* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ OMP No.297/2006
Progressive Career Academy Pvt. Ltd. ...Petitioner through
Mr. S.K. Maniktala &
Mr. V.M. Chauhan,
Advs.
versus
FIIT JEE Ltd. ....Respondentthrough
Mr. T.K. Pradhan, Adv.
WITH
FAO(OS) No.128/2008
Oriental Structural Engineers ...Appellant through
Mr. P.V. Kapur, Sr.
Adv. with Mr. Anil Airi,
Ms. Ekta Kalra Sikri &
Ms. Sadhana Sharma,
Advs.
versus
Alcove Industries Ltd. ....Respondent through
Mr. Anil Sapra, Sr.
Adv. with Mr. Rajendra
Singvi & Mr. Sanjay
Abbot, Advs.
WITH
FAO(OS) No.129/2008
Oriental Structural Engineers ...Appellant through
Mr. P.V. Kapur, Sr.
Adv. with Mr. Anil Airi,
Ms. Ekta Kalra Sikri &
Ms. Sadhana Sharma,
Advs.
versus
Alcove Industries Ltd. ....Respondent through
Mr. Anil Sapra, Sr.
Adv. with Mr. Rajendra
Singvi & Mr. Sanjay
Abbot, Advs.
WITH
OMP No.297/2006 Page 1 of 33
FAO(OS) No.334/2009 & CM Nos.11087/2009, 11089/2009
& 22580-81/2010
Neeru Walia ...Appellant through
Mr. Deepak
Bhattacharya,
Mr.Rajesh Kumar &
Mr. Mithlesh Kumar,
Advs.
versus
Inderbir Singh Uppal ....Respondent through
Mr. Vijay K. Mehta &
Mr. S.S. Parashar,
Advs.
WITH
FAO(OS) No.525/2010
Suvidha Adlakha ...Appellant through
Mr. Vikas Mahajan,
Adv.
versus
Raj Kumar Dua ....Respondent through
None
% Date of Hearing : May 03, 2011
Date of Decision : May 16, 2011
CORAM:
* HON'BLE MR. JUSTICE VIKRAMAJIT SEN
HON'BLE MR. JUSTICE SIDDHARTH MRIDUL
1. Whether reporters of local papers may be
allowed to see the Judgment? Yes
2. To be referred to the Reporter or not? Yes
3. Whether the Judgment should be reported
in the Digest? Yes
OMP No.297/2006 Page 2 of 33
VIKRAMAJIT SEN, J.
1. The question in this bunch of Appeals concerns the legal proprietary of judicial directions for the removal of an arbitrator even before the publishing of an Award. Several judgments of our esteemed Single Benches have been cited before us, a perusal of which manifests the existence of a polarity of opinion. On one side of the watershed is the view that assertions as to the de jure or de facto incompetence of the Arbitral Tribunal must immediately be addressed by the Court, and in deserving cases remedied, whilst on the other side is the contrary view that the statutorily provided procedure postulates an immediate remonstration but a deferred assailment of the Award, inter alia on this ground, by way of an invocation of Section 34 of the Arbitration & Conciliation Act, 1996 (A&C Act for short).
2. At the threshold, an objection has been lodged to the maintainability of the Appeals on the ground that Section 37 of the A&C Act provides for such remedy only against orders (a) granting or refusing to grant any measure under Section 9 or (b) setting aside or refusing to set aside an arbitral award under Section 34 of the A&C Act. In Cref Finance Ltd. -vs- Puri Construction Ltd., AIR 2001 Delhi 414 the controversy which had arisen before this Court concerned the competency of a Second Appeal; and the Division Bench held that it was forbidden in terms of Section 37(3) of the A&C Act. We are mindful that this aspect of law does not OMP No.297/2006 Page 3 of 33 directly arise before us. However, it is a worthy preface to our analysis inasmuch as it records the non-availability of Letters Patent even in these circumstances. The Division Bench, inter alia, took note of the Five-Judge Bench decision in Union of India -vs- A.S. Dhupia, AIR 1972 Delhi 108 which pithily provides a perspicuous perusal of the annals of the establishment of the Delhi High Court. The Division Bench also observed that Shah Babulal Khimji -vs- Jayaben, AIR 1981 SC 1786 was distinguishable for the simple reason that their Lordships were not concerned with the maintainability of an Appeal against the Order/Judgment of a Single Bench of the Delhi High Court exercising original jurisdiction.
3. In Dharam Prakash -vs- Union of India, 138 (2007) DLT 118 (DB), 2007(1) Arb. LR 308(Del.) (DB), the challenge was laid to the vires of Section 13 of the A&C Act which was repelled because of the existence of a remedy via filing of Objections under Section 34 of the A&C Act. The said Bench applied the previous enunciation of the law in Bharat Heavy Electricals Ltd. -vs- C.N. Garg, 88 (2000) DLT 242(DB). Yet another Division Bench of this Court in Canbank Financial Services Ltd. -vs- Haryana Petrochemicals Ltd., 2008(2)Arb.LR 365 Delhi (DB) had concluded that a challenge concerning controversies raised in a plaint/suit was not maintainable in view of Section 37 of the A&C Act. This decision was applied in Tandav Films Entertainment Pvt. Ltd. -vs- OMP No.297/2006 Page 4 of 33 Four Frames Pictures, 2010(1) Arb. LR 79(Delhi) DB), albeit in that case, it was Section 8 of the A&C Act which was at the fulcrum of the controversy. The abiding bedrock of these decisions remains Union of India -vs- Mohindra Supply Co., [1962] 3 SCR 497 which reiterates that the right of appeal is essentially a creature of a statute; ergo a litigant does not possess an inherent right to appeal. Accordingly, Section 39 of the repealed Arbitration Act, 1940 which had provided for a limited scope of appeal before the appellate Court, superseded the provisions of Letters Patent. This opinion is evident from a perusal of the following paragraphs:-
16. There is in the Arbitration Act no provision similar to Section 4 of the Code of Civil Procedure which preserves powers reserved to courts under special statutes. There is also nothing in the expression ―authorised by law to hear appeals from original decrees of the Court‖ contained in Section 39(1) of the Arbitration Act which by implication reserves the jurisdiction under the Letters Patent to entertain an appeal against the order passed in arbitration proceedings. Therefore, in so far as Letters Patent deal with appeals against orders passed in arbitration proceedings, they must be read subject to the provisions of Section 39(1) and (2) of the Arbitration Act.
17. Under the Code of 1908, the right to appeal under the Letters Patent was saved both by Section 4 and the clause contained in Section 104(1), but by the Arbitration Act of 1940, the jurisdiction of the Court under any other law for the time being in force is not saved; the right of appeal can therefore be exercised against orders in arbitration OMP No.297/2006 Page 5 of 33 proceedings only under Section 39, and no appeal (except an appeal to this Court) will lie from an appellate order.
18. There is no warrant for assuming that the reservation clause in Section 104 of the Code of 1908 was as contended by counsel for the respondents, ―superfluous‖ or that its ―deletion from Section 39(1) has not made any substantial difference‖: the clause was enacted with a view to do away with the unsettled state of the law and the cleavage of opinion between the Allahabad High Court on the one hand and Calcutta, Bombay and Madras High Courts on the other on the true effect of Section 588 of the Code of Civil Procedure upon the power conferred by the Letters Patent. If the legislature being cognizant of this difference of opinion prior to the Code of 1908 and the unanimity of opinion which resulted after the amendment, chose not to include the reservation clause in the provisions relating to appeals in the Arbitration Act of 1940, the conclusion is inevitable that it was so done with a view to restrict the right of appeal within the strict limits defined by Section 39 and to take away the right conferred by other statutes. The Arbitration Act which is a consolidating and amending Act, being substantially in the form of a code relating to arbitration must be construed without any assumption that it was not intended to alter the law relating to appeals. The words of the statue are plain and explicit and they must be given their full effect and must be interpreted in their natural meaning, uninfluenced by any assumptions derived from the previous state of the law and without any assumption that the legislature must have intended to leave the existing law unaltered. In our view the legislature has made a deliberate departure from the law prevailing OMP No.297/2006 Page 6 of 33 before the enactment of Act 10 of 1940 by codifying the law relating to appeals in Section 39.
4. This decision was followed by their Lordships in State of West Bengal -vs- Gourangalal Chatterjee, (1993) 3 SCC 1. The argument that the ratio of Mohindra Supply Co. would not apply where the order of the learned Single Judge was passed not in exercise of Appellate jurisdiction but of Original jurisdiction was roundly rejected. The Supreme Court went on to hold in Gourangalal Chatterjee that - ―the order passed by learned Single Judge revoking the authority of the Chief Engineer on his failure to act as an arbitrator was not covered under any of the six clauses mentioned in Section 39. It is obvious that no appeal could be filed against the order of the learned Single Judge‖. This decision definitively sounds the death knell for the Appeals before us since it directly deals with the removal of an arbitrator. To avoid prolixity, we shall go no further than to mention that our research has encompassed Jugal Kishore Paliwal -vs- Sat Jit Singh, (1984) 1 SCC 358, Vanita M. Khanolkar -vs- Pragna M. Rai, AIR 1998 SC 424, P.S. Sathappan -vs- Andhra Bank Ltd., AIR 2004 SC 5152, Groupe Chimique SA -vs- Southern Petrochemicals Industries Corpn. Ltd., (2006) 5 SCC 275 and RITES Limited -vs- JMC Projects (India) Ltd., 2009(2) Arb. LR 64 (Del.) (DB). It appears that keeping in perspective the views of the Hon'ble Supreme OMP No.297/2006 Page 7 of 33 Court and of this High Court, the only conclusion possible is that the present Appeals are incompetent.
5. Faced with this predicament, Mr. P.V. Kapur, learned Senior Advocate appearing for the Appellants, has contended that where an order has palpably been passed de hors the A&C Act, an Appeal assailing such an order should nevertheless be entertained. He has sought support from a decision of the Division Bench of this Court in Jindal Exports Ltd. -vs- Fuerst Day Lawson Ltd., 1999(51) DRJ 170 (DB). In that case, an objection to the maintainability of execution proceedings had been canvassed on the premise that the learned Single Judge had erred in converting the execution proceedings into a petition seeking enforcement of a foreign award. Our learned Brothers had noted that an Appeal against such an order would not lie under Section 50 of the A&C Act. However, the impugned Order was ―treated as one having been passed by learned Single Judge not under any of the provisions of the A&C Act, but in exercise of his inherent jurisdiction on Original Side of this Court. Thus, the impugned order is such, which would be deemed to have been passed de hors the provisions of the Act‖. It was opined that such an order could be scrutinized for its proprietary under Clause 10 of the Letters Patent and would constitute a judgment in the mould of Shah Babulal Khimji. Our learned Brother duly discussed Gourangalal Chatterjee but distinguished it on the dialectic that execution proceedings, unlike OMP No.297/2006 Page 8 of 33 the removal of an arbitrator, were not envisaged under the A&C Act. It is debatable whether this approach has been approved by the Supreme Court inasmuch as in the Appeal their Lordships have not specifically affirmed the view of the Division Bench on the jurisdictional aspect (See Fuerst Day Lawson -vs- Jindal Exports Ltd., AIR 2001 SC 2293).
6. It is topical to advert to the opinion of the Division Bench in Shivnath Rai Harnarain India Co. -vs- Glencore Grain Rotterdam, 164 (2009) DLT 197(DB) which is in these words:-
8. Very recently, in RFA (OS) No. 9/2006 titled ITE India (P) Ltd. -vs- Mukesh Sharma, another Division Bench of this Court has categorically held that Section 10 of the DHC Act does not confer a right of appeal. Drawing support from a detailed judgment of a Division Bench of Madras High Court in OSA No.52/2008 titled Bharat Salt Refineries Ltd. -vs- M/s. Compania, our learned Brothers categorically concluded that an Appeal under Section 50(1) (a) of the Arbitration and Conciliation Act lies only in cases where the Court below refuses to refer the parties to arbitration. These observations were made because the question before our learned Brothers was restricted to that conundrum alone. The present dispute would, however, encompass Section 50 (1)(b), but the reasoning of our esteemed Brothers nevertheless is applicable on all fours. The Appeal was dismissed as not maintainable. Apart from the pronouncements of the Supreme Court on the Arbitration Act, 1940, it is obvious that several Division Benches of this Court, as well as of the Madras High Court, have not entertained appeals at OMP No.297/2006 Page 9 of 33 least pertaining to arbitration disputes under Section 10 of the Letters Patent.
9. In P.S. Sathappan -vs- Andhra Bank Ltd., (2004) 11 SCC 672 : AIR 2004 SC 5152 the Constitution Bench, by a majority of 3 to 2, held that the application of Letters Patent enabling appeals from certain orders continued unabated despite later legislation, yet clarified that where ―a statue does not permit an appeal, it will not lie. Thus, for example, in cases under the Land Acquisition Act, the Guardians and Wards Act and the Succession Act, a further appeal is permitted whilst under the Arbitration Act a further appeal is barred‖ (emphasis added by us). This would apply a fortiori to the Delhi High Court which came into existence as a distinct entity by virtue of parliamentary enactment and not by Letters Patent, a distinguishing feature which is not always recognized. This is extremely significant keeping in perspective the fact that the avowed purpose of Letters Patent was to establish High Courts in India, restrict appeals to the House of Lords/Privy Council, and to provide intra court appeals within the High Courts so established. So far as the Delhi High Court is concerned this is the very objective of the enactment of Parliament and therefore reverting to a previous document such as Letters Patent could well be seen as superfluous or futile. It seems to us that the Delhi High Courts Act, 1976 completely substitutes or subsumes the Letters Patent.
7. Section 36 of the A&C Act covers execution or rather enforcement of an Award. If a picturisation is permitted, we can visualize the curtain coming down, so far as arbitral proceedings are concerned, to be followed by quite another Act/scene of the OMP No.297/2006 Page 10 of 33 play, in which the Civil Procedure Code becomes the focal dialogue. Application for adjournments or for amendment of pleadings etc. would fall in this genre; on any consideration, the A&C Act neither attempted nor intended to cover these projects. It would be apposite to draw attention once again to Cref Finance Ltd. in which another Division Bench has categorically concluded that the Letters Patent are inapplicable to proceedings under the arbitration legislation. Similar is the tenor of two Division Bench Judgments of Calcutta High Court, namely, Modi Korea Telecommunication Ltd. -vs- Appcon Consultants Pvt. Ltd., 2000 (Suppl.) R.LR 618(Cal) (DB) which came to be applied in Great Eastern Shipping Co. Ltd. -vs- Board of Trustees for the Port of Calcutta, 2005(1) Ar. LR 389 (Cal) (DB). The Division Bench of the Calcutta High Court had come to the conclusion that the orders assailed before them did not partake of the character of orders passed under the A&C Act. It would be virtually impossible to inventories all instances of orders passed de hors the A&C Act. We are not called upon to cogitate upon this issue since the controversy is covered on all fours by Gourangalal Chatterjee. For this very reason, it appears to us that V.M. Manohar Prasad - vs- N. Ratnam Raju, (2004) 13 SCC 610 does not further the argument that the present batch of cases are amenable to correction under Clause 10 of the Letters Patent. Their Lordships had repelled the view taken by the High Court that an appeal was OMP No.297/2006 Page 11 of 33 prohibited under the Contempt of Courts Act, 1971 since the Contempt Judge had not imposed any punishment. The learned Single Judge had directed that all those employees who had not completed five years of regular service would not be considered for regularization in the contempt proceedings. An appeal was held to be maintainable against this part of the Order. A similar conclusion was reached in Midnapore Peoples' Co-op. Bank Ltd. -vs- Chunilal Nanda, AIR 2006 SC 2190 where their Lordships held that if orders of a civil nature or having civil ramifications came to be passed in contempt proceedings, they would be appealable.
8. Returning to the facts of the Appeals before us, all of them directly deal with the removal of an arbitrator and/or with terminating the mandate of the Arbitral Tribunal. These questions have been dealt with under the fasciculus of Sections 12 to 15 of the A&C Act. We find that there can be no conceivable considerations for concluding that such orders can be perceived as being unconnected with any of the provisions of the A&C Act. We are not dealing with an order directing a lower Court to conclude proceedings under Section 8 of the A&C Act expeditiously. We make no observations regarding maintainability of an Appeal against them since they would essentially be in the nature of obiter dicta. In any event, it would be relevant to recall the enunciation of the law in SBP & Co. -vs- Patel Engineering Limited, (2005) 8 SCC 618 to the effect that an aggrieved party could, in deserving cases, OMP No.297/2006 Page 12 of 33 approach the Hon'ble Supreme Court under the plenary powers contained in Article 136 of the Constitution of India to correct a grievous error. In fact, Section 37 of the A&C Act explicitly explains this position.
9. In Progressive Career Academy Pvt. Ltd. -vs- FIIT JEE Ltd. (OMP No.297/2006), a learned Single Judge has referred the Petition to the Division Bench because of the existence of the two divergent and diametrically different conceptions and persuasions which have already been dissected by us above. Hence, even though it is our opinion that the Appeals are not maintainable, we must answer the queries raised by the Referral Order. We are mindful of the fact that our decision shall put to rest the controversial and conflicting verdicts of Single Benches of this Court.
10. In the present analysis of the law, we cannot concur with the ratio of Interstate Constructions -vs- NPCC Limited, 2004(3) R.A.J. 672 (Del) in which one of us (Vikramajit Sen, J.) had terminated the authority of the Arbitrator keeping in mind the directions of the latter requiring the claimants to travel from New Delhi to Andhra Pradesh solely to carry out inspection of documents. Bias was found to pervade the arbitral proceedings in that the Arbitrator was manifestly functioning to the detriment of the Claimant and to the advantage of the party who had appointed him. This dialectic appears to have found favour with another OMP No.297/2006 Page 13 of 33 learned Single Judge in Indira Rai -vs- Vatika Plantations (P) Ltd., 127 (2006) DLT 646. The mandate of the Arbitrator was accordingly terminated and another Arbitrator was appointed in his stead. Our Learned Brother had also drawn support from the decision of the Division Bench in Sushil Kumar Raut -vs- Hotel Marina, 121(2005) DLT 433. While doing so, the Bench was cautious to record that its action ―may not be technically or strictly in tune with the provisions of the Act‖. The Division Bench considered it necessary to ―break the impasse‖ and accordingly removed the existing arbitrator and appointed a third person as the Arbitrator. In National Highways Authority of India -vs- K.K.Sarin, 159 (2009) DLT 314, a Single Bench of this Court (Rajiv Sahai Endlaw, J.) has concluded that the ―party alleging bias is required to first follow the procedure in Sections 12 and 13 and if unsuccessful has choice of either waiting till the stage of Section 34 or if he feels that bias can be summarily established or shown to the Court, approach the Court immediately under Section 14, after the challenge being unsuccessful, for the Court to render a decision.‖ In Shyam Telecom Ltd. -vs- Arm Ltd., 113 (2004) DLT 778 a Single Bench (R.C.Jain, J.) has concluded that Section 14(2) of the Act empowers the Court to decide the question of termination of the mandate if a controversy arises concerning the termination of the Arbitrator's mandate on one or the other grounds.
OMP No.297/2006 Page 14 of 33
11. Our research reveals that another Single Bench, while declining to interfere in Pinaki Das Gupta -vs- Publicis (India) Communications, 115 (2004) DLT 345, has favoured the view that interference under Section 14 is not warranted even in the face of allegations of the bias of the Arbitrator. A reference was made by the learned Single Judge to his previous decision in Prasar Bharati
-vs- Stracon (India) Limited, 114(2004) DLT 562 which interpreted the powers vested in the Court under Section 11 of the A&C Act. Both the decisions were predicated on the earlier view of the Supreme Court in Konkan Railway Corporation Ltd. -vs- Rani Construction, (2002) 2 SCC 388, which no longer holds the field because of subsequent enunciation of law in SBP & Company -vs- Patel Engineering, (2005) 8 SCC 618.
12. In G.Vijayaraghavan -vs- M.D.Central Warehousing Corporation, 86 (2000) DLT 844, the Court had been approached under Sections 12 and 13 of the Act with the prayer to set aside the appointment of the Arbitrator on the premise that his name was on the panel of the Arbitrators drawn up by the opposite party. The prayer was declined without going into the legal nodus whether the Court possessed the power of interference in the proceedings of the Arbitral Tribunal even at the pre Award stage. Our attention has also been drawn to a Single Bench decision of the Punjab and Haryana High Court reported as O.P.B.K.Construction Pvt. Ltd. -vs- Punjab Small Industries & OMP No.297/2006 Page 15 of 33 Export Corporation Ltd., 2008 (3) Arb.LR 189 (P&H) wherein the Court found it fit to terminate the mandate of the Arbitrator without addressing the question whether this power had been bestowed upon it by the Act. As in all other cases, the verdict proceeds on the presumption that the Court possesses power to terminate the mandate of the Arbitrator prior even to the publication of the Award. In Jas Enterprises -vs- The Karanpara Dev. Co. Ltd., (1997) 2 CalLT 277, a Single Bench of the Calcutta High Court rejected a challenge to the impartiality of the Arbitrator without rendering asunder the guardian knot whether such a challenge had been made available under the A&C Act. This is also what transpired in State of Jharkhand -vs- Indian Builders, 2003(3) JCR 718 (Jhar.) where the learned Single Judge directed the Arbitrator to refund fees drawn from the Government even though he was in its employment; the learned Single Judge assumed he had powers to direct so. In E. Logistics -vs- Financial Technologies India Ltd., MANU/TN/7554/2006, interference was declined on merits without questioning the power to do so under the statute.
13. In Surinder Pal Singh -vs- HPCL, 2006(4) Arb. LR 109, the question for determination, inter alia, was the maintainability of suit for declaration and injunction to the effect that the mandate of the Arbitrator had come to an end since the Award had not been published within the agreed period of ten months. The Division OMP No.297/2006 Page 16 of 33 Bench of this Court concluded that the Suit was incompetent and the legal proceedings ought to have been initiated under Section 14 of the A&C Act. A Division Bench of the Gauhati High Court has ,in State of Arunachal Pradesh -vs- Subhash Projects and Marketing Ltd., 2007(1) Arb. LR 564 (Gau), returned a categorical finding to the effect that if grounds of challenge to the independence and impartiality of the Arbitrator have been articulated, an application under Section 14(1)(a) of the Act is maintainable. The opinion of the Division Bench becomes evident in that it distinguished the decision of the Bombay High Court in Hasmukhlal H.Doshi -vs- Justice M.L.Pendse, 2001(1) Arb.LR 87 (Bombay) in which the learned Single Judge was of the persuasion that ―when a specific challenge is provided and the forum which has to decide the challenges is also provided, it would not be open to this Court to decide and consider that the mandate of the Arbitrator has been terminated under Section 14. That challenge in a case where Arbitrator decides the objection will have to be taken as a ground in a challenge to the Award under Section 34. The object seems to be to allow the Arbitral proceedings to be concluded at the earliest. If the challenge is successful finally, the remedy is not lost as time is saved by virtue of Section 43(4) of the Act.‖ This conclusion was also adopted in Vilas -vs- Ganesh Builders, 2005(2) AllMR 634, following Doshi.
OMP No.297/2006 Page 17 of 33
14. There are a few judgments which clearly and unequivocally hold that the Applications filed in a Court of Law assailing arbitral proceedings on the grounds of bias, thus making out a case of de jure and de facto failure to perform arbitral functions, are not maintainable at the pre Award stage. The decisions brought to our notice laid before us emanating from the High Court of Delhi are those of S.N.Dhingra, J. in Neeru Walia -vs- Inderbir Singh Uppal, 160(2009) DLT 55 and of Aruna Suresh J. in Ahluwalia Contracts (India) Ltd. -vs- Housing and Urban Development Corporation, 2008 (100) DRJ 461. We have already noted Pinaki Das Gupta where Mukul Mudgal, J. has concluded that ―de jure and de facto, the authority of the Arbitrator cannot be questioned under Section 14‖. This is also the position in Newton Engineering and Chemicals Ltd. -vs- Indian Oil Corporation Ltd., where Reva Khetrapal, J. expressed the view that where the Arbitrator does not recuse from the proceedings, the Award must be published and the challenge under Section 34 would thereafter provide complete remedy.
15. We think it relevant to revert to C.N. Garg, which deserves to be dealt with in some detail. The challenge before the Division Bench of this Court was to the vires of Section 13 of the A&C Act, principally on the contention that remedial recourse has not been provided by the statute. Our learned Brothers had laid emphasis on Section 5 which bars interference by a judicial authority except OMP No.297/2006 Page 18 of 33 where so provided by the Act. We are in respectful agreement with their opinion that - ―if there is no provision to deal with a particular situation, Courts cannot assume jurisdiction and interfere. Comparing this legislation with the earlier legislation on the subject namely the Arbitration Act, 1940, the message is loud and clear. The legislature found mischief in various provisions contained in the Arbitration Act, 1940 which would enable a party to approach the Court time and again during the pendency of arbitration proceedings resulting into delays in the proceedings. ... A statute is an edict of the legislature and the conventional way of interpreting or construing a statute is to seek the intention of its maker. .... The function of the Courts is only to expound and not to legislate‖. After a detailed discussion, the verdict was that Section 34 of the A&C Act provided sufficient remedy even in those instances where the grievance of a party was that the arbitrator was inimical or biased towards it. In Dharam Prakash, the Division Bench pointedly relied on C.N. Garg in addition to the dictum in Union of India -vs- Harnam Singh, (1993) 2 SCC 162 to the effect that it is the duty of the Courts to promote the intention of the legislature by an intelligible and harmonious interpretation. The Division Bench, in Hotel Marina, had also expressed the doubts as to whether an arbitrator could be removed during the currency of the arbitration, followed by a fresh appointment. OMP No.297/2006 Page 19 of 33
16. On a reading of Section 13(5), the legislative intent becomes amply clear that Parliament did not want to clothe the Courts with the power to annul an Arbitral Tribunal on the ground of bias at an intermediate stage. The Act enjoins the immediate articulation of a challenge to the authority of an arbitrator on the ground of bias before the Tribunal itself, and thereafter ordains that the adjudication of this challenge must be raised as an objection under Section 34 of the Act. Courts have to give full expression and efficacy to the words of the Parliament especially where they are unambiguous and unequivocal. The golden rule of interpretation requires Courts to impart a literal interpretation and not to deviate therefrom unless such exercise would result in absurdity. In Raghunath Rai Bareja -vs- Punjab National Bank, (2007) 2 SCC 230, the Hon'ble Supreme Court, while emphasizing on the rule of literal interpretation, held as under:
40. It may be mentioned in this connection that the first and the foremost principle of interpretation of a statute in every system of interpretation is the literal rule of interpretation. The other rules of interpretation e.g. the mischief rule, purposive interpretation, etc. can only be resorted to when the plain words of a statute are ambiguous or lead to no intelligible results or if read literally would nullify the very object of the statute. Where the words of a statute are absolutely clear and unambiguous, recourse cannot be had to the principles of interpretation other than the literal rule, vide Swedish Match AB v. Securities and Exchange Board of India OMP No.297/2006 Page 20 of 33 (2004) 11 SCC 641 : AIR 2004 SC 4219. As held in Prakash Nath Khanna v. CIT (2004) 9 SCC 686, the language employed in a statute is the determinative factor of the legislative intent. The legislature is presumed to have made no mistake. The presumption is that it intended to say what it has said. Assuming there is a defect or an omission in the words used by the legislature, the court cannot correct or make up the deficiency, especially when a literal reading thereof produces an intelligible result, vide Delhi Financial Corpn. v. Rajiv Anand, (2004) 11 SCC 625. Where the legislative intent is clear from the language, the court should give effect to it, vide Govt. of A.P. v. Road Rollers Owners Welfare Assn. (2004) 6 SCC 210 and the court should not seek to amend the law in the garb of interpretation.
41. As stated by Justice Frankfurter of the US Supreme Court (see ―Of Law & Men : Papers and Addresses of Felix Frankfurter‖):
―Even within their area of choice the courts are not at large. They are confined by the nature and scope of the judicial function in its particular exercise in the field of interpretation. They are under the constraints imposed by the judicial function in our democratic society. As a matter of verbal recognition certainly, no one will gainsay that the function in construing a statute is to ascertain the meaning of words used by the legislature. To go beyond it is to usurp a power which our democracy has lodged in its elected legislature. The great judges have constantly admonished their brethren of the need for discipline in observing the limitations. A judge must not rewrite a statute, neither to enlarge nor to contract OMP No.297/2006 Page 21 of 33 it. Whatever temptations the statesmanship of policy- making might wisely suggest, construction must eschew interpolation and evisceration. He must not read in by way of creation. He must not read out except to avoid patent nonsense or internal contradiction.‖
42. As observed by Lord Cranworth in Gundry v. Pinniger (1852) 21 LJ Ch 405 : 42 ER 647 ― ‗To adhere as closely as possible to the literal meaning of the words used', is a cardinal rule from which if we depart we launch into a sea of difficulties which it is not easy to fathom.‖
43. In other words, once we depart from the literal rule, then any number of interpretations can be put to a statutory provision, each judge having a free play to put his own interpretation as he likes. This would be destructive of judicial discipline, and also the basic principle in a democracy that it is not for the Judge to legislate as that is the task of the elected representatives of the people. Even if the literal interpretation results in hardship or inconvenience, it has to be followed (see G.P. Singh's Principles of Statutory Interpretations, 9th Edn., pp. 45-49). Hence departure from the literal rule should only be done in very rare cases, and ordinarily there should be judicial restraint in this connection.
44. As the Privy Council observed (per Viscount Simonds, L.C.): (IA p. 71) ―Again and again, this Board has insisted that in construing enacted words we are not concerned with the policy involved or with the results, injurious or otherwise, which may follow from giving effect to the language used.‖ (See King Emperor v. Benoari Lal Sarma (1944-45) 72 IA 57 : AIR 1945 PC 48, AIR at p. 53.) OMP No.297/2006 Page 22 of 33
45. As observed by this Court in CIT v. Keshab Chandra Mandal AIR 1950 SC 265 : (AIR p. 270, para 20) ―Hardship or inconvenience cannot alter the meaning of the language employed by the legislature if such meaning is clear on the face of the statute....‖
46. The rules of interpretation other than the literal rule would come into play only if there is any doubt with regard to the express language used or if the plain meaning would lead to an absurdity. Where the words are unequivocal, there is no scope for importing any rule of interpretation vide Pandian Chemicals Ltd. v. CIT (2003) 5 SCC 590.
47. It is only where the provisions of a statute are ambiguous that the court can depart from a literal or strict construction vide Nasiruddin v. Sita Ram Agarwal (2003) 2 SCC 577 : AIR 2003 SC 1543. Where the words of a statute are plain and unambiguous effect must be given to them vide Bhaiji v. Sub-Divisional Officer (2003) 1 SCC 692.
48. No doubt in some exceptional cases departure can be made from the literal rule of the interpretation e.g. by adopting a purposive construction, Heydon's mischief rule, etc. but that should only be done in very exceptional cases. Ordinarily, it is not proper for the court to depart from the literal rule as that would really be amending the law in the garb of interpretation, which is not permissible vide J.P. Bansal v. State of Rajasthan (2003) 5 SCC 134 : 2003 SCC (L&S) 605 : AIR 2003 SC 1405, State of Jharkhand v. Govind Singh (2005) 10 SCC 437 : 2005 SCC (Cri) 1570 : JT (2004) 10 SC 349. It is for the legislature to amend the law and not the court vide State of Jharkhand v. Govind Singh(supra). In Jinia Keotin v.OMP No.297/2006 Page 23 of 33
Kumar Sitaram Manjhi (2003) 1 SCC 730 this Court observed (SCC p.733, para 5) that the court cannot legislate under the garb of interpretation. Hence there should be judicial restraint in this connection, and the temptation to do judicial legislation should be eschewed by the courts. In fact, judicial legislation is an oxymoron.
17. In the context of the A&C Act, especially keeping in mind the alternations, modifications or deviations with regard to the UNCITRAL Model Law, the following speech of the Earl of Halsbury in Eastman Photographic Materials Co. -vs- Comptroller General of Patents, (1898) AC 571 readily comes to mind - ―My lords, it appears to me that to construe the Statute in question, it is not only legitimate but highly convenient to refer both to the former Act and to the ascertained evils to which the former Act had given rise, and to the later Act which provides the remedy‖.
18. For facility of reference, Sections 12 to 15 are reproduced:-
―12. Grounds for challenge.--(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.
(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.OMP No.297/2006 Page 24 of 33
(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.
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 after 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.OMP No.297/2006 Page 25 of 33
(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.
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 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.
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.OMP No.297/2006 Page 26 of 33
(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), any hearings previously held may be repeated 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.‖
19. The Preamble to the A&C Act refers to the UNCITRAL Model Law on International Commercial Arbitration adopted by the General Assembly of the United Nations in 1985. The Preamble further recites that the General Assembly has recommended that all countries give due consideration to the said UNCITRAL Model Law and Rules. The Preamble further recognizes the expediency of making laws with regard to arbitration, keeping in perspective the said UNCITRAL Model Law and Rules. The English Arbitration Act, 1996 is also predicated on the UNCITRAL Model Law and Rules. The Sections corresponding to the Indian statute are to be found in Sections 23 to 27 thereof. The Uniform Arbitration Act, 1989 passed by the Canadian Parliament, at its very commencement, mentions the UNCITRAL Model Laws and Rules. Section 12 prescribes the revocation of the appointment of an arbitrator. Section 13, containing provisions pertaining to the challenge of an arbitrator's authority, broadly corresponds to the same Section in the Indian statute. Thereafter, Section 14 postulates situations in OMP No.297/2006 Page 27 of 33 which the arbitrator's mandate would terminate. The Canadian Act, however, in its Section 15, provides for an approach to the Court for the removal of the arbitrator. So far as Australia is concerned, its International Arbitration Act, 1974 prescribes in Section 16(1) that the UNCITRAL Model Law shall have the force of law in that country. Furthermore, Section 18A clarifies that it is necessary to locate ―a real danger of bias‖ and that justifiable doubts as to the impartiality or independence of the arbitrator may be insufficient for the Courts to interfere. We think it would be advantageous, for ease of reference, to reproduce the provisions of the UNCITRAL Model Law for the reason that a departure therefrom cannot but be read as our Parliament's resolve to ordain its own and distinct arbitral regime:-
Article 12 - Grounds for challenge
1. When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose any circumstances likely to give rise to justifiable doubts as to his impartiality or independence. An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall without delay disclose any such circumstances to the parties unless they have already been informed of them by him.
2. An arbitrator may be challenged only if circumstances exist that give rise to justifiable doubts as to his impartiality or independence, or if he does not possess qualifications agreed to by the parties. A party may challenge an arbitrator appointed by him, or in whose OMP No.297/2006 Page 28 of 33 appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. Article 13 - Challenge procedure
1. The parties are free to agree on a procedure for challenging an arbitrator, subject to the provisions of paragraph (3) of this article.
2. Failing such agreement, a party which intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstance referred to in article 12(2), send a written statement of the reasons for the challenge to the arbitral tribunal. Unless the challenged arbitrator withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge.
3. If a challenge under any procedure agreed upon by the parties or under the procedure of paragraph (2) of this article is not successful, the challenging party may request, within thirty days after having received notice of the decision rejecting the challenge, the court or other authority specified in article 6 to decide on the challenge, which decision shall be subject to no appeal; while such a request is pending, the arbitral tribunal, including the challenged arbitrator, may continue the arbitral proceedings and make an award.
Article 14 - Failure or impossibility to act
1. If an arbitrator becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay, his mandate terminates if he withdraws from his office or if the parties agree on the termination. Otherwise, if a controversy remains concerning any of these grounds, any party may request OMP No.297/2006 Page 29 of 33 the court or other authority specified in article 6 to decide on the termination of the mandate, which decision shall be subject to no appeal.
2. If, under this article or article 13 (2), an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, this does not imply acceptance of the validity of any ground referred to in this article or article 12 (2).
20. A comparison of the provisions dealing with the challenge to the arbitrator's authority in the A&C Act and the UNCITRAL Model Law discloses that there are unnecessary and cosmetic differences in these provisions, except for one significant and far-reaching difference. The UNCITRAL Model Law, in Article 13(3), explicitly enables the party challenging the decision of the Arbitral Tribunal to approach the Court on the subject of bias or impartiality of the Arbitral Tribunal. However, after making provisions for a challenge to the verdict of Arbitral Tribunal on the aspect of bias, the UNCITRAL Model Law prohibits any further Appeal. It seems to us, therefore, that there is no room for debate that the Indian Parliament did not want curial interference at an interlocutory stage of the arbitral proceedings on perceived grounds of alleged bias. In fact, Section 13(5) of the A&C Act indicates that if a challenge has been made within fifteen days of the concerned party becoming aware of the constitution of the Arbitral Tribunal or within fifteen days from such party becoming aware of any circumstances pointing towards impartiality or independence of OMP No.297/2006 Page 30 of 33 the Arbitral Tribunal, a challenge on this score is possible in the form of Objections to the Final Award under Section 34 of the A&C Act. Indeed, this is a significant and sufficient indicator of Parliament's resolve not to brook any interference by the Court till after the publication of the Award. Indian Law is palpably different also to the English, Australia and Canadian Arbitration Law. This difference makes the words of Lord Halsbury in Eastman Photographic Materials Co. all the more pithy and poignant.
21. In this analysis, we must immediately observe that the approach taken by one of us ( Vikramajit Sen, J.) in Interstate Constructions is not correct as it transgresses and infracts the provisions of the A&C Act. Learned Single Benches have interfered and removed arbitrators obviously on pragmatic considerations, viz. the futility and idleness of pursuing arbitral proceedings despite lack of faith therein because of justifiable doubts as to the independence or impartiality of the arbitrators. Clearly, Parliament has also proceeded on the compelling expediency and advisability of expeditious conclusion of these proceedings. Relief against possible mischief has been provided by making clarification in Section 13(5) that apart from the challenges enumerated in Section 13(4), an assault on the independence or impartiality of the Arbitral Tribunal is permissible by way of filing Objections on this aspect after the publishing of the Award. We, therefore, affirm the approach in Pinaki Das Gupta, Neeru Walia, Ahluwalia OMP No.297/2006 Page 31 of 33 Contracts (India) Ltd. and Newton Engineering and Chemicals Ltd.. We are of the opinion that the Single Benches who interfered with the progress of the proceedings of the Arbitral Tribunal in the pre-Award stage fell in error. Humans often fall prey to suspicions which may be proved to be ill-founded on the publication of an Award. There is compelling wisdom in Parliament's decision to allow adjudication on grounds of bias, lack of independence or impartiality of the Tribunal only on the culmination of the arbitral proceedings.
22. Having arrived at the conclusion that curial interference is not possible at the pre-Award stage on the allegations of bias or impartiality of the Arbitral Tribunal on the one hand, and our understanding that the Appeals are not maintainable on the other hand, is any further relief to be granted? We think it expedient to abjure from passing any further orders for several reasons including - firstly, the reality that arbitration proceedings would inevitably have already come to an end in those instances where the arbitrator had been removed by orders of the Court, and secondly the availability of redress under Article 136 of the Constitution of India. All pending applications stand disposed of. The Referral Order is answered by reiterating that the statute does not postulate judicial interference in arbitral proceedings till the Award is published, whereupon Objections can be raised also on the platform of the alleged bias of the Tribunal. This challenge is OMP No.297/2006 Page 32 of 33 possible provided the grievance is articulated in consonance with Section 13 of the A&C Act.
23. We refrain from imposing costs.
( VIKRAMAJIT SEN ) JUDGE ( SIDDHARTH MRIDUL ) JUDGE May 16, 2011 tp/nt OMP No.297/2006 Page 33 of 33