Rajasthan High Court - Jaipur
Vijay Singh Amar Singh And Co. vs Hindustan Zinc Limited And Ors. on 11 December, 1991
Equivalent citations: AIR1992RAJ82, 1992(1)WLC405, 1991WLN(UC)378
JUDGMENT B.R. Arora, J.
1. This appeal is directed against the order dated November 9, 1990, passed by the District Judge, Udaipur, by which the learned District Judge disposed of the application under Section 20 of the Arbitration Act, filed by the plaintiff.
2. Plaintiff M/s. Vijay Singh Amar Singh & Co. -- Engineers and "AA-Class Contractors" -- filed an application under Section 20 of the Indian Arbitration Act, 1940 (hereinafter referred as 'the Act') in the Court of the District Judge, Udaipur. It was averred in the application that the plaintiff was carrying on the business of engineers and contractor and it entered into a contract with the defendant M/s. Hindustan Zinc Limited (a Government of India Undertaking) on December 15, 1986, for the construction of Gosunda Dam on river Behdach (district Chittorgarh). After entering into the contract, the firm started the construction work as per the terms and conditions of the contract. According to the plaintiff, the contract created reciprocal contractual obligation, but the defendant M/s. Hindustan Zinc Limited failed to perform their part of the contract and committed several fundamental breaches of the contract hence the work could not progress according to the programme finalised, which increased the plaintiffs cost of executing the work. The plaintiff, also, suffered heavy losses on account of non-utilizatin of their resources, tools, plants machinery etc. and therefore they withdrew from the work. The defendant also, terminated the contrasct of the plaintiff for the balance work, allotted the contract to another agency, assessed the damages to the tune of Rs. 25,00,000/- and issued a Demand for the same on November 2, 1989. The case of the plaintiff is that though the damand of Rs. 25,00,000/- has been made by the defendant, but actually the plaintiff is entitled to recover Rs. 1,37,54,262.50 paise from the defendant on various counts mentined in the application. The plaintiff further stated in the application that there is a Clause No. 9 in the agreement relating to the arbitration and, therefore, in order to resolve the dispute, which arises out of the contract, the Managing Director of the defendant company may be directed to nominate sole arbitrator to resolve the dispute or, in the alternative, the Court may appoint any other person as arbitrator which the Court deems fit and proper. After filing of the application under Section 20 of the Act, reply was filed by the defendants on October 27, 1990, stating therein that in pursuance to the agreement dated August 25, 1987, arrived at between the parties, defendant N. 2 appointed Mr. S.K. Shreemali, Senior Manager (Project), Chanderliya, as the sole arbitrator to resolve the dispute between the parties, who will give his award after giving an opportunity of hearing to the parties. It was prayed that in view of the appointment of Mr. S. K. Shreemali as the sole arbitrator, this application does not survive as the relief prayed for has already been granted. The learned District Judge, by his order dated November 9, 1990, disposed of the application by observing that as the sole arbitrator has already been appointed in terms of the agreement, no further enquiry remains to be conducted and the parties may appear before the sole arbitrator and get the dispute resolved. He, therefore, consigned the file to the record, it is against this order dated November 9, 1990, disposing of the plaintiffs application under Section 20 of the Act that the plaintiff-appellant has preferred this appeal.
3. Heard learned counsel for the the appellant and the learned counsel for the respondents.
4. Learned counsel for the appellant, in this appeal, has challenged Clause 9 of the agreement. The first limb of his argument in this respect is that Clause 9 of the agreement, which relates to the arbitration clause is unconscionable and void and deserves to be quashed and set aside. The second limb of his argument is that an employee of the parties to the contract cannot be appointed as the arbitrator as he will be biased in favour of the employer. In the present case, as Shri S. K. Shreemali, Senior Manager (Project), Chanderiya has been appointed as the sole arbitrator and, therefore, he should not be allowed to continue as such. The learned counsel for the respondents, on the other hand, has supported the order passed by the Court below and raised certain preliminary objections regarding the maintainability of the appeal. Before deciding the appeal, on merit, I would first like to consider the three preliminary objections, raised by the learned counsel for the respondents.
5. The first preliminary objection, raised by the learned counsel for the respondents, is regarding the maintainability of the appeal. According to Section 39 of the Act, an appeal lies only from an order,-- (i) superseding of an arbitration; (ii) on an award stated in the form of a special case; (iii) modifying or correcting an award; (iv) filing or refusing to file an arbitration agreement; (v) staying or refusing to stay legal proceedings where there is an arbitration agreement; and (vi) setting aside or refusing to set aside an award,
6. The order under appeal dated November 9, 1990, passed by the learned District Judge, Udaipur, does not fall within any of the categories of the appealable orders mentioned in Section 39 of the Act. The learned District Judge, by this order, has disposed of the application, filed by the plaintiff, as the relief prayed for has already been granted and nothing survives for decision of the Court. The plaintiff, in its application under Section 20 of the Act, only prayed that the defendant No. 2, i.e., the Managing Director of the corporation, may be directed to appoint sole arbitrator as per clause No. 9 of the agreement and in the alternative, if the defendant No. 2 fails to appoint a sole arbitrator as per clause 9 of the agreement then the Court may appoint any other person as the arbitrator. As the relief prayed for has already been granted, the learned District Judge was justified in disposing of the application under Section 20 of the Act and no appeal against this order is maintainable as the order, passed by the learned District Judge does not fall within any of the clauses of Section 39 of the Act, under which the appeal is maintainable.
7. The next preliminary objection is regarding the sufficiency of the Court-fee affixed to the appeal. Sub-clause (m) of Article 11 of Schedule II, appended to the Rajasthan Court-fee and Suit Valuation Act, 1961, deals with the fixed Court-fee, payable on the application or appeal under Section 14 or Section 40 of the Arbitration Act. According to sub-clause (m) of Article 11, the appeal is required to be filed on a fixed Court-fee of Rs. 250/- if the value of the suit exceeds Rs. 10,000/-. The appeal, in the present case, is required to be filed on the Court-fee Stamps of Rs. 250/-, but the present appeal has been filed on a Court-fee Stamps of Rs. 100/- only, but the appeal cannot be thrown on this ground because no objection was taken by the Office regarding the dificit Court-fee and the appellant can be directed to file the deficit Court-fee even now.
8. The last preliminary objection relates to the question of estoppel. The contention of the learned counsel for the respondents on this point is that once the appellant accepted the arbitration clause in the agreement and obtained the contract, now he is estopped from raising such type of plea regarding the validity of the clause and the appointment of an employee of one of the parties as the Arbitrator. The arbitration is one of the modes for the settlement of the dispute outside the Court with a mutual voluntary agreement between the parties to refer the dispute to a third person. When the plaintiff, without any coercion, fraud, misrepresentation or without any undue influence on its own accord, willingly accepted Clause 9 regarding the reference of the dispute to a sole arbitrator, who is to be appointed by the defendant No. 2, and who may even be an employee of the defendant company and obtained the contract and as such now the plaintiff is estopped from raising this plea. The preliminary objection, raised by the learned counsel for the respondents is, therefore, sustained.
9. Now, coming to the merits of the appeal, the only grievance, raised by the plaintiff-appellant in the application under Section 20 of the Act, before the learned District Judge, was that as per Clause 9 of the agreement, the Managing Director of the defendant company may be directed to appoint a sole arbitrator and in case he fails to do so, the Court may appoint any other suitable person as the arbitrator to arbitrate the dispute. When the Managing Director has already appointed Mr. S. K. Shreemali, Project Manager, as the sole arbitrator in the case to resolve the dispute, the proceedings do not survive and no further order was required to be passed by the Court and the learned District Judge was justified in disposing of the application under Section 20 of the Act and consigning it to the record. As such, the appeal, filed by the plaintiff-appellant, has no merit and deserves to be dismissed.
10-11. Now coming to the argument, raised by the learned counsel for the appellant, the first contention, raised by the learned counsel for the appellant is that Clause 9 of the agreement, which gives power to the Managing Director of the defendant-respondent M/s. Hindustan Zinc Limited to refer the dispute to a sole arbitrator nominated by him and whose decision shall be final and binding on the parties to the contract and there will be no objection if the arbitrator so appointed is an employee of the Hindustan Zinc. Limited, is unconscionable and void. According to Section 23 of the Indian Contract Act, an agreement is lawful unless it is forbidden by law or it is immoral or opposed to public policy or is of such a nature that if permitted, it will defeat any of the provisions of the law or is fraudulent or involves injury to the person or property of another. In the light of the provisions of Section 23 of the Indian Contract Act, it has to be seen : whether the present Clause 9 of the agreement is unconscionable or unreasonable and as such is void. It is not in dispute that the agreement in the present case is a standard form of contract and the arbitration clause, i.e., Clause 9 of this agreement has been settled over the years and has been accepted. It is type of contract, of which the conditions are fixed by one of the parties in advance and are open to acceptance by any one. The appellant, in order to get the contract, signed the document of contract, accepted various conditions of the contract including Clause 9, i.e., the arbitration clause and it is now bound by it. In such cases, where such agreements are made, the terms are supposed to have been negotiated between the parties. Both the parties in the case have relatively equal bargaining power and there is no question of any superior bargaining power by the defendant and in a standard form of contract, where the bargaining powers of the contracting parties are fairly matched, a presumption can be drawn regarding the fairness and reasonableness of the terms of the contract. Even the appellant, by the agreement under consideration, accepted the condition including the condition of agreement and obtained the contract for the construction of Gosunda Dam on river Behdach, then now he cannot be allowed to back-out from the terms of the contract when the appellant accepted it. In the words of Lord Diplok, in the judgment of House of Lords in A. Schroeder Music Publishing Co. Ltd. v. Macaulay, (1974) 3 All ER 616, the standard forms of the contract contained of the contract standard clauses, which have been settled over the years by negotiation by representatives of the commercial interests involved and have been widely adopted because experience has shown that they facilitate the conduct of trade. Contracts of these kinds affect not only the actual parties to them but also others who may have a commercial interest in the transaction to which they relate, as buyers or sellers, charterers or shipowners, insurers or bankers. If fairness or reasonableness were relevant to their enforceability, the fact that they are widely used by parties whose bargaining power is fairly matched would raise a strong presumption that their terms are fair and reasonable.'
12. Now, if we look into the condition in Clause 9 of the agreement, then there is nothing illegal in the insertion of the term for the appointment of the arbitrator, who may be an employee of one of the parties. Clause 9 of the agreement does not fall within any of the categories enshirned in Section 23 of the Indian Contract Act, on the basis of which the agreement in question may be declared as unlawful. The plaintiff, by way of agreement, accpeted the mode of arbitration for settlement of the dispute and merely because the Clause will give power to the Managing Director to appoint any person as the Sole arbitrator to resolve the dispute and that person may be an employee of the defendant company, cannot render Clause 9 unconscionable or voit. Clause 9 of the agreement, to me, does not appear to be unconscionable or void as it is neither against the law nor against any policy.
13. The next contention raised by the learned counsel for the appellant is that the appointment of an employee of one of the parties to the contract as the sole arbitrator is illegal as a person cannot be appointed as a Judge in his own cause. The learned counsel for the appellant, in this context, has placed reliance over the judgment: Central Inland Water Transport Corporation v. Brojanath Ganguly, (1986) 3 SCC 156 : AIR 1986 SC 1571), Ashok Kumar Yadav v. State of Haryana, AIR 1987 SC 454 and State of Karnataka v. Shree Rameshwara Rice Mills, Thirthahalli, AIR 1987 SC 1359.
14. In Central Inland Water Transport Corporation Limited v. Brojanath Gauguly, (1986) 3 SCC 156 : (AIR 1986 SC 1571), the matter for consideration before the Supreme Court was: whether the unconscionable term in a contract of employment is void under Section 23 of the Indian Contract Act, 1872, as being opposed to public policy? The Apex Court, after considering the law on the point, held that Clause (i) of Rule 9 of the Service Discipline and Appeal Rules, 1979, of the Central Inland Water Transport Corporation, is void under Section 23 of the Contract Act as being opposed to public policy. The Court further observed that the test of reasonableness and fairness of the clause of Contract is that where there is inequality of bargaining power then the Court will not enforce that contract but when called upon to do so, strike down such unfair an unreasonable contract or a clause in the contract, entered into between the parties, who are not equal in bargaining power. But this principle will, however, not apply where the bargaining of the contracting panics is equal or almost equal. The Court, also, observed that where both the parties are businessmen and the contract is a commercial transaction, then in those cases also this principle will not apply. In the present case, the contract entered into between the parties is a business-contract and both the parties have almost equal bargaining power. The appellant entered into the contract in the course of its binding activities and, therefore, the Court is not expected to interfere in such type of contract. The appellant, with open eyes, without any coercion or fraud, entered into the contract and accepted the terms of arbitration. Now, it cannot be allowed to back-out from the agreement entered into by it. The contract entered into by the appellant cannot be said to be tainted with illegality or unfairness or unreasonableness nor can it be said that it is against the public policy or unconsicionable. This judgment, relied upon by the learned counsel for the appellant is, thus, of no avail.
15. In Ashok Kumar Yadav v. State of Haryana, AIR 1987 SC 454, the Apex Court observed that it is one of the fundamental principles of jurisprudence that no man can be a Judge in his own cause. If there is a likelihood of bias, it is in accordance with the nature of justice that the biased person should not act as a Judge in such cause. The test of likelihood of bias is: whether the person concerned is likely to be disposed to decide the matter only in a particular way or whether a reasonable person, in possession of the relevant information, would have thought that bias was likely. There are no such circumstances in the present case, on the basis of which it can be said that the arbitrator, appointed under the terms of the contract is in any way biased against the appellant. Merely because the arbitrator is an employee of the defendant company, it cannot be said that he is not competent to act as such as he will be biased in favour of the company and unfair towards the appellant. When the appellant selected a particular mode of the settlement of the dispute and agreed without any undue influence or pressure for arbitration clause, then how he is precluded from raising such type of objection.
16. In the case of State of Karnataka v. Rameshwar Rice Mills, Thirpahali, AIR 1987 SC 1359 the Hon'ble Supreme Court held that interest of justice and equity require that where a party to a contract disputes the committing of any breach of a condition, the adjudication should be by an independent person or body and not by other party to the contract. The Supreme Court, in this case, also, observed that the position will, however, be different where there is no dispute or there is a concensus between the contracting parties regarding breach of the condition of the contract. In such a case, the officer of the State, even though a party to the contract, will be well within its rights in assessing the damages occasioned by breach of law in view of the specific term of Clause 12.
17. In the present case, it is not the party to the contract, which has been appointed as the arbitrator in the matter, but a third person has been appointed as the arbitrator though he is an employee of the defendant company. But as there was an arbitration clause in the contract itself, by which both the parties agreed for the appointment of the arbitrator, be that he may be an employee of the company. Even according to the judgment of the Supreme Court, if there is an agreement between the parties to adjudicate upon the matter then the right flows from the contract and falls within the terms of contract. In the present case, the parties agreed to appoint an arbitrator to adjudicate upon the dispute arising out of the contract and the parties to the contract will have no objection if the person appointed as an arbitrator may be an employee of Hindustan Zinc Limited. This case, therefore, does not help the appellant, rather it goes against it.
18. The question which thus requires consideration is : whether the employee of the defendant company can be appointed as the sole arbitrator? The arbitration is one of the modes of settlement of the disputes between the parties and the object of resorting to arbitration is its speediness, cheapness, convenience, simplicities of procedure, secrecy and the encouragement of healthy and friendly relations between the disputants. The basic concept of arbitration is that the person chosen to discharge the functions of arbitrator should be one in whom both the parties response their trust and faith and the arbitrator must not have any prejudice against any of the parties. When the plaintiff, without any coercion, fraud, misrepresentation or any persuasion, of its own accord, willingly agreed to be bound in all disputes between it and the company by the decision of the arbitrator, who may be a person of the company and still agrees to the arbitration clause, having chosen to put itself in that possession now the plaintiff-appellant cannot complain of the legitimate conclusion of their bargain though it can complain of the illegitimate consequences if the arbitrator acts arbitrarily, capriciously or in collusion with the company, but still that stage comes, the arbitration clause, referring the dispute to the nominee of the Managing Director, be he may be the employee of the company cannot be disregarded on that ground unless there is sufficient reason to suspect that he will not act fairly. Merely because the arbitrator is an employee of one of the parties cannot be a ground for not enforcing the provisions of the Arbitration Clause Act. To disqualify, an arbitrator, it must be shown that he is actually biased and cannot be expected to determine the dispute disinterestedly and free from any bias. While entering into the agreement, the company expressly stipulated and the appellant expressly agreed with the reference of the dispute to the sole arbitrator appointed by the company, who may even be an employee of the company. As the plaintiff accepted this clause, which was his own personal decision and agreed to enter into the contract, he has thus waived this right to complain of and is bound by the express terms of the contract.
19. Russell, on Arbitration, 16th Edition, at page 110 states:--
"If the parties to a dispute with full knowledge of the facts select an arbitrator who is not an impartial person or who has to perform other duties which will not permit of his being an impartial person, the Court will not in general release them from the bargain upon which have agreed; and if a party to a contract submits to the jurisdiction of a Tribunal which has an interest of its own in the decision, the Court will not in general on that account release him from the bargain (however improvident it may be) so long as the Court is satisfied that he is aware or ought to have been aware of the terms of the bargain he has entered into. To disqualify an arbitrator so appointed, it is insufficient to show that he might be suspected of particularly; it must be shown, if not that he actually is biased, at least that there is strong probability that he will be biased, and to such an extent as to be incapable of fairly and honestly giving a decision."
20. Redman, on Law of Arbitration and Awards, Chapter V, page 56, stated:--
"But if the selection is by mutual consent it is not now probable that disability of any kind in the person chosen, known at the time of appointment, would be ground for impeaching the award, for the parties choose their own Tribunal and agree to abide by its decision."
21. In Jackson v. Barry Railway Company, (1893) 1 Ch 288, it has been held that considering the position of the engineer, who as engineer of the company, must necessarily have already expressed an opinion on the point in dispute, his writing after the commencement of the arbitration a letter repeating the same opinion would not disqualify him from acting as an arbitrator.
22. In Ives & Varker v. Willans, (1894) 2 Ch 478, it has been held that the arbitration clause, referring the dispute to the engineer of one party cannot be disregarded on the ground that the engineer is, in substance a Judge in its own unless there is a reason to suspect that he will act unfairly.
23. In Bekersley v. Mersey Dock and Harbour Board, (1894) 2 QB 667, it has been held :--
"The rule which applies to a Judge or other person holding judicial office, namely, that he ought not to hear cases in which he might be suspected of a bias in favour of one of the parties, does not apply to an arbitrator, named in a contract, to whom both the parties have agreed to refer disputes which may arise between them under it. In order to justify the Court in saying that such an arbitrator is disqualified from acting, circumstances must be shown to exist which establish, at least, a probability that he will in fact be biased in favour of one of the parties in giving his decision.
Where, however, in a contract for the execution of works, the arbitrator selected by the parties is the servant of one of them, he is not disqualified by the mere fact that under the terms of the submission he may have to decide disputes involving the question whether he has himself acted with due skill and competence in advising his employer in respect of the carrying out of the contract."
24. In the case of B.K. Dhar v. Union of India, AIR 1965 Cal 424, it has been held that if the parties, with full knowledge of the fact, select their arbitrator, who is not an impartial person, the Court will not release them from the bargain upon which they agreed and if a party, in order to secure a contract, has submitted to the jurisdiction of the Tribunal, which has an interest of its own in the decision, the Court will not, on that account, release them from their own bargain, however, improvident it may consider so long if the Court is satisfied that he knew what type of bargain he was entering into.
25. In the case of Union of India v. Pramod Kumar Agrawal, (1971) 75 Cal WN 767 the Decision Bench of the Calcutta High Court, held:--
"It cannot be said that only because the sole arbitrator is nominated by the Secretary Government of India and he may be a Government servant, the Court ought to conclude that he will or is likely to act as a biased."
26. In the case of Executive Engineer, Irrigation Division, Puri v. Ganga Ram Chhaporiya, AIR 1984 SC 234, the Hon'ble Supreme Court approved the appointment of the Superintending Engineer, State Public Works Department as the arbitrator by the Chief Engineer who was empowered under the Clause of Agreement and held that the appointment of the Superintending Engineer, Irrigation Division, as the arbitrator by the Chief Engineer cannot be said to be illegal.
27. On a consideration of the above-noted decisions I have no hesitation to hold that the appointment of Mr. S. K. Shreemali, Project Manager of the Hindustan Zinc Limited, as the sole arbitrator, cannot be said to be invalid or void in the absence of any material to show that he is biased in favour of the company, merely on the ground that he is an employee of the Hindustan Zinc Limited. The apprehension of the appellant that the employee of the company, acting as an arbitrator, may have bias in favour of the company, does not appear to be well-founded because this very consideration will make him more careful and cautious and more particular to keep him unbiased as his reputation will be at stake and it is expected that he will lay aside his pre-conceived opinion, if any, as he is duty bound to keep an open mind as to the matters upon which he was called upon to adjudicate and will have enough honesty and strength in mind to act impartially. In the facts and circumstances of the case, it cannot be said that Mr. S. K. Sreemali is likely to be disposed to decide the matter only in particular manner. The question: what is the likelihood of bias came up for consideration before the Apex Court in the case of Jiwan Kumar Lohia v. Durgadutt Lohia, (1991) 4 JT 254 : (AIR 1992 SC 188) and the Apex Court held that the test of likelihood of bias is whether a reasonable person in possession of relevant information would have thought that bias was likely and whether the person concerned was likely to be disposed to decide the matter in a particular way are the two tests which would apply to an arbitrator but while considering whether there is reasonable ground for apprehension that the arbitrator will be biased, the Court should be satisfied that the substantial miscarriage of justice will take place in the event of its refusal to revoke the authority of the arbitrator. The Hon'ble Supreme Court, further, opined that the discretion to revoke the arbitrator's authority has to be exercised cautiously and sparingly and while doing so, the Court must bear in mind that the arbitration is a particular method for the settlement of the dispute and the party should not be relieved from the Tribunal they have chosen because they fear that the Arbitrator's decision may go against them.
28. The arbitrator, according to Russell, is neither more nor less than a private Judge of a private Court (called an Arbitral Tribunal), who gives a private judgment (called an award). He is not a conciliator and cannot ignore the law of misapply it in order to do what he thinks is just and reasonable. He cannot act arbitrarily, irrationally, capriciously or independently of the contract. He is a Tribunal, selected by the parties, to decide their dispute in accordance with law. His sole function is to arbiter within the bounds and in terms of the contract, as his authority is derived from the contract. He has to remain inside the parameters of the contract and if he out-steps the confines of the contract and acts unreasonably, irrationally and capriciously and ignores the limits and the clear-cut provisions of the law then he can be set right by the Court provided his error appears on the face of the record. The arbitrator cannot travel beyond the designated area fixed by the agreement or the contract.
29. In this view of the matter, when the parties having equal bargain powers with their eyes open, at the time of entering into the contract, agreed for the appointment of a particular person as an arbitrator, knowing fully well that the arbitrator may be employee of the parties then now, at this stage, when the dispute has been raised and the arbitrator has been appointed, the appellant cannot be allowed to be released from the bargain, which it willingly accepted and cannot be allowed to challenge the appointment of Shri S. K. Shreemali as the sole arbitrator.
30. In this view of the matter, I do not find any merit in the appeal and the same is hereby dismissed.