Delhi High Court
Bharat Heavy Electricals Ltd. vs C.N. Garg And Ors. on 29 September, 2000
Author: Arun Kumar
Bench: Arun Kumar, A.K. Sikri
JUDGMENT Arun Kumar, J.
1. The petitioner has filed this petition challenging the vires of Section 13(3) and (4) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act). The petitioner has also made a prayer for a direction to remove respondent No. 1 from acting as sole Arbitrator in the arbitration between the petitioner and respondent No. 2.
2. Briefly stated, the facts are that the petitioner and respondent No. 2 entered into a contract on 12th August 1994 under which respondent No. 2 was entrusted with the work of erection and commissioning of 3X160 TPH Boiler at Panipat Oil Refinery of the Indian Oil Corporation Limited (for short IOCL). Disputes and differences arose between the parties. As per the terms and conditions of the contract, which contained an arbitration clause, respondent No. 1, Shri C.M. Garg was appointed as the sole arbitrator, on 10th April 1997 by the petitioner. We may note here that respondent No. 1 is an ex-director of the petitioner and is also a member of the Indian Council of Arbitration. Respondent No. 1 entered upon the reference and issued notices to parties inviting claims. It appears that during the course of arbitration proceedings the petitioner developed some apprehensions about the manner and conduct of the arbitration proceedings by the sole arbitrator. The petitioner levelled charges of prejudice and bias against the arbitrator and desired that the arbitrator should recluse himself from the arbitration, However, the arbitrator rejected this prayer and continued with the arbitration proceedings. The petitioner does not want him to continue as arbitrator. Its apprehension is that arbitrator would not act impartially.
3. The challenge regarding vires of Section 13(3) and (4) is based mainly on the ground that there is no provision in the Act for removal of an arbitrator by the court, though such a provision was contained in Section 11 of the Arbitration Act, 1940. Secondly, it is submitted that no remedy is available to the aggrieved party under the Act for challenging the award on the ground of bias and prejudice on the part of the arbitrator. Apart from challenging the constitutional validity of the aforesaid provisions, the petitioner has tried to make out a case that the sole arbitrator in the present case is biased and prejudiced against the petitioner and, therefore, it is a fit case in which the court should order his removal. The petitioner has given certain instances in the petition in a bid to make out a case of bias and prejudice on the part of the arbitrator. The arbitrator has filed a counter affidavit explaining the various allegations levelled against him and he has tried to show that the allegations are imaginary and baseless. Reply to the writ petition has also been filed by the Contractor, respondent No. 2 who has also raised a preliminary question of maintainability of the writ petition. On merits it has been contended on behalf of respondent No. 2 that the challenge levelled qua the constitutional validity of Section 13(3) and (4) of the Act is misconceived. According to the learned counsel for respondent No. 2, the Act is a self-contained Code and provides machinery for dealing with allegations made against an arbitrator. Our attention was invited to Section 34 of the Act which contains provision for setting aside an arbitral award. It is submitted that no interference is called for at this stage because if need be, the petitioner will have complete remedy by way of challenging the award on the grounds sought to be convassed now.
4. This petition involves two questions - one is regarding constitutional validity of Section 13(3) and (4) of the Act; and second, removal of the sole arbitrator on the grounds alleged against him in the writ petition.
5. In order to deal with the question of constitutional validity of Section 13(3) and (4) it will be appropriate to reproduce the relevant provisions of the Act at this stage:-
"Section 5. Extent of judicial intervention.- Notwithstanding anything contained in any other law for the time being in force, in matters governed by this part, no judicial authority shall intervene except where so provided in this part.
Section 13. Challenge Procedure. - (1) Subject to Sub-section (4), the par-ties are free to agree on a procedure for challenging an arbitrator.
(2) Failing any agreement referred to in Sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in Sub-section (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.
(3) Unless the arbitrator challenged under Sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.
(4) If a challenge under any procedure agreed upon by the parties or under the procedure under Sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.
(5) Where an arbitral award is made under Sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with Section 34.
(6) Where an arbitral award is set aside on a application made under Sub-section (5), the court may decide as to whether the arbitrator who is challenged is entitled to any fees."
34. Application for setting aside arbitral award. -(1) Recourse to a court against an arbitral award may be made only by an application for setting aside such award in accordance with Sub-section (2) and Sub-section (3).
(2) An arbitral award may be set aside by the court only if-
(a) xx xx xx
(b) the court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation : Without prejudice to the generality of Sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81."
6. We may note here that the Arbitration and Conciliation Act, 1996 is substantially based on the model law adopted by the United Nations Commission on International Trade Law (UNCITRAL) in view of the policy of liberalisation pursued by this country. It became almost imperative to model the arbitration laws of the country after the UNICITRAL Model Code. The General Assembly of the United Nations recommended that all countries give due consideration to the said Model Law in view of the desirability of uniformity of the law of arbitral procedures. In global contracts it is customary to have provision for arbitration in the event of disputes, Therefore it is only proper that all the participating countries should have uniform laws as far as possible. That was the need for a Model Code which resulted in the UNCITRAL Model Law on arbitration and most of the countries including India brought their local laws in line with the said Model Law. This is the birth of the Arbitration and Conciliation Act, 1996. One fact which permeates this Code is the emphasis on speedy disposal of arbitration proceedings. It is well known that under the Arbitration Act, 1940, arbitration proceedings took years to come to end. Court interference at various stages was one of the major causes for delay. The new statute has endeavoured to minimise judicial interference in the progress and completion of arbitration proceedings. This explains the introduction of Section 5 which bars judicial interference in arbitration proceedings.
7. Coming to Section 13 of the Act which deals with challenge to procedure including challenge to an arbitrator, it is to be seen that Sub-section (1) envisages that parties may agree to a procedure for challenging an arbitrator. According to Sub-section (2), failing an agreement between the parties, a party who intends to challenge an arbitrator shall within 15 days after becoming aware of the constitution of the arbitral tribunal, send a written statement of the reasons for the challenge to the arbitral tribunal. Sub-section (2) makes a reference to Sub-section (3) of Section 12 of the Act which contains the grounds on which an arbitration can be challenged. The grounds include justifiable doubts about the independence or impartiality of the arbitrator. Sub-section (3) of Section 13 contains the next step and provides that in such a situation either the arbitrator withdraws himself or the other party agrees to the challenge. Failing both, the arbitral tribunal is required to decide on the challenge. As per Sub-section (4) if the challenge to the arbitrator as above is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award. Sub-section (5) gives a right to the party challenging the arbitrator to make an application for setting aside the arbitral award in accordance with Section 34.
8. The legislature was more than cautious while providing in explicit terms that no judicial authority shall intervene except where so provided (Section 5). Thus clear mandate is to bar judicial interference except in the manner provided in the Act. Conversely if there is no provision to deal with a particular situation, Courts cannot assume jurisdiction and interfere. Comparing this legislation with the earlier legislation on the subject namely the Arbitration Act, 1940, the massage is loud and clear. The legislature found mischief in various provisions contained in the Arbitration Act, 1940 which would enable a party to approach the Court time and again during the pendency of arbitration proceedings resulting into delays in the proceedings. Law makers wanted to do away with such provisions. So that arbitration proceedings are not unduly hampered. The very purpose of arbitration, which is an alternate dispute redressal forum, is defeated once the courts interfere with these proceedings. The experience in the working of the old Arbitration Act showed that it was resulting in more delays than in civil suits. Therefore, not only such provisions were omitted in the New Act, provision in the form of Section 5 was inserted to convey the massage. The scheme of the New Act is clear enough i.e. during the arbitration proceedings Court's interference is done away with. The New Act deals with the situation even when there is challenge to the constitution of the arbitral tribunal. It is left to the arbitrator to decide the same in the first instance. If a challenge before the arbitrator is not successful, the arbitral tribunal is permitted to continue the arbitral proceedings and make an arbitral award. Such a challenge to the constitution of the arbitral tribunal before the Court is then deferred and it could be only after the arbitral award is made that the party challenging the arbitrator may make an application for setting aside an arbitral award and it can take the ground regarding the constitution of arbitral tribunal while challenging such an award. Thus course of action to be chartered in such contingency is spelt out in the Act itself. Court interference on basis of petitions challenging arbitral tribunal during the pendency of the arbitration proceedings would be clearly against the very spirit with which the Arbitration and Conciliation Act, 1996 has been enacted, the mischief which existed in the earlier enactment and is sought to be removed by the present enactment cannot be allowed to be introduced by entertaining writ petitions in the absence of any provision in the New Act in this respect. A statue is an edict of the legislature and the conventional way of interpreting or construing a statute is to seek the 'intention' of its maker. A statute is to be construed according "to the intent of them that make it" and" the duty of judicature is to act upon the true intention of the legislature - the mens or sentential legis."
9. The function of the Courts is only to expound and not to legislate, Entertaining such a petition would amount to encouraging ingenuous methods to introduce that very provisions by judicial interference which the legislature has deliberately done away with. This would be doing violence to the mandate of the legislature. Legislation in a modern state is actuated with some policy to curb some public evil or to effectuate some public benefit. The legislation is primarily directed to the problems before the legislature based on the information derived from past and present experience. When the 'purpose and object' or the 'reason and spirit' pervading through the statute is clear, Court has to adopt purposive approach in interpreting such a statute and it cannot encourage petitions which would defeat the very purpose and object with which the new Act was enacted.
10. It will also be apt at this stage to refer to the judgment of Eastman Photographic Materials Co. v. Comptroller General of Patents, Desists and Trade Marks, (1898) AC 571, p.576 wherein the Earl of Halsbury re-affirmed the rule as follows:
"My lords, it appears to me that to construe the Statute in question, it is not only legitimate but highly convenient to refer both to the former Act and to the ascertained evils to which the former Act had given rise, and to the later Act which provides the remedy. These three being compared, I cannot doubt the conclusion."
11. The Supreme Court in Bengal Immunity Co. v. State of Bihar, applied the rule in construction of Article 286 of the Constitution. After referring to the state of law prevailing in the provinces prior to the Constitution as also to the chaos and confusion that was brought about in inter-State trade and commerce by indiscriminate exercise of taxing powers by the different provincial legislatures founded on the theory of territorial nexus, S.R. Das, C.J, proceeded to say:
"It was to cure this mischief of multiple taxation and to preserve the free flow of inter-state trade or commerce in the Union of India regarded as on economic unit without any provincial barrier that the constitution-makers adopted Article 286 in the Constitution".
12. Mr. J.C. Seth, learned counsel for the petitioner knew fully well and conceded to the aforesaid scheme of the new Act by which judicial interference at this stage is not permitted under the provisions of the Act. He, however, submitted that this is negation of valuable right of the petitioner. It is for this reason that the vires of Section 13(3) and 13(a) of the Act itself were challenged.
13. The challenge to the constitutional validity of the statutory provisions was levelled mainly on the grounds that the Act does not contain any remedy for a party who makes allegations of bias and prejudice against an arbitrator and an arbitral award passed by such an arbitrator cannot be challenged. In other words, according to him, there is no remedy to an aggrieved party in such a situation. His argument was that although Sub-section (5) of Section 13 prescribed that party challenging the arbitration may make an application for setting aside an arbitral award in accordance with Section 34, reading of Section 34 would show that no provision is made to challenge the arbitral award on the ground of bias or partiality of the arbitral tribunal. He further submitted that arbitral award can be set aside only on the grounds mentioned in Section 34 and in the absence of a provision enabling the party of challenge arbitral award on the ground of bias of an arbitral proceeding, such a ground would not be entertained within the parameters of Section 34 and, therefore, the aggrieved party is in fact rendered without remedy and this makes Section 13(3) and 13(4) as unconstitutional. We are unable to agree with this contention of the counsel for the petitioner. This way say so on two grounds: First, Sub-section (5) of Section 13 provides that an aggrieved party can challenge the arbitrator and seek the relief of setting aside of such an arbitral award in accordance with Section 34 of the Act. Clause (b) of Sub-section (2) of Section 34 empowers the court to set aside an award where the court finds that the award is in conflict with the public policy of India. The Explanation to the clause shows that this clause has to be liberally interpreted. Public policy will include an award being challenged on account of fraud or corruption. In the present case the petitioner has tried to level allegations of bias and pre-jugdice against the arbitrator. Bias and pre-jugdice are matters which are contrary to public policy and verge on corruption. Though the term 'public policy' is incapable of precise definition, it connotes some matter which concerns public good and public interest. The principles governing public policy are capable of expansion or modification. The Supreme Court ob-served in Central Inland Water Transport Co. Ltd. and Anr. v. Brojo Nath Ganguly, that if there is no head of public policy which covers a case, then the court must in consonance with public conscience and in keeping with public good and public interest declare practices which were considered normal at one time but have become obnoxious and oppressive to public conscience, to be opposed to public policy. It observed: " Above all, in deciding any case it may not be covered by authority our courts have before them the beacon light of the Preamble to the Constitution. Lacking precedent, the court can always be guided by that light and the principles underlying the Fundamental Rights and the Directive Principles enshrined in our constitution". The principle of public policy is this: 'ex dolo malo non orator actio'. Lord Brougham defines public policy as the principle which declares that no man can lawfully do that which has a tendency to be injurious to the public welfare. Public policy comprehends only protection and promotion of public welfare. Principles of naturale justice that is, 'jus natural' are founded on public policy. They are the very foundation of any administrative system. From time immemorial, the decisions of judicial or quasi-judicial bodies including administrative tribunals are tested on these principles. This initial application of the doctrine of natural justice to courts and quasi-judicial bodies has been extended even to administrative authorities who have the function of determining civil rights and obligation. Those whose duty it is to decide must act judicially. They must deal with the question referred to them without bias and they must give to each of the parties the opportunity of adequately presenting their case. The decision must be in consonance with this spirit and the Tribunal should act with a sense of responsibility. It cannot be imagined that legislature intended not to make bias as one of the grounds of challenge to the arbitral award. We are, there fore, of view the view that it will be difficult to exclude a challenge on account of bias and prejudice on the part of the arbitrator from the purview of Clause (ii) of Clause (b) of Sub-section (2) of Section 34 of the Act. If the allegations of bias and prejudice are established, no court will countenance such allegations. If a court is satisfied that there is merit in such allegations, the award will have to be set aside. In our view, the relevant provisions of the Act, referred to above, are sufficient to enable an aggrieved party to challenge an arbitral award on the basis of allegations of bias and prejudice on the part of an arbitrator and it cannot be said that such a party is without any remedy under the Act. Thus we find no merit in the contention that Section 13(3) and (4) are ultra vires the Constitution of India on account of there being no provision in the Act to challenge an award on the ground of bias and prejudice on the part of arbitrator.
14. Sub-section (5) of Section 13 has to be read along with Section 34 of the Act for this purpose. Sub-section (5) of Section 13 specifically provides that party challenging the arbitrator may make an application for setting aside "such" an arbitral award in accordance with Section 34 of the Act. It clearly implies that challenge is permitted even on the grounds taken by the aggrieved party on which the challenge to the arbitral tribunal was made as, in the instant case, on the ground of bias and partiality of the arbitral tribunal. Thus even on principle of 'Doctrine of Incorporation' this ground has to be read in Section 34. Section 34 cannot be read in the manner suggested by the petitioner inasmuch as then it would-amount to taking away the right of the aggrieved party which has been conferred upon him under Section 13(5) of the Act. Provisions of Section 13(5) and Section 34 are to be read harmoniously. A right conferred upon an aggrieved party under Section 13(5) of the Act cannot be taken away by a narrow and pedantic interpretation of Section 34 of the Act.
15. A possible question in this connection may arise about there being no provision for removal of an arbitrator during the arbitration proceedings by the court. Admittedly the Act does not contain any provision where the court can remove an arbitrator during the pendency of arbitration proceedings. In this connection we have to remind ourselves of the intention behind the legislation, i.e. the Arbitration and Conciliation Act, 1996. As already observed, the Act is modelled after the UNCITRAL Model Law. This Model Law has been adopted by various countries. The need for such a Model Law arose because of increased international commercial activity. Such activity in modern times is at Government or Semi-government level. In such circumstances it was only fair and proper that all the participating countries should have similar legal provisions when it came to arbitration. In fact arbitration is envisaged as a method for speedy alternate redressal of disputes between the parties to commercial transactions. If court interference was permitted during arbitration proceedings, the very object of speedy redressal of disputes would have been frustrated. That is way keeping the peculiar conditions in India, coupled with the need for speedy resolution of disputes, the provision of court interference was avoided. Rather Section 5 was inserted which provides that there will be no judicial intervention. We have already noted that a party having grievances against an arbitrator on account of bias and pre-judgice is not without remedy. It has only to wait till the arbitral award comes and it can challenge the award on various grounds including bias and prejudice on the part of the arbitrator. Before the stage of challenge of award under Section 34 comes, Sub-sections (1), (2) and (3) of Section 14 envisage a situation where the arbitrator may on his own recluse himself on objection being taken qua his functioning as an arbitrator or where both the parties agree to his removal as per procedure accepted by them. If both fail, the arbitrator is required to decide on the challenge to his functioning as an arbitrator levelled by a party. The arbitrator is expected to be a fair person and if he finds that there is substance in the allegations, an arbitrator is expected to dispassionately rule on such an objection. Failing all this the last resort for an aggrieved party is the challenge under Section 13(5) read with Section 34. Thus going on with the ethos of the new Act of speedy progress of arbitration proceedings without judicial interference coupled with the fact that an aggrieved party is not without remedy, it cannot be said that the absence of a provision regarding removal of an arbitrator renders the relevant provisions of the statute ultra vires the Constitution. We are of the considered view that absence of a provision of removal of an arbitrator does not render the relevant statutory provisions invalid or ultra vires the Constitution of India.
16. Having upheld the constitutional validity of the relevant provisions of the Arbitration and Conciliation Act, 1996 and having upheld the right of the petitioner to challenge the award of the arbitral tribunal on grounds of bias and prejudice on the part of the arbitrator under Section 34 of the Act, we are of the view that we need not go into the section question raised in this petition about the alleged bias and prejudice on the part of the arbitrator as a matter of fact. The arbitration proceedings are yet to be concluded. After the arbitral award the petitioner or the aggrieved party will have a right to challenge the same. The grounds of bias and prejudice urged by the petitioner in the present petition will have to be considered at that stage. These will form part of the grounds on which the award will be challenged if it becomes necessary for the petitioner to do so. Therefore, we need not go into the allegations of bias and prejudice levelled against the arbitrator at this stage. Any view expressed by this court at this stage on this aspect will not be in the interest of fair conduct of the arbitration proceedings and further it may cause prejudice at the stage when these issues are really to be raised and considered. We refrain from going into the allegations of bias and prejudice and leave it open to the petitioner to raise the same at the appropriate stage if such a need arises. This petition is accordingly dismissed leaving the parties to bear their own costs.