Madhya Pradesh High Court
Venkatesh Earthen Private Ltd. vs Union Of India on 14 February, 2019
[1] AC No.-16/2018
The High Court Of Madhya Pradesh
Arbitration Case No.16/2018
(Venkatesh Earthen Private Ltd. Vs. Union of India and another)
Jabalpur, Dated : 14/02/2019
Shri Anuj Shrivastava, learned counsel for the petitioner.
Shri Atul Choudhary, learned counsel for the respondents.
With consent, the matter is finally heard.
In this application filed under Section 11(6) of the Arbitration & Conciliation Act, 1996, the applicant has prayed for appointment of a suitable Arbitrator to resolve the dispute between the parties.
2. During the course of hearing, learned counsel for the parties fairly submitted that there exists an arbitration clause in the contract, a living dispute which needs resolution by appointment of an Arbitrator but the only impediment because of which respondents have not appointed the Arbitrator is that the applicant has not fulfilled the formalities as per Clause 64 of the agreement. Thus, the core issue is whether in the facts and circumstances of this case, the applicant's prayer can be granted when the applicant has not fulfilled the requirement of Clause 64.
3. No other point is pressed by learned counsel for the parties.
4. A plain reading of Clause 64(3)(a)(ii) of the contract shows that it enables constitution of Arbitral Tribunal consisting of a panel of three Gazetted Railway Officers of a particular rank.
5. The core issue is : whether this clause can be pressed into service in the teeth of recent amendment in the Act of 1996 ? This aspect was [2] AC No.-16/2018 considered by this Court in great detail in A.C. No.46/2017. The relevant portion is as under:
"12. Grounds for challenge-
(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.
(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him. (3)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 qualifications agreed to by the parties. (4) 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."
This Court recently in A.C. No.19/2018 opined as under:
A plain reading of the provisions makes it clear that even if agreement had taken place before insertion of Sub-section 5 as per the requirement of Sub-section 5, now Departmental Arbitrator cannot resolve the dispute unless parties agreed for the same as per the proviso appended to the said subsection. In the present case, parties have not entered into any subsequent agreement for appointment of Departmental Arbitrator. This Court considered the question of appointment of independent Arbitrator in pre-amended and post amendment positions of Section 12(5) aforesaid and opined as under:-
"This Court in WP No.11258/2010 (Swadesh Kumar Agrawal vs. Dinesh Kumar Agrawal) decided on 07.09.2017 dealt with a question whether a substitute arbitrator can be appointed despite a contrary clause in the arbitration agreement. It was poignantly held as under:
"The appointment of a different independent arbitrator despite a contrary clause in the arbitration agreement is not unknown to law. In catena of judgments, even prior to amendment of Section 12 of the Arbitration Act Courts have appointed the arbitrators, giving a go-by to the agreed arbitration clause in certain contingency and situations, having regard to the provisions of the Act which, inter alia, provided that while appointing the arbitrator, Chief Justice, or the person or the institution designated by him, shall have regard to the other conditions as are likely to secure the appointment of an independent and impartial arbitrator. See Datar Switchgears Ltd. v. Tata Finance Ltd. (2000) 8 SCC 151] , Punj Lloyd Ltd. v. Petronet MHB Ltd.(2006) 2 SCC 638] , Union of India v. Bharat Battery Mfg. Co. (P) Ltd (2007) 7 SCC 684] , Deep Trading Co. v. Indian Oil Corpn. (2013) 4 SCC 35, Union of India v.Singh Builders Syndicate, (2009) 4 SCC 523 and [3] AC No.-16/2018 North Eastern Railway v.Tripple Engg. Works, (2014) 9 SCC
288. Taking note of the aforesaid judgments, this Court in Union of India v. U.P. State Bridge Corpn. Ltd., (2015) 2 SCC 52 summed up the position in the following manner:
"13. No doubt, ordinarily that would be the position. The moot question, however, is as to whether such a course of action has to be necessarily adopted by the High Court in all cases, while dealing with an application under Section 11 of the Act or is there room for play in the joints and the High Court is not divested of exercising discretion under some circumstances? If yes, what are those circumstances? It is this very aspect which was specifically dealt with by this Court in Tripple Engg. Works (supra). Taking note of various judgments, the Court pointed out that the notion that the High Court was bound to appoint the arbitrator as per the contract between the parties has seen a significant erosion in recent past. In paras 6 and 7 of the said decision, those judgments wherein departure from the aforesaid "classical notion" has been made are taken note of. It would, therefore, be useful to reproduce the said paragraph along with paras 8 and 9 hereinbelow:
"6. The "classical notion" that the High Court while exercising its power under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter for short "the Act") must appoint the arbitrator as per the contract between the parties saw a significant erosion in ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn. Ltd (2007) 5 SCC 304] , wherein this Court had taken the view that though the contract between the parties must be adhered to, deviations therefrom in exceptional circumstances would be permissible. A more significant development had come in a decision that followed soon thereafter in Union of India v. Bharat Battery Mfg. Co. (P) Ltd. (2007) 7 SCC 684] wherein following a three-Judge Bench decision in Punj Lloyd Ltd. v. Petronet MHB Ltd. (2006) 2 SCC 638] , it was held that once an aggrieved party files an application under Section 11(6) of the Act to the High Court, the opposite party would lose its right of appointment of the arbitrator(s) as per the terms of the contract. The implication that the Court would be free to deviate from the terms of the contract is obvious.
7. The apparent dichotomy in ACE Pipeline v. Bharat Petroleum Corpn. Ltd., (2007) 5 SCC 304 and Union of India v. Bharat Battery Mfg. Co. (P) Ltd., (2007) 7 SCC 684] was reconciled by a three-Judge Bench of this Court in Northern Railway Admn., Ministry of Railway v. Patel Engg. Co. Ltd. (2008) 10 SCC 240], wherein the jurisdiction of the High Court under Section 11(6) of the Act was sought to be emphasised by taking into account the expression "to take the necessary measure" appearing in sub- section (6) of Section 11 and by further laying down that the said expression has to be read along with the requirement of sub- section (8) of Section 11 of the Act. The position was further clarified in Indian Oil Corpn. Ltd. v. Raja Transport (P) Ltd. (2009) 8 SCC 520 Para 48 of the Report wherein the scope of Section 11 of the Act was summarised may be quoted by reproducing sub-paras (vi) and (vii) hereinbelow: (Indian Oil case [Indian Oil Corpn. Ltd. v. Raja Transport (P) Ltd., (2009) 8 SCC 520 : (2009) 3 SCC (Civ) 460] , SCC p. 537) [4] AC No.-16/2018 "48. (vi) The Chief Justice or his designate while exercising power under sub-section (6) of Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause.
(vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded, ignore the designated arbitrator and appoint someone else."
8. The above discussion will not be complete without reference to the view of this Court expressed in Union of India v. Singh Builders Syndicate[Union of India v. Singh Builders Syndicate, (2009) 4 SCC 523, wherein the appointment of a retired Judge contrary to the agreement requiring appointment of specified officers was held to be valid on the ground that the arbitration proceedings had not concluded for over a decade making a mockery of the process. In fact, in para 25 of the Report in Singh Builders Syndicate this Court had suggested that the Government, statutory authorities and government companies should consider phasing out arbitration clauses providing for appointment of serving officers and encourage professionalism in arbitration.
9. A pronouncement of late in Deep Trading Co. v. Indian Oil Corpn. (2013) 4 SCC 35 followed the legal position laid down in Punj Lloyd Ltd. which in turn had followed a two-Judge Bench decision in Datar Switchgears Ltd.. The theory of forfeiture of the rights of a party under the agreement to appoint its arbitrator once the proceedings under Section 11(6) of the Act had commenced came to be even more formally embedded in Deep Trading Co. subject, of course, to the provisions of Section 11(8), which provision in any event, had been held in Northern Railway Admn. not to be mandatory, but only embodying a requirement of keeping the same in view at the time of exercise of jurisdiction under Section 11(6) of the Act.'
14. Speedy conclusion of arbitration proceedings hardly needs to be emphasised. It would be of some interest to note that in England also, Modern Arbitration Law on the lines of UNCITRAL Model Law, came to be enacted in the same year as the Indian law which is known as the English Arbitration Act, 1996 and it became effective from 31-1-1997. It is treated as the most extensive statutory reform of the English arbitration law. Commenting upon the structure of this Act, Mustill and Boyd in their Commercial Arbitration, 2001 companion volume to the 2nd Edn., have commented that this Act is founded on four pillars. These pillars are described as:
(a) The first pillar: Three general principles.
(b) The second pillar: The general duty of the Tribunal.
(c) The third pillar: The general duty of the parties.
(d) The fourth pillar: Mandatory and semi-mandatory provisions.
Insofar as the first pillar is concerned, it contains three general principles on which the entire edifice of the said Act is structured. These principles are mentioned by an English Court in its judgment in Deptt. of Economics, Policy and Development of the City of Moscow v. Bankers Trust Co. 2005 QB 207 : (2004) 3 WLR 533 : (2004) 4 All ER 746 : 2004 EWCA Civ 314] In that case, Mance, L.J. succinctly summed up the objective of this Act in the following words: (QB p. 228, para 31) [5] AC No.-16/2018 '31. ... Parliament has set out, in the Arbitration Act, 1996, to encourage and facilitate a reformed and more independent, as well as private and confidential, system of consensual dispute resolution, with only limited possibilities of court involvement where necessary in the interests of the public and of basic fairness.' Section 1 of the Act sets forth the three main principles of arbitration law viz. (i) speedy, inexpensive and fair trial by an impartial tribunal; (ii) party autonomy; and (iii) minimum court intervention. This provision has to be applied purposively. In case of doubt as to the meaning of any provision of this Act, regard should be had to these principles.
15. In the book O.P. Malhotra on the Law and Practice of Arbitration and Conciliation (3rd Edn. revised by Ms Indu Malhotra), it is rightly observed that the Indian Arbitration Act is also based on the aforesaid four foundational pillars.
16. First and paramount principle of the first pillar is "fair, speedy and inexpensive trial by an Arbitral Tribunal". Unnecessary delay or expense would frustrate the very purpose of arbitration. Interestingly, the second principle which is recognised in the Act is the party autonomy in the choice of procedure. This means that if a particular procedure is prescribed in the arbitration agreement which the parties have agreed to, that has to be generally resorted to. It is because of this reason, as a normal practice, the court will insist the parties to adhere to the procedure to which they have agreed upon. This would apply even while making the appointment of substitute arbitrator and the general rule is that such an appointment of a substitute arbitrator should also be done in accordance with the provisions of the original agreement applicable to the appointment of the arbitrator at the initial stage. [See Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. (2006) 6 SCC 204] ] However, this principle of party autonomy in the choice of procedure has been deviated from in those cases where one of the parties have committed default by not acting in accordance with the procedure prescribed. Many such instances where this course of action is taken and the Court appoint the arbitrator when the persona designata has failed to act, are taken note of in paras 6 and 7 of Tripple Engg. Works. We are conscious of the fact that these were the cases where appointment of the independent arbitrator made by the Court in exercise of powers under Section 11 of account of "default procedure". We are, in the present case, concerned with the constitution of substitute Arbitral Tribunal where earlier Arbitral Tribunal has failed to perform. However, the above principle of default procedure is extended by this Court in such cases as well as is clear from the judgment in Singh Builders Syndicate.
17. In the case of contracts between government corporations/State-owned companies with private parties/contractors, the terms of the agreement are usually drawn by the government company or public sector undertakings. Government contracts have broadly two kinds of arbitration clauses, first where a named officer is to act as sole arbitrator; and second, where a senior officer like a Managing Director, nominates a designated officer to act as the sole arbitrator. No doubt, such clauses which give the Government a dominant position to constitute the Arbitral Tribunal are held to be valid. At [6] AC No.-16/2018 the same time, it also casts an onerous and responsible duty upon the persona designata to appoint such persons/officers as the arbitrators who are not only able to function independently and impartially, but are in a position to devote adequate time in conducting the arbitration. If the Government has nominated those officers as arbitrators who are not able to devote time to the arbitration proceedings or become incapable of acting as arbitrators because of frequent transfers, etc., then the principle of "default procedure" at least in the cases where Government has assumed the role of appointment of arbitrators to itself, has to be applied in the case of substitute arbitrators as well and the Court will step in to appoint the arbitrator by keeping aside the procedure which is agreed to between the parties. However, it will depend upon the facts of a particular case as to whether such a course of action should be taken or not. What we emphasise is that Court is not powerless in this regard.
15.The paramount consideration of appointment of an arbitrator is the impartial and speedy resolution of dispute between the parties. Section 14 is wide enough to include cases where named arbitrator is unable to perform his function or ''for other reasons" fails to act without undue delay. In the present case, there is an undue delay on the part of the named arbitrator in proceeding with and concluding the proceeding. As noticed, the common string in the judgments mentioned above shows that where the arbitrator gives gp-by to the very purpose of arbitration, the courts are not powerless in this regard and can, in a fit case, appoint a suitable arbitrator."
Justice (Dr.) D.Y. Chandrachud, Chief Justice (as His Lordship then was) opined for the Division Bench of Allahabad High Court in Writ C. No.24343/14 (M/s Paper and Board Convertors vs. U.P. State Micro and Small Enterprises & Ors.) as under:
"The respondents appointed a sole arbitrator on 5 October 2011 after the petitioner had invoked the intervention of the Facilitation Council on 3 October 2011 under Section 18 of the 2006 Act. Once the jurisdiction of the Facilitation Council has been validly invoked, the Council has exclusive jurisdiction to enter upon conciliation in the first instance and after conciliation has ended in failure, to refer the parties to arbitration. The Facilitation Council was clearly in error in entertaining the objection filed by the respondents and referring the to the sole arbitrator so designated by the respondents.
The non-obstane provision contained in sub-section (1) of Section 18 and again in sub-section (4) of Section 18 operates to ensure that it is a Facilitation Council which has jurisdiction to act as an arbitrator or Conciliator in a dispute between a supplier located within its jurisdiction and a buyer located anywhere in India. The Facilitation Council had only one of the two courses of action open to it; either to conduct an arbitration itself or to refer the parties to a centre or institution providing alternate dispute resolution services stipulated in sub-section (3) of Section 18. In this view of the matter, the impugned order of the Facilitation Council directing the parties to a reference before the sole arbitrator appointed by the respondents was manifestly illegal. We would, accordingly, have to allow the petitin and set aside the impugned order dated 13 February 2014. We order accordingly.
[7] AC No.-16/2018 As a consequence, we restore the proceedings back to the first respondent. The first respondent shall now act in accordance with the provisions of sub-section (3) of Section 18 and either conduct the arbitration itself or refer the arbitral proceedings to any institution or centre provision alternate dispute resolution services. The first respondent shall pass necessary orders in consequence of this direction within a period of one month from the receipt of a certified copy of this order."
10. In view of aforesaid legal position, it is clear that the aspect of nutrality and impartiality is a necessary facet, which needs to be seen in cases of statutory Arbitration. Even if arbitration clause provides otherwise, in order to ensure fairness in action and in order to translate the legislative mandate into reality, it is necessary to appoint an independent arbitrator. Sub-section 3 of Section 18 of the Act of 2006 makes it clear that Arbitration and Conciliation Act is applicable for the purpose of arbitration under the Act of 2006. Thus, I have no scintilla of doubt that the respondent No.1 has committed an error in appointing the departmental Arbitrator by invoking Clause 2.14 of the agreement."
(Emphasis supplied)
6. In the light of the aforesaid, it is clear that no useful purpose would be served in relegating the applicant to approach a departmental authority for appointment of Arbitral Tribunal in consonance with Clause 64(3)(a)(ii) because as per sub-section (5) of Section 12 read with Seventh Schedule of the Act, such Departmental Arbitrators cannot be permitted to function.
7. Resultantly, I deem it proper to provisionally appoint Hon'ble Shri Justice H.P. Singh, Former Judge of this High Court as an Arbitrator.
8. The Registry of this Court shall obtain consent/declaration from learned Provisional Arbitrator and place this matter before this Court on 25.02.2019.
(Sujoy Paul) Judge Biswa/-
SHIBA NARAYAN BISWAL 2019.02.15 17:50:52 +05'30'