Madras High Court
Shriram Investment vs Palki/Jeypad on 16 May, 2006
Author: T.V. Masilamani
Bench: T.V. Masilamani
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated: 16/05/2006
Coram
The Hon'ble Mr. Justice T.V. MASILAMANI
C.R.P. (PD) No.375 of 2005
and C.M.P.No.3532 of 2005
and V.C.M.P.No.5767 of 2005
Shriram Investment
Services Limited,
Unit of Shriram
Group of Companies
(hereinafter called SISL),
Represented by its Director,
Chennai 600 004. .. Petitioner
-Vs-
1. Palki/Jeypad
Investment(P) Limited/
Jeypad Investment (P) Ltd,
(hereinafter called
as Palki/Jeypad),
Rep. by Mr.P.Balasubramaniam
(Balu),
Kotturpuram,
Chennai 600 085
2. Mr.P.Balasubramaniam .. Respondents
Civil Revision Petition filed under Article 227 of the Constitution of
India against the Decision of the Arbitral Tribunal to continue the
Arbitration proceedings as communicated to the petitioner in the letter dated
12.2.2005 of the Arbitral Tribunal.
For Petitioner : Mr.R.Krishnasami, S.C.
For M/s.S.Ramasubramaniam
and Associates.
For Respondents : Mr.T.R.Rajagopalan, S.C.
Mr.K.S.Sundar.
:O R D E R
This Civil Revision Petition is preferred by Shriram Investment Services Limited (hereinafter called "SISL") the respondent before the Arbitral Tribunal and Palki/Jeypad Investment (P) Ltd/Jeypad Investment (P) Ltd (hereinafter called "Palki/Jeypad") is the claimant before the said Tribunal. This petition is filed challenging the order passed by the Arbitral Tribunal as communicated to the petitioner herein in the letter dated 12.2.2005.
2. The facts leading to the filing of this revision may be set out briefly as under:-
(a) The petitioner herein started the financial institution known as "Shriram Mutual Fund" and issued a "scheme" called "Risk Guardian-9 5" and the same was announced for public issue from October 1995 to January 1996. The second respondent herein representing the first respondent-Palki/Jeypad showed interest in the issue floated by the SISL to the extent of nearly US $ 1 million and after discussions, SISL sent a draft agreement regarding the investment and buy back arrangements to the first respondent company on 29.11.1995. The first respondent with certain modifications sent a Fax dated 30.11.1995 and thereupon the agreement was entered into between SISl and Palki/Jeypad whereby the first respondent company invested a sum of Rs.3.5 crores in India in the aforesaid "Risk Guardian-95" scheme and the said amount together with the application for 35 lakhs units of the scheme "Risk Guardian-95" were duly issued by the said company in due course on 24.1.1996 and the unit certificate thereon was sent to Palki/Jeypad to its office at Mumbai.
(b) The time for buying back the units was in or about November 199 6, but the same were made over to Palki/Jeypad for 2.50 crores on 23.4.1997 and for Rs.2.06 crores on 17.7.1997. Notwithstanding the payments, 35 lakhs units were not returned back to SISL perhaps because there was some small amount due outstanding. Since the second respondent claimed to have got 35 lakhs units transferred in the name of his family concern and filed an application for transfer of the units in the name of the said company, SISL objected to the same and immediately thereafter, the entire amount due to the tune of Rs.4.56 crores had been paid by SISL as early as 1997. Even thereafter, the second respondent demanded payment and the same was repudiated by SISL. However as per the terms of the agreement, all disputes have to be resolved at Bombay. But the second respondent persuaded SISL to agree for arbitration at Chennai. Mr.T.L.Ram Mohan, Senior Advocate was appointed by SISL and Palki/Jeypad appointed Mr.V.Subramanyam as arbitrators as per the said agreement and Mr.N.C.Sundarajan was subsequently appointed as Umpire by the above mentioned Arbitrators.
(c) On receipt of the claim statement and after perusing the terms of the claim and the enclosures, SISL was unable to understand as to the various aspects of the claim and the legal basis thereof. The petitioner herein, namely, SISL filed a preliminary counter statement dated 12.8.2004 requesting the Arbitral Tribunal to direct the claimant, namely, Palki/Jeypad to clarify and answer the point mentioned in the reply statement. On 19.8.2004, the second respondent filed a response signing the same as claimant and not even as for and on behalf of any one. Hence after filing of the respective reply to the response and counter statement to the claim statement, the Arbitral Tribunal sent a notice for hearing on 9.10.2004. At that stage, SISL filed a memo on 7.10.2004 under Section 16(5) of the Arbitration and Conciliation Act, 1996 (hereinafter called as "the Act 26 of 1996") raising the preliminary point for taking decision with reference to the period of agreement and the legality of the continuation of the proceedings by the Arbitral Tribunal in view of the fact that M/s.T.L.Ram Mohan, Senior Advocate sent the order directing the termination of the proceedings in terms of Section 32(2)(c) of the Act 26 of 1996. While so, the Arbitral Tribunal consisting of Mr.N.C.Sundararajan and Mr. V.Subramanyam passed the impugned decision dated 12.2.2005 to continue with the arbitration proceedings. Hence, the revision.
3. Heard Mr.R.Krishnasami, learned Senior counsel appearing for the revision petitioner and Mr.T.R.Rajagopalan, learned senior counsel appearing for the respondents.
4. The contentions of the learned senior counsel for the revision petitioner are as follows:-
(a) The decision of the Arbitral Tribunal to continue the arbitration proceedings is vitiated by error of law apparent on the face of the record. The arbitration agreement dated 30.4.2004 was signed by a person, who had no legal authority and therefore the second respondent had no locus standi to represent Palki/Jeypad as there is no such company in existence.
(b) The Arbitral Tribunal has no power to continue the proceedings beyond six months from 18.6.2004, the date of filing of the claim and therefore the proceedings continued thereafter by the Arbitral Tribunal is illegal and without jurisdiction.
(c) The order of Mr.T.L.Ram Mohan, Senior Advocate that it was impossible to proceed with the enquiry is binding on the parties and therefore it is impossible to continue with the proceedings. The decision of the majority of the Arbitral Tribunal is vitiated, as no reason has been assigned for rejecting the plea of the petitioner under Section 16(2) and 16(3) of the Act 26 of 1996.
5. In the above circumstances, the following points arise for consideration in this revision:-
(1) Whether the revision petition filed under Article 227 of the Constitution of India is maintainable?
(2) Whether the arbitral agreement has become non-est as the Tribunal failed to pass any award within the time stipulated in the agreement between the parties?
6. Point No.1: It is not in controversy that SISL and Palki/Jeypad, namely, the revision petitioner and first respondent herein respectively agreed mutually by an agreement dated 30.11.1995 that the first respondent has to invest Rs.3.50 crores equivalent to US $ 1 million for the allottment of 35 lakhs units under "Risk Guardian-95" scheme by the revision petitioner herein at Rs.10/- each. Similarly, it was also agreed that the first respondent should hold the said units so allotted for a maximum period of 12 months from the date of subscription and that since the revision petitioner herein had undertaken to enable the first respondent to sell/dispose of the said units so as to assure return of 26% p.a. net after all expenses and brokerage at the end of subscription date or the Net Additional Value (NAV) whichever is higher. At the same time, the revision petitioner had also agreed to bear the loss due to any adverse fluctuation in the exchange rate so as to ensure the investor a rate of return of 26% p.a. computed from the end of 12 months period after the subscription period till the date of actual payment. Similarly, both the parties agreed that if any dispute arose in connection with the transaction only the courts in Bombay would have jurisdiction to try and determine the suit. Further, it was also agreed between the parties that any dispute or differences arising in connection with the transaction may be referred to arbitration by appointing an arbitrator by each party and the arbitration should be held at Bombay in accordance with the provisions of the Arbitration Act, 1947. In the above circumstances, both the parties agreed by virtue of an arbitral agreement dated 30.4.2004 by appointing an arbitrator each and in turn, the arbitrators appointed an Umpire as per the said agreement. Thus the impugned decision of the majority of Arbitral Tribunal is under challenge in this revision.
7. Learned senior counsel for the revision petitioner/SISL has argued at the outset that this revision under Article 227 of the Constitution of India is maintainable for the simple reason that the Arbitral Tribunal being the subordinate forum for adjudication of disputes under the supervision of the High Court committed grave illegality in not passing a speaking order within the time stipulated in the agreement and that therefore the same is liable to be quashed by virtue of the powers vested in this Court under the said Article.
8. Per contra, learned senior counsel for the respondents has taken objection to the very revision under Article 227 of the Constitution of India on the ground that the Arbitral Tribunal constituted by an agreement between the parties herein cannot e within the meaning of a Tribunal under the control of the High Court by virtue of the said Article. Similarly, he has also submitted that this revision is not maintainable since the revision petitioner has to challenge only the final arbitral award that has to be passed by the Arbitral Tribunal under Section 34 of the Act 26 of 1996 and not by filing a revision under Article 227 of the Constitution of India. Moreover, he has also strenuously contended that even though the arbitral agreement stipulates six months time for completion of the proceedings from the date of commencement of the impugned proceedings, only on account of the latches on the part of the revision petitioner, the delay has occurred. Therefore he has submitted that on all counts, the revision has to fail.
9. Learned senior counsel for the revision petitioner has placed strong reliance on the decision UNIK ACCURATES PVT. LTD v. SUMEDHA FISCAL SERVICES LTD (2003 (4) R.A.J. 571 (CAL), in support of his contention that since an application under Section 16 of the Act 26 of 1996 challenging the validity of the arbitral proceedings and also questioning the jurisdiction of the Tribunal has to be disposed of by the Arbitral Tribunal by assigning valid reasons and that if there is no reason assigned by the Tribunal for rejecting the claim, a petition under Article 227 of the Constitution of India is maintainable.
10. Further learned senior counsel has also referred to another decision ARATI DHAR v. S.K. DUTTA (2003 (4) R.A.J. 98 (CAL), in support of his further submission that without deciding the plea of jurisdiction raised by the party to the arbitration agreement, no award could be passed by the Tribunal and in view of intrinsic infirmities in the arbitral proceedings, the Tribunal might not be able to pass an award. He has placed reliance on the decisions M/S.NATIONAL RESEARCH DEVELOPMENT CORPORATION v. M/S.SILICON CERAMICS LTD (AIR 1998 DELHI 52) and STATE OF PUNJAB v. HARDYAL (1985 (2) S.C.C. 629) to support his further contention that since the award was not passed within 6 months time as stipulated in the arbitral agreement and since the time was not extended beyond that period, the Tribunal has become funcus officio to pass any further award in this matter.
11. Per contra, learned senior counsel for the respondents has drawn the attention of this Court to the impugned order despatched by the Arbitral Tribunal by the letter dated 12.2.2005 in support of his strenuous argument that the subjective satisfaction of Tribunal that the proceedings should continue till the passing of the award is evident therefrom and that therefore the revision petitioner has to wait till final award is passed by the Arbitral Tribunal so as to challenge the same in accordance with the provision under Section 34 of the Act 26 of 1996.
12. Before ever the rival submissions made by both sides are analysed, this Court finds it imperative to extract the impugned order hereunder so as to appreciate the same in the light of the ratio laid down in the decisions cited by them. The order reads as under:-
"Notice is hereby given that the next sitting of the Arbitral Tribunal will be held at No.22, Krishnaswamy Avenue, Mylapore, Chennai 600 0 04 at 4.00 p.m. on Saturday, 19.02.2005.
In this connection, the parties may note that the Arbitral Tribunal has considered the petition of the petitioner/respondents M/s.Sriram Investment Services Limited dated 8th September 2004 and 7th October 2 004. The Arbitral Tribunal has by a majority decided to continue with the proceedings referred for arbitration by the agreement dated 30 th April 2004. The reasons for coming to this conclusion will be forming part of the final award of the tribunal to be given later.
The parties are further informed that they may produce at the next hearing date such further evidence as they think fit for the conduct of the proceedings.
Dated this 12th day of February 2005 at Chennai."
13. In view of the above said order passed by the majority of the arbitrators presiding over the Arbitral Tribunal, it is evident that they decided to continue the proceedings referred to therein on the ground that the reasons for coming to such conclusion would be pronounced in the final award of the Tribunal later. Therefore the learned senior counsel for the respondents has cited the decision MANGAYAKARASI APPARELS PVT. LTD v. SUNDARAM FINANCE LTD (2002 (3) R.A.J. 212 ( MAD) in support of his further contention that in a similar case, this Court rendered the judgment that the revision under Article 227 of the Constitution of India questioning any order passed by the Arbitral Tribunal constituted in a private arbitration is not maintainable and that the High Court is not justified in exercising the power of judicial review or superintendence of such orders passed by the nonstatutory arbitral tribunal under Article 227 of the Constitution of India. In the judgment, E.PADMANABHAN, J. laid down the ratio (vide) paragraph 26 disagreeing with the view taken by the Bombay High Court in ANUPTECH EQUIPMENTS v. M/S.GANAPATHI COOPERATIVE HOUSING SOCIETY ( AIR 1999 BOM 219) in a similar case and the same reads as under:-
"This Court is not persuaded to accept the said view taken by REBELLOW, J., and this Court respectfully disagree with the said view of the Bombay High Court in the light of the above cited pronouncements of the Apex Court. The Arbitrator appointed as a result of the arbitration clause agreed to between the independent parties, though referred to as arbitral tribunal, they are not "other authorities", nor they are amenable to writ jurisdiction, nor this court under Article 226/2 27 could exercise supervisory jurisdiction in respect of those arbitrators. A private arbitration is governed by the terms of the agreement and in case of any grievance, the provisions of The Arbitration and Conciliation Act, 1996 could be invoked to redress the grievance in respect of the proceedings before the private arbitrator or any proceedings which are not in exercise of statutory arbitration or statutory confirmation, but by virtue of private arbitration, a contractual stipulation agreed to between the parties."
14. Learned senior counsel for the respondents has also submitted that the decisions relied on by the learned senior counsel for the revision petitioner, M/S.NATIONAL RESEARCH DEVELOPMENT CORPORATION v. M/S.SILICON CERAMICS LTD (AIR 1998 DELHI 52) and UNIK ACCURATES PVT. LTD v. SUMEDHA FISCAL SERVICES LTD (2003 (4) R.A.J. 571 (CAL) have got only persuasive legal force, but on the contrary, the decision rendered by this Court referred supra has to be followed, since after considering number of decisions rendered by the other High Courts as well as by the Supreme Court, this Court reiterated the principle of law in the penultimate paragraph 41 and it reads as under:-
"On a detailed consideration as set out above, this court answers the point formulated as hereunder:-
Point (A) that the revision under Article 227 is not maintainable. Point (B) that the rejection of the memo by the Arbitrator or the refusal to stay the proceedings is not liable to be interfered."
15. In this context, he has also cited the decision S.B.P. & CO v. PATEL ENGINEERING LTD (2005 (8) S.C.C. 618) wherein the Honourable Supreme Court consisting of 7 Judges Bench laid down the ratio on the aspect of the matter in paragraph 45 as under:-
"The object of minimising judicial intervention while the matter is in the process of being arbitrated upon, will certainly be defeated if the High Court could be approached under Article 227 or under Article 226 of the Constitution against every order made by the Arbitral Tribunal. Therefore, it is necessary to indicate that once the arbitration has commenced in the Arbitral Tribunal, the parties have to wait until the award is pronounced unless, of course, a right of appeal is available to them under Section 37 of the Act even at an earlier stage."
16. It is therefore necessary to extract Section 16(2) and (3) and Section 37(2)(a) of the Act 26 of 1996 hereunder:-
"16. Competence of arbitral tribunal to rule on its jurisdiction.-- (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,--
(a) .. ..
(b) .. ..
(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.
(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings."
"37. Appealable orders.-- (1) An appeal shall lie from the following orders (and from no others) to the Court authorised by law to hear appeals from original decrees of the Court passing the order, namely:-
(a) .. ..
(b) .. ..
(2) An appeal shall also lie to a Court from an order of the arbitral tribunal--
(a) accepting the plea referred to in sub-section (2) or subsection (3) of section 16; or
(b) granting or refusing to grant an interim measure under Section 1
7."
Thus it is clear that even if the Arbitral Tribunal in this case passed an order accepting the contention of the revision petitioner herein, he could only file an appeal under Section 37(2)(a) of the Act 26 of 1996.
17. In view of the above principles of law laid down in the said decisions and the provisions of law, learned senior counsel for the respondents has submitted that firstly, the arbitral tribunal constituted between the parties herein by an agreement in relation to commercial transaction among themselves cannot be brought under the purview of the powers of superintendence vested in the High Court under Article 227 of the Constitution of India. In this connection, he has relied on the judgment of the Supreme Court in A.C.COMPANIES v. P.N.SHARMA (AIR 1965 S.C.C. 1595) wherein the Apex Court laid down the criteria to determine whether the tribunal falls within the purview of the said Article or not. The relevant principle of law laid down therein in paragraph 9 of the judgment may be extracted hereunder:-
"Judicial functions and judicial powers are one of the essential attributes of a sovereign State and on considerations of policy, the State transfers its judicial functions and powers mainly to the courts established by the Constitution; but that does not affect the competence of the State by appropriate measures, to transfer a part of its judicial powers and functions to tribunals by entrusting to them the task of adjudicating upon special matters and disputes between parties. It is really not possible or even expedient to attempt to describe exhaustively the features which are common to the tribunals and the Courts and features which are distinct and separate. The basic and the fundamental feature which is common to both the Courts and the tribunals is that they discharge judicial functions and exercise judicial powers which inherently vest in a sovereign State."
18. Learned senior counsel for the respondents has also relied on the judgment of the Supreme Court in ENGINEERING MAZDOOR SABHA v. HIND CYCLES LTD (AIR 1963 S.C. 874) wherein the dictum of law on this aspect of the matter has been reiterated by the Apex Court in paragraph 5 as follows:-
"The distinction between purely administrative or execute acts and judicial or quasi-judicial acts has been considered by the Court on several occasions. In the case of Province of Bombay V. Khushaldas S. Advani (AIR 1950 S.C. 222) MAHAJAN, J. observed that the question whether an act is a judicial or a quasi-judicial one or a purely executive act depends on the terms of the particular rules and the nature, scope and effect of the particular powers in exercise of which the act may be done and would, therefore depend on the facts and circumstances of each case. Courts of law established by the State decide cases brought before them judicially and the decisions thus recorded by them fall obviously under the category of judicial decisions. Administrative or executive bodies, on the other hand, are often called upon to reach decisions in several matters in a purely administrative or executive manner and these decisions fall clearly under the category of administrative or executive orders. Even Judges have, in certain matters, to act administratively, while adm inistrative or executive authorities may have to act quasi-judicially in dealing with some matters entrusted to their jurisdiction. Where an authority is required to act judicially either by an express provision of the statute under which it acts or by necessary implication of the said statute, the decisions of such an authority generally amount to quasi-judicial decisions. Where, however, the executive or administrative bodies are not required to act judicially and are competent to deal with issues referred to them administratively, their conclusions cannot be treated as quasi-judicial conclusions. No doubt, even while acting administratively, the authorities must act bona fide, but that is different from saying that they must act judicially."
19. Relying on the above principles of law enunciated by the Apex Court on the aspect of the matter under consideration, learned senior counsel for the respondents has strenuously contended that in any view of the matter, the arbitral tribunal cannot be termed as a judicial or quasi judicial body constituted under any authority of the State and that therefore the Tribunal is excluded from the purview of the powers vested in the High Court under Article 227 of the Constitution of India.
20. Though the learned senior counsel for the revision petitioner has no quarrel over the said principles of law enunciated by the Apex Court and then followed by this Court in the above decisions, has contended that since the Arbitral Tribunal has not passed any speaking order in accordance with law, the revision petitioner is entitled to invoke the jurisdiction of this court under Article 227 of the Constitution of India. As has been rightly distinguished by the learned senior counsel for the respondents, the principle of law laid down by the Supreme Court in MUKHTIAR SINGH v. STATE OF PUNJAB (AIR 1995 S.C. 6 86) relied on by the learned senior counsel for the revision petitioner cannot help to advance his case for the simple reason that the said decision was rendered in connection with the judgment of the Special Court Constituted under the Terrorist Affected Areas (Special Courts) Act 1984 in the appeal by special leave challenging the conviction and sentence imposed by the Special Court on the appellant therein and therefore he has contended that while analysing the judgment rendered by the Special Court, the Apex Court was constrained to make an observation with reference to the decision rendered by the special court. Hence he has urged that on facts, the said principle of law laid down therein cannot be invoked in this case. On a careful reading of the said decision, this Court is of the opinion that the contention of the learned senior counsel for the respondents deserves acceptance.
21. Similarly, in the case reported in 1976 (1) S.C.C. 1001 ( AJANTHA INDUSTRIES v. CENTRAL BOARD OF DIRECT TAXES) also, the Apex Court had an occasion to decide the Appeal by Special Leave with reference to the decision of the High Court of Andhra Pradesh questioning the validity of the order of the Central Board of Direct Taxes under the Income Tax Act wherein it was held that requirement of recording reasons under Section 127(1) of the Income Tax Act 1961 is mandatory and that no communication thereof is not saved by showing that reasons exist in the file, although not communicated to the assessee. Hence, it was held by the Apex Court that recording of reasons and disclosure of the same is not mere formality. In the above circumstances, learned senior counsel for the respondents has rightly contended that the said principle of law laid down with reference to that particular case by the Apex Court cannot be made applicable to the facts of the case on hand.
22. In this context, learned senior counsel for respondents has drawn the attention of this Court to the facts of the case reported in 20 02 (3) R.A.J. 212 (MAD) referred supra, to show that in that case also, the revision was preferred as against the order of rejection of memo by one of the arbitrators appointed under the commercial transaction between the parties therein in terms of the bilateral hire purchase agreement entered into between them and therefore he has argued and in my opinion rightly that here in this case also, the rejection of the contention raised by the revision petitioner by the majority of arbitral tribunal in the impugned communication cannot be questioned by means of this revision petition under Article 227 of the Constitution of India. It follows that the revision petition has to be dismissed as not maintainable.
23. Point No.2: The next contention of the learned senior counsel for the revision petitioner is that since the arbitral tribunal failed to pass the award within the stipulated time and inasmuch as the other arbitrator has given a dissenting order, the petition has to be ordered as prayed for. Per contra, learned senior counsel for the respondents has cited the decision NAGAR PALIKA, MIRZAPUR v. MIRZAPUR ELECTRICITY SUPPLY CO LTD (AIR 1990 S.C. 2273) in support of his contention that since the conduct of the parties is a major factor to waive the extension of time given by the court, time should be taken as extended. On the contrary, according to him, in this case, the revision petitioner filed the objection calling for a preliminary finding before the Arbitral Tribunal within time and since the Tribunal heard both the parties in connection with such application within time and reserved for orders, in view of the ratio of the decision cited above, the time should be considered as extended even though the impugned order was passed beyond the stipulated time of six months.
24. A careful perusal of the records of the case would disclose that the arbitrators who passed the impugned order upon the application filed by the revision petitioner heard both the parties and reserved the orders within the time stipulated in the arbitral agreement. However since the order was passed on 12.2.2005 to continue the arbitral proceedings referred to for arbitration reserving the reasons to be assigned in the final award cannot be a ground to contend that the arbitral proceedings is barred by limitation. As has been held by the Apex Court in the decision referred supra, the time should be taken as extended on account of the conduct on the part of the revision petitioner in filing the application before the arbitral proceedings questioning the very agreement of the constitution of the Arbitral Tribunal itself on various grounds. In any view of the matter, the revision petitioner has to wait till the final award is passed so as to enable him to question the same under the provision of Section 34 of the Act 26 of 1996.
25. For the foregoing reasons, the above points are answered that this revision petition under Article 227 of the Constitution of India is not maintainable and that the rejection of the objection raised by the revision petitioner by the majority of the Arbitral Tribunal is not liable to be challenged in this revision. Therefore this Civil Revision Petition is dismissed. Consequently, the connected C.M.Ps. are closed. However, there is no order as to costs.
dpp To The Arbitral Tribunal, Chennai.