Societe Pepper Grenoble S.A.R.L. vs Union Of India (Uoi) And Ors.
2004 Latest Caselaw 503 Del

JUDGMENT

Manmohan Sarin, J.

1. The petitioner by this writ petition seeks quashing of order dated 1st March, 2003 by Mr. Justice P.K. Bahri (Retd.) and a declaration that the Arbitration Clause in the contract is void under Section 23 of the Indian Contract Act. The petitioner as a consequence seeks stay of the proceedings before the Arbitral Tribunal.

2. By order dated 1st March, 2003, the Arbitrator Justice P.K. Bahri (Retd.) rejected the objections filed under Section 16 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act) challenging the jurisdiction of the Arbitral Tribunal to adjudicate upon the disputes between the parties. Petitioner filed a review petition and an application for reconsideration of the order dated 1st March, 2003. The said application for reconsideration and review was also rejected vide orders dated 12.3.2003, holding that there was no power of review conferred on the Arbitral Tribunal under the Act.

3. Vide orders dated 10.9.2003, my learned predecessor had issued notice in the writ petition confined to the question of maintainability of the writ petition. Parties thereafter filed written submissions. The petitioner has filed detailed submissions on the maintainability as well as on merits and respondent has also filed its written submissions. Counsel for the parties have also been heard.

4. Facts giving rise to the present petition may be noted briefly. Petitioner had entered into a contract for supply of 8,588 sleeping bags at a unit rate of FF 1381 on FOB basis, for delivery within 90 days. The respondent-Union of India, through the Ministry of defense placed Contract Purchase Order bearing No.21(28)92-D-(0-1), for the supply of said bags. Performance Bond and Warranty Bond were also provided by the petitioner. The Contract Purchase Order was subject to the standard terms and conditions of contract. Clause 17(b) contained the following arbitration clause:-

"All the rights and liabilities embodied in the contract except those stipulated hereinafter shall be determined by referring to arbitration of the Nominee of the Secretary of Ministry of defense of the Government of India under the laws of India."

5. Respondent, in pursuance to the above arbitration clause, appointed Mr. T.C. Joshi, Financial Adviser, Border Security Force, as the Sole Arbitrator to decide the disputes that had arisen between the parties and claims of the respondent. The Sole Arbitrator Mr. T.C. Joshi, entered upon reference and issued notice to the parties. Respondent filed its statement of claim. The petitioner on 9.11.1998, filed preliminary objections to the maintainability of the arbitration and claimed that the Arbitral Tribunal lacked jurisdiction. Petitioner objected to the jurisdiction on the ground that the respondent could not unilaterally appoint or name an arbitrator equating it to "being a judge in its own cause".

6. The Arbitrator Shri T.C. Joshi, in view of the objections raised, asked the parties to consider appointing an Arbitrator by mutual consent and in case they fail to mutually agree on an Arbitrator, the matter be placed before the Secretary, Ministry of defense who is the nominating authority, for consideration and passing of orders.

7. The Secretary, Ministry of defense vide taking note of the objections and concern of the petitioner that the arbitration agreement did not provide for arbitration by a Government employee and for the selection of a new arbitrator, who should not be employed by the either party, appointed Justice P.K. Bahri (Retd.) as the Sole Arbitrator in place of Shri T.C. Joshi to adjudicate upon the disputes and differences between the parties.

8. The petitioner, as noted earlier, challenged the maintainability of the proceedings before the Arbitral Tribunal of Justice P.K. Bahri (Retd.) and questioned his jurisdiction under Section 16 of the Act on the ground that the arbitration clause in the contract between the parties is void and un-forceable at law. It was urged that appointment of a Sole Arbitrator only by one party to the dispute violates the equitable principle that no man can be a judge in his own cause. It was urged that Supreme Court judgment in the case of Executive Engineer, Irrigation Division, Puri Vs. Gangaram Chhapolia reported at , wherein the appointment of Superintending Engineer by the appointing authority, Chief Engineer, was upheld only on account of technical expertise. It was urged that it was on account of the historical role of the Engineer-in-Chief as the impartial arbitrator, the arbitration clause was Upheld.

9. The present arbitration clause was assailed as unreasonable and an onerous term, which was forced upon the petitioner on account of unequal bargaining power. Petitioner was subjected to an attitude of "take it or leave".

10. It was urged that the writ petition challenging the said order was maintainable as no appeal lies from the order of Arbitral Tribunal rejecting a plea to the challenge to its jurisdiction under Section 37 of the Act. Learned counsel for the petitioner urged that the order rejecting the plea challenging the jurisdiction of the Arbitral Tribunal under Section 16(5) of the Act was neither an Arbitral Award nor an interim award under the Act which could be set aside under Section 34 of the Act.

11. I have heard learned counsel for the petitioner on merits as also perused the detailed written submissions filed, wherein reference has been made to number of judgments such as Hindustan Times and Ors. Vs. State of U.P., , Central Inland Water Transport Corporation Ltd. and Anr. V. Brojo Nath Ganguly and Ors., etc. The said judgments would have no application in the facts of instant case and cannot advance the petitioner's case.

12. Respondents have raised preliminary objection as to the maintainability of the petition. It is urged that as per the Scheme of the Act the Arbitral Tribunal is competent to rule on its own jurisdiction and the orders of the Tribunal can be challenged only on the limited ground as set out in Section 37 of the Act. It is for the petitioner to challenge the Award, if he so chooses on ground of lack of jurisdiction also under Section 34 after the final Award had been made. The arbitral proceedings are required to continue once the challenge or objections to the lack of jurisdiction are decided by the arbitral tribunal and the remedy of the parties only is after the Award has been made.

13. Although I find the contentions and the preliminary objections on the maintainability of the writ petition by the respondents well founded, I am of the view that in the instant case the petitioner has failed to make out any case for interference in the exercise of writ jurisdiction. The whole case of the petitioner is proceeding on the basis that by one party having a right to nominate an Arbitrator, it is becoming a judge on in its own cause. The said assumption as rightly observed by the Arbitral Tribunal is wholly misplaced. The petitioner has also completely misconstrued the judgment of the Supreme Court in the case of Executive Engineer, Irrigation Division, Puri (Supra). The Supreme Court in the said case had upheld the appointment by the Chief Engineer, who had appointed Shri D. Sahu, Superintending Engineer (Irrigation), as an Arbitrator. The Court noticed that the term "State Public Works Department" would include within its ambit several departments including Department of Irrigation. This did not mean that the Superintending Engineer (Irrigation) was not competent to adjudicate upon the disputes. All that was required was that he should not be connected with the actual work in question viz. Excavation of Satanka Distributory. In the instant case, even the appointment of first Arbitrator had nothing to do with the actual supply under the purchase contract. The submission of the counsel that the said judgment was distinguishable, in as much as, it recognizes the expertise of the Arbitrator which was required, does not flow from any observation or facts as given in the judgment. The learned Arbitrator has rightly held that no adjudicatory function was involved by the mere nomination of the Arbitrator. The challenge to the said nomination has also been negated by the Supreme Court in the case of Secretary to the Government, Transport Department Mashas Vs. Munuswamy , International Airport Authority of India Vs. K.D. Bali , S. Rajan Vs. State of Kerala and Bhupinder Singh Vs. Union of India 1995 SC 2464.

14. In view of the foregoing discussion, the challenge to the arbitration clause must fail. It is also to be noted that the present case is one where international tenders were floated and parties were free to compete. The petitioner having accepted the terms and conditions of the contract now wishes to resile from the same. It is also significant that in the entire petition there is not an iota of suggestion of any bias or un-fairness in the conduct of proceedings by the learned Arbitrator. The Arbitrator appointed by the respondents in this case is a Retired Judge of the High Court of Delhi who has held a Constitutional position and there is no basis of nurturing or entertaining any misgivings or apprehension regarding the petitioner not getting a fair hearing or a fair adjudication. The petitioner by raising objection to the appointment of first arbitrator and secondly to the appointment of Justice P.K. Bahri (Retd.) has managed to delay the arbitral process which is intended for expeditious resolution of commercial disputes.

15. Considering the view I have taken on the validity of the arbitral clause and the foregoing discussion, I find no merit in the petition. The same is accordingly dismissed with costs of Rs.10,000/-.