IN THE HIGH COURT OF DELHI AT NEW DELHI SUBJECT : ARBITRATION ACT. Arb. Appl. No. 261/2008. Date of decision :

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1 IN THE HIGH COURT OF DELHI AT NEW DELHI SUBJECT : ARBITRATION ACT Arb. Appl. No. 261/2008 Date of decision : STERLITE OPTCAL TECHNOLOGIES LTD..Petitioner Through: Mr. Tarun Gulati and Mr. Neil Heldrieth, Advocates Versus BHARAT SANCHAR NIGAM LTD.... Respondent Through: Mr. U.C. Mittal and Mr. Ankur Mittal, Advocates RAJIV SAHAI ENDLAW, J. 1. The factum of the parties to this petition being parties to an agreement containing in arbitration agreement and the factum of this being the right High Court to be approached is not in dispute. The arbitration clause in the agreement between the parties is as under:- Clause 20. In the event of any question, dispute or difference arising under this agreement or in connection there-with (except as to the matters, the decision to which is specifically provided under this agreement), the same shall be referred to the sole arbitration of the CMD, BSNL or in case his designation is changed or his office is abolished, then in such cases to the sole arbitration of the office for the time being entrusted (whether in addition to his own duties or otherwise) with the functions of the CMD, BSNL or by whatever designation such an officer may be called (hereinafter referred to as the said officer) is unable or unwilling to act as such, then to the sole arbitration of some other person appointed by the CMD, BSNL or the said officer. The agreement to appoint an arbitrator will be in accordance with the Arbitration and Conciliation Act, The petitioner applied under Section 11 ( 6) of the Arbitration Act on the ground that the respondent in spite of request has refused to join in the appointment of the arbitrator and / or the appointing authority has failed to appoint the Arbitrator and thus the agreed arbitration procedure has failed. 3. The respondent has contested the application on three grounds. Firstly, it is contended that the agreement is of arbitration by CMD of the respondent or by any person appointed by the CMD; the petitioner never approached the CMD and only approached the DDG (MM) of the respondent for arbitration. Secondly, it is contended

2 that the dispute raised fall in the excepted matter under the arbitration clause aforesaid. Thirdly, it is contended that in fact there is no dispute inasmuch as the claim as set out in the petition and disputed by the respondent is not under the agreement but tantamounts to the petitioner wanting the agreement to be re-written. 4. As far as the first contention of the respondent is concerned, admittedly there is no communication from the petitioner, after the disputes have arisen to the CMD of the respondent. The agreement between the parties is of reference of disputes to a named arbitrator i.e. CMD of the respondent who under the agreement is also entitled to nominate/appoint some other officer of the respondent as the arbitrator. The petitioner has relied upon its letter dated 23rd April, 2007 to the DDG (MM) of the respondent stating that in view of disputes have arisen, the petitioner in terms of Clause 20 of the bid document was calling upon the addressee to forthwith nominate and appoint the arbitrator to adjudicate the issues in dispute and further stating that if the appointment of the arbitrator is not made in terms of clause 20, the petitioner shall proceed on the basis that there is no agreement on the procedure for appointing arbitrator and proceed with appointment of arbitrator in accordance with the Act. The Assistant Director General (ST) of the respondent replied to the aforesaid communication on 7th May, 2007 stating that the request for appointment of an arbitrator in terms of clause 20 of the bid document was not tenable in view of terms and conditions of the document. The advocate for the petitioner sent another letter dated 7th June 2007 again to the DDG (MM) of the respondent and which was replied to 21st June, 2007 by the Assistant Director General (ST) reiterating the stand taken earlier. 5. The question which arises is that where the CMD of the respondent is named arbitrator but the petitioner instead of approaching the CMD writes to some other official of the respondent to appoint the arbitrator, whether it can be said that the conditions of Section 11 (6) are satisfied entitling the petitioner to approach this Court to take the necessary measure. This is all the more relevant when the official of the respondent approached has denied reference to arbitration on ground other than that the petitioner having not approached the CMD. 6. Under Section 11 (2) of the Act, the parties are free to agree on a procedure for appointing the arbitrator. Sub-section 6 provides that where under an appointment procedure agreed upon by the parties, a party fails to act as required under that procedure or the parties or the two appointed arbitrators fail to reach an agreement expected of them under that procedure or when a person fails to perform any function entrusted to him under that procedure, a party may request the Chief Justice or his designate to take the necessary measure for securing the appointment. Sub-section 5 deals with a situation of the parties having not agreed on any procedure for appointment of arbitrator. 7. A bare reading of the arbitration clause in the present case would show that the parties had in the agreement itself agreed on the arbitrator. The CMD of the respondent was the agreed arbitrator. When the parties have agreed on the arbitrator to whom the disputes are agreed to be referred, upon disputes arising, the parties or any of them are required to approach the said named arbitrator. In such case, sub-sub-clause (c) of sub

3 section 6 is attracted and a party becomes entitled to request the Chief Justice for securing the appointment only when the named arbitrator fails to perform any function entrusted to him under that procedure. When an arbitrator is named in the agreement, the parties raising the dispute or making the claims is not required to approach the other party to join in the appointment of the arbitrator or to appoint the arbitrator as the petitioner has done in the present case. There was no need for the petitioner to approach the DDG (MM) of the respondent for nominating and appointing the arbitrator inasmuch as the arbitrator was already named in the agreement. What the petitioner was required to do was to approach this CMD of the respondent with its claims and only if the said CMD had failed to either himself act as an arbitrator or to nominate/appoint anyone else as the arbitrator, could the petitioner have any cause of action for approaching this Court. The petitioner having admittedly not done so, the petition is liable to be rejected as without cause of action. 8. The next aspect to be examined is as to would the refusal of the Assistant Director General (ST) of the respondent to appoint an arbitrator make any difference. The petitioner had agreed to the arbitration of CMD or his nominee, notwithstanding the proximity of the said CMD to the other party, for the reason of special faith having been reposed in the person occupying the office of the CMD. It was open to the parties to agree and provide that in the event of disputes, the respondent shall nominate/appoint the arbitrator. The parties instead of agreeing so, agreed to the arbitration of CMD or his nominee. Thus, CMD of the respondent, at least for the purpose of arbitration agreement was treated differently from the respondent and cannot be equated with the respondent. Thus, the denial by the Assistant Director General (ST) of the respondent to the request of the petitioner for appointment of arbitrator is of no avail. Moreover, the request itself was not in accordance with the agreed procedure. Thus, in my view, the application is without any cause of action and is liable to be rejected on this gourd alone. 9. The second contention of the respondent that the dispute raised is an excepted matter can be discussed together with the third contention of there being no dispute between the parties. 10. The case as set out in the petition/application is that under the agreement between the parties, under Clause 3 titled Price Variation the composite price of each size of cable was to be worked out on monthly basis, based upon the monthly Copper Price Circular issued by the respondent; that the petitioner had agreed to the price being determined as per the Copper Price Circular issued by the respondent because the respondent in the past had always adopted the market price issued in the monthly circular of Hindustan Copper Limited (HCL) which being the sole indigenous producer of primary copper in India and being also a public sector undertaking issued monthly price circular of copper and which was always reflective of the market price; that historically, the price circulars issued by the respondent have been identical to the HCL price circulars and in the past the cable industry had no reason to raise a grievance to the respondent reserving a right to determine the copper prices because of being satisfied by the same being copper price as published by the HCL; that however this time around during the currency of the agreement subject matter of the application, the respondent in complete disregard of past

4 practice determined the copper prices at variance and lower than that of the copper price as published by HCL. The said action of the respondent was impugned in the petition/application as arbitrary and is the basis of the claims raised by the petitioner and disputed by the respondent and for adjudication of which appointment of arbitrator is sought. 11. The second contention aforesaid of the respondent is that the prices of copper under the agreement were to be determined by the respondent and thus the disputes raised fell within the excepted matters in the arbitration clause i.e., the decision of which was specifically provided under the agreement. Thirdly, it was contended that since it was not disputed that the petitioner had been paid as per the price of copper published in circulars of the respondent and the claim was based on the prices of copper published in the circulars of HCL, there was in reality no dispute requiring the parties to be referred to arbitrator. 12. The second contention raised by the respondent is no longer res integra. The Apex Court recently in BSNL vs. Motorola India Pvt. Ltd (12) Scale 720 : MANU/SC/4021/2008 has held that for the matter to fall in the excepted matter, an adjudicatory mechanism/process has to be provided therein. In the absence of any adjudicatory process it cannot fall within excepted matter, the decision of which is provided under the agreement. 13. In this regard, it may be noted that the counsel for the respondent had argued that the only matter the decision whereof under the agreement was to be of the respondent was with respect to the publication of the aforesaid prices of copper and thus the exception in the arbitration clause applied to the determination of price of copper only and could not apply to any other matter. However, a perusal of the clause relating to publication of price of copper by the respondent shows that no adjudicatory process was entailed therein. Merely, because the so called excepted matter in the arbitration clause could not apply to any dispute for the reason that the decision of no matter by adjudicatory process was left to the respondent, is no ground to apply the said exception clause to the case in hand. Moreover, the Apex Court in the judgment aforesaid has also held that such a clause would also be contrary to Section 28 of the Contract Act being in restraint of legal proceedings and has to be held to be bad. Following the said dicta, the second contention of the respondent is not found tenable. 14. As far as the third contention of the respondent is concerned, it tentamounts to saying that the dispute raised is illusionary or no dispute and hence the parties ought not to be put through the expensive exercise of arbitration. The counsel for the respondent has in this record relied upon SBP and Co. vs. Patel Engineering Ltd. and Anr. (2005) 8 SCC 618. The Constitution Bench of Apex Court in the said judgment, overruling the earlier position held that at least in the matter of deciding his own jurisdiction and in the matter of deciding on the existence of an arbitration agreement, the Chief Justice when confronted with two points of view presented by the rival parties has to decide between them. The Apex Court in para 37 of the judgment citing the examples of claims being made 10 or 20 years after the period of contract come to an end and of where

5 appointment of arbitrator is sought after the parties had settled the accounts and the party concerned had certified that he has no further claim against the other and when dead claims are sought to be resurrected or where assertions are made of the existence of arbitration agreement when in fact such existence is strongly disputed or a controverted or as to whether the claim that is sought to be put forward comes within the purview of arbitration clause concerned at all, held that the Chief Justice has necessarily to apply his mind to these aspects before coming to a conclusion one way or the other and before proceeding to appoint an arbitrator or declining to appoint an arbitrator. The Constitution Bench in para 32 of the judgment further held that if the parties are compelled to take objection to the jurisdiction or the existence of an arbitration agreement before the arbitral tribunal, the parties have to participate in the arbitration proceedings extending over a period of time by incurring substantial expenditure and then come to the Court with an application under Section 34 of the Act seeking the setting aside of the award on the ground that there was no arbitration agreement or that there was nothing to be arbitrated upon when the tribunal was constituted. It was held that the same meant considerable expenditure and time spent by the party before the arbitral tribunal. It was held that on the contrary if the decision on the aforesaid aspect is taken when the court is approached for appointment of an arbitrator, this will put to an end a host of disputes between the parties and leave the arbitral tribunal to decide the disputes on merits unhampered by preliminary and technical objections. This option was considered by the Constitution Bench to be more conducive in matter coming under the Act. 15. The third contention of the respondent in the present case is in fact on the merits of the dispute. It is the case of the respondent that the claim raised is not tenable under the agreement inasmuch as the claim is based on HCL published list of copper prices whereas under the agreement the price was to be determined as per the respondent published copper price. Whether the court when approached under Section 11(6) is entitled to consider this aspect also The same would necessarily entail interpretation of the contract. But so would determination of whether the disputes are arbitrable or not or fall in excepted matter or not and which, the Constitution Bench of the Apex Court as aforesaid held was to be determined at this stage only. 16. Though the scope of inquiry in both the situations may not be different but it cannot be lost sight of that while one is a plea of the very arbitrablilty of the disputes, the other is the plea of tenability of the claim. In the light of the prohibition contained in Section 5 of the Act, even though present may be of a very clear case where admittedly the claim is contrary to the written words of the agreement, this court hesitates from expanding the scope of intervention of the court to also consider where the claim is tenable on merits or not. If same were to be permitted, it would open the flood gates to pleas in this regard and litigants, may be with a view to delay the disposal of the application would make all sorts of pleadings to urge that the claim was not in terms of the agreement or is a sham and fictitious. 17. Having held so, I may, however, observe that since I have on the first contention of the petitioner found the petition to be without cause of action, the finding on the second and third contention aforesaid of the respondent, would not constitute res judicata

6 in a subsequent petition/application if any under Section 11(6) of the Act, in the event of the CMD of the respondent failing to act in spite of being approached by the petitioner. However, since the contention had been raised and it is a requirement of law that notwithstanding the matter being found to be not maintainable on one ground alone, finding on all the grounds urged has to be returned so that the parties are not compelled to successive rounds of litigations, these findings would be relevant if either of the parties dissatisfied with this order takes the matter further. 18. For the reasons aforesaid, the application is rejected accepting the contention No. 1 of the respondent. However, in the facts of the case, the parties are left to bear their own costs. Sd./- RAJIV SAHAI ENDLAW,J January 14, 2009

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