NORTH EASTERN RAILWAY & ORS.versusTRIPPLE ENGINEERING WORKS

                   [2014] 6 S.C.R. 1143


              NORTH EASTERN RAILWAY & ORS.                               A
                                 v.
                TRIPPLE ENGINEERING WORKS
                 (Civil Appeal No. 6275 of 2014)
                                                                         B
                        AUGUST 13, 2014.
          [RANJAN GOGOi AND M. Y. EQBAL , JJ.]

      Arbitration & Conciliation Act, 1996: s. 11 (6) - Appointment of
 arbitrator- Contract providing for arbitration by Railway Officers -    C
High Court appointing a retired Chief Justice as the Arbitrator -
Held: Although s. 11 says that the High Court must appoint arbitrator
as per contract between the parties, there is a shift in this notion,
in the sense that though the contract between the parties must be
adhered to, deviation therefrom in exceptional circumstances is          o
permissible - In the instant case, appointment of retired judge
contrary to the agreement requiring appointment of railway officer
is valid as the arbitration proceedings did not conclude for two
decades since the contractor raised his claims for alleged wrongful
termination of the two contracts - The power of the Court under          E
the Act has to be exercised to effectuate the remedy provided
thereunder and to facilitate the mechanism contemplated therein
- In a situation where the procedure and process under the Act
has been rendered futile, the power of the Court to depart from the
agreed terms of appointment of arbitrators must be acknowledged
- There was no infirmity much less any illegality or failure ofjustice   F
can be said to be occasioned by the order passed by the High
 Court so as to warrant any interference.

     The contracts awarded to the respondent-contractor
were terminated and the arbitration proceedings commenced                G
in the year 1996, however the award was still not passed. The
contract provided for arbitration by Railway Officers. The High
Court appointed a retired Chief Justice as the Arbitrator.

     The question which arose for consideration in the instant
                             1143                                        H
    1144     SUPREME COURT REPORTS                [2014} 6 S.C.R.


A   appeal was whether the High Court was right in traveling
    beyond the framework of clause 64(3)(a)(ii) and (iii) of the
    General conditions of contract and in appointing a retired
    Chief Justice as arbitrator.
        Dismissing the appeal, the Court
B
         HELD 1. The provisions of the General Conditions of
    Contract showed that the panel of arbitrators as per the
    agreement between the parties necessarily has to be
    Gazetted Railway Officers; any vacancy in the panel of
c   arbitrators has to be filled up in the same manner in which
    the initial panel is req&Mred to be constituted. [Para 4) [1150-
    C-D]
         2. The "classical notion'' that the High Court while
    exercising its power' under Section 11 of the Arbitration &
D   Conciliation Act, 1996 must appoint the arbitrator as per the
    contract between the parties saw a significant erosion in *Ace
    Pipeline Contracts case wherein this Court had taken the view
    that though the contract between the parties must be
    adhered to, deviations therefrom in exceptional
E   circumstances would be permissible. A more significant
    development had come in a decision that followed soon
    thereafter in **Bharat Battery Manufacturer case wherein it
    was held that once an aggrieved party files an application
    under Section·11 (6) of the Act to the High Court, the opposite
F   party would lose its right of appointment of the arbitrator(s)
    as per the tenns of the contract The implication that the Court
    would be free to deviate from the terms of the contract is
    obvious. The apparent dichotomy in *Ace Pipeline Contracts
    and **Bharat Battery Manufacturerwas reconciled by a three
    judges bench of this Court in ***Northern Railway
G   Administration where the jurisdiction of the High Court under
    Section 11 (6) of the Act was sought to· be emphasized by
    taking into account the expression "to take the necessary
    measure" appearing in sub-section (6) of Section 11 and by
    further laying down that the said expression has to be read
H
        NORTH EASTERN RAILWAY v. TRIPPLE                    1145
              ENGINEERING WORKS
 alongwith the requirement of sub-section (8) of Section 11 of       A
1the Act. In ****Singh Builders Syndicate, the appointment of
a   retired judge contrary to the agreement requiring
'appointment of specified officers was held to be valid on the
 ground that the arbitration proceedings had not concluded
 for over a decade making a mockery of the process. This             B
 Court has suggested therein that the government, statutory
 authorities and government companies should consider
 phasing out arbitration clauses providing for appointment of
 serving officers and encourage professionalism in arbitration.
 [paras 5, 6) [1150-E-G; 1151-A-C, G; 1152-A-B]                      C
     *Ace Pipeline Contracts (P) Ltd. Vs. Bharat Petroleum
Corporation Ltd. (2007) 5 SCC 304; **Union of India Vs. Bharat
Battery Manufacturing Co. (P) Ltd. (2007) 7 SCC 684; ***Northern
Railway Administration, Ministry of Railway, New Delhi Vs. Patel
Engineering Company Limited (2008) 10 SCC 240; ****Union of          D
India Vs. Singh Builders Syndicate (2009) 4 SCC 523; Punj Lloyd
Ltd. Vs. Petronet MHB Ltd. (2006) 2 SCC 638- relied on.
       3. The theory of forfeiture of the rights of a party under
  the agreement to appoint its arbitrator once the proceedings
  under Section 11 (6) of the Act had commenced came to be           E
  even more formally embedded in *****Deep Trading Company
  subject, of course, to the provisions of Section 11 (8), which
  provision in any event was held in ***Northern Railway
, Administration not to be mandatory, but only embodying a
  requirement of keeping the same in view at the time of             F
  exercise of jurisdiction under Section 11 (6) of the Act. [Para
  7] [1152-D-E)
      Indian Oil Corporation Limited and Ors. Vs. Raja Transport
 Private Limited (2009) 8 SCC 520; *****Deep Trading Company         G
 Vs. Indian Oil Corporation and Ors. (2013) 4 SCC 35; Datar
 Switchgears Ltd. Vs. Tata Finance Ltd. (2000) 8 SCC 151 - relied
 on.
    4. In the instant case, Clauses' 64(3)(a)(ii) and (iii) of the
 General Conditions of Contract did not prescribe any specific       H
    1146     SUPREME COURT REPORTS                  [2014] 6 S.C.R.


A   qualification of the arbitrators that were to be appointed
    under the agreement except that they should be railway
    officers. Even if the arbitration agreement was to specifically
    provide for any particular qualification(s) of an arbitrator theI

    same would not denude the power of the Court acting under
B   Section 11 (6), in an appropriate case to depart therefrom.
    Admittedly, the award in respect of disputes and differences
    arising out of the contract was yet to be passed. Though the
    appellant-Railway in its pleadings made a feeble attempt to
    contend that the process of arbitration arising out of the said
c   Contract has been finalized, no material, whatsoever was laid
    before the Court in support thereof. The arbitration
    proceedings to resolve the disputes and differences arising
    out of Contract did not even commence. A period of nearly
    two decades elapsed since the contractor had raised his
    claims for alleged wrongful termination <?f the two contracts.
D   The situation is distressing and to say the least disturbing.
    The power of the Court under the Act has to be exercised to
    effectuate the remedy provided thereunder and to facilitate
    the mechanism contemplated therein. In a situation where the
    procedure and process under the Act has been rendered
E   futile, the power of the Court to depart from the agreed terms
    of appointment of arbitrators must be acknowledged. There
    was no infirmity muchless any illegality or failure of justice can
    be said to be occasioned by the order passed by the High
    Court so as to warrant any interference. [Para 8) [11S2-F-G;
F   11S3-A-E]
                            Case Law Reference:
         2007(4) SCR 777            Relied on              Paras
         2007(8) SCR 993            Relied on              Para S
G
         (2006) 2 sec 638           Relied on              Para S
         2008(12) SCR 216           Relied on              Para S
         2009(13) SCR S10           Relied on              Para S
H        2007(8) SCR 993            Relied on              Paras
         NORTH EASTERN RAILWAY v. TRIPPLE                   1147
               ENGINEERING WORKS
       2009(3) SCR 470          Relied on             Para 6         A
       2013 (2) SCR 470         Relied on             Para 6
       (2000) s sec 1s1         Relied on             Paras
       CIVIL APP ELLATE JURISDICTION : Civil Appeal No. 6275 of      B
2014
    From the Judgment and Order dated 27.06.2012 of the High
Court of Patna in request Case No.3 of 2012.
     P.S. Patwalia, ASG, Madhrima Tatia, Shreekant N. Terdal for     C
the Appellants.                        ·

     Sangeeta Singh, Jogendra Singh, Merusagar Samantaray for
the Respondents.
       The JOdgment of the Court was delivered by
                                                                     D
       RANJAN GOGOi, J. 1. The challenge in this appeal is to
 order dated 27.06.2012 of the Patna High Court by which a.__
 former Chief Justice of the Sikkim High Court had been
  appointed as the arbitrator to r~solve the disputes and
  differences between the parties to the present proceedings E
  arising out of two contracts bearing No. CAO/CON/722 dated
_ 01.11.1993 and CAO/CON/738 dated 28.04.1994.
1

      2. Both the contracts awarded to the respondent-
contractor were terminated on 7 .11.1994. Admittedly, the
General Conditions of Contract of the Railways, which included       F
an arbitration clause, governed the parties. After the termination
of the two contracts the respondent-contractor approached the
Patna High Court by means of a writ petition challenging the
terminations. The writ petition was dismissed, which dismissal
was challenged before this Court in SLP(C) No. 17189/1995.           G
The said special leave petition was also dismissed leaving
parties to resolve the differences in an appropriate proceeding
i.e. a civil suit or by reference to arbitration, as the case may
be.
                                                                     H
    1148     SUPREME COURT REPORTS                 [2014] 6 S.C.R.


A       3. Though a panel of arbitrators as per Clauses 64(3)(a)(ii)
  and (iii) of the General Conditions of Contract was appointed
  as far back as in the year 1996, till date the award(s) in respect
  of the disputes arising out of either of the two contracts is yet
  to be passed. According to the appellant-railways, the
s proceedings of arbitration has been completed in respect of
  the disputes arising out of Contract No. CAO/CON/722 dated
  01.11.1993. Even if the said statement of the appellant-railways
  is to be accepted, though no material has been laid in support
  thereof, what cannot be denied is the fact that till date the award
c is yet to be passed. Admittedly, the arbitration in respect of the
  contract No. CAO/CON/738 dated 28.04.1994 has not even
  commenced. This is on account of the fact that in the year 2002
  the North Eastern Railway, which had entered into the contracts
  with the respondent-contractor, was bifurcated into North
  Eastern Railway and East Central Railway. As the jurisdiction
0
  in respect of the aforesaid contract No. CAO/CON/738 was to
  be exercised by the East Central Railway it appears that the
  appellant has disclaimed all responsibility with regard to holding
  of arbitration proceedings in respect of the said contract and
  at the same time the East Central Railway has not responded
E in any positive manner to the several demands for arbitration
  lodged by the contractor.

        Insofar as contract No. CAO/CON/722 is concerned,
  naturally, both the parties have tried to lay the blame for the
F delay in the process of arbitration on each other and the huge
  number of correspondence exchanged in this regard and the
  frequent change of the arbitration panel on account of
  exigencies of seNice of the panel members (retirement, transfer
  etc.) has made it impossible to pinpoint the responsibility in this
G regard on any one of the contracting parties. But what is glaring
  is the fact that though the arbitration proceedings in respect of
  the said contract No. CAO/CONl722 had commenced as far
  back as in the year 1996 the award is yet to see the light of
  the day notwithstanding the assertions made by the Union that
H the proceedings have been completed though as already noted,
      NORTH EASTERN RAILWAY v. TRIPPLE                         1149
    ENGINEERING WORKS [RANJAN GOGOi, J.]
no clinching material in this regard has been brought on record;        A
not to speak about the award of the arbitrators though such an
award would have been the natural consequence of the
completion of arbitration proceedings. It is in the totality of these
facts that the High Court had thought it proper to travel beyond
the framework of Clauses 64(3)(a)(ii) and (iii) of the General          B
Conditions of Contract and appoint a retired Chief Justice as
the arbitrator.                  ·

    4. The correctness of the said decision necessarily has to
be judged in the light of the facts and circumstances
enumerated above. The necessary legal discourse that would C
be required to be gone into to answer the question as posed
above co'uld begin by extracting the provisions of Clauses
64(3){a)(ii) and (iii) of the General Conditions of Contract.

     "64(3)(a)(ii) In cases not covered by clause 64(3)(a)(i), D
     the Arbitral Tribunal shall consist of a panel of three
     Gazette Rly. Officers not below JA grade, as the
     arbitrators. For this purpose, the Railway will send a
     panel of more than 3 names of Gazetted Rly. Officers of
     one or more departments, of the Rly. to the contractor who E
     will be asked to suggest to General Manager up to 2
     names out of panel for appointment as contractor's
     nominee. The General Manager shall appoint at least
     one out of them as the contractor's nominee and will, also
     simultaneously appoint the balance number of arbitrators F
     either from the panel or from outside the panel, duly
     indicating the 'presiding arbitrator from amongst the 3
     arbitrators so appointed. While nominating the arbitrators
     it will be necessary to ensure that one of them is from the
     Accounts department. An officer of Selection Grade of the G
     Accounts department shall be considered of equal status
     to the officers in SA grade of departments of the Railways
     for the purpose of appointment of arbitrators.

     64(3)(a)(iii) - If one or more of the arbitrators appointed
     as above refuses to act as arbitrator, withdraws from his H
    1150      SUPREME COURT REPORTS                    [2014] 6 S.C.R.


A         office as arbitrator, or vacates his/their office/offices or isl
          are unable or unwilling to perform his functions as
          arbitrator for any reason whatsoever or dies or in the
          opinion of the General Manager fails to act without undue
          delay, the General Manager shall appoint new arbitrator/
B         arbitrators to act in his/their place in the same manner
          in which the earlier arbitrator/arbitrators had been
          appointed. Such re-constituted Tribunal may, at its
          discretion, proceed with the reference from the stage at
          which it was left by the previous arbitrator(s)".
c       From the provisions of the General Conditions of Contract
  it is clear that the panel of arbitrators as per the agreement
  between the parties necessarily has to be Gazetted Railway
  Officers; any vacancy in the panel of arbitrators has to be filled
  up in the same manner in which the initial panel is required to
D be constituted.

        5. The "classical notion" that the High Court while
  exercising its power under Section 11 of the Arbitration &
  Conciliation Act, 1996 (hereinafter for short 'the Act') must
E appoint the arbitrator as per the contract between the parties
  saw a significant erosion in Ace Pipeline Contracts (P) Ltd.
   Vs. Bharat Petroleum Corporation Ltd1• wherein this Court had
  taken the view that though the contract between the parties must
  be adhered to, deviations therefrom in exceptional
F circumstances would be permissible. A more significant
  development had come ..in a decision that followed soon
  thereafter in Union of India Vs. Bharat Battery Manufacturing
  Co. (P) Ltd2.wherein following a three Judges Bench decision
  in Punj Lloyd Ltd. Vs. Petronet MHB Ltd3 . it was held that once
G an aggrieved party files. an application under Section 11 (6) of
  the Act to the High Court, the opposite party would lose its right
  of appointment of the arbitrator(s) as per the terms of the
    1.   (2007) s sec 304.
    2.   c2001i 1 sec 684.
H 3. c2006J 2 sec 638.
       NORTH EASTERN RAILWAY v. TRIPPLE                        1151
     ENGINEERING WORKS [RANJAN GOGOi, J.]
contract. The implication that the Court would be free to deviate       A
from the terms of the contract is obvious. The apparent
dichotomy in ACE Pipeline (supra) and Bharat Battery
Manufacturing Co. (P) Ltd. (supra) was reconciled by a three
Judges Bench of this Court in Northern Railway Administration,
Ministry of Railway, New Delhi Vs. Patel Engineering                    s
Company Umited 4 where the jurisdiction of the High Court
under Section 11 (6) of the Act was sought to be emphasized
by taking into account the expression "to take the necessary
measure" appearing in sub-section (6) of Section 11 and by
further laying down that the said expression has to be read             c
alongwith the requirement of sub-section (8) of Section 11 of
the Act. The position was further clarified in Indian Oil
Corporation Limited and Others Vs. Raja Transport Private
Umited5 .. Paragraph 48 of the report\ wherein the scope of
Section 11 of the Act was summarized may be quoted by
                                                                        0
reproducing sub-paragraphs (vi) and (vii) herein below.

      "(vi) The Chief Justice or his designate 'lthile exercising
      power under sub-section (6) of Section 11 shall endeavour
      to give effect to the appointment procedure prescribed in
      the arbitration clause                                            E

      (vii) If circumstances exist, giving rise to justifiable doubts
      as to the independence and impartiality of the person
      nominated, or if other circumstances warrant appointment
      of an independent arbitrator by ignoring the procedure            F
      prescribed, the Chief Justice or his designate may, for
      reasons to be recorded ignore the designated arbitrator
      and appoint someone else."

     6. The above discussion will not be complete without
reference to the view of this Court expressed in Union of India         G
Vs. Singh Builders Syndicate 5 wherein the appointment of a

4.   (2008) 10 sccc 240.
5.   (2009) s sec 520.
s.   c2009) 4 sec 523.                                                  H
    1152      SUPREME COURT REPORTS                [2014] 6 S.C.R.


A retired Judge contrary to the agreement requiring appointment
  of specified officers was held to be valid on the ground that the
  arbitration proceedings had not concluded for over a decade
  making a mockery of the process. In fact, in paragraph 25 of
  the report in Singh Builders Syndicate (supra) this Court had
B suggested that the government, statutory authorities and
  government companies should consider phasing out arbitration
  clauses providing for appointment of serving officers and
  encourage professionalism in arbitration.

          7. A pronouncement of late in Deep Trading Company Vs.
C Indian Oil Corporation and Others7 followed the legal position
  laid down in Punj Lloyd Ltd. (supra) which in turn had followed
  a two Judges Benlih decision in Datar Switchgears Ltd. Vs.
  Tata Finance Ltd8. . The theory of forfeiture of the rights of a
  party under the agreement to appoint its arbitrator once the
D proceedings under Section 11 (6) of the Act had commenced
  came to be even more formally embedded in Deep Trading
  Company (supra) subject, of course, to the provisions of
  Section 11 (8), which provision in any event, had been held in
  Norlhern Railway Administration (supra} not to be mandatory,
E but only embodying a requirement of keeping the same in view
  at the time of exercise of jurisdiction under Section 11 (6) of the
  Act.

       8. In the present case Clauses 64(3)(a)(ii) and (iii) of the
F General Conditions of Contract do not prescribe any specific
  qualification of the arbitrators that are to be appointed under
  the agreement except that they should be railway officers~ As
  already noticed, even if the arbitration agreement was· to '
  specifically provide for any particular qualification(s) of an
  arbitrator the same would not denude the power of the ·court
G acting under Section 11 (6), in an appropriate case to ·dei:>art
  therefrom. In Singh Builders Syndicate {supra) penc!ency of
  arbitration proceedings for over a decade was found by this
    1.   (2013) 4 sec 35.
H a.     (2000) a sec 151.
       NORTH EASTERN RAILWAY v. TRIPPLE                    1153
     ENGINEERING WORKS [RANJAN GOGOi, J.]

Court to be a mockery of the process. In the present case, A
admittedly the award in respect of disputes and differences
arising out of the contract No. CAO/CON/722 is yet to be
passed. Though the appellant-Railway has in its pleadings
made a feeble attempt to contend that the process of arbitration
arising out of the said Contract has been finalized, no material, B
whatsoever, has been laid before the Court in support thereof.
The arbitration proceedings to resolve the disputes and
differences arising out of Contract No. CAO/CON/738 has not
even commenced. A period of nearly two decades has elapsed
since the contractor had raised his claims for alleged wrongful C
termination of the two contracts. The situation is distressing and
to say the least disturbing. The p9wer of the Court under the
Act has to be exercised to effectuate the remedy provided
thereunder and to facilitate the mechanism contemplated
therein. In a situation where the procedure and process under
the Act has been rendered futile, the power of the Court to D
depart from the agreed terms ofbppointment of arbitrators must
be acknowledged in the light of the several decisions noticed
by us. We are, therefore, of the view that no infirmity muchless
any illegality or failure of justice can be said to be occasioned
by the order passed by the High Court so as to warrant any E
interference. We, therefore, unhesitatingly dismiss this appeal
filed by the appellant-railways. However, in the facts of the case ·
we do not deem it appropriate to burden the appellant with any
costs.
                                                                    F
Devika Gujral                                   Appeal dismissed.