G. RAMACHANDRA REDDY AND CO.versusCHIEF ENGINEER, MADRAS ZONE, MILITARY ENGINEERING SERVICE

A                G. RAMACHANDRA REDDY AND CO.
                                v.                                                •
              CHIEF ENGINEER, MADRAS ZONE, MILITARY
                      ENGINEERING SERVICE

                                 APRIL 29, 1994
B
             [K. RAMASWAMY AND N. VENKATACHALA, JJ.J

          Arbitration Act, 1940: Sections 8(a) and 20.

C         Power of Court to appoint Arbitrato,-.Contract-Dispute-Notice to
    appoint Arbitrator in terms of contrac1'-Failure of party to appoint Ar-
    bitrato,-He/d Court can appoint Arbitrator.

          The appellant Company's contract was terminated by the respon-
    dent. Exercising the option under clause 17 of the General Conditions of
D   Contract the appellant issued notice to the respondent to appoint ar-
    bitrator in terms of the contract for adjudicating the dispute which had
    arisen between them. On respondents' failure to do so the appellants filed
    a suit uuder Section 20 of the Arbitration Act, 1940 and a single Judge of
    the High Court appointed an arbitrator. On appeal a Division Bench of
E   the High Court agreed with the Single Judge that despite appellant's notice
    to appoint an Arbitrator no action was taken by the respondent. Though
    High Court's suggestion that the respondent could agree for appointment
    of anyone of the five Arbitrators named in the list given by the appellant
    did not find favour with the respondent, yet the Division Bench directed
    the respondent to appoint an Arbitrator within 15 days from that date
F   and declared that in case the respondent failed to do so, the Arbitrator
    appointed by the single Judge would be deemed to have been appointed
    under Section 20.

         In appeal to this court it was contended on behalf of the appellant
G that (i) failure on the part of the respondent to appoint Arbitrator gave
  right to the appellant to invoke the jurisdiction of the Civil Court under
  Section 20(4) and the Court got jurisdiction to appoint the Arbitrator of
  its choice and (ii) the Division Bench committed a manifest error of law
  in interfering with appointment of Arbitrator under section 20(4).

H        Allowing the appeal and setting aside the judgment of the Division
                                      808
   G. RAMACHANDRAREDDY & CO. v. MILITARY ENGG. SERVICE 809

Bench, this Cot•"'                                                               A
      HELD : 1. The single Judge rightly exercised the power under Section
20(4) of the Arbitration Act, 1940 and appointed the Arbitrator. When the
notice was given to the opposite contracting party to appoint an arbitrator
in terms of the contract and if no action had been taken, it must be deemed
that he neglected to act upon the contract. When no agreement was                B
reached, even in the court between the parties, the court got jurisdiction
and power to appoint an Arbitrator. [812-H, 813-A-C]

       2. Even if Section 8(a) per se does not apply, notice was an intima-
tion to the opposite contracting party to act upon the terms of the contract     C
and its non-availment entails the forfeiture of the power to appoint an
arbitrator in terms of the contract and gives right to the other party to
invoke the court's jurisdiction under section 20. [813-B]

      3. The Division Bench was not right in holding that the respondent
has by giving option to the appellant to agree for appointment of an ar-         D
bitrator out of the five named persons had left it to the appellant to appoint
an Arbitrator and allowed the appellant to appoint Arbitrator. [813-C]

     4. The appointment of Arbitrator made by the single Judge must be
deemed to have been approved by this Court. [813-D]
                                                                                 E
      5. In the absence of any named arbitrator it would be open to the
contracting parties to agree for an appointment of an Arbitrator by
agreement even after the proceedings were laid in the Court under section
20. In the absence of any such agreement, the Court gets jurisdiction and
power to appoint an Arbitrator. [811-H, 812-A]                                   F

      Union of India v. Prafu/la Kumar Sangal, [1979] 3 S.C.C. 831, ex-
plained and held inapplicable.

     Nandyal Co-op. Spinning Mill Ltd. v. K.V. Mohan Rao, [1993] 2
S.C.C. 654, referred to.                                                         G
        CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4378 of
1994.

     From the Judgment and Order dated 5.1.93 of the Madras High
Court in 0.S.A. No. 281 of 1992.                                 H
    810                       SUPREME COURT REPORTS               [1994] 3 S.C.R.

A            K. Parasaran, R. Murari and V. Balachandran for the Appellant.

             A.S. Nambiar, T.V. Ratnam and Ms. A. Subhashini for the Respon-
    dents.

             The following Order of the Court was delivered :
B
             Leave granted.

         This appeal arises from the judgment of the division bench of Madras
    High Court in O.S.A. No. 281/92 dated January 5, 1993.

C        The appellants contract was terminated by the respondent and in
  consequence thereof, by notices dated July 23, 1991 and August 21, 1991,
  the appellants exercising the option under clause 17 of General Condition
  of Contract, called upon the Engineer in Chief of appoint sole Arbitrator,
  in terms of the contract, to adjudicate the dispute that had arisen between
D them. Since no action was taken by the respondents, the appellants filed a
  suit 011 March 4, 1992 under s.20 of the Arbitration Act, 1940 for short 'the
  Act', requesting the court to appoint an arbitrator. Learned single Judge
  of the High Court by his judgment dated Sept. 23, 1992 appointed Justice
  M.A. Sattar Syeed, a retired Judge of the High Court as Sole Arbitrator.
  On appeal, a division bench of that High Court agreed with the single
E Judge that despite the issue of notice calling upon the respondent to
  appoint the Arbitrator in terms of the contract, no action was taken by the
  respondent. Its suggestion that the respondent could agree for appointment
  of anyone of the five arbitrators named in the list given by the appelhnt
  did not find favour with the respondent. Yet, the Division Bench directed
  the resoondent to appoint an arbitrator within 15 days from that date and
F declared that in case the respondent failed to do so, the arbitrator ap-
  pointed by the single Judge would be deemed to have been appointed
  under s.20. The appellant, feeling aggrieved against the judgment of the
  division bench, has filed the appeal.

          Sri K. Parasaran, learned senior counsel for the appellant contended
G that once the appellant had issued notice to the respondent calling upon
    him to appoint an arbitrator in terms of the contract, the failure to do so
    had given right to the appellant to invoke the jurisdiction of the civil court
    under s.20(4) of the Act and that Court got jurisdiction to appoint the
    Arbitrator of its choice. When the learned single Judge had exercised its
H   jurisdiction under s.20(4) of the Act and appointed the arbitrator, the
   G. RAMACHANDRAREDDY & CO. v. MILITARY ENGG. SERVICE 811

division bench committed a manifest error of law in interfering with that        A
appointment. Sri A.S. Nambiar, the learned senior counsel for the respon-
dent, sought to support the division bench judgment, relying upon the
judgment of this court in Union of India v. Prafulla Kumar Sangal, [1979]
3 sec 631, wherein this court had observed that before appointing an
arbitrator by the court itself "it is desirable that the court should consider
the feasibility o[ appointing an arhitrator according to the terms of the
                                                                                 B
contract 11 and the issuance of the notice giving 15 days' time as con-
templated under s. 8( a) of the Act did not arise on the facts in the present
case. Therefore, his contention was that though the appellant had not
appointed the arbitrator before the expiry of 15 days' notice before the
matter was decided by the division bench, the appellant was given an option      C
to accept anyone among the five named persons to be a Sole Arbitrator
and having failed to accept anyone, it is not open to the appellant to
impugn the correctness of legality of the appointment of the Arbitrator by
ihe Division Bench) in ter1ns of the contract.

                                                                                 D
       We find no force in the contentions of Sri Nambiar. This court
interpreting s.20(4) of the Act, has, in Praful/a Kumar's case itself, specifi-
cally laid down that sub-s. (4) requires "that the court shall make an order
of reference to the arbitrator appointed by the parties under the agreement
or otherwise if such arbitrator had not been appointed when the parties
cannot agree to appoint an arbitrafor, the Court may proceed to appoint E
an arbitrator by itself. In that case, the parties agreed before this court,
expressing their desire that the President should be asked to appoint an
arbitrator as contemplated under clause 29 within two months from the
date of the order passed by this Court. In that backdrop this Court had
expressed the desirability or the feasibility to appoint an arbitrator in terms F
of the contract. Those observation of this Court cannot be understood or
torn out of context and read in isolation. The court should endeavour that
the contract should always be given effect to, though the contracting party
had failed to act according to contract. It is to be see!', whether the
contract provided for the appointment of a r.amed arbitrator, and if so, the
parties normally would be bound by the terms of contract and the court G
would not be justified to appoint any arbitrator unless the arbitrator
refused or neglected to enter upon the reference, etc. In the absence of
any named arbitrator it would be open to the contracting parties to agree
for an appointment of an arbitrator by agreement even after the proceed-
ings were laid in the Court under s.20 of the Act. In the absence of any H
    812                   SUPREME COURT REPORTS                   [1994] 3 S.C.R.

A such agreement, the Court gets jurisdiction and power to appoint an
    arbitrator. In Prafulla Kunzar's case no notice was given to the appellant to
    appoint as arbitrator in terms of the contract before the suit \Vas filed and
    no action was taken pending suit except contending that the matter was
    under active consideration. In that context, it was held that in the absence
    of any agreement, the court gets jurisdiction. In Nandyal Co-op. Spinning
B   Mills Ltd. v. KV Mohan Rao, [1993) 2 SCC 654, 15 days notice was given
    to the respondent to act upon the terms of the contract to appoint an
    arbitrator, but it was not done, although it was stated that the matter was
    under consideration. It was, therefore, held thus:

c           "It would thus be clear that if no arbitrator had been appointed in
            terms of the contract within 15 days from the date of receipt of
            the notice, the administr dtive head of the appellant had abdicated
            himself of the power to appoint arbitrator under the contract. The
            court gets jurisdiction to appoint an arbitrator in place of the
            contract by operation of s.S(i)(a). The contention of Shri Rao,
D
            therefore, that since the agreement postulated preference to ar-
            bitrator appointed by the administrative head of the appellant and
            if he neglects to appoint, the only remedy open to the contractor
            was to have recourse to civil suit is without force. It is seen that
            under the contract the respondent contracted out from adjudica-
E           tion of his claim by a civil court. Had the contract provided for
            appointment of a named arbitrator and the named persons was
            not appointed, certainly the only remedy left to the contracting
            party was right to suit. That is not the case on hand. The contract
            did not expressly provide for the appointment of a named ar-
            bitrator. Instead power has oeen given to the administrative head
F
            of the appellant to appoint sole arbitrator. When he failed to do
            so within the stipulated period of 15 days enjoined under s.S(l)(a),
            then the respondent has been b>iven right under Clause 65.2 to avail
            the remedy under s.S(l)(a) and request the court to appoint an
            arbitrator. If the contention of Shri Rao is given acceptance, it
G           would amount to putting a premium on inaction depriving the
            contractor of the remedy of arbitration frustrating the contract
            itself.Tl

          Thus when the notice was given to the opposite contracting party to
H appoint an arbitrator in terms of the contract and if no action had been
      G. RAMACHANDRA REDDY & CO. v. MILITARY ENGG. SERVICE 813

    taken, it must be deemed that he neglected to act upon the contract. When A
    no agreement was reached, even in the court between the parties, the court
    gets jurisdiction and power to appoint an arbitrator. Even if s.8(a) per se
    doe> not apply, notice was an intimation to the opposite contracting party
    to act upon the terms of the contract and his/its non-availment entails the
    forfeiture of the power to appoint an arbitrator in terms of the contract
    and gives right to the other party to invoke the court's jurisdiction under
                                                                                  B
    s.20. In the inslonl case the respondent did not appoint an arbitrator, after
    the notice was received. The respondent averred in the written statement
    that it was under consideration. Even before the learned single Judge he
    did not even state that he was willing to appoint an arbitrator. The learned
    single Judge rightly exercised the power under s.20(4) of the Act and c
    appointed the Arbitrator. The division bench, therefore, was not right in
    holding that the respondent has by giving option to the appellant to agree
    for appointment of an arbitrator out of the five named persons had left it
    to the respondent to appoint an arbitrator and allowed respondent to
    appoint an arbitrator. On the other hand, the appointment of an arbitrator D
    made by the learned single Judge must be deemed to have been approved
    by us.

         The appeal is accordingly allowed. The Judgment of the division
    bench is set aside and that of the.learned single Judge is restored. In the
    circumstances, parties are directed to bear their own costs.                  E

    T.N.A.                                                    Appeal allowed.




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