Bombay High Court
Khorshed E. Nagarwalla vs Daryus Soley Panthakey on 15 June, 2010
Author: F. I. Rebello
Bench: F. I. Rebello, R. V. More
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORIDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO. 235 OF 2010
IN
ARBITRATION PETITION NO. 128 OF 2010
Khorshed E. Nagarwalla,
Age 85 years, Naju Villa,
645, Khareghat Road, Road No. 10,
Parsi Colony, Dadar, Mumbai - 400 014.
ig ..Appellant.
Versus
Daryus Soley Panthakey,
Dastoor Bangalow, 1st floor,
Dastoor Wadi, Naigum Cross Rd,
Dadar, Mumbai - 400 014. ..Respondent.
Mr. Chirag Sukh i/b M/s. Bilawala & Co., for the appellant.
Coram : F. I. REBELLO & R. V. MORE, J.
Date : 15th June, 2010.
Oral Judgment (Per F. I. Rebello, J.). :
1. The application was moved under section 9 of the Arbitration & Conciliation Act, 1996 (for short "the said Act"). An objection was raised that the named arbitrator who was the sole arbitrator had expired and that the respondent was not willing to continue with the arbitration after the death of named arbitrator. A learned Judge after considering the various contentions was pleased to hold that on the death of arbitrator and in the absence of parties agreeing to appoint another arbitrator, there would not be an ::: Downloaded on - 09/06/2013 16:00:58 ::: -: 2 :- arbitration agreement and consequently no relief can be granted. A alternative plea was made on behalf of the petitioner that the suit should be revived. The learned Judge was pleased to grant liberty to take appropriate steps and/or proceedings in accordance with law for restoration of the suit. It is this order which is the subject matter of the present proceedings.
2. Arbitration clause reads thus :
"1. By consent, the dispute in the suit between the Plaintiff and Defendant is referred to the Arbitration of the Sole Arbitrator Shri. A. B. Palkar (Retired Judge Bombay High Court).
2. Parties shall file all pleadings before the Sole Arbitrator.
3. The order of status quo shall be maintained in respect of the subject property viz., Najoo Villa, standing in Plot No. 643 at Parsi Colony, Dadar, Mumbai as per the Appellate Order dated 6th July 2004 passed in Appeal No. 401 of 2004 and shall continue untill final disposal/termination of the arbitration proceedings and for a period of 8 weeks thereafter."
3. It is thus clear that though initially there was no arbitration agreement, the parties in the suit by signing the minutes of order, which contains an arbitration clause agreed for arbitration and further named arbitrator. The question for consideration before us is whether if the named an arbitrator expires, the arbitration clause itself gets invalidated and/or does not survive and as such the Chief Justice or his designate under section 11 of the said Act ::: Downloaded on - 09/06/2013 16:00:58 ::: -: 3 :- cannot fill the vacancy occasioned by the death of the sole arbitrator. The issue as to whether, under section 9 of the said Act, this issue can be gone into is considered in the law declared by the Supreme Court in M/s. S.B.P. and Company v/s. Patel Engineering Ltd and another, reported in 2005(8) SCC
618. The scheme of the Arbitration and Conciliation Act, 1996 would require that there be an arbitration agreement providing for appointment or arbitrator/arbitrators which will constitute the arbitral tribunal, which must be constituted by odd number of arbitrators. In the instant case we have a sole arbitrator. Two relevant provisions of the Arbitration and Conciliation Act, 1996 are Section 14 & 15 read as under :
"14. Failure or impossibility to act . - (1) The mandate of an arbitrator shall terminate if -
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay : and
(b) he withdraws from his office or the parties agree to the termination of his mandate.
(2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on termination of the mandate.
(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agreed to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ::: Downloaded on - 09/06/2013 16:00:58 ::: -: 4 :- ground referred to in this section or sub-section (3) of section 12.
15. Termination of mandate and substitution of arbitrator. - (1) In addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate -
(a) where he withdraws from office for any reason: or
(b) by or pursuant to agreement of the parties.
(2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.
(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), any hearings previously held may be replaced at the discretion of the arbitral tribunal.
(4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal."
4. Both the provisions if read would show what is terminated is the mandate of the arbitrator and not the provision for arbitration. Section 11(2) thereafter provides that in the event of vacancy in the arbitral tribunal and the parties not agreeing to appoint an arbitrator, any aggrieved party can move under section 11(5) of the said Act requesting the Chief Justice or his designate to fill in the vacancy. Thus, the Act itself contains provisions for re-
constitution of the Tribunal even in the case where the named arbitrator ::: Downloaded on - 09/06/2013 16:00:58 ::: -: 5 :- expires.
5. Section 15(2) uses the words "rules that may be applicable to appoint arbitrator." The interpretation of these words stands concluded in view of the judgment of the Supreme Court in Yashwith Constructions (P) Ltd v.
Simples Concrete Piles India Ltd and Anr [(2006) SCC 204], where the learned Court observed that the word "rules" occurring in section 15(2) refers to the provision for appointment contained in the arbitration agreement or any Rules of any institution under which the disputes were referred to arbitration. The word "rules" are not confined to an appointment under any statutory rule or rule framed under 1996 Act or under a scheme. The word "rules" only means that appointment of a substitute arbitrator must be done according to the original agreement or provision applicable to the appointment of the arbitrator at the initial stage.
6. The learned Division Bench of this Court in Mr. Rehmat Ali Baig v.
Minocher M. Deboo & Ors [2009(6) ALL MR 35] was considering an issue was raised to withdraw the proceedings pending before the learned Arbitrator and proceed with the notice of motion and suit before this Court. That was rejected against which an appeal. The learned Division Bench was pleased to hold that once the suit and notice of motion was withdrawn the Court has become functous officio and that once matter is taken before the said member, namely, the sole arbitrator, the provisions of the Act would be applicable and proceeding are to be terminated by the learned Arbitrator in the manner ::: Downloaded on - 09/06/2013 16:00:58 ::: -: 6 :- provided under section 34(2) of the Act.
7. In Smt. Satya Kailashcahdnra Sahu and ors. v. M/s. Vidharbha Distellers, Nagpur and ors [AIR-1998 Bombay 210] an issue arose that the arbitration agreement which made a provision for appointment of the named persons as arbitrators and the named persons refused to act as arbitrators, the Court considering the provisions of the Act was pleased to hold that the arbitration clause was not wiped out and where the named persons refuse to act as arbitrator the provision which is required to be followed is provided in section 11 of the Act. This is what the Court observed :
"13. In the present case, in view of the clause in the Deed of Partnership, it is clear that there was an arbitration agreement as provided in Section 7 read with Section 2(1)(a) of the Act. When an arbitration agreement makes a provision for appointment of named persons as Arbitrators and when the named persons refuse to act as Arbitrators, then the procedure which is required to be followed is provided in section 11 of the Act, that is to say, if the named persons refuse to act as Arbitrators, the arbitration clause is not wiped out. What is exhausted is the authority of the named persons to act as Arbitrator."
8. A similar view was taken by the High Court of Allahabad in Dharampal Satyapal Ltd v. Dinesh Enamelled Wire Industries (P) Ltd [MANU/UP/0749/ 2009]. There also named arbitrator refused to enter reference. That arbitration agreement reflected the intention of the parties to refer the matter to the arbitration if there was a dispute. The Court then held that there is a ::: Downloaded on - 09/06/2013 16:00:58 ::: -: 7 :- valid clause and the named arbitrator has declined to act as arbitrator, the vacancy can be filled in under section 11(6) of the Act.
9. Out attention was, however, invited to a judgment of a learned Judge of the Madras High Court in M/s. Kamla Solvent v. Manipal Finance Corporation Ltd, Manipal & Ors [AIR 2001 Madras 440]. The judgment was delivered on 19th June 2001 based on the law as then stood. A motion was taken out not to proceed with the arbitration proceedings. The learned Judge considered the law as laid down in Konkan Railway Corporation Ltd v. M/s Mehul Constructions Co. [AIR 2000 SC 2821] which is no longer a good law in view of the judgment in M/s. S.B.P. and Company's case (supra). The learned Judge then held that there is a settled position of law that where the arbitrator is named in arbitration agreement, the provisions of section 11 of the Act are not attracted and the Court would have no jurisdiction. The Court then held that in the absence of arbitral clause, application under section 9 would not be applicable.
10. In our opinion, it is not possible for us to agree with the view taken by the learned Single Judge of the Madras High Court. The power under section 11 of the Act, as now held, is not administrative power but judicial power.
Secondly, the death of arbitrator ordinarily does not invalidate the arbitration agreement where it is so manifest. In the instant case it is not so. The clause survives. Therefore, if the named arbitrator dies or refuses to proceed with the arbitration, the procedure under section 11(6) of the Act will have to be ::: Downloaded on - 09/06/2013 16:00:58 ::: -: 8 :- followed. In our opinion, therefore, the view taken by this court in Smt. Satya Kailashchandra Sahu and ors (supra) and by the Allahabad High Court in Dharmpal Satyapal Ltd case (supra) will reflect the correct interpretation of the Act of 1996.
11. As the learned Judge has not gone into the merits of the matter, we set aside the order in order to enable the parties to argue the matter on merits.
The matter remanded back to the learned Judge. Appeal disposed of accordingly.
(R.V. MORE, J.) (F. I. REBELLO, J.)
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