LexMUNICIPAL CORPORATION, JABALPUR AND ORS. versus M/S. RAJESH CONSTRUCTIONS CO.
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·-r MUNICIPAL CORPORATION, JABALPUR AND ORS. A v. M/S. RAJESH CONSTRUCTIONS CO. APRIL 13, 2007 [TA RUN CHATTERJEE AND P.K. BALASUBRAMANYAN, JJ.] B ·"' 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 C would constitute the Arbitration Board-Dispute between the parties- Contractor filed application before High Court/or appointment of arbitrator- 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 D 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 of a road. The job was awarded to the respondent. The tender contained various clauses; E 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 of an arbitrator to adjudicate upon disputes. By an order dated 7th May, 2003, F 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 G 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 137 H 138 SUPREME COURT REPORTS [2007] 5 S.C.R. A 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 B 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 c 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 D 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 E 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 F 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 G 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 H Corporation is furnished within the time, the Corporation shall constitute an MUNICIPAL CORPRN, JABALPUR "· RAJESHCONSTRUCTIONS CO. [TARUN CHATTE
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