Madras High Court
Unknown vs V.Periya Karuppiah on 22 June, 2012
Author: V.Periya Karuppiah
Bench: V.Periya Karuppiah
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 22/06/2012 CORAM THE HON'BLE MR.JUSTICE V.PERIYA KARUPPIAH A.No.3989 of 2009 in O.P.No.400 of 2009 ORDER :
V.PERIYA KARUPPIAH, J., A.No.3989 of 2009: This application has been filed by the petitioner in the O.P. Seeking for the stay of further proceedings pending before the 2nd respondent initiated pursuant to the letter dated 11.07.2007 till disposal of the original petition.
2. O.P.No.400 of 2009: This petition has been filed by the petition under Section 14(1) and 2 of the Arbitration and Conciliation Act seeking for the termination of the mandate of the Arbitrator.
3. The brief facts of the case is mentioned for the main O.P. No.400 :
The business of (mining and marketing of Iron ore minerals and allied products). The present Original Petition is being filed for terminating the mandate of the 2nd respondent from Arbitrating the disputes that have arisen under the Partnership Agreement dated 15.12.2003. The facts leading to the the filing of the petition are given hereunder.
3(2) They are the lessee for mining Iron Ore and allied minerals in the tract of lands of an extent of 191.13 Hectares at Haraginadona Village, Bellary District, having obtained from the Department of Mines & Geology, Government of Karnataka. The petitioner has to pay a minimum royalty of Rs.4,39,886/- per year to the Government of Karnataka. The said royalty has to be paid every year, irrespective of the fact whether any mining is done or not by the petitioner.
3(3) The 1st respondent who claimed to have expertise in mining operations and offered to provide his infrastructure and experience to exploit the mines taken on lease by the petitioner. After due deliberations, the petitioner and the 1st respondent entered in to partnership Agreement on 15.12.2003 for the exploitation of the mineral from their leased mines. The main objectives of the Partnership was to remove Iron Ore Minerals from the mines and market the same and to restart the pulverizing factory of the petitioner situated at Bellagal Road, Karnataka State and put to pulverize red oxide mineral and market the same. The partnership agreement was for a period of five years from the said date (i.e. from 15.12.2003 to 14.12.2008). All the duties and responsibilities of either of the parties have been specified in the said partnership agreement. The agreement, inter-alia, provides for sharing the profit and loss of the firm equally between the petitioner and the first respondent.
3(4) The start of mining operations, commenced pursuant to the partnership agreement, the first respondent was irregular in keeping up his commitments. The first respondent did not report to the petitioner as to the schedule of progress, quantum of minerals exploited and about the day to day mining operations. The petitioner had to frequently question the conduct of the 1st respondent and with great difficulty had to persuade and get the particulars of the exploited minerals. It is needless to say the difficulties experienced by the petitioner, when the exploitation of mines were in progress during the currency of the partnership agreement.
3(5) The partnership agreement concluded on 14.12.2008, and all the rights and liabilities between the petitioner and 1st respondent crystallized. A detailed audit was made on the various transactions that took place during the currency of the partnership. On the finalization of accounts, it has been ascertained that the first respondent is liable to pay the petitioner in a sum of Rs.11,40,08,017/- (rupees Eleven Crores Forty Lakhs Eight Thousand and Seventeen only), as and towards their 50% share in the Net profits of the firm.
3(6) All the efforts of the petitioner to get their just entitlement of profits from the first respondent did not fructify, despite pleading personally and through several well wishers on various occasions. The petitioner has been forced to take legal actions against the first respondent as contemplated in the partnership agreement. As such, a legal notice dated 22.06.2009 was issued to the first respondent demanding him to:
a) pay the petitioner's share of the profits of the partnership as Audited and finalised by the company auditors at Rs.11,40,08,017/- (Rupees Eleven Crores Forty Lakhs Eight Thousand and Seventeen only) along with interest @ 24% from the date of conclusion of partnership.
b) vacate the mine site at Haraginadona Village, and remove all his men and machineries from the site:
c) pay compensation for damaging the petitioner's machineries and infrastructure facilities at the mines estimated at Rupees one Crore;
d) compensation for the loss of business and overheads in preventing the petitioner from gainfully exploiting the mines (from 15.12.2008 till 20.06.2009) estimated at Rupees Three Crores; and
e) Rs.50 lakhs towards mental agony and suffering arising on account of the respondents illegal activities above stated.
3(7) It was also made clear to the first respondent through the said legal notice dated 22.06.2009, that if he fails to comply the demands made, the petitioner would resort to legal proceedings in terms of the agreement for reference of disputes to arbitration. The first respondent belatedly sent a reply denying the contents and also abut the conclusion of the agreement dated 15.12.2003. Though the reply notice is dated 30.06.2009, the same was insufficiently addressed and reached out counsel only on 16.07.2009. Even before any reply was received, the petitioner moved this Hon'ble Court for interim relief's under Section 9 of the Arbitration and Conciliation Act, 1996 and an order of injunction was made in O.A.No.686 of 2009 and other relief's.
3(8) The legal notice dated 22.06.2009 the first respondent has written to his Auditor at Hyderabad, to scrutinize the accounts sent by us. The first respondent also through his letter dated 09.07.2009 written to his second respondent seeking certain relief's. The 2nd respondent acting on the letter dated 08.07.2009 of the 1st respondent had sent letter dated 11.07.2009 directing the petitioner to appear before him on 28.07.2009 at Bellary in connection with the dispute arising out of partnership deed dated 15.12.2003. On going through the letter dated 11.07.2009 the petitioner immediately through letter dated 18.07.2009 challenging the mandate of the 2nd respondent to Arbitrate disputes. As many as 12 grounds of challenge has been raised and all the apprehensions raised therein are bonafide. The petitioner craves the leave of this Court to treat the ground of challenge made by the petitioner through their letter dated 18.07.2009 as part and parcel of this petition.
3(9) A few instances as regards the 2nd respondent herein to demonstrate that he had become de-jure incompetent to perform the functions of an Arbitrator in the disputes between the petitioner and 1st respondent herein. The following are instances:
a) The main dispute that is to be adjudicated upon shall be the status of the partnership agreement dated 15.12.2003 between petitioner and the 1st respondent herein. The contention of the petitioner is that the said agreement has come to a conclusion as early as by 14.12.2008 and the rights and liabilities of the parties have cristalised. However the 1st respondent is unwilling to concede the factual position and contends that the agreement has not concluded. Even before the disputes are referred to the 2nd respondent, the 2nd respondent purportedly on acting upon the letter dated 08.07.2009 sent by the 1st respondent herein has decided that the agreement dated 15.12.2003 is still in force. Such a finding by the 2nd respondent in connection with an important aspect of the dispute by itself has rendered the 2nd respondent de-jure impossible to function as the Arbitrator.
b) The 2nd respondent by holding that the partnership agreement dated 15.12.2003 is in force, has prejudged the important issue in dispute even before the same fell for consideration before him. Further such a finding on an important issue has been made even without giving an opportunity to the petitioner to submit their contentions on the issue.
3(10) Even the 1st respondent herein has expressed his apprehension on the independence and impartiality of the 2nd respondent to Arbitrate the disputes through his letter dated 02.07.2009 addressed to his Auditor. For the sake of brevity the relevant portion of the said letter is extracted hereunder:
"I also fear that Sri A.Rajagopal, the special officer, is in league with my partner or is clandestinely lending support to him by non assertion of his rights as special officer with powers of giving an arbitral award."
The said letter dated 02.07.2009, written the 1st respondent is filed along with the typed set of papers and the petitioner craves the leave of this Court to treat the said letter as part and parcel of this affidavit.
3(11) The important aspect to demonstrate that the 2nd respondent is entitled for a 5% commission on the profits of the partnership firm. As such, the 2nd respondent has a fiduciary connection / involvement in the matter that is to be adjudicated. The applicant bonafide apprehend that in view of 5% share in the profits, there is every possibility that the 2nd respondent might fix fictitious / jacked-up amounts as profits so as to enrich himself in the share of profits. The higher the profits, the 2nd respondent is going to fix the profits while adjudicating the disputes, the higher will be his share of profits. Therefore, the fiduciary relationship and the personal gains which the 2nd respondent has in the matter shall disqualify him from adjudicating the disputes. The 2nd respondent is going to be a beneficiary of the likely outcome from the award which is to be adjudicated upon. "No person could be permitted to judge an issue, the adjudication of which is likely to benefit him".
3(12) They have already sent a notice on 21.07.2009 to the 1st respondent indicating 5 names of persons who are willing to Arbitrate the dispute, with an option to concur the nomination from the list sent. Failing nomination, the petitioner has made it clear that the petitioner shall approach this Court seeking appointment of Arbitrator.
3(13) For the aforesaid circumstances it has became clear that the mandate of the 2nd respondent to Arbitrate the disputes gets terminated by operation of law. The 2nd respondent has become de-jure incapable to perform his functions as Arbitrator in the matter.
3(14) Therefore the petitioner most humbly prays that in the above said circumstances this Court may be pleased to pass an order to terminate the mandate of the 2nd respondent herein, from adjudicating the dispute between the petitioner and the 1st respondent herein arising from the partnership agreement dated 15.12.2003 and pass suitable orders.
4. The objections raised in the counter filed by the 1st respondent would be as follows:-
The petitioner and the 1st respondent entered into a partnership agreement on 15.12.2003. Para 5 is not relevant for an application under sub-section (1) and (2) of Section 14 of the Act. In para 6 of the application, the petitioner has made an attempt to found a claim for recovery of Rs.11,40,08,017/- from the 1st respondent. The 1st respondent do not intend to waste the precious time of this Court by elaborately refuting the claim of the petitioner. The 1st respondent do not own even a rupee to the applicant but it is the applicant who owes the 1st respondent money in terms of a few crores. The 1st respondent consider that the claim as wholly irrelevant for the purpose of filing a petition under sub-sections(1) and (2) of Section 14 of the Arbitration Act. It is a monetary dispute between the petitioner and the 1st respondent for the settlement of which the proper forum is the "Arbitral Proceedings". In para 7 does not relate to the allegation of "incompetence" imputed to the "Arbitrator". It is not known how disputes between the petitioner and the 1st respondent would be a ground to impugh the competence of the Arbitrator. Para 7 of the application does not fall under the ambit of sub-section (1) and (2) of Section 14 of the Act. The petitioner says that the Arbitrator (2nd respondent) issued notices both to the 1st respondent and the petitioner on 11.07.2009 stating that he entered upon arbitral proceedings, directing both of them to maintain status quo and requesting them to appear before him on 22.07.2009 with all their documents and records. Therefore, the 1st respondent was ready to participate in the arbitral proceedings but the petitioner took an untenable stand that the Arbitrator is not competent and in a way refused to participate. But what is unethical on the part of the petitioner is that he delibrately suppressed the fact that the Arbitrator by his letter dated 27.07.2009 repudiated all the allegations and requested the petitioner to co-operate with him. After that the petitioner filed O.P.No.400 of 2009 seeking termination of the mandate of the arbitrator.
4(2) The suppressions betray the depravity of the petitioner and his desperate attempt to mislead this Court and create repugnance against the 1st respondent and the arbitrator. Hence, the 1st respondent pray that the letter dated 27.07.2009 sent by the Arbitrator to the petitioner may be treated as part and parcel of this counter affidavit.
4(3) The Arbitrator has become DE JURE incompetent to perform the functions of the Arbitrator. In support of his version, the petitioner quotes some instances which are narated in sub-paras(a) and (b) of para 10. In para 10(a), the Arbitrator has given a finding that the agreement dated 15.12.2003 is still in force. The Arbitrator has prejudged the issue holding that the agreement is in force. It may be noticed that in the letter dated 27.07.2009, the Arbitrator while refuting all the allegations made by the petitioner has explicitly stated that he made a passing remark about the subsistence of the period of the agreement and has never given any finding and much less an award.
4(4) The petitioner has not correctly comprehended the meaning of the word "DE JURE" which is used to project the arbitrator as "incompetent- De jure". Section 14 of the Act is the governing provision in regard to cases falling under DE FACTO and DE JURE circumstances. Section 12 is titled as "failure or impossibility" to act. The definition of "failure and impossibility" is explained in the words "DE FACTO and DE JURE". There is no failure on the part of the present Arbitrator. As regards the incapacity of the Arbitrator to Act, a situation should emerge when the Arbitrator is legally declared as incompetent to conduct the arbitral proceedings. Only in such a situation the Arbitrator becomes DE JURE unable to perform his functions. In the present case the Arbitrator has become neither "DE FACTO" incompetent" nor has he become "DE JURE incompetent". A party by merely levelling allegations against the Arbitrator cannot claim the arbitrator has become DE JURE incompetent. In the context of all the allegations being repudiated by the Arbitrator vide his letter dated 27.07.2009, the question of his becoming DE JURE incompetent does not arise at all.
4(5) The petitioner has claimed that because the 1st respondent expressed an apprehension about the attitude of the Arbitrator, it means that the 1st respondent to dispense with the present Arbitrator. This is a weird logic. When the 1st respondent have invested a few Crores of Rupees as a partner on the development of the mine and production of mineral and when the other partner(the petitioner) has been evading to render accounts and the lenience or latitude shown by the Arbitrator in granting time to the petitioner to render accounts, naturally the 1st respondent had an apprehension. The 1st respondent's apprehension cannot be interpreted as his readiness to remove the present arbitrator to facilitate an amicable settlement of the disputes, since he is chosen Arbitrator of the applicant and the 1st respondent.
4(6) The petitioner's version that there is a possibility for the arbitrator "to fix fictitious and jacked up amounts as profits to enrich himself in the share of profits" deserves to be rejected. The accounts relating to the expenditure incurred at Bellary on mining operations have been accepted both by the petitioner and the 1st respondent. The rest of the accounts relate to the items of expenditure incurred by the petitioner at Madras. The 1st respondent did not know if it is the contention of the petitioner that there are "fictitious and jacked up amounts" in the accounts to be furnished by the petitioner and for this reason he has been avoiding to render accounts. As and when the accounts are furnished, a qualified and experienced Chartered Accountant would scrutinize and audit the accounts and on verification, that the accounts are drawn up in terms of the partnership deed dated 15.12.2003 and the earlier agreement dated 03.09.2003. If the profits decline not only the Special Officer but the 1st respondent and the petitioner also would get a smaller share. Likewise, if the profits are more all the three would get more. It is not conceivable that when the profits swell, it is only the Special Officer who would be benefited. Both the partners would be benefited much more than the Special Officer because the partners' shares are far more higher. The petitioner has ascribed the arbitrator with "fiduciary relationship". There is already a sole arbitrator who has commenced arbitral proceedings. There is no need to appoint a new arbitrator and much less is there a need to approach this Court for appointment of an Arbitrator.
4(7) Arbitrator has not become either De Facto or De Jure unable to perform his functions. No court has barred him from performing his functions. Therefore, the characteristics of both "DE FACTO" and "DE JURE" positions cannot be attributed to the 2nd respondent. The Arbitrator has not failed to Act. The Arbitrator has not withdrawn from his office nor have both the parties agreed to the termination of his mandate. Sub-clause(2) of Section 14 of the Act does not operate in the present case. No controversy remains in respect of the grounds referred to in clause (a) of sub-section (1) of Section 14 of the Act. The instances quoted by the petitioner in support of his plea for the termination of the mandate are imaginary and unsupported by facts. The grounds adduced by the petitioner do not give him Locus Standi to file this application A.No.3989 of 2009.
4(8) The very intendment and lofty objective behind the Arbitration Act is to render prompt and quick justice to the disputants and to lessen the existing burden on the courts. It is surprising that the petitioner has filed this application with an ulterior motive to subvert the arbitral proceedings initiated by the 2nd respondent. Hence, the 1st respondent prays that this application be dismissed with costs and expenses of the 1st respondent.
5. In the aforesaid petition and application, this Court has granted an order of interim stay of the proceedings pending before the 2nd respondent/Arbitrator initiated on his letter dated 11.07.2009.
6. Heard Mr.M.S.Krishnan, learned Senior counsel appearing for Mr.V.Sreekanth, learned counsel for the petitioner and Mr.A.L.Somayajee, learned Senior counsel appearing for Ms.Narmada Sampath, learned counsel for the 1st respondent. No appearance for the 2nd respondent.
7. The learned Senior counsel Mr.M.S.Krishnan would submit in his argument that the petitioner and the 1st respondent entered into a partnership agreement on 15.12.2003 for a period of 5 years for the purpose of mining iron ore and allied minerals in the tract to an extent of 191.13 hectares at Haragee Nadona Village, Bellari District, Karnataka, after having obtained permission from the Department of mines and Geology, Govt. of Karnataka with certain terms and conditions. He would also submit that the said period of agreement ended by 14.12.2008 and all duties and responsibilities of either parties as specified in the partnership agreement would come to an end and the rights of both parties have crystallised. He would also submit that a detailed audit report was prepared by the common Auditor and it would show that the 1st respondent would be liable to pay the petitioner a sum of Rs.11,40,08,017/-, towards his 50% share in the net profit of the firm. He would also submit that the request of the petitioner with the 1st respondent did not fructify despite he pleaded personally and through several well wishers on various occasions and therefore, a legal notice was sent on 22.06.2009 demanding for the said payment with interest at 24% p.a., and ask him to vacate the mine site and also to pay compensation for damages caused to the machineries belonging to the petitioner and also compensation for loss of business for exploiting the mines from 15.12.2008 till 20.06.2009 which is beyond the period of agreement and also Rs.50 lakhs towards mental agony and sufferings of the petitioner. He would also submit that the said notice was belatedly replied by the 1st respondent and in order to protect the mines, the petitioner approached this Court and obtained an order of injunction in O.A.No.686 of 2009 under Section 9 of the Arbitration and Conciliation Act.
8. He would also submit that the 1st respondent sent a letter to the Auditor to verify the accounts sent by the petitioner and also sent a letter on 08.07.2009 to the 2nd respondent seeking certain reliefs and the 2nd respondent had acted on the letter and directed the petitioner to appear before him on 28.07.2009 at Bellari, in connection with the dispute arising out of partnership deed dated 15.12.2003. He would further submit that he immediately sent a letter to the Arbitrator on 18.07.2009 challenging the mandate of the Arbitrator on 12 grounds mentioned therein. He would also submit that the 2nd respondent as an Arbitrator is "de jure" incompetent to perform as an Arbitrator because the 2nd respondent had acted on the letter written by the 1st respondent dated 08.07.2009 and stated that the partnership agreement dated 15.12.2003 was still in force despite the said period was already over by 14.12.2008. He would also submit that such a finding of the 2nd respondent in connection with the dispute without having any enquiry of the parties would make the 2nd respondent 'de jure' impossible to function as an Arbitrator. He would also submit that the 2nd respondent had pre judged an important issue and gave a finding and that would also make him "de facto", impossible to act as an Arbitrator. He would further submit in his argument that the independence and impartiality of the 2nd respondent to arbitrate the disputes has been apprehended by the petitioner. He would also submit that the 2nd respondent was already a Special Officer along with the 1st respondent and he was lending support to the 1st respondent by non-assertion of his right as Special Officer with a power of giving an arbitral award. He would also submit that the said fact has been also mentioned in the letter dated 02.07.2009 written by the 2nd respondent to the Auditor.
9. He would further submit that the 2nd respondent was also a beneficiary on the profits of the partnership firm since he was entitled to 5% commission on the profits and the 2nd respondent if continued as Arbitrator he might fictitious or jacked up amounts as profits so as to enrich himself in the share of profits and therefore there is a likelihood of the 2nd respondent acting on bias. He would further submit that the said involvement of the 2nd respondent in the agreement itself would go to show that he is also impliedly one of the parties to the agreement and he cannot be permitted to judge the issue through adjudication of which would likely to benefit him. He would otherwise submit that no person shall be a judge for his own cause is the celebrated dictum. He would also refer to catena of judgments of the Hon'ble Apex Court, and Delhi High Court in support of his arguments which are as follows:-
1.1984 (4) SCC 103 2.2009 (2) SCC 337
3.AIR 1957 (SC) 425
4. 2003 (7) SCC 418
5. 2008(12) SCC 230
6. 2008(1) ARB.LR 393 (Delhi).
10. Quoting those above judgments, he would also stress that if the mandate of the 2nd respondent is continued without any termination certainly, he would act biasedly and would also act against the said principles that no person shall judge on his own cause. He would also submit that the judgment of Delhi High Court as referred already and yet another judgment of Guwahati High Court reported in 2007(1) ARB LRT 564 Guwahati would go to show that there is no necessity for resorting to terminate the mandate before the Arbitrator under Section 13 of the Act, but it could be initiated before Court to terminate the mandate of the Arbitrator under Section 14 of the Act. He would also submit that the request of the petitioner is very much bona-fide and the mandate of the Arbitrator may be terminated under Section 14 of the Act and necessary directions may be given to approach this Court for appointment of new Arbitrator in his place. He would therefore request the Court to allow the application and to extend the stay till the new Arbitrator is appointed through process of law.
11. The learned Senior Counsel Mr.AL.Somayaji, appearing for the 1st respondent would submit in his argument that the 2nd respondent was working in the partnership had in between the petitioner and the 1st respondent as Special Officer and since he has got experience in mining and he was appointed as a named Arbitrator in case of any disputes arise in between the petitioner and the 1st respondent. He would further submit that the petitioner and the 1st respondent had very much aware of the appointment of the 2nd respondent as an Arbitrator and the 2nd respondent was therefore a named Arbitrator. He would therefore submit that the parties had agreed to have the service of the 2nd respondent as Arbitrator since he was very much aware of the mining procedures and the dispute in between parties and the 5% commission is nothing but a remuneration to the 2nd respondent for he was working as a Special Officer. He would also submit that when the 2nd respondent was appointed as Arbitrator by the parties in the partnership agreement itself and the parties have appointed him wide open their eyes, there is no dis-qualification for the said named Arbitrator to continue the Arbitration proceedings on the initiation of such proceedings by him. He would also submit that the dictum as put-forth by the learned Senior Counsel for the petitioner that no man shall be a judge for his own cause is not at all disputed but the said dictum is not applicable to the present case since the parties themselves had selected the 2nd respondent as a named Arbitrator for solving their disputes. He would further submit in his argument that the 2nd respondent has not acted biasedly nor prejudged any dispute in between parties but had asked the petitioner to appear before him in pursuance of the arbitration proceedings in respect of the disputes had in respect of the agreement dated 15.12.2003. He would also submit that the tenure of partnership agreement is not restricted to only 5 years and the said clause would go to show that the tenure would be extended till the capital invested by the 1st respondent has been satisfied through the profits and therefore, the argument that the partnership agreement was lapsed on 14.12.2008.
12. He would also submit that when the facts are such it is peculiar to state that the 2nd respondent has pre judged the tenure of partnership agreement. He would also submit that the scope of Section 14 is different from the scope of Section 34 and other proceedings before the Arbitrator under Section 13 of the Act. He would also submit that whenever the parties agreed to terminate the mandate of the Arbitrator in case, or the Arbitrator did not recuse himself or when it was refused by the Arbitrator under Section 13 of the proceedings, it could be only possible for the termination of the mandate. He would also submit that when once arbitral proceedings have commenced, the Authority of the Arbitrator cannot be terminated and it could be agitated only under Section 34 of the Act, after the Arbitral award has been made. He would also submit in his argument that the disqualification or to challenge the mandate of the Arbitrator who commenced the arbitration proceedings could be in accordance with Section 12 of the Act and Section 12 sub-sec(4) of the Act would be quite clear that the disqualification of an Arbitrator for challenging his mandate should have been known to the person only after his appointment.
13. Referring to the aforesaid provision, the learned Senior Counsel would argue that both the petitioner as well as the 1st respondent had known full well that the 2nd respondent was the Special Officer of the partnership firm and he has an interest in the profit of the partnership and after knowing full well about his interest in the partnership and also upon his special knowledge over the mining process, he was referred as a named Arbitrator and therefore, it cannot be said that the challenge of the mandate of the Arbitrator as put forth by the petitioner is attracted under the provisions of Section 12. He would further submit that an Arbitrator cannot be a judge and he need not follow the procedures contemplated in the procedural law. When the Arbitrator is a named person and even he being an employee of one of the parties, his mandate cannot be challenged after the commencement of the arbitration and before the passing of arbitral award and it may be challenged only after passing an arbitral award in the proceedings under Section 34 of the said Act. He would cite catena of judgments in support of his arguments which are as follows:-
1.2005(8) SCC 618 2.2007(5) SCC 304
3.AIR 1988 SC 1099(1) 4.2006(4)ARB.LR 257(Delhi) 5.1998(118)PLR 395
6.AIR 1992 Rajasthan 82
7.AIR 2006 Gujarat 74
14. In support of his arguments he would once again submit that no person shall be a judge for his own cause is not applicable to the present facts of the case and the challenge of the mandate of the Arbitrator and the termination sought for under Section 14 would not be possible as sought for by the petitioner in this petition. He would therefore, request the Court to dismiss the petition as well as the application with costs of the 1st respondent.
15. I have given anxious thoughts to the arguments advanced on either side.
16. The main original petition has been filed by the petitioner seeking for the termination of the mandate of the 2nd respondent from adjudicating the disputes between the petitioner and the 1st respondent arising from the partnership agreement dated 15.12.2003 and also to pass suitable orders along with the said application has been filed in A.No.3989 of 2009 seeking for the stay of the arbitral proceedings initiated by the 2nd respondent. In the said application this Court has passed an order of interim stay and it is being continued. Before the launch of these proceedings, the petitioner had applied for injunction against the 1st respondent restraining him from interfering with the mining process in the suit site, belonging to the petitioner in O.A.No.686 of 2009 and an interim injunction has been granted in favour of the petitioner. Along with the said application, a Commissioner was also appointed at the request of the petitioner and the Commissioner inspected the suit property and took machinaries belonging to the petitioner and the respondent and submitted a report. In the meanwhile, an application for providing police help to enforce the order of injunction and the said application was ordered and subsequently, since the 1st respondent had removed all his machinaries and vacated the mining site. The application seeking for injunction was withdrawn and other allied application was closed by this Court. Therefore, I could see that the 1st respondent had vacated the mining premises and it is in the occupation of the petitioner.
17. Now, the dispute in between the petitioner and the 1st respondent would be in respect of the profit sharing and the proprietary right of the 1st respondent to continue the partnership agreement more than 5 years as per the clause 3 made in the partnership agreement. These two points have to be decided only by the Arbitrator and this Court has no jurisdiction to decide those points. Now, the only point to be considered before this Court is as to whether the mandate of the Arbitrator, conferred on him under clause-15 and 16 of the partnership agreement be terminated by this Court under the provisions of Section 14 of the Act ?
18. The arguments put forth by the learned Senior Counsel Mr.M.S.Krishnan was that no person shall be a judge for his own cause, it is admitted by a celebrated maxim. It has been laid down by the Hon'ble Apex Court in various pronouncements. He would also refer to in the agreement that the principle has been followed and applied not on the judges of the Court but also on the presiding officer in the quasi judicial proceedings.
19. In a judgment of the Hon'ble Apex Court reported in AIR 1957 SC 425(Manak Lal v. Dr.Prem Chand Singhvi and others), it has been clearly laid down as follows:-
"4. ........ It is well settled that every member of a tribunal that is called upon to try issues in judicial or quasi-judicial proceedings must be able to act judicially; and it is of the essence of judicial decisions and judicial administration that judges should be able to act impartially, objectively and without any bias. In such cases the test is not whether in fact and bias has affected the judgment; the test always is and must be whether and litigant could reasonably apprehend that a bias attributable to a member of the tribunal might have operated against him in the final decision of the tribunal. It is in this sense that it is often said that justice must not only be done but must also appear to be done. As Viscount Cave,L.C. has observed in Frome United Breweries Co. v. Bath Justices, 1926 App Case 586 at p.590 (A):
"This rule has been asserted, not only in the case of Courts of Justice and other judicial tribunals, but in the case of authorities which, though in no sense to be called Courts, have to act as judges of the rights of others."
20. He would rely upon the judgment of the Hon'ble Apex Court reported in 1984 (4) SCC 103 (J.Mohapatra and Co. and Another v. State of Orissa and another). The relevant passage would be as follows:-
"Justice should not only be done but should manifestly be seen to be done, Justice can never be seen to be done if a man acts as a judge in his own cause or is himself interested in its outcome. The principle nemo judex in causa sua, that is, no man shall be a judge in his own cause, is firmly established and is applicable not only to judicial proceedings but also to quasi-judicial and administrative proceedings."
..................
"12. There is, however, an exception to the above rule that no man shall be a judge in his own cause, namely, the doctrine of necessity. An adjudicator, who is subject to disqualification on the ground of bias or interest in the matter which he has to decide, may be required to adjudicate if there is no other person who is competent or authorised to adjudicate or if a quorum cannot be formed without him or if no other competent tribunal can be constituted. In such cases the principle of natural justice would have to give way to necessity for otherwise there would be no means of deciding the matter and the machinery of justice or administration would break down."
21. In the aforesaid judgment of the Hon'ble Apex Court it had been given a dictum that no man shall be a judge for his own cause with an exception.
22. For the same principle, another judgment of the Hon'ble Apex Court reported in (2003) 7 SCC 418 (Bihar State Mineral Development Corporation and another v. Encon Builders (I) (P) Ltd) has been laid down as follows:-
"17. There cannot be any doubt whatsoever that an arbitration agreement must contain the broad consensus between the parties that the disputes and differences should be referred to a domestic tribunal. The said domestic tribunal must be an impartial one. It is a well-settled principle of law that a person cannot be a judge of his own cause. It is further well settled that justice should not only be done but manifestly seen to be done.
18. Actual bias would lead to an automatic disqualification where the decision-maker is shown to have an interest in the outcome of the case. Actual bias denotes an arbitrator who allows a decision to be influenced by partiality or prejudice and thereby deprives the litigant of the fundamental right to a fair trial by an impartial tribunal."
23. Yet another judgment of the Hon'ble Apex Court reported in 2008 (12) SCC 230 (Cantonment Executive Officer and another v. Vijay D. Wani and others) has been laid down upon in order to explain the question of bias. The relevant passage would run as follows:-
"7.The question of bias is always the question of fact. The court has to be vigilant while applying the principles of bias as it primarily depends on the facts of each case. The court should only act on real bias not merely on likelihood of bias. In the present case, so far as the members of the Committee who conducted a disciplinary inquiry were also the members of the Cantonment Board where the report was to be considered, decided and whether to accept it or not and finding the respondent (herein) guilty or not. The very fact that these three persons who conducted inquiry were also the members of the Board and that the Board was to take a decision in the matter whether the report submitted by the enquiry committee should be accepted or not. Therefore, the participation of these three members in the Committee has given a real apprehension in the mind of the respondent that he will get a fair justice in the matter because the three members who submitted the report would be interested to see that their report should be accepted. This bias in this case cannot be said to be unreal, it is very much real and substantial one that the respondent is not likely to get a fair deal by such disciplinary committee.
...............
9. Similarly, in R. v. Bow Street Metropolitan Stipendiary Magistrate, exp Pinochet Ugarte (No.2)3 , it was observed that a Judge is automatically disqualified from hearing a matter in which he has a pecuniary interest in the outcome as also when the decision would lead to promotion of a cause in which he is involved, together with one of the parties."
24. On a careful understanding of the aforesaid dictum laid down by the Hon'ble Apex Court, it could be understood that the principle laid down by the Hon'ble Apex Court that no man shall be a judge for his own cause is indisputable. Whether such dictum is applied to a case, where the parties have vide open their eyes and entered into an agreement to appoint the 2nd respondent as named Arbitrator for settling the disputes is a question.
25. It has been argued by the learned Senior counsel Mr.AL.Somayajee that the knowledge of the 2nd respondent on the subject was considered and since he was not only an employee but also acting as a Special Officer as mentioned in class-8 of the partnership agreement would establish that his special knowledge was the cause for his appointment as named Arbitrator.
26. Mr.A.L.Somayaji relied upon a judgment reported in (2007) 5 SCC 304 (Ace Pipeline Contracts (P) Ltd., v. Bharat Petroleum Corporation Ltd.,). The relevant passage would be as follows:-
"21. In the present case, in fact the appellant's demand was to get some retired Judge of the Supreme Court to be appointed as arbitrator on the ground that if any person nominated in the arbitration clause is appointed, then it may suffer from bias or the arbitrator may not be impartial or independent in taking decision. Once a party has entered into an agreement with eyes wide open it cannot wriggle out of the situation that if any person of the respondent BPCL is appointed as arbitrator he will not be impartial or objective. However, if the appellant feels that the arbitrator has not acted independently or impartially, or he has suffered from any bias, it will always be open to the party to make an application under Section 34 of the Act to set aside the award on the ground that arbitrator acted with bias or malice in law or fact.
22. In view of our above discussion, we find no reason to interfere with the order passed by the learned Single Judge of the High Court of Delhi in Arbitration Petition No.181 of 2005. The arbitrator has already been appointed. He should proceed in the matter and decide the dispute expeditiously. Consequently, the appeal is dismissed with no order as to costs."
27. In the aforesaid judgment, it has been mentioned that when the parties have wide open their eyes and appointed the person who has knowledge in the subject, it cannot be disputed that the proceedings of the arbitration has been commenced. In a judgment cited by the learned Senior Counsel Mr.M.S.Krishnan reported in 1984 (4) SCC 103 (J.Mohapatra and Co. and Another v. State of Orissa and another), an exception is given towards necessity. Therefore, the principle cited by the Hon'ble Apex Court to the dictum namely no person shall be a judge for his own cause is also having an exception, in case of necessity. In the judgment of the Hon'ble Apex Court reported in (2007) 5 SCC 304 (Ace Pipeline Contracts (P) Ltd., v. Bharat Petroleum Corporation Ltd.,) it has been held that the parties when appointed a named Arbitrator cannot question the mandate. The terms of the partnership agreement would go to show that the petitioner and the 1st respondent appointed the 2nd respondent as named Arbitrator only for his skills in the mining process, and also after considering his necessity to decide the dispute in between petitioner and the 1st respondent. Therefore, the principle that no man can be a judge for his own cause is not applicable to the present case.
28. In such circumstances, whether the 2nd respondent had acted biasedly by stating that the tenure of the partnership agreement is still holding good has to be considered. For that the relevant class-3 of the partnership agreement has to be extracted:-
"3.Duration of Partnership: Five years or till the fulfillment of the condition that the capital invested by CSN is recovered by him whichever is more."
29. In the said duration of partnership, the 5 year period or till the fulfillment of the condition that the capital invested by C.Sathyanarayana is required by him whichever is more. Therefore, I could see that there is no biased attitude in the tenure of the partnership agreement from the Arbitrator. Now coming to the revocation of the Authority for termination of mandate under Section 14 is concerned, I could see that the reasons mentioned by the petitioner for the termination of mandate in the petition are not sufficient under Section 12 of the Act. No doubt, all these particulars were not found by the petitioner after the appointment of the Arbitrator since he was a named arbitrator. The point for consideration is whether the mandate of the Arbitrator is liable to be terminated. For concluding the said request of the petitioner, it has become necessary to extract the provisions of Section 14 of the Arbitration and Conciliation Act.
"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."
30. The power conferred upon the Court as per Section 14 of the Act is the undue delay when the arbitrator had not completed the arbitral proceedings within the time limit. This petition has not been admittedly filed after the petitioner has approached the Arbitrator to terminate his mandate under Section 13 of the Act. If for any reason, the Arbitrator has conceded that there is no petition filed under Section 14 of the Act. In case, the Arbitrator has not conceded,so then only the petitioner has to resort this Court under Section 14 of the Act. On a careful reading of Section 14 of the Act, if the Arbitrator becomes unable to perform his functions as de jure or de facto or for any other reasons for making him fail to act without undue delay and it is disputed and the controversy remains the party can approach the Court to terminate the mandate with the rider that unless otherwise agreed by the parties. The reasons submitted by the petitioner for the Arbitrator's inability to do his functions as de jure or de facto has not been agreed by the other parties. In the said circumstance, it is not possible to hold that the petitioner can seek for termination of the mandate of the Arbitrator for the disabilities mentioned in Section 14(1)(a) of the Act without any agreement with the other parties. If it is so, the 1st respondent should also come for the termination of the mandate. Moreover, it is quite clear that the challenges shown as grounds for the termination of mandate should contain any of the grounds referred to in the Section or sub section3 of Section 12. We have already seen that the grounds raised by the petitioner are not attracted under the grounds referred to in Section 12 of the Act.
31. The judgment of Guwahati High Court reported in 2007(1) ARB.LRT 564 Guwahati would lay down that the 'de jure' inability referred to in Section 14 comprehend all conceivable legal short comings existing or acquired by an arbitrator disqualifying him to discharge from the role. Relying upon the said passage, it was argued that de jure inability to decide the dispute in which he was involved could be considered as legal infirmity by the learned Senior Counsel appearing for the petitioner. It is further relied upon by the said judgment for the finding that the Court has got power under Section 14 of the Act to terminate the mandate and there is no pre-requisite to go for the procedure under Section 13 before the Arbitrator and after exhausting the same to come to Court. The said exhausting principles would not apply to the present case, because it was found that the grounds raised by the petitioner for terminating the mandate are not covered under Section 12 nor has been consented to terminate the mandate under Section 14(2) of the Act. In the said circumstance, I could see that the termination of mandate cannot be resorted to, at the present stage.
32. The judgment of the Hon'ble Apex Court reported in 1984 (4) SCC 103 (J.Mohapatra and Co. and Another v. State of Orissa and another) has given an exception to such persons who have got special knowledge and the necessity to appoint him as an Arbitrator and he cannot be disqualified or terminated from the Authority as Arbitrator since the necessity to decide the dispute is found in the partnership agreement itself. When the petitioner and the 1st respondent selected a particular mode of settlement of the dispute and agreed without any undue influence or pressure, for making the arbitration clause to appoint the 2nd respondent as a named Arbitrator, then how he could precluded by raising such type of objections. Merely because the Arbitrator is an employee cum special officer of one of the parties cannot be a ground for non enforcing the provisions of Arbitration Clause. Even otherwise, the said reason was not found by the petitioner after the appointment of Arbitrator but even at the time of entering into a partnership agreement the arbitration clause was entered. The selection was by mutual consent and the disability of any kind in that person chosen could not be a ground to terminate the mandate unless both parties agreed to terminate the mandate of the Arbitrator.
33. The judgment of Punjab and Haryana High Court reported in (1998) 118 PLR 395 (Herike Rice Mills v. State of Punjab and others) had also considered a similar circumstance, and decided as follows:-
"5.............. 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 withdraws from his office or the other party agrees to the challenge, the arbitral Tribunal is 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 34 of the Act."
34. It has been categorically mentioned that once the mandate of the Arbitrator cannot be terminated, it is for the person, who approaches the Court has to go for setting aside the award on the same ground under Section 34 of the Act, after the award has been made by the Arbitrator. The said view taken by the Punjab and Haryana High Court is quite in consonance with the judgment of the Hon'ble Apex Court and the provisions of Sections 12 to 14 of the Act. Therefore, I am also on the considered view that the mandate of the Arbitrator cannot be terminated on the reasons put forth by the petitioner under Section 14 of the Act. The Arbitration proceedings have already been commenced and on the issue of notice by the 2nd respondent to appear before Court for enquiring the dispute.
35. In the said circumstance, this Court cannot terminate the mandate of the Arbitrator in accordance with the provisions of Section 14 of the Act. It is always permissible for the petitioner to go for setting aside the award after the 2nd respondent/Arbitrator has completed the arbitral proceedings and passed an award, under Section 34 of the Act on the same grounds. The order passed by this Court may not influence the facts and circumstances of the case in the said petition.
36. With the aforesaid observation, I am of the considered view that the petitioner has not made out any grounds to terminate the mandate of the arbitrator under the provisions of Section 14 of the Act.
37. Accordingly, the main original petition is dismissed. Consequently, the stay application filed in A.No.3989 of 2009 is also dismissed. No costs.
22.06.2012 Index: Yes / No Internet : Yes / No ssn V.PERIYA KARUPPIAH, J., ssn A.No.3989 of 2009 in O.P.No.400 of 2009 22.06.2012