Oil And Natural Gas Corporation ... vs Garware Shipping Corporation ...
2003 Latest Caselaw 872 Bom

JUDGMENT

R.M. Lodha, J.

1. On 3rd October, 1984, the petitioner-Oil and Natural Gas Corporation Ltd. (for short 'O.N.G.C') entered into time five charter party agreement for supply of vessels with the first respondent (for short 'owner') initially for a period of 60 months and subsequently extended from time to time on the terms and conditions agreed upon by the parties. The said agreement provided for Arbitration. It appears that O.N.G.C. on 18th August, 1988 wrote a letter to the owner inter alia making certain deductions from amount due and payable to them. The deductions were made on account of the excess hire charges having been paid to the owner and were in respect of the invoice dated 30th June, 1988 to 31st December, 1988 for a sum of Rs. 65,37,733. The case of the O.N.G.C, is that on 14.08.1991, the owner for the said deductions, invoked Arbitration clause and appointed Mr. K. Seshadri, Southern Petrochemicals Indsutries Ltd., Shipping Division, East Coast Chambers, Madras as an Arbitrator and called upon the O.N.G.C. to appoint an Arbitrator in terms of Clause 20 of charter party agreement within 30 days from the receipt of notice. It appears that thereafter negotiations for settlement continued between the parties but settlement could not be fructified. The owner on 21st September, 2001 requested the O.N.G.C. to furnish the details of vessel-wise payment made by them for reconciliation. On 24.09.2001, according to O.N.G.C. they requested the owner to furnish vessel-wise details in respect of the payment made by them. Then again on 29.12.2001, the owner made a request to the O.N.G.C. for providing information available with them failing which it was stated that the owner would go for Arbitration. On 07.01.2003, the owner informed the O.N.G.C. that they have appointed retired Judge Mr. M.L. Pendse as Arbitrator and called upon the O.N.G.C. to appoint Arbitrator within 30 days, failing which the owner would apply to the Chief Justice for appointment of Arbitrator. When the O.N.G.C. did not respond to the said notice, the owner initiated proceedings under Section 11 of the Arbitration and Conciliation Act, 1996 (for short 'Act of 1996'). The designated Judge by the order dated 09.08.2002 appointed retired Judge Mr. M.L. Pendse as an Arbitrator to decide the disputes and differences in respect of the second five year term of charter party. In the said order it was recorded that appointment of retired Judge Mr. M.L. Pendse was by consent. However, by order dated 23rd August, 2002, the words "by consent of the parties'' were deleted. The O.N.G.C. challegend the said order appointing retired Judge Mr. M.L. Pendse as Arbitrator, before the Supreme Court but the said Special Leave Petition was withdrawn wherein the statement was recorded that the O.N.G.C. would pursue an appropriate remedy. This is how the present writ petition has been filed.

2. Mr. Rajiv Kumar, the learned counsel for the O.N.G.C. inter alia submitted that appointment of the Arbitrator by the designated Judge under Section 11 of the Act of 1996 is : (i) de hors the provisions of contract ; (ii) unjustified because once the O.N.G.C. invoked Clause 20 of the charter party agreement already by giving the notice dated 14.08.1991 appointing an Arbitrator, it was not again open to the O.N.G.C. to appoint yet another Arbitrator by a subsequent notice dated 7th January, 2002 ; and (iii) barred by limitation as the O.N.G.C. had lost its remedy by lapse of time inasmuch as the contract was entered into in the year 1984 and Arbitrator was initially appointed by the owner in the year 1991.

3. Ms. Rajni Iyer, the learned counsel for the owner on the other hand submitted that the writ petition is not maintainable against the order of designated Judge appointing Arbitrator. She relied upon Konkan Railway Corporation Ltd. v. Mehul Construction Co., . Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd. .

and Food Corporation of India v. Indian Council of Arbitration, and Ors., 2003 AIR SCW 3429=2003(2) Arb. LR 692 (SC). She also pressed into service the Division Bench judgment of this Court in S.B.P. & Co. v. Patel Engineering Ltd. 2003(2) Mh. LJ 394=2003(2) Arb. LR 384 (Bom.)

4. The Constitution Bench of the Supreme Court in Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd. (supra), held that the order by the Chief Justice or his designate under Section 11 is not adjudicatory nor the Chief Justice or his designate performs an adjudicator function under Section 11. The Constitution Bench ruled that Section 11 did not contemplated a decision by the Chief Justice or his designate and even notice to the other party was not necessary. This is what Constitution Bench said :

"(17) Section 11 of the Act deals with the appointment of Arbitrators.......

The decision of the Chief Justice or his designate is final. In nominating an Arbitrator the Chief Justice or his designate must have regard to the qualifications required of the arbitrator in the agreement between the parties and to other cosiderations that will secure the nomination of an independent and impartial Arbitrator.

(18) There is nothing in Section 11 that requires the party other than the party making the request to be noticed. It does not contemplate a response from that other party. It does not contemplate a decision by the Chief Justice or his designate on any controversy that the other party may raise............. also cannot lead to the conclusion that Chief Justice or his designate is required to perform an adjudicatory function. That the word decision is used in the matter of the request by a party to nominate an Arbitrator does not of itself mean that an adjudicatory decision is contemplated.

(19) As we see it, the only function of the Chief Justice or his designate under Section 11 is to fill the gap left by a party to the Arbitration agreement or by the two Arbitrators appointed by the parties and nominate an Arbitrator. This is to enable the Arbitral Tribunal to be expeditiously constituted and the Arbitration proceedings to commence. The function has been left to the Chief Justice or his designate advisely, with a view to ensure that the nomination of the Arbitrator is made by a person occupying high judicial office or his designate, who would take due care to see that a competent, independent and impartial Arbitrator is nominated.

(20) It might be that though the Chief Justice or his designate might have taken all due care to nominate an independent and impartial Arbitrator, a party in a given case may have justifiable doubts about that Arbitrator's independence or impartiality. In that event it would be open to that party to challenge the Arbitrator under Section 12, adopting the procedure under Section 13. There is no reason whatsoever to conclude that the grounds for challenge under Section 13 are not available only because the Arbitrator has been nominated by the Chief Justice or his designate under Section 11.

(21) It might also be that in a given case the Chief Justice or his designate may have nominated an Arbitrator although the period of thirty days had not expired. If so, the Arbitral Tribunal would have been improperly constituted and be without jurisdiction. It would then be open to the aggrieved party to require the Arbitral Tribunal to rule on its jurisdiction. Section 16 provides for this. It states that the Arbitral Tribunal may rule on its own jurisdiction. That the Arbitral Tribunal may rule "on any objections with respect to the existence or validity of the Arbitration agreement" shows that the Arbitral Tribunal's authority under Section 16 is not confined to the width of its jurisdiction, as was submitted by learned counsel for the appellants, but goes to the very root of its jurisdiction. There would, therefore, be no impediment in contending before the Arbitral Tribunal that it had been wrongly constituted by reason of the fact that the Chief Justice or his designate had nominated an Arbitrator although the period of thirty days had not expired and that, therefore, it had no jurisdiction."

5. The Division Bench of this Court in Patel Engineering Ltd. (supra), observed thus :

"(10) Having considered the submissions of both the learned counsel, we find that para 21 of the Ram Construction judgment (supra), deals with a species of lack of jurisdiction in the appointing authority and such an objection is directed to be raised before the Arbitral Tribunal under Section 16 of the said Act. This paragraph also deals with an error going to the root of the matter in the part of the nominee of the Chief Justice and for that, the answer of the Apex Court is to raise the issue before the Arbitral Tribunal. In our view, Mr. Chinoy is right in submitting that the present objection is of a similar type and should also be raised before the Forum which is constituted under the said Act. This is particularly clear from the tenor of the two judgments. In fact, the Apex Court has in terms stated in para 18 of the Rani Construction judgment (supra), that even a notice need not be given to any such respondent and no response may be called from such a party. As pointed out earlier, in para 19 of this judgment, the Apex Court has observed that the only function of the Chief Justice or his nominee is to fill the gap left by the party to the Arbitration agreement so that the Arbitral Tribunal is expeditiously constituted. In the Mehul Construction judgment (supra), the Apex Court has specifically referred to the curtailment of the powers of the Courts in the matter of interference. Mr. Chinoy has pressed into service Section 5 of the said Act which in terms stated that notwithstanding anything contained in any other law, on judicial authority shall intervene except where so provided in the first part of the said Act. In the Mehul Construction judgment (supra), the Apex Court in terms stated that the legislative intent is clear that the Chief Justice or his nominee has just to appoint an Arbitrator without wasting any time or without entertaining any contentious issue at that stage. The decision is an administrative decision and it is in situation where an Arbitrator is not appointed that the Apex Court has held that the writ of mandamus would lie.

(11) Dr. Tulzapurkar has drawn our attention to an earlier judgment of a Division Bench of the Bench of this Court at Aurangabad in the case of Chief Engineer, Western Zone-II, Central Public Works Dept., Nagpur and Ors. v. Pandit Shankarrao Kulkarni, 2000(4) Mh. LJ 267=2001(2) Arb. LR 257 (Bom.) (DB), where there was almost an identical situation as in the present matter and the Division Bench has taken a view that a writ petition would lie. The Division Bench, however, did not have the advantage of the two judgments of the Konkan Railway Corporation (supra), and which were, therefore, not considered by the Division Bench. It is therefore, not possible to accept the submission of the petitioner that the present petition can lie.

(12) Inasmuch as we are holding that this petition is not maintainable, we are not expressing any opinion one way or the other on the first point raised by Dr. Tulzapurkar that the Sole Arbitrator could continue and that the learned designated Judge was in error in exercising jurisdiction that he did not have. It would be open to the petitioner to raise this issue by making an appropriate application before the Arbitral Tribunal."

6. In the recent decision in Food Corporation of India (supra), the Supreme Court inter alia held thus :

"(14) The fact that there is an agreement between parties to have their disputes resolved by reference to an Arbitration and that it should be through the I.C.A. and in accordance with the Rules or procedure prescribed by the I.C.A. is not in controversy. As indicated earlier even assuming without accepting for purposes of consideration that there is any infirmity in the Arbitration clause which go to undermine as claimed by the respondents the legality, propriety and validity of the Constitution of the Tribunal and/or even if there be any objections as to the existence of an enforceable or valid Arbitration agreement, it had to be adjudicated by the very Arbitral Tribunal after a reference is made to it on being so constituted and it is not for the I.C.A. or the learned Judge in the High Court to undertake this impermissible adjudicatory task of adjudicating highly contentious issues between the parties. As observed by Constitution Bench of this Court, there is nothing in Section 11 of the 1996 Act that requires the party other than the party making the request to be noticed and that it does neither contemplate a response from the other party nor contemplate any decision by the Chief Justice or his nominee on any controversy that the other party may raise, even in regard to its failure to appoint an Arbitrator within the stipulated period. The legislative intent underlying the 1996 Act is to minimize the supervisory Rules of Courts in arbitral process and nominate/appoint the Arbitrator without wasting time, leaving all contentious issues to be urged and agitated before the Arbitral Tribunal itself. Even under the old law, common sense approach alone was commended for being adopted in construing an Arbitration clause more to perpetuate the intention of parties to get their disputes resolved through the alternate disputes redressal method of Arbitration rather than thwart it by adopting a narrow, pedantic and legalistic interpretation."

7. The contentions that have been raised by the learned counsel for the petitioner before us in challenging the order of the Designated Judge under Section 11 of the Act of 1996, in our considered view, can be adequately agitated before the Arbitral Tribunal. Section 16 of the Act of 1996 provides that the Arbitral Tribunal shall have jurisdiction to decide on its own jurisdiction and so also rule on any objection with respect to the existence or validity of the Arbitration agreement. The Arbitral Tribunal not only has competence to adjudicate on the legality, propriety and validity of its constitution but also to decide any objection that may be raised about existence of enforceable or valid Arbitration agreement. Thus all facets and aspects touching Arbitration agreement from its existence, enforceability and validity to constitution of Arbitral Tribunal (legality, propriety and validity thereof) have to be adjudicated by the Arbitral Tribunal once reference is made to it. In a situation like this where the petitioner has adequate, efficacious and appropriate remedy of raising all contentious issues as aforenoted before Arbitral Tribunal, whether invocation of extra ordinary jurisdiction should be permitted. It is now well settled that powers of the High Court under Article 226 of the Constitution of India are discretionary and the resort to the extra-ordinary jurisdiction is not intended as an alternative remedy for relief which may be obtained by the mode provided in the statute. Where it is open to the aggrieved person to move before the Arbitral Tribunal itself in respect of its Constitution nor existence or validity of the agreement we are of the view that the machinery provided under Section 16 ordinarily does not deserve to be bypassed. When we say this we are not oblivious to the position that power of judicial review under Article 226 is Constitutional power available to the superior Court and being discretionary power, no fetters or limits can be placed upon the discretion but the discretion must be exercised along recognised lines lest it may degenerate into caprice and in the light of the process available to the aggrieved party to raise all contentious issues relating to the challenge to the Constitution of Arbitral Tribunal and existence and legality of the Arbitration agreement before the Arbitral Tribunal, it would not be sound exercise of discretion under Article 226 to entertain the petition challenging the order of the Chief Justice or designated Judge under Section 11 of the Act of 1996 whereby the Arbitral Tribunal is constituted. We are benefited by the words of Supreme Court in Food Corporation of India (supra). "The legislative intent underlying the 1996 Act is to minimize the supervisory role of Courts in Arbitral process and nominate/appoint the Arbitrator without wasting time, leaving all contentious issues to be urged and agitated before the Arbitral Tribunal itself".

8. We, accordingly, are satisfied that this is not a fit case for invocation of writ jurisdiction and writ petition is liable to be dismissed which we order hereby.

9. Needless to clarify, however, that the cases where the Chief Justice or his designate declines to constitute Arbitral Tribunal stand on a different footing and suitable and appropriate of such cases may call for judicial review and issuance of mandamus.