2003 JTR(SC) 1168
2004 AIR(SC) 1034 ; 2003 AIR(SCW) 6679 ; 2004 54 AllLR 315 ; 2003 3 ArbLR 557 ; 2004 2 JLJR(SC) 189 ; 2004 2 MPWN 38 ; 2004 2 PLJR(SC) 213 ; 2004 1 RCR(Civ) 293 ; 2003 10 Scale 318 ; 2004 1 SCC 768 ; 2004 SCC(Cri) 365 ; 2003 Supp5 SCR 832 ; 2004 KHC 411 ; 2003 8 Supreme 564
2003(8) Supreme 564
SUPREME COURT OF INDIA
(From Rajasthan High Court)
V.N. Khare, CJI., S.B. Sinha & AR. Lakshmanan, JJ.
Union of India & Anr. -Appellants
versus
M/s. Sohan Lal Puglia -Respondent
Civil Appeal No. 5377 of 1998
Decided on 19-11-2003
Counsel for the Parties :
For the Appellant : Y.P. Mahajan, Ms. Sushma Suri, Advocates.
For the Respondent : Bijan Kumar Ghosh, Advocate.
Act Referred :ARBITRATION ACT : S.20(4)
(A) The Arbitration Act, 1940, specifically Section 20(4), governs the appointment of arbitrators when parties are unable to agree on an arbitrator. In this matter, the Act mandates that where the contract contains an arbitration clause, the court must direct the parties to appoint arbitrators in consonance with the agreement, particularly when the dispute involves amounts exceeding a specified threshold and the clause prescribes the qualifications of the appointing authority. The District and Sessions Judge, Jaipur City, invoked Section 20 of the Act to appoint two retired District Judges as Arbitrators after the appellants failed to appoint an arbitrator, and the High Courts dismissal of the revision petition was predicated on an incorrect interpretation of the statutory obligations under this provision.
(B) The core legal principle is that a partys non-appointment of an arbitrator as mandated by the arbitration agreement does not automatically render the courts reference order under Section 20(4) non-maintainable; the court must first direct the parties to effectuate the appointment as per the agreement before considering any application for court appointment. The High Court was found to have overlooked this mandatory procedural requirement.
Facts of the case:
The parties entered into a contract on or about 2.9.93 for the supply of 50 mm gauge stone ballast machine crushed for railway infrastructure. A dispute arose, and the respondent invoked the arbitration clause. The appellants did not appoint an arbitrator, leading the respondent to file an application under Section 20 of the Arbitration Act, 1940. An order dated 7.4.94 resulted in the appointment of two retired District Judges as Arbitrators by the District and Sessions Judge, Jaipur City. An appeal by the appellants against this order was dismissed by an impugned judgment dated 15.1.98, prompting the present revision before the High Court.
Findings of Court:
The High Court held that the appeal was not maintainable on the ground that the appellants had not refused to appoint an arbitrator. This finding was negated by the Supreme Courts precedent in G. Ramachandra Reddy and Co. vs. Chief Engineer, Madras Zone, Military Engineering Service. Critically, the Court observed that the District Judge ought to have directed the parties to appoint Arbitrators in terms of the Arbitration agreement and sub-section (4) of Section 20, which was not considered.
Issues:
Whether the appeal filed by the appellants against the appointment of Arbitrators under Section 20 of the Arbitration Act was maintainable when the appellants had not refused to appoint an arbitrator as mandated by the arbitration clause and Section 20(4) of the Act.
Ratio Decidendi:
The mere invocation of the arbitration clause and the failure of the parties to appoint an arbitrator necessitate a court order directing the parties to appoint Arbitrators in consonance with the agreement. Only when sufficient cause is shown for the failure of such an appointment can the court proceed to appoint an arbitrator under Section 20(4), and the High Court was found to have erred in not directing this initial step.
Result:
The appeal is allowed to the extent that the parties are directed to appoint Arbitrators in consonance with the arbitration clause within one month, and the respondent is directed to appoint an Arbitrator within the same period, setting aside the impugned order.
(A) The Arbitration Act, 1940, specifically Section 20(4), governs the appointment of arbitrators when parties are unable to agree on an arbitrator. In this matter, the Act mandates that where the contract contains an arbitration clause, the court must direct the parties to appoint arbitrators in consonance with the agreement, particularly when the dispute involves amounts exceeding a specified threshold and the clause prescribes the qualifications of the appointing authority. The District and Sessions Judge, Jaipur City, invoked Section 20 of the Act to appoint two retired District Judges as Arbitrators after the appellants failed to appoint an arbitrator, and the High Courts dismissal of the revision petition was predicated on an incorrect interpretation of the statutory obligations under this provision.
(B) The core legal principle is that a partys non-appointment of an arbitrator as mandated by the arbitration agreement does not automatically render the courts reference order under Section 20(4) non-maintainable; the court must first direct the parties to effectuate the appointment as per the agreement before considering any application for court appointment. The High Court was found to have overlooked this mandatory procedural requirement.
Facts of the case:
The parties entered into a contract on or about 2.9.93 for the supply of 50 mm gauge stone ballast machine crushed for railway infrastructure. A dispute arose, and the respondent invoked the arbitration clause. The appellants did not appoint an arbitrator, leading the respondent to file an application under Section 20 of the Arbitration Act, 1940. An order dated 7.4.94 resulted in the appointment of two retired District Judges as Arbitrators by the District and Sessions Judge, Jaipur City. An appeal by the appellants against this order was dismissed by an impugned judgment dated 15.1.98, prompting the present revision before the High Court.
Findings of Court:
The High Court held that the appeal was not maintainable on the ground that the appellants had not refused to appoint an arbitrator. This finding was negated by the Supreme Courts precedent in G. Ramachandra Reddy and Co. vs. Chief Engineer, Madras Zone, Military Engineering Service. Critically, the Court observed that the District Judge ought to have directed the parties to appoint Arbitrators in terms of the Arbitration agreement and sub-section (4) of Section 20, which was not considered.
Issues:
Whether the appeal filed by the appellants against the appointment of Arbitrators under Section 20 of the Arbitration Act was maintainable when the appellants had not refused to appoint an arbitrator as mandated by the arbitration clause and Section 20(4) of the Act.
Ratio Decidendi:
The mere invocation of the arbitration clause and the failure of the parties to appoint an arbitrator necessitate a court order directing the parties to appoint Arbitrators in consonance with the agreement. Only when sufficient cause is shown for the failure of such an appointment can the court proceed to appoint an arbitrator under Section 20(4), and the High Court was found to have erred in not directing this initial step.
Result:
The appeal is allowed to the extent that the parties are directed to appoint Arbitrators in consonance with the arbitration clause within one month, and the respondent is directed to appoint an Arbitrator within the same period, setting aside the impugned order.
ORDER
The parties herein entered into a contract on or about 2.9.93 relating to construction of supply of 50 mm gauge stone ballast machine crushed for permanent way in stocks along with the track and in station yard etc. Disputes and differences having been arose between the parties, the respondent invoked the arbitration clause contained in the said agreement. As the appellants herein did not appoint an Arbitrator in terms thereof, an application was filed by the respondent herein under Section 20 of the Arbitration Act, 1940 and by reason of an order dated 7.4.94, the District and Sessions Judge, Jaipur City, Jaipur, appointed two retired District Judges as Arbitrators. The appellants herein filed a revision petition thereagainst and by reason of the impugned judgment dated 15.1.98, the same was dismissed.
2. The core question which was raised before the High Court for consideration was as to when the appellants had not refused to appoint an Arbitrator, under Section 20 of the Act the petition was not maintainable. The High Court having regard to the decision of this Court in G. Ramachandra Reddy and Co. vs. Chief Engineer, Madras Zone, Military Engineering Service, reported in 1994(5) SCC 142 negatived the said contention.
3. Mr. H.L. Agrawal, learned senior counsel appearing for the appellants, however, submitted that the District Judge, Jaipur City while making appointment ought to have taken into consideration the terms contained in the Arbitration clause as also sub-section (4) of Section 20 of the Arbitration and in terms whereof the parties in a case involving the dispute of more than Rs. five lacs were to appoint Gazetted officers. Sub-section (4) of Section 20 of the Arbitration Act, 1940 reads as under :
"20(4) Where no sufficient cause is shown, the Court shall order the agreement to be filed, and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court."
4. In view of said provision, we are of the opinion that the learned District Judge ought to have directed the parties to appoint Arbitrators in terms of the Arbitration agreement. This aspect of the matter has not been considered by the High Court.
5. We, therefore, in modification of the order passed by the District Judge, direct the parties to appoint Arbitrators in consonance with the arbitration clause contained in the contract.
The appeal is allowed to the aforementioned extent.
6. Learned counsel appearing for the appellants stated that within a period of one month from this date, the Arbitrator shall be named and intimation thereof shall be given to the respondent. Consequently, the respondent herein is directed to appoint an Arbitrator within the aforementioned period and intimate thereabout to the appellants. We hope that the learned Arbitrators would give an Award within a period of four months from the date of entering into the Reference keeping in view the fact that the matter is pending for a long time. The fees of the Arbitrators will be fixed by the Arbitrators themselves.
Appeal allowed.
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