In The Matter Of Satya Prakash ... vs In The Matter Of Dinesh Prakash ...
2014 Latest Caselaw 8684 ALL

HIGH COURT OF JUDICATURE AT ALLAHABAD
 
 

	                                                               A.F.R.	
 
Reserved on 7.11.2014
 
Delivered on 17.11.2014
 
Court No. - 7
 

 
Case :- ARBITRATION AND CONCILI. APPL.U/S11(4) No. - 35 of 2009
 
Applicant :- In The Matter Of Satya Prakash Singh
 
Opposite Party :- In The Matter Of Dinesh Prakash Singh & Others
 
Counsel for Applicant :- Ajay Kumar Singh,Ashish Kumar Singh
 
Counsel for Opposite Party :- Gautam Baghel
 

 
Hon'ble Suneet Kumar,J.

(In Re: Civil Misc. Transfer Application No. 343670 of 2014)

The applicant had earlier filed an application no. 35 of 2009 under Section 11(6) for appointment of an Arbitral Tribunal for settlement of dispute between the applicant and the opposite parties, with regard to a partnership deed. Hon'ble Chief Justice in exercise of his powers under Section 11(6) appointed Justice D.P.S. Chauhan, a retired Judge of this Court as sole Arbitrator to decide the claims arising between the parties.

The parties put in appearance before the Arbitral Tribunal and during the pendency of the arbitration proceedings, the Arbitral Tribunal by order dated 5.10.2014, in Arbitration Case No. 35-09 of 2012 (Staya Prakash vs. Dinesh Prakash Singh and others) District Mirzapur, closed the case, under Section 25 of the Arbitration and Conciliation Act, 19961 and posted the case for award on 9.11.2014 at 2:00 PM.

The applicant has again approached the Court on 17.10.2011 by filing the present Civil Misc. Transfer Application, under Paragraph 8 of the Scheme of Appointment of Arbitrators by Hon'ble the Chief Justice of Allahabad High Court, 19962, seeking the following prayer:-

"It is therefore, most respectfully prayed that this Hon'ble Court may graciously be pleased to withdraw the authority given to the learned Arbitrator in Arbitration Case No. 35/2009 of 2012 (Satya Prakash Singh vs. Dinesh Singh & others) and/or designate any other Arbitrator for the settlement of Claim Petition between between the claimant and opposite party no. 1, and/or pass any other and further order which may meet at the end of justice, otherwise the applicant/opposite party no. 1 shall suffer an irreparable loss and injury."

I have heard Sri M.D. Singh Shekhar, learned Senior Advocate assisted by Sri Udai Chandani, learned counsel appearing for the applicant and Sri Ajai Kumar Singh, learned counsel for the contesting opposite parties.

A preliminary objection has been raised by Sri Ajai Kumar Singh that the application is not maintainable, the applicant has challenged the appointment of the arbitrator on the grounds mentioned under section 12 sub-section (3) questioning the independence or impartiality of the arbitrator and under section 14 for terminating the mandate of the arbitrator, for undue delay. The Chief Justice or his designate shall have no jurisdiction under Section 11(6) or the Scheme framed by Hon'ble the Chief Justice under sub-section (10) of Section 11 to go into the question of Section 12 or Section 14 of Act, to remove the arbitrator.

The learned Senior Advocate would submit that the application is maintainable and the grounds stated in Section 12(3) and 14(1) are evident from the record of the arbitration case, the applicant has lost faith in the Arbitral Tribunal as the arbitrator is not independent or impartial, further, there has been undue delay in concluding the arbitration proceedings, more than three years has lapsed. The learned Senior Advocate to substantiate his argument relied upon the following judgments:- Union of India vs. Singh Builders3, SBP & Co. vs. Patel Engineering Ltd. and another4, Rungta Projects Ltd. vs. Government of Uttar Pradesh and anothers5, Indian Oil Corporation Ltd. and others vs. Raja Transport (P) Ltd. 6

Sri Ajai Kumar Singh contends that once an order has been passed under Section 11(6) for appointment of an Arbitrator by the Chief Justice or his designate, the Chief Justice or his designate becomes functus officio. The Arbitrator for want of independence or impartiality under Section 12(3) can be removed by following the procedure prescribed under section 13 of the Act, which in the present case was not followed, admittedly, no written statement was filed before the Arbitrator. To terminate the mandate of the Arbitrator, for undue delay, under section 14, the remedy is to approach the original Civil Court having jurisdiction and not the Chief Justice or his designate under Section 11 of the Act. The present application has been filed with mala fide intention, to restrain the Arbitrator from rendering the award on 9.11.2014. Sri Singh in support of his submissions has relied upon following judgments:- Suresh Chandra Agarwal vs. Mahesh Chandra Agarwal7, M/s S.K. & Associates vs. Indian Farmer & Fertilizers8, Rakesh Jain vs. M/s Willowon Builders (India) Pvt. Ltd.9, Ghaziabad Development Authority vs. Subodh Builders Pvt. Ltd.10, Ahluwalia Contractors (India) Ltd. vs. Housing and Urban Development Corporation & others11, Chintakayala Siva Rama Krishna vs. Nadimpalli Venkata Rama Raju AIR12, M/s SBP & Co vs. M/s Patel Engineering Ltd. and others13.

Rival submissions fall for consideration.

The question for determination is as to whether this application filed under the Scheme of 1996, read with Section 11 of the Act is maintainable or whether, the Chief Justice or his designate has jurisdiction to terminate the mandate of the Arbitrator, already appointed under Section 11, and to appoint substitute Arbitrator.

Section 12 of the Act provides the grounds for challenge, whereas, Section 13 prescribes the procedure to be followed for such a challenge. Section 14 of the Act permits the termination of the mandate of an arbitrator, for the reasons stated therein and Section 15 of the Act provides for appointment of substitute arbitrator, in case, the mandate of the arbitrator, already appointed, is terminated. Since these are the relevant provisions of the Act and have a bearing on the facts and circumstances of the present case, which are as follows:-

"12. Grounds for challenge.

(1)When a person is approached in connection with his 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.

(3) An arbitrator may be challenged only if-

	  (a)	circumstances exit 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 of 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 Subsection (5), the Court may decide as to whether the arbitrator who is challenged is entitles 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.

(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."

The applicant in the present case has prayed for termination of the mandate of the arbitrator (though worded as to withdraw the authority and designate any other arbitrator for settlement) because the applicant apprehends bias on the part of the arbitrator, thus, doubting his independence or impartiality. The Senior Advocate has taken the Court through the record to demonstrate the lack of independence or impartiality of the arbitrator. The details need not be gone into as it is not relevant to the question sought to be answered.

The grounds for challenge to the mandate of the arbitrator falls under Section 12 sub-section (3)(a) of the Act. Section 13(3) of the Act makes it clear that unless the arbitrator challenged withdraws from his office or the other party agrees to the challenge, the arbitral Tribunal shall decide on the challenge, admittedly, this procedure was not followed by the applicant. The applicant had not challenged the arbitrator by following the procedure of challenge prescribed under sub-clause (2) of Section 13. The applicant within 15 days after becoming aware of any circumstances referred to in sub-section (3) of Section 12 must, send a written statement of the reasons for the challenge to the arbitral Tribunal under Section 13(3).

The arbitral Tribunal shall decide on the challenge on merits except-

a). if the arbitrator whose appointment is challenged withdraws from his office on his own, or

b). the other party agrees to thechallenge.

By virtue of Section 13(4) of the Act, if a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) fails, the arbitral Tribunal has to continue the arbitral proceedings and make an arbitral award. Sub-section (5) of Section 13 of the Act empowers a party challenging the arbitrator to make an application for setting aside such arbitral award made under sub-section (4) in accordance with Section 34 of the Act.

Under Section 14(2) of the Act, the court has the power to decide on the termination of the mandate on any of the grounds referred to in Clause (a) of sub-section (1) and also in the circumstances enumerated in Section 15 of the Act and appoint an arbitrator. Under Section 14 of the Act the mandate of an arbitrator stands terminated if he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without unnecessary delay or he withdraws from his office or the party agreed to the termination of his mandate. As per Section 14(1)(b) the mandate of an arbitrator shall terminate if he withdraws from his office or the parties agree to the termination of his mandate.

Section 15 provides for a procedure which has to be followed when mandate of the arbitrator is terminated and substitution of the arbitrator in the circumstances set out under Sub-section (1) including those referred under Section 13 and 14 of the Act is required. As per Section 15 sub-section (2) of the Act where the mandate of an arbitrator terminates, a substitute arbitrator has to be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.

In the present case the applicant instead of pursuing the remedy available for challenging the arbitrator as laid down in Section 13 or Section 14 has sought appointment of a substitute Arbitrator on the ground that the Arbitrator is not independent or impartial, under Section 11 read with the Scheme.

The Chief Justice or his designate in exercise of power under Section 11(4) or sub-clause (6) cannot terminate the mandate of the arbitrator on challenge by a party on grounds mentioned in Section 12 or 13 of the Act, therefore, this court has no jurisdiction under Section 11 to substitute an arbitrator so appointed in terms of the arbitration agreement. The meaningful interpretation of these sections, if read together, is that challenge to the appointment of the arbitrator has to be raised by the applicant before the arbitral Tribunal itself. If he succeeds in the challenge, the applicant has no cause or grievance left but if he fails then he has to participate in the arbitral proceedings and if aggrieved by the award, to challenge the same in accordance with provisions of the Section 34 of the Act including the mandate of the Arbitrator.

Once the matter reaches the arbitral Tribunal or the sole arbitrator, the High Court would not interfere with the orders passed by the arbitrator or arbitral Tribunal during the course of the arbitration proceedings and the parties could approach the Court only in terms of Section 37 of the Act or in terms of Section 34 of the Act.

The seven judge Constitution Bench of the Supreme Court in S.B.P. And Company vs. Patel Engineering Ltd.14 has observed that the High Court should refrain from interfering against any order passed by the Arbitral Tribunal during arbitration proceedings under Article 226 or 227 of the Constitution. The aggrieved party has a remedy under Section 34 or Section 37 by filing an appeal, if available.

This Court in Rakesh Jain vs. M/s Willowon Builders (India) Pvt. Ltd.15, where the question before the Court was as to whether, "is it open to the Chief Justice, exercising jurisdiction under Section 11(4) of the Arbitration Act, to remove an appointed Arbitrator and appoint another Arbitrator in his place?" The Court held that once an Arbitrator has been appointed, before the application is filed, it would not be open to Hon'ble the Chief Justice or his designate to remove the said Arbitrator and appoint another Arbitrator in his place.

It is to be noted that the Act is enacted mainly in the pattern of the Modern Law adopted by the United Nations Commission on International Trade law. The object and the reasons of the Act clearly indicate that the intention of the Act is to lay emphasis on speedy disposal of arbitration proceedings. The Act also seeks to minimize judicial intervention in the progress and completion of arbitration proceedings, which is crystal clear from a bare reading of Section 5 of the Act which provides that no judicial authority would intervene except where so provided in the Act. Consequently, the bar on Court interference on challenging the arbitral Tribunal during the pendency of the arbitration proceeding was meant to minimize judicial intervention at that stage, as any interference at that stage would be against the spirit with which the Act was enacted. Sub-section (5) of Section 13 of the Act lays down that challenging an arbitral award is permitted even on the grounds taken by the aggrieved party on which the challenge to the arbitral Tribunal was made. There is no provision in the Act which would enable the Court to remove an Arbitrator during the arbitration proceedings. But, at the same time the party having grievance against an Arbitrator cannot be said to be without a remedy and the said remedy becomes available as soon as the arbitral award is made by the arbitrator or the arbitral Tribunal.

Thus clear mandate is to bar judicial interference except in the manner provided in the Act. Conversely 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. Law makers wanted to do away with such provisions.

The new Act deals with the situation even when there is challenge to the constitution of the arbitral Tribunal. It is left to the arbitrator to decide the same in the first instance. If a challenge before the arbitrator is not successful, the arbitral Tribunal is permitted to continue the arbitral proceedings and make an arbitral award. Such a challenge to the constitution of the arbitral Tribunal before the Court is then deferred and it could be only after the arbitral award is made that the party challenging the arbitrator may make an application for setting aside an arbitral award and it can take the ground regarding the constitution of arbitral Tribunal while challenging such an award.

Thus course of action to be chartered in such contingency is spelt out in the Act itself. Court interference on basis of petitions challenging arbitral Tribunal during the pendency of the arbitration proceedings would be clearly against the very spirit with which the Act has been enacted. The mischief which existed in the earlier enactment and is sought to be removed by the present enactment cannot be allowed to be introduced by entertaining petitions in the absence of any provision in the new Act in this respect.

Now coming to Section 14 of the Act, so far as the provisions of the Arbitration Act, 1940 are concerned, Section 14(1)(a) and sub-section (2) of the present Act substantially correspond to Section 8(1)(b) and Section 11(1) of the Arbitration Act, 1940. A bare perusal of Section 14 would show that the mandate (authority) of an arbitrator shall terminate on two conditions being satisfied:-

1.) The arbitrator becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay and.

2.) The arbitrator withdraws from his office or the parties agreed to the termination of his mandate.

It will thus, be seen that it is not open to a party to unilaterally terminate the mandate of an arbitrator on the ground that the arbitrator de jure or de facto unable to perform his functions or for other reasons failed to act without undue delay.

In such situation, where one of the parties wants the mandate of the arbitrator be terminated on the above grounds, it will have to take the controversy to the Court under sub-section (2) and the Court will then decide on the termination of the mandate. Compared to the old law when the Court had power to give leave to revoke the authority of an arbitrator under Section 5 or to remove an arbitrator under circumstances detailed in Section 11 of the Arbitration Act 1940. The Court has now no such power, except when it is asked to decide a controversy brought before it by any party as to whether an arbitrator has become de jure or de facto unable to perform his functions or for any other reason failed to act without undue delay. Even here a party may not approach the Court for this purpose, if it is so agreed by the parties, it is clear from the use of words "unless otherwise agreed by the parties" used in sub-section (2). No appeal lies from an order of the Court on the controversy, which is clear from perusal of Section 37.

A conjoint petition under Section 11(6) and Section 14 does not lie, since under Section 11(6) the petition has to be heard and decided by the Chief Justice or his designate, while a petition under Section 14 lies to the "Court". Since fora are different, conjoint petition does not lie. (Grid Corporation of Orissa Ltd. vs. AES Corporation16.

An application under Section 14(2) of the Act for decision on termination of the mandate of an arbitrator lies only before the "Court" as defined in Section 2(1)(e) of the Act.

In a case, where, the Supreme Court had appointed the arbitrator in question, on an application made to it under Section 11(5) and (6) of the Act, held that application under Section 14(2) of the Act for terminating the mandate of the arbitrator was not maintainable before the Supreme Court. The jurisdiction which the Chief Justice or his designate exercises under Section 11(6) of the Act is limited jurisdiction. The Supreme Court becomes functus officio after exercising jurisdiction under Section 11(6) of the Act. (Nimet Resources Inc. vs. Essar Steels Ltd.17).

There is no automatic termination of the mandate of an arbitrator on the alleged ground of his failure to act without undue delay. It is only the Court which will have to resolve the dispute whether the arbitrator had failed to act without any undue delay. But if the arbitrator fails to conclude arbitration proceedings within the time agreed to between the parties and parties do not extend the mandate of the arbitrator any further, the mandate of the arbitrator automatically terminates. (N.B.C.C. Ltd. vs. J.G. Engineering Pvt. Ltd.18).

Termination of arbitral proceedings is different from termination of the mandate of the arbitrator. Termination of arbitral proceedings is governed by Section 32 of the Act. The arbitral proceedings can come to an end on the events mentioned in Section 32 had occurred. Thus, mandate (authority) of an arbitrator can be terminated but that would not mean that the arbitral proceedings have also terminated.

If an arbitrator refuses to act as an arbitrator, a substitute arbitrator would be appointed in his place under sub-section (2) or Section 15, except where the intention of the parties was to refer the disputes to arbitration by a particular person only.

"Rules" referred to in Section 15(2) would refer not only to any statutory rules or rules framed under the Act or under the Scheme, but also mean that substitute arbitrator must be appointed according to the original agreement or provision applicable to the appointment of the arbitrator at the initial stage. (Yashwitha Construction (P) Ltd. vs. Simplex Concrete Piles India Ltd.19).

In National Highways Authority of India vs. Bumihiway D.D.B. Ltd.20 Supreme Court held that provisions of Section 15(2) states that a substitute arbitrator shall be appointed according to the rules applicable to the appointment of arbitrator being replaced. Appointment of retired Chief Justice by the High Court under Section 11(6) was set aside and directions was given that India Road Congress be approached as per the agreed procedure to appoint the arbitrator.

The application is misconceived and is not maintainable under paragraph 8 of the Scheme, paragraph 8 refers to withdrawal of authority by the Chief Justice on receipt of a complaint from either party to the arbitration agreement or otherwise is of opinion that the person or institution designated by him under paragraph 3 has neglected or refused to act or is incapable of acting he may withdraw the authority given by him to such person or institution and dealing with the request himself or designate another person or institution for that purpose. Paragraph 3 provides that upon receipt of a request under paragraph 2, the Chief Justice may either deal with the matter entrusted to him or designate any other person or institution for that purpose; and paragraph 2 provides where a request to the Chief Justice under sub-section 4 or sub-section 5 or sub-section 6 of Section 11 shall be made in writing and accompanied by the documents mentioned therein. Thus reading of paragraph 2, 3 and 8 would clearly demonstrate that the powers conferred under paragraph 8 has nothing to do with the removal of an arbitrator or appointment of a substitute arbitrator. Paragraph 8 only confers power upon the Chief Justice to withdraw the authority given by him to the designate person or institution for that purpose.

Having considered the law and provisions of the Act, in the facts of the present case where the subject matter of the dispute was referred to arbitration and the arbitration proceedings have been closed. Similar application for referring the very same claim under Section 11, in my opinion, once the power was exercised under Section 11 and an arbitrator was appointed, the proceedings have been closed under Section 25, there is no further power, considering the nature of power under Section 11 read with the Scheme, to once again refer the same disputes to arbitration, under Section 11. Therefore, in my opinion, the second application is not maintainable and is consequently dismissed. Interim order is vacated.

Order Date :- 17/11/2014

S.Prakash