Allahabad High Court
M/S S.K. And Associates vs M/S Indian Farmers Fertilizers ... on 31 May, 2019
Author: Yashwant Varma
Bench: Yashwant Varma
HIGH COURT OF JUDICATURE AT ALLAHABAD AFR Reserved on 23.05.2019 Delivered on 31.05.2019 Case :- ARBITRATION AND CONCILI. APPL.U/S11(4) No. - 105 of 2015 Applicant :- M/S S.K. And Associates Opposite Party :- M/S Indian Farmers Fertilizers Cooperative Ltd. And 2 Ors. Counsel for Applicant :- Pranab Kumar Ganguli Counsel for Opposite Party :- Vivek Ratan Agrawal With Case :- ARBITRATION AND CONCILI. APPL.U/S11(4) No. - 20 of 2016 Applicant :- M/S S.K. And Associates Opposite Party :- Indian Farmers Fertilizers Cooperative Ltd. And 2 Others Counsel for Applicant :- Pranab Kumar Ganguli Counsel for Opposite Party :- Vivek Ratan Agrawal Hon'ble Yashwant Varma,J.
Heard Sri P.K. Ganguly and Anil Tiwari for the applicants. Sri Sunil Gupta learned Senior Advocate who led arguments on behalf of the respondents [IFFCO] was assisted by Sri Sanjay Grover and Sri Vivek Ratan Agarwal.
These two arbitration applications, with the consent of parties, have been heard together and are being disposed of by this common judgment. While Arbitration Application No. 105 of 2015 preferred under Section 11 (5) of the Arbitration and Conciliation Act 1996 emanates from Arbitration Case No. 1 of 2007 ["Case No.1"], Arbitration Application No. 20 of 2016 instituted under Section 15(2) of the 1996 Act arises from Arbitration Case No. 2 of 2007 ["Case No. 2"]. The dispute in Case No. 1 stems from a work order placed upon M/s S.K. Associates in 1995. Case No. 2 arises from disputes relating to a work order dated 12 February 1999 placed upon the applicant.
The applicant originally preferred Writ Petition No. 26226 of 2001 before the High Court seeking payment of its alleged outstanding dues. This petition was disposed of with liberty to the applicant to invoke the arbitration clause. Upon receipt of a notice from the applicants invoking arbitration, IFFCO appointed its Senior General Manager as the sole Arbitrator in both cases. Since the applicants raised a doubt with respect to the impartiality of the appointed sole arbitrator, IFFCO proceeded to appoint Justice S.P. Goel, a retired Judge of the High Court, as the sole arbitrator on 18 June 2002. Raising reservations in respect of this Arbitrator also, the applicants petitioned the Chief Justice of this Court invoking Section 11 of the 1996 Act by way of Arbitration Application No. 22 of 2005. This application, which related to Case No. 1, was disposed of on 1 December 2006 with the nominee Judge of the Chief Justice appointing Justice V.P. Goel, a retired Judge of this Court, as the Arbitrator. Disposing of a similar application numbered as Arbitration Application No. 31 of 2005, preferred in respect of Case No.2, the nominee Judge on 16 March 2007 appointed Justice V.P. Goel to arbitrate the disputes.
From the record it transpires that proceedings in Case No. 2 were suspended on 17 May 2008 on account of non-payment of fees. In Case No. 1 an acrimonious exchange ensued before the Arbitral Tribunal constraining it to terminate the proceedings invoking the provisions of Section 32(2)(c). The Arbitral Tribunal recorded that since the applicants were not cooperating with the Tribunal a situation had arisen where the continuance of proceedings had become impossible. On 19 December 2008 he consequently proceeded to pass an order terminating the proceedings.
The applicants thereafter instituted Arbitration Application No. 14 of 2009 in respect of Arbitration Case No. 2 of 2007 purportedly under Section 11 seeking revocation of the mandate of the Arbitrator. The proceedings before the Arbitrator do not appear to have proceeded ahead with the applicants informing it of the filing of the aforesaid application before this Court. The Arbitrator consequently on 24 July 2010 adjourned the proceedings sine die leaving it open to the applicants to seek revival pursuant to the orders passed by the High Court. The application preferred before the High Court was dismissed by the Chief Justice on 27 August 2010 in the following terms:-
"2. The respondents have filed their reply wherein they have raised the plea that considering the provisions of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act), it is open to the petitioners to seek direction for removal or recall of the Arbitrator. It is submitted that the Chief Justice exercising his power under Section 11 cannot exercise jurisdiction to recall an Arbitrator on the ground as has been raised on behalf of the petitioners. Section 11 can only be invoked when there is a vacancy.
3. Having heard the parties, in my opinion, the contention raised on behalf of the respondents has merit.
Section 12 of the Act provides grounds for challenge to the appointment of the Arbitrator. Section 12 (3) of the Act reads as under:-
"An arbitrator may be challenged only if--
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualification agreed to by the parties."
It is thus clear that it is open to a party to challenge the continuance of the arbitrator if circumstances exist that give rise to justifiable doubts as to his independence or impartiality.
Section 12 (4) of the Act permits an applicant to challenge the continuance of an Arbitrator, even if he was earlier a party to the appointment and the sub-section reads as under:-
"A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made."
Section 13 (2) of the Act provides the procedure for the challenge to the continuance of an Arbitrator, which includes sending a written statement of the reasons for the challenge to the arbitral tribunal.
Under Section 13 (3) of the Act, power has been conferred on the arbitral tribunal to decide on the challenge.
4. The next relevant provision is Section 13 (4), which reads as under:-
"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."
Section 13 (5) provides that if a party is aggrieved by such an award then such party can challenge the award by making an application under Section 34, wherein the challenge which was rejected, can be considered. Where the mandate of an Arbitrator terminates by virtue of Section 15 (6), a substituted arbitrator shall be appointed according to the rules that were applicable to the appointment of the Arbitrator being replaced. Once the parties fail to appoint an Arbitrator in terms of the rules, then the Chief Justice or his delegate under Section 11 (6) on a request by a party can appoint an Arbitrator. The scheme, therefore, for removal of an Arbitrator and filling the resultant vacancy is clear.
5. Considering these provisions in the Act, which provide for a challenge to the continuance of the Arbitrator, the present application is not maintainable and consequently, the application stands rejected.
6. On behalf of the petitioners, it is pointed out that an application has already been moved before the arbitrator. It is open to the petitioners to press that application before the arbitrator."
The applicants parallelly instituted another petition being Arbitration Petition No. 27 of 2009 in light of the order dated 19 December 2008 passed by the Tribunal terminating proceedings of Case No. 1. The contention urged before the Chief Justice in that petition was that since the sole Arbitrator has terminated proceedings, a new Arbitrator may be appointed. This petition was dismissed on 28 September 2010. While dismissing that petition, the Chief Justice observed as under: -
"14. Thus, considering the position, as no remedy is available under the Act to challenge such an order of termination, the law would be that the extraordinary jurisdiction under Article 226 of the Constitution would be available against termination of proceedings under Section 25 (a) of the Act, as otherwise the party will be left without a remedy. The petitioners herein, however, have not invoked that remedy and has come to this Court seeking to invoke the powers under Section 11 (6) and Section 14 of the Act.
x x x x x x x x In the instant case, the learned Arbitrator has not withdrawn from the proceedings but has rather terminated the proceedings. This cannot be decided under Section 14 (2) of the Act. Section 11 would also not be applicable. The law, thus, would be that it is not open to the Court under Section 11 (6) of the Act to nominate another Arbitrator.
The legal position was ultimately summarised in that decision of the Chef Justice in the following terms: -
"23. Thus, from the above discussion, the legal position can be summarised as under:-
(1)An order terminating proceedings, which does not result in award, can be the subject matter of a challenge under Article 226 of the Constitution of India (2)The termination of proceedings under Section 32 (2) (c) of the Act, in certain circumstances, can still give rise to initiation of de novo arbitration proceedings, provided the action is within limitation.
(3)In a case, where arbitral proceedings are terminated, it is not open to the Chief Justice or his delegate to exercise powers under Section 11 (6) of the Act.
(4)Insofar as the challenge under Section 14 is concerned, that will have to be before the Court, and not the Chief Justice or his delegate hearing an application under Section 11 (6) of the Act.
(5)What was invoked in the instant case was the power of Chief Justice under Section 11(6) of the Act. It will not be possible considering the law to substitute or name a new Arbitrator, as the Arbitrator terminated the proceedings.
(6)It will be open to the petitioners, if advised, to avail the remedy available to him in law including Article 226 of the Constitution of India."
Against the aforesaid order, the applicants filed a Special Leave Petition on 25 November 2010 which has been accorded Diary No. 37831 of 2010. That petition, this Court is informed, is stated to have been lying in defect till those were removed in April 2019.
The Tribunal while dealing with Case No. 2 in its order of 28 October 2012 noted that the claimant had filed a Special Leave Petition in the Supreme Court. The applicants were directed to consequently produce a copy of the Special Leave Petition and the orders passed thereon. On 9 December 2012 the applicants for the first time placed before the Tribunal a copy of the order passed by the Chief Justice on 27 August 2010. On 10 January 2013, the applicants produced a copy of the Special Leave Petition and requested the Tribunal to stay proceedings in Arbitration Case No. 2 of 2007. On 30 January 2013 the applicants applied for recall of the order dated 19 December 2008 in terms of which proceedings of Case No. 1 had been terminated. The application for recall was dismissed by the Arbitrator holding that the Tribunal had become functus officio. On 29 September 2015, the Tribunal while dealing with Case No. 2 noted that proceedings in that case had lingered unnecessarily for almost eight years. The Tribunal came to conclude that the applicants here appeared to be unwilling to proceed. It consequently proceeded to pass an order withdrawing from office. However, since the Tribunal entered certain pertinent observations while withdrawing from office and since the terms of this order would be of some import, the same is extracted herein below: -
"The claimant S.K. Associates filed an application on 04.01.2009 for change of Arbitrator and pointed out that the claimant wold move the High Court for said purpose.
In 2010 the Hon'ble High Court rejected the application. The Hon'ble High Court did not interfere. A copy of the Hon'ble High Court's order dated 27.08.2010 was filed before the Arbitrator after 2 years on 21.09.2012. Then the claimant moved an application dated 10.01.2013 before the Arbitrator wherein he stated that claimant has moved an SLP before the Supreme Court and asked that Arbitrator should stay the Arbitration. The copy of SLP is dated 29.11.2010. Neither any order of the Supreme Court nor any status report has been filed till today. Since then the arbitration proceedings are without any progress. Claimant appears to be unwilling to proceed. He appears to be not interested in joining arbitration despite the act that it had itself sought arbitration.
The Arbitration cannot proceed with an unwilling litigant and therefore, for aforesaid reason, the arbitrator withdraws from office. Proceedings consigned."
On or about December 2015 Arbitration Application No. 105 of 2015 came to be instituted praying for appointment of a new Arbitrator. On 22 March 2016 Arbitration application No. 20 of 2016 came to be preferred before this Court. These two applications were dismissed in default on 4 July 2017. They were ultimately restored and thereafter with the consent of parties taken up for final disposal.
To complete the narration of facts, it would be also apposite to note that a third dispute inter partes formed subject matter of Arbitration Case No. 3 of 2007. That dispute also was being considered by the sole Arbitrator who presided over Arbitration Case Nos. 1 and 2. In that case proceedings remained suspended between November 2011 to May 2015 on account of non-payment of Arbitrator's fee. The Arbitrator in that case appears to have reserved orders for delivery of Award of 19 July 2015. In that case, the applicant on 7 November 2015 made an application stating that it did not desire to participate and applied for release from arbitration. In light of the application so made, the Arbitrator passed an order on 7 November 2015 permitting the petition to be withdrawn as released in the following terms:-
"The applicant- petitioner and opposite parties took adjournments after adjournment. The proceedings remained suspended for more than four yeas from 20th January 2011 to 17th May 2015 under section 38(2) of Arbitration and Conciliation Act, 1996 for non-payment of Arbitrators fee by applicant-petitioner. The applicant-petitioner filed written arguments of about 582 pages beside oral arguments. The Award was reserved on 19th July 2015. Now the applicant- petitioner desire not to participate in arbitration and desires, in effect, release from arbitration. He has filed application for release of arbitration proceedings. I withdraw myself as Arbitrator and release present arbitration proceedings.
Accordingly the arbitration petition is permitted to be withdrawn as released."
Consequent to those proceedings being withdrawn the applicants filed another application under section 11 (4) titled M/S Manish Engineering Enterprises Vs. Indian Farmers Fertilizers Corporation Ltd1. before this Court praying for appointment and constitution of a fresh arbitral tribunal on the ground that the previous Arbitrator had withdrawn from office. That application came to be dismissed by a learned Judge of the Court on 26 November 2018 in the following terms:-
"8. Having considered the argument so advanced by the learned counsel for the parties, in the first place, it is difficult to hold the arbitration proceedings stood terminated on merits, inasmuch as, the order passed by the learned arbitrator does not indicate that he had terminated the proceedings on merits.
9. Perusal of the order as quoted above clearly indicates that the learned arbitrator chose to recuse himself in view of the application filed by the applicant.
10. That being the position of fact, the legal consequence is well taken care of by the provisions of Section 15(1) read with Section 2 of the Act which provides, where the arbitrator withdraws from office for any reason a substitute arbitrator should be appointed according to the Rules that were applicable to the appointment of the arbitrator being replaced.
11. Therefore in the first place a substitute arbitrator may be appointed in view of the clear provisions of law in that regard. Second as to the procedure to be followed, again there is no doubt that it would have to remain the same as had been followed at the time of the appointment of the arbitrator who has recused himself.
12. Thus in the facts of the present case, it being admitted that no fresh notice was issued by the applicant to the respondents in terms of the procedure that had been invoked and applied for the purpose of appointment of the earlier arbitrator, the present application filed directly is not maintainable.
13. If such a procedure had been adopted, the respondents could have a right to object to the fresh arbitration being sought and in the alternative it may have chosen to appoint an arbitrator of its choice, that being permissible under Section 11 of the Act.
14. Thus the present application is not maintainable.
15. The present petition, is accordingly, dismissed leaving it open to the petitioner to adopt the procedure under Section 11 of the Act to the extent, it may be available."
It is in the above factual backdrop that these two applications were heard together. At the very outset and before proceeding to record the submissions which were advanced on behalf of respective parties, the Court deems it appropriate to record that undisputedly the proceedings of arbitration in both these cases commenced prior to the promulgation of Amendment Act No. 3 of 2016. It was thus not disputed by learned counsels that these applications would be liable to be considered and decided in light of the statutory position as it prevailed prior to the commencement of Act No. 3 of 2016.
Dealing firstly with Arbitration Application No. 105 of 2015 Sri Ganguli learned counsel contended that the Chief Justice in the judgment rendered inter partes on 28 September 2010 had clearly held that termination of proceedings under Section 32(2)(c) in certain circumstances can still give rise to initiation of de novo arbitration proceedings provided the action is within limitation. Sri Ganguli, learned counsel contends that although and at that time, the Chief Justice had observed that an order terminating arbitral proceedings can be challenged under Article 226 of the Constitution, that remedy is no longer available to the petitioners in light of the judgment rendered by the Supreme Court in M/s. S.B.P. & Co vs M/S. Patel Engineering Ltd. & Anr2. According to Sri Ganguli, the applicants are consequently left with no other remedy but to invoke the jurisdiction of this Court under Section 11 of the Act. Sri Ganguli contended that although the Arbitrator had sought to terminate proceedings by invoking Section 32 of the Act, from the record of the proceedings it would be manifest that it was not on ground of any default of the applicant. He submits that the provisions of Section 11(5) are liable to be invoked since IFFCO forfeited its rights to appoint an Arbitrator initially constraining the applicants to file the original section 11 application which was allowed on 1 December 2006. In view of the above, he contended, that the Court would be justified in law in exercising the powers so conferred upon it under that provision. Sri Ganguli also sought to draw sustenance from the principles as elucidated by the Supreme Court in its decision in North Eastern Railway and others Vs. Tripple Engineering Works3 to contend that the classical notion of the Chief Justice and his nominee being bound to appoint an arbitrator strictly in accordance with the terms of the contract has since been eroded and consequently it is open to this Court to deviate from the terms of the contract. He sought to draw sustenance from the principles enunciated in this decision and the various precedents which were noticed therein to contend that since arbitral proceedings have continued and languished for decades, this Court must intervene and appoint an Arbitrator. Insofar as Arbitration Petition No. 20 of 2016 is concerned, Sri Ganguli contends that the Arbitrator had undisputedly withdrawn from office. According to him since a vacancy has consequently come into existence this Court must in the interest of justice constitute a fresh tribunal for resolution of the disputes which exist.
Sri Sunil Gupta learned Senior Advocate has at the very outset contended that the applicants here are not entitled to the grant of any indulgence nor does equity operate in their favour in light of their conduct. He has taken the Court in great detail through the series of litigation which were instituted by the applicants against IFFCO and its officials to contend that they resorted to litigation, both criminal and civil, ensnaring the various officers of the Corporation with mala fide motive. He also invited the attention of the Court to the decision rendered by the Supreme Court in Udai Shankar Awasthi Vs. State of U.P.4 to submit that their conduct had fallen for scrutiny even before the Supreme Court which was constrained to observe that the proceedings initiated by them were in sheer abuse of the process of Court. Sri Gupta contended that the applications stated to be made under Sections 11 and 15 of the 1996 Act are per se not maintainable. Sri Gupta submitted that insofar as the application made under Section 11 is concerned and which has come to be preferred after the arbitrator terminated the proceedings cannot be entertained and is liable to be dismissed in light of the order of the Chief Justice rendered inter partes on 28 September 2010. It was highlighted that the earlier application under Section 11 was dismissed as not maintainable with the Chief Justice recording in unequivocal terms that the proceedings had been terminated under Section 32 and therefore the power of Chief Justice under Section 11 could not be invoked. According to Sri Gupta the closure of proceedings of Case No. 02 on 29 September 2015 is also clearly liable to be viewed and understood as a termination of proceedings. According to Sri Gupta the order of the Arbitral Tribunal clearly establishes that the unwillingness of the applicants to proceed had compelled the Arbitrator to conclude that continuance was impossible. Sri Gupta also underlined the fact that by this order, the Arbitrator had proceeded to observe that proceedings would stand consigned. According to Sri Gupta this is clearly demonstrative of a termination of the arbitration proceedings as contemplated under Section 32(2)(c). Sri Gupta then submitted that a termination of proceedings under Section 32 is distinct from a withdrawal from office which is contemplated under Sections 14 and 15 of the 1996 Act. Sri Gupta highlighted the fact that a termination under Section 32 results in not just the termination of the mandate of the Arbitrator but of proceedings themselves. In view of the above, it was his submission that both the applications were clearly not maintainable. Sri Gupta having taken this Court through the judgment of the Chief Justice rendered on 28 September 2010 further submitted that the instant applications were also barred on the principles of res judicata. It was highlighted that the said decision was not appealed from before any higher Court and had attained finality clearly binding parties to that litigation including the applicants herein. In light of the conclusions recorded in that decision, Sri Gupta submitted that the present applications must be dismissed on this score also.
Turning then to the invocation of the provisions of Section 15, Sri Gupta submitted that the applications cannot be entertained since it was not preceded by a failure on the part of IFFCO to act as per the procedure prescribed in the arbitration agreement. It was further submitted that the substitution of an Arbitrator must necessarily be made according to the rules that were applicable. The rules, Sri Gupta contends, include the contractual terms agreed between the parties for appointment of an Arbitrator. Sri Gupta submitted that since the applicants have failed to act in accordance with the rules of arbitration as comprised in the contractual terms, they have failed to comply with the requirements of Section 15(2) and therefore, it could not be said that there was a failure to act by IFFCO. Sri Gupta has then referred to the decision rendered by the learned Judge in Manish Engineering. It was submitted that this application too was dismissed by the learned Judge consequent to a failure on the part of the applicants to comply with the mandate of Section 15 for appointment of a substitute Arbitrator.
Countering the submissions with respect to the classical notion of arbitration being no longer relevant and the right of a Court to appoint an Arbitrator in the larger interest of justice, Sri Gupta submitted that the decisions rendered along these lines rested on facts which were clearly distinct from those obtaining in the present case. Sri Gupta has explained these decisions by submitting that the Courts had invoked the power to appoint an arbitrator in the interest of justice in cases where proceedings of arbitration had languished and not seen closure for decades together. Sri Gupta submits that in all those cases the Courts had invoked their powers since it was found that the nominated arbitrators had failed to act with due dispatch thus running contrary to the basic principles underlying consensual dispute resolution. In view of the above he submitted that those principles, as enunciated, are applicable only in situations where it is found that the conduct of the Arbitral Tribunal runs contrary to the principal objective of dispute resolution namely of expeditious and effective disposal. Contrary to the facts that underlie those decisions, Sri Gupta has highlighted the delay committed by the applicants themselves and in fact conducting themselves in a manner which forced the Arbitral Tribunal to terminate proceedings. In support of his submissions Sri Gupta has placed reliance upon the decisions of the Supreme Court in Lalit Kumar V. Sanghavi (dead) v. Dharamdas V. Sanghavi and Others5, Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. and Another6, National Highways Authority of India and Another v. Bumihiway DDB Ltd (JV) and Others7 and Union of India and Others v. Uttar Pradesh State Bridge Corporation Ltd8.
While elaborate arguments have been addressed on behalf of respective parties, the Court finds that the following two principal issues alone merit consideration: -
(A) Whether the present applications under sections 11 and 15 are maintainable?
(B) Whether circumstances warrant the Court exercising its powers ex debito justitiae and constitute a Tribunal for resolution of disputes?
The first issue which merits consideration is to recognise the jurisdictional fact that must be found to exist to entitle an applicant to invoke the provisions of sections 11(5) and (6). Both sub sections (5) and (6) of Section 11 are set in motion in a situation where parties have failed to reach an agreement in accordance with the arbitration clause. The precondition for the invocation of the powers of the Chief Justice conferred by sub sections (5) and (6) is of the parties either failing to agree on the question of appointment of an arbitrator or a party failing to discharge a function entrusted to it under the appointment procedure.
Undisputedly, neither of these two applications have been preceded by a notice issued by the applicants commanding IFFCO to appoint a substitute Arbitrator. Viewed in that light there is no occasion for this Court to arrive at a conclusion that parties have either failed to agree or that a person has failed to perform a function entrusted to him in terms of the appointment procedure. The sine qua non for invocation of the authority of the Chief Justice as conferred by Section 11 is thus clearly absent.
Upon being queried in this respect, Sri Ganguly submitted that since IFFCO had initially failed to act in accordance with the appointment procedure and which had led this Court to appoint an Arbitrator, the failure to act and to perform a function is self evident. This submission however cannot sustain since it fundamentally proceeds on an incorrect premise. It may be worthwhile to recall that the first application under Section 11 which came to be made before this Court was not based on a failure of IFFCO to either appoint an Arbitrator or to perform a function entrusted to it. As noted hereinbefore, IFFCO had already appointed Justice S.P. Goel to act as the Arbitrator on 18 June 2002. However it was the applicants who raised certain reservations with respect to the appointment so made and consequently approached this Court by filing Arbitration Application No. 22 of 2005. Although the Chief Justice on this application appointed Justice V.P. Goel on 01 December 2006, the appointment itself was not based on any failure to act or to perform a function. Secondly the issue of a failure to act and agree could have arisen only after the Arbitrator so appointed had withdrawn resulting in the creation of a vacancy. Undisputedly IFFCO was never moved by the applicants to appoint a substitute Arbitrator after proceedings in Case Nos. 1 and 2 came to an end.
Viewed from the angle of Section 15 also the applicants must fail. Section 15(2) mandates that a substitute Arbitrator shall be appointed according to the rules that were applicable to the appointment of the Arbitrator being replaced. This inevitably takes us back to the arbitration clause as contained in the agreement. Clause 15 of the agreement provides in unequivocal terms that if any difference or dispute arises between the parties, either of them would place the other party to notice of the questions of disputes and differences where after the resolution process would be undertaken by any officer of IFFCO who may be appointed as an Arbitrator by the General Manager of the Phulpur unit. It was therefore, incumbent upon the applicants to invoke the arbitration agreement and only in case the General Manager of the Phulpur unit failed to act or discharge the functions entrusted to him that the provisions of section 11 could have invoked. When sub section (2) of section 15 speaks of an appointment being made "...according to the rules that were applicable", it clearly means the rules as embodied in the contract. It essentially means the arbitration agreement under which the disputes were liable to be referred to arbitration. This was so held by the Supreme Court in Yashwith Constructions wherein the following principles were enunciated: -
"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 authorized originally by the arbitration agreement, promptly appointed a substitute arbitrator. It is true that in the arbitration agreement there is no specific provision authorizing 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 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. 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."
It is thus evident that the applicants having clearly failed to follow the procedure prescribed by Section 15(2) are clearly not entitled to invoke Section 11.
Reverting to the question of maintainability, insofar as Case No. 1 is concerned, this aspect clearly stands decided against the applicants in light of the decision of the Chief Justice rendered on 28 September 2010. Noticing that the proceedings of that case had come to be terminated under Section 32(2)(c), the Chief Justice had clearly held that Section 11 would not be applicable and it would not be open to the Court under Section 11(6) of the 1996 Act to nominate another arbitrator. The Chief Justice in the earlier round of litigation had found that it was not a case of withdrawal of the arbitrator but a termination of the arbitration proceedings itself. The Chief Justice then proceeded to hold that in light of the above, the application under section 11 would not be maintainable. The Chief Justice concluded that it would not be open for the Court in such circumstances to nominate another Arbitrator invoking Section 11 (6) powers. The two issues which thus stood settled were of the termination being referable to section 32 (2)(c) and an application under section 11 (6) not being maintainable. Once the termination of proceedings was recognised and accepted as being referable to section 32, the Arbitral Tribunal rightly came to be conclude in its order of 24 August 2015 that it had become functus officio. It is significant to note that the applicant has not assailed this order of the Tribunal. This Court notes this aspect only as a matter of fact. It, in any case, is not called upon to consider or decide whether such an order is liable to be assailed.
While the Chief Justice referring to a series of decisions rendered by the Bombay High Court and some other High Courts observed that the order terminating the proceedings could be subjected to challenge under Article 226 of the Constitution, that remedy may also not be available to the applicants in light of the judgment of the Supreme Court in Lalitkumar where their Lordships held: -
"8. Within a couple of weeks thereafter, the original applicant died on 7.10.2012. The question is whether the High Court is right in dismissing the application as not maintainable. By the judgment under appeal, the Bombay High Court opined that the remedy of the appellant lies in invoking the jurisdiction of the High Court under Article 226 of the Constitution. In our view, such a view is not in accordance with the law declared by this Court in SBP & Co. v. Patel Enigg. Ltd. (2005) 8 SCC 618. The relevant portion of the judgment reads as under:
"45. It is seen that some High Courts have proceeded on the basis that any order passed by an Arbitral Tribunal during arbitration, would be capable of being challenged under Article 226 or 227 of the Constitution [of India]. We see no warrant for such an approach. Section 37 makes certain orders of the Arbitral Tribunal appealable. Under Section 34, the aggrieved party has an avenue for ventilating his grievances against the award including any in-between orders that might have been passed by the Arbitral Tribunal acting under Section 16 of the Act. The party aggrieved by any order of the Arbitral Tribunal, unless has a right of appeal under Section 37 of the Act, has to wait until the award is passed by the Tribunal. This appears to be the scheme of the Act. The Arbitral Tribunal is after all, a creature of a contract between the parties, the arbitration agreement, even though, if the occasion arises, the Chief Justice may constitute it based on the contract between the parties. But that would not alter the status of the Arbitral Tribunal. It will still be a forum chosen by the parties by agreement. We, therefore, disapprove of the stand adopted by some of the High Courts that any order passed by the Arbitral Tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution [of India].
Such an intervention by the High Courts is not permissible."
That need not, however, necessarily mean that the application such as one on hand is maintainable under Section 11 of the Act.
........
12. On the facts of the present case, the applicability of clauses (a) and (b) of Section 32(2) is clearly ruled out and we are of the opinion that the order dated 29th October, 2007 by which the Tribunal terminated the arbitral proceedings could only fall within the scope of Section 32, sub-Section (2), clause (c) i.e. the continuation of the proceedings has become impossible. By virtue of Section 32(3), on the termination of the arbitral proceedings, the mandate of the arbitral tribunal also comes to an end. Having regard to the scheme of the Act and more particularly on a cumulative reading of Section 32 and Section 14, the question whether the mandate of the arbitrator stood legally terminated or not can be examined by the court "as provided under Section 14(2)".
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15.The appellants are at liberty to approach the appropriate court for the determination of the legality of the termination of the mandate of the Arbitral Tribunal which in turn is based upon an order dated 29-10-2007 by which the arbitral proceedings were terminated. "
This Court finds that even though the conclusion of the Chief Justice on this aspect may no longer be tenable in light of the decision of the Supreme Court in Lalitkumar, it neither dilutes nor effaces the conclusions recorded in respect of the question of maintainability of the application under section 11 (6).
The Court while, not being understood as endorsing the conclusion arrived at by the Chief Justice thereafter that even in a case of termination under section 32 it would be open to a party to initiate proceedings afresh from a legal standpoint, finds itself unable to uphold the maintainability of this application even on the strength of this observation since ".. initiation of de novo arbitration proceedings" [the expression as used in that decision] would necessarily entail and require the party to follow the procedure as prescribed under the arbitration agreement. Suffice it to state that the sin qua non for invocation of the powers conferred by section 11, as recognised above, is a failure of a party to the agreement to act or discharge a function. In the absence of these primordial conditions being satisfied, the Chief Justice or his nominee Judge would not be entitled to exercise jurisdiction. The applicant, admittedly, has not approached IFFCO after the closure of proceedings by the Arbitral Tribunal.
Turning then to the facts of Case No. 2, the Court notes that while the applicants assert that it was a case of withdrawal, the respondents contend that this too was a termination of proceedings. The respondents would submit that the backdrop in which proceedings of this case came to be closed and the arbitrator constrained to withdraw would also be covered within section 32 (2) (c). The applicants on the other hand submit that it is a case of withdrawal simpliciter. In the considered view of this Court, a definitive or conclusive finding on this issue is not warranted at all. The applicants admittedly place the application preferred in respect of this case under section 15 (2). Proceeding on that basis, it is manifest that the substitute arbitrator must be appointed "...according to the rules that were applicable to the appointment of the arbitrator being replaced." The language employed in section 15 (2) is of crucial import. When the Legislature unambiguously mandates the appointment of the substitute arbitrator to be effected according to the same rules pursuant to which the arbitrator being replaced was appointed, it leads one to the irresistible conclusion that it is the arbitration agreement which must govern the appointment of the substitute arbitrator. The expression "rules" has been explained in Yashwith Constructions to mean either the arbitration agreement or the rules of the institution under which the disputes were referred to arbitration. The decision thus clearly settles and puts all doubts to rest insofar as this aspect is concerned. Consequently it was incumbent upon the applicants to secure the appointment of a substitute arbitrator in accordance with the arbitration agreement. Having failed to do so, it is not open to them to straightaway invoke the jurisdiction of this Court under section 11 of the 1996 Act. That is clearly what was held further in Yashwith Constructions.
Regard must also be had to the fact that in the present case while the respondents urge that the closure of this case also is referable to section 32, the applicants on the other hand contend that it was simply a case of the arbitrator withdrawing from proceedings. This Court, on a fundamental plane, is not called upon to resolve or rule upon this issue since this would clearly fall within the province of the "Court" as contemplated under section 14 (2) and cannot form the subject matter of adjudication under section 11. In fact this was the view taken by the Supreme Court in Lalitkumar when it was observed: -
12. On the facts of the present case, the applicability of clauses (a) and (b) of Section 32(2) is clearly ruled out and we are of the opinion that the order dated 29-10-2007 by which the Tribunal terminated the arbitral proceedings could only fall within the scope of Section 32, sub-section (2), clause (c) i.e. the continuation of the proceedings has become impossible. By virtue of Section 32(3), on the termination of the arbitral proceedings, the mandate of the Arbitral Tribunal also comes to an end. Having regard to the scheme of the Act and more particularly on a cumulative reading of Section 32 and Section 14, the question whether the mandate of the arbitrator stood legally terminated or not can be examined by the court "as provided under Section 14(2)".
That leaves the Court to only consider whether circumstances warrant the power of appointment being exercised "ex debitio justitiae". This submission was addressed by counsel for the petitioner contending that the applicants cannot be left remediless. According to the applicants, the dispute has remained unresolved despite the reference to arbitration made in 2006-07. It is this context that the applicants sought to urge that the classical notion of arbitration being governed by the contract alone has since been diluted and Courts have been judicially recognised to have the power to deviate from the terms of the contract and ensure speedy dispute resolution in the larger interest of justice. In order to appreciate this submission it would be apposite to bear in mind the context and the factual backdrop in which Tripple Engineering and other precedents following that line came to be rendered.
In Tripple Engineering the Supreme Court noticed the body of precedent which had evolved over a period of time conferring jurisdiction upon the Court exercising powers under section 11 to deviate from the terms of the contract. In that case the Court was faced with a situation where the Arbitral Tribunal constituted by the Railways had failed to proceed for over two decades. It was in that backdrop that it was constrained to observe: -
"10....In a situation where the procedure and process under the Act has been rendered futile, the power of the Court to depart from the agreed terms of appointment of arbitrators must be acknowledged in the light of the several decisions noticed by us."
Again in Uttar Pradesh Bridge Corporation the Supreme Court considering the correctness of an order of the High Court terminating the mandate of an Arbitral Tribunal noticed the factual position as it emerged as under:-
"12.....In the present case, the High Court has come to a categorical finding that the Arbitral Tribunal failed to perform its function, and rightly so. It is a clear case of inability on the part of the members of the Tribunal to proceed in the matter as the matter lingered on for almost four years without any rhyme or reason. ......Therefore the order of the High Court terminating the mandate of the Arbitral Tribunal is flawless."
It then observed:
"19. The appointment of the arbitrator by the Court, of its own choice, departing from the arbitration clause, is therefore not unknown and has become an acceptable proposition of law which can be termed as a legal principle which has come to be established by a series of judgments of this Court. Reasons for debating such a course of action are not far to seek and already taken note of."
It then proceeded to make the following pertinent observations:
"20.....Therefore where the Government assumes the authority and power to itself, in a one sided arbitration clause, to appoint the arbitrators in the case of dispute, it should be more vigilant and more responsible in choosing the arbitrators who are in a position to conduct the arbitral proceedings in an efficient manner, without compromising with their other duties. Time has come when the appointing authorities have to take call on such aspects failing which (as in the present case), Courts are not powerless to remedy such a situations by springing into action and exercising their powers as contained in Section 11 of the Act to constitute an Arbitral Tribunal, so that interest of the other side is equally protected."
Bearing the aforesaid principles in mind, the facts of the present matter may be examined. In Case No. 1, the Arbitral Tribunal was constrained to terminate proceedings on 19 December 2008 on account of the misbehavior of the applicants. The Tribunal had held 30 sittings and proceedings were at the stage of cross-examination. The Tribunal was constrained to observe that on account of their conduct, the continuation of proceedings had become impossible. It accordingly proceeded to terminate the proceedings under section 32. The applicant thereafter approached the Chief Justice under section 11 in 2009. This application was dismissed on 28 September 2010. Three years thereafter the applicant moved an application for recall of the order terminating proceedings in 2013. This was dismissed as not maintainable in 2015.
Turning then to Case No. 2, the Court notes that the Tribunal was constituted in terms of the order of the Court dated 16 March 2007. After ten hearings, the Tribunal on 17 May 2008 suspended proceedings on account of non-payment of fee under section 38 (2). The applicants then moved the Tribunal for stay of proceedings and apprised him on 4 January 2009 that they had decided to move the High Court for the removal of the Arbitrator. The application moved in this respect was dismissed by the Chief Justice on 27 August 2010. The copy of this order was produced before the Tribunal for the first time on 9 December 2012. The Tribunal in its order of 29 September 2015 noting that it had not been apprised of the status of the SLP preferred by the applicants before the Supreme Court against the order of the Chief Justice dated 27 August 2010, went on to conclude that the applicants appeared to be uninterested in continuing with the proceedings and that arbitration could not proceed at the behest of an unwilling litigant. In that backdrop, he withdrew and consigned the proceedings.
If the above facts are taken into consideration it is more than evident that this was not a case where the Tribunal was guilty of delay or could be charged with being unwilling or failing to perform its functions. The proceedings did not languish on account of any action on the part of IFFCO or a failure on the part of the Tribunal to act with due dispatch. In fact and to the contrary, it was the applicant who hindered the progress of proceedings, failed to diligently participate and pursue arbitration and thwarted a speedy resolution of the dispute. It consequently does not behoove the applicant to allege procrastination on the part of the Tribunal. The conduct of the applicant itself disentitles it from invoking the powers of the Court ex debito justitiae. Viewed in that light it is manifest that no occasion arises for this Court to exercise its powers under section 11 in the larger interest of justice.
On an overall consideration of the aforesaid, the Court holds that these applications must be dismissed. Ordered accordingly.
Order Date: - 31.5.2019 LA/-/faraz