Umed Singh (Deceased) Through ... vs M.G.F. Limited
2006 Latest Caselaw 1211 Del

JUDGMENT

A.K. Sikri, J.

1. Sh. Umed Singh had got a vehicle bearing No. HR-13-0187 on hire purchase basis through the respondent Motor and General Finance Limited in April, 1991. Total cost of the said vehicle was Rs. 2,05,000/-. He availed a finance of Rs. 1,25,000/-. This amount was to be repaid to the respondent in 23 equal installments of Rs. 7,300/- and these installments were inclusive of interest and other incidental charges. The petitioner made payment of 18 installments up to March, 1993. Unfortunately at that time the vehicle met with an accident which occurred on 21st March, 1993. Since the earning of the petitioner Umed Singh was dependent on this vehicle, due to this accident his business came to standstill and his earning got a severe beating. He, therefore, could not pay remaining five installments. The respondent re-possessed the vehicle, obtained claim from the insurance company and also sold the vehicle.

2. As Umed Singh, died, his legal representatives have filed this petition under Section 11 of the Arbitration and Conciliation Act, 1996 read with Section 8 thereof for appointment of an arbitrator. According to the petitioners, only five installments were due and thus, the total amount which remained to be paid was Rs. 7,300 x 5, i.e. Rs. 36,500/-. However, the respondent No. 1 received a sum of Rs. 88,000/- as claim from the insurance company and, thereafter, sold the vehicle for a consideration of Rs. 88,000/-. Therefore, according to the petitioners, the respondent should have paid the balance amount after adjusting the amount of remaining installments and as it was not done the following disputes have arisen:

(a) Whether after settling the a/cs in full and final settlement in whatever manner, the respondent was/is right in withholding the amount of deceased?

(b) What amount was due to the respondent as on the date of resumption?

(c) What amount has been adjusted in the account and under what law, manner and under Clause of HPA?

(d) If issue/point No. 1, is proved, to what amount of compensation, etc. the applicant are entitled to?

(e) To what amount, besides compensation, interest, etc., the applicants are entitled to?

(f) Whether the respondent has adjusted and settled the a/cs in proper, legal and appropriate way? If not, its effect?

(g) Relief, etc?

3. It is averred that the enquiries have revealed that the respondent had entered into hire-purchase agreement dated 18th April, 1991 with Umed Singh which contains an arbitration clause. The petitioners have prayed for appointment of an independent arbitrator.

4. In the reply filed by the respondent the main defense taken is that an arbitrator in terms of hire-purchase agreement has already been appointed and this application is not maintainable as the arbitration Clause clearly stipulates the name of arbitrator, namely, Sh. Inderjeet Gulati, Advocate, and in case of his death, refusal, negligence or incapability to act as arbitrator, name of Sh. D.L. Bhargav, Advocate is mentioned as alternate arbitrator.

5. I may state that this stage that the respondents had also taken up the plea of limitation. However, that stands decided vide order dated 24th November, 2001 when the delay was condoned subject to payment of Rs. 1,000/- as costs. It may be mentioned that said order was passed by Additional District Judge, Delhi as the present petition was originally filed in the District Court. However, in view of the seven Judge Bench judgment of the Supreme Court in the case of S.B.P. and Co. v. Patel Engineering Ltd. and Anr., the case has been transferred to this Court.

6. As a proposition of law, it cannot be disputed that when the arbitrator is named in the arbitration clause itself, in the event of dispute the matter is to be referred to the said arbitrator and application under Section 11 would not be maintainable. Section 11 clearly stipulates that if a procedure is mentioned in the agreement by way of an arbitration clause, then that procedure is to be followed. As the arbitration clause in an agreement names a particular arbitrator, the Court would not assume jurisdiction (see: Rite Approach group Ltd v. Rosoboronexport A.I.R. S.C. 401 and Punj Lloyed Ltd. v. Petronet MHB Ltd. 2006(1) Arb.L.R. 528 (S.C).

7. However, on the basis of following two submissions learned Counsel for the petitioner prayed that this Court may appoint independent arbitrator:

(i) The respondent had failed to act even when the notice for appointment of arbitrator was given and, therefore, in view of the judgment of the Supreme Court in Datar Switchgears Ltd. v. Tata Finance Ltd and Anr. 2000(3) Arb.L.R. 447, it is now for the Court to appoint the arbitrator.

(ii) In the facts and circumstances of the case, fair and impartial decision from the arbitrator named in the agreement is not expected.

8. In support of first proposition, the learned Counsel for the petitioner pointed out that legal notice dated 30th August, 1996 calling upon the respondent to either make the payment of the amount due along with @ 18% per interest or get an arbitrator appointed through the Court of law but no arbitrator was appointed. The petitioner thereafter filed the application in the District Court which was registered as No. 252 of 1996 and was withdrawn with liberty to file the fresh petition. As no arbitrator was appointed after the expiry of 30 days and till the filing of the petition, Court could appoint an independent arbitrator.

9. Submission of the learned Counsel for the respondent, however, was that in a matter like this nothing was to be done by the respondent as the arbitrator was already named and the petitioner could approach the named arbitrator with their disputes and, therefore, there is no failure on the part of the respondent as alleged. Learned counsel for the respondent relied upon the judgment of the Supreme Court in Rite Approach Group Ltd. v. Rosoboronexprot (supra).

10. In order to appreciate the respective contentions we will have to take stock of some of the material facts and events occurring in this matter. The respondent is a financial company and it had financed the vehicle in question by paying an amount of Rs. 1,25,000/-. Agreement in question entered into between the parties was hire-purchase agreement. Thus, on making the complete payments, the petitioner would have become the owner of the vehicle in question. As per the agreement, the amount was to be repaid in 23 equal installments. 18 installments were paid and only 5 installments remained when the vehicle met with accident because of which the petitioner could not pay further installments. Thus, even as per the agreement 5 installments remained to be paid and the balance amount on this count would be Rs. 36,500/-. As the respondent was the owner of the vehicle, on papers, as complete installments were not paid, it lodged the claim with the insurance Company and a sum of Rs. 88,000/- has been received. This fact is not disputed by the respondent. Even if one agrees with the contention raised in the reply, as on the date when the vehicle met with accident, the petitioner was liable to pay a sum of Rs. 72,910/-, though statement of account is not filed indicating how this amount became due. It is admitted that Rs. 88,000/- was received from the insurance and was adjusted against the amount due from the petitioner. Thus, even if the version of the respondent is correct, the outstanding stood adjusted fully and the petitioner was entitled to refund. As per the petitioner the respondent thereafter sold this vehicle and received further sum of Rs. 80,000/- on this account. In the reply filed by the respondent this aspect is not specifically traversed and the reply is silent thereon. It is thus clear that conduct of the respondent is not reasonable. Otherwise when the respondent was fully compensated by the insurance company and on receipt of the said amount there was surplus with the respondent which was to be refunded to the petitioner, the respondent did not refund that amount but allegedly sold the vehicle and appropriated some more amount towards that which, according to the petitioner, is Rs. 80,000/-.

11. We proceed further from this stage. The petitioner, believing that he was entitled] to some amount, wrote a letter to the respondent. He wanted an arbitrator to be appointed. The respondent did not even care to give any reply and maintained stoic si- lence. It is very easy now to say that there was an arbitration Clause in the agreement and there was an arbitrator named in the agreement and the petitioner could have approached the said arbitrator. However, if the respondent was honest in its intention, what prevented the respondent from bringing to the notice of the petitioner the aforesaid Clause in the agreement and asking him to approach the arbitrator named therein. After waiting to get the response when the petitioner filed the instant petition, it has been resisted by raising all kinds of technical pleas. But the respondent has not come out with clean hands. It has not given the statement of accounts showing as to how the amount of Rs. 72,000/- is due whereas as per the petitioner only five installments remain to be paid. Further, as noted above, even after claim from the insurance company there was surplus available with the respondent, when the petitioner sent notice to the respondent for appointment of the arbitrator, the least that was expected from the respondent was to tell the petitioner that surplus amount was available with the respondent which the respondent was willing to pay to the petitioner. In so far as the allegation of the petitioner that the vehicle was sold for Rs. 80,000/-, the respondent has not even replied the same. Having regard to all these circumstances, I am of the view that even if the arbitration Clause contains the name of the arbitrator, it is a fit case where the Court should appoint the arbitrator. In taking this view, I am supported by judicial dicta. Under certain circumstances, notwithstanding the aforesaid procedure, the Court has power to appoint its arbitrator.

12. Some of the circumstances which can be culled out from the case law, are the following:

(a) Where the designated authority fails to appoint the arbitrator. In the case of W.B.L. Ltd. v. M.T.N.L and Ors. , the Court observed as under:

13. In the present case over a year has elapsed since the demand for arbitration was raised. The respondents have failed to make the appointment of the Arbitrator on the ground that it had the unfettered rights to unilaterally decide to recover liquidated damages and that this right would not have to await the decision or imprimatur of the Arbitrator. Section 11 of the Arbitration and Conciliation Act clearly stipulates that if a party fails to appoint an Arbitrator within thirty days from the receipt of a request to do so from the other party, the appointment shall be made by the Court. I had specifically sought a clarification from learned Counsel for the respondents as to whether a demand for liquidated damages had been addressed by them to the petitioner. All that was shown to me was a letter in which, for allowing an extension of time to the petitioner, the respondents had stated that liquidated damages were claimable. It could have been appreciated if the respondent, had arrived at a decision in regard to the justification of imposition/recovery of liquidated damages intra departmentally. Even if this issue is to be considered as a non-arbitrable dispute, it does not lead to the conclusion that it can be automatically taken by the respondents, in flagrant violation of the audi alteram partem rule. I cannot be convinced that there is any justification for the interpretation of the clause relied upon by the respondents to warrant a unilateral decision,without even affording the party so affected with an opportunity of being heard. Clause of this nature, variously referred to as exclusive on or exemption or exceptional Clauses, merely substitute the decision making power on such issues to a person (usually an officer or nominee of the Drafter of the exclusion clause) other than the Arbitrator. It does not dispense with the rules of natural justice, or enjoining this office/nominee from, hearing the other side. It certainly cannot be interpreted in so draconian a manner as to empower a deduction without even a semblance of exercise of mind.

14. It has now become common place for persons who have retained this power of appointment of an Arbitrator, not to act at all or to act with such obduracy as to render an arbitration clause totally meaningless. The vehemence with which the present petition was opposed, often caused me to forget that it was only the appointment of an Arbitrator to adjudicate upon the claims raised by both parties and not the disposal of objections, that was in debate. After hearing lengthy arguments it would be an abdication of judicial duty if the respondents were still permitted to make an appointment of the Arbitrator. The State is expected to act without arbitrariness and within fairness and in furtherance of the well-being of its citizens. It is also expected to know the law, especially as laid down by the Supreme Court. It cannot be executed if its action tantamount to emasculating the laws i.e., of expeditious disposal of disputes through arbitration. Apart from the logistic considerations, i.e., encouraging vexatious and obdurate failure to act in accordance with and in conformity with the contract between parties, there is one further consideration which has persuaded me to make an appointment of an independent person as an Arbitrator. The decision to oppose the present petition has been taken by the very officer who is to act as the Arbitrator. He has already taken a view in the case and has issued instructions and then action for their implementation. The preponderance of likelihood is that he or his nominee would uphold his view. Having already decided held that the department is justified in claiming liquidated damages, and having declined the petitioner's request for the appointment of an Arbitrator, there is a strong pervading risk that a fair decision would not be rendered since this Officer also have the power to nominate an Arbitrator, presumably also in service, it is quite possible that his bias would permeate to his nominee. Justice has not only to be done but must also appear to be done. As observed above had the respondents agreed to appoint an Arbitrator, albeit after some delay, I would have not felt compelled to appoint an Arbitrator debars the arbitration clause. The decision of the Apex Court in Rajan's case would not have application to the present circumstances in view of the recalcitrant refusal of the respondent to make an appointment of an Arbitrator.

Thus it was held that even after notice of appointment of arbitrator, thirty days' time is allowed to lapse without taking action and the aggrieved party approaches the Court for such an appoint the persona designata forfeits its right to appoint the arbitrator. The Court, in such circumstances, can step in and take charge of the proceedings and appoint the arbitrator.

This dicta was approved by the Supreme Court in the case of Datar Switchgears Ltd. v. Tata Finance Ltd and Anr. VII(2000) S.L.T. 543: 2000 (3) Arb.L.R. 447 (S.C.) with a modification that merely on the expiry of thirty days' time, the right is not forfeited. Appointment can be made even after the expiry of 30 days' period but before an application for appointment of an arbitrator is filed by the other side. It is clear from the following observation

19. so far as cases falling under Section 11(6) are concerned, such as the one before us, no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an Arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the Court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an Arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an Arbitrator under Section 11(6) is forfeited.

(b) Where the Court doubts the impartiality of the designated authority and the arbitrator, the Court can appoint an independent arbitrator. This happened in the case of Interstate Construction v. NPCC Construction wherein the Court observed as under:

It is this type of conduct and dealing which sometimes compels a Court to override Clauses in an agreement which waive objection as to impartiality of the Arbitration on the grounds that he is an officer of one of the parties to the dispute.

(c) In peculiar circumstances where the Court is faced with a move which is not covered by the provisions of the Act, this situation occurred in the case of Sushil Kumar Raut v. Hotel Marina and Ors. , and the Division Bench appointed an independent arbitrator by observing as under:

We are conscious of the position that arbitration admits of least judicial intervention and the manner in which an arbitrator is to be appointed. But we are faced with an impasse which is neither covered by the provisions of the Arbitration Act, nor any precedent. This, if left unattended would have the natural consequence of leaving the dispute between the parties unresolved which would be contrary to the spirit and intent of the Arbitration Act. It would, therefore, require to be broken which can be only done by the appointment of an impartial arbitrator. This may not be technically or strictly in tune with the provisions of the Act which do not provide for such like eventuality but it is surely dictated by the interest of justice. Therefore to promote and secure the interest of justice, it would be appropriate to set aside the impugned order and appoint an independent arbitrator.

12. The application is accordingly allowed. Ms. Manjula Batra, Director Vivekanand Institute of Professional Studies (VIPS), Cell. No. 9811549180, is appointed as the arbitrator who shall adjudicate the disputes between the parties. Her fee is fixed at Rs. 15,000/- which shall be shared by both the parties equally.

13. I may note that the respondent has taken the plea that claim of the petitioner is time-barred. This aspect shall be considered by the learned Arbitrator. It is further clarified that observations made in this order are for the purposes of appointment of an independent arbitrator and while adjudicating the disputes, the learned arbitrator shall not be influenced by these observations and shall decide the dispute on its own merits and on the basis of evidence produced by both the parties. Fee of the arbitrator shall be shared by the parties in equal proportion.