In the matter of settlement of dispute by arbitration, the agreement executed by the parties has to be given great importance and an agreed procedure for appointing the arbitrators has been placed on high pedestal and has to be given preference to any other mode for securing appointment of an arbitrator
|Case name:||The Iron and Steel Co. Ltd Vs. M/S. Tiwari Road Lines|
|Case number:||Civil appeal number-2386 of 2007|
|Court:||The Supreme Court of India|
|Bench:||JUSTICE G.P. Mathur, JUSTICE Lokeshwar Singh Panta|
|Decided on:||May 08, 2007|
|Relevant Act/Sections:||Section 11, 20 of the Arbitration and Conciliation Act, 1996|
- BRIEF FACTS AND PROCEDURAL HISTORY:
- The appellant The Indian Iron and Steel Co. Ltd., having its registered office at Kolkata, invited tenders on 17.2.2003 for transportation of pig iron and steel material from Burnpur /Kolkata stockyard to different customer locations in various parts of the country.
- The tender submitted by the respondent M/s. Tiwari Road Lines was accepted and a letter was issued on 14.5.2003 awarding the contract to the respondent to transport the material with effect from 17.5.2003 for a period of two years. The tender was submitted by the respondent at the Head Office of the company at Kolkata and the agreement was also signed between the parties at Kolkata.
- In terms of the agreement the respondent furnished a bank guarantee for Rs.5,00,000/-. According to the appellant there was failure on the part of the respondent to comply with the terms of the agreement and accordingly the appellant invoked the bank guarantee on 16.9.2003.
- PROCEDURAL HISTORY:
- Feeling aggrieved by the encashment of the bank guarantee, the respondent filed an application before the Chief Judge, City Civil Courts, Hyderabad, who was the designated authority under Section 11 of the Arbitration and Conciliation Act, 1996 under the scheme framed by the Andhra Pradesh High Court, for appointment of an arbitrator to decide the dispute between the parties. The appellant contested the application on two grounds, viz., that the City Civil Court at Hyderabad had no territorial jurisdiction to entertain the application and, secondly, under the terms of the agreement between the parties the dispute had to be resolved in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the application filed under Section 11 of the Act was not maintainable.
- The Chief Judge, City Civil Courts, Hyderabad allowed the application by order dated 31.3.2004 and appointed a retired judicial officer as arbitrator to decide the dispute. The said order was challenged by the appellant by filing a civil revision petition before the Andhra Pradesh High Court. The revision petition was allowed and the matter was remanded to the City Civil Court, Hyderabad to consider the question of jurisdiction. The City Civil Court again allowed the application filed by the respondent by order dated 27.12.2004 and appointed a retired judicial officer as arbitrator to decide the dispute between the parties.
- This order was challenged by the appellant by filing a writ petition in the High Court on the ground, inter alia, that the application under Section 11 of the Act was not maintainable. The High Court negated the contention raised by the appellant and dismissed the writ petition.
- It is these orders in question in present appeal.
- ISSUE BEFORE THE COURT:
- Whether the city civil court at Hyderabad had territorial jurisdiction?
- Whether the dispute between the parties should be decided in accordance with the Rules of Arbitration of the Indian Council of Arbitration or not?
- Whether such an application moved by the respondent was maintainable?
- RATIO OF THE COURT:
- The court observes that i, General Conditions of Contract a perusal of clause 13.1 shows that under the terms of the agreement all disputes or differences whatsoever arising between the parties have to be decided by arbitration in accordance with the Rules or Arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties.
- The Court considered the scope of sub-section (4) of Section 20 of the Arbitration Act, 1940 and held as under: – “Sub-section (4) of Section 20 says that the reference shall be to the arbitrator appointed by the parties. Such agreed appointment may be contained in the agreement itself or may be expressed separately. Where the agreement itself specifies and names the arbitrator, it is obligatory upon the court, in case it is satisfied that the dispute ought to be referred to the arbitrator, to refer the dispute to the arbitrator specified in the agreement.
- The court observed that the legislative scheme of Section 11 is very clear. If the parties have agreed on a procedure for appointing the arbitrator or arbitrators as contemplated by sub-section (2) thereof, then the dispute between the parties has to be decided in accordance with the said procedure and recourse to the Chief Justice or his designate cannot be taken straightaway.
- A party can approach the Chief Justice or his designate only if the parties have not agreed on a procedure for appointing the arbitrator as contemplated by sub-section (2) of Section 11 of the Act or the various contingencies provided for in sub-section (6) have arisen. Since the parties here had agreed on a procedure for appointing an arbitrator for settling the dispute by arbitration as contemplated by sub-section (2) and there is no allegation that any one of the contingencies enumerated in clause (a) or (b) or (c) of sub-section (6) had arisen, the application moved by the respondent herein to the City Civil Court, Hyderabad, was clearly not maintainable and the said court had no jurisdiction to entertain such an application and pass any order. The order dated 27-12-2004, therefore, is not sustainable.
- The court observed that it is not open to the Court to ignore such an arbitration clause of the agreement and to appoint another person as an arbitrator. Only in cases where the arbitrator specified and named in the agreement refuses or fails to act or where the agreement does not specify the arbitrator and the parties cannot also agree upon an arbitrator, does the court get the jurisdiction to appoint an arbitrator.
- . It is for this reason that in clause (a) of sub-section (8) of Section 11 of the Act it is specifically provided that the Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to any qualifications required of the arbitrator by the agreement of the parties.
- The court also considered the case Government of A.P. vs. K. Mastan Rao 1995 Supp. (4) SCC 528, the agreement between the parties provided for settlement of dispute by three persons holding the post of Chief Engineer of the project, Deputy Secretary to Government, Finance Department, and the Director of Accounts of the project. On the petition made by the contractor, the subordinate judge removed the panel of three arbitrators and appointed a retired Chief Engineer as the sole arbitrator to adjudicate the dispute.
- In Rite Approach Group Ltd. v. Rosoboronexport [(2006) 1 SCC 206] it was held that in view of the specific provision specifying the jurisdiction of the Court to decide the matter, this Court cannot assume the jurisdiction. Whenever there is a specific clause conferring jurisdiction on particular Court to decide the matter then it automatically ousts the jurisdiction of the other Court. In this agreement, the jurisdiction has been conferred on the Chamber of Commerce and Trade of the Russian Federation as the authority before whom the dispute shall be resolved.
- This being the settled position of law we are clearly of the opinion that the respondent should have initiated proceedings for settlement of disputes by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration as provided in clause 13.1 of the agreement and the application moved by it to the City Civil Court, Hyderabad, for appointment of an arbitrator was not maintainable.
- Consequently, the order passed by the City Civil Court, Hyderabad dated 27.12.2004 is wholly illegal and without jurisdiction and is liable to be set aside.
- DECISION HELD BY COURT:
- In this case the judgement was given by JUSTICE G.P MATHUR that the appeal is allowed with costs throughout.
The judgment and order dated 9.9.2005 of the High Court of Andhra Pradesh and the judgment and order dated 27.12.2004 of the City Civil Court, Hyderabad appointing an arbitrator are set aside. It will be open to the parties to get the dispute decided by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration.