Mokha Light House vs Indian Tourism Development ...
2002 Latest Caselaw 44 Del

JUDGMENT

V.S. Aggarwal, J.

1. By virtue of the present petition, filed un Sub-section (2) to Section 8 read with Section 33 of the Arbitration Act, the applicant/petitioner (M/s. Mokha Light House) seeks appointment of a sole arbitrator and further to declare the term of the arbitration Clause 48 to be illegal and void.

2. The facts alleged are that the applicant had entered into a contract to perform certain acts for the benefits of India Tourism Development Corporation. Disputes arose between the parties, which directly related to performance of the obligation, which arose under the terms of the contract. The applicant had moved an application in this Court for appointment of the Arbitrator and on 22.11.1993 this court had directed the Chairman/Managing Director to refer the dispute, which would be raised within 3 months to the sole arbitrator. Shri V.K. Gupta was appointed as the sole arbitrator, who died in the year 2001.

3. The grievance of the applicant is that the Managing Director of the respondent appointed Shri K.L. Sehgal as the sole arbitrator in place of Shri Gupta. It is alleged that the applicant did not concur to the appointment of Shri K.L. Sehgal as the sole arbitrator and further that the appointment, as such, was not valid as the applicant had suggested the name of a former Judge of this Court.

4. It is asserted that the appointment of Shri K.L. Sehgal is illegal and should be quashed and this Court may appoint another arbitrator. It is contended that under Clause 48 of the Contract, which provides for arbitration of disputes, directly relating to the terms of the contract, is unjustified and unreasonable. The arbitrator so appointed by the Managing Director of the respondent can not be fair. Clause 48 is unfair and arbitrary and when the arbitrator had died, the Managing Director had no right to appoint another arbitrator.

5. At the threshold, it was put to the learned counsel for the applicant as to how the present petition, as such, would be maintainable, taking the assertions and the allegations put forward by the applicant.

6. Learned counsel for the applicant, in the first instance, urged that when the sole arbitrator had died, thereupon the Managing Director or the Chief Engineer of the respondent had no right to nominate another person. To appreciate the said argument, reference can well be made to Clause 48 of the Contract between the parties, which has been reproduced by the applicant and it reads as under:

"The arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, the "Managing Director/Chief Engineer" shall appoint another person to act as Arbitrator in accordance with the terms of the Contract. Such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also a term of this Contract that no person other than a person appointed by the Managing Director/Chief Engineer, as aforesaid should act as an arbitrator and if for any reason, that is not possible, the matter is not to be referred to Arbitration at all."

7. The relevant extract shows that it was agreed between the parties that when the arbitrator vacates his office or is transferred or is unable to act for any reason, the Managing Director or Chief Engineer of the respondent could appoint another person as the sole arbitrator. The expression "unable to act for any reason" is pregnant with the meanings. If the matter was to end with the words unable to act the things would be different. Herein, the contract stipulates that if he is unable to act for any reason, the Chief Engineer/Managing Director will have the right to appoint another arbitrator. "Any reason" would include the death of arbitrator because in that event also the arbitrator is unable to act. In the present case in hand, the arbitrator has died and obviously he is unable to act because of the act of the god and in that view of the matter the Chief Engineer or the Managing Director could, indeed, appoint another arbitrator.

8. Confronted with that position, it was vehemently urged that the clause which permits the Managing Director or the Chief Engineer to nominate the arbitrator patently is illegal or in other words, it was argued that the Managing Director could not be a judge of his own cause and in that backdrop, it was vehemently contended that the said part of the agreement, which permits the Managing Director to nominate arbitrator, necessarily must be held to be not valid.

9. Indeed, impartiality and fairness of the arbitrator is of utmost importance. The pure stream of administration of justice should not be allowed to be polluted. It requires that there should be fair proceedings and there should be no apprehension of there being bias on the part of the arbitrator.

10. Russel in his book on arbitration (twenty-first edition) at page 119 in this regard deals with this subject:-

"The general proposition that arbitrators should be impartial and disinterested is uncontroversial. But it is difficult to provide an adequate definition of partiality and interest. Actual instances of proven bias are unusual. This section looks at allegations of bias arising from the arbitrator's conduct before the appointment."

11. Thereafter the learned author refers to the imputed bias and concluded that real test is whether there is a real danger or bias in the mind of the person complaining or not. Thereupon the author records:

"Someetimes there is no evidence of actual bias, but there is a suspicion of bias: and, in a series of cases, the courts have reviewed this "imputed bias". The court considers all the circumstances. The test used to be whether the possibility existed that the arbitrator's mind might have been biased. The test now is whether there is a "real danger of bias". The court applies this test objectively, by measuring against the standards of the reasonable person, but in the position of the complaint, with all his knowledge of the relevant trade and of the manner in which disputes are resolved. Bias may be imputed from conduct during the arbitration."

12. On these principles, came the judgment rendered in the case of METROPOLITAN PROPERTIES CO. (F.G.C.) LTD. v. LANNON AND Ors, AIR 1969 (1) QUEEN'S BENCH 577. A Committee therein had been formulated and the Queen's Bench found that although in the circumstances, there was no error of law disclosed, but the Bench relating to Chairman's connection with the tenant, could not be ignored. There is a reasonable apprehension of bias and the decision of the Committee on that ground, thus, was ignored, Same principle had been reiterated by the Supreme Court in the case of INTERNATIONAL AIRPORT AUTHORITY OF INDIA v. K.D.BALI AND ANR. . The Supreme Court held that the apprehension of bias must be reasonable and form average point of view, every complaint cannot take part of bias. The Supreme Court in this regard held:-

...."But there must be reasonableness of the apprehension of bias in the mind of the party. The purity of administration requires that the party to the proceedings should not have apprehension that the authority is biased and is likely to decide against the party. But we agree with the learned Judge of the High Court that it is equally true that it is not every suspicion felt by a party which must lead to the conclusion that the authority hearing the proceedings is biased. The apprehension must be judged form a healthy, reasonable and average point of view and not on mere apprehension of any whimsical person. While on this point we reiterate that learned counsel appearing for the petitioner in his submissions made a strong plea that his client was hurt and had apprehension because the arbitrator being the appointee of his client was not acceding to the request of his client which the petitioner considered to be reasonable...."

13. In other words, mere allegation of bias by itself will be of little reveal and there has to be some amount of reasonableness to prompt the court to come to a conclusion that there is apprehension of unfairness before it could be taken that there is a bias or apprehension thereto.

14. When a party agrees that a person has to be appointed as an arbitrator or right has been given to the authority to appoint a person, necessary it does not give rise to the findings that there is apprehension or there is bias in the nominee by the Chief Engineer or the Managing Director. Goes to the facts of the present case is the decision of the Jammu & Kashmir High Court in the case of PRESIDENT OF INDIA v. KESAR SINGH, AIR 1966 JAMMU & KASHMIR 113 . Therein power had been given to the Chief Engineer to appoint an arbitrator. It was held that there was no warrant for proposition that the contractor, as such, must have been consulted. In paragraph 10, the Court held:

"10. The objection that Mr. Raheja was appointed as an arbitrator without notice to the contractor is also not correct. The agreement as it is, gave the power to the Chief Engineer to appoint anybody as the arbitrator. That option has been exercised by the Chief Engineer and he has appointed Mr. Raheja. There is no warrant for the proposition that the contractor should have been consulted before any person was appointed as the arbitrator. This contention of the contractor is also rejected."

15. There is another way of looking at the matter. As is clear from the resume of the facts given above, earlier the petitioner applicant had filed an application under Section under Sub-section (2) to Section 8 of the Arbitration Act, 1940 for appointment of the arbitrator. This court had directed the Managing Director/Chief Engineer to nominate the arbitrator. At that time the applicant seemingly never raised the present plea of unfairness or the arbitrariness in the said clause. In that view of the matter, it is too late in the day after having agreed to the appointment of arbitrator by the Managing Director, to raise such a plea. A Division Bench of the Madhya Pradesh High Court in the case of RAMSAHAI SHEDURAM v. HARISCHANDRA DULICHANDJI AND ANR. dealt with the same contention and held:

"(22) (i) It is open to a party to arbitration to seek revocation of the reference if he discovers after the reference is made, that the arbitrator suffers from a personal disqualification or is for reasons which the party could not have ascertained with due diligence at the time of the reference, likely to take asides or to be incapable of attending to his duties. But the position is quite different if the disqualifications or incompetencies that are alleged by the party were already there at the time of the reference or where either known to him or could have been ascertained by him with the amount of diligence that can be expected of a person in his situation . In the instant case, for example, it is alleged that Shri Dhanda the de facto owner of all buildings was once the Deputy Prime Minster in the Holkar State and later on, the Adviser to the Senior Up-Rajpramukh of Madhya Bharat. Shri Joglekar arbitrator was a servant of the erstwhile Holkar State and continued in service int he Madhya Bharat. As against, it, it is alleged that Shri Dhanda was no more the Deputy Prime Minister of the Holkar State when the contracts were signed in October 1948 and as for being the Adviser, he had in that capacity nothing whatsoever to do with the administration under which Shri Joglekar was then working."

16. Identical indeed was the reasoning of the Bombay High Court in the decision rendered in the case of M/s. ASIATIC SALVORS v. DODSAL PRIVATE LTD., AIR 1987 BOMBAY 335 . While dealing with somewhat similar situation, it was held:

"14. In the present case, although the petitioner did not immediately ask for revocation of the arbitration agreement in Feb., 1986 or within a reasonable time thereafter, the petitioner did not actually participate in the arbitration proceedings. The petitioners, however, did allow arbitration to continue and culminate in an award.

15. The petitioners were aware of the alleged bias some months prior to the commencement of arbitration. The petitioners could have taken steps much earlier for removal of the arbitrator if it was their contention that the arbitrator was biased. Instead, the petitioners allowed arbitration to proceed and waited until and award was failed in this court before challenging it. In these circumstances, it would not be in the interest of justice to allow the petitioners raise their objection to the arbitration at this late stage. It is, however, not necessary to decide this aspect of the matter since in my view, the arbitrator has not displayed any bias or interest which could disentitle him form functioning as an arbitrator."

17. Thus when a party submits to the jurisdiction of the arbitrator and does not challenge that the Managing Director or the Chief Engineer could nominate a person, then when out of the same clause on the death of the arbitrator another arbitrator is being appointed, it is too late in the day for the applicant to raise such a plea. He has submitted to the jurisdiction of the arbitrator earlier nominated by the Managing Director/Chief Engineer. He cannot be permitted to raise this plea. In any case, even if this plea is allowed to be raised, it is of no avail and not meritorious at all. The reason being that it had been agreed between the parties that the Managing Director would be allowed to nominate a person as the sole arbitrator. There is precious little on record to indicate that the person so nominated, viz. Shri K.L.Sehgal, is not fair or there is no other ground not to appoint him as the arbitrator. Merely because it was not agreed to by the applicant is indeed no argument to upset his appointment. In that view of the matter, this argument necessarily must fail.

18. The applicant has further prayed that the clause, by virtue of which it has been provided that no person other than appointed by the Managing Director shall act as the arbitrator and even if it is not possible to do so, the matter shall not be referred to the arbitration at all. Keeping in view the above findings when the arbitrator as such has been appointed and as recorded above, the appointment is valid, it is purely an academic argument which indeed need not be gone into in the present matter.

19. For these reasons given above, the petition must fail at the threshold because it does not disclose a cause of action.

20. Accordingly, the petition, as such, is rejected.