Delhi High Court
Dhembla Enterprises vs Chelsea Products And Anr. on 22 November, 2001
Author: J.D. Kapoor
Bench: J.D. Kapoor
JUDGMENT J.D. Kapoor, J.
1. This is a petition under Section 34, of the Arbitration & Conciliation Act, 1996 for setting aside the award dated 18.10.1997.
2. The petitioner has hit at the very fount of the course adopted by the respondents in appointing the Arbitrator. Clause 23 of the agreement dated 26th September, 1995 provided the mode for appointment of Arbitrator which is as under:-
" 23 . That in the event of any dispute arising out of and in the course of the business under the present agreement, it shall be settled by an arbitrator appointed by agreement at Delhi only. Any other dispute shall be subject to the jurisdiction of court at Delhi only."
3. As is apparent, the core of the aforesaid clause was that the Arbitrator has to be appointed by agreement only and not unilaterally.
4. Until and unless the parties agree to common Arbitrator, any award rendered by the Arbitrator appointed unilaterally or without the consent of agreement of concurrence of the party is rendered null and void. The genesis of this concept is that unless there is confidence of both the parties in the Arbitrator, the award of the Arbitrator whose appointment has not been consented or agreed by both the parties cannot be rammed down the throat of the aggrieved party.
5. The relevant documents and the material need to be put in brief:-
Vide letter dated 1.4.1997, the respondent called upon the petitioner to concur for the appointment of an Arbitrator at Delhi within seven days for settlement of disputes referred therein failing which respondent will have the Arbitrator appointed through the court at Delhi at its costs and expense. In response the petitioner challenged the very existence of dispute by denying any breach of terms of the agreement of its part. Apart from this, the petitioner also took the plea that the arbitration clause mentioned in the agreement has become redundant as t he matter relates to the payment of certain amount by the respondent to the petitioner and so the arbitration clause is not applicable in the facts and circumstances of the case. Petitioner further informed the respondent that since the matter relates to the accounts between the parties which are not referrable for arbitration, the matter relates to civil jurisdiction. The petitioner further informed the respondent that petitioner is not interested to refer the matter to the Arbitrator for settlement of disputes. However, in response to this letter, the respondent did not approach the court for appointment of Arbitrator but instead appointed Arbitrator on his own.
6. The appointed Arbitrator gave notice to the petitioner for participating in the arbitration proceedings. The petitioner wrote back to the arbitrator informing him that he had never agreed to refer the dispute to the Arbitrator as no such disputes which were referable for arbitration ever existed between the parties. At the same time, the petitioner also informed the Arbitrator that since he happened to be the Chartered Accountant of respondent-firm, he is not entitled to enter into reference for arbitration. Inspite of this, the Arbitrator proceeded with the reference made by the respondent and made the instant award.
7. The aforesaid facts manifestly demonstrate misconduct and bias of the Arbitrator appointed unilaterally by the respondent. Instead approaching the court for appointment of independent Arbitrator to which the petitioner might have agreed in spite of his having raised the objections that no dispute which are referable to the Arbitrator existed, the respondent appointed his own Chartered Accountant.
8. The sanctity and binding nature of award emanates form the concept that the parties choose their own forum to adjudicate their dispute by a person in whom they repose full confidence as to this competence, impartiality and integrity and that is why the scope of challenging the award is very limited. The award of such an Arbitrator cannot be interfered unless it suffers from the vices of bias, misconduct and perversity as award is not subjected to rigors of appeal. It has to be provided finality even if the Arbitrator adopts erroneous approach in respect of interpretation of terms of the agreement or in assessing or evaluating the material and evidence produced by the paries. The Arbitrator has been made final authority as to be quality and quantity of evidence to be produced by the parties as well as finding of facts.
9. In the instant case, not only the petitioner challenged the existence of dispute raised by the respondent in it letter dated 1.4.1997 but also resisted its adjudication through arbitration. It is pertinent to mention that agreement itself provided adjudication of certain nature of dispute by civil court. Even if it is assumed that dispute referred by the respondents were arbitratable and the plea that the arbitration clause is not applicable and relevant in respect of dispute raised by the petitioner was not available to the petitioner still the fact remains that the Arbitrator was appointed by the respondent without obtaining the concurrence of the petitioner. However the stand taken by the petitioner in reply to the notice could have been taken care of by the court had the respondent approached the Court for appointment of Arbitrator.
10. It is not that respondent were unaware of this procedure regarding appointment of independent Arbitrator or reference of dispute to the Arbitrator. The respondent had made it clear to the petitioner that if it would fail to agree for appointment of arbitrator within seven days, it would approach the Court for appointment of Arbitrator.
11. In stead of resorting to this process, the respondent appointed its own Chartered Accountant as the Arbitrator. As a matter of fact the Arbitrator should have declined to enter into reference particularly on receipt of communication by the petitioner that he was an interested person as he was connected with the respondent being its Chartered Accountant and that the petitioner was not agreeable not only for reference of dispute for arbitration but also to the Arbitrator named by the respondent.
12. Conspectus of the aforesaid facts and the circumstances under the which the award was made persuade me to set aside the award being void ab initio as the Arbitrator had no authority to enter into the reference.
13. To Challenge the finding of the arbitrator on merits is on altogether footing different than to challenge the validity of very appointment of the Arbitrator. Once the parties agree for a particular person for appointment of Arbitrator then it is not open to them to challenge the validity of the appointment. However, the parties can assail the award on account of gross misconduct of the Arbitrator including personal misconduct or factual or legal misconduct.
14. In view of the foregoing reasons, I have no hesitation in allowing the petition and setting aside the award in question.