Madhya Pradesh High Court
Swadesh Kumar Agarwal vs Dinesh Kumar Agarwal on 7 September, 2017
HIGH COURT OF MADHYA PRADESH, PRINCIPAL SEAT AT
JABALPUR
Case No & Parties Name Writ Petition No.11258/2010
Swadesh Kumar Agrawal
Vs.
Dinesh Kumar Agrawal and others
&
Writ Petition No.11259/2010
Swadesh Kumar Agrawal
Vs.
Rakesh Kumar Agrawal and others
&
A.C. No.29/2015
Dinesh Kumar Agrawal
Vs.
Vyas Kumar Agrawal and others.
Date of Judgment 07/09/17
Bench Constituted Single Bench
Judgment delivered by Justice Sujoy Paul
Whether approved for No
reporting
Name of counsels for parties Petitioner: Shri Shobhitaditya and Shri
Pranay Verma, Adv in W.P.
Nos.11258/2010 & 11259/2010
Respondents : Shri Ashok Lalwani,
Adv in W.P. Nos.11258/2010 &
11259/2010
Applicant: Shri Ashok Lalwani, Adv. In
AC No.29/2015
Respondent No.1: Shri Vibhash Ranjan
Tiwari, Adv in AC No.29/2015
Respondent No.2: Shri Shobhitaditya,
Adv in in AC No.29/2015
Law laid down -
Significant paragraph -
numbers
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W.P. Nos. 11258 of 2010, 11259 of 2010 & A.C. No.29 of 2015
ORDER
(07.09.2017)
1. The parties are at loggerheads in these batch of petitions on the question of termination of mandate of the Arbitrator and on the question of appointment of a new Arbitrator. In addition, the writ petitions are filed feeling aggrieved by order of the Court below whereby the applications preferred under Order VII Rule 11 CPC were disallowed.
2. Briefly stated, the admitted facts between the parties are that they entered into an agreement which contains an arbitration clause. Since dispute arose between the parties, Shri Rajesh Wadhwani was appointed as Arbitrator to resolve the dispute.
3. Admittedly, two applications under Section 14 of the Arbitration act were filed by Shri Dinesh Kumar Agrawal and Shri Rakesh Kumar Agarwal before the Court of VI Additional District Judge, Bhopal. The other side was put to notice by the said Court. In turn, the petitioners of present writ petitions, filed applications under Order VII Rule 11 CPC before the Court below contending that the applications of Shri Dinesh Kumar Agrawal and another is not maintainable before the Principal civil Court and such applications should have been filed before this Court in view of Section 14 of the Arbitration Act. The Court below by two separate orders, rejected the said applications preferred under Order VII Rule 11 CPC. These rejection orders are subject matter of challenge in these writ petitions.
4. A.C. No.29/2015 is filed by Shri Dinesh Kumar Agrawal contending that in aforesaid writ petitions limited interim relief was granted by this Court. On 01.09.2010, this Court passed an interim order and permitted the Court below to proceed with the arbitration proceedings but restrained it to pass a final order in the matter.
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W.P. Nos. 11258 of 2010, 11259 of 2010 & A.C. No.29 of 2015
5. Shri Ashok Lalwani, learned counsel submits that there was no interim order either by the trial Court or by this Court against the arbitration proceedings. Thus, nothing prevented the Arbitrator to proceed with the matter and resolve the dispute. Since Arbitrator did not proceed and resolved the dispute, in view of Section 14 of the Arbitration Act ,his mandate stood terminated automatically and, therefore, substituted Arbitrator may be appointed by this Court in exercise of power under Section 11(6) of the Arbitration Act. In support of his contention, he placed reliance on Sections 14 and 15 of the Act. He placed reliance on 2011 (1) MPLJ 534, [Aashirwad Foods & Beverages Malanpur vs. Arunendra Mohan Pathak & others], 2012 (4) MPLJ (HC) 311 [ACC Ltd. vs. Global Cements Ltd.] and 2015 (2) SCC 52 [Union of India vs. Uttar Pradesh State Bridge Corporation Limited].
6. Per contra, Shri Shobhitaditya, Shri Pranay Verma and Shri Vibhash Ranjan Tiwari opposed the contention of Shri Ashok Lalwani. It is common ground that the word "Court" used in Section 14 means the Principal Civil Court as defined in Section 2(e) of the Arbitration Act. This petition for change of Arbitrator or for termination of mandate of Arbitrator is not maintainable. It is further argued that as per Section 12 of the Arbitration Act, the Arbitrator may be changed only if
(a) circumstances exists that give rise to justifiable doubt as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties . The challenge procedure is mentioned in Section 13 of the Act which makes it clear that unless the mandate of Arbitrator is challenged, the arbitral proceedings will continue and Arbitrator is obliged to decide the dispute. Shri Shobhitaditya has taken pains to contend that as per Section 14 of the Act, the present mandate of Arbitrator cannot be treated to be automatically terminated de-jure or de-facto.
7. It is further submitted that in the event any controversy remains about the question whether the mandate of Arbitrator is terminated, the party aggrieved needs to apply to the "Court" to decide on termination of the
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W.P. Nos. 11258 of 2010, 11259 of 2010 & A.C. No.29 of 2015 mandate. Section 15 is relied upon to contend that this provision is applicable in addition to Sections 13 and 14 of the Act when (a) the Arbitrator withdraws from office for any reason, or (b) by or pursuant to agreement of the parties. It is urged that the necessary ingredients for entertaining this application are not available and, therefore, this application filed under Section 11 (6) is not maintainable.
8. It is pertinent to mention here that Shri Lalwani contended that the Arbitrator Shri Rajesh Wadhwani was appointed on 04.08.2008. Parties completed their pleadings on 13.12.2008. The learned Arbitrator adjourned the matter for few dates but after 14.03.2009, no further date was fixed by the Arbitrator. The learned counsel for the other side did not dispute the aforesaid factual statement of shri Lalwani. However, the stand of Shri Shobhitaditya and Shri Vibhash Ranjan Tiwari is that in view of ad-interim order passed by this Court in aforesaid writ petitions, the learned Arbitrator kept the dispute in abeyance and this inaction, by no stretch of imagination, can be said to be a reason to treat the mandate of Arbitrator as cancelled/terminated.
9. The parties during the course of arguments, fairly admitted that if A.C. No.29/2015 is decided in favour of the applicant, the other two writ petitions will become infructuous.
10. In view of the aforesaid stand of parties, I deem it proper to first deal with A.C. No.29/2015.
11. As noticed, the learned Arbitrator has not proceeded with the dispute after 14.03.2009. The argument that in view of interim order passed in the writ petitions, the arbitrator did not or could not proceed, is in my opinion, has no merit. A plain reading of interim order dated 01.09.2010 shows that this Court has not stayed the proceedings before the Arbitrator and, therefore, the Arbitrator was free to proceed with the matter and resolve the dispute. The ancillary question is: if Arbitrator has not proceeded
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W.P. Nos. 11258 of 2010, 11259 of 2010 & A.C. No.29 of 2015 further can it be treated to be a reason for termination of his mandate. Section 14 (1) (a) reads as under:-
"14 (1)(a). he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay."
12. A microscopic reading of this provision makes it clear that mandate of the Arbitrator shall terminate if (i) he becomes de-jure or become de- facto unable to perform function, (ii) or for other reason fails to act without undue delay. In the considered opinion of this Court, the second portion of clause (a) is attracted in the present case. If Arbitrator failed to act without undue delay, this can very well be a reason to hold that mandate of Arbitrator stood terminated.
13. The applications Section 14 were filed by present applicant and another person before the Court below in the year 2009 whereas present application under Section 11(6) is filed in the year 2015. From 2009, till date, the learned Arbitrator did not proceed with the matter. Thus, in my view, this is sufficient reason to hold that the mandate of Arbitrator stood terminated.
14. The second question which goes to the root of the matter raised by the other side is: whether in this application filed under Section 11(6), a substitute or new Arbitrator can be directed to be appointed. In my opinion, this point is no more res-integra. The appointment of a different independent Arbitrator despite a contrary clause in the arbitration agreement is not unknown to law. In catena of judgments, even prior to amendment of Section 12 of the Arbitration Act Courts have appointed the arbitrators, giving a go by to the agreed arbitration clause in certain contingency and situations, having regarding to the provision of the Act which, inter-alia provided that while appointing the Arbitrator, Chief Justice, or the designate shall have regard to the other conditions as are likely to secure the appointment of an independent and impartial Arbitrator. See Datar Switchgears Ltd. v. Tata Finance Ltd. (2000) 8 SCC 151] , Punj
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W.P. Nos. 11258 of 2010, 11259 of 2010 & A.C. No.29 of 2015 Lloyd Ltd. v. Petronet MHB Ltd.(2006) 2 SCC 638] , Union of India v. Bharat Battery Mfg. Co. (P) Ltd (2007) 7 SCC 684] , Deep Trading Co. v. Indian Oil Corpn. (2013) 4 SCC 35, Union of India v.Singh Builders Syndicate, (2009) 4 SCC 523 and North Eastern Railway v.Tripple Engg. Works, (2014) 9 SCC
288. Taking note of the aforesaid judgments, the Apex Court in Union of India v. U.P. State Bridge Corpn. Ltd., (2015) 2 SCC 52 summed up the position in the following manner:
"13. No doubt, ordinarily that would be the position. The moot question, however, is as to whether such a course of action has to be necessarily adopted by the High Court in all cases, while dealing with an application under Section 11 of the Act or is there room for play in the joints and the High Court is not divested of exercising discretion under some circumstances? If yes, what are those circumstances? It is this very aspect which was specifically dealt with by this Court in Tripple Engg. Works (supra). Taking note of various judgments, the Court pointed out that the notion that the High Court was bound to appoint the arbitrator as per the contract between the parties has seen a significant erosion in recent past. In paras 6 and 7 of the said decision, those judgments wherein departure from the aforesaid "classical notion" has been made are taken note of. It would, therefore, be useful to reproduce the said paragraph along with paras 8 and 9 hereinbelow: "6. The "classical notion" that the High Court while exercising its power under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter for short "the Act") must appoint the arbitrator as per the contract between the parties saw a significant erosion in ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn. Ltd (2007) 5 SCC 304] , wherein this Court had taken the view that though the contract between the parties must be adhered to, deviations therefrom in exceptional circumstances would be permissible. A more significant development had come in a decision that followed soon thereafter in Union of India v. Bharat Battery Mfg. Co. (P) Ltd. (2007) 7 SCC 684] wherein following a three-Judge Bench decision in Punj Lloyd Ltd. v. Petronet MHB Ltd. (2006) 2 SCC 638] , it was held that once an aggrieved party files an application under Section 11(6) of the Act to the High Court, the opposite party would lose its right of appointment of the arbitrator(s) as per the terms of the contract. The implication that the Court would be free to deviate from the terms of the contract is obvious.
7. The apparent dichotomy in ACE Pipeline v. Bharat Petroleum Corpn. Ltd., (2007) 5 SCC 304 and Union of India v. Bharat Battery Mfg. Co. (P) Ltd., (2007) 7 SCC 684] was reconciled by a three-Judge Bench of this Court in Northern
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W.P. Nos. 11258 of 2010, 11259 of 2010 & A.C. No.29 of 2015 Railway Admn., Ministry of Railway v. Patel Engg. Co. Ltd. (2008) 10 SCC 240], wherein the jurisdiction of the High Court under Section 11(6) of the Act was sought to be emphasised by taking into account the expression "to take the necessary measure" appearing in sub-section (6) of Section 11 and by further laying down that the said expression has to be read along with the requirement of sub-section (8) of Section 11 of the Act. The position was further clarified in Indian Oil Corpn.
Ltd. v. Raja Transport (P) Ltd. (2009) 8 SCC 520 Para 48 of the Report wherein the scope of Section 11 of the Act was summarised may be quoted by reproducing sub-paras (vi) and
(vii) hereinbelow: (Indian Oil case [Indian Oil Corpn. Ltd. v. Raja Transport (P) Ltd., (2009) 8 SCC 520 : (2009) 3 SCC (Civ) 460] , SCC p. 537) "48. (vi) The Chief Justice or his designate while exercising power under sub-section (6) of Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause.
(vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded, ignore the designated arbitrator and appoint someone else."
8. The above discussion will not be complete without reference to the view of this Court expressed in Union of India v. Singh Builders Syndicate[Union of India v. Singh Builders Syndicate, (2009) 4 SCC 523, wherein the appointment of a retired Judge contrary to the agreement requiring appointment of specified officers was held to be valid on the ground that the arbitration proceedings had not concluded for over a decade making a mockery of the process. In fact, in para 25 of the Report in Singh Builders Syndicate this Court had suggested that the Government, statutory authorities and government companies should consider phasing out arbitration clauses providing for appointment of serving officers and encourage professionalism in arbitration.
9. A pronouncement of late in Deep Trading Co. v. Indian Oil Corpn. (2013) 4 SCC 35 followed the legal position laid down in Punj Lloyd Ltd. which in turn had followed a two-Judge Bench decision in Datar Switchgears Ltd.. The theory of forfeiture of the rights of a party under the agreement to appoint its arbitrator once the proceedings under Section 11(6) of the Act had commenced came to be even more formally embedded in Deep Trading Co. subject, of course, to the provisions of Section 11(8), which provision in any event, had been held in Northern Railway Admn. not to be mandatory, but only embodying a requirement of keeping the same in view at
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W.P. Nos. 11258 of 2010, 11259 of 2010 & A.C. No.29 of 2015 the time of exercise of jurisdiction under Section 11(6) of the Act.'
14. Speedy conclusion of arbitration proceedings hardly needs to be emphasised. It would be of some interest to note that in England also, Modern Arbitration Law on the lines of UNCITRAL Model Law, came to be enacted in the same year as the Indian law which is known as the English Arbitration Act, 1996 and it became effective from 31-1-1997. It is treated as the most extensive statutory reform of the English arbitration law.
Commenting upon the structure of this Act, Mustill and Boyd in their Commercial Arbitration, 2001 companion volume to the 2nd Edn., have commented that this Act is founded on four pillars. These pillars are described as:
(a) The first pillar: Three general principles.
(b) The second pillar: The general duty of the Tribunal.
(c) The third pillar: The general duty of the parties.
(d) The fourth pillar: Mandatory and semi-mandatory provisions.
Insofar as the first pillar is concerned, it contains three general principles on which the entire edifice of the said Act is structured. These principles are mentioned by an English Court in its judgment in Deptt. of Economics, Policy and Development of the City of Moscow v. Bankers Trust Co. 2005 QB 207 : (2004) 3 WLR 533 : (2004) 4 All ER 746 : 2004 EWCA Civ 314] In that case, Mance, L.J. succinctly summed up the objective of this Act in the following words: (QB p. 228, para 31) '31. ... Parliament has set out, in the Arbitration Act, 1996, to encourage and facilitate a reformed and more independent, as well as private and confidential, system of consensual dispute resolution, with only limited possibilities of court involvement where necessary in the interests of the public and of basic fairness.' Section 1 of the Act sets forth the three main principles of arbitration law viz. (i) speedy, inexpensive and fair trial by an impartial tribunal; (ii) party autonomy; and (iii) minimum court intervention. This provision has to be applied purposively. In case of doubt as to the meaning of any provision of this Act, regard should be had to these principles.
15. In the book O.P. Malhotra on the Law and Practice of Arbitration and Conciliation (3rd Edn. revised by Ms Indu Malhotra), it is rightly observed that the Indian Arbitration Act is also based on the aforesaid four foundational pillars.
16. First and paramount principle of the first pillar is "fair, speedy and inexpensive trial by an Arbitral Tribunal". Unnecessary delay or expense would frustrate the very purpose of arbitration. Interestingly, the second principle which is
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W.P. Nos. 11258 of 2010, 11259 of 2010 & A.C. No.29 of 2015 recognised in the Act is the party autonomy in the choice of procedure. This means that if a particular procedure is prescribed in the arbitration agreement which the parties have agreed to, that has to be generally resorted to. It is because of this reason, as a normal practice, the court will insist the parties to adhere to the procedure to which they have agreed upon. This would apply even while making the appointment of substitute arbitrator and the general rule is that such an appointment of a substitute arbitrator should also be done in accordance with the provisions of the original agreement applicable to the appointment of the arbitrator at the initial stage. [See Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. (2006) 6 SCC 204] ] However, this principle of party autonomy in the choice of procedure has been deviated from in those cases where one of the parties have committed default by not acting in accordance with the procedure prescribed. Many such instances where this course of action is taken and the Court appoint the arbitrator when the persona designata has failed to act, are taken note of in paras 6 and 7 of Tripple Engg. Works. We are conscious of the fact that these were the cases where appointment of the independent arbitrator made by the Court in exercise of powers under Section 11 of account of "default procedure". We are, in the present case, concerned with the constitution of substitute Arbitral Tribunal where earlier Arbitral Tribunal has failed to perform. However, the above principle of default procedure is extended by this Court in such cases as well as is clear from the judgment in Singh Builders Syndicate.
17. In the case of contracts between government corporations/State-owned companies with private parties/contractors, the terms of the agreement are usually drawn by the government company or public sector undertakings. Government contracts have broadly two kinds of arbitration clauses, first where a named officer is to act as sole arbitrator; and second, where a senior officer like a Managing Director, nominates a designated officer to act as the sole arbitrator. No doubt, such clauses which give the Government a dominant position to constitute the Arbitral Tribunal are held to be valid. At the same time, it also casts an onerous and responsible duty upon the persona designata to appoint such persons/officers as the arbitrators who are not only able to function independently and impartially, but are in a position to devote adequate time in conducting the arbitration. If the Government has nominated those officers as arbitrators who are not able to devote time to the arbitration proceedings or become incapable of acting as arbitrators because of frequent transfers, etc., then the principle of "default procedure" at least in the cases where Government has assumed the role of appointment of arbitrators to itself, has to be applied in the case of substitute arbitrators as well and the Court will step in
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W.P. Nos. 11258 of 2010, 11259 of 2010 & A.C. No.29 of 2015 to appoint the arbitrator by keeping aside the procedure which is agreed to between the parties. However, it will depend upon the facts of a particular case as to whether such a course of action should be taken or not. What we emphasise is that Court is not powerless in this regard."
15. The paramount consideration for appointment of an arbitrator is impartial and speedy resolution of dispute between the parties. Section 14 is wide enough to include cases where named arbitrator is unable to perform his function or ''for other reasons" fails to act without undue delay. In the present case, there is an undue delay on the part of the named arbitrator in proceeding with and concluding the proceedings. As noticed, the common string in the judgments mentioned above shows that where the arbitrator gives go-by to the very purpose of arbitration, the courts are not powerless in this regard and can, in a fit case, appoint a suitable arbitrator.
16. This Court in the case the of Ashirwad Foods (supra) considered the judgment of Bombay High Court in the case of Smt. Satya Kailash Chandra Sahu Vs. Vidharbha Distillery, AIR 1998 Bombay 210 and the judgment of Supreme Court reported in 2009 (4) SCC 523 the Union of India Vs. Singh Builders Syndicate and opined that court has power to appoint Arbitrator under the facts of a case because non-applicant therein have failed to perform their duties and one respondent therein submitted his willingness to withdraw from the arbitration proceedings.
17. In another judgment reported in the case of ACC Limited (supra), the Apex Court opined as under:
"15. Sections 14 and 15 provide the grounds for termination of the mandate of the arbitrator on the ground of incapability of the arbitrator to act or if he withdraws from his office or when the parties agree to the termination of the mandate of the arbitrator. Section 15(2) states that a substitute arbitrator shall be appointed as per the rules that were applicable to the appointment of the arbitrator being replaced. Section 15(2), therefore, has to be given a liberal interpretation so as to apply to all possible circumstances under which the mandate may be terminated."
18. In view of aforesaid analysis, in my opinion, because of undue and unreasonable delay in proceedings with the dispute, the mandate of Arbitrator stood terminated. The other necessary ingredients for appointment of suitable
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W.P. Nos. 11258 of 2010, 11259 of 2010 & A.C. No.29 of 2015 Arbitrator are available in the present case. There exists an arbitration clause and a dispute between the parties.
19. Accordingly, I deem it proper to appoint an independent Arbitrator so that the purpose,object and scheme of the Arbitration Act can be translated into reality and independent Arbitrator may resolve the dispute between the parties expeditiously. Accordingly, I deem it proper to appoint Ms. Renu Sharma, Former District Judge, R/o H-22, Nishant Colony, 74- Bungalow, Bhopal, MP to act as an Arbitrator.
20. In view of this order, Shri Ashok Lalwani fairly submitted that the applications filed by Shri Dinesh Kumar Agrawal and Shri Rakesh Kumar Agrawal before the Court below under Section 14 of the Act have become infructuous and, therefore, the said applications will be withdrawn by the said parties on the next date of hearing from the Court below.
21. In view of this statement, there is no need to decide whether applications preferred by the other side under Order VII Rule 11 CPC were properly decided . The said applications have lost their shine.
22. In view of the aforesaid directions, petitions and application are disposed of.
(Sujoy Paul) Judge Devashish