Delhi High Court
Flexi Packs vs Modern Food Industries (I) Ltd. on 24 October, 1997
Equivalent citations: 1997VIAD(DELHI)1090, 1997(43)DRJ718
Author: K.S. Gupta
Bench: K.S. Gupta
JUDGMENT K.S. Gupta, J.
(1) M/S. Flexipacks, petitioner contracted to supply 129 Mt of double colour waxed wrapper on conversion basis to M/s.Modern Food Industries (India) Ltd., respondent, as per the order dated 16.8.84. The tender conditions which formed part of the order and also the order contained an arbitration clause. Disputes arose between the parties with respect to the performance of the contract and the petitioner, therefore, through a notice dated 3.8.87 called upon the respondent to appoint an arbitrator to resolve the disputes. By the reply dated 20.10.87, respondent informed the petitioner about the appointment of Mahesh C.Jain as arbitrator. Dissatisfied with that appointment, petitioner filed Arb.O.P.No. 23/88 under Section 8(1)(a) of the Arbitration Act before the Principal Sub Judge at Kollam in February 1988 which was caused by the respondent. By the order dated 30th May, 1990, aforesaid petition was allowed and K.P.Veeran (Retired General Manager of the respondent) was appointed as arbitrator to settle the claim and counter claim of the parties. Respondent filed C.R.P.No. 2285/90-F against the said order dated 30th May, 1990. By an order dated 13th December, 1991 revision petition was allowed by the High Court of Kerela at Ernakulam holding that since the arbitration agreement entered into between the parties names the sole arbitrator, the petitioner cannot invoke Section 8 of the Act and the petition was not legally maintainable. In the meantime, Mahesh C.Jain entered upon the reference and made and published the award on 5.12.88 as under:- @SUBPARA = "The claim, if any, of the Claimant's firm against the aforesaid purchase order is hereby dismissed as no appearance has been made by them and no claim has been filed by the claimant firm, i.e. M/s.Flexipacks, Quilon." Aforesaid arbitrator filed the award in this Court on 27.3.90. In response to the notice of the filing of the award, the petitioner filed objections (IA No.5479/90) under Sections 30 & 33 of the Arbitration Act which have been contested by filing reply by the respondent. On 3.4.91 following issues were framed :- @SUBPARA = 1. Whether the award is liable to be set aside on the objections raised in the objection petition? @SUBPARA = 2. Relief.
(2) By an order dated 3.4.91, the arbitration proceedings were ordered to be read in evidence and the matter decided on affidavits.
(3) The first contention advanced by the learned counsel for the petitioner-objector was that the Mahesh C.Jain was virtually forced to work as arbitrator against his wish and the award given by him is, therefore, ab initio void. Strong reliance was placed on Paramjit Singh vs. State of Himachal Pradesh . In this decision, award dated 20.11.74 given by M.L.Bansal, Superintending Engineer, 3rd Circle, Himachal Pradesh Public Works Department, Solan was set aside by Himachal Pradesh High Court. In para No.8 on page 18 of the report which is relevant, it was held thus :- @SUBPARA = "It is one of the cardinal principles of all judicial and quasi-judicial proceedings that the Judge or the Arbitrator concerned cannot be compelled to work as such. If one is so compelled, against his wish, then the decision given by him would obviously not remain the decision of a free agent. This principle is accepted by S.8(1)(b) of the Arbitration Act which says that if any appointed Arbitrator neglects or refuses to act or is incapable of acting, or dies and the arbitration agreement does not show that it was intended that the vacancy should be supplied, and the parties or the Arbitrator, as the case may be, do not supply the vacancy, any party may serve the other parties or the Arbitrators, as the case may be, with a written notice to concur in the appointment or appointments or in supplying the vacancy. This section, therefore, gives a statutory recognition to the principle that no Arbitrator can be compelled to work in face of his refusal to act as an Arbitrator. @SUBPARA = "The principle is recognised by several decisions, the earliest of which is Allahabad decision in Shibcharan v. Ratiram reported in (1885) Ilr 7 All 20. It was held in that case that where several matters were referred to Arbitrators who refused to act and the court of the first instance passed an order directing them to proceed and to make award and they on the passing of such order made the award, all the proceedings taken by the Arbitrators in obedience to the order of the court directing them to arbitrate against their will would be null and void. The same view is expressed by that High Court in the subsequent case of Basdeo Mal v. Kanhaiya Lal reported in Air 1921 All 361, wherein it is observed that it is one of the essential principles of law of arbitration that the adjudication of disputes by arbitration should be the result of the free consent of the Arbitrator to undertake the duties of arbitrating between the contending parties who have agreed to repose confidence in his judgment. This view is reiterated in the Lahore decision in Lal Khan vs. Kashmere Lal reported in Air 1980 Lah. 125."
(4) It is not in dispute that Mahesh C.Jain was informed of his appointment as arbitrator by the respondent by a letter dated 20th October, 1987 with a copy to the petitioner. In response to this letter, petitioner sent letter dated 3.11.87 to the respondent with a copy endorsed to the said arbitrator. Contents of this letter (on page 4 of the file of arbitration proceedings) which are material read thus :- @SUBPARA = "We are in receipt of the copy of your letter cited above addressed to Mr. Mahesh C.Jain, appointing him as sole Arbitrator to arbitrate the dispute between us. @SUBPARA = 1. We have caused a notice to be served on you through our lawyer Mr.N.B.Mahadevan Pillai, Advocate, Quilon to appoint an Arbitrator as early as 3.8.1987. You did not take any action as required under law within the time limit fixed by statute after receipt of notice. You have awakened only now. We have, in the circumstances, already requested our lawyer to set the law in motion to have the Arbitrator appointed by court. @SUBPARA = 2. Without prejudice to the above, we hasten to add here that the person whom you have selected as Arbitrator does not in suit confidence in us as he too was largely instrumental among others in taking an extremely unreasonable and highly prejudicial stand against us in rejecting our claims in the decision making process, thereby causing substantial losses to us. Such a person cannot be a Persona grata to take an impartial decision as Arbitrator. In reply to aforesaid letter dated 20.10.87 and endorsement of letter dated 3.11.87, Mahesh C.Jain, arbitrator sent letter dated 10.11.87 (copy on page 5) to the Company Secretary of the respondent intimating that as the petitioner in the letter dated 3.11.87 has disputed his impartiality, it was difficult for him to discharge the responsibility of an arbitrator. In response to the arbitrator's letter dated 11.12.87 (copy on page 9) requiring the petitioner to appear alongwith their plaint for preliminary hearing before him on 28.12.87, the petitioner wrote letter dated 27.12.87 (on page 11) to the arbitrator and in para 2 thereof it was reiterated that they do not have faith or confidence in him as they have already mentioned in their letter dated 3.11.87. A copy of this letter was sent to the Company Secretary of the respondent for information. On receipt of the aforesaid letter dated 27.12.87, said arbitrator sent letter dated 8.1.88 (copy on page 12) to the Company Secretary of the respondent and the relevant para of this letter reads as follows :- @SUBPARA = "In this connection I enclose herewith a photo-copy of letter dated 27.12.1987 received from M/s. Flexipacks in which they have again informed having no confidence in the undersigned. Although there stand might be due to some confusion at their end, yet to reach at due justice, it shall be better if some other Arbitrator is found out".
(5) Thereafter, respondent sent to the petitioner letter dated 13.1.88 (copy at page 13), the relevant portion whereof reads thus :- @SUBPARA = "The matter has been reconsidered and we are advised to request the Arbitrator to proceed with the reference. Accordingly, we are advising the Sole Arbitrator, Shri Mahesh C.Jain to proceed with the reference and conclude the same."
(6) Aforesaid Mahesh C.Jain thereafter proceeded with the reference wherein the petitioner did not participate and he made and published the award on 5.12.88.
(7) Above quoted correspondence reveals beyond any shadow of doubt that although Mahesh C.Jain refused to work as arbitrator on two occasions but ultimately he had to carry out the directions of the respondent with whom he was employed, to proceed in the arbitration matter against his wish. That being so, applying the ration in Paramjit Singh's case (supra), award in question deserves to be set aside being invalid.
(8) Next contention advanced on behalf of the petitioner was that the aforesaid award dated 5.12.88 was made without seeking extention of time beyond the statutory period of four months after entering upon the reference by the arbitrator.
(9) As is manifest from the admissions made in para No. 5 of the reply dated 10.2.94 filed by the respondent to the petitioner's Ia No.3410/93, Mahesh C.Jain, arbitrator entered into reference on 23.11.87. It is not in dispute that the parties did not agree at any point of time to the enlargement of time for making the award nor did anyone of them make application for extention of time under Section 28 of the Act. In the absence of extention of time, award in question which was admittedly made much beyond the period of four months from the date of entering upon the reference by the aforesaid arbitrator, is vitiated and is liable to be set aside on that count.
(10) This takes me to yet another Ia No. 3410/93 filed by the petitioner on 18.3.93 for revoking the authority of aforesaid Mahesh C.Jain as arbitrator and appointing a new arbitrator to adjudicate upon the disputes between the parties. Arbitration clause under which Mahesh C.Jain was nominated as arbitrator provides as under :- @SUBPARA = "All the disputes and differences arising out of or in any way touching or concerning the said contract, shall be referred to the Sole Arbitration of the Chairman of the Company or any officer nominated by him whose decision shall be final, conclusive and binding on the successful tenderer. The Chairman or any officer nominated by him shall act as Sole Arbitrator even though he may have passed any order in the matter in his executive capacity. The Chairman of the Company or his nominee as the case may be shall give a reasoned award, if the amount awarded against the claims of the party is more than Rs. 50,000.00 including interest cost and other liabilities on whatsoever account. Supply of goods agreed under the contract and as per indent shall be continued as usual by the successful tenderers under the terms of the contract/agreement. The submission of any disputes to arbitration shall not in any way prejudice the Company's rights under this contract/agreement."
(11) Obviously, said clause does not indicate that the parties did not intend to supply the vacancy. What will be the effect of refusal to act as arbitrator by aforesaid Mahesh C.Jain on the above arbitration clause, is the question to be answered now. In State of West Bengal vs. National Builders , identical question came to be considered by the Apex Court. In para No.8 on page 151 of the report it was held thusÿ:- @SUBPARA = "Where the agreement provides for appointment of a specific person either by name or by designation and that person refuses to act then the question of appointing him again cannot arise. Refusal by such a person results in the agreement clause ceasing to operate. When two parties agree for appointment of `A' or `B' by name or designation and the person so named refuses to act then the agreement shall be deemed to have exhausted itself, the person so named having refused to act he cannot be asked again to arbitrate. That would be contrary to the very basis of arbitration that no one can be forced to act against his free will. It would also be contrary to the agreement and if there is no agreement to appoint another person, the only remedy is to approach the Court to exercise its statutory power and appoint another arbitrator. Same result follows where the arbitration clause empowers the sole arbitrator either to arbitrate himself or to nominate anyone else. It was urged that the principle of agreement clause coming to an end cannot apply where the sole arbitrator has been given power to nominated another person. According to the learned counsel once the nominee refused to act the Chief Engineer was again empowered to nominate another person in his place. In our opinion the submission is not well founded in law. A person nominated by the sole arbitrator stands substituted in his place, he does not have any independent personality. The power and authority exercised by him is the same as the authority which nominated him. Therefore, once the nominee refuses to act it shall be deemed that the arbitrator mentioned in the arbitration clause has refused to act and, therefore, the clause would cease to operate in the same manner as the Chief Engineer himself has refused to act. The appointment of next arbitrator could only, be in accordance with Sec.8(1)(b) of the Act."
(12) Applying the ratio in State of West Bengal's case (supra), aforementioned arbitration clause ceases to operate and the appointment of next arbitrator could only be in accordance with the Section 8(1)(b) of the Act in this case.
(13) For the foregoing discussion, aforesaid award dated 5.12.88 is set aside. Justice P.K.Bahri, former Judge of this Court is appointed as arbitrator to adjudicate upon the disputes between the parties. He will fix his own fees and will make and publish the award within the statutory period. Both IAs 5479/90 and 3410/93 are disposed of accordingly.