Atul Ratikant Shah vs Shekhar K. Shah
2003 Latest Caselaw 1001 Bom

JUDGMENT

P.C.

1. This is an application under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the said Act"). The applicant and the respondent are Directors of XACA (India) Pvt. Ltd., a Private Limited Company registered under the Companies Act, 1956. When the proceeding was pending before the Company Law Board for adjudication, on 11-4-1997, the petitioner had entered into an Arbitration Agreement agreeing to refer all disputes to the Sole Arbitration of Mr. Milind S. Kothari. It appears that thereafter on 27-4-1998, the petitioner approached the Company Law Board whereupon the Company Law Board passed the following order :--

"At the request of the parties, in continuation of our order dated 3-4-1998 we give liberty to the petitioner to revise the petition in case the arbitration proceedings fail."

2. On 11-4-1997, a resolution was passed by the Board of Directors of the Company whereby Mr. Milind S. Kothari was given sole authority to operate Company's Bank accounts as also to do all acts and to take decisions in terms of the agreement to resolve the matters pertaining to the activities of the Company. On 30-4-1997, the applicant and the respondent jointly executed a Power of Attorney in favour of Mr. Milind S. Kothari to enable him to operate bank accounts of the said Company as well as to recover all dues from debtors as well as past and future sale proceeds.

3. The Sole Arbitrator, Milind S. Kothari, entered into arbitration and passed an Award dated 30-12-1998. The said Award was challenged before this Court in Arbitration Petition No. 124 of 1999. This Court by order dated 7-11- 2001 set aside the said Award by giving reasons and making the following observations :-- "5. In the instant case, we find not only did respondent No. 2 not give an opportunity to the parties to lead evidence or to consider the case made by the other side but on the contrary the arbitrator himself has chosen to satisfy the award passed by himself. It may be true that he was holding a power of attorney on behalf of the company, the amounts had to come not from the company but from the respective parties. This would amount to showing interest in favour of the party on the part of the arbitrator. The non-granting of opportunity and acting in the manner the Arbitrator has acted would invite Section 24 of the Act of 1996. If Section 24 is attracted, the challenge to the petition would squarely fall under Section 34(2)(a)(3). In other words the petitioner was not given opportunity to present his case. In the light of that, the impugned award is set aside. As award is set aside, it is open to the parties to invoke the arbitral clause before this Court under Section 11 if by consent they do not agree to appointment of Arbitrator."

4. Pursuant to these observations, the applicant by his Advocates letter dated 4-1-2003, called upon the respondent to confirm within a period of 30 days name of any one of the four persons mentioned in the said letter for appointing as Sole Arbitrator by consent. However, the respondent's Advocates by their letter dated January 18, 2003 intimated to the applicant's Advocate that the respondent had gone out of India and his Advocate who had signed the letter was unable to give reply to the said letter. Consequently, within 30 days, the respondent did not approve any of the names for appointment of the Sole Arbitrator. Hence, the applicant filed this application under Section 11 of the said Act seeking appointment of the Sole Arbitrator.

5. The respondent by affidavit-in-reply has opposed this application, in short raising the contention that the application under Section 11 for appointment of Arbitrator cannot lie as the arbitration agreement itself was exhausted.

6. I have heard learned Counsel on both sides. The learned Counsel for the applicant submitted that the respondent had failed to respond to his letter dated 4- 1-2003 for appointing any of the four persons mentioned in the letter to act as sole arbitrator within 30 days from the receipt of the said letter. The Chief Justice or his nominee can appoint arbitrator under Section 11 of the said Act. He further submitted that this is more so because of the specific order passed by this Court on 7-11-2001 in Arbitration Petition No. 124 of 1999 while setting aside the Award mainly on the ground that the applicant was not given opportunity to present his case.

7. In support of his submission, the learned Counsel for the applicant relied on the decision of this Court in the case of Smt. Satya Kailashchandra Sahu and Ors. v. Vidarbha Distillers, Nagpur and Ors. . However, it does not help the applicant as the facts in that case were different. In that case, the named arbitrator had refused to act as Arbitrator and, therefore, it was held that the arbitration agreement was not exhausted and the remedy available was under Section 11 of the said Act.

8. The learned Counsel for the respondent vehemently submitted that once the named sole arbitrator was appointed and he entered into arbitration and gave an award, the arbitration agreement itself was exhausted. He further submitted that once the arbitration agreement itself was exhausted and when there is no provision in the arbitration agreement itself to revive the arbitration in any other manner, there could be no appointment of arbitrator under Section 11 of the said Act. He vehemently submitted that referring the disputes between the parties to arbitration is by way of a contract between the parties. In absence of such a contract, the remedy lies by way of filing a suit in the Court of law. Therefore, in his submission, the appointment of an arbitrator is as a result of the mutual agreement between the parties. He further submitted that in the present case the parties had not only agreed to refer the dispute to the arbitration but by agreement they had selected and actually appointed the named arbitrator and the arbitrator had passed an award. As the award was passed, the arbitration agreement itself was exhausted. In support of his submission, the learned Counsel for the respondent relied on the decision of the Apex Court in the case of Juggilal Kamlapat v. General Fibre Dealers Ltd. . The Apex Court, while interpreting the provisions of Section 19 of the Arbitration Act, 1940, observed as under :-- "..... It is only therefore when the Court orders supersession of the reference that the consequence follows that the arbitration agreement ceases to have effect with respect to the subject matter of the reference." In the facts of that case before the Apex Court the arbitration award was set aside on the ground of misconduct of the arbitrator. The Apex Court in that case appointed another arbitrator because the arbitration agreement was not superseded and more so because the arbitration agreement provided machinery for appointment of another arbitrator.

9. At any rate, the question that needs to be decided in the facts of the present case is whether the arbitration agreement was superseded or exhausted by virtue of the award, passed by the arbitrator, having been set aside by the order of this Court. To my mind, the question needs to be considered on the basis of the reasons why arbitration award came to be set aside. Paragraph 5 of the order passed by this Court on 7-1-2001 in Arbitration Petition No. 124 of 1999, which is reproduced above, whereby the arbitration award was set aside indicates that the named arbitrator did not give an opportunity to the parties to lead evidence or to meet the case made by the other side. On the contrary, the arbitrator himself had chosen to satisfy the award passed by himself. It was also observed that the arbitrator himself was showing interest in favour of the party. The main reason for setting aside the award was non-granting of opportunity and acting in the manner the arbitrator had acted had invited Section 24 of the said Act. Section 24 of the said Act requires the arbitrator to give both parties equal opportunity to lead evidence, either oral or documentary, and give notice of hearing and also give hearing to both parties and then pass an award.

10. What is important to note is that when the parties decide to refer their disputes to the arbitrator, it is obviously expectation of each party to the arbitration agreement that they will get full opportunity before the arbitrator to present their case and it is thereupon the arbitrator to pass an award. The intention of the parties to enter into arbitration agreement is to get their disputes fairly decided by the arbitrator including the named arbitrator. When this is not done by the arbitrator, it cannot be said that the arbitration clause or the arbitration agreement has been exhausted no sooner the arbitrator passes an award. In the present case, this having not been done by the named sole arbitrator, the arbitration award passed by the arbitrator was set aside by this Court. Considering the aforesaid eventuality, this Court, while setting aside the award, had made it clear that it was open to the parties to invoke the arbitral clause before this Court under Section 11, if by consent they do not agree to appointment or arbitrator. It was, therefore, clear that the arbitration clause was not superseded nor it was exhausted as a result of the named sole arbitrator having passed an arbitration award. It was, therefore, open to the party to the arbitration agreement, the applicant herein, to call upon the respondent to select any one of the four arbitrators named in the said letter for being appointed as the sole arbitrator. The respondent having not responded within 30 days, the present application is filed. It is, therefore, open to appoint the sole arbitrator. Hence the order:--

ORDER

Mr. Narendra N. Patrawal, N. N. Patrawala and Co., 78-A, Abdul Rehman Street, Opposite State Bank of India, Mumbai 400003, is hereby appointed as Arbitrator to resolve the dispute between the applicant and the respondents.

The learned Counsel for the respondent requested for stay of this order for a period of four weeks. The order is hereby stayed for a period of two weeks from today.

The parties concerned to act on an ordinary copy of this Order, duly authenticated by the Associate of this Court.