Altos India Ltd. vs Goyal Gases Ltd.
1996 Latest Caselaw 141 Del

JUDGMENT

S.K. Mahajan, J.

(1) By an agreement dated 18th March 1991, respondent No.1 had given on lease to the petitioner certain equipments/computers. Disputes having arisen between the parties under the agreement, a reference was made by respondent No.1 to one Sh.P.C-Jain vide letter dated 13th August, 1993. The petitioner challenged the validity of the appointment of Sh.P.C-Jain and also challenged the validity of the reference on the ground of the same being unilateral and arbitrary.

(2) However, as the arbitrator was continuing with the reference, the petitioner filed the present petition under Section 5 read with Section 2(c) of the Arbitration Act for revocation of the authority of the appointed arbitrator and for superceding the reference.

(3) One of the objections taken in the petition was that the agreement was vague and uncertain about the identity of the alleged arbitrators mentioned in the agreement. If was stated that the arbitration agreement only mentioned the name of one Sh.P.C.Jain and one Sh.S.D.Aggarwal without disclosing any further particulars of the said two persons. It was, therefore, stated that respondent No.1 could not be given the power to pick and choose any person by the name of Sh.P.C.Jain and Sh.S.D.Aggarwal and the petitioner could not be forced to accept the alleged persons as the arbitrators.

(4) In the reply filed to the petition, respondent No.1 has stated that the petitioner was aware about the identity of the persons named in the arbitration agreement. It was stated that Shri P.C.Jain was a Chartered Accountant and Sh.S.D.Aggarwal was the Income-Tax Lawyer. It is alleged in the reply that the names of Sh.P.C.Jain and Mr.S.D.Aggarwal were known to the parties and it was for these reasons that the petitioner agreed to their names as the arbitrators. In the rejoinder, the petitioner has denied that respondent No.1 had disclosed the identity of any of the two alleged arbitrators and it was only now that it has come to its knowledge about Sh.P.C.Jain being a Chartered Accountant and Sh.S.D.Aggarwal being an Income-Tax lawyer. It is also stated that even now respondent No.1 has not disclosed that the said Sh.P.C.Jain was the statutory auditor of respondent No.1 company and the said fact had come to the knowledge of the petitioner only during the arbitration proceedings which the petitioner is alleged to have joined under protest. It is stated that it was for this reason that respondent No.1 was intentionally avoiding to disclose the identity of Sh.P.CJain, as had it been known to the petitioner that Sh.P.CJain was the statutory auditor of respondent No.1 company, he might not have agreed to his appointment as an arbitrator.

(5) To appreciate the respective contentions of the parties, it will be useful to quote the arbitration agreement existing between the parties : -

(A)All disputes,, differences and/or claims arising out of this agreement, shall be settled by arbitration in accordance with the provisions of the Indian Arbitration Act, 1940 or any statutory amendments thereof shall be referred to the sole arbitration of P.C.Jain or in case of his death, refusal, neglect incapability to act as an Arbitrator to the sole arbitration of S.D.Aggarwal. The reference to the Arbitrator shall he within the Clause, Terms and Conditions of this agreement. The Award given by the Arbitrator shall be Final and binding on both the parties.

(B)It has been expressly explained by the Lessor to the Lessee that either of the aforesaid mentioned arbitrators are usually appointed by the lessor in the Lease Agreement accepted by them and in spite of the information supplied to them the said Lessee has willingly agreed to the nomination of the said Arbitrator/s and he shall not raise any objection against the appointment of any one of the Arbitrator/s on the ground that the Arbitrator/s are connected in any manner with the Lessor.

(C)Any party desirous of making a reference to the Arbitrator shall give fifteen days Registered Acknowledgement. Due notice to his intention to do so, to the other party at his usual place of business or residence or the place of their last notified address and the notice shall be deemed to have been served when it would ordinarily have been delivered by the post. The notice sent by the arbitrator to the parties by Registered post as the address mentioned in the Lease Agreement will be considered sufficient service on the parties whether such notice is received by them or not, or is refused or is returned undelivered."

(6) Law on the question of revocation of authority of the arbitrator is almost well settled. A party to a contract cannot be permitted to walk out of the contract easily, but at the same time there must be absolute and perfect openness and honesty in such a contract. A concealment or deception, however slight, will vitiate the contract. The question, therefore, for consideration is whether respondent No. 1 had concealed the true identity of Sh.P.C.Jain whose name has been mentioned in the arbitration agreement.

(7) On 13th August, 1993 respondent No.1 wrote to Sh.P.C.Jain that as the disputes had arisen between it and the petitioner, the same were required to be referred to him for arbitration. He was, therefore, requested to enter upon the reference to decide the disputes mentioned in the notice dated 10th February, 1993 sent by it to the petitioner The contention of the petitioner is that even in the said notice, identity of Sh.P.C.Jain has been concealed and it had not been mentioned that he is a Chartered Accountant what to speak his being a Chartered Accountant of respondent No.1 company. The contention of learned counsel for the respondent, however, is that the petitioner all along knew about the identity of the arbitrator in as much as clause (b) of the arbitration agreement clearly mentions that the petitioner had been apprised of the fact of the afore-mentioned persons being appointed arbitrators by respondent No.1. It is, therefore, submitted that as the petitioner had not objected to any of the said persons being appointed as an arbitrator in spite of it having been explained to them that the said persons were usually appointed as the arbitrators by the said respondent No.1, the petitioner could not File this petition for revoking their authority.

(8) Learned counsel for the petitioner has referred to me the decisions reported as Middle East Trading Company Vs. The New National Mills Limited, Air 1960 Bombay 292; M/s Amarchand Lalit kumar Vs. Shree Ambica Jute Mills Limited, and Uttar Pradesh Co-operative Federation Limited Vs. Sunder Brothers, , in support of his contention that he has made out a case for removal of the arbitrator. He has also referred to an unreported decision in M/s- The Road master Industries of India Pvt. Limited Vs. Delhi State Industrial Development Corporation decided by D.P.Wadhwa,J. on October 15, 1985.

(9) In M/s. Amarchand Lalit kumar Vs. Shree Ambica Jute Mills Limited, , it was held that "the difference between an application under Section 5 of the Arbitration Act and one under Section 34, is a difference as to the point of time when the application is made. If proceedings are commenced in Court, application is made under Section 34; if proceedings have not been commenced in Court, the application is made under Section 5. The object of both the Sections is the same, namely, to prevent arbitration". It was further held that "on an application under Section 5, it is not necessary to show that the arbitrator is infact biased and it is enough to show that there is a reasonable ground for apprehension that the arbitrator will be biased. But the reasonable ground must be established to the satisfaction of the Court to which an application for leave to revoke the authority of appointed arbitrator is made".

(10) In U.P.Cooperative Federation Limited Vs. Sunder Brothers, , it was held as under: - "THE strict principle of sanctity of contract is subject to the discretion of the Court under S.34 of the Indian Arbitration Act, for there must be read with every such agreement an implied term or condition that it would be enforceable only if the Court having due regard to the other surrounding circumstances thinks fit in its discretion to enforce it. It is obvious that a party may be released from the bargain if he can show that the selected arbitrator is likely to show bias or by sufficient reason to suspect that he will act unfairly or that he has been guilty of continued unreasonable conduct. Consequently, an order of stay of suit under S.34 will not be granted if it can be shown that there is good ground for apprehending that the arbitrator will not act fairly in the matter or that it is for some reason improper that he should arbitrate in the dispute between the parties. Although it is the normal duty of the Court to hold the parties to the contract and to make them present their disputes to the forum of their choice, an order to stay legal proceedings in a Court of law will not be granted if it is shown that there is good ground for apprehending that the arbitrator will not act fairly in the matter or that it is for some reason improper that he should arbitrate in the dispute." 1913 Ac 241, Rel.on.

(11) One of the ground for revoking the authority of the appointed arbitrator, therefore, is that there is sufficient reason to suspect that the arbitrator is likely to show bias and will not act fairly.

(12) In Middle East Trading Company Vs. The New National Mills Limited, Air 1960 Bombay 292, the facts were that in reply to the suit filed by the plaintiff for recovery of certain amount, the defendant Filed an application under Section 34 of the Arbitration Act alleging, inter alia, that there existed an arbitration agreement between the parties and the suit was, therefore, liable to be stayed. The arbitration agreement in the said case was as under : - "IF any dispute may arise regarding the goods of this contract, then the same shall have to be decided by the Arbitrator Board alone which has been constituted by the Mahajan and the Mill owners Association and the decision which they shall give shall be treated as final".

(13) One of the objections taken to the stay of the suit of the plaintiff was that arbitration clause was vague and uncertain and was, therefore, unenforceable. The contention of the plaintiff in that case was that there was nothing in the arbitration agreement or in other terms of the contract to show as to which Arbitration Board was meant and agreed to by the parties to the contract. In reply to this application, the defendant stated that the Arbitration Board in the clause meant the Arbitration Board jointly appointed by the Maskati Mill Mahajan and the Ahmedabad Mill owners Association. In the rejoinder, the plaintiff stated that there were various Mahajans in Ahmedabad and they gave the names of 81 Mahajans. They further stated that there was no Arbitration Board appointed by the alleged Maskati Mill Mahajan and Ahmedabad Mill owners Association only and that it was impossible to ascertain what the parties meant and as to whether the parties were ad idem as to the person or body of persons which was to arbitrate in the matter of their disputes.

(14) On the basis of these facts, the Court held that from the affidavits filed it was not satisfied as to the identity of the Arbitration Board and as to whether such Arbitration Board was in existence and competent to decide disputes of the nature mentioned in the arbitration clause in question. The arbitration clause was, therefore, held to be vague and uncertain and could not be enforced.

(15) MR.AGGARWAL, Sr.Advocate appearing on behalf of the petitioner, submits that in the present case as well the identity of Sh.P.C.Jain was not disclosed and there are hundreds of P.C.Jain in Delhi. It was not certain as to who was this P.C.Jain who was to be appointed as an arbitrator in the event of disputes arising between the parties.

(16) The judgment Mis. The Road master Industries of India Pvt. Limited Vs. Delhi State Industrial Development Corporation is not applicable to the facts and circumstances of the present case, because the question in that case was whether the word Chairman appearing in the arbitration agreement was meant to be the Chairman of the Disc or the Chairman of M/s.The Road master Industries of India Private Limited and as both the companies had their respective Chairman, the Court held that Clause 15 made it ambiguous and consequently the appointment of the arbitrator made by Chairman of the Disc was set aside.

(17) The contention of Ms.Dutt, learned counsel for the respondent, is that most of the judgments cited by the petitioner are under Section 34 of the Arbitration Act and the jurisdiction of the Court under Section 34 and Section 5 of the Arbitration Act is different. It is contended that while under Section 34 of the Arbitration Act, the Court has the discretion to stay or not to stay, a definite case has to be made out for revocation of the authority of an arbitrator under Section 5 of the Arbitration Act. She, therefore, submits that judgments given under Section 34 of the Arbitration Act cannot be made applicable to the present case. It is also her contention that the parties were ad idem on names of the arbitrators which is clear from sub-clause (b) of Section 31 of the agreement and the petitioner having signed the same with open eyes cannot now come forward and say that he was not aware about the identity of the appointed arbitrators. She has referred to a judgment reported as The Secretary to the Government, Transport Department, Madras Vs. Munuswami Mudaliar and Ors., .

(18) In The Secretary to the Government, Transport Department, Madras Vs. Munuswami Mudaliar and Ors., , it was held that "unless there were allegations against the name of arbitrators either against his honesty or capacity or malafide or interest in the subject- matter or reasonable apprehension of bias, a named and agreed arbitrator cannot and should not be removed in exercise of the discretion vested in the Court under Section 5 of the Act". In my opinion, this judgment will not be applicable to the facts and circumstances of the case in as much as the only question which I have to decide is whether respondent No.1 had disclosed the identity of Sh.P.C.Jain to the petitioner and if not what is the effect of the same and whether there is any reasonable ground for apprehension that the arbitrator will be biased.

(19) It is no doubt true that in clause 31 of the contract it is mentioned that the petitioner had been explained that either of the af6re- mentioned arbitrators was usually appointed by the lessor in the lease agreement and in spite of the information supplied, the lessee willingly agreed to the nomination of the said arbitrators, however, can it be said that the respondent had disclosed the real identity of the said persons and the petitioner agreed to their appointment even after knowing their identity? In my opinion, the answer has to be in the negative. Reading the agreement and the correspondence which has been exchanged between the parties, I feel that the petitioner was not informed that the said Sh.P.C.Jain was the Chartered Accountant and statutory auditor of respondent No.l company. There was no difficulty in mentioning in the agreement the description of the said Sh.P.C.Jain. Had it been disclosed to the petitioner that Sh.P.C.Jain was the statutory auditor of respondent No.l company, the petitioner may or may not have agreed to his appointment as an arbitrator. Even in the letter dated August 13, 1993, written by respondent No.l to the arbitrator, requesting him to enter upon the reference, the real identity of the arbitrator is not disclosed. In the letter dated 15th September, 1993 written by the petitioner to respondent No.1 a grievance has been made about the agreement being vague about the identity of Sh.P.C.Jain. I am not aware if any reply to the said letter was sent 'by respondent No.1 to the petitioner, however, no copy of the same has been placed on record. In my opinion, respondent No.1 cannot take shelter under sub-clause (b) of Clause 31 to contend that the petitioner was aware of the identity of Sh.P.C.Jain. As and when an arbitrator is named in the arbitration agreement, it is the duty of the party, who has a right to appoint him, to disclose the complete identity of the said arbitrator. Not only that description of Sh.P.C.Jain had not been given but even his address has not been mentioned in the agreement. There are more than 60 P.CJains who have telephones in their name, as is evident from 1994 telephone directory of Mahanagar Telephone Nigam Limited, Delhi. An unnecessary suspicion has been created in the mind of the petitioner as to the reason of not disclosing the identity of Mr.P.C.Jain. In natural course of events, it will naturally create an apprehension in the mind of the petitioner that the arbitrator will be biased firstly for the reason that the respondent did not deliberately disclose his identity in the agreement and secondly, for the reason that he has now turned out to be the statutory auditor of the respondent company. As held in Amar Chand Lalit Kumar Vs. Ambica Jute Mills (Supra) and U.P. Co- operative Federation Vs. Sunder Bros. (Supra), stay of legal proceedings under Section 34 of the Arbitration Act will not be granted if it is shown that there is good ground for apprehending that the arbitrator will not act fairly.

(20) On the basis of the material on record, I am of the opinion that there was reasonable ground for the petitioner to apprehend that the arbitrator will be biased. It is true that a party to a contract cannot be permitted to walk out of the contract easily but at the same time there should be absolute and perfect openness in such a contract and a concealment or deception, however slight, may vitiate the contract. I am, therefore, of the opinion that the parties were not ad idem about name of the arbitrator and the name mentioned in the agreement was wholly vague and Uncertain.

(21) In this view of the matter, I allow this petition and set aside the appointment of Sh.P.C.Jain - respondent No.2 as the sole arbitrator in the matter of disputes between the parties.

(22) In the circumstances of the case, I leave the parties to bear their own costs.