WP/20824/2002 of The Superintending Engineer Vs P.Lakshmu Reddy, Contractor on 29 December 2008

ORDER:

The 1[st ]respondent was entrusted with the work offormation of earth dam in one of the units of TeluguGanga Project, vide agreement dated 03.07.1992. Thevalue of the work was Rs.8,03,74,840/-. Clause (3) of the agreement provided for adjudication of disputes. According to this, claims up to the value of Rs.10,000/- areto be decided in arbitration by the SuperintendingEngineer of another Circle and claims above Rs.10,000/-up to Rs.50,000/-, by the Chief Engineer, Central DesignsOrganization, Hyderabad. Settlement of all claims aboveRs.50,000/- in value are to be decided by the Civil Court ofcompetent jurisdiction by way of regular suit and not byarbitration.

The 1[st] respondent filed application No.1 of 1997before the Subordinate Judge, Kadapa, under Sub-section (5) read with sub-section (2) of Section 11 of theArbitration and Conciliation Act 1996 (for short ‘the Act’). An ex parte order was passed on 28.02.2000, appointingthe 2[nd] respondent as arbitrator. The petitioners filedC.R.P.No.1497 of 2000 against the order in applicationNo.1 of 1997. The C.R.P. was dismissed by this Court on11.09.2001 following its order in C.R.P.No.1601 of 2000dated 26.06.2001. Thereupon, the petitioners filedI.A.No.143 of 2000 under Order IX Rule 13 C.P.C. Theapplication was dismissed through order, dated19.07.2000, by the trial Court. Reference was made to ajudgment of this Court in Union of India and another vs.J.Bhaskara Rao[[1]]. This writ petition is filed against theorder dated 28.02.2000 passed in application No.1 of1997.

Learned Government Pleader for Arbitration submitsthat there was absolutely no basis for filing the applicationfor arbitration, inasmuch as it was silent as to the extent ofclaim and there was no agreement between the parties forreferring the matters of this nature to arbitration. Shecontends that the trial Court was under obligation to verifythe claim made by the 1[st] respondent with reference to theterms of agreement and an arbitrator could have beenappointed, if only the claim fitted into any Clauses of theagreement, even assuming that the petitioners hereinremained ex parte. Learned counsel submits that thepetitioners herein were set ex parte, even while they weretaking necessary steps to verify the record and enterappearance.

The 1[st] respondent remained ex parte and the 2[nd]respondent is only an arbitrator appointed through theimpugned order.

The earlier challenge made by the petitioners to theorder in application No.1 of 1997 by filing C.R.P.No.1497of 2000 was turned down, on the ground that a revision isnot maintainable. Obviously the judgment of the SupremeCourt in Konkan Railway Corpn. Ltd. Vs. Mehul Construction Co.[[2]]was applied. In that case, theHon’ble Supreme Court took the view that an order passed under Section 11(6) of the Act by the Chief Justiceof a High Court or his nominee is an administrative orderand it is not amenable to judicial review under Article 136of the Constitution of India nor to a writ petition underArticle 32 of the Constitution of India. In the instant case,the petitioners approached the trial Court with anapplication under Order IX Rule 13 C.P.C. The applicationwas rejected in view of the orders of this Court inC.R.P.No.1497 of 2000 and the judgment of this Court inUnion of India’s case (1 supra).

Section 11 of the Act prescribes the procedure forappointment of arbitrators. Power to appoint arbitrators isconferred upon the Chief Justice or the person orinstitution designated by him. Sub-sections (2) to (5)thereof deal with the cases, where the parties seekappointment of arbitrators, in the absence of any prioragreement among them. In case, if there exists aprocedure for appointment of arbitrators, the recourse is tobe had to sub-section (6), which reads as under:

11(6) Where, under an appointment procedure agreed upon by the parties:- (a)a party fails to act as required under thatprocedure; orprocedure; or (b)the parties, or the two appointed arbitrators,fail to reach an agreement expected of themunder that procedure; orfail to reach an agreement expected of themunder that procedure; or

(c) a person, including an institution, fails toperform any function entrusted to him or it underthat procedure, a party may request the ChiefJustice or any person or institution designatedby him to take the necessary measure, unlessperform any function entrusted to him or it underthat procedure, a party may request the ChiefJustice or any person or institution designatedby him to take the necessary measure, unless the agreement on the appointment procedureprovides other means for securing theappointment.

In the instant case, there is an agreement betweenthe parties and the manner, in which the disputes can besettled, has already been indicated in the precedingparagraphs. The 1[st] respondent did not invoke theprocedure under Section 11(6) of the Act. On the otherhand, he filed the application under sub-section (2) readwith sub-section (5) of Section 11 of the Act. Therefore, itbecomes highly doubtful as to whether the ratio laid downby the Supreme Court in Konkan Railway Corpn. Ltd.’scase (2 supra) applies to the facts of this case. A perusalof Section 11(2) makes it clear that any application madethereunder is subject to the one under Section 11(6). Inother words, when the matter is governed by Section11(6), an application under Section 11(2) becomesuntenable.

Even where an application under sub-section (2)read with sub-section (5) of Section 11 of the Act isotherwise tenable, the matter can proceed only with theagreement of parties. If the parties fail to agree on acommon arbitrator, each of them have to appoint onearbitrator and the arbitrators, so appointed, shall appoint athird one. The net result is that no ex parte order can bepassed, if an application is made under sub-section (2).

For the reasons best known to it, the trial Court hadproceeded to pass an ex parte order appointing the 2[nd]respondent as arbitrator. This is totally contrary to theletter and spirit of sub-sections (2) and (5) of Section 11 ofthe Act.

An exercise of disposal of application under sub-sections (2) and (5) of Section 11 of the Act partakes thecharacter of adjudication than of administration. A partyfeeling aggrieved can certainly complain to a superiorCourt. Unless a mechanism exists for correction of patenterrors, the wronged party would be put to serious hardshipand it would be too late, if not impossible, to retrace thesteps.

The 1[st] respondent maintained a tactical silence asto the value of the claim, obviously being aware of theterms of agreement. If his claim were to exceedRs.50,000/-, the bar against arbitration operated and hewas under the obligation to file a suit. To overcome that,he filled column 8 of the application as under:

8. Valuation of the subject matter: The disputes are in the nature of declaration ofrights. Hence, a notional value of Rs.10,000/-is taken for the purpose of payment of cost forprocessing the request in terms of paragraph 19of the scheme.rights. Hence, a notional value of Rs.10,000/-is taken for the purpose of payment of cost forprocessing the request in terms of paragraph 19of the scheme.

Another aspect is that the value would have abearing upon the Forum, before which the application were to have been filed under the scheme framed by theHigh Court under Section 11(6) of the Act. Jurisdiction isconferred upon different nominees of the Chief Justice toentertain the claims for appointment of arbitrator underSection 11(6). Even from this point of view, the applicationwas untenable.

The judgment of this Court in Union of India’s case(1 supra) was in relation to the cases arising underSection 11(6) of the Act. It has already been pointed outthat the application filed by the 1[st] respondent was undersub-sections (2) and (5) of Section 11. Though this writpetition is filed against the order in the arbitrationapplication itself, this Court is of the view that the ends ofjustice would be met, if the ex parte order is set aside, byallowing I.A.No.143 of 2000 filed under Order IX Rule 13C.P.C.

Hence, the writ petition is allowed, setting aside theex parte order, dated 28.02.2000, in application No.1 of1997 and directing the trial Court to pass fresh orders,after hearing both the parties. There shall be no order asto costs.

Note: L.R.Copy to be marked. (B/o) JSU

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29.12.2008

THE HON'BLE MR JUSTICE L.NARASIMHA REDDY

Writ Petition No.20824 of 2002

Date: 29.12.2008

JSU

[1]2000(2) ALD 328

[2]2000(7) SUPREME COURT CASES 201