Bangalore District Court
M/S. Pasari Spinning Mills Ltd vs The Cotton Corporation Of India Ltd on 31 January, 2020
1
Com.AS.No.127/2006
IN THE COURT OF LXXXII ADDL. CITY CIVIL & SESSIONS
JUDGE, BANGALORE CITY. (CCH.NO.83)
Dated: This the 31st day of January 2020.
PRESENT : Sri. Jagadeeswara.M.,B.Com,LL.B.,
LXXXII Addl.City Civil & Sessions Judge, Bangalore.
Com.AS No.127/2006
Petitioner M/s. Pasari Spinning Mills Ltd., No.746, 7 th cross,
12th main road, Hanumanthanagar, Bangalore -560
019, represented by its Managing Director Sri.
Tarun Kumar Gupta.
(By Kalasha Shamanna & Srikanth - Advocates)
- Versus -
Respondents 1. The Cotton Corporation of India Ltd., A company
registered under the Companies Act, having its
registered office at Air India Building, 12th floor,
Nariman Point, P.B.No.11682, Mumbai - 400 021,
represented by its Company Secretary.
2. Sri. R.L.Agnihotri, Retd., District & Sessions
Judge, r/a No.43, Godavari Nadi Road, Vinoba
Colony, Bangalore - 560 026.
(by Sri. R.V.Naik - Advocate)
JUDGMENT
This petition is filed U/Sec.34(2) of Arbitration and Conciliation Act 1996. The reliefs claimed in this petition are as under:
"Wherefore the petitioner respectfully prays that the Hon'ble Court be pleased to hold and declare that:
(a) The interim and final awards passed by the learned arbitrator 2 Com.AS.No.127/2006 Sri.R.L.Agnihotri are null and void and without jurisdiction.
(b) They have no legal effect and in case number 1/1998 and 2/1999
(c) They cannot be executed or enforced in law AND To set aside the said awards with costs throughout.
AND in the ALTERNATIVE, AND WITHOUT PREJUDICE to his rights, to attack the awards on the above several grounds, if for any reasons the honourable court reaches the conclusion that the awards cannot be interfered with and to be sustained, THEN the honourable court be pleased to STAY the execution of the awards under Section 22 of the Sick Industrial Companies (Special provisions) Act 1 of 1986 in the light of the decision rendered by the honorable Supreme Court as reported in 2006 AIR SCW 4783 (Jay Engineering Works v/s Industry Facilitation Council).
In the nutshell, petitioner has filed this petition under Sec.34(2) of the Arbitration & Conciliation Act, 1996 requesting to set aside interim and final Awards passed by the Sole learned Arbitrator in AC No.1/1998 and AC No.2/1999.
1(a). Petitioner herein was respondent and respondent herein was claimant in both the arbitration cases. Sri. R.L.Agnihotri (Retired District Judge) was Arbitrator.
2. Brief facts of the cases are as under:
It is contended in the petition that during the year 1994-95 and 1995- 96 and on various dates petitioner had purchased a total quantity of 2992 bales of cotton out of 3600 bales and 4951 bales of cotton out of 7503 3 Com.AS.No.127/2006 bales allotted by the respondent by making full payment since respondent did not allow credit sales. In each cotton season, the respondent used to fix a target of quantity to be sold by each of its branches, by raising indents in the names of purchasers, wherein the type, quantity, price and other terms are stereo typed. Respondent used to treat the indent offers as concluded contracts between itself and purchasers and used to trace all the sales done or executed by their terms and conditions.
2(a). Further, it is contended in the petition that none of the purchase transactions done by the petitioner with the respondent can be traced to those indents/contracts as it has not adhered to any time schedule of the respondent who has accepted the performance as and when petitioner purchased cotton without any protest and thereby respondent has waived or ignored or relaxed all the material terms of the contracts by allowing the petitioner to purchase the cotton at its pleasure and choice, but against full payment of the value. Despite this fact, respondent treated the petitioner as a defaulter and issued notice dated 6.12.1997 claiming damages of Rs.39,05,300.40 with interest, desk charges and sales tax etc. Subsequently respondent further claimed large sums on similar ground of breach of some more contracts by issuing notice dated 5.3.1999. Petitioner denied the claim of the respondent. Hence, respondent invoked arbitration clause of the indents contracts terms and appointed Hon'ble Justice Sri.Mularidhara Rao(Retd.) as Sole Arbitrator who commenced the arbitral 4 Com.AS.No.127/2006 proceedings in AC No.1/1998. Respondent filed its claim statement in the arbitral proceeding on or about 12.8.1998 and prayed for an award for recovery of Rs.1,41,50,525.63 with future interest and cost. During the pendency of this A.C.No.1/1998, the respondent filed another claim petition before the same learned Arbitrator in or about 27.10.1999 and this petition came to be registered as A.C.No.2/1999 in which respondent herein claimed for an award to recovery of Rs.44,24,977.52 with future interest and cost.
2(b). Further, it is contended in the petition that both the claim petitions in A.C.No.1/1998 and A.C.No.2/1999 were clubbed together throughout and common enquiry are held and common interim and final Awards are passed.
2(c). Further, it is also contended in the petition that petitioner filed his objections in both A.C.No.1/1998 and A.C.No.2/1999 and also raised counter claim to which re-joinder was filed by the respondent. Learned Arbitrator recorded evidence of three witnesses of the respondent/claimant. Cross-examination of two witnesses was done. But, cross-examination of 3rd witness of the respondent/claimant could not be completed since Hon'ble Justice Sri. Muralidhara Rao had withdrawn himself/resigned due to his ill-health on 3.8.2001 and thereby arbitration proceedings were terminated.
2(d). Further, it is contended in the petition that subsequently 5 Com.AS.No.127/2006 respondent named Hon'ble Justice Sri. C.N.Ashwathanarayana Rao as Arbitrator, vide its notice dated 18.3.2002. But Hon'ble Justice Sri.C.N.Ashwathanarayana Rao, though initially accepted the office and issued notice dated 29.4.2002 to the parties, but he did not proceed further on health grounds.
2(e). Further it is contended in the petition that respondent appointed another Arbitrator and nominated Hon'ble Justice Sri. G.Patri Basavanagoud(Retd.), through its letter dated 9.1.2003. Hon'ble Justice Sri. G.Patri Basavanagoud accepted the nomination and issued notice dated 17.2.2003 to both the parties intimating the date of preliminary hearing as 8.3.2003. But, petitioner had sent written representation dated 10.5.2003 to the learned Arbitrator challenging his appointment as violative of the provisions of the Act and in any event to stay further proceedings under Sec.22 of The Sick Industrial Companies (Special) provisions Act 1986. Respondent/claimant filed its objection to this representation. The learned Arbitrator though did not agree with the challenge made by the petitioner in regard to his nomination, but he declined to continue the proceedings by his written order dated 17.5.2003.
2(f). Further it is contended in the petition that despite objections and challenge made by the petitioner in regard to the unilateral nomination of an arbitrator, again respondent/claimant unilaterally nominated Sri. R.L.Agnihotri (Retd. District Judge) as an Arbitrator and had sent this 6 Com.AS.No.127/2006 intimation to the petitioner on 12.11.2003. Subsequently Sri.R.L.Agnihotri issued notice dated 27.11.2003 for preliminary hearing in the matter to decide the place, time and remuneration etc. In the said notice itself learned Arbitrator warned that in default of appearance, he would decide the matter and made Award on evidence before it. Such notice was sent in A.C.No.1/1998 only and no notice was sent in A.C.No.2/1999 and due to this reason, Awards are void ab-initio. Petitioner did not appear before the Arbitrator on 13.12.2003 with the belief that its appearance before the Arbitrator would be interpreted as acquiescence. But, petitioner had sent his objection to the Arbitrator by speed post requesting to stop all further proceedings which had become abortive on account of delay of more than 5 years. Subsequently petitioner deputed its Secretary by name Ramesh Kumar to handover another set of objections to the Arbitrator. In the memo of appearance filed before the Arbitrator, it was made clear that the said Ramesh Kumar was appearing for limited purpose of filing objections. Learned Arbitrator fixed next sitting to 20.12.2003 to enable the respondent to file its counter. On 20.12.2003 said Ramesh Kumar appeared before the learned Arbitrator. On that day respondent/claimant did not file its counter. At the request of respondent/claimant, learned Arbitrator posted the matter to 10.1.2004 on which date petitioner did not appear before the Arbitrator. Petitioner did not receive either copies of order if any passed on its objections or any notice of further hearing.
7Com.AS.No.127/2006 2(g). Further it is contended in the petition that petitioner received demand notice on or about 21/22.9.2006 issued by the respondent relating to amounts awarded in both arbitration cases. Copy of Award dated 4.9.2006 was enclosed to said demand notice. Petitioner received copies of Awards and order sheet of written proceedings, which were sent by the Arbitrator, on or about 9/10.11.2006. After receipt of these copies, petitioner came to know that learned Arbitrator treated the absence of Secretary of petitioner as absence of petitioner and placed the petitioner exparte on 10.1.2004 and proceeded with the enquiry and passed exparte Award without issuing notice to the petitioner before proceeding further. Learned Arbitrator rejected the objections of the petitioner on 26.2.2004 as untenable and then passed interim Awards on 24.7.2006 and then passed final Awards on 4.9.2006.
3. The grounds urged in the petition are that:
(a). The arbitration agreement is not valid under law since it has reserved the right to the respondent to appoint an Arbitrator of his choice.
The said clause is vague, uncertain and does not spell out the procedure to appoint an arbitrator. It does not help to identify an arbitrator from any class or designated person from ground realities. It takes away the freedom of the petitioner for appointing an arbitrator. Therefore, the arbitration agreements are violative of Sec.11 & 15 of the Arbitration & Conciliation Act, 1996. Hence, the Awards of the Arbitrator are to be set 8 Com.AS.No.127/2006 aside under Sec.34(2)(a)(ii) & (v) of the Act 1996.
(b). No notice was given to the petitioner by the learned Arbitrator Sri.R.L.Agnihotri of his appointment as Arbitrator or the arbitral proceedings relating to A.C.No.2/1999. The respondent by its notice dated 12.11.2003 had informed that it has appointed Sri.R.L.Agnihotri to continue arbitration and to decide the dispute in respect of contracts. The said learned Arbitrator Sri.R.L.Agnihotri has issued notice dated 27.11.2003 informing the petitioner that he has given his consent to be Arbitrator in A.C.No.1/1998. There is no mention of A.C.No.2/1999 in the said notice. Therefore, for want of proper notice in A.C.No.2/1999, the petitioner was prevented from presenting his case in A.C.No.2/1999 and therefore, impugned Arbitral Awards are liable to be set aside under Sec.34(2)(iii) of the Act 1996.
(c). Petitioner was not able to present his case before the learned Arbitrator since petitioner was treated as absent and was placed exparte throughout the proceedings. No preliminary meeting was held by the learned Arbitrator to fix reasonable fee, to estimate reasonable expenses of proceedings, to determine the cost to be paid by the parties, to arrange for administrative assistance, to fix place of arbitration, to fix time agreed for presenting claim, to fix language of arbitral proceedings, to fix the nature of hearing and to fix the consequences of default of appearance of parties. In the absence of such preliminary hearing held, the Arbitral Awards 9 Com.AS.No.127/2006 passed are void ab-initio and therefore liable to be set aside under Sec.34(2)(a)(iii) of the Act 1996.
(d). Learned Arbitrator has not provided proper opportunity to the petitioner to present its case and further no notice has been issued relating to further proceedings. In fact, petitioner challenged the nomination of Sri.R.L.Agnihotri as Arbitrator by sending objection in that regard through its Secretary to appear before the Arbitrator on 13.12.2003 for limited purpose of filing objection. On 13.12.2003, the learned Arbitrator directed the petitioner's messenger to produce the copies of order of BIFR and directed the respondent to file its objections on 20.12.2003. But on 20.12.2003, petitioner's secretary appeared and filed copy of order of BIFR to the learned Arbitrator. Proceeding was posted to 10.1.2004 for filing objections of respondent/claimant. On that day, petitioner's secretary did not appear since such appearance was not required since matter was posted for filing objections of the respondent/claimant. But learned Arbitrator in the order sheet dated 20.12.2003 recorded that fee etc. would be taken after he decides on the challenge of his appointment. But, Arbitrator treated the absence of petitioner's secretary on 10.1.2004 as absence of the petitioner and placed the petitioner exparte and conducted exparte proceedings without issuing further notices to the petitioner intimating the date of hearing and the place of the proceedings. No notice of the interim orders were issued to the petitioner. Thereby learned Arbitrator closed the doors 10 Com.AS.No.127/2006 of venue of arbitral proceedings and made it impossible to the petitioner to present its case and thereby prevented the petitioner from participating and the hearing of the disputes on merits. Therefore, Arbitral Awards are liable to be set aside.
(e). The impugned Awards passed by the learned Arbitrator are result of collusion, partiality and fraud of law. Since learned Arbitrator in collusion with the employee of the respondent, closed the doors of the arbitration proceedings by placing the petitioner as exparte and thereby prevented the petitioner from participating in the proceedings and due to this reason, no further notices were issued to the petitioner intimating the dates of the proceedings and venue of the proceedings. Apart from the excessive fee and expenses as per the records, learned Arbitrator after he took charge, did not hold any fresh enquiry or record any evidence, but spent six months time to study the papers and repeatedly adjourned the sitting continuously for over a period of 16 to 18 months to hear the respondent's argument or to submit written arguments even without a request for time by the advocate of the petitioner on a motion made by the respondent's employee who associated or influenced with the arbitrator while studying papers and this amounts to grave misconduct of the arbitrator. Therefore, impugned Arbitral Awards are liable to be set aside under Sec.34(2)(b)(ii) of the Act 1996.
(f). Learned Arbitrator has failed to consider objections raised by the 11 Com.AS.No.127/2006 petitioner relating to admissibility of various documents for want of stamp duty and for other reasons, which objections were quoted upon for a decision at later stage, as per order sheet dated 30.9.2000. Learned Arbitrator erred in law in relying on the evidence of PW.3, whose evidence was not complete. Learned Arbitrator has not recorded any finding on the material Issue No.1 and No.1(a) as to the effect of breach of the obligation by a purchaser in depositing 10% of value of cotton to be purchased. Learned Arbitrator has committed illegality in passing separate interim and final Awards. Therefore, impugned Awards are liable to be set aside on this ground.
(g). Learned Arbitrator has failed to consider the consequences of breach of Clause-2.1 of the contract properly based on the evidence of the witnesses and therefore, impugned Arbitral Awards are liable to be set aside.
(h). Learned Arbitrator should have rejected the claim of the respondent/claimant for damages on the ground that when obligations or performance is accepted by the other party to the contract, after the time fixed for performance, it is deemed to have waived or relaxed the rigor of the terms of contract and it is estopped from claiming damages for alleged breach by its conduct for waiver or acceptance. There was no foundation to claim general damages by the respondent. Therefore, impugned Awards are liable to be set aside.
12Com.AS.No.127/2006
(i). Impugned Awards are liable to be set aside on the ground that the respondent/claimant at intervals and on three occasions has nominated a fresh arbitrator as and when the earlier arbitrator has resigned. The arbitration dispute raised before the first appointed arbitrator cannot be treated as continuous proceedings even after substituted arbitrators are appointed at different stages in the absence of any agreement between the parties, and in the absence of any saving provision in the Act. Therefore, all the claims that were made by the respondent/claimant had become time barred when Sri.R.L.Agnihotri commenced the arbitration proceedings afresh.
Accordingly petitioner herein has requested to set aside the impugned Awards.
4.The respondent No.1 herein has appeared through its learned advocate and has filed its objection statement.
4(a). In the objection statement it is the contention of respondent that it is a Government undertaking under the Ministry of Textiles and engaged in the business of procurement and marketing of raw processed cotton. The petitioner is a Spinning Mills and Textiles manufacturing factories. The petitioner has challenged the final Award dated 4.9.2006, directing payment of a sum of Rs.3,14,51,636/- arising out of non-performance of 18 contracts entered into by the petitioner with the respondent. The claim No.1 pertains to 17 contracts and claim No.2/1999 pertains to 1 contract.
13Com.AS.No.127/2006 petitioner had placed 18 orders (i.e., 20 indents) for purchase of fully processed cotton bales and had entered into 18 different contracts with several branches of the respondent. For the year 1994-95, petitioner had entered into contract for purchase of 3600 bales of cotton, out of which 2922 bales were lifted. Likewise, for the year 1995-96 petitioner entered into contract for purchase of 7503 bales of cotton out of which only 4951 bales were lifted and the remaining bales of cotton were resold to various other purchasers at the rates prevailing then, which resulted in losses. The respondent invoked Clause-9 & 10 of the Contracts and appointed Hon'ble Justice Sri.Muralidhar Rao (Retd.) as the Sole Arbitrator, but due to the ill- health of the sole Arbitrator, the Arbitration proceedings could not be concluded, Hon'ble Justice Sri. Ashwath Narayana Rao was appointed as Sole Arbitator. The claim petitions No1/1998 and 2/1999 were filed and the petitioner filed written statement and counter claim to both the claims and the respondent filed rejoinder to the counter claims. The learned Arbitrator Hon'ble Justice Sri. C.N.Ashwath Narayana Rao did not continue Arbitral proceedings account of ill-health and Hon'ble Justice Sri. G. Patri Basavana Goud was appointed as the Arbitrator, who on 17.5.2003 passed an order holding that on account of the disgusting attitude of the respondent company, that he does not wish to proceed further. Subsequently the respondent company vide letters dated 12.11.2003, appointed Sri. R.L.Agnihotri, retired District & Sessions Judge, as the 14 Com.AS.No.127/2006 Arbitrator, to continue and conclude the Arbitration proceedings. Subsequently petitioner remained absent and hence, on 10.1.2004 petitioner was placed exparte. Thereafter the petitioner never appear before the Arbitral Tribunal. On account of the attitude of non-co operation of the petitioner and absence in the arbitration proceedings lead to the passing of Award dated 4.9.2006 rejecting the counter claim of the petitioner.
4(b). It is further contention of the respondent in the objection statement that declaration of the petitioner company as a 'Sick Unit' by the BIFR under the Sick Industrial Companies Act, does not prohibit the arbitration proceedings to be completed and an Award to be passed. The order of BIFR is one for revival of the company and not winding up. Sec.22 of the SICA Act prohibits execution and distress sale of the assets of the company and not the passing of an Award. The impugned Award is not contrary to any provisions of the SICA. petitioner itself has admitted that it did not lift the entire quantities of bales of cotton, contracted to be purchased. The purchases were purely optional and there was no pressure on the petitioner to purchase any quantity or quality of cotton bales from the respondent. The Contract forms were prescribed by the Head Office and the branch has no right to alter the terms of the contract. Though the petitioner received two notices, it did not repudiate the claims and no reply notices were issued by it. It is denied that sub-standard cotton was supplied by them to the petitioner. It is admitted that the respondent claimed a sum 15 Com.AS.No.127/2006 of Rs.1,41,50,525.63 in case No.1/1998 and Rs.44,24,977.52 in case No.2/1999 with future interest. petitioner has admitted that the two claims were clubbed together for enquiry and further the clubbing was done with the consent of counsels of both parties. petitioner was fully aware at the time of signing the contract, that in case of disputes arising between the parties, the respondent alone had the right to appoint an Arbitrator. Though the notice mentioned only one case viz, Arbitration case No.1/1998 and did not mention Arbitration Case No.2/1999, no harm or any prejudice has been caused to the petitioner. The petitioner has deliberately refrained from attending to the proceedings before Hon'ble Justice Sri.R.L.Agnihotri.
4(c). It is further contended that after the Award was passed on 4.9.2006, the respondent prepared a demand notice dated 21.9.2006 and sent the same to the petitioner with copy of the Award. The grounds urged by the petitioner in the petition are untenable. petitioner had agreed to pay 50% of the cost of Arbitration, which by consent was fixed at Rs.1,70,000/- towards Arbitrator's fee before the Arbitral Tribunal of Hon'ble Justice Sri. Muralidhar Rao and the petitioner had paid its proportionate share of Rs.85,000/- to Hon'ble Justice Sri. Muralidhar Rao, till his retirement on health grounds. All the costs of the Arbitration have been met with in the ratio of 50% each.
4(d). It is further contended that on 10.1.2004, the respondent filed its objections along with a copy of the order of Hon'ble High Court of 16 Com.AS.No.127/2006 Andhra Pradesh in Writ Appeal No.1715/2002, but on that day the petitioner did not appear before the Arbitrator and was placed exparte. Since the petitioner has remained absent throughout till passing of the Award, an inference cannot be drawn that the petitioner has not waived its right to challenge the appointment of the Arbitrator. As the in charge Manager (holding the post of Asst.Manager) of the respondent was present, the orders on the preliminary objections were passed and therefore, it was not necessary for the Arbitrator to issue a fresh notice before passing the order. The notice dated 27.11.2003 clearly stated that in case the petitioner failed to appear or participate in the proceedings, no further intimation would be given. After the preliminary objections were filed by the petitioner and it had attended the proceedings on 13.12.2003 & 20.12.2003, the petitioner never attended any further proceedings, which is gross negligence on the part of the petitioner. Therefore, the question of being prevented from participating in the proceedings, does not arise. It is denied that the Arbitrator had no jurisdiction to proceed with the enquiry in the absence of petitioner. Sec.25(c) of the Act clearly gives the necessary authority to the Arbitrator to proceed and make the Arbitral Award on the evidence before it. It is denied that the respondent was in collusion or partiality an fraud, brought about the Award dated 4.9.2006. The learned Arbitrators are of very high integrity and that there has been no misconduct by any of the Arbitrators. The petitioner has conveniently ignored its own 17 Com.AS.No.127/2006 conduct of absence, negligence and disrespect to the Arbitration proceedings before the Retired Judicial Officers of the State and hence, the Arbitral Awards are not liable to be set aside.
4(e). It is further contended in the objection statement that by letter dated 10.9.1996 petitioner has surrendered 2700 bales of cotton and it had agreed to lift remaining 1525 bales. Subsequently petitioner failed to lift even those bales and surrendered a further quantity of 750 bales out of 1525 bales, which clearly goes to show that the petitioner did not lift the bales of cotton as contracted for. Therefore, the learned Arbitrator has drawn the right inference of breach of contract and hence, there are no grounds to set aside the Arbitral Awards. Since the petitioner was in the habit of making full payment against contracts and payment for delayed period, it cannot be said that the respondent has waived its rights to enforce the contract. The petitioner was in the habit of making deposits of amounts in the Bangalore branch towards purchase of cotton and an amount of Rs.9,26,165.20 was lying in credit in the account of petitioner and the respondent No.1 has adjusted various amounts towards the initial deposits in respect of all the 18 unperformed contracts and hence, it cannot be said that there was no initial deposit in respect of the 18 contracts. No notice of cancellation was issued, thereby the contracts remained to be performed by the petitioner, on payment of charges for delay. Sec.15 of the Arbitration & Conciliation Act, 1996 on the retirement and resignation of the previous 18 Com.AS.No.127/2006 Arbitrator and appointment of a new Arbitrator, is that the proceedings of the previous Arbitrators are valid and the successor Arbitrator's actions are a continuation of the Arbitration proceedings commenced by the parties and therefore, it cannot be said that by the time the 4 th Arbitrator Sri.R.L.Agnihotri took over, the claims of the respondent No.1 were barred by time. Accordingly respondent No.1 has requested to dismiss the petition.
5. From the above, the following points have arisen for my consideration:
1. Whether petitioner has made out grounds under Sec.34(2) of the Arbitration & Conciliation Act 1996 to set aside Arbitral Awards passed in AC No.1/1998 & A.C.No.2/1999 ?
2. What order ?
6. I have heard both sides and carefully gone through the materials on record. My findings to the above points are as under:
Point No.1 : Negative Point No.2 : As per final Order for the following :
REASONS
7. Point No.1 : Undisputed facts between the parties are that during 19 Com.AS.No.127/2006 the period from 1994 to 1996 there were contracts between the parties under which the petitioner herein had purchased several quantity of bales of cotton from the respondent No.1 . There was arbitration clause in the contracts. Certain disputes arose between the parties. Respondent No.1 treated the petitioner herein as a defaulter and issued notice dated 6.12.1997 claiming damages with interest, desk charges and sales tax etc. Petitioner herein had denied the said claim. Accordingly respondent No.1 invoked Arbitration Clause of the Contract terms and appointed Hon'ble Justice Sri. Muralidhar Rao (Retd.) as Sole Arbitrator who commenced the arbitral proceedings in A.C.No.1/1998 in which respondent No.1 herein had claimed recovery of Rs.1,41,50,525.63. Subsequently respondent No.1 herein had also issued another notice dated 5.3.1999 to the petitioner claiming damages of Rs.44,24,922.52 with interest, desk charges and sales tax etc. Petitioner herein has also denied said claim. Accordingly, for the said claim also Hon'ble Justice Sri. Muralidhar Rao was nominated as Arbitrator, who accepted it and commenced arbitral proceedings in A.C.No.2/1999. It is admitted by the petitioner herein in the petition at para No.III(f) in page No.8 that it appeared in both the Arbitration cases in A.C.No.1/1998 and A.C.No.2/1999 and filed its objections in both the cases and also raised a counter claim. The contention of petitioner/plaintiff in para No.III(f) of the petition is as under:
"III(f). The plaintiff filed his objections in both the cases and also raised a counter claim to which the defendant filed a 20 Com.AS.No.127/2006 rejoinder."
It is also undisputed fact that both the Arbitration cases in A.C.No.1/1998 and A.C.No.2/1999 were clubbed together throughout and common enquiry was held and common interim and final Awards are passed. It is contended by the petitioner in its petition at page No.III(d) as under:
"III(d). These two claims were clubbed together throughout and common enquiry are held and common interim and final awards are passed."
Evidence of three witnesses for the claimant of the arbitral proceedings, was recorded during the time when Hon'ble Justice Sri.Mularidhara Rao (Retd.) was conducting the proceedings as an Arbitrator. Cross- examination of two witnesses was also done during that time by the petitioner herein. But before completion of cross-examination of third witness, the said Hon'ble Justice Sri.Mularidhara Rao had withdrawn himself from the Arbitratorship on 3.8.2001 on the ground of ill-health. Subsequently respondent nominated Hon'ble Justice Sri.Ashwathnarayana Rao (Retd.) as another Arbitrator to continue the proceedings and notice in this regard was sent by the respondent No.1 herein to the petitioner herein on 18.3.2002. Though said Hon'ble Justice Sri. C.N.Ashwath Narayana Rao had initially accepted the office and issued notice dated 29.4.2002 to the parties, but he could not proceed further. Therefore, respondent appointed Hon'ble Justice Sri. G. Patri Basavana Goud (Retd.) as an 21 Com.AS.No.127/2006 Arbitrator to continue the proceedings and notice was issued in this regard to the petitioner herein on 9.1.2003. Hon'ble Justice Sri. G. Patri Basavana Goud (Retd.) accepted the nomination and issued notice dated 7.2.2003 to both the parties intimating the date 8.3.2003 for preliminary hearing. But, petitioner herein challenged nomination of Hon'ble Justice Sri. G. Patri Basavana Goud (Retd.) as an Arbitrator on the ground that the Arbitrtor has been appointed by the Claimant/respondent herein unilaterally and without the consent of the petitioner herein and that there is no specific provision under the contract for appointment of series of Arbitrators and hence, the same is not binding on the petitioner and that it has never given its consent to this effect. Hon'ble Justice Sri.G. Patri Basavana Goud,after hearing both sides, passed detailed order on the objection raised by the petitioner herein, as under:
" From the above it is evident that even before the constitution of the Arbitral Tribunal, both the Advocates together with the above said officials of the respective companies came to my house and both sides requested me to be the Sole arbitrator. Not only that until the time I received the above said letter of 10.5.2003, every single step taken was with the active co-operation and consent of both the sides. Thus not only that the respondent company approached me initially for becoming the Arbitrator, but also did everything at every stage to indicate that the Tribunal had been constituted with the consent of both the sides and that what was being done was as agreed to by both the parties. Now for the respondent company to turn around and say that the constitution of the Arbitral Tribunal is without its consent is not only false but is also reprehensible. It is only to save embarrassment on the part of the learned Counsel Sri. G.V.Thimmappaiah that I permitted him to retire. Obviously 22 Com.AS.No.127/2006 one can understand the embarrassment to which he is put to on account of this attitude of his client, the Respondent company.
Since the constitution of this Arbitral Tribunal is valid and added to that since the constitution of this Tribunal was also at the request and with the consent of the Respondent, it would have been perfectly legal for this Tribunal to continue with the proceedings. However, on account of the disgusting attitude of the Respondent company I do not wish to proceed further and I therefore hereby withdraw under Section 15(i)(a) of the Arbitration & Conciliation Act, 1996.
I wish to place on record that so far I have not received a single paisa from either of the parties either towards remuneration of the Arbitrator or towards any other expenses and I also wish to place on record that for whatever work I have done so far including incurring expenses like typing, postage etc., I do not wish to accept any amount from either of the parties.
All the papers pertaining to the proceedings are returned to Sri. V.L.Desai, representing the Claimant company.
Sri. P.N. Kathavi, learned counsel for the Claimant company very strenuously makes a request that for the work done by me so far I should accept remuneration. While appreciating his concern, I still feel that if I accept any amount towards the arbitration in the circumstances in which the Respondent company has placed me, I would feel miserable. I am, therefore, politely rejecting the said request of Sri. P.N. Kathavi, Advocate for the Claimant. I would maintain that I would not receive anything for the work done by me so far."
Thus, Hon'ble Justice Sri. G. Patri Basavana Goud, has held that Arbitral Tribunal is valid and its constitution was at the request and with the consent of the respondent therein, who is petitioner herein. But, on account of the disgusting attitude and embarrassment created by the respondent therein by raising such untenable objection, the said Hon'ble Justice Sri. G. 23 Com.AS.No.127/2006 Patri Basavana Goud had withdrawn from the proceeding under Sec. 15 (1)
(a) of the Arbitration and Conciliation Act, 1996.
8. It is also admitted fact between the parties that subsequently respondent No.1 herein had nominated Sri. R.L. Agnihotri (Retd. District Judge) as an Arbitrator to continue the proceedings and this was intimated to the petitioner herein by sending notice dated 12.11.2003. The said Sri. R.L.Agnihotri accepted his nomination as Arbitrator and then issued notice dated 27.11.2003 to both the parties for preliminary hearing in the matter to decide the place,time and remuneration etc. and in the said notice itself it was stated that if any of the parties fail to appear, proceedings would continue as exparte.
9. It is contention of the petitioner herein that petitioner did not appear before the Arbitrator on 13.12.2003 with the belief that his appearance would be interpreted as acquiescence and as such, he had sent his objection to the Arbitrator by Speed Post requesting to stop further proceedings and also deputed its Secretary Sri. Ramesh Kumar to handover another set of objections to the Arbitrator and said Sri. Ramesh Kumar filed appearance before the Arbitrator for limited purpose of filing objections. Learned Arbitrator fixed next sitting to 20.12.2003 to file counter by the claimant therein. On 20.12.2003 the said Sri. Ramesh Kumar appeared before the Arbitrator. On that day claimant therein did not file counter and as such, learned Arbitrator posted the matter to 10.1.2004 24 Com.AS.No.127/2006 to file counter and since the stage was to file counter, petitioner did not appear before the learned Arbitrator on 10.1.2004 on which date petitioner was placed exparte. Subsequently learned Arbitrator proceeded with the arbitration proceedings and passed impugned Awards in both the cases.
10. At this stage it is material to note that Section 34(2) of the Arbitration & Conciliation Act 1996, relating to grounds to set aside Arbitral Award, reads as under:
" (2) An arbitral award may be set aside by the Court only if -
(a) the party making the application furnishes proof that -
(i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration;
provided that, if the decision on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or
(b) the Court finds that -
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or 25 Com.AS.No.127/2006
(ii) the arbitral award is in conflict with the public policy of India.
(Explanation 1 - For the avoidance of any doubt, it is clarified that an award is in conflict with the public policy of India, only if,-
(i) the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81; or
(ii) it is in contravention with the fundamental policy of Indian law; or
(iii) it is conflict with the most basic notions of morality or justice.
Explanation 2 - For the avoidance of doubt, the test as to whether there is a contravention with the fundamental policy of Indian law shall not entail a review on the merits of the dispute.) (2-A) An arbitral award arising out of arbitrations other than international commercial arbitrations, may also be set aside by the court, if the court finds that the award is vitiated by patent illegality appearing on the face of the award;
Provided that an award shall not be set aside merely on the ground of an erroneous application of the law or by re-appreciation of evidence."
11. It is held by Hon'ble Apex Court in (1989)1 SCC 411 (Puri Construction Private Limited Vs. Union of India) that the Court deciding objections against the award cannot examine correctness of the award on merits by re-appreciating evidence. When a court is called upon to decide the objections raised by a party against an Arbitration Award, the jurisdiction of the court is limited, as expressly indicated in the Arbitration Act, and it has no jurisdiction to sit in appeal and examine the correctness of the award on merits with reference to the materials produced before the Arbitrator. The court cannot sit in appeal over the views of the Arbitrator by re-examining and re-assessing the materials. Further, it is also held by 26 Com.AS.No.127/2006 Hon'ble Apex Court in (2015)5 SCC 698 (Navodaya Mass Entertainment Limited Vs. J.M Combines) that re-appraisal of material on record by the court and substituting its own view in place of arbitrator's view, not permissible in absence of perversity, merely because two views are possible. Once the Arbitrator has applied his mind to the matter before him, court cannot re-appraise said matter as if it were an appeal. Even if two views are possible, view taken by the Arbitrator would prevail.
12. By keeping in the mind the above proposition of law of Hon'ble Apex Court and also the nature of the provision of Section 34(2) of the Arbitration & Conciliation Act 1996, it is necessary to go through the materials on record to find out as to whether petitioner has made out grounds as contemplated under said Section 34(2) of the Act to set aside the Arbitral Award.
13. One of the grounds raised in this petition is that arbitration clause in the Agreement is vague, uncertain and does not spell out the procedure to appoint an Arbitrator and this is violative of Sec.11 & 15 of the Act, 1996. Relating to this ground is concerned, it is submission of learned advocate for petitioner that the arbitration clause in the agreement/contract reserved right to respondent No.1 only to appoint the Arbitrator of his choice only. It takes away the freedom of the petitioner, which is recognized by Sec.11(2) of the Act, 1996 to agree on a procedure for appointing an Arbitrator. Therefore, Arbitration Clause itself is illegal.
27Com.AS.No.127/2006 Accordingly it is submission of learned advocate for petitioner that Arbitral Awards are liable to be set aside. On the other hand, it is submission of learned advocate for respondent No.1 that having agreed the contract which contained arbitration clause, now petitioner cannot contend that arbitration clause is illegal.
14. So far this ground raised by the petitioner is concerned, it is relevant to note that the arbitration clause in the contract is as under:
"In case of any dispute or difference arising out of or in relation to the contract, same will be referred to Arbitration of an Arbitrator (other than an employee of the Corporation) to be appointed by the Director (Purchase & Sales) of the Corporation, whose decision shall be final and binding."
Arbitration is a creature of an agreement. There can be no arbitration unless there is an arbitration agreement in writing between the parties. It is pertinent to note that on one hand petitioner questions the terms and conditions of the arbitration clause of the contract, on the other hand petitioner raised counter claim basing itself on the same terms and conditions of the arbitration clause of the contract. Therefore, it is nothing but petitioner is blowing hot and cold at the same time. Petitioner could not claim benefit on the basis of terms and condition of the agreement and yet ridicule the agreement. Therefore, there are no materials to hold that arbitration clause in the contract is illegal.
15. Another ground raised by the petitioner is that arbitral Awards are illegal, void ab-initio and liable to be set aside since no prior notices were 28 Com.AS.No.127/2006 issued by the learned Arbitrator Sri.R.L.Agnihotri for conducting proceedings and petitioner was illegally placed exparte and thereby doors were closed to it to present its case and to participate in the proceedings.
16. Relating to this ground taken in the petition is concerned, it is argument of learned advocate for petitioner that two arbitration proceedings in A.C.No.1/1998 and A.C.No.2/1999 were clubbed together and part proceeding was held by the previous learned Arbitrator i.e., Hon'ble Justice Sri.Muralidhar Rao (Retd.). After appointment of Sri.R.L. Agnihotri, as Arbitrator, this Arbitrator had issued notice to the petitioner in A.C.No.1/1998 only and no such notice was issued in A.C.No.2/1999. Petitioner challenged the appointment of Sri.R.L.Agnihotri as Arbitrator, by forwarding its objection statement in that regard through speed post and also by forwarding another set of objection statement through its Company Secretary Mr.Ramesh Kumar, who appeared before the Arbitrator on 13.12.2003 for limited purpose of filing of objection statement. Subsequently matter was posted to 10.1.2004 for filing counter by the claimant therein who is the respondent No.1 herein. Therefore, petitioner or its Company Secretary did not appear before the Arbitrator on 10.1.2004. But on that day learned Arbitrator treated the absence of the Company Secretary of the petitioner as absence of the petitioner itself and accordingly petitioner was placed exparte and thereby learned Arbitrator illegally closed the doors to the petitioner to appear and to present its case.
29Com.AS.No.127/2006 No subsequent notice were issued by the learned Arbitrator. Accordingly, it is submission of learned advocate for petitioner that impugned Awards are illegal, void ab-initio and liable to be set aside.
17. Relating to this ground pleaded in the petition is concerned, it is pertinent to note that, as noted above, in the first instance respondent No.1 herein had nominated Hon'ble Justice Sri.Mularidhara Rao as Arbitrator, who had accepted nomination and issued notice to both parties and after preliminary hearing commenced arbitral proceedings in A.C.No.1/1998 and A.C.No.2/1999. Both these proceedings were clubbed together. Petitioner herein has filed his objection statement and also counter claim in these proceedings. Learned Arbitrator recorded evidence of three witnesses of the claimant. Cross-examination of two witnesses was done. But, cross-examination of 3rd witness of the claimant could not be completed since Hon'ble Justice Sri.Muralidhara Rao had withdrawn himself/resigned due to his ill-health on 3.8.2001. Subsequently respondent nominated Hon'ble Justice Sri.C.N.Ashwathanarayana Rao as Arbitrator, vide its notice dated 18.3.2002. But Hon'ble Justice Sri.C.N.Ashwathanarayana Rao, though initially accepted the office and issued notice dated 29.4.2002 to the parties, but did not proceed further on health grounds. Subsequently, respondent appointed another Arbitrator and nominated Hon'ble Justice Sri.G.Patri Basavanagoud(Retd.), through its letter dated 9.1.2003. Hon'ble Justice Sri. G.Patri Basavanagoud accepted 30 Com.AS.No.127/2006 the nomination and issued notice dated 17.2.2003 to both the parties intimating the date of preliminary hearing as 8.3.2003. But, petitioner had sent written representation dated 10.5.2003 to the learned Arbitrator challenging appointment as violative of the provisions of the Act and in any event to stay further proceedings under Sec.22 of The Sick Industrial Companies (Special) provisions Act 1986. In this representation it was contended by the petitioner that nomination of the Arbitrator has been made by the Claimant/respondent unilaterally and without consent of the petitioner and there is no specific provision under the contract for appointment of series of Arbitrators. Claimant filed its objection to this representation. The learned Arbitrator though did not agree with the challenge made by the petitioner in regard to his nomination, but declined to continue the proceedings by his written order dated 17.5.2003 and relevant portion of this order is noted in page Nos.23 & 24 of this judgment. In this order, learned Arbitrator i.e., Hon'ble Justice Sri.G.Patri Basavana Goud has held that constitution of the Arbitral Tribunal is valid. As could be seen from the materials on record and also as could be seen from the order passed on 17.5.2003 by Hon'ble Justice Sri.G.Patri Basavana Goud, due to such attitude and conduct of the petitioner herein, who was respondent in the arbitral proceedings, in questioning the constitution of Arbitral Tribunal and nomination of the Arbitrator, learned advocate who was appearing in the Arbitral proceedings for the respondent 31 Com.AS.No.127/2006 therein/petitioner herein, retired from the Vakalath. Thus, challenge made by the petitioner herein relating to constitution of Arbitral Tribunal by nominating Hon'ble Justice Sri.G.Patri Basavana Goud as Arbitrator, was rejected through order dated 17.5.2003. Due to withdrawal of Hon'ble Justice Sri.G.Patri Basavana Goud from Arbitratorship under Sec.15(1)(a) of the Act, 1996, respondent No.1 herein nominated Sri.R.L.Agnihotri (Retd. District Judge) as an Arbitrator and had sent this intimation to the petitioner on 12.11.2003. It is undisputed fact that subsequently Sri.R.L.Agnihotri issued notice dated 27.11.2003 to both parties instructing to appear before him on 13.12.2003 for preliminary hearing in the matter to decide the place, time and remuneration etc. In the said notice itself learned Arbitrator indicated that in default of appearance, he would decide the matter and made Award on evidence before it. This indication was due to the fact that nomination of said Sri.R.L.Agnihotri as Arbitrator for continuation of the arbitral proceedings in Arbitration Case No.1/1998 and 2/1999 and not to start the arbitration proceedings afresh and from the beginning stage. In the said notice, A.C.No.1/1998 was shown and A.C.No.2/1999 was not shown. Petitioner cannot take undue advantage of non-mentioning of A.C.No.2/1999 in the said notice which was sent by Arbitrator Sri.R.L.Agnihotri, for the reasons that both the cases in A.C.No.1/1998 and A.C.No.2/1999 were clubbed together and therefore, non-mentioning of A.C.No.2/1999 makes no much difference.
32Com.AS.No.127/2006
18. Apart from the above, it is pertinent to note that instead of appearing before the learned Arbitrator on 13.12.2003 to pursue and to proceed with the arbitration proceedings, as admitted in the petition herein, petitioner remained absent and it had forwarded its objection by speed post, questioning the nomination of the Arbitrator and requesting to stop all further proceedings. Petitioner deputed its Company Secretary by name Ramesh Kumar to handover another set of objections to the Arbitrator. The said Ramesh Kumar had filed memo of appearance before the Arbitrator. It is contention of petitioner that the said Ramesh Kumar had appeared before the learned Arbitrator for limited purpose of filing objections. Learned Arbitrator posted the matter to 10.1.2004 on which date petitioner did not appear before the Arbitrator. Therefore, petitioner was treated as exparte in the arbitral proceeding. Since already objection filed before the Arbitrator by name Hon'ble Justice Sri.G.Patri Basavana Goud, questioning validity of the Arbitrator appointed and also the validity of constitution of Arbitral Tribunal, was rejected on 17.5.2003, after nomination of Sri.R.L.Agnihotri as Arbitrator, due to withdrawal from the Arbitratorship by Hon'ble Justice Sri.G.Patri Basavana Goud, petitioner again filed same type of objection before Sri.R.L.Agnihotri also. This type of objection was filed without making appearance to co-operate for continuation of the arbitral proceedings. In the petition itself, it is admitted that notice relating to the nomination of all the arbitrators, were 33 Com.AS.No.127/2006 sent by the respondent No.1 herein to the petitioner herein. Even all the nominated arbitrators had issued notice to the petitioner. Therefore, the contention of the petitioner that no prior notice was issued by the Arbitrator Sri.R.L.Agnihotri and without issuing prior notice petitioner was placed exparte etc., cannot be accepted.
19. From the above noted conduct of the petitioner it is clear that petitioner always adopted an indifferent attitude towards the arbitration proceedings in as much that though it had knowledge of the proceedings, it had deliberately stayed away on 13.12.2003 when petitioner, as per its own statement, had not appeared before the Arbitrator, but had sent its Secretary Mr. Ramesh Kumar to file objection to validity of nomination of Arbitrator, which nomination was factually as per terms of contract and in any way it was not invalid.
20. The contention of petitioner that learned Arbitrator by placing the petitioner exparte had closed the doors and prevented it from appearing to prove its case, is not acceptable for the reasons that in similar facts and circumstances of a case, Hon'ble High Court of Bombay in its reported decision dated 4.3.2015 in Arbitration Petition No.304/2014 and other connected petitions (Krishna Bhagwan Rajaram Sharma Vs. M/s Tata Motors Finance Ltd.), has held as under:
"This principle adopted by Calcutta High Court in Juggilal Vs. General Fiber Dealers Ltd. AIR 1955 Calcutta 354 (DB) held that if a party fails to attend the arbitration hearing on the due date and time, the Arbitrator is at liberty to proceed exparte, 34 Com.AS.No.127/2006 though it is advisable,but not compulsory that he should give that party notice of his intention to proceed exparte, if he is absent in the next hearing. Once an Arbitrator makes known his intention to proceed exparte and it is duly noted by the parties, the act of a party in not putting up an appearance in the next date fixed, would empower the Arbitrator to proceed exparte and such an act of the Arbitrator does not amount to misconduct as held in Dalmia Cement (Bharat) Ltd., Vs. Advance Commercial Co.Ltd.(Del). Since provisions of CPC is not strictly applicable in arbitration proceedings, even if one party is absent and Arbitral Tribunal declared him exparte, if the case is not finished on that day and the case is only adjourned without deciding the case, both sides can appear in the next adjournment date. The meaning of the expression 'ex parte' has been considered by the Supreme Court in Sangram Singh Vs. Election Tribunal, Kotah AIR 1955 SC 435 at 431. Referring to judgment of Wallace, J. in Venkatasubbaiah V. Lakshminarasimham AIR 1925 Madras Kvm ARBP 304.14 1274, the Apex Court opined that 'ex parte' only means in the absence of other party. In an ex parte proceedings, the Court can proceed with the case if one party I absent without sufficient cause and due notice, as if that party is present. If an ex parte decision is taken, when one party is absent without sufficient cause and due notice, as if that party is present. If an ex parte decision is taken, when one party is absent without sufficient reasons, decision will be valid. But if no ex parte decision is taken on that date but case is further adjourned, both sides can participate in the subsequent date of posting as held by this Court in St. Joseph's Hospital V. Jimmy, (2001)2 KLT 514."
The above noted proposition of the judgment of Hon'ble High Court of Bombay, is aptly applicable to the case on hand, for the reasons that it is undisputed fact that after Hon'ble Justice Sri. G.Patri Basavana Goud had withdrawn himself from the Arbitratorship, respondent No.1 herein had nominated Sri.R.L.Agnihotri(Retd. District Judge) as an Arbitrator and had 35 Com.AS.No.127/2006 sent this intimation to the petitioner on 12.11.2003. Even this Arbitrator Sri.R.L.Agnihotri issued notice dated 27.11.2003 to both the parties to appear before him for preliminary hearing. Since his nomination was to continue the arbitration proceedings already initiated, he merely indicated in the said notice his intention to proceed ex parte if party fails to appear before him and thereby this was duly noted by the parties. Undisputedly, petitioner herein remained absent before the Arbitrator and accordingly on 10.1.2004 petitioner was placed ex parte. Even then there was no impediment for the petitioner to approach the Arbitrator to know the next date of hearing of the arbitral proceedings and then to appear before the Arbitrator in the subsequent dates of hearings. But, petitioner did not do so for the reasons best known to it and as observed above, petitioner had always adopted an indifferent attitude towards the arbitration proceedings in as much that though it had knowledge of the proceedings, it had deliberately stayed away from the proceedings. Therefore, there are no materials to hold that impugned Arbitral Awards are illegal, void ab-initio due to placing of the petitioner ex parte and due to non-issuance of the notice to the petitioner by the Arbitrator in the subsequent hearing dates.
21. Another ground raised in this petition is that impugned Awards are liable to be set aside on the ground that the respondent No.1 at intervals and on three occasions has nominated a fresh Arbitrator as and when the earlier Arbitrator has resigned and the arbitration dispute raised before the 36 Com.AS.No.127/2006 first appointed Arbitrator cannot be treated as continuous proceedings even after substituted Arbitrators are appointed at different stages in the absence of any agreement between the parties and the claims that were made by the respondent No.1/claimant had become time barred when Sri.R.L.Agnihotri commenced the arbitration proceedings.
22. Relating to this ground taken in the petition, it is submission of learned advocate for petitioner that the arbitration clause in the contract does not permit the respondent No.1 to nominate fresh Arbitrator as and when the earlier Arbitrator has resigned. Therefore, respondent No.1 had no authority to appoint subsequent Arbitrators after the first Arbitrator by name Hon'ble Justice Sri.Mularidhara Rao had withdrawn from the arbitration. Subsequent nomination of the Arbitrators is illegal and void. Further it is also submission of learned advocate for petitioner that the arbitration dispute raised before the first appointed Arbitrator cannot be treated as continuous proceedings before the substituted Arbitrators. The claims that were made by the respondent No.1, had become time barred when Sri.R.L.Agnihotri commenced the arbitration proceedings. Accordingly it is submission of learned advocate for petitioner that impugned Arbitral Awards are liable to be set aside on this ground.
23. So far this ground raised in the petition is concerned, it is relevant to note that it is undisputed fact that in the first instance respondent No.1 had nominated Hon'ble Justice Sri.Mularidhara Rao as Arbitrator, who 37 Com.AS.No.127/2006 commenced the arbitration proceedings in A.C.No/1/1998 & A.C.No.2/1999. The said learned Arbitrator recorded evidence of three witnesses of the claimant therein. Cross-examination of two witnesses was done. Before completion of cross-examination of third witness, the said Hon'ble Justice Sri.Mularidhara Rao had withdrawn himself from the arbitration on 3.8.2001. Subsequently Hon'ble Justice Sri.C.N.Ashwathanarayana Rao was nominated as Arbitrator, but His Lordship did not continue the proceedings. Therefore, respondent No.1 nominated Hon'ble Justice Sri.G. Patri Basavana Goud as Arbitrator, vide its letter dated 9.1.2003. As noted above, due to the attitude of the petitioner herein, Hon'ble Justice Sri. G. Patri Basavana Goud, through order dated 17.5.2003, declined to continue the proceedings. Subsequently, respondent No.1 nominated Sri.R.L.Agnihotri (Retd. District Judge) as an Arbitrator vide its letter dated 12.11.2003. There is no merit in the contention of the petitioner that respondent No.1 had no authority to nominate subsequent Arbitrators after the first Arbitrator resigned, for the reasons that it is held by Hon'ble Apex Court in AIR 2006 SC 2798 (M/s Yeshwith Constructions (P) Ltd. Vs. M/s Simplex Concrete Piles India Ltd. & Anr.), as under:
"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 38 Com.AS.No.127/2006 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."
In view of this proposition of law of Hon'ble Apex Court, it cannot be held that respondent No.1 had no authority to nominate subsequent arbitrator after first nominated arbitrator had withdrawn on health or any other ground. There are no materials to hold that the clams made before the first nominated arbitrator had become time barred when subsequent arbitrator by name Sri.R.L.Agnihotri commenced the arbitration proceedings.
24. Another contention raised by the petitioner is that learned Arbitrator has not recorded finding on the material Issue No.1 and No.1(a) as to the effect of breach of the obligation by a purchaser in depositing 10% of value of cotton to be purchased. Learned Arbitrator has failed to consider the consequences of breach of Clause-2.1 of the contract properly based on the evidence of the witnesses and therefore impugned Arbitral Awards are liable to be set aside.
39Com.AS.No.127/2006
25. It is submission of learned Advocate for petitioner that factually learned Arbitrator has not recorded any finding to issue No.1 and No.1(a) and further learned Arbitrator has failed to consider the consequences of breach Clause-2.1 of the contract and therefore, impugned Arbitral Awards are liable to be set aside. On the other hand, it is submission of learned Advocate for respondent No.1 that though in the impugned Awards, mentioning of Issue No.1 and 1(a) in the reasoning portion, is mistakenly left out, but factually Issue Nos.1, 1(a) and Issue No.2 are relating to the same effect and learned Arbitrator has considered Issue No.2 extensively in para No.77 to 92 of the impugned Award and therefore the finding recorded to Issue No.2 necessarily covers Issue No.1 and 1(a) also. Further it is also submission of learned Advocate for respondent No.1 that finding recorded by the learned Arbitrator to Issue No.2 in page Nos.77 to 92 is based on the appreciation of materials on record such as oral evidence of Pws.1 to 3, records produced and marked by the claimant, nature of claim statement and nature of counter filed by the respondent, and therefore, there is no scope for this court for re-appreciation of those materials to substitute the view taken by the arbitrator. Accordingly, learned advocate for respondent No.1 submits that based on this ground taken in the petition impugned Awards cannot be set aside.
26. After having heard both sides, I have carefully gone through the materials on record. It is relevant to note that Issues framed in the arbitral 40 Com.AS.No.127/2006 proceedings are noted in page Nos.27 to 29 of the impugned Awards. Issue Nos.1, 1(a) and 2 framed in the arbitral proceedings are as under:
"1. Does the claimant establish that there is a binding and enforceable contract notwithstanding the non-deposit of 10% of the value, as earnest money ?
1(a). What is the effect of non-lifting of cotton by the respondent within the stipulated period, does it make the contract altogether unenforceable. What is its legal effect of the contract ?
2. Does the respondent establish that with the non-deposit of 10% of the earnest money, the entire contract has become unenforceable ?"
The above noted three issues i.e., Issue Nos.1,1(a) & 2 framed are relating to same effect and relating to same fact in issue for the reasons that it was contended in the claim statement filed before the Arbitral Tribunal that there were two types of sales viz., "Firm Sale" and "Indent Sale". In Firm Sale, a party uses to purchase cotton which is readily available with the Corporation. The Indent Sale involved process whereby on receipt of purchase order from the intending purchaser, the Corporation procures cotton of the quantity required by the purchaser, in the open market and delivers the same to the purchaser subject to the purchaser fulfilling the terms of the contract. In both type of sales, Corporation used to provide free period to the purchaser. In the case of firm sale, the free period provided is from the date of contract, however, it could vary depending upon the quantity of cotton that the purchaser offers to purchase. In case of indent sale, the free period provided is from the day the Corporation 41 Com.AS.No.127/2006 purchases the cotton and communicates it to the purchaser. However, this duration could vary depending upon the quantity of the cotton purchased by the purchaser. Under the terms of the contract, the purchaser is required to make deposit of certain amount within a period of 7 days from the date of contract and further is required to complete the transaction within the expiry of free period by tendering the remaining sale consideration. Failur of the buyer to take delivery of the quantities under the contract within the free period against full payment, would render the contract liable for cancellation at the option of the Corporation who shall give notice giving 7 days time to buyer to pay and to take delivery of the cotton. The purchaser's failure to make payment and to lift the cotton even after serving said notice by the seller shall automatically give right to the Corporation to dispose off the quantities lying unlifted by the buyer and recover all losses, charges and sales tax etc. This contention raised in the claim petition was based on the contract clauses. It was contended in the counter statement filed by the respondent therein, who is petitioner herein, that except contract Nos. I, XIX and XX, no deposit of 10% of the value was made within 7 days of the contract and further, it failed to take delivery of the quantities under these contracts even within the free period against full payment and this rendered the contract automatically canceled and thereby contract became unenforceable as per clause-2.1, Clause-4, Clause-4.2 and Clause-5 of the contracts. In view of these stands taken by 42 Com.AS.No.127/2006 the parties in the claim statement and counter statement, learned Arbitrator framed above noted Issue Nos.1, 1(a) and 2 relating to the same effect and relating to the same fact in issue.
27. As could be seen from page Nos.77 to 92 of the Awards, respondent of the arbitral proceedings raised contention in its counter that except in contract No.I, XIX and XX, no deposit of 10% of the value was given within 7 days of the contract and further, it failed to take delivery of the quantities under these contracts even within the free period against full payment and this rendered the contract automatically canceled and therefore contract became unenforceable as per the Clause No- 2.1, Clause- 4, Clause-4.2 & Clause-5. Claimant filed its rejoinder by contending that respondent therein had placed several orders for purchase of cotton during the year 1994-95 and 1995-96 in which period respondent therein lifted the cotton bales without full deposits and this shows the earnest money or deposit came to be revised or modified from time to time and the said earnest money or deposit mentioned in these contracts, were not seriously insisted upon due to long association in the business of the customer with the Corporation and due to this reason the customer/respondent therein either made payment of a portion of earnest deposit or at times, even without making earnest deposit has lifted cotton, paying necessary charges only at the time of lifting the bales. In support of the rejoinder, claimant placed the statement which came to be marked as Ex.C.0362.
43Com.AS.No.127/2006
28. It is observation of learned Arbitrator that statement marked as Ex.C.0362 contains several transactions between the parties and buyer had lifted the bales without first making deposit of 10% as required under Clause-2.1, but the actual payment has been made for the bales when actually lifted and there is no specific denial of this statement marked as Ex.C.-0362. There are cases to show that even beyond 90 days the lifting was done without making any initial deposit of 10% which shows how the parties stood and understood and acted upon relating to the compliance of prior deposit of 10% within 7 days. This establishes that both the parties did not seriously insist upon for payment of 10% deposit within 7 days of contract.
29. Further it is also observed in the Award that respondent therein was a regular customer who used to place bulk orders and therefore, certain concessions were given to it. Respondent therein/buyer through its letter dated 7.4.1995 which is marked as Ex.C.10, requested the Corporation for concession even to waive the deposit of 10% due to its financial difficulties. Corporation through its letter dated 8.3.1996 at Ex.C-0363 gave concession of reduced deposit rate. It is evidence of CW.2 that since for all the purchases of the year 1994-95, requisite deposit was there and the performance of the buyer was satisfactory, the Corporation did not take any action against the buyer as soon as they found that there is no requisite deposit.
44Com.AS.No.127/2006
30. Further it is also observed in the Award that though Clause-2.1 of the contract states that if the deposit of 10% is not made within 7 days on the part of the buyer, it shall the contract canceled, at par, automatically, but this clause-2.1 has to be read with Clause-4.2 also because the so called automatic cancellation for non-deposit within 7 days of contract cannot come into force immediately, but the Corporation has to wait till expiry of the free period since Clause-4.2 provides that "After expiry of the free period, if the buyer fails to lift the goods, the contracts are rendered to be canceled at the option of the seller by serving the notice". After going through the nature of Clause-2.1 and Clause-4.2 of the contracts, it is concluded by the learned Arbitrator that for the non-payment of requisite deposit and non-lifting of the goods, although the contract can be rendered canceled, but it is only at the option of the seller/Corporation.
31. Further it is also observed in the Award that in Clause-4.3, it is provided that if even after serving 7 days notice, the buyer fails to comply, the Seller is automatically given a right to resell the goods and recover the loss. Thus, a right is conferred on the Seller at its option to treat the contract as canceled. By considering the long standing good customer of lifting heavy bulk of cotton and no strict compliance of those rules of Clause-2.1 or Clause-4.2 or 4.3 has been strictly enforced. Since during the transactions of these contracts, the buyer has taken concessions on carrying charges and he has partly performed some contracts, the buyer cannot go 45 Com.AS.No.127/2006 behind that position and these circumstances show that both the parties did not insist for 10% deposit. It is evidence of CWs.2 & 3 that keeping in view the overall performance of the buyer and taking into consideration of the deposits available with the Corporation, the respondent/buyer was allowed to extend the period, and due to exigencies expressed by it, the buyer surrendered the cotton for resale under the surrender deed dated 10.9.1996.
32. Further it is also observed in the Award that in the letter dated 25.1.1996 Ex.C.0364 which was sent by the buyer to the Corporation, relating to total orders of the year 1995-96, buyer offered Rs.4,55,867.70 on three occasions as shown in the said letter, as payment of advance deposit against purchases for the year 1995-96 Crop season, requesting to have the said deposit on rotation. Based on this letter, it is observed by the learned Arbitrator that this letter was in respect of the entire season 1995-96 and the deposit of Rs.4,55,867.70 had been given by the buyer to the Corporation to cover all the contracts No. II to XV for the said period. Contention raised by the respondent/buyer in its counter statement that deposits were given for specific indents and those deposits could not be adjusted for any other outstanding indents, was rejected by the learned Arbitrator with the reasons that the buyer in its own letter at Ex.C.0364 has clearly stated that the deposit of Rs.4,55,867.70 given under it was for all the purchases of the year 1995-96 crop season.
46Com.AS.No.127/2006
33. Learned arbitrator has taken issue No.2 for consideration and discussed in detail the materials on record and recorded negative finding to Issue No.2 with detailed reasonings in page Nos.77 to 92 of the impugned Award. This negative finding recorded to issue No.2 is based on the consideration of the materials on record such as nature of contents in the claim statement filed by the claimant, nature of defence in the counter statement filed by the respondent therein, nature of the clauses in the contract, nature of oral evidence of PW.1 to 3 and the nature of the records produced and marked by the claimant therein. This finding in Issue No.2 necessarily covers the finding against buyer on Issue Nos.1,1(a) though there is no specific mention of Issue Nos.1 and 1(a). As rightly submitted by the learned advocate for respondent No.1 herein, this court while deciding the petition under Sec.34(2) of the Arbitration & Conciliation Act, 1996 cannot sit in the appeal to examine the correctness of the Award on merits with reference to the materials produced before the Arbitrator as held by Hon'ble Apex Court in (1989) 1 SCC 411 (Puri Construction Pvt.ltd. Vs. Union of India).
34. Learned Arbitrator, after going through the materials on record and after appreciation of the nature of claims made by the Corporation and the oral and documentary evidence placed by it and also recalculation sheet filed by it, has awarded the following sums:
"With these general observations I now proceed to pass the FINAL AWRD in respect of Claim No.1 under the following Heads: (which are also set 47 Com.AS.No.127/2006 out by the Petitioner Company in their prayer column). These amounts the Petitioner Company is entitled to get from the Respondent:
CLAIM NO.1/1998Sl.
Sl. PARTICULARS AMOUNT
No.
Differential Value
1) (the difference in value between Original Rs. 2591713
sale price & resale price)
2) Carrying Charges from the date of Rs. 6831060
original contracts till the previous dates
of re-sales.
3) Interest on Item Nos.1 & 2 above from Rs. 2692425
dates of re sales till 13.3.1998
4) Difference in carrying charges fro the Rs. 214636
bales lifted beyond 60 days from the date
of expiry of free periods,i.e., The Benefit
of confessional carrying charges given to
the Buyer for the Bulk purchase of 6000
bales given earlier, but that benefit was
withdrawn because the Respondent
had failed in reaching the target of lifting
6000 Bales, and, thus, that benefit was
withdrawn.
5) Interest on item No.4 from the date of Rs. 46518
lifting till 13.3.1998
6) Central Sales tax on 350 bales (Out of Rs. 152617
400 bales of contract No.60 dated
11.1.1995 regarding Contract No.I,
Indent No.754
7) Additional CST on 350 bales for which Rs. 152617
'C' Forms are not issued
8) Interest on item Nos.6 & 7 above from Rs. 160672
the date of invoices till 13.3.1998
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Com.AS.No.127/2006
9) Transit Insurance for 400 bales brought Rs. 8149
to Godown under GSF in r/o
Cont.60/11.1.95 regarding Contract
No.I, Indent No.754
10) Interest on Transit Insurance from the Rs. 4243
dates of debit notes to 13.3.1998
Rs. 12854920
LESS: Deposit amount available with Rs. 2586282
the Corporation plus interest allowed by
the Corporation
TOTAL Amount payable by the Rs. 10268638
respondent to the Corporation
12) Pendente Lite Interest in Claim No.1 Rs. 15521117
Total of Claim No.1 Rs. 25789755
I now proceed to pass the FINAL AWARD in respect of Claim No.2 under the following Heads: )(which are also set out by the petitioner company in their prayer column.) These amounts the petitioner Company is entitled to get from the respondent:
CLAIM NO.2/1999
Sl. PARTICULARS AMOUNT
No.
Differential Value
1) (the difference in value between original Rs. 335574
sale price & resale price)
2) Carrying charges from the date of Rs. 1885412
original contracts till the previous dates
of re-sales.
3) Interest on Item Nos.1 and 2 above from Rs. 466884
dates of re-sales till 08.10.1999
4) Difference in CST for 178 Bales Rs. 13423
(between original & Resale)
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Com.AS.No.127/2006
5) Additional CST on 178 bales for which Rs. 13423
'C' forms are not issued.
6) Interest on Item Nos.4 & 5 above from Rs. 133174
the date of invoices till 08.10.1999
7) Transit Insurance & other expenses for Rs. 4389
178 bales brought to godown under GSF
in r/o. Cont.10/29.12.1994
8) Interest on item o.7 above from the date Rs. 4389
of Debit Notes till 08.10.1999
9) Transit Insurance & other expenses for Rs. 14560
178 Bales brought from godown to
Claimant Godown at Bangalore and also
while effecting the delivery on resale.
10) Interest on Item No.9 upto 08.10.1999 Rs 3779
Rs.2874975
LESS: Deposit amount available with Rs. 477883
the Corporation plus interest allowed by
the Corporation
TOTAL amount payable by the Rs.2397092
Respondent to the Corporation
12) Pendente Lite Interest in Claim No.2 Rs. 2944680
TOTAL of Claim No.2 : Rs. 5341772
Total of Claim Nos.1 & 2 : Rs. 31131527
11) ARBITRATION EXPENSES (BOTH Rs. 320109
IN CLAIM NOS. 1 & 2)
GRAND TOTAL Rs.31451636"
The above noted sums awarded by the Arbitrator is based on appreciation of materials on record. There is no specific challenge made by the petitioner herein in the petition on hand relating to the quantum of money 50 Com.AS.No.127/2006 awarded in the Awards. Since the quantum of money awarded is based on the appreciation of materials on record, this court cannot substitute the view taken by the learned Arbitrator by re-appreciating the materials on record and by sitting in appeal against the Awards. For these reasons, there are no grounds made out as contemplated under Sec.34(2) of the Arbitration and Conciliation Act 1996 to set aside the impugned Arbitral Awards. For these reasons, this point is answered in the 'Negative'.
35. Point No.2 : For the reasons stated above, I proceed to pass the following:
ORDER Petition filed U/Sec.34(2) of Arbitration and Conciliation Act 1996 is dismissed.
Both parties shall bear their own cost.
(Dictated to the JW, typed by her, corrected and then pronounced by me in Open Court, on this the 31st day of January 2020.) (JAGADEESHWARA.M.) LXXXII Addl. City Civil & Sessions Judge, Bangalore.
51 Com.AS.No.127/2006