Punjab-Haryana High Court
Satish Chander Gupta And Sons vs Union Of India (Uoi) And Ors. on 4 September, 2002
Equivalent citations: 2003(1)ARBLR589(P&H), (2003)133PLR164
Author: Viney Mittal
Bench: H. Bedi, Viney Mittal
JUDGMENT Viney Mittal, J.
1. The petitioner has approached this court through the present petition under Article 226/227 of the Constitution of India for the issuance of a writ in the nature of certiorari for declaring the proceedings of Arbitration and Conciliation Act, 1996 (hereinafter referred to as "Act") as unworkable and ultravires of the Constitution of India.
2. Certain facts necessary for the disposal of the present petition may be noticed :
3. The petitioner is a contractor and his tender for the execution and completion of construction of boys hostel at Sliet, Longowal was accepted by the respondent-National Building Construction Corporation Limited. The agreement was executed on April 10, 1990 between the parties. The work was completed on June 30, 1993 and the petitioner was paid the agreed part of the final bill on May 25, 1996. In the agreement there was an arbitration clause, according to the aforesaid clause if there was any dispute between the parties then the same was to be referred to the sole arbitration of an Engineer of the Corporation (not below the rank of Project Manager) to be appointed by the Chairman-cum-Managing Director of the National Building Construction Corporation Limited.
4. As per the averments made in the petition there was a dispute between the parties since payment for the work executed was not duly paid and further certain losses had been suffered by the petitioner due to the prolongation of the construction. Various other grievances were also made with regard to the execution of the work and the payment thereof by the petitioner. He requested for the appointment of an Arbitrator. Vide letter dated September 25, 1996, the Managing Director nominated Shri Prem Prakash, Project Manager of the National Building Construction Corporation Limited as the sole Arbitrator, to adjudicate the dispute between the parties.
5. The aforesaid Arbitrator was to adjudicate the claim made by the petitioner and the counter claim made by the respondent-Corporation. Subsequenlly,the Executive Director, Project NBCC Limited-respondent No. 3 vide his letter dated October 23, 1996, directed the petitioner to file his statement of claims. It is the case of the petitioner that it was only through the aforesaid letter that he came to know about the factum of the appointment of the Arbitrator and the aforesaid Arbitrator was a direct subordinate functioning under the Corporation-respondent No. 2. The petitioner immediately represented through a letter dated November 4, 1996 and requested that some independent person be appointed as an Arbitrator.
6. The petitioner has averred that although he has challenged the appointment of respondent No. 4 as an Arbitrator but still the respondent-Corporation did not take steps to change the aforesaid Arbitrator and appoint any independent person. The petitioner has even challenged the appointment of respondent No. 4 (Arbitrator) before him through tetter dated November 4, 1996 and a copy of the letter was also endorsed to the Arbitrator also, with a request not to proceed further with the arbitration proceedings. However, the aforesaid Arbitrator vide letter dated December 14, 1996 advised the petitioner to act on the letter dated October 23, 1996 and submit the claim. The petitioner has stated that the Arbitrator neither rejected nor accepted the demand of the petitioner not to act as an Arbitrator because he is a direct subordinate to the Corporations an Executive Director.
7. It is in this back ground that the petitioner has felt aggrieved and claiming to be remediless has approached this court through the present writ petition challenging the various provisions of the Act being unworkable, ultra wires of the Constitution of India, an amitous and being self contradictory to each other.
8. In response to the notice of the present writ petition, the respondents have put in appearance. A written statement has been filed by respondents No. 2 and 3 contesting the claim made by the petitioner. The provisions of the Act have been defended and the grounds of attack made by the petitioner have been repelled.
9. Challenging the provisions of the Act Shri Rakesh Garg, learned counsel for the petitioner has submitted that the only provision which was available for filing an application for setting aside the arbitral award was under Section 34 of the Act and as per the aforesaid provisions the arbitral award could be set aside by the court only on the grounds mentioned therein. According to him the ground of the bias of the Arbitrator and his misconduct was not included as a ground of attack to the award under Section 34 of the Act. Shri Garg has submitted that if a person was aggrieved against the appointment of an arbitrator and had taken objection against his appointment at the initial stages as per the provisions of sections 12 and 13 of the Act, still the person challenging the appointment or misconduct of the aforesaid Arbitrator had absolutely no remedy available under the Act if the Arbitrator, at that stage, did not choose to withdraw from the arbitration proceedings and rather proceeded to give the award. According to Shri Garg the initial award could only be challenged on such grounds which are contained in Section 34 of the Act and the ground of bias and misconduct of the Arbitrator was not one of the grounds. Shri Garg has specifically brought to our notice that as per the provisions of Section 13(2) of the Act, a party who intended to challenge an arbitrator was required to file an application within 15 days after becoming aware of the constitution of the arbitral tribunal and send a written statement of the reasons for the challenge of the arbitral tribunal. He submits that on the receipt of the aforesaid application, the Arbitrator could withdraw from his office or decide on the aforesaid application of challenge. Shri Garg points out that however, in case where Arbitrator chooses not to withdraw from the arbitral proceedings then he was authorised to continue with the aforesaid proceedings and give his arbitral award. Under the provisions of Section 13(5) of the Act, the party challenging the arbitrator had a right to make an application for setting aside such an arbitral award in accordance with Section 34 of the Act. On the strength of the aforesaid provision of Section 13 of the Act, Shri Garg submits that although a right to challenge has been provided to the party to challenge the Arbitrator under Section 13(5) of the act but still no corresponding provision was available under the provisions of Section 34 of the Act. According to Shri Garg this was an anomaly which rendered the provisions of Section 34 of the Act ultravires and self contradictory. On the basis of the aforesaid grounds Shri Rakesh Garg submits that various provisions of the Act, namely, Sections 13 and 34 were liable to be declared ultravires of the constitution of India and also being self-contradictory were also liable to be declared unworkable.
10. After hearing the learned counsel for the petitioner we find that the challenge made by the petitioner to the various provisions of the Act is totally misplaced and without any basis. As a matter of fact we find that the petitioner has read the various provisions of the Act in isolation rather than in conjunction with each other.
11. At this stage, it is relevant to notice the scheme of the Act. The aforesaid Act has been divided into four parts. Part 1 of the Act deals with Arbitration and comprises of Sections 2 to 43. Part 11 of the Act deals with enforcement of certain foreign awards and comprises of Sections 44 to 60. Part III deals with conciliation comprising of Sections 61 to 81 and lastly part IV deals with supplementary provisions comprising of Sections 82 to 86. Thus each of the IV parts of the Act deals with independent and distinct subjects, specified therein.
12. Part I is further sub-divided into 10 chapters, Chapter II deals with arbitration agreement. Chapter III deals with composition of arbitral tribunal. As per Section 10 of the Act, the parties are free to determine the number of arbitrators, provided that such number would not be an even numbers and in a situation where there is no such determination then the arbitral tribunal shall consist of a sole arbitrator. As per provisions of Section 11 of the Act, a person of any nationality may be an arbitrator, unless otherwise agreed by the parties and the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. In case there is an arbitration agreement and a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party or where the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, then the appointment would be made, upon request of a party by the Chief Justice or any person or institution designated by him, Thus, after he Arbitrator/Arbitrators had been appointed in terms of the provisions of Section 11 of the Act, then as per provisions of Section 12 of the Act, the aforesaid Arbitrator was required to disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. Thereafter as per the provisions of Section 13 of the Act, a party who felt any apprehension with regard to the impartiality of the Arbitrator or had any doubts or had any challenge to his appointment was to file an application within 15 days after becoming aware of the constitution of the arbitral tribunal,
13. At this stage, the various provisions of the Act, relevant to the controversy involved in the present case, may be noticed as follows;
"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.
(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 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 becomes aware after the appointment has been made.
13. Challenge procedure. - (1) Subject to Sub-section (4), the parties 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 an application made under Sub-section (5), the court may decide as to whether the arbitrator who is challenged is entitled to any fees.
14. Failure or impossibility to act. - (1) The mandate of an arbitrator shall terminate if-
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate.
(2) If a controversy remains concerning any of the grounds referred to in Clause (a) of sub Section (1), a party may, unless otherwise agreed by the parties, apply to the court to decide on the termination of the mandate.
(3) If, under this section or Sub-section (3) of Section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or Sub-section (3) of Section 12.
15. Termination of mandate and substitution of arbitrator. - (1) In addition to the circumstances referred to in Section 13 or Section 14, the mandate of an arbitrator shall terminate-
(a) where he withdraws from office for any reason; or
(b) by or pursuant to agreement of the parties.
(2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that where applicable to the appointment of the arbitrator being replaced.
(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under Sub-section (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal.
(4) Unless, otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.
16. Competence of arbitral tribunal to rule on its jurisdiction:- (1) the arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose-
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the validity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in Sub-section (2) or Sub-section (3) admits a later plea if it considers the delay justified.
(5) the arbitral tribunal shall decide on a plea referred to in Sub-section (2) or Sub-section (3) and where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with Section 34.
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) a party making the application-
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contain decisions on matters beyond the scope of the submission to arbitration;
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or failing such agreement, was not in accordance with this Part; or
(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.
(3) An application for setting aside may not be made after three months have elapsed from date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral tribunal.
Provided that if the court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under Sub-section (1), the court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award."
14. Under Section 12(1) of the Act, a person when approached in connection with his possible appointment as an Arbitrator is duty bound to disclose in writing any circumstances likely to effect his independence or impartiality. Thereafter a right has been given under Section 13 of the Act to a party to challenge an Arbitrator. Such challenge has to be made by him within 15 days after becoming aware of the constitution of the arbitral tribunal or appointment of the arbitrator. Such challenge has to be made by filing a written statement of the reasons for the challenge, On receipt of the aforesaid challenge the Arbitrator has a choice to withdraw from his office or otherwise the Arbitrators/Arbitrator shall decide on the challenge. In case the challenge made by the party under Sub-section 2 of Section 13 of the Act is not successful, the Arbitral tribunal would continue the arbitral proceedings and make an arbitral award. In such a situation a specific provision has been made in Sub-section 5 of Section 13 of the act that the party making the aforesaid challenge under Sub-section 2 has a right to challenge the final award given by the Arbitrator and claim the setting aside thereof on the grounds of the aforesaid initial challenge. An arbitral proceedings, having once commenced, can also be terminated in accordance with the provisions of Section 14 of the Act when the Arbitrator, unable to perform his functions or for other reasons, fails to act without undue delay or withdraws from his office or under the provisions of Section 15 of the Act, where an Arbitrator withdraws from the office for any reason or the parties agreed to terminate the agreement of arbitrator.
15. Under Section 16 of the Act, a specific provision has been made whereby an arbitral tribunal had been made competent to determine and rule on its own jurisdiction including ruling on any objection with respect to there existence or validity of the arbitration agreement. Again under Sub-section 5 of the Section 16 of the Act, if an arbitral tribunal makes a decision on its own jurisdiction and rejects the plea/objection taken by a party to its jurisdiction then it would continue with the arbitral proceedings and make an arbitral award. Under Sub-section 6 of Section 16 of the Act, also, any party aggrieved by such an arbitral award can make an application for setting aside such an arbitral award in accordance with Section 34 of the Act.
16. Under the provisions of Section 34 of the Act an application for setting aside the arbitral award can be filed by the party aggrieved by the award. Sub-section 2 of Section 34 of the Apt provides that an arbitral award may be set aside by the court on various grounds contained therein, like, a party being under some incapacity; the party making the application having not been given proper notice of the appointment of an arbitrator or of the arbitral proceedings or being otherwise unable to present his case; the arbitral award dealing with a dispute which was not contemplated by or not falling within the terms of the submission to arbitration agreement or being beyond the scope of the submission to the arbitration; or the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or the same was not in accordance with that part namely Part I of the Act. Also in a situation when the court found that the subject-matter of the dispute was not capable of settlement by arbitration under the law for the time being in force or the arbitral award was in conflict with the public policy of India still the arbitral award was liable to be quashed by the Court.
17. From the perusal of the various provisions of the Act and analysis thereof, we find that under the provisions of Section 34(2)(a)(v) of the Act, an arbitral award could be challenged before the court by the party aggrieved against the same on the ground that the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement between the parties or that the composition of the arbitral tribunal or the arbitral procedure was not in accordance with this part namely part I of the Act. We have already noticed that part I of the act comprises of Sections 12, 13 and 16 also. Section 13(5) of the Act specifically provides a right to the party aggrieved to challenge the final award if his initial challenge to the Arbitration had not been successful. Similarly under the provisions of Sub-section 5 of Section 16 of the Act another right has been provided to the aggrieved party, who had challenged the jurisdiction of the arbitral tribunal. Both under Sub-section 5 of Section 3 and sub Section 6 of Section 16 of the Act such a right has to be exercised by the aggrieved party by filing an application for setting aside the arbitral award in accordance with Section 34 of the Act. When we read the aforesaid provisions of Section 13 and Section 16 of the Act in conjunction with Clause (v) of Section 34(2)(a) of the Act, we find that the award could be challenged by the aggrieved party not only in regard to the composition of arbitral tribunal or arbitral procedure being contrary to the agreement but also if the award was not in accordance with Part I of the Act. If we read the aforesaid provisions together, as stated above, then we find that they are all harmoniously construable and there is absolutely no anomaly nor any conflict or contradiction left, nor are these workable, as had been suggested by learned counsel for the petitioner.
18. At this stage, we may also notice certain observations made by a Division Bench of this court in the case of Herika Rice Mills, Mehalkalan, District Sangrur v. State of Punjab and Ors.1, (1998-1)118 P.L.R. 395 dealing with the scheme of the Act and various provisions thereof as follows:
"5. We have heard counsel for the parties and having gone through the provisions of the Act, we find no merit in the contentions advanced on behalf of the petitioner. According to the Scheme of the Act, parties to an agreement are free to determine the number of arbitrators provided that such number is not an even number and in the absence of such determination the arbitral Tribunal shall consist of a sole arbitrator. Sub-clause (2) of Section 11 of the Act authorises the parties to agree on a procedure for appointing an arbitrator or arbitrators, Sub Section (3) then provides that in the absence of any such agreement, in an arbitration with three arbitrators, each party shall appoint one arbitrator and the two appointed arbitrators shall appoint the third arbitrator who shall act as the Presiding arbitrator. If the procedure of Sub-section (3) is applicable and the parties fail to appoint an arbitrator or the two appointed arbitrators fail to agree on the third arbitrator within the time stipulated therein the appointment is to be made upon request of a party by the Chief Justice or any person or institution designated by him. Once an arbitrator is appointed his appointment can be challenged only if circumstances exist that give rise to justifiable doubts to his independence for impartiality or if he does not possess the qualifications agreed to by the parties, When a person is approached in connection with his appointment as an arbitrator he is required to disclose in writing any circumstance likely to give rise to justifiable doubts as to his independence or impartiality. Again Section 13 provides that parties are free to agree on an procedure for challenging the appointment of an arbitrator and in the absence of any such agreement a party who intends to challenge the appointment 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. Unless the arbitrator withdraw from his office or the other party agrees to the challenge, the arbitral Tribunal is to decide on the challenge and if the challenge is not successful, the arbitral Tribunal has to continue with the arbitral proceedings and make an arbitral award. After the award is made, a party challenging the appointment of the arbitrator can make an application for setting aside the award in accordance with the provisions of Section 24 of the Act. Section 34 provides the grounds on which an award can be set aside and one of the grounds is that the composition of the arbitral Tribunal was not in accordance with the agreement of the parties or was in conflict with any provision in Part I of the Act.
6. In the instant case, the Miller was informed about the appointment of the Arbitrator and three being no agreement between the parties, in regard to the manner in which the appointment of the Arbitrator could be challenged it filed an application before the Arbitrator challenging his appointment. That challenge has been rejected by the Arbitrator as per the impugned Order dated 10.7.1997. This being so, the Arbitrator is required by law to proceed with the arbitration proceedings till he makes the award. After the award is made and in case it goes against the Miller, it will be open o it to challenge that award under Section 34 of the Act on the ground that the composition of the arbitral Tribunal was not in accordance with the agreement of the parties or was not in accordance with Part-I of the Act which includes Section 11. The Miller cannot bypass his entire procedure and challenge the Order of the Arbitrator before the award is made. Here, we find a distinct departure from the Model Law on which the Act is based. The Parliament has enapted the Act on the lines of Model Law on International Commercial Arbitration as approved by the General Assembly of the United Nations subject to slight modification suiting local conditions in our country under the Model Law, a party has been given a right to challenge the appointment of an arbitrator before the arbitrator himself and if that party is unsuccessful, Article 12(3) of the Model Law grants to that party a last resort to the Court to challenge the appointment at that stage itself without waiting for the arbitrator to make the award. However, Sub-section (4) and (5) of Section 13 of the Act make a distinct departure in this regard, in as much as with a view to prevent dilatory tactics the parliament has not allowed the unsuccessful party to challenge the appointment immediately when its challenge had been unsuccessful before the arbitrator and requires such a party to wait and challenge the same only after the arbitral award has been made....." 19. Thus we find that there is no ground available with the petitioner to challenge the various provisions of the Act. Thus, the writ petition being devoid of any merit is dismissed. No costs.
Sd/- H.S. Bedi, J.