Stench Electronics Ltd. vs K.N. Memani & Anr.
1999 Latest Caselaw 82 Del

JUDGMENT

D.K. Jain, J.

1. By this petition under Sections 5, 11 and 12 of the Arbitration Act, 1940 (for short 'the Act'), the petitioner seeks leave to revoke the authority and removal of respondent No.1, the sole Arbitrator named in the arbitration clause in the agreement dated 18 March, 1993, between the petitioner and respondent No. 2, M/s. Bina tone Computers Private Limited (hereinafter referred to as the claimant), and in his place appointment of an independent Arbitrator, on the ground that he has misconducted himself and the proceedings in a manner which has created reasonable apprehension in their mind that the Arbitrator is biased.

2. The petition is resisted by respondent No. 2 on the plea that it discloses no cause for revocation of the authority of the sole Arbitrator and the present petition is a mala fide attempt on the part of the petitioner to cause delay in the arbitration proceedings, which are now at the stage of cross examination of the claimant's witnesses.

3. I have heard Mr. Atul Jain, learned Counsel for the petitioner and Mr. Rajiv Nayyar, learned Senior Counsel for the claimant, at some length, who have also taken me through various orders passed by the learned Arbitrator during the course of proceedings before him.

4. The petitioner herein, M/s. Stench Electronics Limited, a duly incorporated company, is a manufacturer of audio systems. On 12 March, 1993, they entered into a contract with the claimant for using their brand name "Bina tone" for which the claimant was to be paid royalty by the petitioner. The contract contained arbitration clause, naming respondent No. 1 to be the sole Arbitrator to adjudicate upon the disputes/differences, if any, arising under the terms of the said contract between the parties. It is common ground that on disputes arising, the matter was referred to the said Arbitrator. On direction, the claimant filed their claim statement and the petitioner filed counter claims, on which they were directed to file affidavits by way of evidence. During the course of proceedings, on 23 April, 1997, the petitioner filed two applications, one dated 18 April, 1997 and the other dated 23 April, 1997. The application dated 18 April, 1997 was under Order 11 Rule 12 CPC for a direction to the claimant to make discovery of all the documents in their possession or power relating to the dispute, specially relating to the litigation between the claimant and one M/s. Harman Agencies and its sister concern M/s. Bina tone Electronics Limited, pending in this Court and the City Civil Court, Chandigarh, to the effect that the said concern had claimed to be the exclusive owners of the trade name "Bina tone" and that the claimant herein was wrongly claiming royalty in respect of it. In the second application, dated 23 April,1997, the petitioner had prayed that the Arbitrator should give a speaking and reasoned award. It appears that the claimant filed an affidavit dated 19 April, 1997 by way of evidence incorporating certain documents. The petitioner was asked to cross examine the claimant's deponent, on which they submitted that it may be deferred till the documents referred to in the affidavit were supplied. On 23 April, 1997, the Arbitrator disposed of the first application, dated 18 April, 1997, with a direction to the claimant to produce the documents (CW 1/1 to CW 1/7) referred to in the affidavit on the following date i.e. 24 April, 1997. On 24 April,1997, the claimant produced two of the documents referred to in the affidavit. Regarding some other documents, they said that these were not in their possession or power, having been sent to Bina tone Electronics PLC, UK. On that date, the petitioner moved another application to the effect that the claimant had illegally exhibited documents in their affidavit without placing original documents on record and for deferring the cross examination till the documents were produced and also prayed that the Arbitrator should give a speaking and reasoned award in the matter. It seems that this application was disposed of vide order dated 24 April,1997 which was faxed to the petitioner on 29 April, 1997. In the order the learned Arbitrator mentioned about the documents produced by the claimant, and those stated to be not in their possession or power and directed that the documents not produced shall not be considered while deciding the claims of the claimant. Regarding prayer for reasoned award, the Arbitrator recorded that the claimant neither consented nor opposed the prayer but submitted that the matter being in the discretion of the Arbitrator, he may give the award in whatsoever manner he deemed proper. On 30 April,1997, the petitioner moved yet another application, dated 29 April,1997, before the Arbitrator seeking clarification of orders dated 23 April, 1997 and 24 April, 1997, alleging that the orders communicated were against the facts; there were manipulations in them; the orders did not correctly record what had transpired in the hearing; and the claimant be directed to discover all the documents mentioned in their affidavit with a further direction to them to file amended affidavit by deleting the relevant paragraphs in which the claimant had sought to exhibit nonadmissible evidence. This application was disposed of vide order dated 2 May, 1997 observing that no clarification of the earlier orders or direction for filing amended affidavit by the claimant was necessary, he having already directed that the documents referred to in the affidavit but not produced would not be considered while making the award and the purpose of the application was to unnecessarily delay the proceedings. On the submission for making a speaking award, it was observed that the matter being discretionary with the Arbitrator, he will exercise his discretion at the time of making the award. The order also mentions about claimant having filed an affidavit producing the documents in their possession or power as required by the petitioner. Another order dated 2 May, 1997 appears to have been made by the Arbitrator, rementioning about the documents having been filed by the claimant, as desired by the petitioner and the latter's Counsel stating that no document, referred to in the affidavit, was required. This order/minutes of the proceedings held on 2 May, 1997 purports to have been faxed to the petitioner on 13 May, 1997.

5. In support of his plea of misconduct by the learned Arbitrator, it was submitted by Mr. Atul Jain, learned Counsel for the petitioner, that : (i) the Arbitrator did not record the minutes of the proceedings, which in fact were misrecorded later, (ii) did not get the documents sought to be discovered or produced before directing the petitioner to cross examine the claimant's witnesses, (iii) on his application submitting the Arbitrator to make speaking and reasoned award, despite the claimant not opposing the same, did not accept the submission but kept the issue open, and (iv) accepting the documents and making orders behind the petitioner's back. Elaborating the said contentions it was submitted that though on his application, dated 18 April, 1997, under Order 11 Rule 12 CPC, the Arbitrator had directed the claimant on 23 April, 1997 to produce the documents, the proceedings were not recorded then; on the petitioner's subsequent application seeking clarification, a qualified order was made directing the claimant to produce the said documents "which he could" and though on petitioner's application dated 29 April, 1997 filed on 30 April, 1997, arguments were heard on 2 May, 1997 but the application was disposed of by an order, which was kept ready, making a mention of an affidavit filed by the claimant, producing the documents in their possession or power, copy whereof was not supplied to the petitioner and this was done at their back. It was contended that all this showed that the learned Arbitrator is biased against the petitioner and there is reasonable apprehension that they will not get justice from him. In support of the contention that it is not necessary for the petitioner to prove that the Arbitrator was actually biased against them and what they have to prove is that there is a reasonable apprehension in their mind that the Arbitrator may be biased towards them, reliance is placed on Amar Chand Lalit Kumar Vs. Shree Ambica Jute Mills Limited, , International Airport Authority of India Vs. K.D. Bali & Another, AIR 1988 SC 1090, Bhuwalka Brothers Ltd. Vs. Fatechand Murlidhar, and M/s. Kalinga Otto (P) Limited Vs. M/s. Charanjit Kochhar, .

6. Mr. Rajiv Nayyar, learned Senior Counsel for the contesting respondent, has submitted that there has been no misrecording of the proceedings by the Arbitrator; documents in possession and power of the claimant were produced by them and there were sufficient compliance of the direction made by the Arbitrator on petitioner's application under Order 11 Rule 12 CPC; no order was passed by the Arbitrator at the back of the petitioner; no hearing on petitioner's application was necessary on 2 May, 1997 and in any case no prejudice has been caused to them on account of the said orders. It is submitted that every suspicion cannot be construed as an act of misconduct by the Arbitrator and the applicant must prove the real likelihood of bias in the arbitration proceedings in order to get his authority revoked. In support of this contention reliance is placed on the decisions of the Supreme Court in International Airports Authority of India's case (supra); Secretary to Government, Transport Department, Madras Vs. Munuswamy Mudaliar & Another, 1988 (Supp.) SCC 651, Jiwan Kumar Lohia & Another Vs. Durga Dutt Lohia & Others, , and Amar Chand Lalit Kumar's case (supra).

7. Section 5 of the Act does not spell out or indicate the grounds or the stand on which the Court will grant leave for revoking the authority of an Arbitrator. It is however well settled that leave may be granted where the Court is satisfied that there is reasonable ground for apprehension in the mind of the applicant that the Arbitrator will be biased. In Amar Chand Lalit Kumar's case (supra), relied upon by both the sides, the Supreme Court observed as under : "It is true that in an application under Section 5 it is not necessary to show that the Arbitrator is in effect biased and it is enough to show that there is a reasonable ground for apprehen sion 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 an appointed Arbitrator is made."

8. Observing as above, the Apex Court also sounded a note of caution and observed that the discretion under the said section has to be exercised cautiously and sparingly and normally the parties should not be relieved from the Tribunal they have chosen because for fear that the Arbitrator's decision may go against them. Exercise of discretion under Section 5 should not be the rule but only an exception.

9. In International Airport Authority of India's case (supra), it was observed that there must be a real likelihood of bias and not a mere suspicion of bias before the proceedings can be quashed on the ground that the person conducting the proceedings is disqualified by interest.

10. The term "Bias" and the test of "reasonable apprehension of bias" were explained by the Apex Court in Munuswamy Mudaliar's case (supra) as of a reasonable independent person, based on allegations against the Arbitrator's integrity or capability and "predisposition" to decide for or against one party, without proper regard to the true merits of the dispute. The allegations must be established. Allegation of "predisposition" must be based on cogent material and evidence. Vague suspicions of whimsical, capricious and unreasonable people cannot be made a standard to regulate normal human conduct.

11. Thus, unless substantial miscarriage of justice will take place in the event of leave to revoke being refused, leave should not be granted.

12. Bearing in mind these broad principles, it is now to be examined whether in the circumstances pointed out by the petitioner could it be said that there are grounds for reasonable apprehension in the mind of the petitioner that the Arbitrator will be biased.

13. So far as the allegation of not recording the minutes of proceedings on the date of hearing or otherwise or not making appropriate directions on petitioner's application under Order 11 Rule 12, CPC or not committing to make a speaking or reasoned award is concerned, I am of the view that no misconduct is made out. Though desirable, recording of proceedings by an Arbitrator or making a reasoned award unless required by both the parties is not a requirement of law under the 1940 Act, which is applicable in the present case. It is significant, however, to note that one of the main objectives, and now a mandatory requirement, under the Arbitration and Conciliation Act,1996 is that the Arbitral Forum will make a reasoned award. It has obviously been done to eschew arbitrariness and instill some credibility and confidence in the parties. There is no reason to suspect that the learned Arbitrator will not keep in mind all these factors while making the award. l find that the learned Arbitrator has passed appropriate orders on the applications filed by the petitioner, including an application under Order 11 Rule 12, CPC. The directions on the application are adequately made in the orders passed. However, not content with the directions made, the petitioner filed an application dated 29 April, 1997, for clarification of the orders, which was made in the order dated 2 May,1997. It is not clear whether any arguments were heard on application dated 29 April,1997 or not. Even if heard, the order dated 2 May, 1997 being only clarificatory, requiring no arguments, the Arbitrator's alleged action of keeping the order ready, looking at the first glance somewhat odd, in fact does not seems to have caused any prejudice or injustice to the petitioner. It is also evident from the order dated 24 April, 1997 that on the statement on behalf of the claimant to the effect that Exhibits CW 1/2, CW 1/3, CW 1/4 and CW 1/6 were not in the possession or power and cannot be produced, the learned Arbitrator had ordered that these exhibits will not be referred to and considered while deciding the claim of the claimant. This was again reiterated by the Arbitrator in his order dated 2 May, 1997 while dealing with the prayer of the petitioner that the claimant be directed to file the amended affidavit after deleting the nonadmissible documents. Being a technical provision direction to file amended affidavit cannot be insisted upon in arbitration proceedings. The very purpose of arbitration is that it is less formal, speedy and expeditious remedy for resolution of disputes and avoiding procedural claptraps. It cannot, therefore, be said that any prejudice was caused to the petitioner on account of alleged failure of the Arbitrator to agree with that submission of the petitioner. l also do not find any substance in the allegation of the petitioner that what was faxed to them on 13 May, 1997 was yet another order passed at their back by the Arbitrator on 2 May, 1997. It is obvious that what was communicated to the petitioner by the Arbitrator was the proceedings held on that date and not any order, as is sought to be made out. In the light of the orders passed by the Arbitrator on 24 April, 1997 and 2 May, 1997, ordering that Exhibits CW 1/2 to CW 1/4 and CW 1/6, referred to in the claimant's affidavit will not be exhibited, the statement of claimant's deponent, Mr. P.K. Gupta, deleting certain lines in his affidavit regarding some of the documents, quoted in the said order sheet, is not only in consonance with the aforenoted two orders but also, in effect, favourable to the petitioner and the petitioner possibly cannot have any grievance on that score.

14. Bias or apprehension of bias has to be judged from a healthy, reasonable and average point of view. Having regard to it all, I am not satisfied that there is real likelihood of bias, or a reasonable ground for a case under Section 5 of the Act, for revoking the authority of respondent No. 1 Arbitrator has been made out. In the circumstances, the petition is dismissed with costs, quantified at Rs. 5,000/.

15. The parties are directed to appear before the Arbitrator on 20 February, 1999 at 11 a.m. The Arbitrator shall proceed in accordance with law and make and publish his award within four months of that date.

16. The petition and the application, seeking interim stay of proceedings before the Arbitrator, stand disposed of.