Holding

The High Court’s appointment of a sole arbitrator under Section 11 is set aside; the railway authority must first be given a reasonable opportunity to appoint the contractually mandated arbitral tribunal, and the Court may intervene only upon its failure to do so within the stipulated period.

Summary

The Union of India awarded a contract to M/s V.S. Engineering for supplying crushed stone ballast, but a dispute arose over penalties and performance. The contract’s General Conditions required the General Manager of Railways to appoint an arbitral tribunal, which was done, yet the contractor later filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 seeking a sole arbitrator. The High Court appointed Justice Y.V. Narayana as arbitrator, which the Union challenged. The Supreme Court held that when the contract provides for appointment of an arbitral tribunal, the High Court may intervene under Section 11 only if the railway authority fails to appoint within the prescribed 30‑day period. Since the General Manager had not timely constituted the tribunal, the Court set aside the High Court’s appointment and directed the General Manager to appoint the tribunal within 30 days. The appeal was allowed and the High Court’s order was vacated.

Issues considered

The applicability of Section 11 of the Arbitration and Conciliation Act, 1996 when the contract itself provides for appointment of an arbitral tribunal.
Whether the High Court can appoint a sole arbitrator despite an existing contractually appointed tribunal.
The effect of delay by the railway authority in constituting the arbitral tribunal under the General Conditions of Contract.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11

Subjects

ArbitrationSection 11Arbitral tribunal appointmentGeneral Conditions of ContractRailwaysHigh Court jurisdictionAdministrative delay

Judgment

-
UNION OF INDIA AND ANR. A
v.
MIS. V.S. ENGINEERING (P) LTD.

NOVEMBER 16, 2006

[A.K. MATHUR AND LOKESHWARSINGH PANTA, JJ.] B

Arbitration and Conciliation Act, 1996-Section I I-Appointment of
Arbitral Tribunal for Railways-High Court not justified in appointing an
arbitrator under S.11 when Railway authorities already constituted arbitral C
tribunal as per the General Conditions of Contract.

Respondent-Contractor was awarded a work contract by railways for
supply of crushed stone ballast and for loading the same into wagons. The
dispute arose and respondent sought appointment of arbitrator under Clause
64 of General Conditions of Contract. The arbitral tribunal was appointed to D
adjudicate the claim.

Subsequently, respondent filed arbitration application before High Court
under Section 11 of Arbitratio11 and Conciliation Act, 1996 seeking
appointment of an arbitrator to resolve the disputes. High Court appointed
Mr. Justice Y. V. Narayana as Arbitrator. Aggrieved appellant filed writ E
petition before High Court which was dismissed. Hence the present appeal.

Allowing the appeal, the Court

HELD: 1. Railways and Public institutions are·very slow in reacting to
the request made by a contractor for appointment of the arbitrator. Therefore, F
in case appointment is not made in time on the request made by the contracting
party, then in that ease the power of the High Court to appoint arbitrator under
Section 11 of the Act will not be denuded. Administrative authorities cannot
be allowed to sleep over the matter and leave the citizens without any remedy.
Authorities shall be vigilant and their failure shall certainly give rise to cause G
to the affected party. In case, the General Manager, Railway does not appoint
the arbitral tribunal after expiry of the notice of 30 days or before the party
approaches the High Court, in that case, the High Court will be fully justified
in appointing arbitrator under section 11 of the Arbitration and Conciliation

125
H
126
• SUPREME COURT REPORTS [2006) SUPP. 9 S.C.R.

A Act, 1996. It is the discretion of the High Court that they can appoint any
railway officer or they can appoint any High Court Judge according to the
given situation. (130-F-H]

2. The General Manager, Railway is directed to appoint arbitral tribunal
within a period of 30 days from the date of receipt of a certified copy of this
B order. The arbitral tribunal so appointed shall enter into the matter and dispose
of the arbitration proceedings as expeditiously as possible. Consequently, the
appointment of Justice Y.V.Narayana as arbitrator is set aside. (131-A-BI

Union of India & Anr. v. MP.Gupta (2004) 10 SCC 504, relied on.
c Datar Switchgears Ltd. v. Tata Finance Ltd & Anr., (2002) 8 SCC 151;
SBP & Co. v. Patel Engineering Ltd. & Anr., (20051 8 SCC 618 and Konkan
Railway Corporation Ltd & Anr. v. Rani Construction Pvt. Ltd, (2002) 2 SCC
388, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.6593-6594 of
D
2005.

From the final Judgments and Orders dated 27-4-2001and21-2-2002 of
the High Court of Judicature, Andhra Pradesh at Hyderabad in Writ Petition
No. 2465/200 I and Applicatioin No. 1615/2001 in Arbitration Application
E No. 60/1998 respectively.

Vikas Singh, A.S.G., Wasim A.Qadri, R.C. Kathia, Mrs. RekhaPandey,
Shiva Lakshmi, Amrita Narayan, Anil Katiyar and D.S. Mahra for the Appellants.

G. Ramakrishna Prasad, Dr. K.P. Kyalasnath, Mohd. Wasay Khan,
F Suyodhan Byrapaneni and Venkat Subramaniam for the Respondent.

The Judgment of the Court was delivered by

A.K. MATHUR, J. These appeals are directed against the judgment and
order passed by the High Court of Andhra Pradesh. By the impugned order
G dated 27.4.2001 a batch of writ petitions were disposed of including the one
before us whereby the High Court appointed arbitrator under Section 11 of
the Arbitration and Conciliation Act, 1996 (hereinafter to be referred to as 'the
Act'). In the present appeals, we are concerned with Writ Petition No.2465
of2001 [Union of India & Anr. v. Mis. V.S. Engineering (P) Ltd & Anr.). So
H far as order dated 27.4.2001 passed by the Division Bench of the High Court

(

<.
U.0.1. v. V.S. ENGINEERING (P) LTD. [A.K. MATHUR, J.] 127
is concerned, all the issues raised in that order has already been decided by A
this Court in the case of SBP & Co. v. Patel Engineering Ltd. & Anr. [2005)
8 SCC 618 by a seven Judge Bench of this Court. Therefore, no purpose will
be served by examining the validity of the order of the Division Bench of the
High Court challenged in this present appeal as all issues are covered in the
decision of SBP & Co. (supra), therefore this appeal is accordingly disposed
of in the light of the aforesaid decision. B
Brief facts giving rise to another appeal are that M/s. V.S. Engineering

.. Private Limited, Hyderabad was awarded the work of supply and stacking of
50mm machine crushed stone ballast at Nallapadu Depot and loading the
same into B.T.Wagons by Mechanical/ Manual means for a quantity of 1.8 C
lakh cu.m. at the value of Rs.5,02,20,000/-. The agreement No.GM/W/SC/93/
2 providing payment of mobilization advance and machinery and plant advance
was executed by the contractor on 19.4.1993. The completion period was 39
months as per the acceptance letter dated 27.1.1993. As per the agreement the
work was to be commenced from 26.4.1993 and completed by 26.4. I 996
supplying the ballast at the rate of60,000 cu.m. per annum. As the contractor D
could not commence the work as,per the tender conditions and supplied only
88214 cu.m. up to November, 1997 penalty for an amount of Rs. l ,O 1 crore was
recovered from the running bills of the contractor. The appellant did not
agree to the request of the contractor for waiver of penalty and rescheduling
of supply. Therefore, a dispute arose between the parties and the contractor
sought appointment of an arbitrator under clause 64 of the General Conditions E
of contract. In pursuance of the contractor's demand the Arbitral Tribunal
was appointed to adjudicate the contractor's claim. The Arbitral Tribunal
initiated the proceedings and the contractor submitted his claim statement
before the Arbitral Tribunal. Subsequently, the contractor filed an arbitration
application No.60 of 1998 dated 16. l 0.1998 before the High Court of Andhra F.
Pradesh at Hyderabad under section 11 of the Act, seeking appointment of
an Arbitrator to resolve the dispute emanating from the agreement dated
19.4.1993. The appellant- Union of India contested the arbitration application
filed by the respondent by filing a counter and denying the allegations. It was
pointed out that it was wrong to say that the payment was not done for the G
work done. It was alleged that the payment was made as per the terms of the
contract and there was no delay on the part of the Railway. It was also
contended that the request for referring the dispute for arbitration has to be
done in accordance with Clauses 63 & 64 of the General Clauses of Contract.
As per Clause 63, on receipt of the application the Railway had to notify the
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128 SUPREME COURT REPORTS [2006] SUPP. 9 S.C.R.

·A decisions on all matters including the matters which came up under the ·
caption excepted matters. The respondent subsequently made a request for
referring the matter to Arbitral Tribunal, The General Manager of the Railways
as per Clause 64 of the General Conditions of Contract accepted the request
of the respondent for referring the dispute to the Arbitral Tribunal and
accordingly, a letter was sent on 5.5. I 998 furnishing four names of Railways
B Officers out of which the respondent had to nominate up to two names which
was the requirement in accordance with clause 64 (3) (a) (ii) of the General
Conditions of Contract. The respondent chose one name i.e. Shri R.N.
Raghavan out of the four names given to him and the dispute was referred
to the Arbitral,Tribunal on 20.8.1998. Thereafter some other Railway Official
C was appointed. Some claims were not referred to the Arbitral Tribunal.
Meanwhile, the contactor filed petition in the High Court. The High Court on
28.11.2000 appointed Mr. Justice Y.V. Narayana as Arbitrator to resolve the
disputes and referred all I 4 claims and also fixed the fee at Rs.2 lac . Aggrieved
by the order dated 28. I I .2000 passed in Civil Miscellaneous Petition No.60
of I 998, the appellant filed a writ petition before the High Court challenging
D the order of the learned Single Judge appointing the Arbitrator before the
Division Bench. The Division Bench clubbed together large number of
matter including various issues pertaining to Arbitration Act, I 996 & decided
by its order dated 27.4.2001. This order was also challenged by Union of
India by filing the present appeal. The Division Bench of the High Court by
E this order disposed of Union of India's appeal pertaining to this subject
matter and directed that in view of the peculiar facts of this case that since
General Manager of the Railway has already constituted an Arbitral Tribunal,
the appellant should approach the learned Single Judge for modification/
recalling the aforesaid order dated 28.11.2000. Pursuant to that the appellant
approached the learned. Single Judge praying for modification of the order.
F Learned Single Judge dismissed the aforesaid application by order dated
21.2.2002. While dismissing the application, learned Single Judge observed
as follows :

"As this court is of the opinion that the Arbitral tribunal constituted
by the General Manager is impliedly set aside and the matters referred
G are already withdrawn by referring the same to the sole Arbitrator
appointed by this Court, the question of functioning of the Arbitral
Tribunal constituted by the General Manager, Railways, does not
arise."

H Hence, aggrieved against this order the present Special Leave Petition was
U.0.1. v. V.S. ENGINEERING (P)LTD. [A.K. MATHUR, J.] 129
filed and leave was granted. Hence both the present appeals have come A
up before us for final disposal.

Learned Additional Solicitor General appearing for the appellant- Union
of India has pointed out that as per Clauses 63 & 64 of the General Conditions
of Contract, this Court in no uncertain tenns has held that the Arbitral
Tribunal has to be consti~uted as per the General Conditions of Contract, B
the High Court should not interfere under Section 11 of the Actand the High
Court should accept the Arbitral Tribunal appointed by the General Manager,
Railway. In this connection, learned ASG invited our attention to a decision
of this Court directly bearing on the subject in Union of India & Anr. v. MP.
Gupta [2004] 10 SCC 504 ~herein a similar question with regard to appointment C
of Arbitral Tribunal for the Railways with reference to Clause 64 of the
General Conditions of Contract came up before this Court and this Court held
that where two gazetted railway officers are appointed as the Arbitral Tribunal,
the High Court should not' appoint a retired Judge of the High Court as a sole
Arbitrator and the appointqtent of sole arbitrator was set aside. The conditions
of Clauses 63 & 64 of the General Conditions of Contract are almost analogous D
to the one we have in our hand. In that case also relying on Clause 64 of
the contract a three Judge Bench presided over by the Chief Justice of India
observed as follows :

" In view of the express provision contained therein that two
gazetted railway omcers shall be appointed as arbitrators, Justice P.K. E
Bahri could not be appointed by the High Court as the sole arbitrator.
On this short ground alone, the judgment and order under challenge
to the extent it appoints Justice P.K. Bahri as sole arbitrator is set
aside. Within 30 days from today, the appellants herein shall appoint
two gazetted railw~y officers as arbitrators. The two newly appointed F
arbitrators shall enter into reference within a period of another one
month and thereaft~r the arbitrators shall make their award within a
period of three months."

Earlier also in the case of ~afar Switchgears Ltd v. Tata Finance Ltd & Anr.
[2002] 8 sec 151 their Lordships have observed that the arbitrator should G
be appointed within thirty days on demand being made by the other party
and the appointment could still be made but before the other party moves the
Court under Section 11 of the Act. It was observed that once the other party
moves the court the right to make the appointment ceases to exist. In the
I
present case as it appears that the General Manager, Railway has already
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130 SUPREME COURT REPORTS (2006] SUPP. 9 S.C.R.

A appointed the arbitrator but despite this, learned Single Judge has overruled
the objection of the Union of India & appointed learned Judge of the High
Court as arbitrator.

As against this learned counsel appearing for the respondent has invited
our attention to a decision of this Court in SBP & Co. v. Patel Engineering
B Ltd & Anr. [2005] 8 sec 618 in a Bench of seven Judges by majority has
overruled the earlier decision given in Konkan Railway Corporation Ltd
& Anr. v. Rani Construction Pvt. Ltd. [2002] 2 SCC 388. So far as the case
of SBP & Co. (supra) is concerned it cannot come to the rescue of the
respondent. Learned counsel for the respondent invited our attention to
C paragraph 4 7 that this judgment will have prospective following. But it did
not lay down that when,as per agreement arbitrator is appointed then Court
should or should not interfere in the matter, whereas this issue is covered !'Y
earlier judgment by this Court in the case of Union of India v. MP.Gupta
(supra) by a three Judge bench which is binding on us. Therefore, the
decision in SEP & Co. (supra) cannot be of any help to the respondent. It
D has also been pointed out that the arbitration proceedings are almost complete.
But this Court has stayed the pronouncement of the award. In the present
case, in view of the decision in MP. Gupta (supra) a three Judge Bench has
clearly stated that whenever the agreement specifically provided for
appointment of two gazetted railway officers of equal status as arbitrators by
E the General Manager, Railway, then in that case the Court should give this
latitude to the General Manager to make appointment.

However, before parting with this case we may also observe that Railways
and Public institutions are very slow in reacting to the request made by a
contractor for appointment of the arbitrator. Therefore, in case appointment
F is not made in time on the request made by the contracting party. then in that
.case the power of the High Court to appoint arbitrator under Section 11 of
the Act will not be denuded. We cannot allow administrative authorities
to sleep over the matter and leave the citizens without any remedy. Authorities
shall be vigilant and their failure shall certainly give rise to cause to the
G affected party. In case, the General Manager, Railway does not appoint the
arbitral tribunal after expiry of the notice of 30 days or before the party
approaches the High Court, in that case, the High Court will be fully justified
in appointing arbitrator under section 11 of the Act. It is the discretion of the
High Court that they can appoint any railway officer or they can appoint any
High Court Judge according to the given situation.
H
U.0.1. v. V.S. ENGINEERING(P) LTD. [A.K. MATHUR, J.] 131

As a result of our above discussion, we allow these appeals, set aside A
the orders of the High Court. We direct the General Manager, Railway to
appoint arbitral tribunal within a period of 30 days from the date of receipt
of a certified copy of this order. The. arbitral tribunal so appointed shall enter
into the matter and dispo$e of the arbitration proceedings as expeditiously
as possible. Consequently, the appointment of Justice Y.V.Narayana as arbitrator B
is set aside. There would be no order as to costs.

D.G. Appeal allowed .

...