M/S. Shri Ram Ram Niranjan vs Union Of India & Ors.
2001 Latest Caselaw 722 Del

ORDER

A.K. Sikri, J.

1. Facts of both the cases as well as issues involved being identical, both the matters ere heard together and are disposed of by this common judgment.

2. IA No.4468/86 in Suit No.880-A/86 and IA No.4469/86 in Suit No.879-A/86 are filed by respondent/UOI under Sections 30 and 30 of the Arbitration Act, 1940 (for short 'Act') which are the objections to two Awards both dated 30th March, 1986 by Sh.H.C.Sharma, arbitrator.

3. Disputes having arisen between the parties and there being an arbitration clause as per which both the parties had to nominate their arbitrator, petitioner nominated Sh. H.C.C. Sharma as its arbitrator and respondent/UOI nominated Mrs. R.Laxmanan as its arbitrator. Mrs. R. Laxmanan resigned on 10th February, 1985 and on her resignation petitioner's advocate wrote letter /notice dated 14th December, 1985 to the respondent/UOI requesting respondent to appoint another arbitrator in her place within fifteen days from the date of receipt of said letter/notice failing which co-arbitrator Sh.H.C.Sharma would act as sole arbitrator. There was some delay on the part of respondent/UOI in appointment of its arbitrator which it alleges was due to some administrative reasons. A letter dated 16th January, 1986 was addressed by respondent/UOI to petitioner stating that appointment letter would be issued after 17th January, 1986. Thereafter vide letter dated 21st January, 1986 respondent/UOI nominated Dr.B.N.Manni, Additional Legal Advisor, Ministry of Law s the co-arbitrator in place of Mrs.R.Laxmanan. However, before this date, the counsel for petitioner had already sent letter dated 8th January, 1986 to the effect that since respondent/UOI had not nominated its arbitrator, Sh.H.C.Sharma had become the sole arbitrator. Dr.B.N.Manni vide letter dated 27th January, 1986 addressed to Sh. H.C.Sharma informed him about his being appointed as co-arbitrator and asked him to come to his office in any of the working day in initiating the arbitration proceedings. However, the petitioner's advocate sent another notice informing the respondent/UOI that appointment of Dr.Manni was of no consequence. Sh. H.C. Sharma also proceeded on the basis that he had become the sole arbitrator and sent communication dated 22 nd January, 1986 to the petitioner as well as the respondent/UOI stating that petitioner had filed statement of account in January, 1984. He accordingly called upon t o respondent/UOI to file its counter claim by 7th February, 1986 and fixed the hearing on 10th February, 1986. The respondent/UOI replied vide letter dated 30th January, 1986 stating that it had already appointed Dr. B.N.Manni as its arbitrator and inspite of his appointment, Sh.H.C.Sharma was treating himself as sole arbitrator and this he was doing at his own risk. Sh.H.C.Sharma responded by sending communication dated 4th February, 1986 stating that as Dr.Manni was not appointed/nominated within the statutory period of fifteen days from the date of receipt of legal notice from petitioner's advocate, he was entitled to proceed with the matter as per Section 9 of the Act. He further stated that he was postponing the date of hearing fixed as 10th February, 1986 vide his letter dated 22nd January, 1986, to 25th February, 1986 to enable the respondent/UOI to get the delay in nominating Dr.Manni as arbitrator condoned by court of law. The respondent/UOI sent another communication dated 24th February, 1986 to Sh. H.C.Sharma in response to his aforesaid letter dated 4th February, 1986 stating that as directed by his letter dated 4 the February, 1986 necessary steps for condensation of delay in appointment of Dr.Manni as co-arbitrator were being taken before the competent court of law and Sh.Sharma was requested to adjourn the case oh 25th February, 1986. However , on 25th february, 1986 Sh.Sharma went ahead with the matter by proceeding with the reference ex-parte. Oral evidence of Sh. Banwari Lal Jhunjhunwala, was recorded and arguments were also heard on the same date and the case was closed for making and publishing the award. Thereafter on 30th March, 1986 impugned award passed in both the cases.

4. It may be mentioned that the sequence of events leading to passing of the awards i both the cases including the dates on which communications are addressed, are identical.

5. In the impugned awards it is stated that after receiving the communication dated 24th February, 1986 to the effect that the respondent/UOI was taking steps for condensation of delay int eh appointment of co-arbitrator, he had waited till 30th March, 1986 but since there was no information from the respondent/UOI thereafter, he had proceeded to make and publish his award.

6. Learned counsel for the objectors/UOI made tow principle submissions challenging the award:

1) Sh. H.C. Sharma had no right to act as sole arbitrator with respondent/UOI as delay in making the appointment of another arbitrator after Mrs.R.Laxmanan had in fact resigned, was usual. Ultimately the respondent/UOI had nominated its arbitrator by letter dated 21st January, 1986, and therefore, both the arbitrators should have proceeded with the matter as co-arbitrators and Sh.H.C.Sharma could not assume himself as sole arbitrator and proceed with the matter.

2) In any case Sh. H.C.Sharma conducted the proceedings with undue haste and proceeded ex-parte against respondent/UOI illegally which amounted to violation of principles of natural justice.

7. In propose to deal with the second contention first. No doubt in the first notice dated 22nd January, 1986, Sh. H.C.Sharma while fixing the date of hearing as 10th February, 1986 had stated had that in the event of default of either party, he shall proceed ex-parte in the matter, fact remains that his date was cancelled by him vide his letter dated 4th February, 1986. The reason for cancellation of the date is very material and significant. The respondent/UOI had taken the stand that it had appointed Dr.Manni as the other arbitrator and Sh.Sharma had no right to proceed with the matter as sole arbitrator. Although this contention of the respondent/UOI was refuted in the communication dated 4th February, 1986 by Sh.Sharma, what is important is that in this communication he not only adjourned the hearing of 10th February, 1986 to 25th February, 1986, he also wrote that he was postponing the date of hearing to enable the respondent/UOI to get the delay condoned by court of law. Therefore, the date of 25th February, 1986 was primarily for this purpose i.e. to see whether respondent/UOI had taken any steps in this regard. In this communication, he addressed himself as 'co-arbitrator'. he did not give any caution to the respondent/UOI to the effect that in case no such order of condensation of delay in nominating Dr.Manni is brought form the court, he shall proceed with the matter as sole arbitrator or he shall proceed ex-parte against the respondent/UOI in case respondent/UOI did not appear on 25th February, 1986. Not only this, letter dated 24th February, 1986 was duly received by Sh.Sharma, albeit on 26th February, 1986. He did not reply to that letter stating that he had already proceeded ex-parte against the respondent/UOI on 25th February, 1986 or that he was still waiting for the respondent/UOI to obtain order for condensation of delay in the appointment of Dr. Manni. Moreover, although in the impugned award, he states that he had waited for this purpose up to 30th March, 1986, it is not understood why he waited for this purpose when he had already proceeded ex-parte against the respondent/UOI and even concluded the hearing on 25th February, 1986. The record also shows the undue haste with which Sh.Sharma proceeded with the mater. On 25th February, 1986 if the respondent/UOI did not appear, he could have sent another communication, particularly in view of the facts of this case where respondent/UOI was in touch with Sh.Sharma and was projecting its point of view. However, he not only proceeds ex-parte, on the same date he records the statement of witness and even hers the arguments. This shows the tearing haste, not at all called for, with which Shri. Sharma proceeded with the matter. The manner in which Sh.Sharma conducted the proceedings is in violation of principles of natural justice an amounts to legal misconduct on his part.

8. The view I am taking is supported by the judgment of Calcutta High Court in the case of Juggilal Kamlapat Vs. General Fibre Dealers Ltd. where the court observed as under:

"The question as to the right of an arbitrator to proceed ex parte and the effect of his doing so when he does not issue a notice that he would proceed in the absence of any party who would fail to attend on the date of hearing has been discussed in "Russell on arbitration". In the fifteenth edition of the book, the discussion is to be found at pages 144 and 145.

It appears fro the four decisions to which I have already referred and the statement of the law in Russell that the procedural rule applicable to arbitration proceedings is more to learnt that the rule followed in courts of law. Broadly stated, the principles which govern the matter are the following. If a party to an arbitration agreement fails to appear at one of the sittings, the arbitrator cannot or, at least, ought not to, proceed ex parte against him at that sitting. Where in such a case it does not appear that the non-appearance was anything but accidental or casual, the arbitrator ought ordinarily to proceed in the ordinary way, fixing another date of hearing and awaiting the future behavior of the defaulting party.

If, on the other hand, it appears that the defaulting party had absented himself with a view to view to preventing justice or defeating the object of the reference, the arbitrator should issue a notice that he intends at a specified time and place to proceed with the reference and that if the party concerned does not attend, he will proceed in his absence. But if after making such a peremptory appointment and issuing such a notice, the arbitrator does not in fact proceed ex parte on the day fixed, but fixes another subsequent date, he cannot proceed ex parte on such subsequent date unless he issues a similar notice in respect of that date as well.

If he issues a similar notice and the party concerned does not appear, an award made ex parte, will be in order. But if he doesnot issue such a notice on the second occasion, but nevertheless process ex parte, the award will be liable to be set aside in spite of a notice of a peremptory hearing having been given if respect of the earlier date, subject, however, t o the condition that prejudice was caused to the party against whom the ex parte order was made. But this duty to give notice of an intention to proceed ex parte is not an absolute duty.

If it appears from the circumstances of the case that a particular party is determined not to appear before the arbitrators in any event as when he has openly repudiated either the reference itself or the particular arbitrators and has shown no desire t recant, the arbitrators are not required to issue a notice of an intention to proceed ex parte against such a recusant person and may proceed ex parte and make a valid award without issuing a notice . The better course, however, even in such a case is to issue a notice and give the party concerned a chance to change hiss mind.

"The above is what the arbitrators are required on their own part to do. Where the question arises after an ex parte award has, in fact, been made and it appears that no notice of an intention to proceed ex parte had been given, the principle to be applied is that the award will not be upheld, unless it is shown or it appears that he omission to give a notice has not caused any prejudice to the party against whom, the ex parte award was made, because he had made it abundantly clear that he would not appear before the arbitrators in any circumstances. When there has been an omission to give a notice, there will, however,always be a presumption that prejudice has been accused. But he presumption can be rebutted by the other party or can be sen to be rebutted by circumstances appearing n the face of the record The principle to be borne in mind in such cases is that the failure to attend is not required to be explained on satisfactory grounds in order to dislodge the ex parte award, but the ex parte award requires to be defended by establishing that the omission to issue a notice of an intention to proceed ex parte has not caused any prejudice."

 9. To the same effect is the judgment of Calcutta High Court in the case of  Dipti Bikash Sen and Anr. Vss. India Automobiles Ltd.    and that of this court in the case of  M/s.Lovely Benefit Chit Fund & Finance Pvt. Ltd. Vs. Puran Dutt Sood & Ors.  .  This objection of the respondent/UOI warrants to be upheld. The impugned awards will have to be set aside on this ground itself. 

 

 10. In so far as first contention is concerned, it has to dealt with as per the provisions contained in Section 9(b) of the Act which read as under: 

   

 "9(b) If one party fails to appoint an arbitrator, either originally or by way of substitution as aforesaid, for fifteen clear days after the service by the other party of a notice in writing to make the appointment, such other party having appointed his arbitrator before giving the notice, the party who has appointed an arbitrator may appoint that arbitrator to act as sole arbitrator in the reference, and his award shall be binding on both parties as if he had been appointed by consent: 

 

 Provided that the court may set aside any appointment as sole arbitrator made under clause (b) and either, on sufficient cause being shown, allows further time to the defaulting party to appoint an arbitrator or pass such other order as int thinks fit."  

 

11. Mandate of sub-sub-section (b) is that in case arbitrator is not appointed within fifteen clear days after service by the other party of notice in writing to make the appointment the party who has appointed an arbitrator may appoint that arbitrator to act as sole arbitrator in reference. However proviso to this sub-section enables the court to set aside any appointment as sole arbitrator or on sufficient cause being show allow further time to the defaulting party to appoint an arbitrator or pas such order as it thinks fit. In the instant case, the respondent/UOI had appointed its arbitrator by letter dated 21st January, 1986. This appointment/UOI could approach the court for setting aside the appointment of Sh. H.C.Sharma as sole arbitrator or give sufficient cause allowing it further time to appoint an arbitrator i.e. condensation of delay as arbitrator had already been appointed. However, Sh. Sharma as already pointed out, acted in undue haste. Knowing fully well that the respondent/UOI had appointed its arbitrator by letter dated 21st January, 1986, (which was preceded by letter dated 19 January, 1986 wherein the respondent/UOI had expressed its intention to appoint arbitrator), o the very next date i.e. 22nd January, 1986 he sent letter to both the parties after assuming the role of sole arbitrator. Although no application was filed by the respondent/UOI under proviso to sub-section (b) of Section 9, case of the respondent/UOI is that Sh. Sharma did not even give adequate time to it to take such a step. Be as it may, it is not necessary to go into this question in detail as the awards having been set aside accepting other objections of the respondent/UOI, it would be appropriate at this stage to allow the arbitrator nominated by the respondent/UOI to act as co-arbitrator and condone the delay in appointing the said arbitrator.

12. The result of the aforesaid discussion is that the impugned awards are set aside. Matter is remitted back to the arbitrators, namely, Sh. H.C.Sharma and Dr. B.N.Manni to act as co-arbitrators, enter reference and adjudicate the disputes after hearing both the part is afresh. As much time has elapsed, if these arbitrators are not available, it would be open to both the parties to nominate fresh arbitrators within one month of the receipt of copy of this order.

13. Suits and IAs stand disposed of.