Bombay High Court
Arohi Infrastructure Pvt.Ltd. ... vs Tata Capital Financial Services ... on 2 December, 2015
Bench: R.D. Dhanuka
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION APPLICATION (L) NO. 1360 OF 2015
1. Arohi Infrastructure Pvt. Ltd. )
Marg Axis, 4/318, Rajiv Gandhi Salai, )
Kottivakkam, Chennai 600 041 )
Tamil Nadu )
2. Ambar Nivas Private Limited )
Old No. 12 New No.8, )
Mangan St Villinayur Main Road oulgrat)
Commune, Reddiyarpalayam ig )
Pondicherry - 605010 )
3. Rainbow Habitat Pvt. Ltd. )
Panneru Kalva Road, )
Tiruchanur Bye Pass Road, )
Thuukivakam Post, Renigunta Mandal )
Tirupati - 517520 )
4. Akhil Infrastructure Pvt. Ltd. )
Marg Axis, 4/318, )
Old Mahabalipuram Road, )
Kottivakkam, Chennai 600 041 )
Tamil Nadu )
5. Kanchanjunga Infra Developers )
Private Limited, )
Marg Axis, 4/318, )
Old Mahabalipuram Road, R.G.Salai, )
Chennai 600 041, Tamil Nadu )
6. Navita Estates Private Limited )
Marg Axis, 4/318, )
Old Mahabalipuram Road, R.G.Salai, )
Chennai 600 041, Tamil Nadu )
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7. M/s.Grand Lokin School Pvt. Ltd. )
No.64, C.P.Ramaswamy Road, Alwarpet, )
Chennai 600 018, Tamil Nadu )
8. Mr. G.Ramakrishna Reddy )
Old No.24, New No.17, South Mada Street)
Srinagar Colony, Saldapet, )
Chennai 600 015, Tamil Nadu )
9. Exemplarr Worldwide Limited )
141, Rajiv Gandhi Salai, )
Kottivakkam, Chennai 600 041 )
Tamil Nadu )
10. Marg Limited
Marg Axis, 4/318, Rajiv Gandhi Salai,
)
)
Kottivakkam, Chennai 600 041 )
Tamil Nadu )
11. Marg Capital Markets Limited )
Sri Sai Subhodaya Apartments, )
No.57/2B, East Coast Road, )
Thiruvanmiyur, Chennai 600 017 ) ..... Applicants
Versus
Tata Capital Financial Services Ltd. )
having its office at One Forbes, )
Dr.V.B.Gandhi Marg, Fort, Mumbai 400 001)
and Tower A, Peninsula Business Park, )
G.K.Marg, Lower Parel, Mumbai 400 013) ..... Respondent
Mr.Sharan Jagtiani, i/b. Mr.Subir Kumar for the Applicants.
Mr.Mayur Khandeparkar, a/w. Ms.Aparna Wagle, i/b. MDP Partners for the
Respondent.
CORAM : R.D. DHANUKA, J.
RESERVED ON : 21st OCTOBER, 2015
PRONOUNCED ON : 2nd DECEMBER, 2015
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JUDGMENT :
By this application filed under section 11(6) of the Arbitration and
Conciliation Act, 1996 the applicants seek appointment of the sole arbitrator to
adjudicate upon the disputes between the parties. Some of the relevant facts for the
purpose of deciding this application are as under :-
2. On 25th August, 2011, the parties entered into a Debenture
Subscription-cum-Option Agreement on the terms and conditions recorded therein.
On 28th September, 2011, the parties entered into Debenture Subscription-cum-
Option Agreement on the terms and conditions recorded therein. Some of the
applicants also executed Corporate Guarantee dated 28th September, 2011 read with
Supplementary Corporate Guarantee. Dispute arose between the parties.
3. On 10th September, 2014, the respondent through its advocate issued a
demand notice upon the applicants alleging various defaults under various
agreements referred to aforesaid and called upon the applicants to pay a sum of
Rs.64,96,23,799/- with further interest thereon and informed that if the amount was
not paid within the time prescribed under the said notice, the said notice shall be
treated as notice invoking arbitration against all the applicants under clause 16.4.2
of the two Debenture Subscription cum Option Agreement and under clause 24 of
the Corporate Guarantee dated 25th August, 2011 and 28th September, 2011. The
respondent also invoked the arbitration clause in the other corporate guarantee
dated 28th September, 2011, Supplementary Corporate Guarantee dated 28th March,
2014 executed by few other applicants. In reply to the said letter dated 10 th
September, 2014, the applicants replied by their letter dated 16th June, 2015.
4. Sometimes in the month of November 2014, the respondent filed a
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petition under section 9 of the Arbitration and Conciliation Act, 1996 against the
applicants for interim measures. The applicants were served with the papers and
proceedings in the said matter. Various interim orders are passed by this court in
the said arbitration petition. The said arbitration petition was served upon the
applicants by the respondent on 15th November, 2014.
5. On 16th June, 2015 the applicants through their advocates addressed a
letter to the advocates representing the respondent alleging that the disputes and
differences had arisen. By the said letter, the applicants invoked arbitration under
the arbitration agreement recorded between the parties in various agreements and
suggested the names of two former Supreme Court judges and a retired Chief
Justice of Allahabad High Court for appointment of one of them as the sole
arbitrator for adjudication of the disputes between the parties. In the said notice,
the applicants made it clear that if the respondent did not revert to the said letter
within seven days, the respondent would be constrained to adopt the appropriate
legal proceedings.
6. The respondent by their advocates' letter dated 26 th June, 2015 replied
to the said notice dated 16th June, 2015 and denied the allegations made therein.
The respondent denied that the respondent was not willing to refer the dispute
before the arbitral tribunal or such alleged act of the respondent was in
contravention to the contentions in the notice dated 10th September, 2014. The
respondent invited the attention of the applicants to clause 16.4.2 of the Debenture
Subscription-cum-Option Agreements dated 25th August, 2011 and 28th September,
2011 and conveyed that the respondent had right to appoint a sole arbitrator and the
said right was not available to the applicant. The respondent conveyed that the
respondent had every intention to appoint sole arbitrator and refer dispute to
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arbitration and pursuant thereto the respondent appointed Mr.B.A.Shelar, Ex.
Additional Chief Metropolitan Magistrate as a sole arbitrator to adjudicate the
disputes amongst the parties.
7. The applicants through their advocates letter dated 27th June, 2015
replied to the said letter dated 26th June, 2015 of the respondent's advocate and
denied the contention raised therein. Insofar as the appointment of the arbitrator is
concerned, it was stated in the said reply by the applicants that the name of the sole
arbitrator referred in the letter of the respondent was not agreeable to the applicants
since according to the applicants the said learned arbitrator was not suitable to
adjudicate the commercial dispute which was to the tune of Rs.65 crores and thus
was required to be adjudicated by the sole arbitrator having experience of resolving
the commercial disputes. In the said letter, it was stated that the sole arbitrator
appointed by the respondent was not agreeable for the reasons mentioned in
paragraph 1(f) of the said letter.
8. On 3rd July, 2015, the applicants filed the present application under
section 11(6) of the Arbitration Act in this court inter alia praying for appointment
of a sole arbitrator. The present application however was served upon the
respondent by the applicants on 23rd July, 2015.
9. The respondent by their advocates' letter dated 14 th July, 2015
addressed to the learned arbitrator Mr.B.A.Shelar placed on record that the
respondent herein had appointed him as a sole arbitrator. By their letter dated 26 th
June, 2015 under clause 16.4.2 of both the agreements which provided that the
respondent herein only has a right to appoint a sole arbitrator. The respondent also
forwarded a copy of the letter dated 16th June, 2015 of the applicant and reply of
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the respondent herein dated 26th June, 2015 and also the letter dated 27th June, 2015
addressed by the applicants through their advocates to the learned arbitrator for his
ready reference. The respondent requested the learned arbitrator to confirm his
acceptance to act as a sole arbitrator. A copy of the said letter was also sent to all
the applicants.
10. The learned arbitrator by his letter dated 17 th July, 2015 after referring
to the letter dated 26th June, 2015 addressed by the respondent herein and the reply
dated 27th June, 2015 given by the applicants herein informed the advocates
representing the respondent that he did not wish to act as a sole arbitrator to settle
the alleged disputes between the parties as in his opinion, it would not be proper on
his part to accept the appointment as a sole arbitrator to resolve the alleged dispute.
11. The respondent vide their letter dated 20th July, 2015 appointed
Mr.Mahesh Shah Advocate as a sole arbitrator under clause 16.4.2 of both the
agreements in view of the erstwhile arbitrator Mr.B.A.Shelar having conveyed his
regret to act as a sole arbitrator in his letter dated 17 th July, 2015. A copy of the
said letter was also sent to the applicants and their advocates.
12. The applicants vide letter dated 21st July, 2015 addressed to
Mr.B.A.Shelar, the erstwhile arbitrator and also the advocates representing the
respondent contended that the name of Mr.B.A.Shelar as a sole arbitrator proposed
by the respondent was not agreeable to the applicants and accordingly the same
was communicated to the respondent for the reasons for such disagreement. The
applicants informed the respondent about filing of the present arbitration
application on 3rd July, 2015 and that the same would come for hearing on 29 th July,
2015 before the learned designate of the Chief Justice. The applicants contended
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that the proceedings before the present arbitrator cannot commence as the same
was not agreeable to the applicants.
13. The applicants vide their letter dated 21 st July, 2015 to the advocates
representing the respondent contended that the name proposed by the advocates for
the respondent herein was not agreeable to the applicants. Along with the said
letter, the applicants served a copy of the present arbitration application along with
the exhibits upon the advocates representing the respondent and about the proposed
letter herein of the said application.
14.
The applicants by their advocates' letter dated 22nd July, 2015 to
Mr.Mahesh Shah the learned arbitrator and also to the advocates representing the
respondent informed that the present arbitration application was listed for hearing
before this court on 29th July, 2015. The applicants were not agreeable to the name
of the sole arbitrator as the same had been done without intimation to the advocates
of the applicants. The applicants reiterated the contents of the letters dated 16 th
June, 2015, 27th June, 2015 and 21st July, 2015. The applicants requested the
learned arbitrator not to act on the letter sent by the respondent herein for fixing
any date and contended that his appointment was not done as per law.
15. Mr.Mahesh R.Shah, advocate by his letter dated 31st July, 2015 to the
advocates representing the respondent confirmed his acceptance as a sole arbitrator
and fixed a preliminary meeting on 12th August, 2015 in his office. A copy of the
said letter was also sent to the applicants.
16. The applicants vide their advocates' letter dated 3rd August, 2015
addressed to the learned arbitrator as well as to the advocates representing the
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respondent challenged the constitution of the learned arbitrator on the ground that
the same had been done allegedly contrary to law as the respondent herein had lost
their right to appoint any arbitrator and thus the learned arbitrator had no
jurisdiction to give any direction in the matter. The learned arbitrator was
informed that the applicants would appear before the learned arbitrator under
protest in view of the fact that learned arbitrator had issued such letter without
looking into the fact that no right to appoint arbitrator vested with the respondent
herein. The learned arbitrator was also informed about the pendency of the present
arbitral proceedings.
17.
Mr.Jagtiani, learned counsel appearing for the applicants invited my
attention to various correspondence referred to aforesaid and submits that though
the respondent had issued a recall notice dated 10 th September, 2015 and had
invoked the arbitration agreement in view of non-compliance with the said notice
by the applicants, the respondent did not take any steps to appoint any arbitrator for
a period of about 9 months. He submits that in view of the gross delay on the part
of the respondent to appoint any arbitrator in accordance with the provisions of the
arbitration agreement, the respondent had lost their right to appoint any arbitrator
in accordance with the arbitration agreement. He submits that the applicants
therefore invoked arbitration agreement and suggested three names of the retired
judges for appointment of one of them as a sole arbitrator.
18. It is submitted that admittedly the respondent had not informed
Mr.B.A.Shelar about his alleged appointment till the applicants had filed
arbitration application in this court. He submits that once arbitration application
was lodged, it was within the public domain and merely because the said
application was not served upon the respondent till 23 rd July, 2015, the respondent
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could not have appointed arbitrator after filing of the arbitration application by the
applicants. He submits that since the respondent had failed to take any steps to
appoint any arbitrator since September 2014, the respondent could not have
appointed any arbitrator at all under the said arbitration agreement. It is submitted
that the appointment of Mr.B.A.Shelar was made for the first time on 14 th July,
2015 which was after filing of the arbitration application by the applicant on 3 rd
July, 2015. Learned counsel placed reliance on the judgment of Supreme Court in
case of Datar Switchgears Ltd. vs. Tata Finance Ltd. and another (2000) 8 SCC
151 and in particular paragraphs 8 to 14 and 18 and 19 and submits that since the
respondent had failed to appoint any arbitrator within a reasonable period of time
since September 2014 and in any event before the applicants having filed an
application under section 11(6) of the Arbitration Act, the appointment of the
learned arbitrator Mr.B.A.Shelar made after filing of the arbitration application by
the applicants is illegal and is of no consequence.
19. It is submitted that since the appointment of Mr.B.A.Shelar was illegal
in view of the respondent having lost their right to appoint him as a sole arbitrator,
the appointment of Mr.Mahesh Shah, advocate as a sole arbitrator in place of
Mr.B.A.Shelar is also illegal and is of no consequence. He submits that only the
designate of the Hon'ble Chief Justice therefore can appoint an independent
arbitrator in view of the respondent having lost their right to appoint any arbitrator.
Learned counsel placed reliance on judgment of this court in case of Voltas
Limited vs.Rolta India Limited (2011) Vol.113(1) Bom.C.R.0393 and would
submit that unless the communication of the appointment of the learned arbitrator
was made to the learned arbitrator as well as to the parties, such appointment was
not complete or concluded. He submits that since Mr.B.A.Shelar was not informed
about his appointment and was not appointed prior to the date of the applicants'
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filing present application, this application is maintainable under section 11(6) of
the Arbitration Act.
20. It is submitted by the learned counsel for the applicants that since
there was no time prescribed under the arbitration agreement for appointment of
the sole arbitrator by the respondent, the respondent ought to have appointed a sole
arbitrator within a reasonable period of time and in any event within 30 days from
the date of the notice of demand issued by the respondent in the month of
September 2014.
21.
Mr.Khandeparkar, learned counsel for the respondent on the other
hand invited my attention to the correspondence exchanged between the parties
and also between the parties and the learned arbitrator and also to the arbitration
agreement recorded in various agreements entered into between the parties. He
submits that it is not disputed by the applicants that the right to appoint a sole
arbitrator exclusively vested in the respondent under those arbitration agreements.
He submits that under the said arbitration agreements there was no time prescribed
for an appointment of an arbitrator. The respondent had issued a recall notice
dated 10th September, 2014 and had invoked arbitration agreements. The
respondent had filed proceedings under section 9 of the Arbitration Act against the
applicants for various interim measures. The said petition was pending. Various
interim orders were passed by this court in the said arbitration petition. The
applicants did not issue any notice for appointment of an arbitrator till 16 th June,
2015.
22. It is submitted by the learned counsel that the said notice dated 16 th
June, 2015 issued by the applicants through their learned advocate suggesting three
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names of the retired judges was not in accordance with the arbitration agreements
entered into between the parties. He submits that the applicants did not have any
right to suggest any name for the purpose of appointment of a sole arbitrator and
the said right exclusively vested only in the respondent. Arbitration application
filed by the applicants is thus not maintainable on this ground alone. He submits
that vide letter dated 16th June, 2015, the respondent had already appointed
Mr.B.A.Shelar as a sole arbitrator. Merely because the said letter was not
addressed to the learned arbitrator, the applicants cannot be allowed to contend that
the appointment of Mr.B.A.Shelar was not complete. He submits that the
applicants themselves have admitted in the correspondence as well as in the
arbitration application that Mr.B.A.Shelar was already appointed by the respondent
by letter dated 26th June, 2015. He submits that the submission of the learned
counsel for the applicants that the appointment of Mr.Shelar was not made by the
respondent prior to the date of applicants' filing an application under section 11 is
contrary to their own stand taken in the letters addressed by the applicants as well
as contrary to their averments made in the arbitration application.
23. It is submitted by the learned counsel for the respondent that since the
respondent had already appointed Mr.Shelar as a sole arbitrator prior to the date of
filing the arbitration application by the applicants and within 30 days from the date
of the said notice 16th June, 2015, the arbitration application under section 11(6) of
the Arbitration Act is not maintainable on that ground also.
24. Mr.Khandeparkar, learned counsel for the respondent then submits
that the respondent would not loose their rights to appoint an arbitrator under the
arbitration application merely on the applicants filing an application under section
11(6) of the Arbitration Act. He submits that admittedly the said arbitration
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application was served by the applicants on the respondent only on 23 rd July, 2015
whereas the respondent had already appointed the learned arbitrator much prior to
the date of service of the arbitration application upon the respondent by the
applicants. He submits that the respondent thus in any event has not lost their right
to appoint a sole arbitrator even if this court comes to the conclusion that Mr.Shelar
was appointed by letter dated 14th July, 2015 and not prior to the date of filing
arbitration application by the applicants. Mr.Khandeparkar, learned counsel for the
respondent also placed reliance on various parts of the judgments of Supreme
Court in case of Datar Switchgears Ltd. (supra) in support of his submission that
since there was no default on the part of the respondent to appoint an arbitrator, the
respondent had not lost their right to appoint the sole arbitrator. Reliance is also
placed on the judgment in support of the submission that since the notice issued by
the applicants was defective, the arbitration application filed by the applicants is
not maintainable on that ground also.
25. Insofar as judgment of this court in case of Voltas Limited (supra)
relied upon by the applicants is concerned, Mr.Khandeparkar, learned counsel
appearing for the respondent also placed reliance on paragraphs 19, 20, 22 to 24 of
the said judgment and would submit that communication of the appointment of the
arbitrator to the learned arbitrator or to the parties is not mandatory for the purpose
of the appointment of the arbitrator coming into effect. He submits that in any
event, since the applicants themselves had admitted that the said Mr.B.A.Shelar
was already appointed by the respondent as far back as on 26th June, 2015, the
judgment of this court in case of Voltas Limited (supra) would assist the
respondent and not the applicants.
26. Learned counsel appearing for the respondent also placed reliance on
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the judgment of Punjab and Haryana High Court in case of M/s.G.J.Singh and Co.
vs. Haryana State Agriculture Marketing Board and another in Arbitration Case
No.37 of 2012 delivered on 23rd November, 2012 in support of the submission that
since the notice given by the applicants suggesting three names of the retired
judges to appoint one of them as a sole arbitrator was defective and contrary to
arbitration agreement, the application filed under section 11(6) of the Arbitration
Act by the applicants is not maintainable.
27. Learned counsel appearing for the respondent also placed reliance on
the judgment of Supreme Court in case of National Highways Authority of India
& Anr. vs. Bumihiway DDB Ltd. (JV) & Ors. 2006(3) R.A.J. 482(SC) and in
particular paragraphs 30, 31, 33, 34 and 44 and would submit that section 11(6) of
the Arbitration Act would be attracted only if there is a default on the part of the
other party. He submits that since there was no default on the part of the
respondent in appointing the sole arbitrator, the arbitration application itself is not
maintainable.
28. Insofar as appointment of Mr. Mahesh Shah is concerned, he submits
that clause 16.4.2 of the arbitration agreement empowers the respondent to make
re-appointment of the arbitrator or to appoint a new arbitrator in case of the earlier
arbitrator having failed to act as an arbitrator or in other eventualities provided in
the arbitration agreements since Mr.Shelar had refused to act as a sole arbitrator in
view of the allegations made by the applicants about his competency. He submits
that the appointment of Mr.Shelar is also thus valid and the respondent had rightly
appointed by excising the power under arbitration agreement. He submits that 30
days period has to be read with section 11(6) of the Arbitration Act. In support of
this submission, learned counsel placed reliance on the judgment of Supreme Court
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in case of Datar Switchgears Ltd. (supra). He submits that the applicants ought to
have given 30 days notice to the respondent for appointment of an arbitrator. It is
submitted that in any event the respondent had already appointed arbitrator within
10 days from the date of such notice though defective. There was thus no failure
on the part of the respondent to appoint an arbitrator.
29. Mr.Jagtiani, learned counsel appearing for the applicants in rejoinder
submits that the dispute was crystallized on 10th September, 2014 when the
respondent had invoked arbitration agreement and thus the respondent ought to
have appointed an arbitrator within a reasonable period of time from the date of
crystallization of the dispute. The failure on the part of the respondent to appoint a
sole arbitrator started on 10th September, 2014. By letter dated 16th June, 2015, the
applicants had only requested to appoint arbitrator by suggesting names of three
retired judges.
30. Insofar as judgment of Supreme Court in case of Datar Switchgears
Ltd. (supra) is concerned, learned counsel for the applicants made an attempt to
distinguish the said judgment on the ground that in the said matter, arbitration
application was filed after appointment of the arbitrator by the respondent and in
that context, the Supreme Court took a view that right to appoint an arbitrator is
not lost even if an arbitrator is not appointed within 30 days from the date of
receipt of the notice but if appointed before the applicants filing an application
under section 11(6) of the Arbitration Act. Insofar as judgment of Supreme Court
in case of National Highways Authority of India & Anr. (supra) is concerned,
learned counsel appearing for the applicants submits that there is no dispute about
the proposition of the law laid down by the Supreme Court and in that judgment
section 11(6) of the Act is attracted in the case of failure on the part of the authority
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to appoint arbitrator. He submits that in this case there is a complete failure on the
part of the respondent to appoint the sole arbitrator since September 2014.
Reasons and Conclusions :-
31. I have heard the learned counsel appearing for the parties at length
and have given my anxious consideration to the rival submissions made by the
learned counsel appearing for both the parties. Before I deal with the rival
submissions, it will be appropriate to extract the arbitration agreements
recorded in Articles 16.4.1 and 16.4.2 of both the agreements as under :-
"16.4.1 This Agreement shall be governed by and construed in
accordance with the laws of India.
16.4.2 In the event of any dispute or differences arising directly
or indirectly out of this Agreement or otherwise, the parties undertake
to use all reasonable endeavours to restore such disputes amicably.
If disputes and differences cannot be settled amicably, then all
disputes and differences arising between the parties hereto in
connection with this Agreement or the interpretation hereof or anything
done or omitted to be done pursuant hereto or the performance or
non-performance of this Agreement shall be referred to arbitration
by a sole arbitrator to be appointed by TCL. In the event of death,
refusal, neglect, inability or incapability of the person so appointed to
act as an arbitrator, TCL shall appoint a new arbitrator. The seat of
arbitration shall be at Mumbai and the arbitration shall be governed
by the provisions of the Arbitration and Conciliation Act. 1996 or any
statutory amendments thereof or any statute enacted for replacement
therefore. Expenses of the arbitration shall be borne in such manner
as the arbitrator may determine. The award including interim awards
of the arbitration shall be final, conclusive and binding on all parties
concerned. The arbitrator may lay down from time to time the
procedure to be followed by him in conducting arbitration
proceedings and shall conduct the arbitration proceedings in such
manner as he considers appropriate."
32. A perusal of the arbitration agreements clearly indicates that the
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disputes and differences arising between the parties in connection with the said
agreements or the interpretation thereof etc. has to be referred to arbitration by a
sole arbitrator to be appointed by the respondent herein. It further provides that
in the event of death, refusal, neglect, inability or incapability of the person so
appointed to act as an arbitrator, the respondent shall appoint a new arbitrator.
33. It is not in dispute that on 10 th September 2014, the respondent had
issued a recall notice demanding repayment of the amount due and payable by
the applicants to the respondent. In the said notice, the respondent had also made
it clear that in case of non-compliance of the said demand, the said notice shall
be treated as a notice invoking arbitration agreement. The respondent had
thereafter filed a petition under Section 9 of the Arbitration Act before this Court
against the applicants for interim measures. Various interim orders were passed
in the said arbitration petition.
34. The applicants for the first time by their advocate's letter dated 16 th
June 2015 invoked the arbitration agreement and suggested three names of the
retired judges of this Court for appointment of one of them as a sole arbitrator for
adjudication of the dispute between the parties. By the said notice, the applicants
had given 7 days' time to the respondent to reply to the said letter and
threatened to adopt appropriate legal proceedings in case of non-compliance. It
is not in dispute that the respondent through their advocate's letter dated 26 th
June 2015 responded to the said letter dated 16 th June 2015 and appointed
Mr.B.A.Shelar, Ex. Additional Chief Metropolitan Magistrate, Mumbai as the
sole arbitrator to adjudicate upon the disputes amongst the parties.
35. It is not in dispute that the present arbitration application came to be
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filed by the applicants on 3 rd July 2015 and a copy thereof was served upon the
respondent only on 23rd July 2015. The respondent had already appointed the
learned arbitrator by exercising their rights under the arbitration agreements
much prior to the date of filing of the present arbitration application by the
applicants under Section 11(6) of the Arbitration Act. The question that arises
for consideration in the present proceedings is whether there was any default on
the part of the respondent in appointing the sole arbitrator in accordance with the
arbitration agreements entered into between the parties. The present application
has been filed by the applicants under Section 11(6) of the Arbitration Act.
36.
Learned counsel appearing for the applicants has urged before this
Court that since the letter dated 26 th June 2015 addressed to the learned
advocate representing the applicants purporting to appoint Mr.B.A. Shelar as
the learned arbitrator was not communicated to the learned arbitrator and the
learned arbitrator had not accepted his appointment pursuant to the said letter
dated 26th June 2015 prior to the date of the applicants filing the present
application under Section 11(6) of the Arbitration Act, the respondent had not
appointed any arbitrator in accordance with the arbitration agreements and in any
event before the date of filing of the present arbitration application by the
applicants. It is urged by the learned counsel for the applicants that the
respondent had requested for consent of the learned arbitrator Mr.B.A.Shelar
which fact was after filing of the arbitration application and thus the respondent
not having appointed any arbitrator in accordance with the arbitration agreement
and in any event before filing of the arbitration application by the applicants, the
respondent has lost their right to appoint an arbitrator under the arbitration
agreement.
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37. In my view, there is no substance in this submission of the learned
counsel for the applicants for the reason that the respondent by their advocate's
letter dated 26th June 2015 which was in response to the letter dated 16 th June
2015 informed the applicants that the respondent had appointed Mr.B.A.Shelar,
Ex. Additional Chief Metropolitan Magistrate, Mumbai. The applicants
contended that the name of the sole arbitrator proposed by the respondent was not
suitable to adjudicate the commercial dispute in view of the claim sought to be
recovered was to the tune of Rs.65 crores and the same was required to be
adjudicated upon by a sole arbitrator having experience of resolving the
commercial disputes. Further correspondence exchanged between the applicants
and the respondent even thereafter clearly indicates that the applicants had all
throughout contended that the appointment of Mr.B.A.Shelar was already made
by the respondent vide their letter dated 26th June 2015.
38. A perusal of the arbitration application filed by the applicants and in
particular averments made in paragraphs 4, 6 (f) and 10 clearly indicate that
even in the arbitration application, it was the case of the applicants that the
respondent had appointed Mr.B.A.Shelar as the sole arbitrator, however, the said
appointment was not agreeable to the applicants since the nature of the dispute
was of a commercial nature and thus the appointment of a retired judge of this
Court or of the Supreme Court would be more appropriate. In my view, the
submission now urged before this Court that Mr.B.A.Shelar was not appointed
as the sole arbitrator by the respondent before filing of this arbitration application
by the applicants is thus contrary to their own stand taken in the correspondence
as well as in the arbitration application. The applicants cannot be allowed to take
a contradictory stand to seek their convenience.
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39. It would be appropriate to deal with this issue also by referring to
the judgment of this Court in the case of Voltas Limited Vs.Rolta India Limited
(supra) relied upon by the learned counsel for the applicants and more
particularly paragraphs 19, 20, 22 and 24 thereof. It is held by this Court in the
said judgment that Section 11(6) does not require acceptance of the appointment
by the arbitrator. Once a party appoints an arbitrator, it cannot be said that the
party has failed to act as required under the appointment procedure merely
because the arbitrator takes time to respond to the appointment by accepting or
refusing the same. Once a party appoints an arbitrator, the time taken by the
arbitrator to respond to his appointment cannot constitute a failure on their part
as regards the appointment of the arbitrator. It is further held that either under the
Arbitration Act, nor in the arbitration agreements between the parties there is a
provision which required the arbitrator to accept his appointment before it could
be said that the respondent had appointed an arbitrator. In my view, the
judgment of this Court in the case of Voltas Limited Vs.Rolta India Limited
(supra) supports the case of the respondent and not the applicants.
40. A perusal of the arbitration agreements makes it clear that there is no
such appointment procedure agreed between the parties which mandates
communication of the appointment of the learned arbitrator by the respondent to
the arbitrator himself or for seeking his consent before his appointment as an
arbitrator. The right to appoint an arbitrator is solely vested in the respondent.
41. The next question that arises for consideration in this application is
whether the respondent had committed any default in making appointment of the
learned arbitrator or whether the respondent had lost their right to appoint a
sole arbitrator in accordance with the arbitration agreement.
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42. It is not in dispute that though the respondent had made a demand for
recovery of their alleged dues as far back as September 2014 and had invoked
the arbitration agreement, the applicants did not take any steps to apply for
appointment of any arbitrator to be made by the respondent till 16 th June 2015.
Within 10 days from the date of the receipt of the said letter dated 16 th June 2015,
the respondent appointed Mr.B.A.Shelar as the sole arbitrator. The said
appointment has been admittedly made within 30 days from the date of the
receipt of the said letter, even if the said notice is considered as a proper notice
for the sake of argument.
43. The Supreme Court in the case of Datar Switchgears Limited (supra)
has considered the similar facts and similar arbitration agreement which vested
exclusive right to appoint an arbitrator in the finance company, the respondent
therein. One of the submissions urged by the petitioner before the Supreme Court
was that the respondent did not appoint the arbitrator within a reasonable period
and that amounted to failure of the procedure contemplated under the agreement.
There was no notice period prescribed for appointment of the arbitrator in this
case also. In that matter also, the finance company had filed a petition under
Section 9 of the Arbitration Act for interim measures. The petitioner had not
applied for appointment of any arbitrator during pendency of the said arbitration
petition filed under Section 9 by the respondent. It is held by the Supreme Court
that a period of 30 days has been prescribed under Section 11(4) and Section
11(5) of the Arbitration Act and no time limit has been prescribed under Section
11(6) of the Arbitration Act. It is held that so far as Section 11(6) is concerned,
if one party demands the opposite party to appoint an arbitrator and the opposite
party does not make an appointment within 30 days of the demand, the right to
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make appointment does not get automatically forfeited after expiry of 30 days. If
the opposite party makes an appointment even after 30 days of the demand, but
before the first party moves the Court under Section 11, that would be sufficient.
The right to make appointment is not forfeited even if no appointment was
made within 30 days of demand but such right continues till an application is
filed under Section 11 for seeking appointment of an arbitrator.
44. In my view, the said judgment of the Supreme Court in the case of
Datar Switchgears Limited (supra) applies to the facts of this case. In this case,
there was no time prescribed for appointment of the arbitrator in the arbitration
agreements. Even if the notice dated 16 th June 2015 issued by the applicants is
considered as notice under the provisions of Section 11, the respondent had
appointed an arbitrator in accordance with the arbitration agreement within 30
days from the date of the receipt of the said notice. There was thus no default on
the part of the respondent in appointing a sole arbitrator in accordance with the
arbitration agreement. Since there was no default on the part of the respondent in
appointing the sole arbitrator in accordance with the arbitration agreement,
application filed under Section 11(6) of the Arbitration Act which can be filed
only in case of default of opposite party is thus not maintainable.
45. In my view, since the respondent had already appointed the
arbitrator within 30 days from the date of the receipt of the notice dated 16 th June
2015 which was much prior to the date of the applicants filing the present
application, the question of the respondent losing their right to appoint a sole
arbitrator does not arise. There is thus no merit in this submission of the learned
counsel for the applicants.
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46. The Supreme Court in the case of the National Highways Authority
of India (supra) has also considered similar issue at length and had held that if
there was no failure on the part of the concerned party as per the arbitration
agreement to fulfill his obligation in terms of Section 11 of the Act so as to
attract the jurisdiction of the Chief Justice under Section 11 (6) of the Act for
appointing a substitute arbitrator, the proceedings filed under Section 11(6) are
not maintainable. The Supreme Court has reiterated the view taken in the case
of Datar Switchgears Limited (supra). The said judgment of the Supreme Court
also squarely applies to the facts of this case.
47.
In so far as the submission of the learned counsel for the applicants
that there was substantial delay on the part of the respondent in appointing any
arbitrator from September 2014 is concerned, even the applicants did not take
any steps to call upon the respondent to appoint any arbitrator from September
2014 till June 2015. This issue has also been dealt with by the Supreme Court
in the case of Datar Switchgears Limited (supra) and similar argument has been
negatived by the Supreme Court. The said judgment would squarely applies, in
my view, to reject this submission made by the learned counsel for the
applicants.
48. In so far as the submission of the learned counsel for the applicants
that since appointment of Mr.B.A.Shelar itself was illegal, the respondent could
not have appointed Mr.Mahesh Shah, Advocate as the sole arbitrator in place of
Mr.B.A.Shelar is concerned, in my view, there is no infirmity in the
appointment of Mr.B.A.Shelar as the sole arbitrator by the respondent as the right
to appoint sole arbitrator under the arbitration agreement was exclusively vested
in the respondent. The said appointment was already made before expiry of 30
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days from the date of receipt of the notice dated 16 th June 2015. Since the said
arbitrator Mr.B.A.Shelar reclused himself to act as an arbitrator under the
arbitration agreements, the respondent had exclusive right to appoint another
arbitrator in place of erstwhile arbitrator. There is thus no merit in this
submission of the learned counsel for the applicants.
49. In my view, Mr.Khandeparkar, learned counsel appearing for the
respondent is right in his submission that the application even otherwise was not
maintainable on the ground that the notice dated 16 th June 2015 issued by the
applicants was a defective notice. In my view, since the right to appoint an
arbitrator solely vested in the respondent, the applicants at the first instance could
not have suggested any names of proposed arbitrators in the said notice. The
said notice itself was not in accordance with the arbitration agreements and was
defective. The present arbitration application based on such defective notice
which notice was mandatory before filing the application under Section 11, the
present arbitration application is not maintainable even on that ground. There
was thus no default on the part of the respondent in appointing any arbitrator. In
my view, the arbitration application is totally devoid of merits and is accordingly
dismissed. No order as to costs.
(R.D. DHANUKA, J.)
