Calcutta High Court (Appellete Side)
Sri Pronab Kumar Talukder & Anr vs Sri Anil Kumar Dutta & Anr on 7 September, 2015
Author: Indira Banerjee
Bench: Indira Banerjee
5 F.M.A. 634 of 2012
Sri Pronab Kumar Talukder & Anr. ... Appellants
-Versus -
Sri Anil Kumar Dutta & Anr. ... Respondents
Mr. Surajit Nath Mitra, Sr. Advocate, Mr. Krishnendu Sarkar .. for the appellants Mr. Kumar Jyoti Tewari, Mr. Manas Kr. Das .. for the respondents This appeal is against a Judgment and Order dated 18/16.12.2011 passed by the learned District Judge, Dakshin Dinajpur in Miscellaneous Case No. 01 of 2011 being an application of the appellants under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "1996 Act") for setting aside of an arbitral award dated 9th April, 2010 made and published by the learned Arbitrator, Sri Prasun Choudhury, a practising lawyer of the District Court at Dakshin Dinajpur.
Disputes arose in connection with a partnership agreement between three partners of the partnership firm Messrs Diner Shese, which contained an arbitration clause, which reads as follows :
"14. That in case of any difference and disputes among the partners the matter shall be referred to an Arbitrator preferably a lawyer of the District Court and the decision of the Arbitrator will be binding upon the partners."
It appears that the partners of the partnership firm Messrs Diner Shese adopted a resolution authorising the appellant no.1 herein to act as an authorised representative and/or manager of the said firm.
Certain disputes and differences arose between the appellant and one of the partners Sri Anil Kr. Dutta. The said Anil Kr. Dutta apparently appointed Sri Prasun Choudhury, an Advocate of the District Court of Dakshin Dinajpur as an arbitrator.
The said arbitrator issued notice dated 7th January, 2010 to the respective partners directing them to submit their counter-statement within fifteen days from the date of receipt of the Statement of Claim.
By a letter dated 16th February, 2010 written through their Advocate, the appellant nos. 1 and 2 objected to the appointment of Sri Prasun Choudhury as arbitrator. Excerpts from the said letter are set out herein below for convenience:
"4. That no dispute and difference even arose among the three partners in continuation of their partnership business so question of appointment of Ld. Arbitrator does not arise at all. My clients have never decided to go for Arbitration and they are completely unknown and in dark about the appointment of Arbitrator. The only partner Sri Anil Kumar Dutta is not entitled in law and equity to appoint the sole arbitrator as per his seet will and wish and without the consent and agreement of my clients. My clients never had any dispute with Anil Kumar Dutta about the appointment of the Ld. Arbitrator. The Arbitrator should be appointed or nominated as agreed by all the parties and not by a single one among them."
"7. That the appoint Arbitrator, if any has been done behind the back and knowledge of my clients and the partner Anil Kumar Dutta can not have any legal right to appoint the Arbitrator as per his own need and requirement and so arbitration proceeding is highly illegal, irregular and improper which have been done for the own benefit of Anil Kumar Dutta and so it is not sustainable in law and equity."
Even though, the letter may not have been drafted properly, the appointment of the Advocate, Prasun Chowdhry has clearly been objected to.
The Arbitrator, Mr. Prasun Choudhury however, proceeded exparte and made and published the impugned award which was challenged under Section 34 of the 1996 Act. The application under Section 34 has given rise to the judgment and order under appeal.
From the arbitration clauses set out herein above, it is patently clear that the parties had decided to refer the disputes and differences to an Arbitrator, who was preferably a lawyer of the District Court and the decision of the Arbitrator would be binding upon the partners.
No procedure of appointment was agreed upon between the parties. Clause 14 of the agreement, that is, the arbitration clause prescribes the qualification of the Arbitrator and not the procedure for appointment of an Arbitrator. There is no other clause which prescribes the procedure for appointment of the Arbitrator.
In the absence of any agreed procedure for appointment of Arbitrator, the procedure as laid down in Section 11(5) of the 1996 Act would have to be followed. Section 11(5) provides that failing any agreement referred to in sub- section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
What is contemplated in Section 11(5) of the 1996 Act is that there should be a request from one party to the other party to agree to the procedure for appointment of an arbitrator and in the absence of agreement, either of the parties might request the Chief Justice or any person or institution designated by the Chief Justice to make the appointment. Section 11(5) does not contemplate unilateral appointment of an Arbitrator by any party to the arbitration agreement.
Mr. Kumar Jyoti Tewari, learned Counsel appearing on behalf of the respondent/Award-holder strenuously contended that the appellants had in effect and substance agreed to the appointment of Sri Prasun Choudhury by not replying to the letter of the respondent no.1.
Section 4 provides that a party who knows that any requirement under the arbitration agreement had not been complied with and still proceeds with the arbitration, without stating his objection to such non-compliance without undue delay, or if any time limit is prescribed for stating such objection within that period of time, the party shall be deemed to have waived his right to object.
Section 4 of the 1996 Act is attracted where a party submits to the jurisdiction of the Arbitrator though the appointment of the Arbitrator might be illegal, contests the claim before the Arbitrator on merits, without raising any objection to his jurisdiction and then turns around to question the jurisdiction of the Arbitrator on being unsuccessful in the proceedings.
In the instant case, immediately on receipt of notice from the Arbitrator, and before filing any counter statement before the learned Arbitrator, the appellants through their Advocate objected to the jurisdiction of the Arbitrator to proceed with the reference. The letter of the Advocate was in effect and substance an objection to the jurisdiction of the learned Arbitrator to proceed with the reference.
It may be pertinent to advert to some of the provisions of the 1996 Act relevant for adjudication of the issues involved in this appeal.
Sections 13 and 16 of the 1996 Act are set out herein below for convenience:
"13. Challenge procedure.- (1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.
(2) Failing any agreement referred to in sub-section (1) , a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. (3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. (4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-
section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.
(5) Where an arbitral award is 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. (6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees."
"16. Competence of arbitral tribunal to rule on its jurisdiction. - (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose, -
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.
(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-
section (3), admit a later plea if it considers the delay justified.
(5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-
section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34."
In view of the aforesaid provisions, parties to an arbitration agreement might raise an objection to the appointment and/or jurisdiction of the Arbitrator before the Arbitrator himself, and where the objection is decided against the party taking such objection, the party if aggrieved by the arbitral award, might make an application for setting aside the arbitral award in accordance with Section 34.
Section 34(1) of the 1996 Act provides that recourse to a Court against an arbitral award may be made only by an application for setting aside of such award in accordance with sub-section (2) and sub-section (3) of Section 34 of the said Act. Section 34(2)(v) provides that an arbitral award might be set aside by the Court if the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part I of the 1996 Act from which the parties cannot derogate, or failing such agreement, was not in accordance with Part I of the 1996 Act.
Appointment of an Arbitrator in disregard of the provisions of the 1996 Act is an acceptable ground for challenge to an award under Section 34 of the 1996 Act.
Supporting the award, Mr. Tewari submitted that the arbitration agreement was in effect an agreement for reference of disputes to a named Arbitrator. The aforesaid argument appears to be an argument in desperation. No Arbitrator has been named in the agreement. The Arbitrator was preferably to be a lawyer of the District Court, meaning thereby, that he need not necessarily be a lawyer of the District Court. In any case, even assuming that the arbitration agreement provided for appointment of a lawyer of the District Court, the parties only agreed to the qualification of the arbitrator, who was to be a lawyer preferably of a district Court as argued by Mr. Mitra. There are many lawyers in the District Court. Clause 14 only prescribed the qualification of the arbitrator and not the procedure for appointment of the Arbitrator.
The argument of Mr. Tewari that the parties to the partnership agreement in effect and substance agreed to the appointment of the learned Arbitrator or alternatively waived their right to object to the appointment of Sri Prasun Choudhury as Arbitrator, is also difficult to sustain.
Mr. Tewari cited two judgements of the Supreme Court. The first judgement Narayan Prasad Lohia Vs. Nikunj Kumar Lohia and others reported in (2002) 3 Supreme Court Cases 572 relates to Section 4 of the 1996 Act which has no application in this case where the appellants did not submit to the jurisdiction of the learned Arbitrator.
In the second judgement, that is, Indian Oil Corporation Limited and others Vs. Raja Transport Private Limited reported in (2009) 8 Supreme Court Cases 520 cited by Mr. Tiwari, the Supreme Court held that the Court should normally give effect to the provisions of the arbitration agreement. Ignoring the named Arbitrator/Arbitral Tribunal and nominating an independent arbitrator is an exception to the rule, to be resorted to for valid reasons. In the instant case as observed above there is no named Arbitrator.
First of all, as we have observed above, there was no agreed procedure for appointment of Arbitrator in the agreement between the parties. In the absence of an agreed procedure, Section 11(5) would be attracted. A request would necessarily have to be made by one party to agree to the appointment of the Arbitrator. In this case, one of the parties has simply appointed Sri Prasun Choudhury unilaterally.
May be the appellants ought to have replied to the letter of the respondent no.1 informing them of the appointment of Sri Prasun Choudhury as Arbitrator. However, mere failure to reply to a letter, after the purported appointment of Sri Prasun Choudhury as Arbitrator, would not affect their right under Section 16(6) read with Section 34(2)(v) to challenge the purported award on the ground of lack of jurisdiction and/or competence of the learned Arbitrator to proceed with the reference.
Thirdly, as observed above, the appellants by their letter, written through their lawyer objected to the jurisdiction of the learned Arbitrator before filing their counter statement. In any case arbitration proceedings are essentially informal proceedings which are only required to be conducted in compliance with principles of natural justice. The proceedings are not formal. The rules of the Civil Procedure Code and/or Evidence Act or other procedural laws do not apply.
We are unable to accept the suggestion that the letter written to the learned Arbitrator through the lawyer of the appellants should not and/or cannot be treated as an objection to the jurisdiction of the Arbitrator only because the appellants did not actually appear before the learned Arbitrator and make oral submissions questioning his authority.
The reference by the learned District Judge to Section 10 of the 1996 Act evinces misappreciation of the said section. The judgment and order under is misconceived. It is nobody's case that the parties agreed to Arbitrator of even number.
May be a more appropriate procedure for objecting to the jurisdiction of the learned Arbitrator could have been followed. However, the appellants were not precluded from questioning the jurisdiction of the Arbitrator in their application under Section 34 of the 1996 Act.
It is true that there is no provision for setting aside of an award only on the ground of the award having been made ex parte. An ex parte award may be set aside on the ground of violation of principles of natural justice if such an award is made without notice and without opportunity to the aggrieved party to appear but not otherwise.
However, in this case, the thrust of the challenge is that the Arbitrator lacked jurisdiction and/or power to proceed with the reference as he was not appointed in accordance with any agreed procedure in terms of the agreement or in accordance with the 1996 Act. The respondent no.1 did not have the power to unilaterally appoint an Arbitrator.
The judgment and order under appeal cannot be sustained in law. The appeal is, thus allowed. The arbitral award is set aside. The parties or any of them may apply for appointment of arbitrator in accordance with law to adjudicate the disputes between the parties.
Photostat certified copy of this order, if applied for, be expeditiously supplied to the learned Advocates appearing for the parties subject to compliance of requisite formalities.
( Indira Banerjee, J. ) ( Sahidullah Munshi, J. )