MUNICIPAL CORPORATION, JABALPUR AND ORS. v. M-S. RAJESH CONSTRUCTIONS CO

Citation: [2007] 5 S.C.R. 137

Court: Supreme Court of India

Bench: TARUN CHATTERJEE, P.K. BALASUBRAMANYAN

Case summary

MUNICIPAL CORPORATION, JABALPUR AND ORS. v. M-S. RAJESH CONSTRUCTIONS CO.pdf

Judgment text

MUNICIPAL CORPORATION, JABALPUR AND ORS. ·-r v. M/S. RAJESH CONSTRUCTIONS CO. APRIL 13, 2007 [TARUN CHATTERJEE AND P. K. BALASUBRAMANYAN, JJ. ] ·"' Arbitration and Conciliation Act, 1996: s. 11(6)(c )-Arbitration Agreement stipulating that in case of dispute, Contractor would furnish the security deposit and thereafter Corporation would constitute the Arbitration Board-Dispute between the parties- Contractor filed application before High Court/or appointment ofarbitrator- High Court appointed retired Chief Justice of High Court as arbitrator- Justification of-Held, Not justified same being contrary to Arbitration agreement-As security deposit was not furnished by respondent, obligation of Corporation to constitute Arbitration Board could not arise-Respondent directed to furnish security within six weeks and then corporation would ;. constitute arbitration board. The appellants floated a notice inviting tender for construction ofa road. The job was awarded to the respondent.

The tender contained various clauses; one amongst the same being Clause 29 which pertained to arbitration in case of any dispute. Dispute arose between the parties. The respondent filed an application under Section 11 (6)(c ) of the Arbitration and Conciliation Act, 1996 in the High Court seeking appointment ofan arbitrator to adjudicate upon disputes. By an order dated 7th May, 2003, the High Court allowed the application directing the appellant-Corporation, to invoke the arbitration Clause 29. The Clause 29 of the contract stated that no reference for arbitration shall be maintainable unless the contractor furnishes the security deposit of a sum determined by the Corporation. Seeking enforcement of the order of the High Court dated 7th May, 2003, invoking Clause 29 for appointment of an arbitrator, the respondent filed another application.

By the impugned order, retired Chief Justice of High Court was appointed to act as an arbitrator to adjudicate upon the disputes ,__ between the parties. Appellant filed review application, which was rejected. Hence the present appeal. Disposing of the appeal, the Court HELD: 1. The High Court was not justified in appointing a retired Chief Justice of a High Court to act as a sole arbitrator as the same is contrary to Clause 29 of the contract. The High Court, by its earlier order dated 7th May, 2003 directed the parties to invoke the arbitration clause and to appoint an arbitrator in compliance with Clause 29 of the contract entered into between . r the parties. [Para 19] (145-G; 146-A] Datar Switchgears Ltd v. Tata Finance Ltd. , [2000J 8 SCC 151 and Punj Llyods Ltd v. Petrone/ MHB Ltd. , [2006J 2 SCC 638, held inapplicable. 2. 1.

Clause 29 specifically stipulates that if any dispute arises between the parties, the party seeking invocation of the arbitration clause, shall first approach the Chief Engineer and on his failure to arbitrate the dispute, the party aggrieved may file an appeal to MPL Com, failing which, the Corporation shall constitute an Arbitration Board to resolve the disputes in the manner indicated in Clause 29. However, before doing so, the party invoking J.. arbitration clause is required to furnish security of a sum to be determined by the Corporation. [Para 20J (146-A, BJ 2. 2. Admittedly, the security has not been furnished by the respondent to the Corporation. Such being the position even today, the obligation of the Corporation to constitute an Arbitration Board to resolve disputes between the parties could not arise. (Para 21 J (146-C, DJ 3. 1. The Arbitrator appointed by the High Court has already commenced ")'-the arbitration proceeding.

The Corporation had submitted that they shall constitute an Arbitration Board as soon as the respondent furnishes security in terms of Clause 29(d) of the contract and if any direction is given to the Arbitration Board to proceed from the stage the Arbitrator had already reached, that would not be objected. [Para 22J (146-E, FJ 3. 2. Such being the stand taken by the Corporation, the respondent is ,.. directed to furnish the security of a sum to be determined by the Corporation within six weeks from this date and in the event security determined by the Corporation is furnished within the time, the Corporation shall constitute an MUNICIPAL CORPRN, JABALPUR"· RAJESHCONSTRUCTIONS CO. [TARUN CHATTERJEE, J. J _... ,, Arbitration Board in compliance with Clause 29 of the contract. It is directed that the Arbitration Board shall proceed frQm the stage the Arbitrator appointed by the High Court had already reached. [Para 23) [146-G; 147-A) 4.

That apart, it has to be kept in mind that it is always the duty of the court to construe the arbitration agreement in a manner so as to uphold the same. Therefore the High Court ought not to have appointed an arbitrator in a manner, which was inconsistent with the arbitration agreement. [Para 24) (147-A-B) -~. CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1945 of2007. From the Judgment and Order dated 29. 07. 2004 & 08. 04. 2005 ofthe High Court Madhya Pradesh at Jabalpur in M. C. C. Nos. 3295 of2003 & 1579 of2004 respectively. Ranjan Mukherjee and S. C. Ghosh for the Appellants. Amit Sharma and Anupam Lal Das for the Respondent. The Judgment of the Court was delivered by :. TARUN CHATTERJEE, J. I. Delay Condoned. , 2. Leave granted. 3. This appeal is directed against the judgments and final orders dated 29th July 2004 and 8th April, 2005 passed by a learned Judge of the High Court ofMadhya Pradesh at Jabalpur in M. C. C. No. 3295 of2003 and M. C. C. No. 1579 of2004.

By the order dated 29th July 2004, learned Judge ofthe High Court appointed Mr. Justice B. C. Verma, a retired Chief Justice ofthe Punjab and Haryana High Court, as sole arbitrator to adjudicate upon disputes between the appellants and the respondent herein. The order dated 8th April, 2005 passed in MCC No. 1579 of 2004 is under challenge as the application for review and/or recall of the order dated 29th July 2004 at the instance of the appellants was also rejected. 4. Notice was issued on the application for condonation of delay and ·' to be determined by the Corporation. 21. In this case, admittedly, the security has not been furnished by the respondent to the Corporation. We, in fact, asked Mr. Sharma, appearing on behalf of the respondent to ascertain on the date of the hearing of the appeal, whether the security deposit was made or not. On instruction, Mr. Sharma informed us that such security has not yet been deposited.

Such being the position even today, we hold that the obligation ofthe Corporation to constitute an Arbitration Board to resolve disputes between the parties could not arise because of failure of the respondent to furnish security as envisaged in Clause 29(d) ofthe contract. Therefore, we are ofthe opinion, that on account of non-furnishing of security by the respondent, the question of constituting "' an Arbitration Board by the Corporation could not arise at all. Accordingly, we hold that the High Court was not justified in appointing a retired Chief Justice of a High Court as Arbitrator by the impugned order. 22. It is not disputed before us that the learned Arbitrator appointed by the High Court has already commenced the arbitration proceeding. Mr.

Mukherjee, appearing on behalf of the Corporation, on instruction, had submitted before us that they shall constitute an Arbitration Board as soon ,___ as the respondent furnishes security in terms of Clause 29(d) of the contract and if any direction is given to the Arbitration Board to proceed from the stage the learned Arbitrator had already reached, that would not be objected to. That is to say, Mr. Mukherjee contended that the Arbitration Board may be directed to take over the arbitration proceedings from the stage the learned Arbitrator had already reached. 23. Such being the stand taken by the Corporation, we direct the ,... respondent to furnish the security of a sum to be determined by the Corporation within six weeks from this date and in the event security determined by the Corporation is furnished within the time mentioned herein earlier, the Corporation shall constitute an Arbitration Board in compliance with Clause 29 of the MUNICIPALCORPRN, JABALPURv.

RAJESHCONSTRUCTIONSCO. (TARUNCHATTERJEE.!. ) contract. It is directed that the Arbitration Board shall proceed from the stage the learned Arbitrator appointed by the High Court had already reached. 24. That apart, it has to be kept in mind that it is always the duty of the court to construe the arbitration agreement in a manner so as to uphold the same. Therefore we must hold that the High Court ought not to have appointed an arbitrator in a manner, which was inconsistent with the arbitration agreement. _... _ 25. Before parting with this judgment, we will be failing in our duty if we do not consider and deal with the decisions cited by Mr. Sharma appearing on behalf of the respondent. First decision relied on by him was Datar Switchgears Ltd. case (supra). It is difficult to understand how the said decision would be of assistance to Mr. Shanna.

In this decision, this Court was dealing with a case falling under Section 11(6) of the Act where no time limit is prescribed, whereas time limit of 30 days is prescribed under Section 11(4) and (5) of the Act. In that context, it was held by this court that if one party makes a demand for appointment of an arbitrator to the opposite party and the latter does not make an appointment within 30 days of demand, the right of appointment of arbitrator does not get automatically forfeited after I ~ expiry of 30 days. This Court held that under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but still continues. However, the right of the opposite party ceases when an application under Section 11 seeking appointment of an arbitrator is filed. This is not the factual situation in the present case, nor are we concerned with this aspect in the present case. 26.

So far as the case ofPunj Llyods Ltd (supra) is concerned, it is true that this decision of this Court was rendered by a bench of three Judges which affinned the decision in the case of Datar Switchgears Ltd. (supra). Since we are not concerned in the facts and circumstances of the present case with the question decided by this Court· in the aforesaid two decisions, we are unable to rely on those decisions. 27. For the reasons aforesaid, the order dated 29th July 2004 which has given rise to Civil Appeal arising out of Special Leave Petition No. 19332 of 2005 is set aside and we direct the Corporation to constitute an Arbitration '4:- Board in tenns of Clause 29 within a period of three months from this date, provided the respondent furnishes security in tenns of the table provided in Clause 29(d) ofthe contract, as detennined by the Corporation within a period of six weeks from this date.

We, however, make it clear that in view of the stand taken by the Corporation, as noted herein earlier, the Arbitration Board shall commence their proceedings from the stage the arbitrator appointed by the High Court had already reached. 28. Since we have set aside the order dated 29th July 2004, Civil Appeal arising out ofSpecial Leave petition No. 19333 of2005 filed against the order dated 8th April, 2005 has become infructuous. 29. The Appeal is disposed of in the manner indicated above. There will be no order as to costs. D. G. Appeal disposed of. ~- "'-·