Indian Oil Corporation vs Indira Sood
1994 Latest Caselaw 753 Del

JUDGMENT

Usha Mehra, J.

(1) Lpg distribution ship was awarded to Mrs. Indira Sood, sole proprietor of M/s Vikas Gas Agency (In short the 'Agency') under the Dgr Scheme for the rehabilitation of war effected widows of the defense personnel and their dependents. The Distribution ship Agreement was signed on 24th September,1975. The said agreement contained an arbitration clause No.37 which provided that in case of any dispute the matter shall be referred to the arbitration of the person to be appointed by the Managing Director of the Indian Oil Corporation (In short the 'Corporation'). Dispute arose between the Corporation and the Agency. The Corporation preferred a claim against the Agency on account of its failure to clear the outstanding amounts. Corporation terminated the dealership vide letter dated 8th April,1992 because the Agency issued unauthorised connections. Hence the Agency preferred claim against this termination of dealership. Two references were made to the arbitrator - one of the Corporation and the other of the Agency. Sh.S.K.Gupta was appointed as the Arbitrator by the Managing Director as per Clause 37 of the Contract. Parties had been appearing before the Arbitrator. Tke proceedings in both the references were going on together before the said Arbitrator. Sh.S.K.Gupta, the sole arbitrator retired and relinquished the office in December 1986. On the retirement of the sole arbitrator, the Corporation sought the appointment of another arbitrator. New arbitrator was appointed. He entered upon reference on 3rd March,1987 and made and published the present award dated 21st May,1987.

(2) The impugned award was filed in the Court. - Notice of filing of the award was issued. On behalf of the Agency objections have been filed against the impugned award mainly on the ground that the Award has been made and published beyond the statutory period permitted under the Agreement, therefore, bad in law. Secondly, during the course of arbitration proceedings fresh settlement was arrived at between the parties which superseded the arbitration agreement. When the arbitration agreement stood superseded, the Arbitrator could not have made and published the award on the basis of the superceded agreement. Moreover, the Arbitrator as per Clause-37 of the agreement was not appointed by the Managing Director. Hence, the appointment of Mr.V.K.Dhir, Arbitrator is not in accordance with the provisions of the agreement. Even otherwise being an employee of the Corporation he was biased, moreover he did not apply his mind. No evidence was produced by the Corporation to prove that the receipt produced by the agency pertaining to the return of the goods by the Objector was forged. Even otherwise the Corporation had been claiming varying amounts ranging from Rs.l,56,100.00 to Rs.2,15,762.00 . The Arbitrator without any evidence and without applying his mind awarded a sum of Rs.2,01,928.27P. As there were two references one for wrongful termination and other for claiming Rs.2,65,762.00 , both the proceedings ran parallel to each other and were dependent on each other, in substance these proceedings merged with each other. The Arbitrator instead of giving award on both the claims, preferred to give award only in respect of the claim preferred by the Corporation. This shows he was biased. He did not bother to give any decision so far as claim preferred by the Agency. This shows non application of mind.

(3) The Corporation contested these objections, inter alia, on the ground that the Arbitration agreement never stood superceded nor any fresh settlement was arrived between the parties during the arbitration proceedings. Sh-S.K.Gupta, the Sole Arbitrator gave directions to both the parties on the claim preferred by the Corporation, to reconcile the accounts. Accounts were reconciled by the parties and after the reconciliation of the accounts, the representative of the Agency admitted that an amount of Rs.2,01,928.27P was due to the Corporation. The said reconciled statement was signed by both the parties and presented before the arbitrator. Hence the award of Rs.2,01,928.27 paise is based on the admission of both the parties duly acknowledged and signed. Hence, the contention of the Objector that the award is not based on any evidence is far from truth.

(4) As regards the objection of making and publishing the award beyond the statutory period, the present Arbitrator Mr.V.K.Dhir entered upon the reference on 3rd March,1987 and as per Clause-37 of the Agreement, the arbitrator could make and publish his award within six months from the late of entering, upon the reference. Hence, the Award dated 21st May,1987 has been made within the prescribed period after entering upon he reference. Therefore, it cannot be said that the award has been made after the statutory period. As per Clause-37, the appointing authority is he Managing Director, Since the post of Managing Director was redesignated by the Corporation as Director. Hence the Director (Marketing) pointed Sh.V.K.Dhir as the sole Arbitrator. The appointment by a Director of the arbitrator was thus in accordance with the provisions as prescribed under Clause-37 of the agreement.' Not an iota of evidence has been placed before this Court to prove that the Arbitrator was biased. On the contrary, after giving number of opportunities to the Objector, the Arbitrator proceeded her ex-parte and thereafter made and published this award.

(5) I have heard Mr.Rakesh Luthra for the Agency/Objector and lr.P.K.Jaitley for the Corporation.

(6) The main thrust of Mr.Luthra's arguments had been that the award is been made beyond the time stipulated in the agreement. The parties had not given any consent for the extension of time for making and publishing the award and, therefore, the award is liable to beset aside. He further contended that even mere participation of the parties in arbitration proceedings after expiry of the stipulated period would not amount to extension of time on the ground of waiver so as to save the award from invalidity. , drew my attention to the fact that Shri S.K.Gupta, the sole arbitrator in this case was appointed vide Managing Director's letter dated 17th January,1983. The sole arbitrator entered upon the reference when he issued letter dated 25th January,1983. Award as per Clause-37 of the Agreement was to be made within six months after entering upon the reference or within such extended time not exceeding further four months. The parties extended time for making the award from time to time and last extension was granted up to 5th 0ctober,1986. Shri S.K.Gupta, held the proceedings lastly on 6th May,1986 but after 6th May,1986, no date was fixed by Shri S.K.Gupta, the sole arbitrator. However, in March,1987 the objector/ Agency received a letter from one Shri V.K.Dhir, to appear before him on 31st March, 1987. So far the arbitration proceedings held by Shri S.K.Gupta were concerned, the time for making the award expired on 5th October. 1986. Once the statutory period expired the arbitration proceedings automatically came In an end. Thereafter, without the consent of the parties, the Corporation could not have appointed another arbitrator nor could extend the time. The contention of the Corporation that Shri S.K.Gupta retired in December,1986 was not made known to the petitioner/Agency Corporation got another arbitrator appointed on 6th February, 1987 without the knowledge of the petitioner and, therefore, the appointment of Mr.Dhir was invalid and contrary to the terms of the Agreement. The Agency objected to the jurisdiction of the arbitrator because statutory period for making and publishing the award after entering upon the reference by Shri S.K.Gupta had already expired on 5th 0ctober,1986. Therefore, Corporation could not circumvent this impediment by appointing a new arbitrator. Hence, the Award by the second arbitrator is illegal, invalid and beyond jurisdiction. In February,1987, no arbitrator could be appointed, it was not a fresh reference rather Mr:Dhir took the proceedings from the stage left over by Shri S.K.Gupta. Since it was a same reference-taken up from the stage left over by Shri S.K.Gupta, then fresh period cannot be counted, as the time for making the award had already expired by afflux of time. Hence, the award given after the expiry of period is bad in law. The arbitrator Mr.Dhir ignored the original reference i.e. the claim of the petitioner / Agency and, therefore also the award is liable to be set aside.

(7) Admittedly, Section 3 read with 1st Schedule, Clause 3 of Section 28 of he Arbitration Act (hereinafter called the Act) provides that the arbitrator has to publish his award within four months after entering upon the reference if no time has been specified by the parties in the Agreement by itself. But if the parties have provided the time in the agreement itself, then the arbitrator is bound to make and publish the award within that time. The Act has thus inducted the arbitrator to give the award within the prescribed period unless the same is extended by the Court or with the Consent of the parties as the case may be. Admittedly, in this case the extended period for making the award expired on 5th 0ctober,1986. But then the case of the Corporation had been that Clause 37 empowered the Corporation to fill up the vacancy when caused due to the inability to act or on retirement or resignation of the earlier arbitrator. In this case, since Mr.S.K.Gupta retired from service in December,1986, therefore, as per Clause 37 persona designata was empowered to appoint another arbitrator. To appreciate the contention of the parties. Clause 37 is reproduced as under : Clause-37 : Any dispute or difference of any nature whatsoever or regarding any rights; liability, act, omission on account of any of the parties hereto arising out of or in relation to this agreement shall be referred to the sole arbitration of the Managing Director of the Corporation or of some Officer of the Corporation who may be nominated by the Managing Director. The Distributor will not be entitled to raise any objection to any such arbitrator on the ground that the arbitrator is an officer of the Corporation or that he has to deal with the matters to which the contract relates or that in the course of his duties as an officer of the Corporation he had expressed views on all or any other matters in dispute or difference. In the event of the arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reasons, the Managing Director as aforesaid at the time of such transfer vacation of office or inability to act, shall designate another person to act as arbitrator in accordance with the terms of the agreement. Such persons shall be entitled to proceed with the reference from the point at which it was left by the predecessor. It is also a term of this contract that no person other than the Managing. Director or a person nominated by such Managing Director of the Corporation as aforesaid shall act as arbitrator hereunder. The award of the arbitrator so appointed shall be final conclusive and binding on all parties to the agreement, subject to the provisions of the Arbitration Act,1940 or any statutory modification or re-enactment thereof and the rules made there under for the time being in force shall apply to the arbitration proceedings under this clause. The award shall be made in writing within six months after entering upon the reference or within such extended time not exceeding further four months as the sole arbitrator shall by a writing under his own hands appoint. The arbitrator shall have power to order and direct either of the parties to abide by observe and perform all such directions as the arbitrator may think fit having regard to the matter in difference i.e. dispute before him. The arbitrator shall have all necessary powers and may take such evidence, oral and/or documentary, as the arbitrator in his absolute discretion thinks fit and shall be entitled to exercise all powers under the Indian Arbitration Act,1940 including admission of any affidavit as evidence concurring the matter in difference i.e. dispute before him. The arbitrator shall have power to made one or more awards whether interim or otherwise in respect of the dispute and difference and in particular will be entitled to make separate awards in respect of claims or cross claims of the parties. The arbitrator shall be entitled to direct any one of the parties to pay the costs of the other party in such manner and to such extent as the arbitrator may in his discretion determine. The parties agree that the Courts in the city of Delhi alone shall ' have jurisdiction to entertain any application or other proceedings in respect of anything arising under this agreement and any award or awards made by the sole arbitrator hereunder shall be filed in the concerned Courts in the city of Delhi only.

(8) A bare reading of this clause makes it clear that in the event of the arbitrator to whom the matter was originally referred being transferred or vacating his office, the Managing Director at the time of such transfer or vacation of office shall designate another person to act as an arbitrator. Now we have to understand what does the words mean "at the time" of such transfer or vacation of office. Admittedly, on 5th 0ctober,1986, the extended period for making the award had expired. But then Shri S.K.Gupta retired in December,1986. Therefore, it cannot be said that at the time of vacating the office, the persona designata had no authority to appoint another arbitrator in his place because the time for making and publishing the award had already expired. Merely because period had elapsed by afflux of time will not deprive the persona designata under Clause 37 to fill up the vacancy which had been caused due to the vacation of the office by the first arbitrator. The Agreement Clause 37 gives emphasis on the words "at the time of such vacation" and in this case the office was vacated, by Shri S.K.Gupta on account of his retirement in December,1986 and the persona designata appointed the new arbitrator' Shri V.K.Dhir in February,1987. So it cannot be said that the vacancy could not be filled up because the time for making and publishing the award had already expired. The reading of Clause 37 does not support the contention of Mr.Luthra that once the time had expired and the arbitrator had vacated the office then no new arbitrator could be appointed. The power to fill up the vacancy is there. The time for making and publishing the award with the consent of the parties or with the permission of the Court can always be extended. Therefore, at the time of such vacancy falling vacant, the persona designata appointed a new arbitrator exercising his power under Clause 37, which to my mind was neither illegal nor invalid. Therefore, relevancy of the expiry of the period for making and publishing the award by Mr. S.K.Gupta will not deprive or take away the right of the person designated to appoint a new arbitrator. Period for making and publishing the award qua Mr.Dhir will be reckoned from the date he entered upon the reference and that in this case would be 3rd March,1987. The award has been made and published on 21st May,1987 i.e. within six months of entering upon the reference. So, it cannot be said that the award is illegal, invalid or beyond the statutory period. To arrive at this conclusion, support can be had from the decision of the Allahabad High Court reported as Nawab Syed Hasan Ali Khan v. Nawab Askari Begam, . The observations of the Allahabad High Court are on all force applicable to the facts of this case. It has been held in that case that an award would be within time if the arbitrator who entered on the reference has made the award within four months of the date of his entering on the reference. Where upon the refusal of the first arbitrator to act as such, after having entered upon the reference, another arbitrator was appointed in the terms of the Agreement and this arbitrator makes his award within four months of his entering upon the reference, the award cannot be thrown out on the ground that it was given beyond limitation. The date of entering on the reference cannot be taken to be the date when the first arbitrator entered upon the reference. The arbitration proceedings before the first arbitrator become infructuous, upon his refusal to act.

(9) The further contention of Mr.Luthra that since Mr.Dhir took up the proceedings from the stage leftover by Shri S.K.Gupta, therefore, it would not amount to a fresh reference rather a continuation one,to my mind, this argument has no force, because Clause 37 itself provides that on vacation of office by first arbitrator "at such time" the person designated in the agreement would appoint a new arbitrator. The arbitrator would be entitled to proceed with the reference from the stage left by his predecessor. Therefore, even the new arbitrator who was appointed by the persona designata had to proceed from the stage left by Shri S.K.Gupta. This by itself does not indicate that Mr.V.K.JOhir's appointment was not a fresh appointment as arbitrator or that his period for making and publishing the award had to be counted from the date Mr.S.K.Gupta entered upon the reference. In fact Mr.S.K.Gupta retired in December,1986, the Corporation requested the Managing Director to nominate another arbitrator since the vacancy had been caused on the retirement of Mr.S.K.Gupta. Persona designata on the request of the Corporation filled up the vacancy by nominating Mr.Dhir. Therefore, the appointment of Mr.Dhir was neither illegal nor bad, but was in pursuance to Clause 37 of the Agreement. The contention of Mr.Luthra that the petitioner/Agency was not aware of the retirement of Shri S.K.Gupta in December,1986 may be correct. But lack of this information by the Agency is neither here nor there. Once, the petitioner / Agency received that letter from Shri. V. K.Dhir, it acquired knowledge that Mr.Dhir had entered upon the reference-because of the retirement of Mr.Gupta. Thereafter, it was for the Agency to approach the person designated to refer her dispute regarding illegal termination to the same arbitrator. Having not done so Objector now cannot blame the Corporation for getting the new arbitrator appointed as per Clause 37.

(10) I also find no force in the argument of Mr.Luthra that under Section 8(b) of the Act notice ought to have been given to the Agency before any vacancy could be filled. Reading of Clause 37 does not envisage that notice had to be given. It only stipulates that at the time of such vacation of office, the person designated shall appoint another person as arbitrator. Hence, there is a mandate to the person designated to fill up the vacancy afresh after the earlier arbitrator vacated the office for the reasons stated therein. Therefore, on this account also I find no infirmity in the award.

(11) The reliance by Mr.Luthra on the decision of this Court in the case of Union of India v. Asian Dehydrates Ltd. 6- another reported in 1988(1) Alr page 70 is also of no help to him. In that case, the petitioner was alleging extension by mutual consent but failing to prove such consent. But that is not the case in hand. Here the vacancy was filled up at the time when Shri S.K.Gupta vacated the same and, therefore, when the new arbitrator entered upon reference on 3rd March,1987, he made and published the award as per Clause 37 within the prescribed period. Hence, the observation of this Court in the case of Union of India v. Asian Dehydrates Ltd (supra) does not help the Objector. On the contrary, the Calcutta High Court in the case of Surendranath Paul v. Union of India while interpreting Section 8 of the Act held that the appointment by a person designated in the Agreement is the appointed arbitrator by consent of parties, within the meaning of Section 8(l)(b). The principle in the said matter is that prima facie the arbitration agreement is binding on the parties to it. Therefore, appointment of Shri V.K.Dhir as the sole arbitrator by the person designated in the agreement is virtually an appointment made by the consent of the parties because they agreed while entering into the agreement to leave the choice of another person as arbitrator to the Managing Director. In other words the appointment was the result of consent of the parties themselves that at the time of such vacancy having been caused it will be filled up by the person designated in the Agreement.

(12) The fact that the petitioner/Agency represented and appeared before the arbitrator on 31st March,1987 cannot be denied. Objector, however, took objection to Mr.V.K.Dhir's jurisdiction vide letter dated 24th April,1987. Perusal of this letter shows that Agency took the plea that arbitrator had no jurisdiction because he was appointed beyond the period. The arbitrator in the impugned award has discussed this aspect at page 4 of his award when he observed that "I addressed my first communication to the Claimants and respondents on 3rd March,1987 to appear before me on 31st March,1987 at Indian Oil Corporation Limited (Marketing Division), Northern Regional Office, World Trade Centre, Babar Road, New Delhi for further proceedings in respect of this arbitration. This case was discussed in brief both by the Claimants and the respondents. However, Smt.Indira Sood, Proprietor of M/s Vikas Gas Agency, New Delhi sought an adjournment and the same was granted." This shows that on 31st March,1987, the proprietor of the Agency appeared and sought for adjournment. It is thereafter on 14th April,1987 she took up the objection regarding the jurisdiction of the arbitrator. Thereafter, hearings were held on 15th April,1987, 22nd April,1987 and 7th May,1987 when no one on behalf of the objector/Agency appeared before the arbitrator. The arbitrator did receive a letter dated 21st April,1987 on 22nd April,.1987 in which it was indicated that time limit for arbitration was over and that he had no jurisdiction to adjudicate and decide the issue. The arbitrator considered the same and concluded that since he entered upon such reference on 3rd March,1987 and that time for making the award had not yet expired, therefore, this objection was baseless. He also indicated that due notices were sent to the objector/ Agency requiring them to appear on 15th April,1987,22nd April,1987 and 7th May,1987. The Objector/ Agency was also notified that in case it failed to appear it will ue proceed ex parte. Since no one appeared. Agency was proceeded ex parte. Therefore, it is not correct on the part of the Objector now to contend that the arbitrator had not taken note of the objection raised by her or that the arbitrator had no jurisdiction. As already observed above, the vacancy had to be filled up suo moto at the time when Shri S.K.Gupta retired. But some delay in filling up the vacancy did take place but that by itself is no ground to vitiate the award.

(13) Contention of Mr.Luthra that the arbitration agreement stood superseded has no merits. Document dated 20th March,1986, Exhibit AW.1/1 at page 67 of the file shows that the arbitrator gave directions to the parties to reconcile their accounts. The parties pursuance to that directions reconciled the accounts regarding security deposit outstanding and the customers ledger outstanding. After reconciling the accounts, statement duly signed by the parties was filed before the Arbitrator. The perusal of that statement shows that against security deposit a sum of Rs.9,857.00 was due from the Agency. This fact was accepted by the Agency. Against customers ledger, a sum of Rs. 1,92,071.27 paise was found due. This was also accepted by the Objector when on behalf of the Agency Smt.Indira Sood signed the document. On behalf of the Corporation Mr.R.P.Mathur, Deputy Manager(Finance) signed the same on 20th March,1986. This document was prepared pursuance to directions of the Arbitrator. Such direction does not mean supersession of the arbitration agreement. Giving of such directions are within the purview and power of the arbitrator. No letter of compromise or settlement of disputes inter se the parties has been produced by the Objector indicating that the parties had settled their disputes regarding termination and regarding outstanding amounts. In the absence of the same, if the arbitrator did not accept the contention of the Objector that the arbitration agreement never stood superceded, the same can neither be called illegal nor unjustified.

(14) The contention of Mr.Luthra that the vacancy was not filled up "at the time the vacancy fell vacant" is too technical. Mr.S.K.Gupta retired in December,1986 and vacancy was filled up in February,1987, it cannot be called very late. To my mind, it amounts to filling up the vacancy at the time. If the interpretation of the words "at the time" given by Mr.Luthra is accepted that Managing Director ought to have appointed new arbitrator at that very time i.e. in December,1986 itself. To my mind this interpretation would be too narrow and read out of context. "At the time" would mean when new arbitrator is appointed, the vacancy must have already fallen Vacant on account of the inability of the earlier arbitrator to function or on his vacating the office. "At the time" by no stretch of imagination would mean filling up the vacancy, on that very day. Of course, the vacancy is to be filled up within a reasonable time and in this case it was filled up in February,1987. It cannot be said that by February,1987 Corporation waived its right to get the vacancy filled. Waiver must be an intentional act with knowledge but in this case no intention can be inferred either from the documents or otherwise that the Director never wanted to appoint another .arbitrator or had no intention to exercise his right to get the matter adjudicated through arbitration. So on this account also I find no merits in the objection. I also find no merits in the contention that since Mr.V.K.Dhir was an employee of the Corporation, therefore, he must be biased. In fact the Arbitrator has given his award relying on the admission made by the parties by putting their signatures on the. reconciled accounts. Therefore, it cannot be said that he had no material to award this amount.

(15) As per clause 37 of the Agreement, the person designated to appoint the arbitrator is the "Managing Director" of the Corporation. Admittedly, Shri V.K.Dhir, the sole arbitrator was appointed by the Director (Marketing). The submissions of Mr.Luthra in this regard on the face of it appears to be forceful that since the appointment of Mr.V.K.Dhir was not made by the Managing Director of the Corporation, therefore bad in law. But when one goes deeper into the matter it is found that this argument has no merits. Mr.Jaitley explained that post of Managing Director was redesignated as Director (Marketing) and this has been so explained in reply to para 18 of the application as well as in the affidavit filed by the Corporation by way of evidence. The factum of re-designation of the Managing Director into Director (Marketing) has not been denied by the Objector then she filed rejoinder to the reply filed by the Corporation. The contention of the Corporation that the post of the Managing Director was redesignated as Director has not been denied nor any record produced to prove that the post of Managing Director still exists. Therefore, it cannot be said that the appointment of Mr.V.K.Dhir was not in accordance with the provisions of Clause 37 of the Agreement or bad in law.

(16) There is definitely a slack on the part of the person designated in filling up the vacancy caused on the retirement of Shri S.K.Gupta in December, 1986 regarding the claim preferred by the Agency. Mr.Jaitley had been arguing that persona designata under Clause 37 had suo moto power to fill up the vacancy. Then why in the claim preferred by the Agency, the person designated did not fill up the vacancy by referring Agency's dispute also to the Arbitrator? Therefore, to this extent I am in agreement with the contention of Mr.Luthra that the person designated under Clause 37 lost his right to appoint an arbitrator qua Agency's claim and now court alone would appoint an arbitrator. In this regard reliance has been placed on the decision of the Supreme Court in the case of M/s G.Ramachandra Reddy & Co. v. Chief Engineer, Madras Zone, Military Engineering Service . Since, the person designated did not appoint the arbitrator suo moto as has been done in the case of Corporation, therefore, the Court has a right to appoint the arbitrator, but this objection is not directed against the Award. It in fact is directed against the person designated in the agreement. Hence cannot be gone into in these proceedings. Objections have been filed against the award made and published with regard to the claim preferred by the Corporation. The mere fact that the person designated did not appoint the arbitrator qua the claim of the Agency simultaneously with regard to disputes preferred by the Agency, this act of the persona designata would not render the Award illegal. This may be an objection against the act of the person designated, but not of the arbitrator. Therefore, on this ground also, I find no merits in the objections.

(17) With these observations, the objection petition is dismissed, with no order as to costs. The award made and published by the arbitrator dated 21stMay,1987 is hereby made rule of the Court. Decree in terms of the award be prepared and the award shall form part of the decree.