Decided on July 05,1978



R.N.Misra, J. - (1.) THESE two appeals under Section 39 (1) (iv) of the Arbitration Act of 1940 (hereinafter referred to as the 'Act') are directed against two separate decisions of the learned Subordinate Judge of Cuttack allowing the applications under Section 20 of the Act and directing the defendant-appellant to file the Arbitration Agreement for a reference of the disputes to arbitration.
(2.) MESSRS. Tata Iron & Steel Co. Ltd. (hereinafter referred to as the 'Company') are holders of a chromite mine located at Sukinda and a dolomite mine in the district of Sundergarh-- both within the State of Orissa. Plaintiff-respondent in these-appeals is a firm of contractors registered under the Indian Part-tier-ship Act of 1932 (hereinafter referred to as the 'Firm'). On 8-2-1969, an agreement was entered into between the Company and the Firm (Ext. H) initially for a period of 13 months from February, 1969, but the same had been extended up to Feb., 1973, whereunder, the Firm undertook to do mining, sorting, cleaning, trimming, blending, transport and stacking of chromite from the chromite mine at Sukinda and to transport the same to rail-head. A similar agreement was entered into on 1-11-1969 between the parties whereunder the Firm undertook to perform similar acts in the dolomite mine of the Company located within the district of Sundergarh. Initially the contract was for one year, but was extended on the same terms and conditions up to February, 1973. Both these agreements contain an escalation clause and an arbitration clause on similar terms. The Firm pressed for enhancement of the rates under the escalation clause in the two contracts in Dec., 1972, but it was turned down on 9-2-1973 (Ext. 1) and the Firm was informed: "With reference to your letter No. RMI/BSP/72/659 dated 5th Dec., 1972, the question of increasing your rates Cinder the escalation clause for your work at Gomardih and Sukinda mines was examined by the Accounts Division. 2. It has been pointed out to you earlier that - (a) the agreements for your work at Sukinda and Gomardih were entered into by our Company with you from 1-2-1969 and 1-1-1970 respectively and have since been renewed on annual basis Since renewals of the agreements have been made 'under the same terms and conditions of the original Agreement', a revision of rate cannot now be considered;. (b) moreover, none of the cost increases have arisen on account of the factors specified in the 'escalation clause' contained in the agreements. In the circumstances, we regret our inability to accede to your request for any increase over the prevailing rates." On 20th January, 1975, the Firm renewed its claim reiterating that the claims were genuine and appeared to have been not entertained in the absence of supporting materials. For the chromite contract, the Firm claimed Rs. 5,98,671.66 and for the other, claimed Rs. 12,35,562.11. On 16-4-1975, the Company intimated the Firm : ".........We have looked into the matter and are prepared to pay to you the amount of Rs. 3,01,554.80 as per settlement arrived at, in full and final settlement of your claim under the mining contracts at Gomardih and Sukinda but without prejudice to your claim for escalation which has since been received by us under cover of your letter............ dated 20-1-1975. Kindly note that no interest as claimed by you in your letter No. ............of 13-2-1975 will be paid. On receipt of your acceptance, we shall let you have our cheque for the aforesaid amount of Rs. 3,01,554.80 p. The escalation claim is receiving our attention and will be dealt with on its own merits." After waiting for about six weeks, the Firm sent a notice on 2nd June, 1975, saying : "Your are fully aware that certain disputes have arisen regarding our claims of Escalation and the outstanding payments and the interest accrued thereon, as advised to you in our various letters. As these have not been mutually settled, therefore, these are to be determined by an arbitrator in terms of the arbitration Clause 23 of the contract. It is learnt that you have made certain changes in your Raw Materials Division and as a result of which the arbitrator named in the arbitration clause of the contract by virtue of his designation in office is incapable of functioning as an arbitrator. As arbitration clause still subsists, therefore, in order to determine our claims you are called upon to please concur in the appointment of Shri B. D. Dhawan,............ as sole arbitrator and to join in the reference of the disputes to him for adjudication within a period of fifteen days from the receipt of this notice. ..............." The Company in spite of receipt of the aforesaid communication, sent no reply. The Firm thereupon filed two separate applications under Section 20 of the Act: one in the court of the Subordinate Judge, Jaipur, in regard to the dispute relating to the chromite contract on 26-6-1975 which came to be registered as Title Suit No. 17 of 1975 and the other in the court of the Subordinate Judge at Sundergarh on 28-6-1975 which came to be registered as Title Suit No. 14 of 1975. This Court directed both the disputes to be transferred to the court of Subordinate Judge, Cuttack and that is how both the cases came to be dealt with by the learned Subordinate Judge at Cuttack. 3. The Company resisted the applications contending that there was no dispute existing at the time the two applications were made and keeping the terms of the arbitration clause in view, there could be no cause of action for making the applications. It was further pointed out that there was no merit in the Firm's stand that the named Arbitrator was not available and in case he was not available, the arbitration clause became inoperative and since parties did not in-tend to fill up the vacancy, no arbitrator could be appointed. In view of these defences, the learned Subordinate Judge framed identical issues in the two cases being : 1. Is there a dispute between the parties to be adjudicated through arbitration as per the arbitration clause in the agreement ? 2. Is the named arbitrator available to arbitrate the disputes ? 3. Has the court authority to appoint ah arbitrator to adjudicate the disputes between the parties ? Before the learned Subordinate Judge, both parties produced some documents and the Company examined a witness. On each point, the learned Subordinate Judge found against the Company and allowed the applications. Therefore, the Company has come in appeal against the two decrees drawn up in the two suits. Miscellaneous Appeal no. 280 of 1977 relates to the dispute arising out of the chromite contract while the other is from the dolomite contract. As parties are the same and common questions arise and counsel chose to advance one set of arguments, both the appeals are being disposed of by a common judgment. On the arguments advanced before me, three questions arise for determination : (i) Was there an existing dispute on the date the respective applications were made ? (ii) Is the named contractor available ? and (iii) In case he is not, is the court entitled to appoint another in the vacancy ? The arbitration clause in the two contracts being common is to the following effect : "Any question, dispute or difference that shall arise in regard to the Agreement, which is not settled mutually between the parties hereto, shall be referred to arbitration of the Divisional Manager (Raw Materials Division) of the Company. The arbitration shall be governed by the provisions of the Arbitration Act 1940." There is no dispute at the Bar that un-less there be an existing dispute, no application under Section 20 of the Act is maintainable. On the facts of the case, Mr. Mohanti for the Company contends that there was no dispute while Mr. Bath for the Firm takes a different stand and argues that there were existing disputes. This, therefore, becomes a factual dispute and has to be determined on the basis of the facts on record. As already noted, both the contracts were in force up to Feb., 1973. In Dec., 1972, the Firm had represented for escalation and on the 9th of Feb., 1973 the Company had refused to entertain such a claim. After the contracts were over and the relationship of principal and agent between the parties had terminated, the Firm renewed its claim under the escalation clause. Almost three months after the claim was laid, the Company indicated to the Firm that the claim was receiving attention (the entire letter has already been extracted). The Firm waited for full six weeks and on 2-6-1975, issued the notice relating to appointment of arbitrator. It is not the stand of the Company that this notice was not duly received by it. There was, however, no response. As already noted, on the 26th and the 28th respectively of the month of June, 1975, the two applications were filed in the respective courts. Mr. Mohanti for the Company contends that the claims were huge and required investigation and, therefore, until there was a definite rejection of the claim by the Company, the Firm should not have rushed to the court. Relying on the terms of the arbitration clause. Mr. Mohanti contends that the referable disputes are those which are not settled mutually between the parties and when the claims raised by the Firm were under consideration of the Company, the claims could not be treated to be disputes. The submission seems to be that until there is a failure on the part of the Company to make a reference of an existing dispute, the Court does not come into the picture for appointing an arbitrator. Mr. Rath, however, emphasises on two features. The Company had almost three month's time i. e, from 20th of Jan, till 16th of April of 1975 when it sent its reply that the claim was receiving attention. Six weeks' time intervened between the Company's reply and the Firm's notice. In case the time thus taken was not sufficient to examine the claims and the Company was anxious to settle the claims but wanted further time for scrutiny of the claims, nothing stood in its way of informing the Firm that its claims were still under examination and as no dispute had arisen within the arbitration clause, the Firm should not proceed to the court. The contention of Mr. Rath is cogent and reasonable and the indifferent silence on the part of the Company has been rightly utilised by the learned Subordinate Judge against it. In the setting of things, particularly when the contracts had terminated by efflux of time and the claim had been laid for over five months and no definite communication was being given as to whether the same was going to be accepted and even though a notice had been given, no reply was being sent, I do not think, the learned Subordinate Judge was wrong in holding that the Firm was entitled to proceed on the footing that the Company had no intention of mutually settling the claim. Two other arguments of Mr. Rath are also in support of this proposition, namely (i) The Company had earlier turned down the same claim and (ii) though the case was pending for more than two years in the court below, at no stage the Company made an attempt to tell the trial Court that it was going to negotiate the differences and, therefore, no arbitration was necessary. In fact, in the written statement in the present case, the Company again denied the claim. I find no justification to take a different view from the learned Subordinate Judge's conclusion. The first point, therefore, be determined against the Company and in favour of the Firm. Under the arbitration clause, the dispute was to be referred to the named arbitrator -- the Divisional Manager (Raw Materials Division) of the Company. On 11th of January 1972, as per Ext. E, the Divisional Manager came to be redesignated as Director, Raw Materials. On 5th of Oct. 1973 (Ext. F), the post of Director, Raw Materials was abolished and one Mr. S. S. Manjrekar, then General Superintendent (Mines), was re-designated as Divisional Manager (Mines). In the written statement, the Company had contended : ".........In any event, the functions of Divisional Manager (Raw Material Division) have now been taken over after the abolition of the office of the Divisional Manager (Raw Material Division) by the Divisional Manager (Mines) of the Defendant.........." The Company's witness stated in his evidence-in-chief: "In the year 1969 there was. a post designated as 'Divisional Manager (Raw Materials)'. He was in-charge of technical operations, production, costs and other administrative matters. The Divisional Manager (Mines) is in over-all charge of the Mines for its entire operation. Sri S. S. Manjrekar is the Divisional Manager (Mines) now.........." In cross-examination, this witness stated : ".........It is true that on the date of this contract there was a post of Divisional Manager (Raw Material Division) which is not there now. This post has undergone a change by re-designating as Director, Raw Materials and in respect of Mines, it is Divisional Manager (Mines). The functions of the Divisional Manager (Raw Materials Division) have been divided amongst Director of Raw Materials and Divisional Manager (Mines) redesignated as such. The Director of Raw Materials assumes charge of the post of Divnl. Manager (Raw Material Division) by change of designation......" In view of the aforesaid evidence and with reference to the two office orders already referred to, there is no doubt that the named arbitrator by designation no more exists. Here is a case where a person had not been named but a holder of an office had been nominated arbitrator by common consent. The office has now been so divided that it is not possible to identify some other existing office to be the substitute of the office the holder of which by consent of parties had been appointed arbitrator. In this connection, the learned counsel for both sides had placed reliance on the decision of the Supreme Court in the case of Union of India v. D. N. Revri & Co., AIR 1976 SC 2257, wherein the partnership firm (respondent in the appeal) had entered into a contract with the Union of India for the supply of 30,000 tons of East German sugar under certain terms and the agreement had an arbitration clause to the following effect (at p. 2259) :-- "All questions, disputes or differences whatsoever which may at any time arise between the parties to the agreement touching the agreement or the subject-matter thereof, arising out of or in relation thereto and whether as to construction or otherwise shall be referred to a single arbitrator for decision. Such a single arbitrator shall be nominated by the Secretary to the Government of India in the Ministry of Food and Agriculture in his absolute discretion and the decision of such arbitrator shall be final and binding upon the parties......" On 27th of February, 1958, the Secretary, Department of Food in the Ministry, of Food and Agriculture nominated an arbitrator. The said arbitrator gave an award and the Union of India proceeded to take steps to make the award a rule of the court. The respondent resisted the application and asked for setting aside of the award on two grounds, one of which was that the arbitrator had not been validly appointed, inasmuch as the Ministry of Food and Agriculture envisaged in the arbitration clause had been bifurcated and two separate Ministries had come into existence by the Presidential Order from 19th of Oct., 1956, one being of Food and the other of Agriculture. Even after reintegration of the Ministries of Food and Agriculture into one single Ministry, the arbitration agreement could not be given effect to since there came into existence two Secretaries in the Ministry. On the facts of the case and taking into account the conduct of the respondent in participating before the arbitrator, the court came to the conclusion that the appointment of the arbitrator was not open to attack. I am inclined to think that the ratio of the decision has no application to the case in hand. On the facts already discussed, the learned Subordinate Judge seems to have come to the correct conclusion on this aspect of the matter that the named arbitrator is not available and thus there has been a vacancy in the office of arbitrator. The second aspect of the matter must also be decided against the appellant. The last point is on the basis of the contention advanced by learned counsel for the appellant that parties have not intended to fill up the vacancy and, therefore, it is not for the court to make an appointment now and the arbitration clause must be held to have become un-enforceable. The relevant part of Section 8 of the Act provides :-- "(1) In any of the following cases:- (a) ....... . (b) if any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy; or (c) ........... . any party may serve the other parties or the arbitrators as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy. (2) ............ " Examining this aspect of the matter, S. R. Das, J., as the learned Judge then was, in the case of Governor-General in Council v. Associated Live-stock Farm (India) Ltd., AIR 1948 Cal 230, observed :-- "......I am inclined to agree with Mr. Chaudhuri. I do not find anything in the arbitration clause suggesting that the parties agreed that any vacancy in the office of arbitrator should not be filled up. In the absence of any such agreement the vacancy can be easily supplied and there is no reason to think that the arbitration will be infructuous at all. If the particular officer sanctioning the contracts refuses to act or is incapable of doing so by reason of his absence or otherwise there are provisions in the Indian Arbitration Act for the appointment of another arbitrator in his place and the arbitrator so appointed will be quite competent to proceed with the arbitration......." This principle was followed by a Division Bench of the Patna High Court in the case of Hindustan Steel Ltd. v. Engineers and Contractors, AIR 1964 Pat 468 and by the learned Chief Justice of this Court in the case of State of Orissa v. Modern Construction Co., (1971) 1 Cut WR 521. The dictum of the Calcutta case was specifically approved by the Supreme Court in the case of Prabhat General Agencies etc. v. Union of India, AIR 1971 SC 2298. There it was pointed out (at p. 2300):-- "Section 20 is merely a machinery provision. The substantive rights of the parties are found in Section 8 (1) (b). Before Section 8 (1) (b) can come into operation it must be shown that (1) there is an agreement between the parties to refer the dispute to arbitration; (2) that they must have appointed an arbitrator or arbitrators or umpire to resolve their dispute; (3) any one or more of those arbitrator's or umpire must have neglected or refused to act or is incapable- of acting or has died; (4) the arbitration agreement must not show that it was intended that the vacancy should not be filled and (5) the parties or the arbitrators as the case may be had not supplied the vacancy." The Court further pointed out :-- "......Therefore the only question is whether the agreement read as a whole shows either explicitly or implicitly that the parties intended that the vacancy should not be supplied. It may be noted that the language of the provision is not that the parties intended to supply the vacancy but on the other hand it is that the parties did not intend to supply the vacancy. In other words if the agreement is silent as regards supplying the vacancy, the law presumes that the parties intended to supply the vacancy. To take the case out of Section 8 (1) (b) what is required is not the intention of the parties to supply the vacancy but their intention not to supply the vacancy......" Thus, unless a negative intention is indicated, Section 8 (1) (b) of the Act would be applicable and under the provisions of Section 20 (4) of the Act, which confers power on the court to appoint arbitrator or umpire, jurisdiction would be vested in the court to make the appointment and thus fill up the vacancy. Appellant's counsel has not been able to show the negative intention of the arbitration clause. Appellant's counsel had contended that in nominating the named arbitrator parties had taken into consideration the fact that the named arbitrator was associated with execution of the work of a complicated type as was the subject-matter of the agreements and that was a feature which could be taken into consideration as implicitly indicating the intention of parties not to fill up the vacancy by replacing him. There is no material to support this submission, nor is there any material to show that the execution of the contract is of such a type that apart from the named arbitrator, no other person could be competent to handle the dispute successfully. In the instant case, there- fore the court had jurisdiction to make the appointment under Sub-section (4) of Section 20 of the Act. The third point must, therefore, also be decided against the appellant. All the contentions advanced on behalf of the appellant have failed and, therefore, both the appeals are dismissed and the orders of the learned Subordinate Judge are affirmed. I would call upon the parties to bear their own costs in this Court. ;

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