Andhra Pradesh High Court - Amravati
Rashtriya Ispat Nigam Ltd., vs Space Tech Equipments And Structurals ... on 1 May, 2020
Author: C.Praveen Kumar
Bench: C.Praveen Kumar, Battu Devanand
THE HON'BLE SRI JUSTICE C. PRAVEEN KUMAR
AND
THE HON'BLE SRI JUSTICE BATTU DEVANAND
C.R.P. No.1884 of 2019
ORDER:(Per Hon'ble Sri Justice C.Praveen Kumar)
1) The present CRP is filed under Article 227 of the Constitution of India, challenging the order passed in C.A.O.P No.25 of 2017, dated 31.01.2019, wherein the application filed by the Revision Petitioner herein under section 14 of the Arbitration and Conciliation Act, 1996 (for short "the act") was rejected.
2) The facts which lead to filing of the present Civil Revision Petition are as under: The petitioner herein awarded three contracts to the respondent no.1 for design, engineering, supply of indigenous plant, machinery and equipment, including erection, commissioning and PG tests of plant and equipment including supervision of all services, insurance and training of propane/LPG storage installation for SMS 1 and SMS. As the respondent no. 1 failed to execute the work as per the terms of the agreement, the same was terminated. On 17-11-2012, the respondent no. 1 invoked the arbitration clause and appointed the respondent no. 4 (Sri Dr. K. Karunakar Rao former Engineer in MES) as its nominee to arbitration. The petitioner herein appointed the respondent no. 3 (Sri T. Bhasker Rao, retired District Judge) as its nominee arbitrator. Both the arbitrators in turn appointed Justice T.Ch.Surya Rao as Presiding Arbitrator on 25.1.2013. Thereafter, the proceedings commenced. In the course of arbitration 2 proceedings, the case was posted to different dates for examination and cross-examination of RW1 (witness on behalf of the petitioner).
3) While things stood thus on 01.02.2016, Sri Justice T.Ch.Surya Rao expired due to ill-health. On 11.03.2016 both the nominee arbitrators, appointed Sri Justice D. Appa Rao, Retired Judge of the High Court as the presiding arbitrator. The material on record show that on 22.12.2016, Justice Sri D. Appa Rao, expressed his inability to act as presiding arbitrator. Therefore, on 01.01.2017, Sri A. Gangaiah, retired Chief Engineer, H S C L was appointed as a principal arbitrator. Records show that on 01.02.2017, Sri Justice D. Appa Rao returned all the documents to Sri A. Gangaiah on a request made by him and obtained an endorsement of receipt of same by e-mail, dated 01.02.2017. He informed all the parties as well as the co-arbitrators about handing over of the records to Sri A. Gangaiah. The following records were handed over :- (i) an unopened parcel/record received from Vinod Abrahim, Advocate, Mumbai, (ii) registered post letter, dated 22.03.2016 from 22.03.2016 from Dr.P.Karunakar Rao enclosing notes in respect of subject dispute (33 pages). The presiding arbitrator A.Gangaiah after re-constituting the tribunal vide proceedings dated 26.01.2017, fixed 6th, 7th and 8th March, 2017 for cross-examination of the RW1. On a Memo filed by the petitioner on 06.03.2017, the tribunal heard the matter on the said memo and allowed the same, pursuant to which, copy of the letter, dated 22.03.2016 along with 33 page note was served on the petitioner as well as on the co-arbitrator Sri T. Bhasker Rao and 3 the claimant. Being surprised with the contents of the 33 page note prepared by one of the arbitrator, which is almost in the form of an award, the petitioner herein filed an application under Section 12(3)(a) read with Section 13(2) of the Act, 1996 seeking termination of the mandate of the respondent no. 4 co-arbitrator Dr.P.Karunakar Rao. This application was said to have been made on 21.06.2017. After hearing all concerned, the respondent no. 3 herein namely Sri P. Bhasker Rao (co-arbitrator), allowed the application filed by the petitioners holding that the mandate of the respondent no. 4 shall stand terminated. While on the next day, the principal arbitrator, as well as the co-arbitrator (respondent no. 4) separately passed an order holding that the arbitral tribunal cannot decide the issue and the power to terminate the mandate of the co-arbitrator is not vested with the arbitral tribunal. It is to be noted here that this application before the arbitral tribunal was filed under section 12(3) r/w section 13(2) of the Act, 1996.
4) Challenging the same, the A.O.P. No. 789 of 2017 came to be filed before the Additional District Judge, Visakhapatnam under section 14 of the act, with a prayer to hold and order that the mandate of the respondent no.4, Sri Dr. Karunakar Rao, be terminated on the ground of bias and consequently appoint another arbitrator. The said A.O.P was transferred to Commercial Court- cum-Principal District Judge, Visakhapatnam where it came to be re-numbered as O.P.No. 25 of 2017. By the impugned order dated 31.01.2019, the said O.P. was dismissed. It would be apt to extract the paragraph-14 of the order :--
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The District Judge, after referring to para 13 of the judgment in HRD Corporation v. GAIL (India) Ltd. 1, it is held in paragraph 14 of the order, as under : -
"The above decision illustrated 'de jure' incapacity within section 14(1)(a). It further clarified that in order to determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the arbitral tribunal under section 13 since such a person would lack inherent jurisdiction and application under Section 14(2) can be filed to decide on the termination of his mandate whereas challenge on the ground of independence or impartiality, as a matter of fact, it shall be challenged under section 13 and if the challenge is not successful, the arbitral tribunal continues the proceedings under section 13(4) and makes an award and it is only thereafter, such award can be challenged in accordance with section 34. Both these decisions completely support and strengthen the contentions of R1 opposing the maintainability of the petition. The Delhi High Court has expressed the similar view in the cases of West Haryana Highways Projects Pvt. Ltd. (supra), by following decision of the Division Bench of the High Court at Hyderabad referred above."
Though the judgment in HRD Corporation's case illustrates de jure incapacity under Section 14(1)(a) of the Act, but, however, the order impugned states that in order to determine whether Arbitrator is de jure unable to perform his functions, it is not necessary to go before the Tribunal under Section 13, as such person would be lacking jurisdiction and that an application under Section 42 can be filed to decide on the termination of his mandate. But, however, having said so the learned Judge, though, after referring the judgment in the National Highways Authority of India's case held that the said application is not maintainable. 1 (2017) 10 SCALE 371 5
5) Challenging the same, the present C.R.P. is filed under Art 227 of the Constitution of India. Sri V. Ravindra Rao, learned senior counsel representing Sri W.B. Srinivas would contend that the court below misread the Division bench Judgment of the High Court reported in, Gurucharan Singh Sahney and others V. Harpreet Singh Chabbra and Others2, while dismissing the application of the Petitioner. According to him the material on record more particularly the (33) page report prepared by the fourth respondent would clearly establish that the respondent no. 4 herein who is one of the co-arbitrator has already come to a conclusion about the case and issues involved therein even before the evidence is recorded in the proceedings and without hearing the petitioner. According to him when the fourth respondent has already made up his mind, which is evident from the note supplied to the petitioners and the co-arbitrators, there is no point in going ahead with him as one of the arbitrator.
6) It is further pleaded that the mandate of the respondent no. 4 gets terminated under section 14 of the act as he became de jure to perform his functions as arbitrator. He would further plead that the principles of natural justice and fair play is the basic requirement of judicial/quasi judicial proceedings and any violation of the same would be violative of the basic principles of legal jurisprudence and any attempt made in pre-judging the issue or pre-determining the issue would be against the principle of natural justice. Sri V. Ravinder Rao, learned Senior Counsel would 6 further contend that the statute has provided a remedy under Sections 12 and 13 of the act also and the petitioner has option to choose anyone of the remedies.
7) On the other hand, Sri V. Rajan, the learned counsel appearing for the respondent no. 1 would contend that having availed a remedy under section 12 and having invited an order on merits, the question of invoking section 14 of the act will not arise. In so far as the notes dated 22.03.2016 is concerned, it is pleaded that the said material are only personal notes prepared by the respondent no. 4 and the same cannot be treated as an award or that the arbitrator has already come to a conclusion on the said aspect. He further pleads that the Schedule V of the act which deals with the grounds which give rise to justifiable doubts as to the independence and impartiality of the arbitrator do not take into account the grounds urged by the petitioners. In other words his entire argument appears to be that having availed the remedy under section 13 of the Act and suffered an order, the petitioner cannot invoke section 14 on the very same grounds seeking the same reliefs. According to him, the Revision Petitioner has to wait till passing of the award and if aggrieved by the award the same has to be challenged under section 34 of the act, raising the grounds now urged.
8) He would further contend that the present Revision filed under Art 227 itself is not maintainable since the High Court can set aside or reverse a finding of an inferior court or a tribunal, only 2 2016 (4) ALD 141 7 in a case where there is no evidence or where there is no reasonable possibility for coming to a conclusion which the court or tribunal has come to. He further pleads that this power should be exercised most sparingly and only in appropriate cases to keep the sub-ordinate courts within the bounds of the authority and not for correcting errors.
9) The short point that arise for consideration is, Whether the District Court was right in rejecting the request of the petitioner for terminating the mandate of the respondent no. 4 as co-arbitrator and for appointment of a new arbitrator ?
10) As stated earlier the arbitral tribunal by a majority held that in view of the Section 12(3) r/w. 13(2) of the act, the arbitral tribunal cannot set aside the appointment of an arbitrator and the power to terminate the mandate of a co-arbitrator i.e., Dr. Karunakar Rao, is not vested with the arbitral tribunal, and accordingly, disallowed the claim. This order came to be challenged in C.A.O.P. No.25 of 2017 lodged under Section 14 of the act. The Learned Principal District and Sessions Judge, Visakhapatnam after referring to the Judgments and the provisions of the law held that the request of the petitioner cannot be accepted since, the petitioner has to wait till an award is passed and only thereafter the petitioner can agitate the same in the appeal under section 34 of the act.
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11) Before proceeding further it will be useful to refer to the relevant portions of Sections 12, 13 and 14 of the Act, which are as under:
"Section 12 - Grounds for challenge.-- 2[(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,--
(a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and
(b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months.
Explanation 1.-- The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.
Explanation 2.-- The disclosure shall be made by such person in the form specified in the Sixth Schedule.] (2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.
(3) An arbitrator may be challenged only if-
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed to by the parties. (4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. 1[(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the 9 subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:
Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.] (2. Subs. by Act 3 of 2016, sec.8(i), for sub-section (1) (w.r.e.f. 23-10-2015). Sub- section (1), before substitution, stood as under :
(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality."
1. Ins. by Act 3 of 2016, sec.8(ii) (w.r.e.f. 23-10-2015) Section 13 - Challenge procedure.--(1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.
(2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal.
(3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. (4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.
(5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34. (6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees. Section 14 - Failure or impossibility to act.--(1) 2[The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if--] 10
(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 the 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 agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12.
(2. Subs. by Act 3 of 2016, sec.9, for "The mandate of an arbitrator shall terminate if--" (w.r.e.f. 23-10-2015)."
12) One of the grounds raised by the learned counsel for the respondent herein is that the C.R.P. itself is not maintainable under Art 227 of the Constitution of India. In so far as maintainability is concerned, the Division Bench of the High Court of Judicature at Telangana and Andhra Pradesh at Hyderabad, in Gurucharan Singh Sahney and Others Vs. Harpreet Singh Chabbra and others3, held as under :-
"the scope of interference, in proceedings under Art 227 of the Constitution of India, is limited, and the power conferred thereunder should be exercised within certain parameters. That does not, however, mean that a petition under Art 227 of the Constitution of India is not maintainable. While a petition filed under Art 227 of the Constitution of India, against an order passed under Section 14(2) of the Act, is no doubt maintainable, examination of the validity of such an order must be confined within the narrow limits within which the jurisdiction under Article 227 of the Constitution of India must be exercised".
The power vested in the High Court under Art 227 of the Constitution, to exercise judicial superintendence over the decisions of all Courts and Tribunals within their respective jurisdictions, is part of the basic structure of the Constitution. ( L. Chandra Kumar V. Union of India ). Exercise of jurisdiction by the High Court under Art 227 of the Consitution of India, which forms a part of the basic structure of the constitution, cannot be negated, circumscribed or fettered even by an amendment to the constitution, much less by legislation plenary or 3 2016 (4) ALD 141 11 subordinate. Section 37(1) of the Act, which stipulates that an appeal shall lie from the orders mentioned in clauses (a) and (b) thereunder and from no other, cannot be so construed as to disable the petitioners from availing the remedy under Art 227 of the Constitution of India or as prohibiting this Court from entertaining such a petition on its jurisdiction under Art 227 of the Constitution of India being invoked".
13) However, in Sterling Industries v. Jayprakash Associates Ltd.4, the Hon'ble Apex Court disapproved the stand adopted by some High Courts in entertaining an application either under Article 226 or 227 of the Constitution against any order passed by the arbitral tribunal. But, here is a case where no order on merits was passed by the Tribunal and as such an application under Section 14 was made before the competent court. Apart from that, the circumstances which made them to come to High Court should also be noted. In the instant case, one of the arbitrator has prepared a 33 page note, in favour of the contractor and circulated it to the Principal Arbitrator, copy of which was given to the petitioner, even before the trial has commenced. Therefore, we feel that it is a fit case where an application under Article 227 can be entertained; and test whether there is any element of bias, which goes to the root of the matter.
14) Therefore, the argument of the learned Counsel for the Respondent that an application under Article 227 is not maintainable, cannot be accepted. The above observation came to be made as per para no. 14 of the above said Judgment.
15) The main issue is as to whether an application under section 14 would lie in the facts of the case, when no order on 4 2019 SCC OnLine SC 1154 12 merits was passed in an application filed under section 12 r/w section 13 of the act.
16) But, before dealing with the same, it is to be noted that the plea taken by the counsel for the petitioner is, one of bias, on the part of the respondent no.4 (co-arbitrator). As stated earlier, when there was a change in the Principal arbitrator, Sri Justice D. Appa Rao was asked to hand over copies of all the papers, basing on a memo filed, pursuant to which he returned a document, dated 22.03.2016 running into 33 pages along with other documents. Copies of those documents were furnished to the petitioner as well as to other arbitrators. A perusal of the said document would show that the 33 pages note was prepared in the form of an award in favour of the claimants, even before examination of the witnesses and even before the petitioner presented his argument. It would be useful to refer to few portions of the note.
The first page of such note consists of contents which are divided into 10 headings, as under :
(i)
1) In the matter of cash recovery towards security deposit from a NSIC registered small scale industry with permanent enlistment certificate No.S-409 (issued on 10.03.1989).
2) In the matter of release of a portion of the security deposit amount held by VSP; sequel to the umpteen requests of the SSI-contractor spacetech; to meet badly needed funds required for erection;
3) Repercussions of withholding sans-legal sanction sizeable amounts out of earnings of an SSI unit; thus incapacitating it to perform;13
4) Arbitral Tribunals considered ruling in the matter of withholding of amounts aggregating to Rs.43,95,662/- by VSP; said to be towards security deposit.
5) The performance, progress & alleged failure of the claimant & the reasons for undue prolongation followed by the respondents rescinding less than 10% of the balance to be performed contracts; at the risk & cost of the claimant is scrutinized critically & conclusions drawn; to afford damages to the aggrieved as per the extant law.
6) Delays in providing work fronts as planned; delays in payments & with-holding of payments, chronologically examined.
7) Flagrant breach of the law of the land; under MSMED Act.
8) Issue : Whether the termination of the contracts was lawful?
9) Considered views of the Tribunal in the matter of alleged termination of the contracts.
10) Leviability of liquidated damages. (ii) 17) Para 26 of the said note is as under:
"In the first place, it must be clearly borne in the mind by VSP that their action in insisting upon the SPACETECH to provide SD in cash; ignoring that they are a validly Registered SSI Unit; is patently wrong and against the Law of the Land. It is rather unfortunate that having recognized this fact by recording at the MOM dated 31.12.2010, to the effect that".... all the members opined that an administrative decision may have to be taken for releasing of the SD amounts deducted from their RA bills, considering the submission of their fresh NSIC certificate to enable M/s SPACETECH to overcome their financial crisis and complete the jobs at the earliest"... they have been persisting in putting spokes by raking up inconsequential issues like providing guarantees for releasing the impounded SD amount and make it look as if it's an advance. There should be a limit to this addled thinking and the ultimate person responsible in the administration's hierarchy must have the courage to call a spade a spade; instead of passing on the buck."14
18) A reading of the above para makes it very clear that the said comment came to be made as if the arbitrator Tribunal has come to such a conclusion.
(iii) 19) The note further says that the action of the petitioner in insisting the respondent no. 1 to provide SD in cash ignoring that they are validly registered suit schedule property a unit is patently wrong and against the law of the land. Dealing with the issue, the said note further states as under :-
"after considering all the relevant points and issues raised by the RINL/VSP; the AT rules that the refusal to take cognizance of the valid registration certificate in the relevant period is a faulty decision on the part of the Respondents, RINL/VSP. Consequently, the claimants are entitled to waiver of submission of the SD in cash and in lieu they can submit a PG Bond; which in fact they did and it was in the possession of the Respondent as confirmed by them on 13.10.2008. [vol.II(A):R-20: page-34]. In consequence whereof, as the security deposit amount has been withheld over a long period, illegally; the claimant contractor is entitled to damages; for the productivity loss of the amount impounded."
(iv) 20) Similarly, following are the notes prepared,-- relating to progress:- "THE PERFORMANCE, PROGRESS & ALLEGED FAILURE OF THE CLAIMANT & THE REASONS FOR UNDUE PROLONGATION FOLLOWED BY THE RESPONDENTS RESCINDING LESS THAN 10% OF THE BALANCE TO BE PERFORMED CONTRACTS; IS SCRUTINIZED CRITICALLY & CONCLUSIONS DRAWN; TO AFFORD DAMAGES TO THE AGGRIEVED AS PER THE EXTANT LAW.
(v) 21) As a consequence, it is the inept handling of the Security Deposit issue by the officials of VSP that has lead to a 15 situation of a forced non-performance of an NSIC unit by starving them of their legitimately earned & re-deployable funds.
(vi) 22) Thus the Respondents have tacitly admitted the fact that the claimants money to the tune of 30.62% was to be paid while the work to the tune of 9.65% is yet to be executed by the Claimant; which means to say that they have breached the Fundamental obligation of payment for the Goods & Services already rendered by the Claimant which benefit the Respondent is enjoying while being in-debt to the Claimant.
(vii) 23) This speaks volumes for the Respondents insensitive and callous action taken in disregarding the NSIC Registration on the extremely flimsy ground that as on the date of receipt of tender valid Registration certificate was not there forgetting that as on the date of entering into the Contract agreement the same was very much available.
(viii) 24) This is a blunder of no mean magnitude in contracts administration & exposes the need for continuing periodical education in the field for the total hierarchy dealing with contracts. The VSP must realize that it is no small matter; as it has affected the organization very badly by unnecessary time & cost over runs of the projects in the period in question and most importantly gave rise to avoidable disputes which is a further drain on the scarce Time & Money resources, of a Public Sector. For the aforesaid reasons the Respondents are in clear breach of the Contracts and the Claimant is entitled, as of by law; for total reimbursement of 16 expenses incurred by him in delivering the goods & services that the Respondents have received & are enjoying the benefits there of.
(ix) 25) Regard delay, it was noted as under :-
DELAYS IN PROVIDING WORK FRONTS AS PLANNED, DELAYS IN PAYMENTS & WITH-HOLDING OF PAYMENTS, CHRONOLOGICALLY EXAMINED: 4. By letter dated 25 August, 2009, SPACETECH reminded VSP to grant Time extension for the M-914 Erection contract till 31.12.2009 with a caveat-"subject to handing over the civil Foundations to us". It was made clear to VSP that consequent to the FULL SITE BEING NOT MADE AVAILABLE AS ON DATE (25.08.2009); extension is sought without imposing LD. A reminder for granting Time extension was earlier sent by letter dated 11.02.2009 followed by another on 07.09.2009. (C-
28;Vol.2:Page 81) (x) Tribunals Considered Findings:
The Claimant has been incapacitated from performing by virtue of Employers excessively oppressive payments terms un- conducive to progress by starving hi, his vendors & his sub-
contractors of cash-flow and in the process not only harming themselves but the Claimant, as well.
Comment per Arbitral Tribunal: For all the above reasons the claimant is not liable to pay any LIQUIDATED DAMAGES to the Respondents VSP and besides the Claimant Contractor gets entitled to the damages under the Contract Act as well: And most 17 importantly he has to be paid the overdue payments for supplies & services made, along with interest, as per MSMED Act.
26) In view of this report/personal note as alleged by the respondents, it is now to be decided whether the petitioner was justified in seeking termination of the mandate of the arbitrator on the ground of bias under Section 14 of the Act.
27) The Issue of bias and the manner in which it has to be decided came up for consideration before the Apex Court in UNION OF INDIA AND OTHERS V. SANJAY JETHI AND ANOTHER5.
It was a case where on 5.8.2009, a complaint was made by one of the officers alleging irregularity in hiring of Civil Hired Transport (CHT), which were used for the purpose of supply of ordinance stores to units spread over the country, including remotest field and high altitude area by the respondent no. 1, who holds the rank of Colonel in the Army. An action came to be initiated against the respondent no.1 by mentioning his attachment with headquarters of the area. The board seized the entire records and submitted a report. On the basis of that report, a COI was convened against the respondent no. 1, to investigate into the alleged irregularities. The COI which was conducted on 8.03.2010, recommended for taking disciplinary action against the respondent no. 1 and some other officers. At that time, the respondent no. 1 filed an application before the Principle Bench of the Tribunal at Delhi challenging the proceedings contending inter alia that he is deprived of the right of cross-examination as stipulated under Rule 180 of the Army Rules, 18 1954. The Court after discussing the issues involved at length held that, "the fundamental principles of natural justice are in consideration in the decision making process to prevent miscarriage of justice." It is applicable to administrative enquiries and administrative proceedings as held in, "A.K. Kraipak V. Union of India6".
28) In,"UNION OF INDIA AND OTHERS V. SANJAY JETHI AND ANOTHER7" it was held that the fundamental facit of the principle of the natural justice is that even in case of the quasi judicial proceedings, the authority empowered to decide a dispute between the contesting parties has to be free from bias. When free from bias is mentioned, it means there should be absence of conscious or unconscious prejudice to either of the parties as held in Gullappalli Nageswara Rao V. State of A.P.8.
29) In "Manak Lal V. Prem Chand Singhvi9", the Court has stated thus:
"... It is well settled that every member of a tribunal that is called upon to try issues in judicial or quasi-judicial proceedings must be able to act judicially; and it is of the essence of judicial decisions and judicial administration that Judges should be able to act impartially, objectively and without any bias. In such cases the test is not whether in fact a bias has affected the judgment; the test always is and must be whether a litigant could reasonably apprehend that a bias attributable to a member of the Tribunal might have operated against him in the final decision of the Tribunal. It is in this sense that it is often said that justice must not only be done but must also appear to be done."5
(2013) 16 SCC 116 6 (1969) 2 SCC 262 7 (2013) 16 SCC 116 8 AIR 1959 SC 1376 9 AIR 1957 SC 425 19
30) In "Halsbury's Laws of England10", it has been observed as under :
"... The test for bias is whether a reasonable intelligent man, fully appraised of all the circumstances, would feel a serious apprehension of bias".
31) In "Transport Deptt. V. Munuswamy Mudaliar11", while dealing with the concept of bias as a part of natural justice, the Court observed as, ... "A predisposition to decide for or against one party, without proper regard to the true merits of the dispute is bias. There must be reasonable apprehension of that predisposition. The reasonable apprehension must be based on cogent materials". Needless to say, personal bias is one of the limbs of bias, namely, pecuniary bias, personal bias and official bias.
32) In R.A. Mehta case12, it was further observed as under :
"In the event that actual proof of prejudice is available, the same will naturally made the case of a party much stronger, but the availability of such proof is not a necessary precondition, for what is relevant, is actually the reasonableness of the apprehension in this regard in the mind of such party. In case such apprehension exists the trial/judgment/order, etc. Would stand vitiated for want of impartiality and such judgment/order becomes a nullity. The trial becomes coram non judice".
33) Similar such views came to be expressed by the Apex Court in, "Chandra Kumar Chopra V. Union of India13", wherein it was held as under :
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4th Edn., Vol.2, para 551, 11 1988 Supp SCC 651 12 (2013) 3 SCC 1 13 (2012) 6 SCC 369 20 "... mere suspicion or apprehension is not good enough to entertain a plea of bias. It cannot be a facet of one's imagination. It must be in accord with the prudence of a reasonable man. The circumstances brought on record would show that it can create an impression in the mind of a reasonable man that there is real likelihood of bias. It is not to be forgotten that in a democratic polity, justice in its conceptual eventuality and inherent quintessentiality forms the bedrock of good governance. In a democratic system that is governed by the rule of law, fairness of action, propriety, reasonability, institutional impeccability and non-
biased justice delivery system constitute the pillars on which its survival remains in continuum".
34. From the Judgments referred to above, it is very clear that even the quasi judicial authorities or members of a Tribunal should try judicially and act judicially. Ultimately, the test is whether a litigant could reasonably apprehend that a bias attributable to a member of the tribunal might have operated against him in the final decision of the tribunal. Bias is a facet of law, which forms part of principles of natural justice. Therefore, it is a fundamental requirement of law that the principles of natural justice be complied with as it is an integral part of the justice delivery system of this country.
35. Therefore, keeping in view the law laid down by the Apex Court in the Judgments referred to above, it is to be seen firstly whether there was any element of bias in the approach of the respondent no. 4. (co-arbitrator). Admittedly, the fourth respondent has prepared a (33) pages note, the contents of which are already referred to above. Though the counsel for the respondent tried to contend that these are all personal notes, but definitely a reading of the same would indicate that even before the evidence was 21 recorded and even before the petitioners were heard, the arbitrator came to a conclusion and a comment was made as if such findings were to be given by the arbitral tribunal. If the said report is read as a whole, it would definitely indicate that the fourth respondent has already made up his mind to the facts in issue. As such, we feel that element of bias is apparent on the face of the record.
36) The question now is, whether the Petitioners were justified in making an application under section 14 of the Act, when the arbitrary tribunal failed to pass an order on merits in the petition filed under section 12 and 13 of the Act?
One another question, which requires to be noted, is whether the provisions of the 1996 Act or the provisions of 2015 Act will be applicable to the case on hand?
37) The facts in the instant case show that the arbitration clause was invoked on 17.11.2012 and the 4th respondent was appointed as one of the arbitrator by respondent No.1, while the petitioner herein appointed the 3rd respondent, a retired District Judge, as its nominee. Both of them appointed Justice T.Ch.Surya Rao as an arbitrator on 25.1.2013. From the above, it is clear that the proceedings commenced much prior to the Act coming into force.
38) In Union of India v. Pradeep Vinod Construciton Co.14 the Court, while dealing with the situation whether the request for appointment of an arbitrator was made prior to coming into force of Amendment Act, 2015, held that provisions of amended Act 2015 14 (2020) 2 SCC 464 22 shall not apply to arbitral proceedings in terms of Section 21 of the principal Act, unless the parties otherwise agree. Therefore, the argument of the learned counsel for the petitioner that the contractors have to be examined in accordance with principal Act 1996 without taking recourse to Amendment Act 2015, was accepted.
39) As regards the applicability of 2015 amendment to the 1996 Act, it is clear from the records that arbitral proceedings commenced prior to the said amendment coming into force. It is settled as well as mandated by the schedule of the Amendment that the Amendment is prospective in operation and does not apply to the present case.
40) Even in Union of India v. Parmar Construction Co.15 it was held that 2015 Amendment Act shall not apply to arbitral proceedings which have commenced in accordance with the provisions of 1996 Act. Similar such view was expressed by the Apex Court in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd.16. Having regard to the judgments referred to above, this Court is of the opinion that the provisions of 1996 Act be made applicable to the instant case.
41) Though the learned counsel for the respondent placed on record the judgment in Board of Control for Cricket in India v. Kochi Cricket Pvt Ltd and etc. (SLP(C) No. 19545- 19546 of 2016), this judgment primarily pertains to a proceedings initiated 15 (2019) 15 SCC 682 16 (2020) 2 SCC 455 23 for enforcement of an award made under Section 36 of the Act, which is not the issue on hand.
42) Keeping in view the above, it is to be seen whether petitioners were right in making application under Section 14 of the Act when the arbitral tribunal failed to pass an order on merits on an application filed under Section 12(3) read with Section 13(2) of the Act. The reading of the material on record show that the petitioner herein made an application under Section 12(3) read with Section 13(2) of the Act before the Arbitral Tribunal seeking termination of the mandate of the arbitrator as contemplated under the provisions of the Act. By a majority of 2:1, the tribunal held that it cannot go into the said issue and the power to terminate a co-arbitrator is not vested with them. As the matter was not decided on merits, the petitioner made an application before the competent court under Section 14 of the Act, raising the plea of bias. Referring to the judgments of High Court and the Hon'ble Apex Court, the Principal District Judge rejected the application stating that such a plea can be raised only in the appeal to be filed under Section 34 of the Act i.e., after passing of the award.
43) The objection now raised is, whether it is permissible for the petitioner to make an application under section 14 of the Act, having failed to succeed before the arbitral tribunal. At the outset, it is to be noted that no order on merits came to be passed in the application filed under Section 12(3)(2) read with Section 13(2) of the 1996 Act. Left with no option, an application came to 24 be filed under Section 14(2) urging the Court that R4 is de jure unable to perform his function.
44) Section 14 of the Act, 1996 postulates failure or impossibility to act--, the mandate of an arbitrator shall be terminated and he shall be substituted by another arbitrator, if--
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay. The meaning of the word de jure was explained by the Division Bench of the High Court of judicate at Hyderabad for the State of Telangana and for the State of Andhra Pradesh in "Gurcharan Singh Sahney and Others V. Harpreet Singh Chabbra and Others"17 as under :
"The Court does not terminate the mandate of an arbitrator. It stands terminated on the happening of anyone of the events referred to in Section 14(1), and the Court only declares it. (Ram Chandra Rungta Vs. Ram Swarup Rungta). Use of the word "or" between the kinds of eventualities in Section 14(1)(a) show that they are disjunctive. The mandate of the arbitrator would terminate by the occurrence of anyone of the events prescribed in sub-clause (a) which is either (i) his becoming de jure or de facto unable to perform his functions or, (ii) for other reasons, he fails to act without delay. (Priknit Retails23). While deciding a petition under Section 14(2) of the Act, all that the Court does is to declare whether termination of the mandate of the arbitrator ipso jure has taken place or not. To that extent, the order of the Court under Section 14(2) of the Act is merely declaratory, and is not in the nature of a mandatory or perpetual injunction restraining a person from acting as an arbitrator. A declaration that the mandate of the arbitrator stands terminated does not amount to his removal by the Court. (Alcove Industries Ltd. V. Oriental Structural Engineers Ltd.)"
The High Court at Hyderabad also observed as under :
"The first limb of Section 14(a) of the Act stipulates that the mandate of arbitrator shall terminate if he becomes dejure or defacto unable to perform his functions. As per P. Ramanatha Aiyar's Advanced Law Lexicon, Volume 2, page 1215 defines "de 17 2016 LawSuit(Hyd)74 25 facto" to mean, in fact; actually; frequently used in contra- distinction to de jure meaning rightful, legitimate, lawful; antithetical to de jure; de facto signifies a thing actually done; that is done in deed; actual; existing in fact; having effect even though not formally or legally recognized; and by virtue of existence, rather than any legal right. (OPBK Construction Pvt. Ltd. 11). The word "de jure" has been defined in Black's Law Dictionary 5th Edition as descriptive of a condition in which there has been total compliance with all requirements of law, of right; legitimate; lawful; by right and just title. Ramanath Iyer - The Law Lexicon defines the word "de jure" - as of right; by law; legitimate; lawful; by right and just title. By use of the word become, section 14(1)(a) has been made applicable only to a situation arising after the arbitrator has been appointed to resolve the dispute between the parties. The word unable means incapable, ineffective, useless. Section 14(1)(a) is attracted only when an arbitrator becomes incapable, either in law or in fact, of performing his functions."
45) Though the meaning of the word de jure was restricted to the incapacity or disability, but, this incapacity or disability should occur to the arbitrator himself so that he becomes, as a matter of law or fact, unable to perform his functions. (Priknit Retails Ltd.23). The Division Bench of the High Court observed that the de jure impossibility, referred to in Section 14(1)(a), is the impossibility which occurs due to factors personal to the arbitrator, and de facto inability occurs due to factors beyond the control of the Arbitrator. At the same time, the judgment also refers to the de jure incapacities of the Arbitrator or legal incapacities to perform under law. Illustrations of such nature were mentioned therein.
46) It is now to be seen whether the element of bias can be made the basis to terminate the mandate of the arbitrator under 26 Section 14 of the Act. Bias as observed by various Judgments of the Apex Court is, one of the main ingredients of principles of natural justice. Any action taken or any act done in violation of the principles of natural justice would be bad in law. The word de jure as stated by us would mean compliance with all the requirements of law, which also includes the principles of natural justice and also element of bias as a whole. Therefore, Section 14 gets attracted only when the arbitrator becomes incapable either in law or in fact of performing his function.
47) In HRD Corporation's case (supra) while referring to Section 12(5) read with 7th schedule held that if arbitrator is ineligible, falling under any of the categories specified in the schedule, he becomes ineligible to act as an arbitrator and as such an application under Section 14(1)(a) to be made as he became de jure unable to perform, instead of moving an application under Section 13. In the instant case, as observed by us earlier, the appointment of the arbitrator was prior to the amendment, hence an application was made for termination of mandate of the Arbitrator under Section 12(3) read with Section 13(2), which was disallowed on the ground that the arbitral tribunal cannot decide the said issue. As one of the Member has already made up his mind by preparing a note running into 33 pages (as good as award) moved an application under Section 14 before the Court, which was not entertained on technicalities. It was observed that once an application is made under Section 13, the petitioner has no other option except to challenge the mandate of the arbitrator after 27 award is passed. It is no doubt true that an application under Section 13 was made, but the same was not decided on merit and it was disallowed on the ground that it cannot decide the same. Things would have been different had an order been passed rejecting the request on merits, holding that there is nothing wrong in arbitrator proceeding with the matter. Having regard to the fact situation, the application under Section 14 seeking termination of the mandate has to be treated as independent application, de hors the one made under Section 12 read with Section 13(2) of the Act. Further, a reading of the judgment of the Apex Court in HRD Corporation's case makes it clear that if a challenge made under Section 13 is unsuccessful and the arbitral tribunal decides that there are no justifiable doubts as to independence or impartiality of the tribunal, the arbitral proceedings shall continue and make an award. But, if there is a doubt about impartiality and independence and as the same goes to the root of the matter, the arbitral tribunal become ineligible under Section 14(1)(a) and he becomes de jure unable to perform his functions and it is not necessary to go to the Tribunal under Section 13. Taking a cue from the above and applying the ratio laid therein to the case on hand and as no order on merits was passed, when an application was moved before the Tribunal under Section 13, the argument of the learned counsel for the respondent that petitioner has to wait till an award is passed to challenge the mandate of the arbitrator may not be correct.
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48) In "State of West Bengal and Others V. Shivananda Pathak and Others18" it has been observed that, justice should not only be done but should manifestly be seen to be done. In other words, principles of natural justice are to be observed strictly in letter and spirit and one of the requirements of natural justice is that the hearing should be done by a judge with an unbiased mind.
In para no. 23 of the said judgment, it was held that All judicial functionaries have necessarily to have an unflinching character to decide a case with an unbiased mind. Judicial proceedings are held in open court to ensure transparency. Access to judicial record by way of inspection by the litigant or his lawyer and the facility of providing certified copies of that record are factors which not only ensure transparency but also instil and inspire confidence in the impartiality of the court proceedings.
49) In "A.K. Kraipak V. Union of India19" the Apex Court laid down the need of "fair play", or "fair hearing" in quasi-judicial and administrative matters. The hearing has to be by a person sitting with an unbiased mind."
50) At this stage, it would be apt to refer to the judgment of Delhi High Court in "National Highways Authority of India V. K. K. Sarin20", wherein it has been held as under :
"I have already in Sharma Enterprises V. National Buiding Constructions Corporation Ltd held that section 5 of the 1940 Act as interpreted in Panchu Gopal Bose (supra) finds place in the form of section 14 of the 1996 Act. There can be no other interpretation 18 (1998) 5 Supreme Court Cases 513 19 (1969) 2 SCC 262 29 of the power given to the court to terminate the mandate of the arbitrator when the arbitrator de jure is unable to perform this function. The de jure impossibility can be nothing but impossibility in law. Bias vitiates the entire judicial/arbitration process and renders the entire proceedings nugatory. Reference in this regard may also be made to State of West Bengal V. Shivananda Pathak, 1988 1 SCR 811 cited by the ASG, though in a different context, holding that all judicial functionaries have necessarily to decide a case with an unbiased mind; an essential requirement of a judicial adjudication is that judge is impartial and neutral and in a position to apply his mind objectively - If he is predisposed or suffers from prejudices or has a biased mind he disqualifies himself from acting as a Judge. This equally applies to arbitrators, as statutorily provided in sections 12 and 13. In my opinion, if the arbitrator is biased, he is de jure unable to perform his functions within the meaning of section 14. Thus, if the court without any detailed enquiry is able to reach a conclusion of arbitrator for the reason of bias is unable to perform his functions, the court is empowered to, without requiring the parties to inspite of so finding go through lengthy costly arbitration, hold that the mandate of arbitrator stands terminated. However, the said power under section 14 has to be exercised sparingly with great caution and on the same parameters as laid down by Apex Court in SBP & Company V. Patel Engineering Limited, 2005 8 SCC 618 in relation to section 11(6).
Only when from the facts there is no doubt that a clear case of bias is made out, would the court be entitled to interfere. Else it would be best to leave it to be adjudicated at the stage of Section 34".
51) Facts in the said case are identical to the case on hand. In the instant case, application under Sections 12 and 13 of the Act was moved, but the issue raised was not decided on merits holding that Tribunal cannot go into the said issue. Thereafter, an application was moved before the Court under Section 14 of the Act. The de jure impossibility in our view, and as held in the judgments referred to above would be "impossibility in law" or "incapable either in law or on facts". The word de jure as defined in 20 2009 CJ (Del) 463 30 Black's Law Dictionary is descriptive of a condition in which there has been total compliance with all the requirements of law. It is also well established that bias vitiates the entire proceedings including arbitral proceedings making it nugatory. The objective of the judicial or quasi judicial proceedings is to render justice or decide a case with an unbiased mind and be impartial. This principal of one getting disqualified if he is biased or suffers from prejudices, applies to all adjudicating authorities and arbitrators are no exception. Therefore, our view that if the arbitrator acts in a biased manner, he is de jure incapacitated/unable to perform his function under Section 14 of Act gets support from the view expressed in National Highways Authority of India's case. We are also aware that such a power is to be exercised sparingly and with caution. As the material on record amply establish that the fourth respondent acted in a biased manner, we feel that in the facts of the case the petitioners were justified in invoking Section 14 of the Act seeking termination of the Arbitrator.
52) Hence, as held by us earlier, this application under Section 14 can be entertained, as the arbitrator is incapable of adjudicating the dispute since he has already made up his mind, which is evident from the 33 pages note prepared by him.
53) Having regard to the aforesaid reasons, the C.R.P. is allowed and the mandate of the arbitrator (fourth respondent) stands terminated. The parties shall take appropriate steps for appointing the arbitrator. No order as to costs. 31
Consequently, miscellaneous petitions pending, if any, shall stand closed.
_______________________________ JUSTICE C. PRAVEEN KUMAR _____________________________ JUSTICE BATTU DEVANAND Date: 01.05.2020 Note : L.R. Copies to be marked.
B/O EPS/SKMR 32 THE HON'BLE SRI JUSTICE C. PRAVEEN KUMAR AND THE HON'BLE SRI JUSTICE BATTU DEVANAND C.R.P No.1884 of 2019 Date:
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EPS