Creative Consortium and Another vs Punjab State Co-op. Milk Producer's Federation Ltd. and Others

Hemant Gupta, J.—The Petitioner has invoked the jurisdiction of this Court for appointment of an Arbitrator in respect of the disputes between the parties arising out Agreements dated 25.01.2000 & 27.01.2000. Vide Agreement dated 25.01.2000, the Petitioners were allotted work for designing and execution for setting up the office of marketing section and interior decoration of the main entrance and existing milk bar etc. at the ground floor of Milkfed Head Office. Vide another Agreement dated 27.01.2000, the Petitioners were given work for construction of asphalt road/parking and premix carpet on the existing roads, relaying of tile terracing of stores etc. at Milk Plant Mohali.

As per the Petitioners, disputes arose between the parties, which were sought to be resolved through an Arbitrator vide notice dated 31.07.2001 (Annexure P-3). Vide the said notice, the Petitioners sought appointment of Executive Engineer as an Arbitrator. On 16.08.2001 vide Annexure P-4, the Petitioners were informed that the Executive Engineer cannot not act as an Arbitrator and in fact, it is the Managing Director is to act as an Arbitrator and that the Petitioners should invoke the jurisdiction of the named Arbitrator. It is, thereafter, on 04.12.2001, the Petitioner invoked the jurisdiction of the Managing Director to resolve the disputes between the parties. However, the Petitioners were informed on 06.01.2002 vide Annexure P-7 that the Petitioners should deposit 10% of the amount claimed in terms of the Agreement as cost of the proceedings, so that the Managing Director can start the arbitration proceedings. The Petitioners have moved an application on 16.07.2002 before the Principal Civil Court of original jurisdiction for change of Arbitrator, but such application was dismissed on 03.08.2005. It is, thereafter, the present petition for appointment of an independent Arbitrator and without deposit of the security amount was filed on 26.11.2007.

The relevant Clause in the Agreement reads as under:

xxx xxx xxx 25 (v). All disputes or differences in respect of which the decision is not final and conclusive shall at the reuest of either party made by a communication sent through registered A/D Post, be referred to the Sole Arbitration of the Managing Director, Punjab State Cooperative Milk Producers'' Federation Ltd.

xxx xxx xxx 25 (viii) It shall be an essential term of this contract that in order to avoid frivolous claims, the party invoking arbitration shall specify the disputes based on facts and calculations stating the amount claimed under each claim and shall furnish a "Demand Draft" for ten percent of the amount claimed, of a scheduled bank in the name of the Arbitrator, by his official designation, who shall keep the amount in deposit till the announcement of the award. In the event of an award in favour of the claimant, the deposit shall be refunded to him in proportion to the amount awarded with respect of the amount claimed and the balance, if any, shall be forfeited and paid to the other party.

Learned Counsel for the Respondents has vehemently argued that the present petition for appointment of an Arbitrator is barred by limitation and that the Petitioner cannot wriggle out of the Agreement contemplating resolution of disputes by a named Arbitrator and condition of deposit of security amount, as a condition precedent for initiation of arbitration proceedings.

I do not find that the plea of the learned Counsel for the Respondents that the claim is barred by limitation is meritorious. The Petitioner had invoked the jurisdiction of the Principal Civil Court of original jurisdiction for change of Arbitrator. The said proceedings can be said to be prosecuted by the Petitioner in good faith. The period spent in such proceedings i.e. 16.07.2002 to 03.08.2005 is, thus, to be excluded u/s 14 of the Limitation Act, 1963 while computing the period of limitation. After such exclusion, the present petition would be within the period of three years from the date of accrual of cause of action i.e. when the Petitioner was called upon to deposit the security amount.

In view of the above, the disputes between the parties are required to be resolved by named Arbitrator, after deposit of 10% of the security amount in terms of Clause 25(viii) of the Agreement.

The Hon''ble Supreme Court in Northern Railway Adminisration, Ministry of Railway, New Delhi v. Patel Engineering Company Ltd., (2008) 10 SCC 24 has held that the Arbitrator has to be appointed having due regard to the terms of the Agreement. It was so held:

The crucial expression in Sub-section (6) is "a party may request the Chief Justice or any person or institution designated by him to take the necessary measure" (underlined for emphasis*). This expression has to be read along with requirement in Sub-section (8) that the Chief Justice or the person or an institution designated by him in appointing an arbitrator shall have "due regard" to the two cumulative conditions relating to qualifications and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.

A bare reading of the scheme of Section 11 shows that the emphasis is on the terms of the agreement being adhered to and/or given effect as closely as possible. In other words, the Court may ask to do what has not been done. The Court must first ensure that the remedies provided for are exhausted. It is true as contended by Mr Desai, that it is not mandatory for the Chief Justice or any person or institution designated by him to appoint the named arbitrator or arbitrators. But at the same time, due regard has to be given to the qualifications required by the agreement and other considerations.

The expression "due regard" means that proper attention to several circumstances have been focused. The expression "necessary" as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. Necessary measures can be stated to be the reasonable steps required to be taken.

In all these cases at hand the High Court does not appear to have focused on the requirement to have due regard to the qualifications required by the agreement or other considerations necessary to secure the appointment of an independent and impartial arbitrator. It needs no reiteration that appointment of the arbitrator or arbitrators named in the arbitration agreement is not a must, but while making the appointment the twin requirements of Sub-section (8) of Section 11 have to be kept in view, considered and taken into account. If it is not done, the appointment becomes vulnerable.

Since the parties have agreed for resolution of disputes by a named Arbitrator, the Petitioner cannot be permitted to seek appointment of an independent Arbitrator, dehors the named Arbitrator agreed in the Agreement, in the facts and circumstances of the case.

Consequently, the present petition is disposed of with a direction to the named Arbitrator i.e. Managing Director to start arbitration proceedings if the Petitioner deposit 10% of the security amount within a period of one month from today. Liberty is granted to the Petitioner to invoke jurisdiction of this Court for appointment of an Arbitrator, if Managing Director does not start the arbitration proceedings within one month.