WP/18985/2005 of Oil AND natural Gas Corporation Ltd., Vs Pennamaneni Appaji S/o Sheshadri on 31 December 2007

IN THE HIGH COURT OF JUDICATURE OF ANDHRA PRADESHAT HYDERABAD

HON’BLE THE ACTING CHIEF JUSTICE SRI BILAL NAZKIANDHON’BLE SRI JUSTICE NOOTY RAMAMOHANA RAO

W.P. No. 18985 of 2005

Between :

Oil and Natural Gas Corporation Ltd.,Rajahmundry Asset(Formerly known as KG Project)Base Complex, Rajahmundry,East Godavari District rep. By its General Manager (P&A) .. Petitioner

And

Pennamaneni Appaji and another .. Respondents JUDGMENT : (per NRR,J)

This writ petition has been instituted to declare the orderpassed by the learned District Judge, East Godavari at Rajahmundy inArbitration Application No. 3 of 2000 as illegal and without jurisdiction and toset aside the same. The 1[st] respondent herein has filed ArbitrationApplication No. 3 of 2000 seeking for appointment of an Arbitrator forresolving the disputes that have arisen between the petitioner and the1strespondent. It is the case of the 1[st] respondent that he entered into a contractwith the writ petitioner – Oil and Natural Gas Commission (ONGC), a publicsector undertaking on 24.9.1993. During the currency of the contract, therewas a revision of minimum wages notified by the State Government on25.7.1995. Since these revised minimum wages have not been paid for, the1[st] respondent has taken up the matter with the writ petitioner. Clause XV ofthe contract had provided for the redressal mechanism. The relevant portionof Clause XVreads as under :

“It is also a term of this contract that no person other than a person appointed by the Head of K.G.Project, Rajahmundy as aforesaid should act asArbitrator and if for any reason it is not possible,the matter is not to be referred to Arbitrator at all.”

In response to the claim made by the 1[st] respondent, the writ petitioner –ONGC through their letter dated 5.11.1997 have informed the 1[st] respondentas under :

“To Dt : 5.11.1997Sri P.Appaji,Rajahmundry Sub: Job contracts of intermittent nature of KG Project–Appointment ofArbitrator: :

Dear Sir,

Your attention is drawn to the Clause No.XV ofthe contract agreement entered into betweenONGC and you for referring to arbitration in caseof any dispute/disagreement in execution of thecontract.

The Management of ONGC, SRBC, has agreedfor reference of the matter regarding enhancementof contractual rates for arbitration in respect of oneof the contracts, who had requested theManagement to invoke the clause of arbitration asper the contract pursuant to the revision of theminimum wages by the Govt. of Andhra Pradeshwith effect from October, 1995. Similarly, yourclaim for enhancement of contractual rates willalso be referred for arbitration.

This issues pursuant to the discussions had fromtime to time with the Management of ONGC. Further communication in this respect shall follow.

Yours faithfully,Sd/-Admn. Officer (P&A)-JCfor Head of P&A”

Contrary to the promise held out therein, the dispute has not been referred forresolution through the mechanism of arbitration. Therefore, the 1[st]respondent had put the petitioner corporation on notice on 15.8.1999demanding the matter to be referred for adjudication by the competent arbitrator. Finding no response thereto, the 1[st] respondent had instituted theArbitration Application No.3 of 2000, which is contested by the petitioner. The learned District Judge had decided the matter, the operative portion ofwhich reads as under :

“11. Therefore, for all the above reasons, I find onthe point that an Arbitrator is liable to beappointed in terms of the agreement between theparties to decide the dispute between them.12. In the result, the petition is allowed with costsdirecting the respondents to appoint an Arbitratorin terms of 1[st] para of Clause XV of the contractdated 24.9.1993 within one month from today; andin default, this court will name an arbitrator on amemo to be filed by the petitioner about non-appointment of arbitrator by the respondentswithin the due date.”

Conclusion

It is this order which is the subject matter of challenge in this writ petition.

Heard Sri E.Manohar, learned Senior Counsel for the writpetitioner and Sri G.Krishna Murthy, learned counsel for the 1[st] respondent.

Learned Senior Counsel contends that when once a specificprocedure had been contemplated and provided for securing the appointmentof an Arbitrator and if the Arbitrator has not been appointed in terms thereofby the petitioner – corporation, it shall be construed that the matter is not to bereferred to Arbitrator at all and hence the learned District Judge has erred inentertaining the arbitration application. Learned Senior Counsel would placestrong reliance upon a judgment rendered by the Supreme Court inA.Mohammad Yunus (Dead) By LRs v. Food Corporation of India[[1]]andcontended that the court has no jurisdiction to appoint an Arbitrator contrary tothe procedure contemplated in the contract entered into by and between theparties. On the contrary, the learned counsel for the 1[st] respondent wouldsubmit that that the order passed entertaining an application for appointmentof an Arbitrator is no longer an administrative order and consequently it doesnot warrant interference in exercise of power available under Article 226 of the Constitution and the said order is an appealable order, as was held by the Supreme Court in M/s. S.B.P. and Co. v. Patel Engineering Ltd.[[2]]had heldthat that the order passed under Section 11 or declining to entertain anapplication under Section 11 of the Act has got to be challenged only by wayof an appeal since it has overruled its earlier view expressed with regard tothe nature of orders passed under Section 11, set out in Konkan Railway Corporation Limited and another v. Rani Construction Pvt. Ltd.[[3]]. Onmerits, he pleads that all that the learned District Judge did was to order thepetitioner herein to follow the procedure contemplated by the contract inreferring the dispute to Arbitration.

The controversy involved in this case is in a narrow compass. The writ petitioner corporation has not disputed the existence of a contractbetween it and the 1[st] respondent. It also did not dispute that Clause XV ofthe said contract had provided for an adjudicating mechanism for resolutionof the disputes between them. Clause XV of the contract provided for theprocedure for securing the resolution of disputes through the mechanism ofArbitration. That portion of clause XV of the Contract, extracted supra, makesthe position abundantly clear that no person other than a person appointed bythe Head of the K.G. Project, Rajahmundy should act as Arbitrator. Therefore,there is an exclusive power available with the Head of the KG Project,Rajahmundry of the Corporation to appoint an Arbitrator. The later portion ofclause XV, that “if for any reason, it is not possible, the matter is not to bereferred to arbitration at all”, is a condition which is to be read along with thefirst part of the clause requiring the appointment of an Arbitrator by the Headof the KG Project, Rajahmundry. They cannot be read as independent limbs. The latter portion of the clause is only qualifying the 1[st] part of the clausewhich prescribed the authority to appoint an Arbitrator in the hands of Head ofthe “K.G.Project, Rajahmundry”. Therefore, the parties to the contract viz.,ONGC, the petitioner herein and the 1[st] respondent have intended the matterto be placed before the Head of the K.G. Project at Rajahmundry who willundertake a study of the dispute which is sought to be resolved by and between the parties and if he is satisfied that there is an existence of agenuine dispute between the parties in working out the contract, such adispute is then liable to be resolved through the mechanism of arbitration dulyappointing an Arbitrator for that purpose. The latter portion of the clausetherefore empowers and requires the Head of the KG Project, Rajahmundy toapply his mind to all relevant and necessary factors. He cannot actwhimsically to choose in favour of some parties to refer the disputes forresolution through the mechanism of arbitration and in certain other cases,notwithstanding the merits of the matter, decline to do so. For instance, if twoseparate contractors have been awarded by the writ petitioner to performsimilar or identical nature of contracts and should similar or identical nature ofdisputes arise while working out these two separate contracts, the Head ofK.G. Project, Rajahmundry by virtue of the power available to him underClause XV cannot agree to refer the disputes with regard to one contract foradjudication through the process of arbitration and in the other case declineto refer the same for adjudication through arbitration at all. Such an exerciseof power borders on irrationality. Every contract and every term thereof isintended to be given certain specified purpose for working out the contract. Itis not intended to defeat or frustrate the contract itself. After all, the contract isthe net result of meeting of minds between two separate parties.

As is demonstrated in the present case, on behalf of the writpetitioner – corporation a communication was addressed on 5.11.1997 by it’sAdministrative Officer agreeing to have the dispute resolved through themechanism of arbitration. Having thus held out an unequivocal assurance tohave the dispute resolved through the process of arbitration, it is not open tothe petitioner later on to resile therefrom. It is a well settled principle of lawthat no party should be permitted to blow hot and cold simultaneously. Suchconduct is considered to be an irrational conduct. Therefore, we have nohesitation to hold that Clause XV of the contract in it’s enterity has to be readand no clause thereof should be read in isolation. We further feel that clauseXV does not give absolute power to the Head of K.G. Project, Rajahmundryto act whimsically either in appointing or declining to appoint an arbitrator.

The trust reposed by the parties in his objective approach and ultimatejudgment is the insulation against capricious conduct on his part. Therefore,even without there being any decision taken by the Head of the K.G. Project,Rajahmundry of the O.N.G.C., it cannot be assumed that the dispute is notliable to be referred to Arbitration at all.

The Supreme Court had occasion to deal with a clausesomewhat similar in nature to the clause with which we are concerned inMohd. Younus case (supra 1). In that case, contrary to the scheme ofappointment of Arbitrator by the Food Corporation of India, a differentArbitrator was appointed who passed his award, which award has also beenmade the Rule of the Court by the learned Subordinate Judge at Trivandrum. On appeal, the Division Bench of the Kerala High Court had held that noother Arbitrator, other than the one provided in the contract, could have beenappointed in view of the specific terms and procedure, for securing suchappointment, contained in the contract in that regard. Therefore, the awardmade by the Arbitrator was considered as to have been made by aquorum–non-juris. On appeal, the Supreme Court upheld the judgment ofthe Kerala High Court. The principle that emerges from the above case isthat, the procedure contemplated by the contract had to be strictly followed forsecuring the appointment of an Arbitrator and no other Arbitrator can beappointed.

In the instant case, the learned District Judge has not appointedany other Arbitrator by himself. He has merely directed the Arbitrator to beappointed strictly in accordance with Clause XV of the contract entered intoby and between the parties. Therefore, the principle laid down by theSupreme Court in Mohd. Younus case (supra 1) had no application to thefacts and circumstances of the present case. In fact, the principle that themechanism provided in the contract for securing appointment of an Arbitratorshould not be discarded has been well recognized in Section 11 of theArbitration and Conciliation Act, 1966 (henceforth referred to as ‘the Act’). Sub-section (2) of Section 11 of the Act has specifically set out that theparties are free to agree on a procedure for appointing the Arbitrator or

Arbitrators. That is a choice left to the parties. The parties are at liberty andare at full freedom to choose on a specified procedure for securing theappointment of an Arbitrator. In the instant case, the parties have agreed inClause XV to have an Arbitrator appointed for resolving the disputes thathave arisen amongst them by the Head of KG Project, Rajahmundry. Sub-section (6) of Section 11 comes into operation only where the person fails toperform any function entrusted to him under that procedure. In the instantcase, therefore the need to entertain the arbitration application hadoccasioned because of the failure of the writ petitioner to place the matterbefore the Head of KG Section, Rajahmndry for him to appoint an Arbitrator. Clause XV in question is therefore completely in consonance with thegeneral principle which recognized the freedom of the parties to choose aspecified and particular procedure for securing appointment of an Arbitrator. The same cannot be read to mean as vesting power in the hands of one ofthe two parties to the contract not to follow the procedure for securing such anappointment at all. We therefore do not find any merit in the contentioncanvassed by the writ petitioner. Carried to its logical conclusion, the writpetitioner cannot be permitted to take advantage of its own conduct bydeclining to approach the Head of the KG Project, Rajahmundry to appoint anArbitrator for resolution of the disputes amongst the parties. The contentiontherefore canvassed that the District Curt did not have jurisdiction to entertainthe Arbitration Application is without any merit.

For these reasons, the writ petition is devoid of merit and it is accordingly dismissed.

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ACTING CHIEF JUSTICE BILAL NAZKI

31[st] December 2007knk

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JUSTICE NOOTY RAMAMOHANA RAO,J

[1]2000(7)Supreme 722

[2]2006(1) ALD 10(SC) : 2005(1) Decisions Today (SC) 105 (LB)

[3](2000) 8 SCC 159