Madras High Court
M/S.Guindy Industrial Estate ... vs M/S. Gurumurthy Engineering ... on 29 March, 2011
Author: Vinod K.Sharma
Bench: Vinod K.Sharma
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 29.03.2011 CORAM: THE HONOURABLE MR.JUSTICE VINOD K.SHARMA O.P.No.819 of 2010 M/s.Guindy Industrial Estate Infrastructure Upgradation Company Garment Complex-II, Rep. by its Chief Executive Officer Thiru-vi-ka Industrial Estate, Guindy, Chennai 600 032. ... Petitioner. vs. 1. M/s. Gurumurthy Engineering Enterprises, Civil Engineering Contractors, No.7/3, Ring Road, Ashok Nagar, Chennai 600 083. 2. Mr.Justice K.Sampath (Retd.) The Presiding Arbitrator No.11, Jagadambal Colony, Royapettah, Chennai 600 014. 3. Mr.Justice E.Padmanabhan (Retd.) Co-Arbitrator No.11, Madha Church Street, Mandavelipakkam, Chennai 600 028. 4. Mr.D.S.Dharmaseelan ... Respondents. Company Petitions filed under Sections 14 and 15 of the Arbitration and Conciliation Act, 1996, for terminating the appointment of R3 as Arbitrator for the petitioner / company by the Indian Council of Arbitration, arising out of the Arbitration Agreement dated 22.12.2008 entered into between the petitioner / company and the R1. For Petitioner : Mr.B.Shanthakumar Learned Senior Counsel For R1 : Mr.D.Balaraman Mr.G.Ramanujam For R4 : Mr.D.S.Dharmaseelan O R D E R
The petition under Sections 14 & 15 of the Arbitration and Conciliation Act, 1996, has been filed with the prayer to terminate the appointment of R3 as Arbitrator of the petitioner / company by the Indian Council of Arbitration.
2. The parties had entered into an agreement on 22.12.2008. Clause 23 and 24 of the agreement reads as under:
23. Disputes 23.1 If either party believes that a decision taken by the Engineer was either outside the authority given to the Engineer by the Contract or that the decision was wrongly taken, the objecting party may file written notice of dispute to the other party with a copy to the Engineer stating that it is giving the notice pursuant to this Clause while stating clearly the basis for the dispute.
23.2 The party receiving the dispute notice will consider it and reply in writing within 14 days of the receipt of the notice. If no reply is received or the reply is not acceptable to the other party, the affected party may suggest for Arbitration.
24. Procedure for Arbitration:
24.1 The procedure for arbitration shall be as follows:
(a) Disputes or differences arising between the Employer and Contractor shall be settled in accordance with the Arbitration and Conciliation Act, 1996. For this purpose, the arbitral tribunal shall consist of 3 arbitrators one each to be appointed by the Employer and the Contractor. The third arbitrator shall be chosen by the two arbitrators so appointed by the Parties and shall act as presiding arbitrator. In case of failure of the two arbitrators appointed by the parties to reach a consensus within a period of 30 days, the presiding arbitrator shall be appointed by the President of the Institution of Engineers (India).
(b) If one of the parties fails to appoint its arbitrator in pursuance of Clause (a) above within 30 days after receipt of the notice of the appointment of its arbitrator by the other party, then the India Council of Arbitration, shall appoint the Arbitrator. A certified copy of the order of the Indian Council of Arbitration, making such an appointment shall be furnished to each of the parties.
(c) Arbitration proceedings shall be held at Chennai, India, and the language of the arbitration proceedings and that of all documents and communications between the parties shall be English.
(d) The decision of the majority of arbitrators shall be final and binding upon both parties. The cost and expenses of Arbitration proceedings will be paid as determined by the arbitral tribunal. However, the expenses incurred by each party in connection with the preparation, presentation, etc. of its proceedings as also the fees and expenses paid to the arbitrator appointed by such party or on its behalf shall be borne by each party itself.
(e) Performance under the contract shall continue during the arbitration proceedings and payments due to the Contractor by the Employer shall not be withheld, unless they are the subject matter of the arbitration proceedings."
3. The petitioner challenged constitution of arbitration tribunal by contending that the arbitration tribunal has not been constituted in accordance with law, as third respondent has been wrongly appointed as Arbitrator on behalf of the petitioner, though the petitioner had nominated one Mr.N.C.Ramesh, Senior Advocate, to be Arbitrator, on their behalf. It was not open to the Indian Council of Arbitration, to appoint Arbitrator on its behalf.
4. Undisputedly, the facts leading to the filing of present petition are, that when dispute had arisen between parties, the first respondent company, appointed the fourth respondent as its Arbitrator . The petitioner failed to appoint Arbitrator, within stipulated period of 30 days in terms of agreement, therefore, request was made to the Indian Council of Arbitration, for appointment of Arbitrator on behalf of the petitioner herein.
5. The request of first respondent was accepted and Mr.Justice P.R.Gokulakrishnan, Retired Chief Justice of Gujarat High Court was appointed as Arbitrator on behalf of the petitioner.
6. However, while appointing the Arbitrator, on behalf of the petitioner, Indian Council of Arbitration, wrongly showed him to be the sole arbitrator to adjudicate the dispute. Whereas, he was to act as Arbitrator, on behalf of the petitioner herein and the Presiding Officer was to be appointed by the two appointed arbitrators.
7. He asked the parties either to accept him as the Sole Arbitrator, in the alternative, he opted to resign. The appointment of Justice P.R.Gokulakrishnan as sole Arbitrator, was objected by the petitioner, though it was accepted by the first respondent, that Justice P.R.Gokulakrishnan as the Sole Arbitrator.
8. In view of position mentioned above, Justice P.R.Gokulakrishna wrote to the Indian Council of Arbitration, for correcting the mistake, he also withdrew from the arbitration proceedings.
9. Section 15 of the Arbitration and Conciliation Act reads as under:
"15. Termination of Mandate and Substitution of Arbitrator:
1) In addition to the circumstances, referred to under Section 13 or Section 14, the mandate of an arbitrator shall terminate -
a) Where he withdraws from office for any reason; or
b) By or pursuant to agreement of the parties
2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.
3) Unless otherwise agreed by the parties, where an arbirator is replaced under sub-Section (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal.
4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this Section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal."
10. In compliance with the provisions of Section 15, instead of allowing the petitioner to fill up the vacancy, the Indian Council of Arbitration, on request of respondent no.1, appointed the third respondent, to be the Arbitrator on behalf of the petitioner.
11. Both the Arbitrators appointed the second respondent as the Presiding Arbitrator.
12. Learned counsel for the petitioner challenged the appointment, primarily on the ground that in view of the facts stated herein above, after the Hon'ble Chief Justice (Retd) had chosen to withdraw from the arbitration proceedings, the petitioner should have been given an option to appoint the Arbitrator, as the procedure laid down under the contract was to be followed to fill up the vacancy, as the appointed Arbitrator decided to withdraw from the arbitration proceedings.
13. The stand of the petitioner, further is that within a period of 30 days of withdrawal by the appointed arbitrator, the petitioner appointed Mr.N.C.Ramesh, Senior Advocate, as Arbitrator on their behalf, therefore, appointment of third respondent by the Indian Council of Arbitration, appointing him as Arbitrator on behalf of the petitioner, cannot be sustained in law, being in violation of Section 15 of the Act.
14. This petition is opposed by the learned counsel for the respondents by contending that the name Mr.N.C.Ramesh, suggested by the petitioner, cannot be appointed as Arbitrator, as it will be embarrasing for him to act as Arbitrator, as he was the Counsel on behalf of the petitioner, to contest the cases.
15. This contention of the learned counsel for the respondents cannot be accepted. It is for Mr.N.C.Ramesh, Senior Advocate, to consider, whether he would like to accept the appointment or not.
16. It will also be open to the first respondent to challenge his appointment, if so desired, in accordance with law, in case in spite of pointing out to the facts stated, he wishes to continue, with the arbitration.
17. It is also the contention of the learned counsel for the respondents that in view of judgment of the Hon'ble Supreme Court in the case of Yashwith Constructions (P) Ltd vs. Simplex Concrete Piles India Ltd and another, (2006) 6 SCC 204, it is not open to the petitioner to name an Arbitrator, as it had failed to appoint an Arbitrator within the period stipulated in the agreement.
18. Paragraph No.4 of the judgment, of which reliance has been placed, reads as under:
"4. In our view, the learned Chief Justice and the Division Bench have rightly understood the scope of Section 15 of the Act. When the Arbitrator originally appointed in terms of the arbitration agreement withdrew for health reasons, the Managing Director, as authorised originally by the arbitration agreement, promptly appointed a substitute arbitrator. It is true that in the arbitration agreement there is no specific provision authorising the Managing Director to appoint a substitute arbitrator if the original appointment terminates or if the originally appointed arbitrator withdraws from the arbitration. But, this so-called omission in the arbitration agreement is made up by the specific provisions 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. Obviously, therefore, Section 15(2) would 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. Therefore, what Section 15(2) contemplates is an appointment of the substituted arbitrator or the replacing of the arbitrator by another according to the rules that were applicable to the appointment of the original arbitrator who was being replaced. The term "rules" in Section 15(2) obviously referred to the provision for appointment contained in the arbitration agreement or any rules of any institution under which the disputes were referred to arbitration. There was no failure on the part of the party concerned as per the arbitration agreement, to fulfil his obligation in terms of Section 11 of the Act so as to attract the jurisdiction of the Chief Justice under Section 11(6) of the Act for appointing a substitute arbitrator. Obviously, Section 11(6) of the Act has application only when a party or the person concerned had failed to act in terms of the arbitration agreement. When Section 15(2) says that a substitute arbitrator can be appointed according to the rules that were applicable for the appointment of the arbitrator originally, it 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. We are not in a position to agree with the contrary view taken by some of the High Courts."
19. The reading of judgmenet shows, that this goes against the contention raised by the learned counsel for the first respondent. The Hon'ble Supreme Court, has laid down that substitute arbitrator, on resignation of the first arbitrator, is to be appointed in terms of agreement.
20. It was only on failure to do so, within a period of 30 days, that application could be made to the Indian Counsel of Arbitration. In this case, Mr.N.C.Ramesh, Senior Advocate was nominated by the petitioner within 30 days of resignation of first arbitrator.
21. Learned counsel for the first respondent, thereafter placed reliance on a judgment of the Hon'ble Calcutta High Court, in the case of Power Construction Ltd vs. Damodar Valley Corporation [2009 Arb.W.L.J. 614 (Cal)] to contend that the right under the agreement of a party, to appoint an arbitrator, stands extinguished once an application under Section 11(6) is made and it does not revive, if the arbitrator appointed by the Chief Justice resigns and / or his mandate is terminated.
22. In paragraph No.24 of the Hon'ble Calcutta High Court's judgment, it was observed as under:
"24. As observed above, the expression "rules that were applicable to the appointment of the arbitrator being replaced" in Section 15, have carefully been chosen. If the arbitrator being replaced was appointed by the Chief Justice and / or his designate in accordance with Section 11 of the 1996 Act read with the applicable rules, the substitute arbitrator would also have to be appointed by the Chief Justice and / or his designate in the same manner. It is immaterial that the respondent has appointed an arbitrator in the meanwhile. The appointment of the arbitrator by the respondent, after filing of his application, is of no consequence."
23. This judgment also does not advance the case of the respondents, as in the present case, appointment was not made by the Hon'ble Chief Justice in exercise of Section 11(6) of the Arbitration and Conciliation Act, but under the terms of agreement executed between the parties.
24. The respondent no.1 had requested the Indian Council of Arbitration to make appointment in terms of agreement, which means that Indian Counsel of Arbitration was acting as substitute of the party in making appointment.
25. The Indian Council of Arbitration, was not exercising any statutory power, as is exercised by the Hon'ble Chief Justice under Section 11(6) of the Arbitration and Conciliation Act so as to take away the right of the party under the Contract.
26. In view of the provisions of Section 15 of the Act, once appointed arbitrator by the Indian Council of Arbitration had refused to act and his mandate stood terminated, the procedure laid down under the agreement was to be followed i.e. first to give opportunity to the petitioner to appoint arbitrator in place of outgoing arbitrator, appointed by the Indian Council of Arbitrator, its behalf as per terms of the agreement. It was only on the failure of the petitioner to appoint arbitrator, that the arbitrator could be substituted by the Indian Council of Arbitration, then it could be said to be in consonance with the judgment of the Hon'ble Supreme Court, on which reliance was placed by the learned counsel for the respondents.
27. At the sake of repetition, it may be noticed that the power of Indian Council of Arbitration, was not under statute, but merely under the authority of the party, therefore, it cannot be equated with the power of the Hon'ble Chief Justice under Section 11(6) of the Arbitration and Conciliation Act, which could override the contractual right to appoint the arbitrator.
28. Learned counsel for the respondents, pointed out that attempt of the petitioner, is only to delay the proceedings, and there is every likelihood of the petitioner, raising a objection that the Presiding Officer to be changed, as he was not appointed with the consent of Mr.N.C.Ramesh, Senior Advocate, appointed as Arbitrator, by the petitioner.
29. Learned counsel for the petitioner rebutted this contention by taking a stand that petitioner has no such intention. It is stated at the bar that the Presiding Officer would be deemed to have been appointed with the consent of the Arbitrator, appointed by the petitioner and that the Counsel has authority on behalf of Mr.N.C.Ramesh, Senior Advocate to make such statement.
30. For the reasons stated above, this Original Petition is allowed, and the mandate of third respondent, is ordered to be terminated.
31. In view of the stand taken by the learned counsel for the parties, it is made clear that the panel of Arbitration Tribunal shall now be as under:
1. Mr.Justice K.Sampath (Retd.) - Presiding Arbitrator
2. Mr.N.C.Ramesh, Senior Advocate - Co-Arbitrator
3. Mr.D.S.Dharmaseelan, Suptdg, Engr.(Retd.) - Co-Arbitrator
32. The Arbitration Tribunal, now constituted, shall commence proceedings immediately and proceed further with the arbitration from the stage it is at present. No costs.
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