Andhra HC (Pre-Telangana)
North East Securities Limited, Hyd. vs Sri Nageswara Chemicals And Drugs Pvt., ... on 7 September, 2000
Equivalent citations: 2000(5)ALD746, 2000(5)ALT413
ORDER
1. This is an application filed under Section 11(3), (4) and (6) of the Arbitration and Conciliation Act, 1996 (for short "the New Act") read with Para 2 of the Scheme for Appointment of Arbitrators framed by the Chief Justice of this Court under sub-section (10) of Section 11 of the Arbitration and Conciliation Ordinance, 1996, to appoint an Arbitrator on behalf of the respondents or in the alternative a sole Arbitrator to resolve the dispute that arose between the applicant and the respondents.
2. The facts (as stated in the application) leading to the filing of this application, in brief, are the following :
The appellant is Non-Banking Financial Company. The 1st respondent herein is a Private Limited Company and the 2nd respondent is its Managing Director. The respondents approached the applicant for providing finance for purchase of a coal-fired boiler worth about Rs.30.00 lakhs. The applicant agreed to do so. The parties then executed a lease agreement on 11-3-1996. That agreement, inter alia, provides, in Clause 24, for resolution of disputes between the parties by arbitration. The said Clause is as under:-
"24. Arbitration :--All disputes, differences, claims and questions, whatsoever, which shall arise either during the subsistence of this agreement or afterwards between the parties and/ or their respective representatives touching these presents or any clause or thing herein contained or otherwise in any way relating to or arising from these presents shall be referred to the arbitration of two Arbitrators, one to be appointed by each party to the dispute and such arbitration shall be in accordance with and subject to the provisions of the Arbitration Act, 1940 or any statutory modification or re-enactment thereof for the time being in force".
Pursuant to the aforesaid agreement, the applicant provided an amount of Rs.30.00 lakhs to the respondents and with that money the respondents purchased a coal-fired boiler.
3. Under the terms of the aforesaid agreement, the 1st respondent has to repay the said loan amount with interest in 48 equal monthly instalments of Rs.1,07,500/-
each. The 1st respondent also mortgaged its agricultural land to the extent of Ac.20.00 cents situated in Survey No.17/1 of Piglipur village, Hayathnagar Mandal and executed a registered mortgage deed on 14-3-1996. The 2nd respondent, who is the Managing Director of the 1st respondent-Finn, also stood guarantee for repayment of the amount by the 1st respondent. The 1st respondent paid, in all, a total sum of Rs.3,80,000/- the last payment being made on 31-10-1996 -and committed default thereafter. As several letters addressed by the applicant evoked no favourable response, the applicant got issued a lawyer's notice on 12-8-1999 calling upon the respondents to pay the balance amount of Rs.73,45,541/- within 15 days from the date of receipt of that notice. It was further stated in that notice that if the respondents dispute the claim with regard to the quantum or otherwise, the applicant is ready and willing to refer the same to Arbitration as agreed between the parties and in fact nominated one Sri C. Sudesh Anand, Advocate, residing in H.No.3-6-444/ A/3, Street No.5, Himayatnager, Hyderabad-29 on its part as its Arbitrator and called upon the respondents to appoint their Arbitrator within 15 days from the date of receipt of the said notice. The 2nd respondent, who is the Managing Director of the 1st respondent-Firm, wrote back in reply to the said notice on 6-9-1999 not only disputing the claim of the applicant but also stating that "the question of appointing an Arbitrator does not arise".
4. Thereafter, the applicant filed the present application in the month of October, 1999. The respondents, who were duly served, remained exparte.
5. From the aforementioned facts it is clear that: (a) there is an arbitration agreement between the parties providing for resolution of disputes by arbitration, (b) dispute has arisen between the parties,
(c) the applicant is ready and willing to refer the dispute to arbitration and in fact appointed its Arbitrator and called upon the respondents to appoint an Arbitrator on their side, and; (d) but, the respondents have failed/refused to do so. In these circumstances, I am of the considered view that the applicant is fully justified in making the request under Section 11 of the New Act. But, the question that remains for consideration is:
Whether an Arbitrator has to be appointed on behalf of the respondents in addition to the Arbitrator appointed by the applicant as per the main prayer in the application or a sole Arbitrator has to be appointed to resolve the dispute between the parties as per the alternative prayer?
6. As already noted, the arbitration agreement contained in Clause 24 of the main lease agreement in this case provides for reference of the disputes between the parties to two Arbitrators, one to be appointed by each of the parties. Thus, the parties have agreed for appointment of even number of Arbitrators. But, Section 10 of the New Act clearly mandates that the number of Arbitrators shall not be of an even number. That Section reads thus:
"Sec.10. Number of Arbitrators :--(1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number.
(2) Failing the determination referred to in sub-section (1), the arbitral Tribunal shall consist of a sole arbitrator".
7. Since the arbitration agreement in this case provides for even number of Arbitrators, contrary to Section 10 of the New Act, will the arbitration agreement itself be void? This is the question that came up for consideration before the Supreme Court in M.M.T.C. Ltd v. Sterlite Industries (India) Ltd., AIR 1997 SC 605. The arbitration agreement in that case provided for appointment of two Arbitrators, one to be appointed by each of the parties. It is further provided therein that the two Arbitrators shall appoint an Umpire before proceeding with the reference. The contention of the M.M.T.C. in that case was that the arbitration agreement, which has provided for appointment of even number of arbitrators, is hit by sub-section (1) of Section 10 of the New Act and, hence, is not a valid agreement. Rejecting the aforesaid contention, the Supreme Court held thus:
"7. Chapter II of the New Act contains Sections 7 to 9 under the heading 'Arbitration Agreement', Chapter-III under the heading 'Composition of Arbitral Tribunal' contains Sections 10 to 15.
8. Sub-section (3) of Section 7 requires an arbitration agreement to be in writing and sub-section (4) describes the kind of that writing. There is nothing in Section 7 to indicate the requirement of the number of arbitrators as a part of the arbitration agreement. Thus the validity of an arbitration agreement does not depend on the number of arbitrators specified therein. The number of arbitrators is dealt with separately in Section 10, which is apart of machinery provision for the working of the arbitration agreement. It is, therefore, clear that an arbitration agreement specifying an even number of arbitrators cannot be a ground to render the arbitration agreement invalid the New Act as contended by the learned Attorney General".
Following the aforesaid decision of the Supreme Court, the Chief Justice of the Bombay High Court, acting under Section 11 of the New Act, held in Satya Kailashchandra Sahu v. M/s. Vidarbha Distillers, Nagpur, , that an arbitration agreement will not be rendered invalid on the ground that it provides for even number of Arbitrators. Having held thus, His Lordship appointed a sole Arbitrator even though the arbitration agreement in that case provided for appointment of four nominated Arbitrators.
8. From the afore going discussion, it would be clear that an arbitration agreement, which provides for appointment of even number of Arbitrators, as in the present case, will not be invalid on that count. It, therefore, follows that in such cases only that part of the arbitration agreement, which provides for appointment of even number of Arbitrators will be invalid and/or inoperative. The arbitration agreement in such cases shall remain to be construed as a simple arbitration agreement where the parties have failed to determine the number of Arbitrators. Sub-section (2) of Section 10 of the New Act will then be attracted and the Arbitral Tribunal has to be constituted by appointing a sole Arbitrator.
9. This is, precisely, the situation in this case and, therefore, a sole Arbitrator has to be appointed. It may be noted here that unlike the arbitration agreement in the case of M.M.T.C. Limited (supra), the arbitration clause in this case does not provide that the two Arbitrators appointed by the parties shall appoint an Umpire before proceeding; with the reference. Hence, sub-sections (3) and (4) of Section 11 of the New Act are not attracted. In this view of the matter also, a sole Arbitrator has to be appointed to resolve the dispute between the parties. It may also be recorded here that this is the request of the Counsel for the applicant-Sri K. Ravinder Rao, who argued the case with great ability and precision.
10. Having regard to the fact that the dispute between the parties is not of technical nature, technical expertise on the part of the Arbitrator is not called for. I, therefore, deem it proper to appoint a retired Judge of High Court of Andhra Pradesh as a sole Arbitrator.
11. Accordingly, Sri Justice P.A. Chowdhary, a retired Judge of A.P. High Court, is appointed as the sole Arbitrator. The Arbitrator is at liberty to fix his own fee. The applicant is, however, directed to deposit, initially, an amount of Rs.25,000/-(Rupees twenty five thousand only) with the Arbitrator as an advance towards his fee.
12. The Application is accordingly allowed. No costs.