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[Cites 9, Cited by 7]

Gujarat High Court

Bhanubhai Ramanbhai Patel vs Nilesh Ramanbhai Patel on 14 September, 2018

Author: Akil Kureshi

Bench: Akil Kureshi

           C/IAAP/56/2016                                       IA ORDER




            IN THE HIGH COURT OF GUJARAT AT AHMEDABAD


               MISC. CIVIL APPLICATION (OJ) NO. 1 of 2018
           IN R/PETN. UNDER ARBITRATION ACT NO. 56 of 2016

FOR APPROVAL AND SIGNATURE:

HONOURABLE MR.JUSTICE AKIL KURESHI

==========================================================

1 Whether Reporters of Local Papers may be allowed to see the judgment ?

2 To be referred to the Reporter or not ?

3 Whether their Lordships wish to see the fair copy of the judgment ?

4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ?

========================================================== NILESH RAMANBHAI PATEL Versus BHANUBHAI RAMANBHAI PATEL ========================================================== Appearance:

MR HARSHADRAY A DAVE for the PETITIONER(s) No. MR DEEP VYAS WITH MR DHAVAL D VYAS for the RESPONDENT(s) No. MR ABHISEK MEHTA for the RESPONDENT(s) No. ========================================================== CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI Date : 14/09/2018 IA JUDGMENT
1. This application is filed with a prayer to extend the mandate of the arbitrator and to extend the time for making the award by a period of eighteen months from 24.3.2018.
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       C/IAAP/56/2016                                               IA ORDER



     This     application              arises       in       the      following
     facts:­
2. One Bhanubhai Ramanbhai Patel and his sons had filed petition under Arbitration Act No.56 of 2016 seeking appointment of an arbitrator to resolve disputes between partners of a partnership firm constituted under a deed dated 19.2.2010. The partnership was engaged in the business of processing and selling processed tobacco and dealing in tobacco on commission under the name of M/s.

Navdurga Tobacco Company. Respondents in such arbitration petition were his brother Nilesh Ramanbhai Patel, son of Nilesh Ramanbhai Patel and mother of Bhanubhai and Nileshbhai. By detailed judgment dated 10/17.2.2017 all the objections of the respondents against appointment of an arbitrator were turned down. By further order dated 17.3.2017 Shri J.M.Panchal, former Judge of Supreme Court was appointed as sole arbitrator. When such arbitral proceedings were going on, the original opponent No.3 i.e. the mother expired. Her legal heirs which included some of the existing parties to the arbitral proceedings and her daughters were therefore brought on record.

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       C/IAAP/56/2016                                                  IA ORDER



3.        The    arbitral           proceedings                could         not        be

completed within twelve months from the date of constitution of the arbitral tribunal. Therefore the original claimants and original respondents No.1 and 2 applied to the arbitrator for extension of time for completion of the arbitration. Such time was extended by a period of six months. The daughters of deceased opponent No.3 however later on raised an objection before the arbitrator that such extension of time was without their consent and therefore not valid and that it must be held that the mandate of the arbitrator has come to an end. The arbitrator thereupon passed an order on 3.7.2018 holding that his mandate had come to an end. In his opinion the circumstances mentioned in sub­section (4) of Section 29A of the Arbitration and Conciliation Act, 1996 ('the Act' for short) will come into operation. Accordingly, the mandate of the arbitrator stood terminated with effect from 24.3.2018. He recorded the request of the counsel for the claimants that liberty may be reserved to approach the Court for extension of the mandate of the arbitrator. The learned arbitrator did not find it necessary to grant any such liberty since sub­section (4) of Section 29A of the Act specifically provides Page 3 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020 C/IAAP/56/2016 IA ORDER that the mandate of the arbitrator shall terminate, if the award is not made within the specified period, unless the Court has, either prior to or after the expiry of the period so specified, extended such period.

4. By this application, original opponents No.1 and 2 request that the mandate of the arbitrator may be extended by a period of eighteen months from inception i.e. 24.3.2018, when the initial period of twelve months came to an end. This application is supported by the original claimants, but strongly opposed by the daughters of original opponent No.3 primarily on the ground that this application is not competent before this Court. In their opinion, it is only the Court as defined under Section 2(1)(e) of the Act which could entertain such an application.

5. Appearing for the applicants, learned advocate Shri H. A. Dave submitted that the word 'Court' in the present context cannot be understood as referred in Section 2(1)(e) of the Act. This Court, having appointed an arbitrator the question of extending or not extending his mandate can only be decided by this Court. He submitted that by amending Section 11 of the Act the earlier reference Page 4 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020 C/IAAP/56/2016 IA ORDER to the Chief Justice or his designate has been replaced by the terms 'High Court' and 'Supreme Court'. Learned advocate Shri Vyas for the original claimants also adopted the same line of arguments.

6. Learned advocate Shri Abhishek Mehta for the objectors strongly contended that in view of the scheme of the Act and in particular, the definition of the term 'Court' contained in Section 2(1)(e), the application for extension of mandate of an arbitrator would be competent only before the Civil Court of original jurisdiction. This Court having made appointment of arbitrator would become functus officio. No further proceedings would lie before this Court. In this context he has relied on certain decisions to which reference would be made at appropriate stage.

7. In order to judge the objections of Shri Mehta to the jurisdiction of this Court to entertain the application, few provisions of the said Act would have to be noted. Section 2(1)(e) of the Act defines the term 'Court' as under :­ "2. Definitions (1) In this Part, unless the context otherwise requires.

... ... ...

     (e) "Court" means­

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    C/IAAP/56/2016                                          IA ORDER

(i) in the case of an arbitration other than international commercial arbitration, 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 subject­matter of the arbitration if the same had been the subject matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes;

(ii) in the case of international commercial arbitration, the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject­ matter of the arbitration if the same had been the subject­matter of a suit, and in other cases, a High Court having jurisdiction to hear appeals from decrees of courts subordinate to that High Court."

8. As per this definition thus a Court in case of an arbitration other than international commercial arbitration is the Principal Civil Court of original jurisdiction in a District and where the High Court exercises its ordinary original civil jurisdiction, would include the High Court also. If the reference is to an international commercial arbitration, the Court would mean the High Court, if it exercises ordinary original jurisdiction or the High Court having Page 6 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020 C/IAAP/56/2016 IA ORDER jurisdiction to hear appeals of Courts subordinate to that High Court. This definition in Section 2, however, like most other definition provisions starts with a caveat when it provides that in this part unless the context otherwise requires. We may note that this definition was substituted by the Act 3 of 2016 with effect from 23.10.2015. The definition contained prior to such amendment did not contain two clauses as in the present case. Clause (i) in the present form was the full definition without presence of Clause (ii). Effectively so far as our case is concerned, this change in the definition is inconsequential.

9. Section 11 of the Act, as is well­known, pertains to appointment of arbitrators and makes detailed provision for appointment of arbitrators by the High Court or the Supreme Court. In terms of sub­sections (4), (5) or (6) of Section 11, the High Court would make an appointment in case of an arbitration other than international commercial arbitration. In case of international commercial arbitration such appointments would be made by the Supreme Court.

10. Section 29A was inserted in the said Page 7 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020 C/IAAP/56/2016 IA ORDER Act by virtue of the Amending Act 3 of 2016 with effect from 23.10.2015. The section reads as under :­ "29A. Time limit for arbitral award.­­(1) The award shall be made within a period of twelve months from the date the arbitral tribunal enters upon the reference.

Explanation.­­ For the purpose of this sub­section, an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice, in writing, of their appointment.

(2) If the award is made within a period of six months from the date the arbitral tribunal enters upon the reference, the arbitral tribunal shall be entitled to receive such amount of additional fees as the parties may agree.

(3) The parties may, by consent, extend the period specified in sub­section (1) for making award for a further period not exceeding six months.

(4) If the award is not made within the period specified in sub­section (1) or the extended period specified under sub­ section (3), the mandate of the arbitrator(s) shall terminate unless the Court has, either prior to or after the expiry of the period so specified, extended the period:

Provided that while extending the period under this sub­section, if the Court finds that the proceedings have been Page 8 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020 C/IAAP/56/2016 IA ORDER delayed for the reasons attributable to the arbitral tribunal, then, it may order reduction of fees of arbitrator(s) by not exceeding five per cent for each month of such delay.

  (5) The extension of period referred                 to
  in   sub­section  (4)  may   be   on                the
  application of any of the parties and               may
  be granted only for sufficient cause                and
  on such terms and conditions as may                  be
  imposed by the Court.
(6) While extending the period referred to in sub­section (4), it shall be open to the Court to substitute one or all of the arbitrators and if one or all of the arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached and on the basis of the evidence and material already on record, and the arbitrator(s) appointed under this section shall be deemed to have received the said evidence and material.
(7) In the event of arbitrator(s) being appointed under this section, the arbitral tribunal thus reconstituted shall be deemed to be in continuation of the previously appointed arbitral tribunal.
(8) It shall be open to the Court to impose actual or exemplary costs upon any of the parties under this section.
(9) An application filed under sub­section (5) shall be disposed of by the Court as expeditiously as possible and endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party."
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C/IAAP/56/2016 IA ORDER
11. Perusal of this section would show that time limits have been introduced for completion of arbitral proceedings. Sub­section (1) of Section 29A provides that the award shall be made within a period of twelve months from the date the Arbitral Tribunal enters upon the reference. This expression "to have entered upon the reference" is also explained through the explanation below sub­section (1). Sub­section (2) is in the nature of incentive for completing the arbitral proceedings expeditiously. Sub­section (3) of Section 29A provides for extension of such period as specified in sub­section (1) by consent of the parties for a period not exceeding six months. Sub­section (4) of Section 29A provides that if the award is not made within the period specified in sub­ section (1) or the extended period specified in sub­section (3), the arbitrator's mandate shall terminate, unless the Court has, either prior to or after expiry of the period, extended the period. Sub­section (5) of Section 29A provides that the extension under sub­section (4) would be granted on an application of any of the parties only for sufficient cause and on such terms and conditions as may be imposed by the Court.
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C/IAAP/56/2016 IA ORDER Sub­section (6) of Section 29A which is of considerable importance, provides that while extending the period referred under sub­ section (4), it would be open for the Court to substitute one or all of the arbitrators and if such substitution is made, the arbitral proceedings shall continue from the stage already reached and on the basis of evidence or material already collected. As per sub­section (7) the re­constituted Tribunal shall be deemed to be in continuation of the previously appointed arbitral Tribunal. Under sub­section (8) the Court is given power to impose actual or exemplary cost on any of the parties. This section makes detailed provisions providing time period for completion of arbitration, for extension of time such time, who can extend such time and under what circumstances and subject to what conditions the time may be extended. It also provides that if the award is not passed within the initial period or extended period, the mandate of the arbitrator would terminate. Section 29A of the Act is thus a complete Code by itself.
12. In case of State of West Bengal vs. Associated Contractors, reported in (2015) 1 SCC page­32, the Supreme Court interpreted Page 11 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020 C/IAAP/56/2016 IA ORDER the term 'Court' as defined under Section 2(1)(e) of the Act as to mean only the Principal Civil Court of original jurisdiction in a District or High Court having civil jurisdiction in the State. No other Court, including the Supreme Court, is contemplated under Section 2(1)(e) of the Act. In case of State of Jharkhand and Ors.

vs. Hindustan Construction Company Ltd., reported in (2018) 2 SCC page 602, this was further elaborated by a Constitutional Bench of the Supreme Court holding that the definition of term 'Court' contained in Section 2(1)((e) of the Act was materially different from its predecessor section contained in Section 2(c) of the Arbitration Act, 1940 and that Supreme Court cannot be considered to be a Court within the meaning of Section 2(1)(a) even if it retains seisin over the arbitral proceedings. The decision in case of Associated Contractor was affirmed.

13. Ordinarily therefore I would have accepted the contention of learned advocate Shri Mehta that the term 'Court' defined in Section 2(1)(e) in the context of the power to extend the mandate of the arbitrator under sub­section (4) of Section 29A would be with Page 12 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020 C/IAAP/56/2016 IA ORDER the principal Civil Court. However, this plain application of the definition of term 'Court' to Section 29A of the Act poses certain challenges. In this context one may recall that the definition clause of sub­ section (1) of Section 2 begins with the expression "in this part, unless the context otherwise requires". Despite the definition of term 'Court' contained in Section 2(1)(e) as explained by the Supreme Court in above noted judgments, if the context otherwise requires that the said term should be understood differently, so much joint in the play by the statute is not taken away.

14. As is well­known, the arbitration proceedings by appointment of an arbitrator can be triggered in number of ways. It could be an agreed arbitrator appointed by the parties outside the Court, it could be a case of reference to the arbitration by Civil Court in terms of agreement between the parties, it may even be the case of appointment of an arbitrator by the High Court or the Supreme Court in terms of sub­ section (4), (5) and (6) of Section 11 of the Act. The provisions of Section 29A and in particular sub­section (1) thereof would apply to arbitral proceedings of all kinds, Page 13 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020 C/IAAP/56/2016 IA ORDER without any distinction. Thus the mandate of an arbitrator irrespective of the nature of his appointment and the manner in which the arbitral Tribunal is constituted, would come to an end within twelve months from the date of Tribunal enters upon the reference, unless such period is extended by consent of the parties in term of sub­section (3) of Section 29A which could be for a period not exceeding six months. Sub­section (4) of Section 29A, as noted, specifically provides that, if the award is not made within such period, as mentioned in sub­section (1) or within the extended period, if so done, under sub­ section (3) the mandate of the arbitrator shall terminate. This is however with the caveat that unless such period either before or after the expiry has been extended by the Court. In terms of sub­section (6) while doing so it would be open for the Court to substitute one or all the arbitrators who would carry on the proceedings from the stage they had reached previously.

15. This provision thus make a few things clear.

Firstly, the power to extend the mandate of an arbitrator under sub­section (4) of Section 29A beyond the period of twelve months or such further period it may have Page 14 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020 C/IAAP/56/2016 IA ORDER been extended in terms of sub­section (3) of Section 29A rests with the Court. Neither the arbitrator nor parties even by joint consent can extend such period. The Court on the other hand has vast powers for extension of the period even after such period is over. While doing so the Court could also choose to substitute one or all of the arbitrators and this is where the definition of term 'Court' contained in Section 2(1)(e) does not fit. It is inconceivable that the legislature would vest the power in the Principal Civil Judge to substitute an arbitrator who may have been appointed by the High Court or Supreme Court. Even otherwise, it would be wholly impermissible since the powers for appointment of an arbitrator when the situation so arises, vest in the High Court or the Supreme Court as the case may be in terms of sub­section (4), (5) and (6) of Section 11 of the Act. If therefore there is a case for extension of the term of an arbitrator who has been appointed by the High Court or Supreme Court and if the contention of Shri Mehta that such an application would lie only before the Principal Civil Court is upheld, powers under sub­section (6) of Section 29A would be non­operatable. In such a situation sub­section (6) of Section 29A Page 15 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020 C/IAAP/56/2016 IA ORDER would be rendered otiose. The powers under sub­section (6) of Section 29A are of considerable significance. The powers for extending the mandate of an arbitrator are coupled with the power to substitute an arbitrator. These powers of substitution of an arbitrator are thus concomitant to the principal powers for granting an extension. If for valid reasons the Court finds that it is a fit case for extending the mandate of the arbitrator but that by itself may not be sufficient to bring about an early end to the arbitral proceedings, the Court may also consider substituting the existing arbitrator. It would be wholly incumbent to hold that under sub­section (6) of Section 29A the legislature has vested powers in the Civil Court to make appointment of arbitrators by substituting an arbitrator or the whole panel of arbitrators appointed by the High Court under Section 11 of the Act. If we therefore accept this contention of Shri Mehta, it would lead to irreconcilable conflict between the power of the superior Courts to appoint arbitrators under section 11 of the Act and those of the Civil Court to substitute such arbitrators under Section 29A(6). This conflict can be avoided only by understanding the term "court" for the Page 16 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020 C/IAAP/56/2016 IA ORDER purpose of Section 29A as the Court which appointed the arbitrator in case of Court constituted arbitral Tribunal.

16. Very similar situation would arise in case of an international commercial arbitration, where the power to make an appointment of an arbitrator in terms of Section 11 vests exclusively with the Supreme Court. In terms of Section 2(1)(e) the Court in such a case would be the High Court either exercising original jurisdiction or appellate jurisdiction. Even in such a case if the High Court were to exercise power of substitution of an arbitrator, it would be transgressing its jurisdiction since the power to appoint an arbitrator in an international commercial arbitrator rests exclusively with the Supreme Court.

17. I am conscious that the learned Single Judge of Kerala High Court in case of M/s. URC Construction (Private) Ltd., vs. M/s. BEML Ltd., reported in 2017 SCC Online Ker 20520 has taken a different view. In context of sub­section (4) of Section 29A of the Act the learned Judge has concluded that the power would vest only with the Civil Court. In this judgment the complications which may Page 17 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020 C/IAAP/56/2016 IA ORDER arise if such a view is adopted in the context of the provisions of sub­section (6) of Section 29A have not been discussed. I am unable to pursue myself to adopt this view.

18. The rest of the decisions of the other High Courts cited before me do not directly touch this issue. In those judgments the High Courts were concerned with the provisions of Sections 14 and 15 of the Act pertaining to the challenge procedure in which context the question of appropriate Court was examined. Shri Abhisek Mehta however had also cited the judgment of Supreme Court in case of Lalitkumar V. Sanghavi (D) Th.Lrs Neeta Lalit Kumar Sanghavi vs. Dharamdas V. Sanghavi, reported in (2014) 7 SCC 255, in which again the question considered by the Supreme Court was that which Court can examine the question whether the mandate of the arbitrator stood legally terminated or not. In this context reference was made to the definition of term 'Court' under Section 2(1)(e) and it was held that it would be the Court of civil jurisdiction alone which can entertain such a question. Again the situation in the present case is vastly different.

19. I have noted the contents of the Page 18 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020 C/IAAP/56/2016 IA ORDER application for extension of time for completing arbitration. Sufficient explanation is granted for exercising such powers. Detailed stages through which the arbitration proceeded have been set out. I do not see any lack of urgency on part of the original claimants or the present applicants. The time which lapsed after initial period of twelve months would be more on account of the legal issues which emerged concerning the extension of time of completing the arbitration. Surely such period cannot be attributed either to the arbitrator or the parties who so keenly wish that the efforts put in so far before the arbitrator are not lost and that the arbitration be completed with passing of the award.

20. Under the circumstances, time for completing arbitration and the mandate of arbitrator are extended upto 31.3.2019. Application is disposed of accordingly.

21. At this stage, learned advocate Shri Mehta prays for stay of this order. Request is refused.

Direct service is permitted.

(AKIL KURESHI, J) K.K. SAIYED Page 19 of 19 Downloaded on : Sun Mar 01 02:09:32 IST 2020