Andhra HC (Pre-Telangana)
Yashwitha Constructions (P) Ltd. Rep. ... vs Simplex Concrete Piles India Ltd. Rep. ... on 1 May, 2008
Equivalent citations: AIR 2008 (NOC) 2216 (A. P.), 2009 (1) AKAR (NOC) 144 (A. P.)
Author: Ramesh Ranganathan
Bench: Ramesh Ranganathan
ORDER Ramesh Ranganathan, J.
1. This application is filed, under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking appointment of a retired Judge of the Andhra Pradesh High Court, or a technically qualified impartial and independent person, as a substitute arbitrator.
2. The applicant is a private limited company with its registered office at Chennai. The respondent, a private limited company with its registered office at Calcutta, was awarded the work of rehabilitation and upgradation of the existing two lane road to a 4/6 lane divided carriage way between Kavali and Ongole in the State of Andhra Pradesh, (i.e., Chainage KM 222 to KM 291), by the National Highway Authority of India. The respondent engaged the applicant as its sub-contractor for execution of about 50% of the said road work. Clause 21 of the work order, which is the arbitration clause, provided that, in the event of any difference or dispute arising out of, or in connection with, the work order, the same shall first be amicably settled by mutual dialogue and, if the parties fail to settle their differences or disputes arising out of or in connection with the work order, the same shall be referred to arbitration to be conducted by a single arbitrator appointed by the Managing Director of the respondent company. The arbitration clause also provided that the venue of the arbitration shall be at Calcutta.
Disputes arose between the applicant and the respondent during the course of execution of the work with respect to measurements and payments. The applicant filed O.S. No. 72 of 2002 before the Court of the Senior Civil Judge, Kandukur in Prakasam District wherein they also sought for an ad-interim injunction restraining the respondent from entrusting the work to third parties to their detriment. The Senior Civil Judge granted ad-interim injunction in I.A. No. 1391 of 2002. Thereafter, the respondent invoked Section 8 of the Arbitration and Conciliation Act, 1996 and moved I.A. No. 1503 of 2002 requesting the Court to refer both the parties to arbitration. The said application was allowed and the parties were directed to settle their disputes before the arbitrator. One of the Directors of the respondent - company addressed a letter dated 14.10.2002, to the Managing Director of the respondent company, requesting him to appoint an arbitrator in accordance with Clause 21 of the agreement and the Managing Director, vide letter dated 18.10.2002, appointed Sri P.R. Dhar, one of the directors of the respondent company, as the arbitrator. The applicant challenged the arbitrator under Sections 12 and 13 of the Act. Sri P.R. Dhar rejected the challenge, vide proceedings dated 1.10.2003, holding that he was an independent and non-executive director of the company and that there were no justifiable grounds to doubt his independence and impartiality. The respondent filed their claim statement, the applicant filed their counter, followed by the rejoinder of the respondent to the counter -claim filed by the applicant and, thereafter, the reply of the applicant to the rejoinder. The applicant received letter dated 25.8.2004 from the arbitrator on 6.9.2004 informing them that, because of his ill-health, he was resigning as an arbitrator.
3. The applicant filed A.A. No. 50 of 2004 before this Court, under Section 11(5) read with Section 15(2) of the Act, requesting that a substitute arbitrator be appointed to resolve their disputes. The Chief Justice, in his order in A.A. No. 50 of 2004 dated 4.3.2005, taking note of the assertion of the respondent that, after the resignation of the earlier arbitrator, the Managing Director, by order dated 8.9.2004, had appointed Sri S.K. Biswas as the sole arbitrator in accordance with Clause 21 of the agreement, observed that, since the arbitrator had already been appointed by the time the application was filed, the said appointment was in consonance with the terms of the agreement, in accordance with Section 15 of the Act and that nothing survived in the application which stood dismissed. Aggrieved thereby, the applicant carried the matter in appeal and the Supreme Court, in Yashwith Constructions (P) Ltd v. Simplex Concrete Piles India Ltd , affirmed the order in A.A. No. 50 of 2004 dated 04-03- 2005. Thereafter, Sri S.K. Biswas commenced proceedings in November/December, 2004. However the arbitral proceedings again got delayed and, eventually, it was only in the 10th meeting that the matter proceeded further. Applicant contends that even in the 11th meeting, though their representative was present, the respondent who was the claimant before the arbitrator had sought adjournment despite the applicant's contention that they had come all the way from Chennai just to attend the arbitration hearing and an adjournment would cause them inconvenience and infructuous expenses. Thereafter, the applicant raised a challenge before Sri S.K. Biswas himself contending that the arbitrator had not disclosed his independence or impartiality in conducting arbitral proceedings as was required of him under Section 12(1) of the Act, that he was a consultant for the respondent company, ever since the year 2004, in a number of arbitration matters, that he had claimed fees towards consultancy charges vide letters dated 20.11.2004, 15.2.2005 and 30.3.2005, that the applicant had no faith in his independence or impartiality and that the way in which arbitration proceedings were conducted gave rise to justifiable doubts regarding his independence. The arbitrator, in the 14th meeting, rejected the challenge holding that xerox copies of the documents were marked and, in any event, these documents related to a separate public limited company, that it was a different legal entity, that these documents served no useful purpose, that both the parties were aware, from the very beginning, that the arbitrator was an advocate, and had appeared in arbitration cases, but that did not disqualify him from being an arbitrator. The arbitrator, however, resigned in the very same meeting. The applicant, in its letter dated 14.11.2007, requested the respondent to appoint an arbitrator from among the list of three arbitrators submitted by them. The respondent, however, appointed Sri Tathagata Roy as the sole arbitrator and informed the applicant by letter dated 23.11.2007, a copy of which was received by them on 28.11.2007.
In the present application, the applicant contends that both the arbitrators, appointed by the respondent earlier, had conducted the proceedings adverse to their interests and, under these circumstances, they were left with no other option but to approach this Court, that the respondent was deliberately appointing arbitrators who would act according to its whims and fancies and that such arbitrators may not be independent and impartial as is required of them under the Act. The applicant expresses apprehensions that, even the arbitrator appointed now would favour the respondent and would not act impartially and independently which would defeat the very purpose of the arbitration putting the applicant to grave and irreparable loss. According to the applicant, the respondent would not suffer any loss or prejudice if this Court were to appoint an arbitrator, that while the two earlier arbitrators did not disclose their association with the respondent when the application was filed under Sections 12 and 13 of the Act, they had resigned after the applicant had gathered information, that in the process five years had elapsed and, going by their previous conduct, the applicant was sure that the present arbitrator would also be a close associate of the respondent and that no useful purpose would be served in continuing him.
4. In the counter-affidavit filed on behalf of the respondents, it is contended that the issue raised in the present application has already been resolved in A.A. No. 50 of 2004 dated 4.3.2005 and, since the very same relief has been sought for in present application, the earlier judgment operated as res judicata. The respondent submits that their name was changed from "Simplex Concrete Piles India Limited" to "Simple Infrastructures Limited" with effect from 8.11.2005. Details of the work are given in the counter affidavit as also that of the earlier suit in O.S. No. 72/02 and the arbitration clause in Clause 21 of the agreement. Reference is made to the appointment of Sri P.R. Dhar and it is stated that he was a non-executive independent director, and was not connected with the day to day operations of the company, that the respondent company, being a public limited company listed on reputed stock exchanges of the country, was bound by the regulations framed by SEBI as well as the guidelines framed by the stock exchanges and that Sri P.R. Dhar was, accordingly, appointed as an independent director. It is stated that the resignation of Sri P.R. Dhar was on account of his ill-health as he had undergone a major surgery. Reference is made to the appointment of Sri S.K. Biswas and to the fact that intimation of his appointment, sent to the applicant, was returned unserved and it is only after paper publication was made in Chennai that the applicant had appeared before the sole arbitrator but had continued to take adjournments. According to the respondents, repeated adjournments were sought by the applicant except on a couple of occasions. They would contend that Sri S.K. Biswas was an advocate for "Simplex Projects Limited" which was not connected with the respondent company, that it was a separate legal entity, the Directors were totally different, the management of the two companies were totally independent and that the two companies were neither two body corporates under the same management within the meaning of Section 370(1B) of the Companies Act nor were they inter-connected undertakings as defined in the MRTP Act and that Sri S.K. Biswas had rightly rejected the plea of bias as raised by the applicant. Respondents would state that the present arbitrator Sri Tathagata Roy, appointed as the sole arbitrator on the resignation of Sri S.K. Biswas, was a former Chief Engineer of the Metro Railways, Kolkata and the General Manager of RITES, that he was a member of the Indian Council of Arbitration and a Fellow of the Institute of Engineers, that he was also a Professor of Construction Engineering, Jadavpur University, Kolkata, a person of eminence and a technically qualified person and as such was appointed as the arbitrator. It is stated that the sole arbitrator entered reference and served notice on the parties fixing the date of the first hearing as 24.12.2007, that the applicant had approached this Court by way of the present application, without any valid grounds, only with the aim of stalling arbitration proceedings, that, if the originally appointed arbitrator withdrew from arbitration proceedings, Section 15(2) would come into play and, in accordance with Clause 21 of the agreement, Sri Tathagata Roy was appointed as the substitute arbitrator in the place of Sri S.K. Biswas. The respondent contends that the applicant, having failed in their earlier attempt and having suffered a judgment on a similar issue, could not re-agitate the same question all over again, that it was the applicant who was stalling arbitration proceedings on one pretext or the other and was delaying adjudication by the sole arbitrator, that the respondent had appointed a substitute arbitrator immediately within one month, that the sole arbitrator Sri Tathagata Roy had already entered reference, that the matter was being delayed on the pretext of pendency of the present application and the allegation that the respondent company was deliberately appointing arbitrators known to it in order to ensure that they acted according to its whims and fancies was incorrect and invented only for the purpose of the present case. While denying that Sri. Tathagata Roy would favour them, the respondent submits that his appointment was in accordance with Section 15(2) of the Act and Clause 21 of the agreement, that the arbitrator was technically qualified and independent, that he was not connected with the respondent, that the apprehension of bias in the mind of the applicant was ill-founded and that there were no merits in the application. The Learned Advocate General, appearing for the applicant, would submit that the purpose and object of the Arbitration and Conciliation Act, 1996 is to provide for a mechanism to resolve disputes between the parties expeditiously, other than by way of civil proceedings, without applying the technical provisions which may hinder speedy disposal and that it is an alternative dispute resolution mechanism evolved to enable parties to the dispute avoid going through the rigmarole of a trial and the time consuming process in civil courts. According to learned Advocate General, the very purpose for which the Arbitration and Conciliation Act was enacted has, in the case on hand, been defeated by the repeated failure of the arbitrators to disclose in writing the circumstances likely to give rise to justifiable doubts as to their independence and impartiality. He would submit that the applicant, on coming to know of the close connection which the earlier two arbitrators had with the respondent - company, had questioned their appointment firstly before this Court, later before the Supreme Court and thereafter by way of a challenge before the arbitrator tribunal itself. According to the learned Advocate General, the first arbitrator Sri P.R. Dhar was a Director on the Board of the respondent company and the 2nd arbitrator Sri S.K. Biswas was the counsel for the respondent company and had claimed consultancy charges from them. He would contend that, if the arbitrators had disclosed in writing their association with the respondent, and had recused themselves from the arbitral proceedings, the entire dispute between the parties, and their claims and counter claims, could have been expeditiously resolved by an independent and impartial arbitrator. Learned Advocate General would submit that even the present incumbent Sri Tathagata Roy did not make the disclosure required of him under Section 12(1) of the Act, that such a disclosure in writing is a statutory prescription requiring compliance even before an arbitrator is appointed, that failure to comply with the mandatory requirements of Section 12(1) would render the very appointment of the arbitrator ab-initio void and, as a result, a party to the arbitration agreement was entitled to invoke the jurisdiction of the Chief Justice, or his designate, under Section 11(6)(a) of the Act. Learned Advocate General would contend that the procedural requirement of Section 12(1), statutorily imposed on the parties to the arbitration agreement, must be held to form part of the agreed procedure for appointing an arbitrator and, since the respondent had failed to obtain the written disclosure from Sri Tathagata Roy, they must be held to have failed to act as required under the appointment procedure enabling the applicant to invoke the jurisdiction of the Chief Justice under Section 11(6)(a) of the Act. Learned Advocate General would submit that, even in cases where the Chief Justice, or his designate, appointed retired High Court Judges as arbitrators, the requirement of compliance with Section 12(1) of the Act was not obviated and that the Chief Justice, or his designate, before appointing a retired High Court Judge as the arbitrator, would, nonetheless, be required to obtain a declaration in writing as required under Section 12(1) from the person proposed to be appointed as the arbitrator.
5. Sri C.B.Ramamohan Reddy, learned Counsel for the respondent, on the other hand, would contend that Sri P.R. Dhar was a nominee of the Securities and Exchange Board of India, (SEBI), on the board of directors of the respondent company. Learned Counsel would submit that Sri S.K. Biswas was a counsel of Simplex Procedure Pvt. Ltd which, except for the name, had no connection whatsoever with the respondent company. He would contend that the delay in completion of the arbitral proceedings was mainly on account of the applicant having repeatedly sought adjournments before the arbitrators and his innumerable challenges to their appointment. Learned Counsel would contend that the applicant had not even taken the plea, of non-compliance by the respondent of Section 12(1) & (2) of the Act, in the present application and it is for the first time during the course of arguments has such a contention been urged. Learned Counsel would, however, fairly state that a disclosure in writing, as required under Section 12(1), may not have been obtained from the arbitrator before his appointment. Learned Counsel would point out that it is not even the practice, for the designate of Chief Justices of different High Courts in the country, to call upon the proposed arbitrator to make a written disclosure, as required of them under Section 12(1) of the Act, before considering them for appointment as arbitrators. Learned Counsel would submit that failure on the part of the respondent to obtain such a disclosure in writing, seen in the light of the fact that the scheme made under Section 11(10) of the Act does not require the Chief Justice's designate to obtain a written disclosure from the person proposed to be appointed as an arbitrator, would not vitiate appointment of the arbitrator, that Section 12(1) must be held to be directory and that the defect, in not obtaining such a disclosure in writing, was curable and could be complied with by calling upon the arbitrator to forthwith make such a disclosure in writing.
6. Learned Counsel would request that the undertaking being given by him, on behalf of the respondent, be recorded to the effect that the respondents would comply with the requirements of Section 12(1) and (2) of the Act, call upon Sri Tathagata Roy to disclose in writing, whether there were any circumstances likely to give rise to justifiable doubts as to his independence and impartiality, within two weeks from the date of receipt of copy of the order and, in case he either fails to make such a disclosure or recuses himself from the arbitral proceedings, they would agree that his mandate stood terminated and thereafter appoint a retired Judge of the Calcutta High Court to be the arbitrator after complying with the requirements of Section 12 of the Act. Learned Counsel would further undertake on behalf of the respondents that, as pleadings are complete, efforts would be made to have the arbitral proceedings completed within six months without unnecessary requests for adjournments from their side provided, of course, that the applicant cooperated in its early disposal.
7. Chapter-III of the Arbitration and Conciliation Act, 1996, (Act 26 of 1996), relates to the composition of the Arbitral Tribunal. Section 11 thereunder relates to appointment of arbitrators. While Sub-section (5) of Section 11 enables a party to the arbitration agreement to request the Chief Justice, or his designate, to appoint an arbitrator, Sub-section (6) enables the party to request that "the necessary measure" be taken. The distinction between the words "the necessary measure" in Sub-section (6) of Section 11 of the Act, and the word "appointment" in Sub-section (5), is significant. In the absence of an appointment procedure being prescribed, in the arbitration agreement, a request can be made to the Chief Justice's designate to appoint an arbitrator. Where, however, a procedure to secure the appointment of an arbitrator is prescribed in the arbitration agreement, then the request to the Chief Justice's designate can only be to "take the necessary measure". If the legislature intended to confer power on the Chief Justice, or his designate, to appoint an arbitrator nothing prevented it from using the same language in Sub-section (6) as it has employed in Sub-section (5) of Section 11. The distinction is relevant. The power of the Chief Justice or his designate under Clause (6) is to take "the necessary measure" for securing the appointment of an arbitrator and, ordinarily, not to take upon himself the task of appointing an arbitrator merely because one of the parties to the arbitration agreement had requested him to do so. If the parties have agreed on a procedure for appointing the arbitrator as contemplated by Sub-section (2) thereof, then the appointment must be in accordance with the said procedure and recourse to the Chief Justice, or his designate, cannot be taken straightaway. (The Iron and Steel Company Ltd. v. Tiwari Road Lines 2007 AIR SCW 3172). The jurisdiction to make the appointment, under Section 11(6) of the Act, arises only when the person, including an institution, fails to perform any function entrusted to it under that procedure. Section 11(6) has application only when a party, or a designated authority, has failed to act in terms of the arbitration agreement. (National Highways Authority of India v. Bumihiway DDB Ltd. .
8. A party who has, with his eyes open, entered into an arbitration agreement with another should not, ordinarily, be permitted to resile therefrom. (National Highways Authority of India3). Primacy is given to the procedure agreed upon by the parties, to appoint an arbitrator, failing which alone does the Act permit judicial interference. In exercising its jurisdiction under Section 11(6) to take "the necessary measure" the Court should, as far as possible, act in such a manner as to effectuate the arbitration agreement entered into by the parties. While Sub-section (1) of Section 12 provides for disclosure in writing by a person, approached in connection with his possible appointment as an arbitrator, of any circumstance likely to give rise to justifiable doubts as to his independence or impartiality, under Sub-section (2) such disclosure is required to be made by an arbitrator, from the date of his appointment and throughout the arbitral proceedings, without delay.
Section 12 casts a solemn duty on an arbitrator, who is put in a position of a Judge, to disclose to the parties his interest. The entire scheme of Act 26 of 1996 rests on the foundation of the arbitrator being impartial and independent. A person approached, for his possible appointment as an arbitrator, is required to inform the person approaching him of circumstances which are likely to give rise to justifiable doubts as to his independence or impartiality. The disclosure is not whether the arbitrator is, in fact, independent or impartial, but of circumstances which are likely to give rise to justifiable doubts as to his independence or impartiality. The object of Section 12(1) is that the person, appointed as an arbitrator should ever be above reproach. The very fact that Section 11(8) (b), of Act 26 of 1996, requires the Chief Justice or his designate, in appointing an arbitrator, to have due regard to other considerations as are likely to secure the appointment of an independent and impartial arbitrator, would emphasize the importance placed by the Act on the independence and impartiality of the arbitrator. The basis to determine, whether or not there are justifiable doubts as to the independence or impartiality of the arbitrator, is whether the party to the dispute would have a reasonable apprehension in his mind about the independence of the arbitrator and not whether the arbitrator thinks that he is capable of being impartial. (Murlidhar Roongta v. S. Jagannath Tibrewala 2005(1) Arb. LR 103 (Bom)). The disqualification, under Sections 12(1) and (2), does not relate only to pre-reference disputes. Otherwise, the expression "through out" the arbitral proceedings would be rendered otiose. "Throughout' the arbitral proceedings must mean existence or arising of such circumstances even during the course of arbitral proceedings, which give rise to any doubt as to the independence of the arbitrator. (Hasmukhlal H. Doshi v. Justice M.L. Pendse (2001(1) Arb. LR 87 (Bom.)) Section 12 of the Act casts a duty on the arbitrator which obligation continues throughout the arbitral proceedings, i.e. whenever such facts come into being during the arbitral proceedings. What the law stipulates as a disqualification to become, or remain, an arbitrator in a given dispute is not the existence of actual bias but the existence of such facts and circumstances as are "likely to give rise to justifiable doubts as to his independence and impartiality".(Alcove Industries Ltd. v. Oriental Structural Engineers Ltd. 2008(1) Arb. LR 393 (Del.)) Would failure by the designated authority to obtain a written disclosure from the person who may be appointed as an arbitrator, a statutory requirement under Section 12(1) and an obligation cast under, and forming part of, the arbitration clause of the agreement, amount to a failure on his part to act as required under the appointment procedure agreed upon by the parties attracting Section 11(6) (a) of Act 26 of 1996? Would such failure enable a party to the agreement to request the Chief Justice, or his designate, to take "the necessary measure" for securing the appointment of another arbitrator? Would this requirement, statutorily prescribed under Section 12(1), also apply to the Chief Justice or his designate, while exercising jurisdiction under Sections 11(5) or (6) of Act 26 of 1996, to appoint an arbitrator? Should the Chief Justice, or his designate, before appointing an arbitrator under Section 11 of Act 26 of 1996, call upon the person proposed to be appointed as an arbitrator to disclose in writing whether or not there are any circumstances likely to give rise to justifiable doubts as to his independence or impartiality? These are some questions, which readily comes to mind.
9. Neither Act 26 of 1996, nor the Scheme made under Section 11(10), require the Chief Justice, or his designate, to either inform, or obtain the consent of, the parties to the agreement regarding the person proposed to be appointed as an arbitrator. While the respondent may oppose the applicant's request to the Chief Justice for appointment of an arbitrator, neither of them have a say regarding the person to be appointed as the arbitrator, and the choice of the person to be appointed as the arbitrator lies within the exclusive discretion of the Chief Justice or his designate. Such being the case, would Section 11(5) & (6), read with Sections 12(1) and (2), not require the Chief Justice, or his designate, while exercising discretion to appoint a person as the arbitrator, to ensure compliance of the requirements of Section 12(1) of the Act by the person to be appointed as the arbitrator? In the absence of such compliance is it not possible that the person so appointed by the Chief Justice, or his designate, may well be in a circumstance which could later give rise to justifiable doubts as to his independence or impartiality? If the person proposed to be appointed as the arbitrator is called upon to disclose in writing, as required in Section 12(1) of the Act, he may well declare that there are circumstances likely to give rise to justifiable doubts as to his independence or impartiality. If it were to be held that the Chief Justice, or his designate, is also required to obtain a written disclosure from the person proposed to be appointed as the arbitrator, how can the person, approached of his possible appointment, give such a disclosure unless he is made aware of the details regarding the parties to the dispute, the nature of the agreement etc. Should Section 12(1) be construed as requiring a copy of the arbitration application, the counter, if any, filed by the respondent along with a copy of the arbitration agreement, to be forwarded to the person proposed to be appointed as the arbitrator and he be called upon to disclose in writing whether there are circumstances likely to give rise to justifiable doubts as to his independence or impartiality? If the answers, to the aforesaid questions, are in the affirmative should these requirements not be made a part of the scheme framed, under Sub-section (10) of Section 11 of the Act, to ensure uniformity in compliance? These are several questions which need answers. It is, however, not necessary for us to find answers to all the aforesaid questions in view of the conclusions arrived at, as are detailed hereinafter.
There can be no manner of doubt that the requirement of a disclosure in writing, as prescribed in Section 12(1), seeks to achieve a salutary purpose. Such a written disclosure would ensure that persons, whose independence and impartiality, is beyond reproach are alone appointed as arbitrators. The quintessence of an arbitral procedure is fairness and expedition. Impartiality is an essential attribute of fairness. The pristine rule of adjudicative ethics rest on the premise that the arbitral tribunal, permitted by the law to try cases and controversies, must not only be unbiased but must also avoid even the appearance of bias. An arbitrator is an arbiter of disputes and differences between the parties concurring in his appointment. His installation as the judge of their cause is not by any institutional fiat. He earns the prerogative of conducting the proceedings by the confidence he commands. Fairness, impartiality, independence and neutrality are, therefore, the indispensable qualities of an arbitrator. (State of Arunachal Pradesh v. Subhash Projects & Marketing Ltd. (2007(1) Arb. LR 564 (Gauhati) (DB)); absence whereof would vitiate the proceedings striking at the validity, authenticity and the bonafides thereof. (Subhash Projects & Marketing Ltd. (2007(1) Arb. LR 564 (Gauhati) (DB)).
While an arbitrator is duty bound to disclose in writing the circumstances likely to give rise to justifiable doubts as to his independence or impartiality, in case doubts still remain after such disclosure, the arbitrator can be challenged in the circumstances specified in Section 12(3) of the Act. (Unipack Industries v. Subhash Chand Jain 2002(1) Arb. LR 174 (Del.); Ahluwalia Contracts (India) Ltd. v. Housing & Urban Development Corporation (HUDCO (2007(4) Arb. LR 539 (Del.)). Section 12(3), which provides for a challenge to the arbitrator, does not specifically provided for a challenge to be made to his appointment solely on account of his non-disclosure. It is only if circumstances exists that give rise to justifiable doubts as to his independence or impartiality, or he does not possess the qualifications agreed to by the parties, can there be a challenge under Section 12 (3) to his functioning as an arbitrator. While failure to disclose in writing, without anything more, may not, ordinarily, necessitate an inference that non-disclosure is only because circumstances exist which are likely to give rise to justifiable doubts as to the independence or impartiality of the arbitrator, if a party to the dispute has information, as to the existence of such circumstances, it is always open for him to make a challenge. It may not be understood that this Court has laid down that in no case would failure to make a disclosure in writing necessitate an inference of the existence of circumstances giving rise to justifiable doubts as to independence or impartiality of the arbitrator, for it is not beyond the realm of possibility that an arbitrator, with a view to avoid informing the parties in writing of his being so circumstanced as to give rise to justifiable doubts as to his independence or impartiality, may well choose not to make such a written disclosure.
While Section 12 prescribes the grounds for challenge, Section 13 prescribes the challenge procedure and, under Sub-section (1) thereof subject to Sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator. In the present case, no procedure has been agreed upon by the parties for challenging an arbitrator. Under Sub-section (2), the challenge to an arbitral tribunal may arise in two different situations. A person who intends to challenge an arbitrator may do so within fifteen days of his becoming aware of the constitution of the arbitral tribunal. He may also challenge an arbitrator thereafter on his becoming aware of any circumstances referred to in Sub-section (3) of Section 12. Thus, even before he becomes aware of the circumstances referred to in Section 12(3), Sub-section (2) of Section 13 enables a party to challenge an arbitrator within fifteen days of his becoming aware of the constitution of the arbitral tribunal. Does Section 13(2) not lend itself to a construction that failure on the part of the arbitrator to make a disclosure, under Sub-section (1) of Section 12, would be a ground for a party to challenge the arbitrator under Sub-section (2) of Section 13? If it were to be so construed, on such a challenge being made and, unless the arbitrator withdraws from his office or the other party agrees to the challenge, the arbitral tribunal is statutorily bound, under Section 13(3), to decide on the challenge. Section 13(3) takes note of the possibility of an arbitrator, on his being challenged, recusing himself or for the parties to the agreement to agree to the challenge and, as a result, the arbitrator would cease to continue in office. It is only in case an arbitrator does not recuse himself, or the parties to the agreement do not agree on the challenge, does Section 13(3) require the arbitral tribunal to decide on the challenge. Once the party raises a challenge it is for the arbitrator himself to decide whether he should continue with the proceedings or not. (Rishi Electricals (P) Ltd. v. H.P. State Electricity Board 2006(Supp) Arb. LR 498 (HP)).
When such a challenge is not successful, Sub-section (4) requires the arbitral tribunal to continue arbitral proceedings and make an arbitral award. Under Sub-section (5), on an arbitral award being made under Sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with Section 34. A conjoint reading of Sections 12 and 13 would show that, on any of the grounds of challenge mentioned in Section 12, the procedure prescribed under Section 13 for such a challenge must be adhered to and, if the challenge is unsuccessful, a party has necessarily to participate in the arbitral proceedings and his remedy, to question the unsuccessful challenge, is only by way of an application under Section 34 to set aside the award after the award is passed by the arbitrator.
The prescribed procedure cannot be by-passed and an order of the Arbitrator cannot be challenged before the award is made. Sub-sections (4) and (5) of Section 13 of the Act make a distinct departure and, with a view to prevent dilatory tactics, the unsuccessful party is precluded from challenging the appointment immediately on the challenge before the arbitrator being unsuccessful. The party is required to wait and challenge the same only after the arbitral award has been made. Even if the appointment of the arbitrator was invalid, the unsuccessful challenge before the arbitrator has to be decided by the court before which the validity of the award may be challenged. (Harike Rice Mills v. State of Punjab 1998(1) RAJ 223 (P & H)). It will be difficult to exclude a challenge on account of bias and prejudice on the part of the Arbitrator from the purview of Sub-clause (ii) of Clause (b) of Sub-section (2) of Section 34 of the Act. Bias and prejudice are matters which are contrary to public policy. Those whose duty it is to decide must act judicially. They must deal with the question referred to them without bias. If the allegations of bias and prejudice are established the award will have to be set aside. Sub-section (5) of Section 13 has to be read along with Section 34 of the Act for this purpose.(Bharat Heavy Electricals Ltd. v. C.N. Garg 2000(3) Arb.LR 674)).
Section 14 of Act 26 of 1996 relates to the failure or impossibility of an arbitrator to act. Under Sub-section (1) thereof, 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. Inability of an arbitrator to perform his functions de jure or de facto may well include circumstances likely to give rise to justifiable doubts of his independence and impartiality as specified in Sub-sections (1) and (2) of Section 12 of Act 26 of 1996. Independence and impartiality of an arbitrator being inseverable attributes to vest him with legal authority to adjudicate the difference between the parties in an arbitration exercise, he would be de jure disqualified from discharging his functions once he renounces the above qualities is the mandate of Sections 12, 13 and 14 which form a complete scheme with the underlying objective of securing the sanctity and probity of an arbitration proceeding. (Subhash Projects & Marketing Ltd.7). Section 14(1) perceives an automatic termination of the mandate of the arbitrator. However, if one or more of the circumstances enumerated therein require to be established, a party may, unless otherwise agreed to by the parties, apply to the Court to decide on the termination of the mandate. (Subhash Projects & Marketing Ltd7) Would it then mean that, even if a challenge to the arbitrator under Section 13, on grounds mentioned in Section 12(3) (a) is not successful, Section 14 can be invoked by the unsuccessful party? Considering the object of the legislation which is to restrict judicial interference, it cannot be said that the Court, in a case decided under Section 13(3), can entertain and maintain a petition under Section 14. When a specific challenge is provided, and the forum which has to decide the challenges is also provided, it would not be open to the Court to decide and consider that the mandate of the Arbitrator has been terminated under Section 14. That challenge, in a case where the Arbitrator decides the objections, will have to be taken as a ground in a challenge to the award under Section 34. The object is to allow the Arbitral proceedings to be concluded at the earliest. If the challenge is successful finally, the remedy is not lost as time is saved by virtue of Section 43(4) of the Act. (Hasmukhlal H.Doshi5) Section 14 has, however, a role and relevance independent of Section 13 of the Act. The width and amplitude of Section 14, having regard to the precepts thereof, are more comprehensive. The two provisions are not mutually exclusive so much so that that a party not raising a challenge under Section 13 of the Act would not be excluded from availing a remedy under Section 14 even if the ground(s) urged is/are within the prescribed parameters of the said provision. Though a party, unsuccessful in his challenge under Section 13, would be debarred from carrying the same to any other forum resting on some other provision of the Act except to the extent permissible under Section 34, such an impediment does not stare at a party omitting and/or failing to question the independence and impartiality of the arbitrator under Section 13(2). (Subhash Projects & Marketing Ltd7).
Under Section 14(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 to by the parties, apply to the Court to decide on the termination of the mandate. If parties agree that an arbitrator has become de jure or de facto unable to perform his functions then the mandate of the arbitrator stands terminated. If, however, the controversy remains between the parties, and the parties do not agree that the mandate of the arbitrator should be terminated, a party may apply to the Court to decide on the termination of the mandate (Subhash Projects & Marketing Ltd7). The party desirous of challenging the mandate of an arbitrator can move a petition under Section 14 of the Act when the cause of action for the same arises. An arbitrator, with regard to whom there is a reasonable apprehension of bias, renders himself de jure unable to perform his functions. The perceived impartiality/independence of the arbitrator lies at the core of his mandate. (Alcove Industries Ltd. 2008(1) Arb. LR 393 (Del.)). The word "controversy", appearing in Sub-section (2) of Section 14, only denotes a requirement to establish any of the grounds catalogued in Sub-section (1) of Section 14. Adjudication by a Court may be necessary if the ground(s) urged challenging the arbitrator are required to be established by adducing evidence. (Subhash Projects & Marketing Ltd. (2007(1) Arb. LR 564 (Gauhati) (DB)). Where there is a controversy regarding the grounds which entails the termination of the mandate, the party has to invariably approach the court to decide on the termination of the mandate. Without such termination of the mandate of an arbitrator the petitioner cannot seek appointment of another arbitrator, inasmuch as the arbitral tribunal continues for all practical purposes. (K. Narayana Raju v. Union of India 2006(2) Arb.L.R.267 (AP)). But for Section 14, there is no provision in the Act which enables the Court to remove an arbitrator during the course of arbitral proceedings. (Dharam Prakash v. Union of India 2007(1) Arb. LR 308 (Del.) (DB)). Courts should always be slow in terminating the mandate of an appointed arbitrator as it results in delay of the arbitral proceedings. While an arbitrator should scrupulously avoid giving any impression that he is not independent or impartial and must disclose to the parties the circumstance, if any, referred to in Section 12 of the Act, the Court, while considering such a petition, should objectively examine whether there is any real danger of bias and the complainant's apprehensions are well founded. Courts must stick to the policy of minimum intervention in arbitral proceedings. Mere suspicion cannot be made a ground for concluding that the arbitrator would not act fairly and impartially. Only a well founded and justifiable doubt about the arbitrator covered by Sections 12 to 14 of the Act can be made a ground for terminating the mandate of an arbitrator (V.K. Dewan v. Delhi Jal Board 2004(2) Arb. LR 444 (Del.)). Sub-section (3) of Section 14 provides that, if under Section 14 or Section 13(3), an arbitrator withdraws from his office, or if 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 Section 14 or Section 12(3). Sub-section (3) of Section 14 has obviously been inserted to ensure that no stigma is cast, on the arbitrator's independence and impartiality, merely because he has withdrawn from his Office or the parties agree to the termination of the mandate of the arbitrator.
The court, which is competent to act in the event of filing of an application by either of the parties under Sub-section (2) of Section 14, is the court which is defined under Clause (e) of Sub-section (1) of Section 2 of the Act, (K.Narayana Raju13), which means the Principal Civil Court of original jurisdiction in a District and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject matter of arbitration if the same had been the subject matter of a suit. The High Court of Andhra Pradesh does not exercise ordinary original civil jurisdiction to decide questions forming the subject matter of a civil suit. An aggrieved party, in the State of Andhra Pradesh, can, therefore, apply only to the Principal Civil Court in a District, which has territorial jurisdiction to terminate the mandate of the arbitrator under Section 14(2) of the Act. An application under Section 11(6) would not lie either to challenge an arbitrator or for a decision on the "controversy" regarding termination of the mandate of the arbitrator, for Section 13(2) provides for a challenge to the arbitral tribunal to be made before the arbitral tribunal itself and Section 14(2) provides for an application regarding the termination of the mandate of an arbitrator to be made only before the Principal Civil Court in a District. The framers of the statute must certainly be taken to have been conscious of the definition of "court" in the Act. (SBP & Co. v. Patel Engg. Ltd. (2005) 8 SCC 618) In this context, it is necessary to note that the Arbitration and Conciliation Bill, 1995 which preceded the 1996 Act, stated as one of its main objectives the need "to minimise the supervisory role of courts in the arbitral process". This objective has found expression in Section 5 of the Act which prescribes the extent of judicial intervention. Section 5 brings out clearly the object of the Act, namely, that of encouraging resolution of disputes expeditiously and less expensively and, when there is an arbitration agreement, the court's intervention should be minimal. (P.Anand Gajapathi Raju v. P.V.G. Raju . It is clear from Section 5 that, in the matters governed by Part-I, (Sections 7 to 43), no judicial authority shall interfere except the authority provided in the Part. (State of Jharkhand v. R.K. Construction Pvt. Ltd. 2005(2) Arb. LR 48). Conversely, if there is no provision to deal with a particular situation, Courts cannot assume jurisdiction and interfere, for the very purpose of arbitration, which is an alternate dispute redressal forum, would be defeated thereby. (Bharat Heavy Electricals Ltd. 2000(3) Arb.LR 674)). The extent of judicial intervention has been circumscribed by Section 5 of the Act and the Court cannot interfere at any and every stage or on a ground other than those available in the Act itself. (Krishna Kumar Mundhra v. Narendra Kumar Anchalia 2004(2) Arb. LR 469 (Cal)). There is no provision in the Act empowering the Chief Justice's designate to terminate the mandate of an arbitrator who has entered upon the reference and/or to substitute the same with an arbitrator appointed by him. (Newton Engineering & Chemicals Ltd. v. Indian Oil Corporation Ltd. 2006(4) Arb. LR 257 (Del.); Ahluwalia Contracts (India) Ltd. (2007(4) Arb. LR 539 (Del.))
10. Even if it were to be presumed that failure by the designated authority to obtain a written disclosure from the person, who may be appointed as an arbitrator, a statutory requirement under Section 12(1) and an obligation cast under, and forming part of, the arbitration clause of the agreement, amounts to a failure on his part to act as required under the appointment procedure agreed upon by the parties, it cannot be lost sight of that Sri Tathagata Roy has already been appointed as an arbitrator and that he has neither recused himself nor has his mandate been terminated either by the agreement of parties or by an order of the Principal Civil Court in a District. Neither Section 13 nor Section 14 confer any power on the Chief Justice, or his designate, to terminate the mandate of an arbitrator. Once the arbitrator has assumed charge, continues to function and the arbitration has commenced in the Arbitral Tribunal, the Chief Justice, or his designate, would not interfere. The order passed by the Arbitral Tribunal is not capable of being corrected by the High Court and such an intervention by the High Courts is not permissible. (SBP & Co.16).
11. Where a statute creates different authorities to exercise their respective functions thereunder, each of such authorities must exercise the functions within the four corners of the statute, (M.P. Wakf Board v. Subhan Shah , for it is well settled that when a procedure has been laid down the authority must act strictly in terms thereof. (Taylor v. Taylor (1875) Ch.D.426)). If a statute has conferred a power to do an act, and has laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any other manner than that which has been prescribed. The principle behind the rule is that if this were not so, the statutory provision might as well not have been enacted. (State of U.P. v. Singhara Singh AIR 1964 SC 35; Dhanajaya Reddy v. State of Karnataka (2001) 4 SCC 9; Ramchandra Murarilal Bhattad v. State of Maharashtra ; State of Gujarat v. Shantilal Mangaldas ). Since the power to terminate the mandate of the arbitrator has been conferred, under Section 14(2) read with Section 2(e) of the Act, on the Principal Civil Court in a District, the jurisdiction of the Chief Justice, or his designate, cannot be invoked for such termination, even if it be couched as a request for appointment under Section 11(6) of the Act. An arbitrator continues to function till his mandate is terminated in accordance with Sections 13 and 14 of the Act. An order, appointing an arbitrator, even if not made in good faith is still an act capable of legal consequences. It bears no brand of invalidity on its forehead. Unless the necessary proceedings are taken at law to establish the cause of invalidity and to get it quashed or otherwise upset, it will remain as effective for its ostensible purpose as the most impeccable of orders. (Smith v. East Elloe Rural District Council 1956(1) All.E.R.855, State of Punjab v. Gurdev Singh ) While Section 14(2) enables the jurisdiction of the Principal Civil Court in a District to be invoked to decide on the "controversy", and the court may well terminate the mandate of the arbitrator, would such termination enable an application to be made to the Chief Justice, or his designate, to appoint an arbitrator?. Section 15 relates to "Termination of mandate and substitution of arbitrator". Under Sub-section (1) thereof, in addition to the circumstances referred to in Sections 13 or 14, the mandate of an arbitrator shall stand terminated (a) where he withdraws from office for any reason; or (b) by or pursuant to agreement of the parties. Section 15(2) provides that, where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that are applicable to the appointment of the arbitrator being replaced. Even if there is no specific provision in the arbitration agreement authorizing appointment of a substitute arbitrator if the original appointment terminates, or if the originally appointed arbitrator withdraws from the arbitration, this omission in the arbitration agreement is made up by the specific provision contained in Section 15(2) of the Act. The withdrawal of an arbitrator from the office for any reason is within the purview of Section 15(1)(a) of the Act. Section 15(2) would, therefore, be attracted and a substitute arbitrator has to be appointed according to the rules that are applicable for the appointment of the arbitrator to be replaced. What Section 15(2) contemplates is appointment of the substitute arbitrator, or the replacing of the arbitrator by another, according to the rules that are applicable to the appointment of the original arbitrator who was being replaced. The term "rules" in Section 15(2) refers to the provision for appointment contained in the arbitration agreement. In the absence of any failure on the part of the party concerned, as per the arbitration agreement, to fulfill his obligation in terms of Section 11 of the Act, the jurisdiction of the Chief Justice, under Section 11(6) of the Act, for appointing a substitute arbitrator, is not attracted. Section 11(6) of the Act has application only when a party or the person concerned has failed to act in terms of the arbitration agreement. Section 15(2) is not confined to an appointment under any statutory rule or rule framed under the Act or under the scheme. It only means that the appointment of the substitute arbitrator must be done according to the original agreement or provision applicable to the appointment of the arbitrator at the initial stage. (Yashwith Constructions (P) Ltd.1)
12. In the present case, the arbitration agreement specifically provides that the Managing Director of the respondent-Company shall appoint the arbitrator. Even if the mandate of the arbitrator were to be terminated, appointment of an arbitrator has necessarily to be made in accordance with the arbitration clause of the agreement. Unless the Managing Director of the respondent company has failed to exercise jurisdiction to appoint a substitute arbitrator, the designate of the Chief Justice cannot assume jurisdiction under Section 11(6) of the Act. (National Highways Authority of India ).
As noted above, in the present case, the procedure for appointment of an arbitrator has been agreed to by the parties and as such, on any of the eventualities under Clauses (a) to (c) of Sub-section (6) of Section 11 having arisen, a party may request the Chief Justice, or his designate, to take "the necessary measure", for securing the appointment of an arbitrator. Since Section 15(2) specifically provides that, where the mandate of an arbitrator is terminated under circumstances referred to in Sections 13 and 14, the substitute arbitrator is required to be appointed in accordance with the arbitration agreement. The Chief Justice, or his designate, while taking "the necessary measure" under Section 11(6) cannot usurp the powers conferred by the agreement on the Managing Director of the respondent-company to appoint a substitute arbitrator nor can it, while exercising jurisdiction under Section 11 (6) to appoint an arbitrator, make Section 15(2) redundant. On a harmonious construction of Sections 11(6) and 15(2) it must be held that, on the mandate of an arbitrator being terminated and only if the Managing Director of the respondent-Company, in accordance with the arbitration agreement, fails to appoint a substitute arbitrator, can the jurisdiction of the Chief Justice, or his designate, be invoked under Section 11(6) of the Act.
To conclude, Section 15(2), read with Sections 11(5) & (6), enables the Chief Justice, or his designate, to appoint a substitute arbitrator on the mandate of the earlier arbitrator being terminated, only in cases where the arbitration agreement does not specifically provide for a procedure for appointment of an arbitrator. Since, in the present case, the agreement specifically prescribes a procedure for appointment of an arbitrator, which rules shall also apply for appointment of a substitute arbitrator, and as the Managing Director of the respondent-company has exercised the power to appoint Sri Tathagata Roy as the substitute arbitrator, the mandate of the said arbitrator has not been terminated and he continues to function as such, no other person can be appointed as an arbitrator in substitution. The present application, whereby a request is made for appointment of a Judge of the High Court, or a technically qualified person to be the arbitrator, under Section 11(6) of Act 26 of 1996, is, therefore, not maintainable.
As the Chief Justice's designate has no power under Section 11(6) to terminate the mandate of the arbitrator Sri Tathagata Roy, which power under the circumstances mentioned in Section 14(1), is conferred exclusively on the Principal Civil Court in the district, it is wholly unnecessary to examine whether resignation of the previous two arbitrators, on the applicant's challenge that they were closely associated with the respondent, has resulted in an inordinate delay in resolution of the disputes referred to arbitration deeating the very purpose and object of the Act. It is relevant to note that even on this question parties are not in agreement on the factual matrix. Suffice to record the undertaking given by Sri C.B.Ramamohan Reddy, Learned Counsel for the respondents, that the respondents would comply with the requirements of Section 12(1) and (2) of the Act, call upon Sri Tathagata Roy to disclose in writing, whether there were any circumstances likely to give rise to justifiable doubts as to his independence and impartiality, within two weeks from the date of receipt of a copy of the order and, in case he either fails to make such a disclosure or recuses himself from the arbitral proceedings, they would agree that his mandate stood terminated and thereafter appoint a retired Judge of the Calcutta High Court to be the arbitrator after complying with the requirements of Section 12 of the Act. The undertaking, that as pleadings are complete efforts would be made to have the arbitral proceedings completed within six months without unnecessary requests for adjournments from the respondent's side provided that the applicant co-operated in its early disposal, is also made part of the record.
13. The Arbitration Application, accordingly, stands dismissed.