (5) or 7 sub-section (6) to him.
(11) Where more than one request has been made under sub-section (4) or sub-section (5) or subsection (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide on the request.
(12) (a) Where the matters referred to in subsections (4), (5), (6), (7), (8) and (10) arise in an international commercial arbitration the reference to "Chief Justice in those sub-sections shall be construed as a reference to the "Chief Justice of India".
(b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in any other arbitration, the reference to "Chief Justice" in those sub-sections shall be construed as a reference to, the Chief Justice of the High Court within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate and, where the High Court itself is the court referred to in that clause, to the Chief Justice of that High Court."
Section 11 deals with two kind of situations. Sub-sections (3) to (5) of section 11 deal with the situation where there is no agreed procedure for appointment of arbitrator. Sub-section (2) and (6) of section 11 applies where there is agreed procedure for appointment of arbitrator. Clause (a), (b), (c) of sub-section (6) of section 11 stipulates the contingencies in which a party can request the Chief Justice or his designate to appoint an arbitrator. These are as under: -
(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.
It is now well-settled by a series of judgments of the Apex Court that in case the procedure for appointment of the arbitrator, as prescribed under the agreement, has not been followed, the Chief Justice or his designate will not be empowered to appoint the arbitrator. A party to the agreement desirous of getting arbitrator appointed has to demonstrate that certain measures required to be taken, under the procedure for appointment of arbitrator are not taken or performed. In this regard, reference may be made to the judgment of the Hon'ble Supreme Court in the case of Iron & Steel Co. Ltd. (supra), in which the Apex Court has held as under: -
"7. Sub-section (2) of Section 11 of the Act provides that subject to subsection (6), the parties are free to agree on a procedure for appointing the arbitrator. The opening part of sub-sections (3) and (5) of Section 11 of the Act use the expression "failing any agreement referred to in sub-section (2)". Therefore, sub-sections (3) and (5) will come into play only when there is no agreement between the parties as is referred to in sub-section (2) of Section 11 of the Act, viz., that the parties have not agreed on a procedure for appointing the arbitrator or arbitrators. If the parties have agreed on a procedure for appointing arbitrator or arbitrators, sub-sections (3) and (5) of Section 11 of the Act can have no application. Similarly, under sub-section (6) of Section 11 request to the Chief Justice or to an institution designated by him to take the necessary measures, can be made if the conditions enumerated in clauses (a) or (b) or (c) of this sub-section are satisfied. Therefore, recourse to sub-section (6) can be had only where the parties have agreed on a procedure for appointment of an arbitrator but (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. Therefore, a combined reading of the various subsections of Section 11 of the Act would show that the request to the Chief Justice for appointment of an arbitrator can be made under subsections (4) and (5) of Section 11 where parties have not agreed on a procedure for appointing the arbitrator as contemplated by sub-section (2) of Section 11. A request to the Chief Justice for appointment of an arbitrator can also be made under sub-section (6) where parties have agreed on a procedure for appointment of an arbitrator as contemplated in sub-section (2) but certain consequential measures which are required to be taken as enumerated in clauses (a) or (b) or (c) of sub-section (6) are not taken or performed."
To the same effect is the judgment of the Apex Court in the case of Standard Corrosion Controls Pvt. Ltd. (supra), wherein, Article 10 of the agreement provided for applicability of the Arbitration Rules of the International Chambers of Commerce for resolving the dispute between the parties. It was held that the applicant has to first apply to the Secretariat of the ICC as mentioned in the arbitration Rules of the ICC for appointment of arbitrator and it can not directly approach the Court. It was found that the applicant having not done so, its application was held to be not maintainable.
It is, thus, to be seen whether the procedure prescribed for appointment of arbitrator under the agreement has been followed or not.
Clause 22 of the agreement is as under : -
"22. In case of any dispute which may arise during the currency of contract or agreement, it would be settled by the Registrar, Babasaheb Bhimrao Ambedkar University, Lucknow. In case it is not settled, decision of Vice Chancellor, Babasaheb Bhimrao Ambedkar University, Lucknow shall be final and binding on both the parties. However, if the security agency is still not satisfied the arbitration shall be conducted in accordance with the provision of Arbitration and Conciliation Act, 1996 (26 of 1996) or any statutory modifications or reenactment thereof and the rules made there under and for the time being in force shall apply to the arbitration proceeding under this clause.
It is also a term of this contract that the arbitrator shall adjudicate on only such dispute as are referred to him by the appointing authority and give separate award against each dispute and claim referred to him and in all cases where the total amount of the claims by any party exceeds Rs. 1,00,000/- (Rs. One lac), the arbitrator shall give reasons for the award. Fees if any, are payable to the arbitrator shall be paid equally by both the parties.
The arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the parties calling them to submit their statement of claims and counter statement of claims. The venue of the arbitration shall be such place as may be fixed by the arbitrator in his sole discretion. The fees, if any, of the arbitrator shall, if required to be paid before the award is made and published, be paid half and half by each of the parties. The cost of the reference and of the award (including the fees, if any, of the arbitrator) shall be in the discretion of the arbitrator who may direct to any by whom and in what manner, such costs or any part thereof shall be paid and fix or settle the amount of costs to be so paid."
A bare reading of the aforesaid clause reveals that it provides for appointment of arbitrator in accordance with the provisions of the Act. It does not prescribe for any other procedure for appointment of arbitrator apart from that provided under the Act. The provision for settlement of dispute by the Registrar and Vice Chancellor of the University is not a procedure for appointment of the arbitrator, but in fact, a pre-arbitration settlement mechanism. Thus, non-exhaustion of such remedy will not be an interdict for appointment of arbitrator under the Act. However, the question which still remains to be answered is whether a party which had not exhausted such settlement mechanism is entitled to approach directly to the Chief Justice or his designate for appointment of arbitrator and whether having done so, such application is to be rejected, as premature.
It is to be seen that the applicant firm gave a written notice both to the Registrar and the Vice Chancellor of the University on 24th May 2010 for settlement of pending bills and for refund of security deposit. In response to it, the Registrar of the University made a payment of Rs. 2,50,782/- on 13th December 2010 towards full and final settlement of the bills of the applicant firm, after adjusting the remaining amount towards alleged loss caused to the University on account of negligence of the applicant firm. In this regard, a written communication was also sent to the applicant firm by the Registrar of the University on 24th January 2012. It is clearly mentioned therein that now no amount is due and payable to the applicant firm. A copy of the said letter was also forwarded to the Vice Chancellor of the University. The applicant firm being not satisfied with the settlement of dues, served another legal notice dated 1st August 2012 on the Registrar and the Vice Chancellor of the University specifically stating that the settlement of the claim made by the University is not acceptable to it and it is invoking the arbitration clause. Thus, it was in the knowledge of the Vice Chancellor that the applicant firm was not agreeable to the settlement made by the Registrar. The present application has been filed on 13th March 2013 and during this period, the Vice Chancellor had sufficient time to settle the dispute but no such effort seems to have been made.
On the other hand, in the counter affidavit filed on behalf of the University and the Vice Chancellor, the stand taken by the Registrar, vide its letter dated 24th January 2012 has been reaffirmed. The Vice Chancellor having already taken a stand before this Court in its counter affidavit, it can safely be inferred that settlement of dispute by using good offices of the Vice Chancellor as provided under the agreement was not feasible.
Learned counsel for the respondents placed much emphasis on the judgment of the Apex Court in the case of Northern Railway Administration (supra) wherein, a larger Bench noticing conflict in the decision in the case of ACE Pipeline Contracts (P) Ltd. Versus Bharat Petroleum Corpn. Ltd. (2007) 5 SCC 304 and Union of India Versus Bharat Battery Mfg. Co. (P) Ltd. (2007) 7 SCC 684, held as under : -
"10. The crucial sub-sections are sub-sections (2), (3), (4), (5) and (6). Sub-sections (3) to (5) refer to cases where there is no agreed procedure. Sub-section (2) provides that subject to sub-section (6) the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Sub-section (6) sets out the contingencies when party may request the Chief Justice or any person or institution designated by him to take necessary measures unless the agreement on the appointment procedure provides other means for securing the appointment. The contingencies contemplated in sub-section (6) statutorily are (i) a party fails to act as required under agreed procedure or (ii) the parties or the two appointed arbitrators fail to reach an agreement expected of them under that procedure or (iii) a person including an institution fails to perform any function entrusted to him or it under the procedure. In other words, the third contingency does not relate to the parties to the agreement or the appointed arbitrators.
11. The crucial expression in sub-section (6) is "a party may request the Chief Justice or any person or institution designated by him to take the necessary measures" This expression has to read alongwith requirement in sub-section (8) that the Chief Justice or the person or an institution designated by him in appointing an arbitrator shall have "due regard" to the two cumulative conditions relating to qualifications and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.
12. A bare reading of the scheme of Section 11 shows that the emphasis is on the terms of the agreement being adhered to and/or given effect as closely as possible. In other words, the Court may ask to do what has not been done. The court must first ensure that the remedies provided for are exhausted. It is true as contended by Mr. Desai, that it is not mandatory for the Chief Justice or any person or institution designated by him to appoint the named arbitrator or arbitrators. But at the same time, due regard has to be given to the qualifications required by the agreement and other considerations."
Learned counsel for the respondents contended that in the aforesaid judgment the Apex Court held that the "Court must first ensure that the remedies provided for are exhausted". It is thus, contended that the applicant firm having not exhausted the remedy of approaching the Vice Chancellor can not maintain this application. It may be noted that the case was referred to larger Bench of the Apex Court noticing difference of opinion in two judgments of the same Court. In ACE Pipeline Contracts (P) Ltd. (supra), it was held that even if the Chief Justice or his designate has to appoint an arbitrator, it should normally be the person named in the agreement, except in exceptional cases. On the other hand, the judgment in the case of Bharat Battery Mfg. Co. (P) Ltd. (supra), held that once the party under the agreement forfeits its right to appoint an arbitrator by not taking requisite steps within the time contemplated thereunder, then the Chief Justice or his designate is not bound by the terms of the agreement and have to appoint the arbitrator of its own. Thus, two somewhat diametrically opposed view taken in these judgments were sought to be reconciled by the larger Bench by holding that after the party had exhausted the procedure prescribed under the agreement, it could approach the Chief Justice or his designate for appointment of the arbitrator. However, while appointing the arbitrator, due regard has to be given to the qualifications required by the agreement and other considerations, in view of sub-section (8) of section 11 of the Act. The aforesaid judgment does not deal with exhaustion of remedies at pre-arbitration stage. The use of the word 'remedies'' in Paragraph 12 of the said judgment refers to the steps required to be taken by a party under the agreed procedure for appointment of the arbitrator. Thus, I am of the opinion that the aforesaid judgment is not an authority on pre-arbitration settlement mechanism, but lays down the law in relation to the factors which are to be kept in mind, by the Chief Justice or his designate in making appointment of arbitrator.
On the other hand, the Apex Court in the case of Visa International Limited Versus Continental Resources (USA) Limited, (2009) 2 SCC 55, had the occasion to reflect upon a clause in the agreement, which provides for amicable settlement of dispute before the party approaches the Arbitral Tribunal. It was contended that the pre-condition for amicable settlement of the dispute between the parties was not exhausted and, therefore, the application seeking appointment of arbitrator is pre-mature. Though, there was no formal order holding that amicable settlement is not possible, but the Court, after considering various correspondence between the parties, came to the conclusion that attempts for the settlement had failed and thus, the application for appointment of arbitrator can not be rejected as premature. In the instant case as well, as noticed above, the settlement between the parties was/is not possible, in view of the clear stand taken by the Vice Chancellor and the Registrar in the counter affidavit filed by them before this Court. This being the situation, even if the applicant firm is relegated at this stage to first go for pre-arbitration settlement mechanism, it would be a futile exercise.
In the case of P. Dasaratharama Reddy Complex Versus Government of Karnataka, (2014) 2 SCC 201, under clause 29 of the agreement, the Chief Engineer was empowered to settle the disputes at the first instance between the contractor and the department. Relevant part of the said clause, as is relevant for understanding the ratio laid down in the said judgment, is to the following effect : -
"29. (iii) Any other questions, claim right, matter, thing, whatsoever, in any way arising out of or relating to the contract designs, drawings, specifications estimates, instructions, or orders, or those conditions or failure to execute the same whether arising during the progress of' the work, or after the completion, termination or abandonment thereof, the dispute shall, in the first place, be referred to the Chief Engineer who has jurisdiction over the work specified in the contract. The Chief Engineer shall within a period of ninety days from the date of being requested by the Contractor to do so, given written notice of his decision to the contractor.
(b) Chief Engineer's decision final. - Subject to other form of settlement hereafter provided, the Chief Engineer's decision in respect of every dispute or difference so referred shall be final and binding upon the Contractor. The said decision shall forthwith be given effect to and contractor shall proceed with the execution of the work with all due diligence.
(c) Remedy when Chief Engineer's decision is not acceptable to Contract.- In case the decision of the Chief Engineer is not acceptable to the contractor, he may approach the Law Courts at karwar for settlement of dispute after giving due written notice in this regard to the Chief Engineer within a period of ninety days from the date of receipt of the written notice of the decision of the Chief Engineer."
The contractor filed application for appointment of arbitrator, which was rejected holding that clause 29 of the agreement is not an arbitration clause. The Apex Court interpreted the clause as one which has been inserted for the purpose of prevention of dispute. It was held to be a non-adjudicatory mechanism for settlement of dispute between the parties. It is neither part of the procedure for appointment of arbitrator nor arbitration clause in itself.
In the instant case as well, it may be noted that clause 22 does not contemplate any adjudicatory mechanism or passing of any order by the Vice Chancellor, after the parties are given opportunity to lead evidence. It is only a pre-arbitration settlement mechanism to prevent dispute going to the arbitrator. Such mechanism can not be interpreted to be an absolute bar, once the parties are sure of the stand taken by the other. Further, the settlement made by the Vice-Chancellor, is itself arbitrable. Thus, there is no force in the contention that the application for appointment of arbitrator, is pre-mature.
The next question for consideration is whether the dispute between the parties is covered by the arbitration clause and whether the agreement having come to an end on 31st March 2009, non-payment of bills for the month of June 2009 and July 2009 can be subject matter of reference to the arbitrator.
It is to be noticed that clause 19 stipulates that initially the period of contract is three months, which period is extendable up to one year. It further provides for extension beyond one year, subject to performance of the agency and the requirement of the University. Clause 19 of the agreement is reproduced below : -
"19. The term of the agreement shall be initially for a period of three months extendable up to one year. The term can be further extended subject to the performance of the agency and requirement of the University."
It is admitted to both the parties that the agreement expired on 31st March 2009, but even thereafter, the applicant firm continued to provide the security services up to 2nd July 2009. The case of the applicant firm is that such extension was on request of the University. In the counter affidavit, though it is admitted that the applicant firm provided services up to 2nd July 2009, on request of the University, but stand taken is that as a consequence thereof, there is neither any extension of the agreement nor any fresh agreement came into being. Once it is admitted that the applicant firm provided security services to the University on its request beyond the period contemplated under the agreement, it could only be in reference to clause 19 of the agreement, which itself provides for extension of term of the contract. Thus, plea raised by the University in this regard, does not appeal to logic. It is noticeable that the claim of the applicant firm for refund of security and for payment of arrears of bill for the month of March 2009 are admittedly disputes having arisen during currency of the contract and are thus, arbitrable. The question whether the term was extended in view of clause 19 of the agreement or de hors, the provisions of the agreement is an issue which itself is arbitrable. Thus, I do not find any force in the submission made by learned counsel for the respondents, that the claim set up, are not covered by the agreement.
In view of the discussion made above, I am of the opinion that the dispute between the applicant firm and the University as contained in its legal notice dated 1st August 2012, are arbitrable under clause 22 of the agreement. Accordingly, in exercise of powers under section 11 of the Act, as a person designated by the Chief Justice, I refer the dispute between the parties to the sole arbitration of Hon'ble Mr. Justice S.C. Verma, Former Judge of this Court, resident of 4/10-B, Lowther Road, Allahabad & 14/7-D, Metro City, Nishatganj, Lucknow (Mobile No. 9415419439). The Registry is directed to communicate this order to the learned arbitrator with request to enter into reference forthwith.
The petition is allowed as above.
(Manoj Kumar Gupta, J.) Dated: 19th December 2014 AM/-