Himachal Pradesh High Court
M/S Rswm Limited vs The Himachal Pradesh State Civil ... on 11 May, 2016
Author: Sanjay Karol
Bench: Sanjay Karol
IN THE HIGH COURT OF HIMACHAL PRADESH,
SHIMLA.
.
Arbitration Case No.104/2016
Decided on : 11.05.2016
M/s RSWM Limited ...Petitioner
Versus
The Himachal Pradesh State Civil Supplies Corporation Ltd. and
another ...Respondents
of
Coram:
The Hon'ble Mr. Justice Sanjay Karol, Judge.
Whether approved for reporting? No
rt 1
For the Petitioner : Mr. J.S. Bhogal, Senior Advocate with
Mr. Pramod Negi, Advocate.
For the Respondents : Mr. R.M. Bisht and Mr. R.S. Verma,
Additional Advocate Generals for State.
Mr. Ramesh Sharma, Advocate for R-1.
Sanjay Karol, J. (oral)
Financial Commissioner (Appeals) is not an employee of the Himachal Pradesh State Civil Supplies Corporation-respondent No.1 (hereinafter referred to as the Corporation).
2. In terms of the agreement dated 6.8.2013 entered into between the Corporation and M/s RSWM Limited, petitioner herein, all disputes arising out the agreement are necessarily required to be referred to the Arbitration of the said authority.
Whether reporters of Local Papers may be allowed to see the judgment?
::: Downloaded on - 15/04/2017 20:19:59 :::HCHP 23. For implementation of the Mahatama Gandhi Vardi Yojna, in the State of Himachal Pradesh, the .
Corporation entered into three separate agreements with different parties. In relation to two agreements, pursuant to disputes having arisen, the matter already stands referred to the said authority under Clause 25 of the Agreement.
of
4. Petitioner alone is objecting to the appointment of the nominated authority as an Arbitrator and the ground rt of challenge, primarily being that the Arbitrator is an employee of the State, which is an affiliate of the Corporation within the meaning of the amended 7th Schedule of the Arbitration and Conciliation Act.
5. Certain facts are not in dispute. On 6.8.2013, petitioner and the Corporation entered into an agreement for supply of uniform to children studying in various government schools within the State of Himachal Pradesh.
The respondent was to implement the scheme commonly known as Mahatama Gandhi Vardi Yojna so notified by the State of Himachal Pradesh on 3.3.2015. The State of Himachal Pradesh is not a party to the agreement. In terms of the agreement, uniforms were to be supplied within a ::: Downloaded on - 15/04/2017 20:19:59 :::HCHP 3 period of 100 days. In terms of the agreement, supply orders came to be issued on 7.8.2013. Certain disputes .
having arisen inter se the parties, with regard to the implementation of the terms of the agreement, on 7.9.2015, petitioner itself called upon the Corporation to nominate the Arbitrator in terms of Clause 25. They themselves of expressed full faith in the Arbitrator and as such desired the matter to be adjudicated. However, before the Corporation rt could formally communicate the order of appointment, the Arbitration and Conciliation Act, 1996 (referred to as the Act) came to be amended by virtue of Arbitration and Conciliation Ordinance 2015 so notified on 3.10.2015, which came to be formally replaced by the Arbitration and Conciliation Amendment Act, 2015 (referred to as the amending Act) so notified on 31.12.2015, but w.e.f.
23.10.2015.
6. Originally Section 12 of the Act reads as under:-
"12. Grounds for challenge.- (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.::: Downloaded on - 15/04/2017 20:19:59 :::HCHP 4
(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing .
any circumstances referred to in sub-section (1) unless they have already been informed of them by him.
(3) An arbitrator may be challenged only if-
(a) circumstances exist that give rise to of justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualifications rt (4) agreed to by the parties.
A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made."
7. Significantly, there was no reference of the Schedules and the only obligation cast upon the Arbitrator was to disclose, in writing, any circumstance(s), which were likely to give rise to justifiable doubts, with regard to his independence or impartiality. In fact, apart from possessing requisite qualification, this was the only ground on which challenge could be laid to the Arbitrator.
8. With the amending Act, the Legislators in their wisdom, amended Section 12 to read as under:-
::: Downloaded on - 15/04/2017 20:19:59 :::HCHP 5"12. Grounds for challenge.- [(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in .
writing any circumstances,-
(a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether of financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and rt
(b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months.
Explanation 1.- The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.
Explanation 2- The disclosure shall be made by such person in the form specified in the Sixth Schedule.] (2) An Arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstance referred to in sub-section (1) unless they have already been informed of them by him.
(3) An arbitrator may be challenged only if-
::: Downloaded on - 15/04/2017 20:19:59 :::HCHP 6(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or .
(b) he does not possess the qualifications agreed to by the parties.
(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he of becomes aware after the appointment has been made.
(5) Notwithstanding any prior agreement to the rt contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:
Provided that the parties may subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing."
9. The amendment came into effect from 23.10.2015, a date subsequent to the parties having invoked the Arbitration Clause, which was so done on 7.9.2015. Significantly by this date, terms of Section 21, which remained un-amended, arbitral proceedings inter se the parties had already commenced. Hence in view of Section 26 of the amending Act, such proceedings stand ::: Downloaded on - 15/04/2017 20:19:59 :::HCHP 7 saved and the parties have not in writing agreed to subject themselves to the provisions of the amending Act.
.
10. But let us also examine the effect of the amendment which is carried out in the Act in terms of Sub Section (1) of Section 12. The Arbitrator who is likely to be appointed, in writing, is under an obligation to disclose any of circumstance of existence of his relationship direct/ indirect/ past/present, the words of the Statute being "having rt interest in any one of the parties to the dispute". Such interest may be financial, business, professional or other kind which is likely to give rise to "justifiable doubts", as to his "independence and impartiality". Also, he has to disclose as to whether he is in a position to expeditiously complete the arbitral proceedings within a period of 12 months or not.
11. But what are those circumstances which can give rise to justifiable doubts? Rather than leaving it to the parties, the Legislators thought it fit to itself specify it in the 5th and 6th Schedule of the Act. There can be a situation where an interest or relationship may arise between the Arbitrator or any one of the parties during the pendency of ::: Downloaded on - 15/04/2017 20:19:59 :::HCHP 8 the proceedings. Law also deals with such a situation. Sub Section (2) mandates the Arbitrator to disclose such interest .
to the parties at that point in time.
12. Significantly, there is no change in grounds of challenge to the Arbitrator, which can only be, and restricted to, justifiable doubts, as to the independence and of impartiality or lack of requisite qualification.
13. Crucially there is no change in the right of the rt party to challenge the Arbitrator so appointed by them. Sub Section (4) entitles the patties to challenge the Arbitrator only if he becomes aware of such disqualification after the appointment is made.
14. However, under the newly added Sub Section (5), the Legislators have themselves specified in the 7th Schedule, the grounds which would make the Arbitrator ineligible to be appointed as an Arbitrator. Of course, as is so provided in the proviso to the said Sub Section, parties by written agreement may chose not to invoke the same.
15. For the purpose of controversy in issue, Court has to only see as to whether the nominated Arbitrator currently represents or advises any one of the parties or its ::: Downloaded on - 15/04/2017 20:19:59 :::HCHP 9 affiliate. Certainly, the Financial Commissioner (Appeals) neither represents nor advices the petitioner or the .
Corporation which is a separate entity. Both the petitioner and the Corporation are Companies incorporated under the Indian Companies Act, having its independent Seal and Office. They are independent Companies. Though the of State may be having shareholding in the Corporation but then the Arbitrator has no control whatsoever, direct or rt indirect, either in the management or day-to-day affairs of the Corporation. Financial Commissioner, Appeal is not even an employee of the Corporation.
16. Can it be said that the respondent is an affiliate of the State? The term "Affiliate", stands explained in explanation 2 of the 7th Schedule. It encompasses all Companies in one group of the Company including parent Company. Now the State cannot be said to be the parent Company or the Corporation to be an affiliate of the State.
17. The Concise Oxford English Dictionary describes the word "Affiliate" as under:-
"Affiliate- officially attach or connect to an organization. (of an organization) admit as a member. n./An affiliated person or organization."::: Downloaded on - 15/04/2017 20:19:59 :::HCHP 10
18. Also, Black's Law Dictionary describes the word .
"Affiliate" as under:-
"Affiliate 1. A corporation that is related to another corporation by shareholdings or other means of control; a subsidiary, parent, or sibling corporation.
2. Securities. Someone who controls, is controlled by, or is under common control with an insurer of a of security. SEC Rule 10b-18(a) (1) (17 CFR $ 240.10b- 18 (a) (1)). See CONTROL PERSON. Cf. ASSOCIATED PERSEON (2).- affiliate."
rt
19. The respondent-Company has its own independent Board of Directors, some of whom may or may not be government employees, but then definitely, there is no control over the management of the Company by the State.
20. The State is not a Company and the word "Affiliate" cannot be read in isolation or out of context.
Interpretation has to be contextual and not in abstract. It has to be read in the context of the explanation so provided in the 7th Schedule.
21. The Corporation may be discharging public functions and for the purpose, Article 12 of the Constitution of India, may or may not be construed to be an ::: Downloaded on - 15/04/2017 20:19:59 :::HCHP 11 instrumentality of the State, but then for the purpose of the Statute in question, it definitely cannot be construed to be .
an affiliate of the State. Repetitive though it may appear, one cannot forget that the Corporation is a Company incorporated under the Companies Act having its own seal and Office. A Company has a distinct legal entity and of identity of its own. As such, the Corporation cannot be said to be an affiliate so as to fall within the meaning and scope rt of 7th Schedule so prescribed under Sub Section (5) of Section 12 of the Act.
22. With these observations, the petition only merits rejection. Ordered accordingly.
23. Parties, through learned counsel, undertake to appear before the Arbitrator, on 22.6.2016.
Pending application(s), if any, also stand disposed of.
(Sanjay Karol),
May 11, 2016 (KS) Judge.
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