PARGANIHA AND AGNIHOTRI Vs. UNION OF INDIA

JUDGEMENT

(1.) THE appellant, Messrs Pargaiha and Agnihotri is a partnership firm which carries on business of building contractors. The appellant entered into a contract on 18th January 1966 with the Union of India for the construction of Basha Type Quarters at Mana Camp, Raipur. The appellant claimed a sum of Rs. 4,36,962.94 on the basis of the said contract from the Union of India. The appellant served a notice on 27th October 1970 on the Executive Engineer, Works Division, Mana, demanding appointment of an arbitrator within 15 days in accordance with Clause 25 of the contract. On 16th November 1970, the appellant made an application under section 20 of the Arbitration Act, 1940, praying that the respondents be called upon to file the arbitration agreement and that an arbitrator be appointed. The respondents the Union of India and the Executive Engineer, Works Division, Mana, in reply to the application of the appellant submitted that the application was not maintainable One of the grounds taken by the respondents was that the Additional Chief Engineer or the Head of the Central Public Works Department (C.P.W.D) alone could nominate an arbitrator and as no such nomination had been made, the dispute could not be referred to arbitration and the application under section 20 was not maintainable. The District Judge, Raipur, who tried the application under section 20 dismissed the application. It was held by the District Judge that under Clause 25 of the contract the Additional Chief Engineer in charge of the work or if there be no such Additional Chief Engineer, the Administrative Head of the C.P.W.D could alone appoint an arbitrator and that no appointment of an arbitrator could be made by the Court. There were some other issues relating to the tenability of the application under section 20 of the Act, but those issues were not decided by the District Judge. It is against this order that the appellant has come to this Court in appeal.

(2.) THE question in this appeal is whether the District Judge was right in dismissing the application under section 20 of the Act, Clause 25 of the contract which contains the arbitration agreement reads as follows:

(3.) SUB -section (4) of section 20 provides that "where no sufficient cause is shown, the Court shall order the agreement to be filed and shall make an order of reference to the arbitrator appointed by the parties, whether in the agreement or otherwise or, where the parties cannot agree upon an arbitrator, to an arbitrator appointed by the Court". When an application is made under section 20, the Court has to decide first whether an order should be made that the agreement be filed. In taking this decision, the Court will consider whether there is a valid subsisting arbitration agreement and whether the dispute raised is within the purview of that agreement This part of the function of the Court is referred to as the judicial function in M/s. D. Gobindram's case. After the Court reaches the conclusion that the agreement should be filed the becomes the second stage of making the reference. The reference is made to the arbitrator appointed by the parties whether in the agreement or otherwise, or, where the parties cannot agree upon an arbitrator to an arbitrator appointed by the Court". The arbitration agreement may specifically name the arbitrator which the parties appoint or it may lay down the machinery for appointment of the arbitrator. For example, the agreement may empower a third person or employees of a party as in the instant case to appoint the arbitrator. If such a third person appoints an arbitrator when called upon to do so, the arbitrator so appointed would be the arbitrator appointed by the parties in accordance with the agreement. In our opinion, the words "the arbitrator appointed by the parties in the agreement" as they occur in sub -section (4) of section 20 will also cover the arbitrator who, though not specifically named in the agreement, is appointed in accordance with the procedure laid down therein Therefore, when the Court decides that the agreement should be filed, it can call upon the person authorised in the arbitration agreement, to appoint an arbitrator and reference can be made to the arbitrator so appointed. This would be a reference to the arbitrator "appointed by the parties in the agreement" within the meaning of sub -section (4). In case the person authorised in the agreement fails or refuses to appoint an arbitrator, the reference can still be made if the parties at that stage agree upon the appointment of a person as arbitrator. This would be a reference to the arbitrator appointed by the parties "otherwise" than in the agreement within the meaning of sub -section (4). Although the arbitration agreement provides that no person other than a person appointed by the Additional Chief Engineer or the Administrative Head of the C.P.W.D. shall act as arbitrator the parties can agree that any other person may act as arbitrator because the parties by consent can always modify their earlier agreement. The difficulty may, However, arise when the aforesaid officers fail to appoint an arbitrator when called upon to do so by the Court and when the parties also fail to agree as co the choice of an arbitrator. The question then will be whether the Court can appoint an arbitrator under sub -section (4) and make a reference to the arbitrator appointed by it. That question does not, however, arise at this stage and need not be answered. 1969 JLJ 651 = AIR 1970 MP 49, also support the view that even where the parties leave the power to appoint the arbitrator on a third person, an application for filing the arbitration agreement is maintainable under section 20 and the Court is competent to make reference to the arbitrator appointed in accordance with the agreement. To the same effect is the case of Green/and Foods Ltd. v. Union of India AIR 1973 Delhi 157, where the arbitration clause was almost similar to the arbitration clause in the instant case. 6. The cases relied upon by the District Judge, namely, Ramkhelawan v. Rabindra Kumar AIR 1961 Patna 128. and Chief Engineer B. and R. Jaipur v. Harbans Singh AIR 1955 Rajasthan 30, relate to the applicability of section 8 of the Act P.G. Agencies v. Union of India AIR 1971 SC 2298, is also a case relating to appointment of an arbitrator under section 8 after the arbitrator named in the agreement to whom the reference had been made under section 20(4) had refused to act. After a reference is once made under section 20 (4), other provisions of the Act including section begin to apply because of section 20 (5). But until a reference is made, the matter is solely governed by section 20 (4) and section 8 has no application on this point, we agree with the reasoning of the Calcutta High Court in Gannon Dunkerley and Co. v. Union Carbide (India), Ltd. AIR 1962 Cat. 360. P. 366 Para 13. The cases relied upon by the District Judge, therefore, have no relevance at this stage. 7. The appeal is allowed. The order of the District Judge is set aside and the case is remanded to him for fresh decision in accordance with law. There shall be no order as to costs of this appeal.