Soumen Sen, J. - (1.) This is an application for setting aside of an award passed on 31st March, 2006 under Section 34 of the Arbitration and Conciliation Act, 1996. The grounds for challenge are two-fold:- (i) The arbitrator appointed by this Court to adjudicate the dispute lacks jurisdiction in view of Clause 2900 of the Indian Railway Standard Conditions of Contract (hereinafter referred to as the "said contract"). (ii) Granting of interest on the security deposit of Rs.1 lakh contrary to Clause 2400 of the said contract. The aforesaid two Clauses 2900 and 2400 of the Indian Railway Standard Conditions of Contract are reproduced herein below:- "2900. Arbitration (a) In the event of any question, dispute or difference arising under these conditions or any special conditions of contract, or in connection with this contract (except as to any matters the decision of which is specially provided for by these or the special conditions) the same shall be referred to the sole arbitration of a Gazetted Railway Officer appointed to be the arbitrator by the General Manager in the case of contracts entered into by the Zonal Railways and Production Units; by any Member of the Railway Board, in the case of contracts entered into by the Railway Board and by the Head of the Organization in respect of contracts entered into by the other Organisations under the Ministry of Railways. The Gazetted Railway Officer to be appointed as arbitrator however will not be one of those who had an opportunity to deal with the matters to which the contract relates or who in the course of their duties as railway servant have expressed views on all or any of the matters under dispute or difference. The award of the arbitrator shall be final and binding on the parties to this contract. (b) In the event of the arbitrator dying, neglecting or refusing to act or resigning or being unable to act for any reason, or his award being set aside by the court for any reason, it shall be lawful for the authority appointing the arbitrator to appoint another arbitrator in place of the outgoing arbitrator in the manner aforesaid. (c) It is further a term of this contract that no person other than the person appointed by the authority as aforesaid should act as arbitrator and that if for any reason that is not possible, the matter is not to be referred to arbitration at all. (d) The arbitrator may from time-to-time with the consent of all the parties to the contract enlarge the time for making the award. (e) Upon every and any such reference, the assessment of the cost incidental to the reference and award respectively shall be in the discretion of the arbitrator. (f) Subject as aforesaid, the Arbitration Act, 1940 and the rules thereunder any statutory modification thereof for the time being in force shall be deemed to apply to the arbitration proceedings under this clause. (g) The venue of arbitration shall be the place from which the acceptance note is issued or such other place as the arbitrator at his discretion may determine. (h) In this clause the authority, to appoint the arbitrator includes, if there be no such authority, the officer who is for the time being discharging the functions of that authority, whether in addition to other functions or otherwise. "2400. Withholding and lieu in respect of sums claimed. 2401. Whenever any claim or claims for payment of a sum of money arises out of or under the contract against the Contractor, the Purchaser shall be entitled to withhold and also have a lien to retain such sum or sums in whole or in part from the security, if any, deposited by the Contractor and for the purpose aforesaid, the Purchaser shall be entitled to withhold the said cash security deposit or the security, if any, furnished as the case may be and also have a lien over the same pending finalization or adjudication of any such claim. In the event of the security being insufficient to cover the claimed amount or amounts or if no security has been taken from the Contractor, the Purchaser shall be entitled to withhold and have lien to retain to the extent of such claimed amount or amounts referred to supra, from any sum or sums found payable or which at any time thereafter may become payable to the Contractor under the same contract or any other contract with the purchaser or the Government pending finalization or adjudication of any such claim. It is an agreed term of the contract that the sum of money or moneys so withheld or retained under the lien referred to above, by the Purchaser will be kept withheld or retained as such by the Purchaser till the claim arising out of or under the contract is determined by the Arbitrator (if the contract is governed by the arbitration clause) or by the competent court as prescribed under Clause 2703 hereinafter provided, as the case may be, and that the Contractor will have no claim for interest or damages whatsoever on any account in respect of such withholding or retention under the lien referred to supra and duly notified as such to the otherwise."
(2.) Mr. Justice Nisith Kumar Batabyal, a former Judge of this Court was appointed as an Arbitrator by an order dated 21st January, 2000 in an application filed under Section 11 of the Arbitration and Conciliation Act, 1996. The petitioner initially requested the appointing authority by a letter dated 2nd February, 1998 to appoint an arbitrator in terms of Clause 2900 of the aforesaid Contract. The appointing authority, however, by a communication dated 19th May, 1998 refused to appoint the arbitrator on a plea that after the matter was thoroughly examined by the competent authority in consultation with the Eastern Railway's legal advisors as well as Joint-Secretary, Ministry of Law and Justice and in view of legal opinion obtained the Railway Authorities are not agreeable to refer to the dispute to arbitration. The contents of the letter dated 19th may, 1998 are reproduced below:- Eastern Railway Office of the Controller of Stores, Eastern Railway, 17, N.S. Road/Fairlie Place Calcutta - 700 001. Dated: 19-05-98. No.39/92/6002. M/x. Plazer Machine-Craft Pvt. Ltd. 19A, S.R. Das Road Calcutta -700 026. Dear Sirs, Sub: Arbitration asked for against P.O. No. 39/92/6002/1/209638 dated 13-12-1995. Ref: Your letter no.L97/Letter/555FFF/11815 dated 20-02-98. 1.0 Please refer your letter under reference regarding referring the dispute to the Arbitration as per the General and Special conditions of contract. 2.0 The matter has been very thoroughly examined by the competent authority in consultation with Eastern Railway's legal adviser as well as Joint Secretary of Ministry of Law and Justice. As per legal opinion, we regret to inform you that the arbitration as requested by you is not tenable in law. 3.0 You are, therefore, requested to act in terms of relevant rejection advice of DCOS/E.Rly./Jamalpur. This also refers to this office M.A. No.39/92/6002/OT dated 09-02-1998. Yours faithfully, (Jagdish Prasad) Dy. Cointroller of Stores/C & W for controller of Stores Copy to: DCOS/ER/Jamalpur - Suitable action may please be taken for disposal of rejected material as per extant rule. In view of such refusal, an application for appointment of an arbitrator under Section 11 was filed before this Court. The said application was disposed of by appointing Justice Batabyal. The said order is reproduced below:- JUDGEMENT_78_LAWS(CAL)12_2016_1.html
(3.) Thereafter, the arbitration commenced. Before the arbitrator the petitioner appeared and filed their counter-statement along with counter-claim. In the counter-statement in Paragraph 3, the petitioner has taken the point of jurisdiction. The said paragraph reads:- "3. At the outset I state and submit that learned arbitrator has no jurisdiction to arbitrate the claims inasmuch as in terms of section 11(6) of the Arbitration and Conciliation Act, the Chief Justice or his designate is not to make an appointment but to enforce or compel the appointing authority to make an appointment. The respondent relies upon the decision of Madhya Pradesh High Court in the case of M/s. Shubhash Project Marketing Limited v. South Eastern Coalfield Limited. AIR 1998 MP 276 and affirm also in the case of Ashok Coal Depot v. Southeastern Coalfiled Limited reported in 2000(2) arb. LR 286 . In the instant case the GM, Eastern Railway is the appointing authority to appoint an arbitrator in terms of clause 2900 of Indian Railway Standard Conditions of Contract. The expression 11(6) of the Arbitration & Conciliation Act, necessary measures mean the Chief Justice is to enforce and compel the authorities to make an appointment. The respondent craves leave to file Xerox copies of the two judgments at the time of hearing.";