Andhra HC (Pre-Telangana)
Union Of India vs V.S. Ravindra Reddy And Others on 4 August, 1998
Equivalent citations: 1998(5)ALD624, 1998(5)ALT300
Author: R. Bayapu Reddy
Bench: R. Bayapu Reddy
JUDGMENT
1. This revision is filed by the Union of India represented by the General Manager, South Eastern Railways, Calcutta, questioning the orders of the Principal Subordinate Judge, Visakhapatnam dated 3-8-1992 passed in O.P. No.462 of 1987 appointing a Retired District Judge as Arbitrator revoking the authority of the named arbitrators under the provisions of Sections 5 and 12 of the Arbitration Act of 1940.
2. The first respondent is a Civil Engineering Contractor who entered into an agreement with the revision petitioner for laying Broad Guage Railway line from Koraput to Raighada comprising various kinds of works. As disputes arose between the first respondent and the petitioner relating to some amounts claimed by the first respondent in connection with the works done by him, he filed OS No.397 of 1984 under Section 20 of the Arbitration Act before the Court for a direction to the petitioner to file the award into Court and for referring the disputes for arbitration as per the arbitration clause in the agreement that was executed between the two parties prior to the commencement of the contract works. The said suit was decreed and the same was confirmed by the High Court also. Thereupon the petitioner herein appointed two arbitrators, who are respondents 2 and 3 herein, for adjudicating the disputes and for filing the award. The second respondent herein was chosen by the first respondent out of the panel of four persons named by the petitioner, and the third respondent was chosen by the petitioner as the other arbitrator. Respondents 2 and 3, who were thus appointed as arbitrators, chose another persons as Umpire and entered reference by issuing notices to the parties for proceeding with the arbitration enquiry. Thereupon the first respondent filed OP No.462 of 1987 before the Principal Subordinate Judge, Visakhapatnam under Sections 5 and 12 of the Arbitration Act of 1940 requesting the Court to revoke the authority of respondents 2 and 3 herein as arbitrators and for appointment of an independent person as arbitrator to adjudicate the disputes. The petitioner herein, who was the first respondent in the OP, contested the said petition contending that there are no valid reasons for revoking the authority of the namedarbitrators and for appointing an independent arbitrator. On the basis of the evidence adduced before him, the learned Subordinate Judge allowed the petition by the impugned orders and revoked the authority of the named arbitrators and appointed a Retired District Judge as an independent arbitrator. Questioning such orders the present revision is filed by the petitioner, who is the General Manager, South Eastern Railways, representing the Union of India.
3. Heard both the Counsel.
4. The contention of the first respondent (Contractor) which was accepted by the lower Court for revoking the authority of the named arbitrators and for appointing an independent arbitrator, is that the respondents 2 and 3 who arc the named arbitrators belong to the Railway Department and are under the influence of the petitioner; that they are biased against him and in favour of the petitioner; that he is also having an apprehension in his mind that he may not get independent decision from the named arbitrators and that, therefore, the authority of the named arbitrators shall be revoked under Section 5 of the Arbitration Act and an independent arbitrator shall be appointed under Section 12 of the Act. The revision petitioner however, contends that there are absolutely no valid reasons and justification for the lower Court for revoking the authority of the named arbitrators and that the orders passed by the lower Court appointing an independent arbitrator are not valid and legal and liable to be interfered with. It is to be seen, in view of the evidence placed on record, as to whether the order of the lower Court revoking the authority of the named arbitrators and appointing an independent arbitrator are not valid and are liable to be set aside.
5. As per the judgement in OS 397 of 1984 directing the petitioner to appoint the arbitrators for deciding the disputes between the parties, the petitioner appointed the second and third respondents as named arbitrators as per the procedure contemplated under Clause 64 of General Conditions of Contractentered into between the parties at the time of entrusting the work to the first respondent. As per condition 64, every dispute connected with the contract is to be referred to arbitration by two arbitrators who shall be Gazetted Railway Officers to be appointed by the General Manager, South Eastern Railways. For the purpose of appointing such two arbitrators, the General Manager will have to send a panel of more than three names of Gazetted Railway Officers of one or more departments of the Railways to the contractor and he will have to suggest one name out of the said list of appointment as arbitrator as his nominee and the General Manager will-appoint the second arbitrator as Railway's nominee either from the said panel or out of the panel and one of the two arbitrators will be from the Accounts Department. It is specifically stipulated in Clause 64(3)(e) of the General Conditions of Contract as follows:
"It will be no objection that the person/ persons appointed as arbitrator/arbitrators or Umpire is/are Government Servant(s) he/they shall not be one/those whom an opportunity to deal with the matters to which the contract relates or who in the course of his/their duties as Railway Servants) has/have expressed views on all or any of the matters under dispute or difference. The award of the arbitrator or arbitrators or Umpire as the case may be, shall be final and binding on the parties to the contract."
By following such procedure contemplated under the General Conditions of Contract entered into between the parties, the petitioner addressed Ex.A2 letter dated 25-2-1987 to the first respondent (Contractor) sending a panel of four names requesting him to suggest his (Contractor) nominee out of the said four names for appointment as one of the two arbitrators. Even though the first respondent did not agree at the first instance for such panel of four names and requested the petitioner to send panel of some more names as seen from Exs.A3 and A5 letters, he finally selected the second respondent herein, who is one ofthe four persons named in the panel, as his nominee by addressing Ex.A7 letter dated 10-8-1997 to the petitioner. Thereupon the petitioner appointed the second respondent, who is the nominee of the first respondent, and also the third respondent as his own nominee as the two arbitrators to adjudicate the disputes by Ex.A8 proceedings. Thereupon, the two named arbitrators addressed Ex.A9 letter to the first respondent informing him that they have nominated one M Ravindra, Divisional Railway Manager, South Eastern Railways as Umpire and directed the first respondent to submit his claim statement within the specified time. The first respondent, thereupon, addressed Ex-A10 letter dated 9-10-1987 to the petitioner expressing his objection for the appointment of the third , respondent (Harishchandra) as one of the arbitrators contending that the third respondent was directly and closely connected with the contract work and it is, therefore, improper for the petitioner to appoint such an officer as one of the arbitrators and such appointment is violative of the provisions of clause 64(3Xe) of the General Conditions of Contract and that the appointment of the third respondent as an arbitrator shall be revoked and another officer may be appointed in his place. There upon the petitioner addressed Ex.A11 letter dated 7-12-1987 refusing to revoke the appointment of the third respondent as an arbitrator on the ground that such appointment is in conformity with the provisions of clause 64(3Xe) of the General Condition of Contract. Under those circumstances the first respondent approached the Court and filed OP No.462 of 1987 under the provisions of Sections 5 & 12 of the Arbitration Act of 1940 seeking revocation of the authority of both the arbitrators appointed by the petitioner and seeking appointment of an independent arbitrator in their place. It is clear from a perusal of the above said material placed on record and the other evidence adduced before the lower Court that there are absolutely no valid and justifiable grounds for revoking the authority of the arbitrators who were appointed by the petitioner and for appointing anindependent arbitrator in their place and that the impugned orders of the lower Court appointing such an independent arbitrator in the place of respondents 2 and 3 cannot be sustained.
6. It is clear from Ex.A7 letter dated 10-8-19S7 that but of the four names mentioned in the panel by the petitioner, the first respondent chose the second respondent herein, whose name is found in that panel, as his nominee even though it is mentioned that he was selecting him as his nominee without prejudice to his rights and remedies available under law and even though he had originally expressed his protest against the panel of arbitrators sent by the petitioner as seen from Exs.A3 and A5 letters. But subsequently when the petitioner issued Hx.AS proceedings appointing the second and third respondents as arbitrators, the first respondent raised his protest only regarding the appointment of the third respondent (Harishchandra) as seen from Ex.AlO letter, which is already referred to above, on the ground that such appointment was not in conformity with the provisions of clause 64(3Xe) of the General Conditions of contract. He did not raise any objection regarding the appointment of the second respondent (Viswanath), whom he himself had chosen as his nominee out of the panel as per ExA7. Therefore, there is no justification for the first respondent to seek revocation of the authority of the second respondent also to act as arbitrator in the petition filed by him before the lower Court.
7. Even wilh regard to the appointment of the third respondent as the nominee of the petitioner to act as one of the arbitrators, it is to be seen from the material on record that such appointment is quite inconformity with and not in violation of the provisions of clause 64(3)(c) of the General Conditions of Contract. The grievance of the first respondent regarding the appointment of the third respondent as one of the arbitrators is, as seen from Ex.A10 as already sratcd above, that he was directly and closely connected with the contract work entrusted to him and assuch his appointment as one of the arbitrators is in violation of the terms and conditions of clause 64(3)(e) of the General Conditions of Contract. But as per clause 64(3)(e), which is already extracted above, it will not be an objection for appointment of an officer as an arbitrator or Umpire if he is a Government Servant. The conditions which are to be observed tor appointing the arbitrators or Umpire as per that clause are: (1) that they shall not be the officers who had opportunity to deal with the matters to which the contract relates and (2) that they, in the course of their duties as Railway Servants, should not have expressed views on all or any of the matters under dispute or difference between the parties. In the present case, these two conditions enumerated in clause 64(3)(e) are not violated with regard to the appointment of respondents 2 and 3 as arbitrators. As already staled above, the first respondent did not express any objection of the appointment of the second respondent, who is his own nominee, as one of the arbitrators on the ground of violation of the conditions of clause 64(3)(e), as seen from Ex.AlO. Even with regard to the appointment of the third respondent as a nominee of the petitioner to act as the other arbitrator, the conditions of clause 64(3)(e) are not violated. After receiving Ex.A10 letter addressed by the first respondent, the petitioner promptly issued Ex.All letter dated 7-12-1987 specifically stating that the third respondent (Harishchandra) who was then working as Dy.F.A. & C.A.) (S&C), South Eastern Railways at Koraput was new to the (S&C) Organisation and was not associated with the contract work done by the first respondent during the material time involved in the present case. Ex.B2 certificate issued by the office of F.A. & C.A.O. (S&C), Visakhapatnam clearly shows that the third respondent joined Survey and Construction Organisation at Visakhapatnam only on 22-4-1587, that prior to the said date, he worked as S.A.O./Work Shop's Accounts Office, Northern Railways at Lucknow and that he never worked in the Organisation of the South Eastern Railways at Visakhapatnam,rior to 22-4-1987. The appointment of the second and third respondents as arbitrators was on 4-9-1987 under Ex.A8 proceedings and the relevant contract work was done during 1983-84. Therefore, the third respondent, even though a Government servant and a Railway Employee, had no occasion to deal with the matters to which the contract relates, nor had he expressed any views on any of the matters under dispute between the petitioner and the first respondent at any point of time. Therefore, tile contention of the first respondent that the appointment of the two arbitrators is not in conformity with the terms of clause 64(3)(e), is without any substance and not based on the material produced before the lower Court, and the lower Court has erred in accepting such contention without giving valid reasons in this regard.
8. The main ground on which the first respondent chose to seek revocation of the authority of the two arbitrators and for appointment of an independent arbitrator is that they (respondents 2 and 3) are biased and that he does not expect any justice from them in adjudicating the disputes and in passing the award. One of the reasons for entertaining such apprehension regarding the two named arbitrators is that the arbitrators entertained the counter-claim submitted by the petitioner for deciding such dispute also along with the claim submitted by him (first respondent) even though they were not permitted and authorised to entertain such counter-claim made by the petitioner as per the Judgment in OS 397 of 1987, as per which the matter was referred for arbitration. Such contention of the first respondent is based in view of the averments made in Ex.AS proceedings of the petitioner dated 4-9-1987, under which the petitioner appointed respondents 2 and 3 as arbitrators. It is seen from a perusal of Ex.A8 that such proceedings were issued to the second and third respondents for appointing them as arbitrators as the nominees of the first respondent and the petitioner, and in the said proceedings, the particulars of the claim put forward by the first respondent and the counter-claim of the petitioner for Rs.7 lakhs were mentioned. A copy of the said proceedings was also marked to the first respondent. It is clear from a perusal of iix. A8 that it is only a proceeding under which respondents 2 and 3 were sought to be appointed as arbitrators requiring the two named arbitrators to enter reference and proceed with the arbitration enquiry. After receiving the said proceedings, respondents 2 and 3 entered into reference and addressed Ex,A9 letter to the first respondent requiring him to submit his claim statement within the specified period. Even at a subsequent date, the two arbitrators addressed Ex.A12 letter only to the first respondent requiring him to submit his statement of facts to enable them to proceed with the arbitration enquiry. There is no material to show that the arbitrators issued similar notices to the petitioner requiring him to submit his statement of facts also relating to the counter-claim shown in Ex.A8 proceedings and it is also not tlie contention of the first respondent that any such notice was issued to the petitioner by the arbitrators requiring the petitioner to submit his statement regarding his counter-claim. It is, therefore, clear from these facts and circumstances that even though a reference is made in Ex.A8 proceedings regarding the counter-claim of the petitioner, the two named aibitrators did not take any further steps to make an enquiry into such counter-claim by requiring the petitioner to submit his statement of facts relating to such counter-claim. Simply on account of the fact that the petitioner had made a mention about his counter-claim in Ex.A8 proceedings, which were issued only for the purpose of appointing the two arbitrators, it cannot be said that the two arbitrators agreed to inquire into such counterclaim of the petitioner during the course of arbitration enquiry, nor is it a case where the arbitrators took any further steps to enquire into such counter-claim of the petitioner mentioned in Ex.A8 proceedings. Under those circumstances, no bias or mis-conduct can be attributed to respondents 2 and 3 on the ground that they entertained the counter-claim put forward by the petitioner, nor can it be saidthat they acted in excess of their jurisdiction or were disqualified to act as arbitrators, as is sought to be contended by the first respondent. In the decision of the Supreme Court reported in International Airport Authority of India v. K.D. Ball, , a similar question arose for consideration and it was contended that the petitioner lost confidence in the arbitrator on account of the fact that the arbitrator entertained the counter-claim submitted by the Department even though they were not entitled to do so. But their Lordships observed that such counter-claims were merely referred to the arbitrator by the Department and they were not yet dealt with by the arbitrator and that a mere reference of such counter-claims to the arbitrator cannot be considered as a ground for any apprehension of bias in the mind of the petitioner. It is also observed by Their Lordships in the same decision that it is not every suspicion felt by a party which must lead to the conclusion that the authority hearing the proceedings is biased; that every fancy of a party cannot be a ground for removal of the arbitrator and that the apprehension must be judged from a healthy, reasonable and average point of view and not on mere apprehension of any whimsical person. Therefore, from the mere fact that the petitioner made a mention about his counter-claim in Ex.A8 proceedings, which were intended only for appointing the two arbitrators, and without there being any further material to show that the arbitrators proceeded further to make enquiry into such counter-claim of the petitioner, it cannot be said that the arbitrators acted in excess of their jurisdiction, nor can it be said that they are biased or disqualified to act as arbitrators or guilty of any mis-conduct as is sought to be contended by the first respondent. The lower Court has clearly erred in accepting such contention of the first respondent for revoking the authority of named arbitrators.
9. The first respondent has also tried to contend, as already stated above, that the two arbitrators are Railway employees and they are under the influence of the petitioner, whois the General Manager of South Eastern Railways, and as such he has entertained a reasonable apprehension that the two arbitrators are biased and will not be in a position to act independently. Such contention of the first respondent is also without any substance and not based on any material. It will be useful in this connection to refer to Ex.A3 letter dated 27-4-1987 addressed by the first respondent to the petitioner expressing his views about the panel of four names suggested by the petitioner to enable the first respondent to choose his nominee out of the panel. In para-2 of Ex.A3 it is mentioned that all the four officers mentioned in the panel are stationed at Visakhapatnam and attached to the office of the Divisional Railway Manager, South Eastern Railways, Visakhapatnam, which is in the same premises and attached to the office of the Chief Engineer (S&C), South Eastern Railways, Visakhapatnam. But such objection cannot be a valid objection and it is not in violation of the conditions of arbitration clause. In para 5 of Ex.A3, another objection is raised by the first respondent for the panel on the ground that three of the four persons mentioned in the panel are mechanical or electrical engineers or administrative officers, whereas the disputes between the parties relate to civil engineering contract, which requires a thorough knowledge of civil engineering contract work for acting as an arbitrator and as such, the panel suggested by the petitioner cannot be accepted. The third ground of objection is mentioned in para-6 of Ex.A3, wherein it is stated that the panel of four names is too restricted and it beariy meets the provisions of clause 64(3)(e), which envisages sending of a panel of more than three names and that, therefore, some more names may be suggested by the petitioner in the panel to enable the first respondent to choose his nominee. All such objections raised by the first respondent relating to the panel of four names sent by the petitioner are without any substance. The conditions of clause 64 of the General Conditions of Contract, which are enumerated even in the petitioner filed by the first respondent himself in OP 462 of 1987,clearly show that in case disputes arise between the parties, such disputes have to be referred to two arbitrators, who shall be Gazetted Railway Officers to be appointed by the General Manager of South Eastern Railways in the manner laid down in the relevant provisions of General Conditions of Contract. The first respondent voluntarily agreed for such terms and conditions relating to arbitration clause in the agreement and signed such agreement and as such, it is not open to him subsequently to say that the railway employees, who were appointed as arbitrators, will be under the influence of the petitioner. The appointment of a Mechanical Engineer or Electrical Engineer or Administrative Officer as an arbitrator is not in violation of any of the terms and conditions of the arbitration clause on the ground that the contract of work performed by the first respondent is a civil engineering contract. As a matter of fact, the independent arbitrator appointed by the lower Court, who is only a Retired District Judge, will not have any such knowledge relating to either civil engineering contract work or even mechanical or electrical engineering works or the work of an Administrative Officer. The only requirement of clause 64 is that out of the two arbitrators one must be from Accounts Department. The third respondent herein is an Officer relating to accounts department in the Railways, The other objection that the panel sent by the petitioner consists of only four names and not more than that, cannot also be accepted inasmuch as the provisions of clause 64 show that the panel shall consist of more than three names. Therefore, none of the objections raised by the first respondent at the first instance regarding the panel of names suggested by the petitioner can be sustained.
10. It is already found that the provisions of clause 64(3)(x) of the General Conditions of contract are not at all violated in the present case. The first respondent has also failed to establish that the two named arbitrators have got any particular prejudice against him and it is not even his case, as seen from the materialon record, that they have got any such prejudice against him. He has also utterly failed to establish that his apprehension about the alleged bias of the two arbitrators is reasonable apprehension. In the decision of the Supreme Court reported in Secretary to Government, Transport Department, Madras v. Munuswamy, it is observed in para-11 as follows:
"This is a case of removal of a named arbitrator under Section 5 of the Act which gives jurisdiction to the Court to revoke the authority of the arbitrator. When the parties entered into the contract, the parties knew the terms of the contract including arbitration clause. The parties knew the scheme and the fact that the Chief Engineer is superior and the Superintending Engineer is subordinate to the Chief Engineer of the particular Circle. Inspite of that the parties agreed and entered into arbitration and indeed submitted to the jurisdiction of the Superintending Engineer at that time to begin with, who, however, could not complete the arbitration because he was transferred and succeeded by a successor. In those circumstances on the facts stated no bias can reasonably be apprehended and made a ground for removal of a named arbitrator. In our opinion this cannot be at all a good or valid legal ground. Unless there is allegation against his honesty or capacity or mala fide or interest in the subject-matter or reasonable apprehension of the bias, a named and agreed arbitrator cannot and should not be removed in exercise of a discretion vested in the Court under Section 5 of the Act."
11. It is further observed by Their Lordships in para-13 of the Judgment after referring to the facts of that case, as follows:
"In this country in numerous contracts with the Government, clauses requiring the Superintending Engineer or some official of the Government to be the arbitrator are there. It cannot be said that the Superintending Engineer, as such, cannotbe entrusted with the work of arbitration and that an apprehension, simplicitcr in the mind of the contractor without any tangible ground, would be a justification for removal. No other ground for the alleged apprehension was indicated in the pleadings before the learned Judge or the decision of the learned Judge. There was, in our opinion, no ground for removal of the arbitrator. Mere imagination of a ground cannot be an excuse for apprehending bias in the mind of the chosen arbitrator,"
It is further observed by Their Lordships in para-12 that reasonable apprehension of bias in the mind of a reasonable man can be a ground for removal of the arbitrator; that a predisposition to decide for or against one party, without proper regard to the true merits of the dispute is bias; that there must be reasonable apprehension on that predisposition and that such reasonable apprehension must be based on cogent materials. In the present case, there is nothing on record to suggest that the two named arbitrators have any such predisposition against the first respondent or in favour of the petitioner. As a matter of fact, the arbitrators did not even commence their work except issuing notices to the first respondent requiring him to submit his claim statement. The respondent No.2 was the nominee of the first respondent himself even though it was alleged by the first respondent that he had chosen him as his nominee without prejudice to his rights under law, and no objection was expressed for his appointment when Ex. A10 letter of protest was addressed by him to the petitioner raising the objection only for the appointment of the third respondent as the other arbitrator. Even with regard to the appointment of the third respondent as arbitrator, the objections raised by the first respondent are quite untenable and such appointment is strictly in accordance with the relevant conditions of General Conditions of Contract, as already discussed above. Therefore, in the present case, no valid and justifiable reasons were put forward and provedby the first respondent to show that his apprehension about the "bias" on the part of the second and third respondents is a reasonable apprehension based on cogent material.
12. In another recent decision of the Supreme Court reported in Bhupinder Singh Bindra v. Union of India, it is observed in para-2 of the Judgment:
"It is settled law that Court cannot interpose and interdict the appointment of an arbitrator, whom the parties have chosen under the terms of the contract unless legal misconduct of the arbitrator, fraud, disqualification, etc., is pleaded and proved. It is not in the power of the party at his own will or pleasure to revoke the authority of the arbitrator appointed with his consent. There must be just and sufficient cause for revocation. There is no general power for that Court to appoint an arbitrator unless the ca.se falls within the relevant provisions of the Act nor will the Court make an appointment where the arbitration agreement provides a method by which appointment is to be made."
It is further observed in para-4 of the Judgment as follows:
"When the parties, under the clauses of the Contract, have specifically chosen a named authority and not any other arbitrator, without the consent of the parties, Court has no jurisdiction to interpose into the contract and appoint an arbitrator under Section 8 or any other provision under the Act. The High Court, therefore, was clearly right in setting aside the order of the Senior Judge appointing an independent arbitrator to adjudicate the dispute."
In the present case, as already stated above, the first respondent utterly failed to establish that any legal misconduct, excess jurisdiction, bias or any other disqualification can be attributed to either of the two named arbitrators, nor is it established that the appointment of the second and third respondents as arbitrators is in violation of any terms and conditions ofclause 64 of the General Conditions of Contract. Under those circumstances, the lower Court is not justified in revoking the authority of the named arbitrators and appointing an independent arbitrator in their place without properly appreciating the point in dispute and the evidence placed on record.
13. The learned Counsel for the first respondent has tried to rely upon some decisions in support of his contention that the appointment of the sole arbitrator by the lower Court after revoking the authority of the named arbitrators is quite valid and legal and cannol be interfered with. He has tried to rely upon the decision of this Court reported in State of A.P. v. Ch. Ramalinga Reddy, 1989 (3) ALT 452 in support of his contention in this connection. But a perusal of the said decision clearly shows that the observations made therein have no application to the facts of the present case as it was a case under which a new arbitrator was sought to be appointed under Section 8(1)(b) of the Arbitration Act when there was a vacancy in the panel of the three arbitrators and where the parties did not intend to supply such vacancy. The observations made in the said decision also show that unless the apprehension of bias in the mind of the petitioner is a reasonable apprehension, the appointment of an independent arbitrator is not justified. The learned Counsel for the first respondent has also tried to rely upon another decision of the Supreme Court reported in State of Karnataka v. Rameswara Rice Mills, Thirthahali, AIR 1987 SC 1359. But the observations made therein cannot also be said to be of any assistance for the contention of the first respondent inasmuch as it is clearly found that no bias can be attributed to the two named arbitrators on the ground that they are Railway Employees and inasmuch as the first respondent has utterly failed to show that any such bias, misconduct, excess jurisdiction or any other disqualification can be attributed to the two named arbitrators. Therefore, in any view of the matter, the orders of the lowerCourt revoking the authority of the two named arbitrators and appointing an independent arbitrator in their place, are clearly erroneous and not based on the evidence adduced in the case and are, therefore, liable to be set aside.
In the result, the revision is allowed but without costs and the orders of the lower Court are set aside and OP No.462 of 1987 is dismissed without costs.