Gujarat High Court
M/S Manibhai And Brothers (Sleeper) vs General Manager on 29 April, 2016
Author: Akil Kureshi
Bench: Akil Kureshi
O/IAAP/11/2016 ORDER
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
PETN. UNDER ARBITRATION ACT NO. 11 of 2016
With
PETN. UNDER ARBITRATION ACT NO. 12 of 2016
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M/S MANIBHAI AND BROTHERS (SLEEPER)....Petitioner(s)
Versus
GENERAL MANAGER....Respondent(s)
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Appearance:
SHASHVATA U SHUKLA, ADVOCATE for the Petitioner(s) No. 1
MR RAVI KARNAVAT, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI
Date : 29/04/2016
ORAL ORDER
1. The petitioner has prayed for termination of the mandate of the arbitrator appointed by the Railway authorities and further for appointment of an independent arbitrator for deciding the disputes between the parties arising arising out of contracts dated 15.10.1990 and 1.1.1996.
2. The issues being common, facts may be recorded from Arbitration Petition No.11/2016. The petitioner is a partnership firm engaged in the business of manufacturing concrete sleepers which are supplied to Indian Railways. The Railways had awarded such contract to the petitioners under agreements dated 15.10.1990 and 1.1.1996. Disputes and differences arose between the parties. In terms of arbitration clause contained in the said Page 1 of 12 HC-NIC Page 1 of 12 Created On Fri May 06 00:06:11 IST 2016 O/IAAP/11/2016 ORDER agreements, the disputes were referred to a sole arbitrator by the General Manger of the Western Railways under letter dated 30.1.2007. This formation of the Arbitration Tribunal was secured by the petitioner after a long struggle and approaching the High Court by filing Arbitration Petition No.35/2006. It was pending such petition that the Railway authorities made appointment of arbitrator upon which the Arbitration Petition came to be disposed of on 2.2.2007.
3. Case of the petitioner is that after appointment of the arbitrator by the Railway authorities, the arbitrator has not made any worthwhile progress in the arbitration proceedings. To demonstrate this fact, the petitioner has given details of all the proceedings before the arbitral Tribunal which reads as under :
Sr.No Date Development
1 30.01.2007 Appointment of Mr. K.C.Chauhan, as the
Arbitrator with request to declare award at earliest.
2 12.02.2007 The letter from the learned arbitrator fixing meeting on 14.3.2007.
3 14.3.2007 Meeting held and the next date fixed on 29.5.2007.
4 22.3.2007 The petitioner submits their claim statement.
5 29.5.2007 The respondent seeks adjournment for three months and the next meeting is fixed on 222.8.2007 by granting such request.
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6 20.8.2007 Meeting postponed to 9.10.2007
7 2.10.2007 Since the respondent did not submit their
reply to the claim statement, the
petitioner requested for adjournment as it would involve meaningless travel to Mumbai. Next meeting fixed on 12.12.2007.
8 7.12.2007 Since the respondent has still not filed their reply, the petitioner requested for adjournment as it would be meaningless to travel to Mumbai. The next meeting fixed on 24.1.2008.
9 08.1.2008 The learned arbitrator cancels the meeting and fixes the next date on 20.2.2008.
10 15.2.2008 The learned arbitrator again cancels the meeting and the next date is fixed on 29.2.2008.
11 29.2.2008 The meeting takes place. The respondent seeks two more months time for reply.
The next date is fixed on 15.5.2008.
12 14.5.2008 Since the respondent did not file the reply, the petitioner informed the learned arbitrator and the meeting was postponed.
13 22.8.2008 The respondent submits their reply. 14 15.3.2010 Intimation of the next meting to be held on 30.3.2010 at Ratlam where the arbitrator posted.
15 29.3.2010 The petitioner requested for postponement as their other matter was kept for hearing before the City Civil Court, Ahmedabad. The next meeting fixed on 20.08.2010.
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16 4.8.2010 Petitioner wrote to arbitratorhe will
attend scheduled meeting at Ratlam but
requests that, travelling to Ratlam being inconvenient, to fix Baroda as venue where railway has good set up. Reply to this was received on 13.6.2011 fixing meeting on 20.6.2011 at Ratlam.
17 20.6.2011 The meeting takes place but no dates are fixed for next meeting.
18 14.9.2012 The petitioner requests for fixing the date for meeting but no response received.
19 8.12.2012 The petitioner again requests for fixing the date for meeting, but no response received.
20 24.5.2014 The petitioner again requested for fixing the date for meeting.
21 15.9.2014 The learned Arbitrator fixed the next meeting on 25.9.2014 at Baroda where Arbitrator is now posted.
22 22.9.2014 Since the petitioner has another court case hearing, they requested for adjournment. The next date for meeting is fixed on 5.11.2014.
23 5.11.2014 The meeting takes place and the next date is fixed on 8.12.2014.
24 8.12.2014 The meeting takes place, but no date is fixed and the next date was to be advised. The petitioner was directed to submit documents. The minutes of such meeting were received on 22.1.2015.
25 27.1.2015 The petitioner submitted the documents as directed in the meeting held on 8.12.2014. No further communication is received from the learned arbitrator after 22.1.2015.
4. According to the petitioner, thus the sole arbitrator did not Page 4 of 12 HC-NIC Page 4 of 12 Created On Fri May 06 00:06:11 IST 2016 O/IAAP/11/2016 ORDER take any effective steps to conduct and conclude the arbitral proceedings and that is why nine years after the appointment of arbitrator, no worthwhile progress is made. It is in this background that the petitioner has made request for termination of the mandate of the arbitrator and for appointing a substitute arbitrator.
5. The respondent has filed reply and opposed the petition. Opposition of the respondent is two fold. Firstly, that the application for termination of arbitration can be made only before the Civil Court. In this context, reliance is placed on the decision of the Supreme Court in case of State of West Bengal and others v. Associated Contractors reported in (2015) 1 Supreme Court Cases 32. Second is that in terms of arbitration clause contained in the agreement, in the event of arbitrator neglecting to act as an arbitrator, the petitioner should have approached the authority for appointment of another arbitrator. My attention was drawn to clause 2900(b) of the arbitration clause which reads as under :
"(b) In the event of the arbitrator dying, neglecting or refusing to act or resigning or being unable to act for any reason, or his award being set aside by the Court for any reason, it shall be lawful for the authority appointing the arbitrator to appoint another arbitrator in place of the outgoing arbitrator in the manner aforesaid."
6. Having heard the learned counsel for the parties and having perused the documents on record, it immediately becomes clear that the arbitrator appointed by the Railway administration simply made no progress for over nine Page 5 of 12 HC-NIC Page 5 of 12 Created On Fri May 06 00:06:11 IST 2016 O/IAAP/11/2016 ORDER years. The appointment of the arbitrator itself was secured after long struggle by the petitioner. After the disputes between the parties surfaced, the petitioner had been agitating the question of unpaid dues with the Railways since the year 1998. As far back as on 21.6.2000, the petitioner had written a letter to the Railways for appointment of an arbitrator. This was followed by further correspondence. It was only when the petitioner approached the High Court by filing Arbitration Petition No.35/2006, the Railways appointed Shri K.C. Chauhan, Deputy Chief Engineer, as a sole arbitrator under order dated 30.1.2007. Even after that the sole arbitrator has not conducted the arbitration proceedings with any degree of seriousness. From the details of the proceedings before me, it can be seen that that on several occasions, the Railway administration did not file reply. Thereafter, the arbitration proceedings were adjourned either on account of arbitrator himself or since the Railway prayed for time. Under no circumstances, arbitration should have prolonged for nine years, that too as in the present case, without any progress. Inescapable conclusion therefore, is that the arbitrator appointed by the Railway administration has neglected to act as such.
7. In case of Union of India v. Singh Builders Syndicate reported in (2009) 4 Supreme Court Cases 523, the Court noticed the complications in conducting arbitration proceedings in appointing Railway officers as arbitrators when such employees get transferred at distant places. In fact, suggestion was made to Government to phase out such policy for appointing inhouse arbitrators.
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8. In case of North Eastern Railway and others v. Tripple Engineering Works reported in (2014) 9 Supreme Court Cases 288, once again noticing inordinate delay in completing the arbitration proceedings by the Railway appointed arbitrator, the Court held that even if the agreement provides for appointment of arbitrator from amongst the Railway officers, the Court is not powerless to appoint arbitrator under sections 11(6) of the Act.
9. In case of Union of India and others v. Uttar Pradesh State Bridge Corporation Limited reported in (2015) 2 Supreme Court Cases 52, once again in a situation where the mandate of Arbitral Tribunal was required to be terminated on account of inaction on part of the arbitrator, the Court considered the advisability of appointment of arbitrator by overriding the procedure envisaged in the arbitration agreement. The Court held as under :
"12. As is clear from the reading of Section 14, when there is a failure on the part of the Arbitral Tribunal to act and it is unable to perform its function either de jure or de facto, it is open to a party to the arbitration proceedings to approach the Court to decide on the termination of the mandate. Section 15 provides some more contingencies when mandate of an arbitrator can get terminated. In the present case, the High Court has come to a categorical finding that the Arbitral Tribunal failed to perform its function, and rightly so. It is a clear case of inability on the part of the members of the Tribunal to proceed in the matter as the matter lingered on for almost four years, without any rhyme or justifiable reasons. The members did not mend their ways even when another life was given by granting three months to them. Virtually a peremptory Page 7 of 12 HC-NIC Page 7 of 12 Created On Fri May 06 00:06:11 IST 2016 O/IAAP/11/2016 ORDER order was passed by the High Court, but the Arbitral Tribunal remained unaffected and took the directions of the High Court in a cavalier manner. Therefore, the order of the High Court terminating the mandate of the arbitral tribunal is flawless. This aspect of the impugned order is not even questioned by the appellant at the time of hearing of the present appeal. However, the contention of the appellant is that even if it was so, as per the provisions of Section 15 of the Act, substitute arbitrators should have been appointed "according to the rules that were applicable to the appointment of the arbitrator being replaced". On this basis, it was the submission of Mr. Mehta, learned ASG, that High Court should have resorted to provision contained in Clause 64 of the GCC.
16. First and paramount principle of the first pillar is "fair, speedy and inexpensive trial by an Arbitral Tribunal".
Unnecessary delay or expense would frustrate the very purpose of arbitration. Interestingly, second principle which is recognised in the Act is the party autonomy in the choice of procedure. This means that if a particular procedure is prescribed in the Arbitration Agreement which the parties have agreed to, that has to be generally resorted to. It is because of this reason, as a normal practice, the Court will insist the parties to adhere to the procedure to which they have agreed upon. This would apply even while making the appointment of substitute arbitrator and the general rule is that such an appointment of a substitute arbitrator should also be done in accordance with the provisions of the original agreement applicable to the appointment of the arbitrator at the initial stage. (see Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. and another, (2006) 6 SCC 204. However, this principle of party autonomy in the choice of procedure has been deviated from in those cases where one of the parties have committed default by not acting in accordance with the procedure prescribed. Many such instances where this course of action is taken and the Court appoint the Page 8 of 12 HC-NIC Page 8 of 12 Created On Fri May 06 00:06:11 IST 2016 O/IAAP/11/2016 ORDER arbitrator when the persona designata has failed to act, are taken note of in para 5 of Tripple Engineering Works (supra). We are conscious of the fact that these were the cases where appointment of the independent arbitrator made by the Court in exercise of powers under Section 11 of account of 'default procedure'. We are, in the present case, concerned with the constitution of substitute Arbitral Tribunal where earlier Arbitral Tribunal has failed to perform. However, the above principle of default procedure is extended by this Court in such cases as well as is clear from the judgment in Singh Builders Syndicate (supra).
17. In the case of contracts between Government Corporations / State owned companies with private parties/ contractors, the terms of the agreement are usually drawn by the Government company or public sector undertakings. Government contracts have broadly two kinds of arbitration clauses, first where a named officer is to act as sole arbitrator; and second, where a senior officer like a managing director, nominates a designated officer to act as the sole arbitrator. No doubt, such clauses which give the Government a dominant position to constitute the Arbitral Tribunal are held to be valid. At the same time, it also casts an onerous and responsible duty upon the persona designata to appoint such persons/officers as the arbitrators who are not only able to function independently and impartially, but are in a position to devote adequate time in conducting the arbitration. If the Government has nominated those officers as arbitrators who are not able to devote time to the arbitration proceedings or become incapable of acting as arbitrators because of frequent transfers etc., then the principle of 'default procedure' at least in the cases where Government has assumed the role of appointment of arbitrators to itself, has to be applied in the case of substitute arbitrators as well and the Court will step in to appoint the arbitrator by keeping aside the procedure which is agreed to between the parties. However, it will Page 9 of 12 HC-NIC Page 9 of 12 Created On Fri May 06 00:06:11 IST 2016 O/IAAP/11/2016 ORDER depend upon the facts of a particular case as to whether such a course of action should be taken or not. What we emphasise is that Court is not powerless in this regard."
10. It can thus be seen that in substantially similar circumstances, the Supreme Court has upheld the judgement of the High Courts terminating mandate of Arbitral Tribunal and making the appointment of arbitrator overriding the mode for appointment of arbitrator envisaged in the agreement between the parties. The present case would be a fittest case where such powers should be exercised. Right from the year 1998, the petitioner has been running from pillar to post for getting the disputes decided. The first act of appointment of arbitrator itself took several years. Even after the appointment of arbitrator in January 2007, till date nine years later, no worthwhile progress has been made in the arbitral proceedings. To the details supplied by the petitioner giving reasons for adjournment of the proceedings from time to time, the respondent has raised no dispute.
11. In case of State of West Bengal and others (supra), the Supreme Court considered application of section 42 of the Act in reference to the word 'Court' used therein. It was held that the Court in the context of such provision means the Civil Court and no other Court. The Court discussed various kinds of applications, the Acts referred to and held that applications such as those to be filed under section 11 are not to be filed before the Court but before the Chief Justice or his designate. In the said case, it was observed as under :
Page 10 of 12HC-NIC Page 10 of 12 Created On Fri May 06 00:06:11 IST 2016 O/IAAP/11/2016 ORDER "25(c) However, Section 42 only applies to applications made under PartI if they are made to a court as defined. Since applications made under Section 8 are made to judicial authorities and since applications under Section 11 are made to the Chief Justice or his designate, the judicial authority and the Chief Justice or his designate not being court as defined, such applications would be outside Section 42."
12. Significantly, section 42 of the Act which pertains to jurisdiction provides that notwithstanding anything contained elsewhere in this part or in any other law for the time being in force, where with respect to an arbitration agreement any application under the said part has been made in a Court, that Court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of the agreement and arbitral proceedings shall be made in that Court and in no other Court. The judgement of the Supreme Court nowhere ousts the jurisdiction of Chief Justice or his designate to entertain an application as the present one for declaring that the Arbitral Tribunal has failed or neglected to perform its act and further for appointment of substitute arbitrator.
13. The contention that the petitioner should have first approached the respondent who if satisfied that the arbitrator has not made satisfactory progress would have appointed another arbitrator, needs a summary consideration. Clause(b) of the arbitration agreement merely enables the authority appointing the arbitrator to appoint another arbitrator in the event of arbitrator dying, neglecting or refusing to act or resigning or being unable Page 11 of 12 HC-NIC Page 11 of 12 Created On Fri May 06 00:06:11 IST 2016 O/IAAP/11/2016 ORDER to act for any reason. This enabling clause does not put onus on the petitioner to first approach the authorities before moving an appropriate application before the Court.
14. Under the circumstances, I request the petitioner to present declaration of Ms. R.M. Doshit, retired Chief Justice of Patna High Court, in terms of section 12 of the Arbitration and Conciliation (Amendment) Act, 2015 to act as a sole arbitrator to resolve the disputes between the parties before the next date of hearing.
15. SO to 6.5.2016.
(AKIL KURESHI, J.) raghu Page 12 of 12 HC-NIC Page 12 of 12 Created On Fri May 06 00:06:11 IST 2016