Karnataka High Court
Shri. Totappa N. Sanikop vs Shri. Ashok S/O Shivalingappa ... on 25 July, 2012
Bench: N.Kumar, H.S.Kempanna
-1-
IN THE HIGH COURT OF KARNATAKA
CIRCUIT BENCH AT DHARWAD
DATED THIS THE 25 T H DAY OF JULY, 2012
PRESENT
THE HON'BLE MR. JUSTICE N. KUMAR
AND
THE HON'BLE MR. JUSTICE H. S. KEMPANNA
M.F.A NO.23953/2009
C/W M.F.A. CR.OB. No. 782/2011 &
M.F.A NO.24052/2009
MISC.CVL. Nos. 110783/2010 & 100193/2010
IN M.F.A NO.23953/2009, AND
MISC.CVL. 100195/2010
IN M.F.A No. 24052/2009
IN M.F.A NO.23953/2009 A/W
MISC.CVL. Nos. 110783/2010 & 100193/2010
BETWEEN:
1. Ashok S/o. Shivalingappa
Humbarwadi, Age: 62 Years,
Occ: Business, R/o. 45,
Sadashivnagar, Belgaum-590 001.
2. Dundappa S/o. Shivalingappa Humbarwadi,
Age: 73 Years, Occ: Business,
R/o. Sambaji Road, Angaol-C Scheme
Tilakwadi, Belgaum-590 001.
3. Gurappa S/o. Shivalingappa Humbarawadi,
-2-
Age: 69 Years, Occ: Business, R/o. 238-A,
Ranade Road, Tilakwadi, Belgaum-590 001.
4. Rajendra S/o. Shivalingappa Humbarwadi,
Age: 55 Years, Occ: Business, R/o. 4 t h Cross,
Sadashivnagar, Belgaum-590 001.
5. Vishwanath S/o. Shivalingappa Humbarawadi,
Age: 57 Years, Occ: Business, R/o. 55,
Ranapratap Road, Tilakwadi, Belgaum-590 001.
6. Jayanth S/o. Ashok Humbarwadi,
Age: 31 Years, Occ: Business, R/o. 45,
Sadashivanagar, Belgaum-590 001.
7. Suhash S/o. Gurappa Humbarawadi,
Age: 39 Years, Occ: Business,
R/o. 238A, Ranade Road, Tilakwadi,
Belgaum-590 001, Belgaum.
8. Sri. Shivakumar S/o. Dundappa Humbarwadi,
Age: 43 Years, Occ: Business,
R/o. Sambaji Road, Angol C Scheme,
Tilala, Belgaum-590 001, Belgaum.
- Appellants
(Common)
(By Sri. S.S Naganands, Sr. Counsel for Sri. A.P Murali,
Sri. Bahubali A Danawade, Sri. I.Y Patil,
Sri. Anand Kumar A Magadum,
Smt. Archana M Magadum, Advocates)
AND:
1. Vasudev S/o. Padappa Hanji
Since deceased by his LR's
1.A Smt. Hema W/o. Vasudev Hanji,
-3-
Age: 63 Years, Occ: Household,
R/o. Plot No.79, 'Padam" Near
Railway Gate, Khanapur Road,
Belgaum-590 006.
1.B Shri. Sachin S/o. Vasudev Hanji,
Age: 39 Years, Occ: Business,
R/o. Plot No.79, 'Padam" Near
Railway Gate, Khanapaur Road,
Belgaum-590 006 (Power of Attorney Holder)
1.C Shri. Subhash S/o. Vasudev Hanji,
Age: 37 Years, Occ: Business,
R/o. Plot No.79, 'Padam" Near
Railway Gate, Khanapaur Road,
Belgaum-590 006.
1.D Shri. Bharatesh S/o. Vasudev Hanji,
Age: 35 Years, Occ: Business,
R/o. Plot No.79, 'Padam" Near
Railway Gate, Khanapaur Road,
Belgaum-590 006.
(Amended as per order of the
Hon'ble Court dated 01.06.2011)
2. Totappa S/o. Nagappa Sanikop,
Age: 74 Years, Occ: Advocate,
R/o. 147, Club Road,
Belgaum-590 006, Belgaum.
3. Madhukar S Paranjape,
Age: 60 Years, Occ: Chartered Accountant,
R/o. 1388, Basavanagalli,
Belgaum-590 002, Belgaum.
4. State Bank of India,
Commercial Branch, Belgaum,
-4-
Hindwadi Belgaum-590 006,
Rep. By its Branch Manager, Belgaum.
5. Syndicate Bank
Goaves Branch, Belgaum,
Khanapur Road, Belgaum-590 006,
Rep. By its Branch Manager, Belgaum.
- Respondents
(Common)
(By Sri. M.G Naganuri,
Sri. M.S Bagali & Sri. S.S Patil for R.1(a) to 1(d),
Sri. Mahantesh C Kotturshettar for R.2,
Sri. K.L Patil for R.4, R.3 & R.5 are served)
This appeal is filed under Section 37(1)(b) of the
Arbitration & Conciliation Act, 1966, against the
judgment and award dated 15 T H and 16 t h da y of October
2009, in Arbitration case No.1/2005 on the file of the
Principal District Judge, Belgaum, allowing this petition
filed under Section 34 of the Arbitration and Conciliation
Act, 1996, by setting aside the impugned award passed by
the respondent Nos.9 and 10 dated 10/20-01-2005.
MISC.CVL. No. 110783/2010 is filed under Order
XLI Rule 27 Read With 151 of C.P.C, 1908 praying that
the 1 s t respondent be permitted to produce the documents
by way of additional evidence as per separate list.
MISC.CVL. No.100193/2010 is filed under Section
151 of the C.P.C, praying that the stay granted on
15.12.2009 by this Court to the operation and execution
of the judgment and order passed in Arbitration 1/2005
dated 15/16-10-2009 by the Principle District Judge
Belgaum, be vacated.
-5-
IN M.F.A CR. OB 782/2011
Between:
1. Totappa S/o. Nagappa Sanikop,
Age: 84 Years, Occ: Advocate,
R/o. 147, Club Road,
Belgaum-590 001, Belgaum.
2. Madhukar S Paranjape,
Age: 65 Years,
Occ: Chartered Accountant,
R/o. 1388, Basavanagalli,
Belgaum-590 002, Belgaum.
- Cross Objectors
(By Sri. Mahantesh C Kotturshettar, Advocate)
And:
1. Ashok
S/o. Shivalingappa Humbarwadi,
Age: 67 Years, Occ: Business, R/o. 45,
Sadashivnagar, Belgaum-590 001.
2. Dundappa
S/o. Shivalingappa Humbarwadi,
Age: 78 Years, Occ: Business,
R/o. Sambaji Road, Angaol-C Scheme
Tilakwadi, Belgaum-590 006.
3. Gurappa S/o. Shivalingappa Humbarawadi,
Age: 74 Years, Occ: Business,
R/o. 238-A, Ranade Road, Tilakwadi,
Belgaum-590 006.
4. Rajendra S/o. Shivalingappa Humbarwadi,
-6-
Age: 60 Years, Occ: Business, R/o. 4 t h Cross,
Sadashivnagar, Belgaum-590 001.
5. Vishwanath S/o. Shivalingappa Humbarawadi,
Age: 62 Years, Occ: Business, R/o. 55,
Ranapratap Road, Tilakwadi, Belgaum-590 006.
6. Jayanth S/o. Ashok Humbarwadi,
Age: 36 Years, Occ: Business, R/o. 45,
Sadashivanagar, Belgaum-590 001.
7. Suhash S/o. Gurappa Humbarawadi,
Age: 45 Years, Occ: Business,
R/o. 238A, Ranade Road, Tilakwadi,
Belgaum-590 006, Belgaum.
8. Sri. Shivakumar
S/o. Dundappa Humbarwadi,
Age: 48 Years, Occ: Business,
R/o. Sambaji Road, Angol C Scheme,
Tilala, Belgaum-590 006, Belgaum.
9. Vasudev S/o. Padappa Hanji,
Age: 62 Years, Occ: Business,
R/o. 'Padam" off Ganesh Metal,
Khanapur Road, Tilakwadi,
Belgaum-590 006 Since deceased by his LR's
9.A Smt. Hema W/o. Vasudev Hanji,
Age: 60 Years, Occ: Business,
R/o. 'Padam" off Ganesh Metal,
Khanapur Road, Tilakwadi,
Belgaum-590 006.
9.B Shri. Sachin S/o. Vasudev Hanji,
Age: 46 Years, Occ: Business,
R/o. 'Padam" off Ganesh Metal,
-7-
Khanapur Road, Tilakwadi,
Belgaum-590 006.
9.C Shri. Subhash S/o. Vasudev Hanji,
Age: 43 Years, Occ: Business,
R/o. 'Padam" off Ganesh Metal,
Khanapur Road, Tilakwadi,
Belgaum-590 006.
9.D Shri. Bharatesh S/o. Vasudev Hanji,
Age: 38 Years, Occ: Business,
R/o. 'Padam" off Ganesh Metal,
Khanapur Road, Tilakwadi,
Belgaum-590 006.
10. State Bank of India,
Commercial Branch, Belgaum,
Hindwadi Belgaum-590 006,
Rep. By its Branch Manager, Belgaum.
11. Syndicate Bank
Goaves Branch, Belgaum,
Khanapur Road, Belgaum-590 006,
Rep. By its Branch Manager.
- Respondents
(By Sri. M.G Naganure, Advocate)
This MFA Cr. Ob. is filed under Order 41 Rule 22 of CPC,
against the judgment and award dated 15th and 16-10-2009 passed in
Arbitration Case No.01/2005 on the file of the Principal District
Judge, Belgaum, etc.
IN M.F.A No. 24052/2009 A/W
MISC.CVL. 100195/2010:
Between:
-8-
Ashok S/o. Shivalingappa Humbarwadi,
Age: 66 Years, Occ: Business, Chairman,
Ashok Iron Works Ltd. R/o. 45,
Sadashivnagar, Belgaum-590 001.
- Appellant
(Common)
(By Sri. S.S Nagananda Sr. Counsel for
Sri. Anand Kumar A Magadum, Sri. Bahubali A
Banawade & Sri. I.Y Patil, Advocates)
And:
1. Vasudev S/o. Padappa Hanji,
Age: 66 Years, Occ: Business,
R/o. 'Padam" off Ganesh Metal,
Khanapur Road, Tilakwadi,
Belgaum-590 006.
Share holder & then Director of
Ashok Iron Works P. Ltd.
For self & power of Attorney holder
Of the same family of share holder.
Since deceased by his LR's
1.A Smt. Hema W/o. Vasudev Hanji,
Age: 63 Years, Occ: Business,
R/o. Plot No.79, 'Padam",
Near III Railway Gate,
Khanapur Road, Belgaum-590 006.
1.B Shri. Sachin S/o. Vasudev Hanji,
Age: 39 Years, Occ: Business,
R/o. Plot No.79, 'Padam",
Near III Railway Gate,
Khanapur Road, Belgaum-590 006.
1.C Shri. Subhash S/o. Vasudev Hanji,
Age: 37 Years, Occ: Business,
-9-
R/o. Plot No.79, 'Padam",
Near III Railway Gate,
Khanapur Road, Belgaum-590 006.
1.D Shri. Bharatesh S/o. Vasudev Hanji,
Age: 35 Years, Occ: Business,
R/o. 'Padam" off Ganesh Metal,
Khanapur Road, Tilakwadi,
Belgaum-590 006.
2. Totappa S/o. Nagappa Sanikop,
Age: 79 Years, Occ: Advocate,
R/o. 147, Club Road,
Belgaum-590 001, Belgaum.
3. Madhukar S Paranjape,
Age: 64 Years, Occ: Chartered Accountant,
R/o. 1388, Basavanagalli,
Belgaum-590 002, Belgaum.
4. State Bank of India,
Commercial Branch, Belgaum,
Hindwadi Belgaum-590 006,
Rep. By its Assistant General Manager, Belgaum.
5. Syndicate Bank Goaves Branch,
Khanapur Road, Belgaum-590 006,
Rep. By its Branch Manager.
- Respondents
(Common)
(By Sri. M.G Naganuri &
Sri. M.S Bagali & Sri. S.P Patil for R.1(a) to R.1(d),
R.2, 3, 4 & 5 are served)
This appeal is filed under Section 37(1)(b) of the
Arbitration & Conciliation Act, 1966, against the
judgment and award dated 24 t h day of October 2009, in
- 10 -
Arbitration Case No.2/2005 on the file of the Principal
District Judge, Belgaum, allowing this petition filed
under Section 34 of the Arbitration and Conciliation Act,
1966, by setting aside the impugned award passed by the
respondent Nos.2 and 3 dated 24.01.2005.
MISC. CVL. No. 100195/2010 is filed under
Section 151 of C.P.C, praying for vacation of stay
granted on 18.12.2009 by this Court.
These appeals, Cross objection & Misc. Cvl.
applications coming on for final disposal this day,
N.Kumar J., delivered the following:
JUDGMENT
1. M.F.A. No. 23953/2009 is preferred challenging the order passed by the Principal District Judge, Belgaum in Arbitration Case No. 1/2005 where he has set aside the award passed by the Arbitrator, declared it as null and void and further directed appointment of fresh panel of Arbitrators and other consequential orders.
2. For the purpose of convenience the parties are referred to as they are referred to in Arbitration Case No. 1/2005.
- 11 -
3. The petitioner-plaintiff and the first respondent herein were classmates and good friends, who studied Engineering together in B.V.B. Engineering College, Hubli. They started a partnership firm under the name and style of Ashok Iron & Steels in the year 1973. In the year 1982 a Limited Company incorporated in the name of Ashok Iron Works Pvt. Ltd., was also commenced. The first respondent family held 75% share and the petitioner-plaintiff held 25% shares in the said Company. Later the partnership firm Ashok Iron & Steel was taken over by paying money. In addition to the said business between 1976 to 1978 three partnership firms which are Jaihind Engineering, Progressive Engineering and Standard Engineering were formed. Again the partners in these firms were the family members and the percentage of partnership was again 75:25 as mentioned above between the two family. Separate partnership deeds were executed and there was reconstitution of these firms from time to time. The last reconstitution was on 01.04.2004. The business of all the three
- 12 -
partnership firms and the Private Limited Company formed one integrated business unit and are inseparable. All the three partnership firms are working for Ashok Iron Works Pvt. Ltd. Company only. The partnership were not at will. The duration was mentioned as at least till the loans and advances of banks and financial institutions are fully repaid to them and after that the partnership was to be at will.
4. The dispute arose between the parties. There was a move to merge three partnership firms with that of the existing Private Limited Company. When this was conveyed to the plaintiff who had agreed at the first instance to the proposal, which resulted in preparation of a draft M.O.U. dated 24.03.2004, which was given for his approval. The issue was discussed extensively. The plaintiff alleged that there was an attempt to oust him from the business and gain full control over the firms. This is the genesis of the dispute between the parties.
- 13 -
5. All the three deeds of partnership contain a clause relating to resolution of dispute by arbitration. The parties agreed for resolution of the dispute by two Arbitrators, i.e., defendant nos. 9and 10. The Tribunal commenced its proceedings on 02.10.2004. There were six hearings. The plaintiff wanted to place his version regarding modification of the agreement, etc. Thereafter an award came to be passed on 20.01.2005. The said award was challenged by the plaintiff before the Civil Court u/S 34 of the Arbitration & Conciliation Act, 1996. The main ground on which the award of the Arbitrator was challenged is firstly the Arbitral Tribunal is not properly constituted; it is not in accordance with law; and therefore the award passed by such an Arbitral Tribunal is void, ab initio. Secondly the plaintiff did not even file his claim as he was agitating for a proper constitution of the Tribunal. Inspite of the Arbitral Clause in the partnership deed itself; they entered into Arbitral agreement dated 18.08.2004 where, in place of the date 18, the date 28 is substituted which is
- 14 -
handwritten. The said agreement is typed. However, in the first page last word "that would be referred to Arbitration" is handwritten, which, according to the plaintiff is an interpolation, apart from the word "two" which is handwritten. The other contention was the award passed is in violation of the principles of natural justice. No opportunity was given to the plaintiffs. The mandatory provisions of law as contained in the Act is not followed and therefore they wanted the award to be set aside apart from their contention on merits. The said application was contested by the respondents by filing a detailed statement of objections. Therefore in view of the Rules the petition was treated as a plaint, objection statement was treated as a written statement and then issues were framed. Both the parties adduced evidence. The plaintiff in support of his case examined himself as P.W.1. He also examined a witness by name Parameshwar Subraya Hegde as PW2 and he produced 83 documents which are marked as Ex.P.1 to Ex.P.83. On behalf of the defendants five documents were marked by
- 15 -
consent as Ex.D.1 to Ex.D.5. In fact before the Arbitrator the defendants had filed two affidavits of witnesses, they are treated as evidence on behalf of the defendants and they are treated as R.W.1 and R.W.2.
6. Learned District Judge formulated the following points for consideration.
1. Whether the impugned award passed by respondent Nos.9 & 10 dated 10/20.1.2005 is required to be set aside in view of various grounds urged by the petitioner in his petition?
2. Whether there is need to appoint fresh arbitration panel other than respondent Nos.9 & 10, but to include the Arbitrator appointed by the petitioner as per his letter, dated 12.1.2005?
3. What order?
---
7. After hearing the parties, taking into consideration the oral and documentary evidence on record and nearly about 45 judgments relied upon by both the parties, the learned District
- 16 -
Judge was of the view that the impugned award passed on 10/20.02.2005 requires to be set aside on various grounds but the main ground being the violation of principles of natural justice. Further he held there is a need to appoint fresh arbitration panel other than respondent nos. 9 and 10 and accordingly issued direction for appointment of another Arbitral Tribunal. Aggrieved by the said order the defendants have prferred this appeal.
8. Learned Senior Counsel Sri Naganand assailing the impugned order contended though u/S 10 of the Act the law mandates the number of arbitrators shall not be even, the parties by consent if they choose to appoint even number of arbitrators, in view of Sec. 4 of the Act they loose their right to object. Moreover after the constitution of the Arbitral Tribunal in the agreed manner immediately the plaintiff did not object to the constitution of the Arbitral Tribunal. It is only after participating in few hearings on 26.11.2004 for the first time an
- 17 -
objection is taken to the validity of the constitution of the Arbitral Tribunal, which is not permissible in law. Therefore the learned District Judge committed a serious error in setting aside the award on the ground of the Arbitral Tribunal not being validly constituted.
9. In support of his contention he also relied upon the judgment of the Apex Court. As the plaintiff had not filed any claim petition; as he did not seek for any personal hearing; as he did not seek for cross examination of the witnesses whose affidavits were filed; in the absence of any procedure agreed to between the parties, the Arbitral Tribunal proceeded to take note of the material which was before them and has passed the impugned award which is just and valid. Therefore he submits no case for interference to such a well considered award was made out before the learned District Judge who has exceeded his jurisdiction in setting aside the said award.
- 18 -
10. Per contra, the learned counsel for the plaintiff submitted though they entered into an Arbitration agreement agreed to the appointment of defendant nos. 9 and 10 as Arbitrators, once there was interpolation in the agreement, and the date of the agreement itself was tampered with, the plaintiff protested and then called upon the Arbitrators not to proceed with the dispute as the constitution is contrary to law. Therefore he did not submit himself to the jurisdiction of that Tribunal; did not file any claim petition; the parties have not agreed for any procedure; the Arbitrator also did not follow any procedure and without there being any material on record, on the basis of two affidavits filed by the witnesses, they have proceeded to pass the impugned award which is exfacie illegal, void ab initio and non est in the eye of law. Therefore after setting aside the award as the dispute persists and the parties had agreed for arbitration and an arbitration clause finds a place in the partnership itself, the learned District Judge was justified in directing the constitution of a fresh Arbitral Tribunal including
- 19 -
the representatives of the plaintiff, in accordance with law. Therefore he submits the impugned order of the learned District Judge is valid and legal and do not call for any interference.
11. From the aforesaid material on record and the rival contentions the point that arise for our consideration in this appeal is as under:
a) Whether the learned District Judge was justified in setting aside the impugned award?
b) Whether the learned District Judge was justified in issuing direction for constitution of a fresh Arbitral Tribunal as is being done by him in the impugned order?
---
12. It is not in dispute between the parties that they are partners. There are three partnership firms apart from a Limited Company. Sharers of each of them is well defined. The partnership agreement contain an Arbitration Clause. The partnership agreement also contains a provision for retirement
- 20 -
of a partner. The plaintiff did express his desire to retire. It is in that context he wanted his claims to be settled through arbitration. Therefore the parties agreed for arbitration by executing a fresh agreement, which, according to the plaintiff is dated 18.08.2004, according to the defendants it is 28.08.2004. The date is contained in the last line on the second page. The dispute is only whether it is on 18th or 28th. The word "two" is hand written, rest is typed. In fact in the letter addressed by the plaintiff earlier he has specifically mentioned the date of agreement as "13". Now in the first page of the Arbitration agreement the following words are hand written; "that would be referred to arbitration". According to the plaintiff, it is an interpolation. Whether those handwritten words and sentences constitute an interpolation or not; the fact that an Arbitration agreement was executed is not in dispute; the parties wanted their dispute to be resolved by arbitration. In fact the persons who appointed are none other than their Advocate and Chartered Accountants. The Arbitrators entered on the
- 21 -
reference, issued notice to the parties to file their claim statement. It is at that stage the plaintiff appears to have started dragging the feet. Though in the first two dates of hearing he did not raise any objection to the constitution of the Arbitral Tribunal, he submitted that he wants to file a modified agreement of Arbitration and time was granted. But on 27.10.2004 he categorically submitted to the Tribunal that it is not possible to submit the claim unless full arbitration procedure is followed legally to appoint third arbitrator. Therefore he did raise his objection to the constitution of the Arbitral Tribunal and he wanted an umpire to be appointed and he made it very clear unless the Arbitral Tribunal is properly constituted, it is not possible for him to file his claim statement. When his proposal of new Arbitration Agreement did not find favour, he made it very clear on the basis of the old agreement, the Arbitration Proceedings cannot proceed and he also submitted, if that is the case he is not retiring from the partnership firm. Then we find in the order sheet some two
- 22 -
affidavits filed on 28.08.2004 on behalf of the defendants, on which day, there was only one Arbitrator and he adjourned the case to 20.01.2005 for passing of the award and award is passed and it is communicated to the parties by RPAD and the proceedings are closed.
13. Now the question for our consideration is whether the Arbitral Tribunal was properly constituted and whether the award passed by such an Arbitral Tribunal is valid and legal.
14. Sec. 10 of the Arbitration Act deals with composition of Arbitral Tribunal and the number of arbitrators, reads as under:
Sec. 10. Number of Arbitrators.
1. The parties are free to determine the number of arbitrators, proved that such number shall not be an even number.
2. Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator.
- 23 -
Sec. 4 of the Act deals with waiver of right to object, which reads as under:
(a) Any provision of this Part from which the parties may derogate, or
(b) Any requirement under the arbitration agreement, Has not been complied with and yet proceeds with the arbitration without stating his objection to such non-
compliance without undue delay or, if a time limit is provided for stating that objection, within that period of time, shall be deemed to have waived his right to so object.
---
15. Interpreting these provisions the Apex Court in the case Narayan Prasad Lohia Vs. Nukunj Kumar Lohia & Others, reported in AIR 2002 SC 1139 at para no. 16 has held as under:
It has been held by a Constitution Bench of this Court, in the case of Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd. that Section 16 enables the arbitral tribunal to rule on its own jurisdiction. It has been held that
- 24 -
under Section 16 the arbitral tribunal can rule on any objection with respect to existence or validity of the arbitration agreement. It is held that the arbitral tribunals authority under Section 16, is not confined to the width of its jurisdiction but goes also to the root of its jurisdiction. Not only this decision is binding on this Court, but we are in respectful agreement with the same. Thus it is no longer open to contend that, under Section 16, a party cannot challenge the composition of the arbitral tribunal before the arbitral tribunal itself.
Such a challenge must be taken, under Section 16 (2), not later than the submission of the statement of defence. Section 16(2) makes it clear that such a challenge can be taken even though the party may have participated in the appointment of the arbitrator and/or may have himself appointed the arbitrator. Needless to state a party would be free. If he so choose, not to raise such a challenge.
- 25 -
Thus a conjoint reading of Sec. 10 and 16 shows that an objection to the composition of the Arbitral Tribunal is a matter which is derogable. It is derogable because a party is free not to object within the time prescribed in Sec. 16(2), if the party choose not to so object, there would be a deemed waiver u/S 4 of the Act. Thus we are unable to accept the submission that Sec.10 is non derogable. In our view Sec. 10 has to be read along with Sec. 16 and therefore it is derogable.
---
16. From the aforesaid judgment it is clear, if a party intends challenging the constitution of an Arbitral Tribunal it must be taken u/S 16(2) not later than the submission of the statement of defence. Sec. 16(2) makes it clear that such a challenge can be taken even though the party may have participated in the appointment of Arbitrator and or may have himself appointed the Arbitrator. Therefore if a party by way of agreement agreed to Arbitration and suggested two names as Arbitrators; after the
- 26 -
Arbitrator entered upon the reference; if he wants to challenge the very constitution, he can do so at the earliest point of time but before filing of the claim statement. Merely because he entered into arbitration agreement he is a party to the appointment of Arbitrator and the persons named by him has been appointed as Arbitrator would not act as an estoppel preventing the party from raising objection regarding the validity of the constitution of the Tribunal.
17. In the instant case, no doubt there is an Arbitration agreement, the plaintiff did agree for the Arbitrator but after they entered upon the reference he raised objection regarding the interpolation and the arbitration agreement; he wanted a modification of the agreement, he wants a modified agreement to be entered into and then matter should be referred to the Arbitrator. When the request was not acceded to, he made known his intention to the arbitrator that unless the Arbitral Tribunal is properly constituted by appointing a third arbitrator,
- 27 -
i.e., an umpire, it is not possible for him to file any claim statement. Accordingly he did not file any claim statement in the present proceedings. Therefore though Sec. 10 is a derogable provision, the conduct of the plaintiff, after such an appointment makes it very clear, he had no intention for giving up his right u/S 10 of the Act and he was not prepared to be a party to the constitution of the Arbitral Tribunal containing even number of arbitrators.
18. In that view of the matter, the constitution of the Arbitral Tribunal is hit by Sec. 10 of the Act and the learned District Judge was justified in holding that the Arbitral Tribunal was not properly constituted and therefore the award passed by the Arbitral Tribunal is void, ab initio and non est in the eye of law.
19. We have gone through the order sheet maintained by the Arbitral Tribunal. The order sheet discloses the proceedings conducted by the Arbitral Tribunal is in direct conflict with the procedure prescribed in Chapter V, in particular Sec. 23, 24 and
- 28 -
25 of the Act. The procedure which is followed is neither correct nor proper. It is illegal. Even on that ground the Arbitral award is liable to be set aside and rightly the learned District Judge has set aside the award. Accordingly the point no. 1 is answered in favour of the plaintiff and against the defendants.
20. In so far as the direction issued by the learned District Judge for constitution of a Tribunal is concerned, it was beyond his power. Under the Act, the parties should agree for arbitration for resolution of their dispute. Unless the agreement is reduced into writing, the Act is not attracted. After entering into such an agreement, if one of the party goes back, do not agree for constitution of the Arbitral Tribunal, then Sec. 11 of the Act provides for appointment of Arbitrators. The person who is vested with the power to appoint Arbitrator in terms of the agreement entered into between the parties, in the event of dispute regarding the appointment, is the Chief Justice of the
- 29 -
High Court or his delegate. Therefore no persons other than the Chief Justice can appoint an Arbitrator under the Act. Certainly the Principal District Judge who had been vested with the jurisdiction to decide an application u/S 34 of the Act in the course of exercising power under that provision certainly has no jurisdiction to order for appointment of Arbitral Tribunal after setting aside the award. Therefore the order passed by the learned District Judge directing the appointment of the Arbitral Tribunal, is one without jurisdiction, null and void, non est in the eye of law. Therefore that portion of the order passed by the learned District Judge requires to be set aside. Accordingly we pass the following order.
ORDER
a) The appeal is allowed partially.
- 30 -
c) The order of the learned District Judge setting aside the
award passed by the Tribunal is affirmed.
d) The order of the learned District Judge directing constitution of an Arbitral Tribunal and referring the dispute to the Arbitration is hereby set aside.
e) The parties are relegated back to the original position to agitate their rights in the appropriate manner and in accordance with law.
M.F.A. Cr. Ob. No. 782/2011 is filed by the Arbitrators being aggrieved by the observation made by the learned District Judge against them at paragraph no. 262 and 263. We have gone through said paragraphs. All that has been stated is the award passed by the Arbitrator is vitiated because of legal misconduct. No personal allegations are made against the Arbitrators. The misconduct alleged is only legal. However, it is made clear that any finding recorded by the learned District
- 31 -
judge against these two Arbitrators is only for the purpose of setting aside the award passed by them and they shall not be used against them in any proceedings which are now pending or intended to be filed in future. Accordingly M.F.A. Cr. Ob. No. 782/2011 is dismissed.
Learned counsel appearing for the appellant in M.F.A. No. 24052/2009 submits that the appellant intends to withdraw this appeal as the appellant is already agitating his right in the alternative forum. The submission is placed on record.
The appeal is dismissed reserving liberty to prosecute the proceedings initiated already in the alternative forum.
Pending applications in M.F.A. No. 23953/2009, i.e., Misc. Cvl. No. 110783/2010 and Misc. Cvl. No. 100193/2010, in M.F.A. No. 24052/2009, i.e., Misc. Cvl. No. 100195/2010,
- 32 -
do not survive for consideration in view of dismissal of the appeals on merit. Accordingly they are dismissed.
SD/-
JUDGE SD/-
JUDGE bvv