Jmc Metals Private Limited vs Kunvarji Commodities Brokers ...
2021 Latest Caselaw 12297 Bom

              IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                   ORDINARY ORIGINAL CIVIL JURISDICTION
                           [ COMMERCIAL DIVISION ]

     COMMERCIAL ARBITRATION PETITION (LODGING) NO.5885 OF 2021

JMC Metals Pvt. Ltd.,                                      ]
A company incorporated under the                           ]
provisions of the Companies Act, 1956                      ]
Having its Regd. Office at 60, Bapu Khote                  ]
                               nd
Cross Lane, Gulalwadi, Opp. 2 Bhoiwada,                    ]
Mumbai - 400 003.                                          ] .. Petitioner
               Versus
Kunvarji Commodities Brokers Pvt. Ltd.,                    ]
A company incorporated under the                           ]
provisions of the Companies Act, 1956                      ]
Having its Regd. Office at B-Wing, 1st Floor,              ]
Siddhi Vinayak Towers, Near DAV School,                    ]
Next to Kataria House, Off. S.G. Road,                     ]
Makarba, Ahmedabad - 380051, Gujarat.                      ] .. Respondent


Mr. Cyrus Ardeshir, with Ms. Farzeen Pardiwalla, i/by Mr. Amir Arsiwala, for
the Petitioner.
Mr. Arif Doctor, with Ms. Sushmita Gandhi, Ms. Prapti Kedia and Ms. Meryl
Quadros, i/by Indus Law, for the Respondent.

                                                CORAM : A. K. MENON, J.

DATE : 1ST SEPTEMBER 2021.

ORAL ORDER :

1. This is a petition under Sections 14 and 15 of the Arbitration and

Conciliation Act, 1996. The petitioner herein is the respondent in the

arbitration proceedings. The petitioner-company is engaged by the

respondent herein. The respondent provides financial services and brokerage

901-CARBPL-5885-2021.doc Dixit services and is a member of the "MCX Exchange" ("Exchange"). It invoked the

arbitration clause on or about June 2020 in respect of certain claims that

respondent had against the petitioner. Both the parties are governed by the

provision for arbitration, embodied in the Bye-Laws of the Multi-Commodity

Exchange of India Ltd. ("Bye-Laws"), Bye-Law 3.1.2 provides for mandatory

conciliation and arbitration in accordance with the Bye-Law and Business

Rules of the Exchange.

2. Bye-Law 15.1.3 in the "Definitions" defines "Arbitral Tribunal" to mean

"one or more arbitrators constituting a tribunal to adjudicate a reference to

arbitration". The terms "Arbitrator" and "Panel of Arbitrators" are also defined.

The arbitration is subject to the provisions of the Arbitration and Conciliation

Act, 1996. The controversy that has given rise to the present petition is the

petitioner's contention that arbitration proceedings had once commenced and

having commenced, it remained inconclusive within time permitted by the

rules. Time having expired, no tribunal could now be appointed.

3. Mr. Ardeshir, learned counsel appearing on behalf of the petitioner has

relied upon the provisions of Bye-Law 15.32, which provides that the

proceedings shall be concluded by issuing an award within four months from

the date of appointment of the Arbitrator(s). He submitted that the period of

four months commenced on 17th June 2020, when the tribunal was

constituted. Procedural Order No.1 dated 28 th July 2020, annexed at Exhibit-J

to the petition, reveals that the tribunal was constituted on 17 th June 2020

901-CARBPL-5885-2021.doc Dixit and that by 22nd July 2020, the Arbitrators had received a hard-copy of the

Statement of Claim and inter-parties correspondence. The period of four

months will therefore have to be reckoned from 17 th June 2020 and would

therefore expire on 16th October 2020. Unfortunately, the proceedings were

not so concluded and from time to time, procedural orders were passed. The

proceedings however did not conclude within the period of four months.

4. My attention is invited to a Notice of hearing issued via e-mail by the

Exchange's Investor Services Department, which was managing arbitration

proceedings. The notice is dated 26 th December 2020. It notifies date of

hearing as December 30, 2020. The tribunal had directed the parties to

remain present via video conference so as to hear the reference. The

directions in the notice included the requirement of submitting all documents

remaining to be submitted, if any, by 29 th December 2020, as directed in the

earlier procedural orders. Mr. Ardeshir submitted that this notice was issued

beyond the period of four months and therefore the petitioner was not obliged

to comply or participate in the arbitral proceedings. According to him, the

tribunal had been rendered de jure. The tribunal had de-facto ceased to have

the authority to act as arbitrators and the tribunal could not have proceeded

with the case. These objections were raised in a letter dated 29 th December

2020, to which my attention is drawn by Mr. Ardeshir, inter alia submitting

that the proceedings be treated as terminated under Bye-Law 15.34 of the

Exchange Bye-Laws.

901-CARBPL-5885-2021.doc Dixit

5. Faced with this response, the Exchange vide its e-mail dated 30 th

December 2020, annexed at Exhibit-P to the petition, informed the

petitioner's Advocate and the petitioner of the fact that the Securities and

Exchange Board of India (SEBI) had considered the circumstances (having

impliedly referred to the pandemic) and had acceded to the request of the

Exchange and extended time for arbitration to be completed by 31 st December

2020 i.e. the date following the date of this e-mail. This was objected to by the

petitioner on 30th December 2020 and the outer date of 31 st December 2020

also went by without any conclusion. Thus, according to Mr. Ardeshir, even

assuming that the extension of time granted by SEBI was binding upon the

petitioner and the respondent, even by 31 st December 2020, the reference had

not resulted in an award and hence the proceedings stand terminated. The

petitioner therefore, invoked the provisions of Section 14 and 15 of the

Arbitration and Conciliation Act, 1996, contending that the tribunal was

functus officio and the arbitration agreement had worked itself out.

6. In this background, the petitioner received a further communication

dated 7th January 2021 from the Exchange recording the fact that the

reference could not be concluded with issuance of an award within the

extended timelines and the Exchange had received an application from the

Presiding Arbitrator seeking extension of time in terms of bye-law 15.32 for

two months, but that request was not acceded to by the relevant authority, as

contemplated under the bye-laws, and that the mandate of the tribunal

901-CARBPL-5885-2021.doc Dixit therefore stood terminated. This is an accepted position; however, what

transpired thereafter is what led to the current controversy.

7. The Exchange offered to the petitioner an opportunity to be part of a

"Combined Arbitration Proceedings". In the alternative, the petitioner could

choose to have an independent panel as per the normal process by formation

of a separate arbitral tribunal. The Exchange solicited response of the

petitioner by January 14, 2021 and failing a response, the Exchange would

continue with Combined Arbitration Proceedings in the matters which were

inconclusive.

8. The petitioner objected to the proceedings being continued and took up

the contention that a tribunal could not now be constituted. In other words

and as submitted by Mr. Ardeshir, the provisions of Bye-Law 15 would not be

available now to the Exchange or its members including the present

respondent and if respondent so desires to pursue its claim, it would have to

file a suit or adopt such other appropriate remedy. The respondent would no

longer avail of these provisions for arbitration embodied in the Bye-Laws and

Business Rules.

9. In support of his contentions, Mr. Ardeshir has relied upon judgments

of the Supreme Court in Jayesh H. Pandya and Anr. Vs. Subhtex India Ltd. and

Ors.1 and that of a Division Bench of this court in Bharat Oman Refineries

1 2019 SCC OnLine SC 1101

901-CARBPL-5885-2021.doc Dixit Ltd. Vs. Mantech Consultants2 in support of his contentions that under

Sections 14 and 15 of the Arbitration and Conciliation Act, the tribunal

should not proceed. The Exchange therefore had no authority to constitute a

tribunal and the tribunal, if so constituted, had no authority to continue to

hear the reference against the present petitioner. Mr. Ardeshir therefore

submitted that the petition be allowed.

10. On behalf of the respondent, Mr. Doctor opposed the petition. He relied

upon the contents of the affidavit-in-reply dated 17 th March 2021 and

submitted that the termination of the mandate of the tribunal initially

constituted is not in doubt since the period of four months has expired.

However, according to the respondent, the Exchange is always entitled to

legitimately constitute a tribunal afresh for hearing the reference; especially

since no progress has been made during the pandemic. He therefore submits

that Bye-Law 15.14 provides for "Vacancy to the Office of the Arbitrator" and

that where the arbitral tribunal is unavailable or the office of the arbitrator

falls vacant, it would result in termination of the mandate and the vacancy

would be filled in by the Managing Director or the relevant authority by

following the same procedure as specified by the Exchange for appointment

of an arbitrator. "Termination of Mandate of the Arbitrator" is provided for

under Bye-Law 15.18 and following that procedure, Mr. Doctor therefore

submitted that freshly constituted tribunal has jurisdiction, the right to

2 2012 SCC OnLine Bom 669

901-CARBPL-5885-2021.doc Dixit proceed to conduct the reference and decide the reference. He therefore

submitted that the petition deserves to be rejected.

11. Having considered the respective submissions and the provisions of the

Bye-Laws and Business Rules of the Exchange, I am of the view that the

termination of the mandate of the erstwhile tribunal is no ground for not

participating in the reference; especially since the Bye-Laws and Business

Rules are binding on both sides and the Exchange had constituted a fresh

tribunal in the meantime. The fact that the Exchange had constituted the

tribunal is not in dispute and it is in this background that the petitioner has

approached this court seeking to quash and set aside the communications

received from the Exchange. These communications are dated 7 th January

2021 (Exhibit-Q), 14th January 2021 (Exhibit-R), 22 nd January 2021 (Exhibit-

T) and 25th January 2021 (Exhibit-V). By these communications, the

Exchange had initially offered the reference to be made under "Combined

Arbitration Proceedings" or at the option of the petitioner, to choose to have

an independent panel as per the normal process by formation of a separate

arbitral tribunal. Not having received any response, the petitioner was called

upon to comply with the request by 14 th January 2021. The petitioner

responded on 18th January 2021 disputing the entitlement of the Exchange to

constitute the tribunal. The Exchange thereafter pointed out on 22 nd January

2021 the provisions of Bye-Law 15.14 that upon vacancy to the office of the

arbitrator, the Exchange acting through the Managing Director of the

901-CARBPL-5885-2021.doc Dixit company or the relevant authority to appoint a fresh tribunal. In this manner,

the parties continued to urge their respective contentions. The petitioner

replied to the e-mail on 23 rd January 2021, once again reiterating its stand

that period of four months having expired and the time for completing the

reference not having been extended, as sought by the relevant authority, the

proceedings were at its end and no arbitration could be invoked or be

proceeded with.

12. By the e-mail of 25th January 2021, the Exchange informed the

petitioner and the respondent of the constitution of a new tribunal by the

automatic process of selection. It was a three-member arbitral tribunal.

Thereafter, the freshly constituted tribunal held a meeting on 1 st March 2021.

The new tribunal issued a notice on 12 th February 2021 confirming its

appointment and fixed 1st March 2021 as the date for hearing. At the said

hearing, the petitioner appeared through counsel and objected to the

proceedings. The petitioner submitted that an application had been filed by

the petitioner against constitution of the tribunal and requested the matter to

be kept in abeyance, reference being made to the present petition. The

minutes of the hearing held on 1st March 2021 are self-explanatory and the

tribunal noticed that constitution was not challenged when it was constituted

in the middle of February 2021, but it was challenged only on the date of

hearing. This observation appears to be correct, since the petition was lodged

only on 1st March 2021 though freshly constituted tribunal issued notice on

901-CARBPL-5885-2021.doc Dixit 12th February, 2021. The tribunal indicated that since there was no stay of the

proceedings from any court, the hearing would continue. Efforts were made

to arrive at an amicable settlement and the matter came to be adjourned. It is

in this background that I have heard the rival contentions of the parties.

13. I am also of the opinion that this petition is misconceived. Section 14 of

the Arbitration and Conciliation Act, 1996 deals with failure or impossibility

of the tribunal to act. It provides that the provisions governing the

circumstances under which the arbitrator or tribunal are de jure or de facto

unable to perform his functions without undue delay and if he withdraws

from his office or if the parties agree to the termination of his mandate, it will

be considered as a failure or impossibility to act and if the controversy giving

rise to such grounds rendering the tribunal to perform its functions, the party

may apply to court to decide on termination of the mandate.

14. Mr. Ardeshir in the course of submissions placed reliance on sub-

sections (1) and (2) of Section 14 of the Act in support of his contention that,

in the present case, the tribunal had become de jure and de facto unable to

perform its functions, because Bye-Law 15.32 clearly provides for the scope

of the arbitral tribunal to proceed but only within the four months period. A

provision is also made for extension of time. An extension was sought of by

the Presiding Arbitrator but was declined by the relevant authority. Thus, the

extension was not automatic, it was applied for and not granted and hence

the period of four months was final and binding upon the parties and the

901-CARBPL-5885-2021.doc Dixit tribunal. It does not matter whether the circumstances which led to the

tribunal's inability to hear the reference and pass an award within specified

time, were not within its control especially being a period during which a

pandemic driven lock-down was enforced albeit in part and on some

occasions completely. These circumstances are well known to both the parties.

Despite this, the tribunal made an effort to complete the proceedings by

holding meetings on video conference, but no progress was made. The parties

were therefore not to be blamed for the inability of the tribunal, nor the

tribunal be blamed under the circumstances in which they were operating. To

that effect, I am unable to accept Mr. Ardeshir's submissions that the

petitioner is entitled to move this court under Section 14 of the Arbitration

and Conciliation Act. Section 14 defines the confines within which an

application can be moved and the court can interfere.

15. The constitution of the tribunal in the present case is not pursuant to

an order of the court. It is not the case where the court has appointed a

tribunal under Section 11 of the Act and would retain mere supervisory

jurisdiction in the matter of substituting the arbitral tribunal. Both the parties

were bound by the Bye-Laws and Business Rules of the MCX Exchange and

even today they are bound by those Bye-Laws and Business Rules. The

question is whether under Bye-Law 15.32 and under the automatic selection

process, a new tribunal could have been appointed by the Exchange? This is

not a matter that can be decided under Section 14. In the facts of the case, the

901-CARBPL-5885-2021.doc Dixit tribunal had admittedly not concluded the reference and the court is not

required to examine that aspect.

16. Section 15 is the other section under which this petition is filed since it

concerns termination of the mandate and substitution of the arbitrator.

Section 15 provides that in addition to the circumstances referred to in

Sections 13 and 14, the mandate of an arbitrator shall terminate where he

withdraws from office or if the termination is pursuant to agreement of the

parties and in such event, upon termination of mandate, a substitute

arbitrator can be appointed in accordance with "rules" that were applicable to

the appointment of the arbitrator being replaced. In the instant case, those

"rules" are the very Bye-Laws and Business Rules under which the first

tribunal was appointed and a fresh tribunal has been appointed. Bye-Law

15.32 would therefore apply and continue to bind the parties by virtue of

Bye-Law 3.1.2 (Conciliation and Arbitration) and Bye-Law 3.3 (Jurisdiction),

read with Bye-Laws 15.14, 15.18 and 15.32.

17. The question in the instant case is whether the mandate of the first

tribunal appointed on 17th June 2020 survives or it stood terminated? There is

no dispute between the parties that the mandate of the first tribunal stood

terminated upon expiry of timelines on 31 st December 2020. Thereupon,

given the facts of the case, the Bye-Laws would once again come into play and

these Bye-Laws and Business Rules, it is not disputed, are binding on both

parties. By virtue of these Bye-Laws, the Exchange was entitled to appoint a

901-CARBPL-5885-2021.doc Dixit tribunal again. Section 14 or 15 therefore would not prevent in any manner,

the Exchange from appointing a new tribunal, which it has done in the usual

course. It must be noted that the Exchange was conscious of the fact that

substantial time had been lost and had therefore offered "Combined

Arbitration Proceedings", to which the petitioner was not agreeable. The

Exchange therefore constituted a tribunal once again.

18. It was open for the petitioner to seek a remedy under Section 12 of the

Act. The petitioner can always challenge appointment of the tribunal, as

provided under Section 12. Section 13 of the Act also provides for "Challenge

Procedure". Thus, failing any attempt at such challenge, this petition is

misconceived. Bye-Law 15.2 sets out that, "Bye-Laws and regulations relating

to arbitration shall be consistent with the provisions of the Arbitration and

Conciliation Act. The provisions not included in these Bye-Laws but included

in the Arbitration and Conciliation Act shall be applicable as if they were

included in these Bye-Laws." Thus, provisions of Sections 12 and 13 of the

Act are always available even assuming these are not separately provided for

in Bye-Law 15. Mr. Ardeshir suggested that the respondent is now required to

file a suit. If that submission is accepted and if the respondent files an

application under Section 8 of the Arbitration and Conciliation Act, prima

facie, the court would be required to refer the dispute to arbitration, once

again under these very Bye-Laws. Thus, the petitioner's attempt to sidestep the

arbitration proceedings cannot succeed.

901-CARBPL-5885-2021.doc Dixit

19. The Arbitration and Conciliation Act will continue to govern the

procedural parts of the reference and, in my view, the petition before this

court seeking reliefs of declaring the tribunal constituted by the Exchange to

be de jure and de facto unable to continue with the arbitral proceedings, is

completely misconceived. The tribunal is ready and willing to proceed with

the arbitration and has so indicated in the minutes of the hearing held on 1 st

March 2021. The decisions in Jayesh H. Pandya (Supra) and Bharat Oman

Refineries Ltd. (Supra) do not come to the assistance of the petitioner in the

facts of the present case. The tribunal is constituted legitimately under the

provisions of the Bye-Laws of the Exchange and it is willing to act.

20. Thus, I am unable to accept the contention of the petitioner that the

tribunal is unable to act being de jure is de facto unable to continue the

proceedings. The provisions of Bye-Law 15.32 does not in any manner

suggest that there is only one attempt at arbitration and that if that attempt

fails, no tribunal could be constituted. The petitioner, in my view, is not

entitled to declarations sought of and in these circumstances, the petition fails.

21. In view of the above, I pass the following order :-

(i) Arbitration Petition is dismissed. As a result, the interim

order restraining the progress of arbitral proceedings

stands vacated.

901-CARBPL-5885-2021.doc Dixit

(ii) It is made clear that the period of four months to

conclude arbitration proceedings and pass award shall

commence on the date this order is first uploaded.

(iii) No order as to costs.

                                                                                            (A.K. MENON, J.)




        Digitally signed

SNEHA                      901-CARBPL-5885-2021.doc
        by SNEHA
        ABHAY DIXIT
ABHAY   Date:

DIXIT
        2021.09.04
        17:06:10
        +0530
                           Dixit