Holding

The arbitrator's conduct constituted a refusal to act, thereby vesting the court with jurisdiction under Section 8(1)(b) of the Arbitration Act, 1940 to appoint a new arbitrator.

Summary

The State of West Bengal (Public Works Department) and National Builders disputed a claim arising from the construction of a 250‑bed hospital. Clause 25 of their contract appointed the Chief Engineer as sole arbitrator, who in turn nominated a Superintending Engineer. After 59 sittings the arbitrator refused to resign, declined to extend the time for arbitration and left the parties to decide their future course, prompting the contractor to seek the court’s intervention under Section 12(2) of the Arbitration Act, 1940. The trial court held that the arbitrator had "refused to act" and appointed a new arbitrator, a decision upheld by the High Court. On appeal, the Supreme Court affirmed that the arbitrator’s conduct amounted to a refusal to act within the meaning of Section 8(1)(b) and that, where the arbitration agreement does not expressly bar filling the vacancy, the court may appoint a replacement arbitrator. Consequently, the agreement clause was deemed exhausted and the State's appeal was dismissed.

Issues considered

Whether an arbitrator's refusal to resign while declining a joint request to extend time and leaving the parties to decide their future course amounts to "refusal to act" under Section 8(1)(b) of the Arbitration Act, 1940.
Whether, upon such refusal, the power to appoint a successor arbitrator lies with the court under Section 8(1)(b) or must follow the procedure stipulated in the arbitration agreement.

Legislation cited

Arbitration Act, 1940s. 12(2), s. 8(1)(b)

Subjects

arbitrationrefusal to actSection 8(1)(b)appointment of arbitratorvacancysole arbitratorconstruction contract disputeSupreme Court

Judgment

- .
\

STATE OF WEST BENGAL A
v.
NATIONAL BUILDERS

OCTOBER 13, 1993

[S.R. PANDIAN, R.M. SAHAI AND A.S. ANAND, JJ.] B

Arbitration Act 1940-Section 8(1)-'Refuse/ to act-Meaning of-Held
refusal of' an arbitrator to resign while not accepting the joint request of the
parties to extend time for arbitration and leave it to them to decide their future
course of action amounts to refusal to act by the Arbitrator. c
Statutory duty of court's power to inteifere and appoint an Arbitrator
comes into operation if the Arbitrator refuses to act and the agreement does
not show that the parties did not intend that the vacancy should not be
supplied.
D
A dispute arose between the respondent-contractor and th'! appel-
lant-state about the settlement of a claim in respect of construction of a
hospital. A Superintending Engineer was appointed as arbitrator in ac·
cordance with clause 25 of the agreement for arbitration.
E
Despite 59 sitting, the proceedings before the arbitrator did not come
to an end. The respondent sought the resignation of the arbitrator for legal
misconduct. The arbitrator refused to resign. He also did not acede to the
request of the parties to extend time for arbitration and left it to the parties
to decide their future course of action.
F
The respondent approached the Chief Engineer, requesting him to
appoint a retired Additional Chief Engineer, named in the application, as
the sole Arbitrator on the ground that the sole arbitrator had refused to
act. The Chief Engineer rejected the request. The respondent approached
the Assistant District Judge under Section 12(2) of the Arbitration Act for G
revoking authority of the sole arbitrator _and filling the vacancy by ap· .
pointed another arbitrator. The court allowed the application holding that
the Arbitrator in the circumstances of the case had refused to act.

The appellant State filed a Writ petition before the High Court
challenging the trial court's order. The High Court dismissed the petition, H
251
252 SUPREME COURT REPORTS [1993] SUPP. 3 S.C.R. I ,

'
A and upheld the interference drawn by the trial court that the Arbitrator
had refused to act. '

In the appeal filed before thi., t·ourt, on behalf of the State, it wa·s:
! :
contended that the principle of agreement clau~e coming to an end could ;
not apply where thr sole arbitrator had been given power to nominate . ·
B another per!lon.

Dismissing the appeal, thi!.. Court

HELD: 1.1 Section 8(1)(b) of the Arbitration Act, 1940, vests the
Courts with supervisory jurisdiction to Interfere with relationship between
C the partie:i and the Arbitrator if any of the situations as provided in
sub-section arises. Refusal to act in legal sense means denial to do some-
thing which one is obliged to do undtr law. An arbitrator who is appointed,
with common consent of parties, may not proceed with Arbitration for
various reasons. Whether an arbitrator has failed. to discharge his obliga-
D lion so as to give rise to an inference ~hat he has refused to act shall have
to be decided by the Court on facts and circumstances of the case.
(256-D-H, 257-D-E]
1.2 In the instant case, the arbitrator refused to extend time and
brought llrbitration to an and leaving it open to parties to decide their
E future course of action as one of the parties whose vital stakes were
involved did not have confidence in him. The Courts below have not
committed any error of law in drawing inference that the Arbitrator had ·
refused to act. [258-B]

Black's Law Dictionary; Shivcharan v. Rati ·Ram, ILR 1885 (7) Al-
p lahabad 20; Priyabrata Bose v. Phani Bhushan Ghosc, AIR (1937) Calcutta
523; Manohar Singh Sahay & Co. v. Jogendra Singh, AIR (1984) Patna31;
State of U.P. v. Sardul Singh, AIR (1985) All.67 and Gajanand Sita Ram v.
Phu/ Chand Fateh Chand, AIR (19~0) All. 675, referred to.

2.1 Settlement of dispute between the parties through medium of an
G independent person in whom both parties repose confidence is the basic
foundation on which the entire law of arbitration is founded. When the
agreement provides that dispute between parties shall be referred to the
person named In an agreement it is an appointment by consent. But where
the arbitrator so appointed refuses to act, the next appointment could
H again be made either as agreed between the parties and prov~ded for in
STATE v. NATIONAL BUILDERS 253

the arbitration clause or by consensus. But where either is absent no party A
in the arbitration agreement can be forced to undergo same procedure, for
the simple reason that the Arbitrator having refused to act he cannot be
asked to arbitrate again. Therefore where the ~rbitration clause provides
for the appointment of a sole arbitrator and he had refused to act, then
the agreement clause stands exhausted. It is for the Court to intervene and
appoint another Arbitrator under Section 8(1)(b), IC arbitration agreement B
does not show that it was intended that the vacancy should not be
supplied. (258-E·G)

2.2 Mere neglect or refusal to act alone is not sufficient to empower
the Court to intervene. The agreement must not further show that the C
parties intended that the vacancy shall not be supplied. In absence of clear
words or expliclt language to the contrary, the Court may appoint another
arbitrator. The Court's power to interfere and appoint an arbitrator comes
Into operation If the Arbitrator refuses to act and the agreement does ncit
show that the i;artles did not Intend that the vacancy shall not be supplied.
• . . (259-B-CJ I?
2.3 It is setUed that even where an authority is named by office to be
the sole arbitrator but he refuses to act, then the jurisdiction to appoint
another arbitrator vests in the Court. (260-A) •

. 2.4 In the instant case, since clause 25 of the agreement does not E
indicate that the parties did not intend to supply the vacancy, the Court
rightly assumed jurisdiction under Section 8(1) (b) to appoint another
arbitrator. (260-BJ

P.G. Agencies v. Union of India, (1971) 1 SCC 79 and Union of India p
v. Mis R.B. Raghunath Singh & Co., (1979) 4 SCC 21, referred to.

3. A person nominated by the sole arbitrator stands substituted In
his place. He does not have any independent personality. The power and
authorltY exercised by bim Is the same as the authority which nominated
him. Therefore, once the nominee refuses to aci it shall be deemed that the G
Arbitrator mentioned In the arbitration clause has refused to act and,
therefore; the clause would cease to operate in the same manner as the
Chief Engineer himself has refused to act. The appointment of next· n·
bitrator could, only be, In accordance with Section 8(1)(b) of the Ad.
(260-F-GJ H ·•
254 SUPREME COURT REPORTS (1993) SUPP. 3S.C.R.·

A CIVIL APPELLATE JURISDICTION : Civil Appeal No.1138 of
1991.

From the Judgment and order dated 15th November, 1990 of the
Calcutt.a High Court in the Appeal No. Nil of 1990 arising out of J. Misc.
Case No. 65 of 1989.
B
P.S. Poti, Ms. A. Pravawaty and S.K. Nandy for the Appellants.

Gobinda Mukhoty, S.K. Bandyopadhyay, Serva Mittar and H.K. Puri,
(N.P.) for the Respondents.

C The Judgment of the Court was delivered by

R.M. SABAi, J. The two questions of law that arise for consideration
in this appeal are if the refusal of an arbitrator to resign while not accepting
the joint request of the parties to extend time for arbitration and leave it
D to them to decide their future course of action amounts to refusal to act
by the arbitrator within the meaning of Section 8 (1) (b) of the Arbitration
Act (in brief 'the Act' and if it be so whether he power to appoint next
arbitrator vests in the Court or it has once again to be in accordance with
the procedure provided in the Agreement.

E Dispute about settlement of claim in respect of construction of 250
bed hospital at Basudevpura having arisen between the respondent (con-
tractor) and the appellant {Public Works Department of the State of West
Bengal) the Chief Engineer nominated a Superintending Engineer as ar-
bitrator in accordance with clause 25. of the agreement, relevant part of
which runs as under:-
F
"Except where otherwise provided in the contract all questions
and disputes ---- shall be referred to the sole arbitration of the
Chief Engineer of the department. Should the Chief Engineer be
for a,1y reason unwilling or unable to act as such arbitrator, such
G questions and disputes shall be ref-.tred to an arbitrator to be
appointed by the Chief Engineer".

When despite 59 settings the proceedings did not come to an end and the
arbitrator entertained certain applications of the appellant at a belated stage
the respondent sought his resignation for legal misconduct. The application
H was decided by the arbitrator by a detailed order with following observations:-
STATE v. NATIONAL BUILDERS [SAHAI, J.) 255

"I have given my opinion that there has been no misconduct on A
any of the grounds before me by the learned claimant yet I am of
the opinion justice delayed is justice denied and hence in this case
there has been delay and the process in which the learned Advo-
cate of both the parties are leading and pleading the case delay
is inevitable. If the claimant suffers from loss of confidence and
apprehends miscarriage of justice from the arbitrator whose award
B
is vital to him I shall not intend to interfere in his way of pursuit
for justice.
•
I, therefore, direct that further extension of time on consent of
both the parties will not be allowed by me and the e;ctended date C
of arbitration is being allowed to expire.

As regards claimants humble prayer to me that I would be
pleased to resign from the office. I am restraining myself in issuing
any order as it concerns interest of both the parties and I leave it D
to both the parties to decide".

With this order the respondent approached the Chief Engineer and sought
for appointment of a retired Additional Chief Engineer named in the
application as the sole arbitrator. The request was not accepted as accord-
ing to the Chief Engineer the arbitrator appointed was still continuing. The E
respondent was however permitted to approach the Court for extension of
time. The respondent, instead of filing application for extension of time,
approached the Court of Asstt. District Judge under Section 12(2) of the
Act for revoking authority of the sole arbitrator and filling the vacancy by
appointing another arbitrator. The application was allowed in the cir- F
cumstances of the case had refused to act. The order was challenged by
way of application under Art.227 of the Constitution. The application was
dismissed as the inference drawn by the trial court that the arbitrator
refused to act was a plausible one. It is against this order that this appeal
has been filed. It is not clear if during pendency of the application under
Art. 227 in the High Court the appellant had applied for any interim order G
for stay of further proceedings before the arbitrator. However even if it
was prayed for then it presumably was not granted as, admittedly, during
pendency of the application the arbitrator appointed by the Asstt. Distt.
Judge started the proceedings in which the Executive Engineer appeared
but expressed his inability to participate in absence of any instruction from H
256 SUPREME COURT REPORTS [1993) SUPP. 3 S.C.R.

A the department and also because the department had decided to challenge
the order of the trial court before the High Court. In any case it is not
disputed that the arbitrator, since, has given the award which has not been
challenged by the department. May be the department might have been
advised, that the finality of the award could be subject to decision of this
appeal as if the appointment of the next arbitrator is held to be invalid the
B proceedings consequent to it shall fall automatically.

To decide if the court was justified in assuming jurisdiction to
appoint another arbitrator as the arbitrator appointed by the Chief En- )

gineer under clause t!5 refused to act it is necessary to examine scope of
C Section 8 (l)(b) of the Arbitration Act which reads as under :-

Section 8(1): In any of the following cases:

(a),; .............................................

(b) If any appointed arbitrator or umpire neglects or refuses to
D act, or is incapable of acting, or dies, and the arbitration agree-
ment, does not show that it was intended that the vacancy should
not be supplied and the parties or the arbitrators, as the case may
be, do not supply the vacancy any party may serve the other parties
or the arbirators, as the case may be, with a written notice to concur
E in the appointment or appointments or in supplying the vacancy.

This provision vests the Court with supervisory jurisdiction to interfere with
relationship between the parties and the arbitrator if any of the situations as
provided in this sub-section comes into being. What was claimed by the
respondent,] which has been accepted by the Courts below, is that the sole
F arbitrator appointed by the Chief Engineer refused to act. The question,
therefore, is what does this expression mean'! Refusal to act in legal sense
means denial to do something which one is obliged to do under law. Black's
Law.Dictionary explains it thus, 'The act of one who has, by law, a right and
power of having or doing something of advantage, and declines it'. In private
G law, of which arbitration is a part with court's power to supervise the inter-
vene in arHtral proceedings within statutory framework, an arbitrator who
is appointed, with common consent of parties, may not proceed with arbitra-
tion for various reasons. The refusal to act may be express or implied. If an
arbitrator resigns or informs the parties his inability to act it would be
express refusal. And even the courts cannot force him to arbitrate. In Shiv-
H charan v. Rati Ram, (ILR 1885 7 Allahabad 20) when despite his refusal the
STATEv. NATIONAL BUILDERS [SAHAI,J.) 257

Subordinate Judge directed the records to be sent back to the arbitrators to A
s~bmit the award within ten days who, thereafter, made the same it was set
aside by the High Court and it was held:

Expression has recently been given by this Court to the view, that
one of the most essential principles of the law of arbitration is, that B
the adjudication of disputes by arbitration should be the result of
.the free consent of the arbitrator to ·undertake the duties of
arbitrating between the contending parites who have agreed to
repose confidence in his judmnent. Indeed, the finality of such
award is based entirely upon the principle that the arbitrators are
judges chosen by the parties themselves, and that such judges are C
willing to settle the dispute referred to them. This essential char-
acteristic of the effect of such adjudciations is necessarily vitiated
if compulsion is employed by the Court."

Refusal to act may be inferred as well. On what facts such an D
inference can be raised cannot be laid down with certainty. There can be
no fixed principle for it. When an arbitrator has failed to discharge his
obligation so as to give rise to an inference that he has refused to act shall
have to be decided by the Court on facts and circumstances of each case.
For instance in Priyabrata Bose v. Phani Bhushan Ghose, AIR (1937)
Calcutta 523 the High Court held that. even when the arbitrator was not E
willing to proceed unless his fees were paid in advance it was refusal to
act. Inaction by the arbitrator or inordinate delay in rendering the award
are yet some of other reasons due to which courts have raised an inference
that the arbitrator refused to act. (See Manohar Singh Sahay &: Co.,· v.
Jogendra Singh, AIR (1984) Patna 3, State of U.P. v. Sardul Singh, AIR
(1985) Allahabad 67 and Gajanand Sita Ram v. Phu/ Chand Fateh Chand, F
AIR (1930) Allahabad 675.) The parties appoint an arbitrator by consent
and he undertakes to decide the dispute out of his free will. He may
withdraw his consent expressly or may act in a mann~r giving rise to
inference that he was not willing to act any more. In either case the basic
principle is that the arbitrator cannot . be forced to act. But such an. G
inference should not be readily raised. The courts primary concern should
be to uphold the arbitration. But once the court is satisfied that the
arbitrztor has refused to discharge his obligations then it has statutory duty
to intervene and act in accordance with Sec.S(l)(b) of the Act. From the
order of the arbitrator extracted earlier what is made out is that he felt
that the respondent had lost confidence in him. With opinion, thus, formed H
258 SUPREME COURT REPORTS [1993] SUPP. 3 S.C.R.

A he refused to accede to the request of the parties to extend the time for
the award and directed parties to decide their future course of action. True
that he did not resign. It is also true that the Chief Engineer insisted that
the arbitrator was continuing. But where the arbitrator refused to extend
time and brought arbitration to an end leaving it open to parties to decide
their future course of action as one of the parties whose vital stakes were
B involved did not have confidence in him, the Courts do not appear to have
committed any error of law in drawing inference that the arbitrator had
refused to act. ·

More important issue than this that was urged was that since clause
C 25 of the agreement empowered the Chief Engineer to nominate any other
person to act as arbitrator the intention was to fill the vacancy in the same
manner as provided in the agreement. This raises an important issue as to
whether the power of the Chief Engineer to arbitrate himself or to
nominate any other person as arbitrator exhausted or revived after the
earlier arbitrator nominated by him refused to act. In other words does the
D power to appoint a sole a arbitrator under the agreement come to an end
with such appointment or every time an arbitrator refuses to act the
parties are to take recourse to appoint another arbitrator as provided in
the agreement itself. Settlement of dispute between the parties through
medium of an independent person in whom both parties repose confidence
is the basic foundation on which the entire law of arbitration is founded.
E When the agreement provides that dispute between parties shall be
referred to the person named in an agreement it is an appointment by
· consent. But where the arbitrator so appointed refuses to act the next
appointment could again be made either as agreed between the parties and
provided for in the arbitration clause or by consensus. But where either is
absent no party in the arbitration agreement can be forced to undergo same
F procedure, for the simple reason that the arbitrator having refused to act .
he cannot be asked to arbitrate again. In law the result of such refusal is
that the agreement clause cannot operate. It, therefore, follows that in a
case where the arbitration clause provides for appointment of a sole
arbitrator and he had refused to act then the agreement clause stands
G exhausted. And it is for the Court to intervene and appoint another
arbitrator under Sec.8(1)(b), 'if arbitration agreement does not show that
it was intended that the vacancy_ shall not be supplied'. That is the agree-
ment should not debar any further arbitration. If it is provided in the
agreement that if the arbitrator appointed in accordance with the agree-
ment refuses to act then the dispute shall be resolved by another arbitrator.
H There is an end of the matter. But if the agreement does not show this then
STATE v. NATIONAL BUILDERS [SARAI, J.] 259

the next arbitrator can be appointed by the Court only. The expression A
used in the sub-section is clear indication that the court is precluded from
exercising its per only if the parties intended that the vacancy should not
be filled. In other words the court shall exercise jurisdiction to appoint
another arbitrator except where it is specifically debarred from doing so.
The word 'show' used in the clause appears to be significant. It in fact
furnishes key to the construction of the expression. Mere neglect or refusal B
to act alone is not sufficient to empower the court to intervene. The
agreement must not further show that the parties intended that the vacancy
shall not be supplied. To put it affirmataively in absence of clear words or
explicit language to the contrary the Court may appoint another arbitrator.
The true effect of the word is that it extends jurisdiction of the court to C
exercise power, if the agreeement does not specifically debar it from doing
so. To put it simply the Court's power to interfere and appoint an
arbitrator comes into operation if the arbitrator refuses to act and the
agreement does not show that the parties did not intend that the vacancy
shall not be supplied. In P.G. Agencies v. Union of India, [1971] 1 SCC 79
it was held by this Court, 'that the language of the provision is not "that D
the parties intended to supply the vacancy" but on the other hand it is that
"the party did not intend to supply the vacancy". In other words if the
agreement is silent as regards supplying the vacancy the law presumes that
the parties intended to supply the vacancy. To take the case out of
Sec.8(1)(b) what is required is not the intention of the parties to supply
the vacancy but their intention is not to supply the vacancy' In Chander E
Bhan Harbhajan Lal v. State of Punjab, [1977] 2 SCC 716 it was held that
where a committee of arbitrators nominated by the Government becomes
in capable of acting as such 'it was within the competence of the Court to
proceed to appoint a new Committee'. In Union of India v. R.B. Raghunath
Singh & Co., [1979] 4 SCC 21 the arbitration clause provided for settlement
of dispute and differences by the Chief Commissioner/Director of Storage, F
Ministry of Food, Government of India and his decision was to be final
and binding. The post of Director of Storage was abolished and the Chief
Commissioner refused to act. The question arose whether the Court could
appoint an arbitrator in exercise of powder under Sec.8(1)(b). It was
claimed on behalf of the Union of India that where there was a named G
arbitrator even though he was named by office, it was not open to the Court
to supply the vacancy in his place under Section 8(1)(b) of the Act. The
contention was repelled and it was held that the argument was without any
substance as, 'The Court had no power to supply the vacancy under
Sec.8(1)(b) only if the arbitration agreement did not show that the parties
H
260 £UPREME COURT REPORTS (1993] SUPP. 3 S.C.R.

A did not intend to supply the vacancy. If no such intention could be cuJled
from the arbitration clause, the Court supply the vacancy'. It is thus settled
that even where an authority is named by office to be the sole arbitrator
but he refuses to act then the jurisdiction to appoint another arbitrator
vests in the Court. Since clause 25 of the agreement extral:ted earlier does
not indicate that the parties did not intend to supply the vacancy the Court
B in our opinion rightly assumed jurisdiction under Sec.8(1)(b) to appoint
another arbitrator.

Basis for assuming such jurisdiction, as stated earlier, is that the
clause is rendered inoperative. Where the agreement provides for appoint-
C ment of a specific person either by name or by designation and that person
refuses to act then the question of appointing him again cannot arise.
Refusal by such a person results in the agreement clause ceasing to
operate. When two parties agree for appointment of 'A' or 'B' by name or
designation and the person so named refuses to act then the agreement
shatl be deemed to have exhausted itself. The· person so named having
D refused to act he cannot be asked again to arbitrate. That would be
contrary to the very basis of arbitration that no one can be forced to act
against his free will. It would also be contrary to the agreement and if there
is no agreement to appoint another person, the only remedy is to approach
the Court to exercise its statutory power and appoint another arbitrator.
Same result follows where the arbitration clause empowers the sole ar-
E bitrator either to arbitrate himself or to nominate anyone else~ It was urged
that the prU.ciple of agreement clause coming to an end cannot apply
where the sole arbitrator has oeen given power to nominate another
perosn. According to the learned counsel once the nominee refused to act
the Chief Engineer was again empowered to nominate another person in
his place. In our opinion the submission is not well founded in law. A
F person nominated by the sole arbitrator stands substituted in his place. He
does not have any independent personality. The power and authority
exercised by him is the same as the authority which nominated him.
Therefore, once the nominee refuses to act it shall be deemed that the
arbitrator mentioned in the arbitration clause has refused to act and
G therefore, the clause would cease to operate, in the same manner as the
Chief Engineer himself has refused to act. The appointment of next ar-
bitrator. could, only, be in accordance with Sec.8(1)(b) of the Act.

For these reasons the appeal fails and is dismissed with costs.

S.K. Appeal dismissed.