Surinder Pal Singh vs Hpcl And Anr. [Along With Cm (M) No. ...
2006 Latest Caselaw 1767 Del

JUDGMENT

T.S. Thakur, J.

Page 3259

1. Since parties to all these cases are common and the questions that arise for consideration are inter-related, the same were heard together and shall stand disposed of by this common judgment.

2. The plaintiff-appellant in RFA No. 186/2001, was appointed a dealer by the respondent-Hindustan Petroleum Corporation Ltd. ("HPCL" for short), who happens to be the appellant in cross-appeal No. 283/2001. An agreement dated 15th December, 1981 governed the relationship between the parties. On 29th November, 1999, HPCL appears to have conducted an inspection at the petrol pump of the plaintiff and taken samples for conduct of certain tests. A show cause notice soon thereafter was issued to the plaintiff on 30th December, 1999, alleging that the samples did not meet the required specification. The plaintiff tried to clarify his stand, which failed to impress the HPCL, resulting in the suspension of supply of oil to the petrol pump.

3. Aggrieved by the said order, the plaintiff invoked the arbitration Clause, appearing in the Dealership Agreement. In response to the request made by him, the Chairman and Managing Director of the HPCL, appointed Sh. S.P. Chaudhary, General Manager (North Zone) as the sole arbitrator in the case, who entered upon the reference on 29th May, 2000. The arbitration proceedings appear to have commenced in August, 2000 and were adjourned from time to time. Since the proceedings could not be completed within a period of 10 months, as required under the arbitration clause, the plaintiff appears to have intimated to the arbitrator that the same could not be continued beyond the said period. An application filed by the plaintiff under Section 9 of the Arbitration and Conciliation Act, 1996 (for short "the Act") before the District Judge, Saharanpur, was subsequently dismissed as infructuous.

4. The plaintiff then filed suit No. 472/2001 in which he challenged the collection of samples by HPCL on several grounds. He assailed even the laboratory tests reports and sought a declaration regarding the invalidity of the process of collection of samples, the test reports, the suspension order that followed and eventually the cancellation of the license, all of which were, according to the plaintiff, void ab initio. He also prayed for a permanent injunction restraining the defendant from taking any further action, pursuant to the tests reports or from dis-continuing the supply of oil to the petrol pump of the plaintiff.

5. The defendants appeared before the trial court and moved two applications one of which sought rejection of the plaint. In the objections filed by the company to that application, it was pointed out that the Dealership Agreement, dated 15th December, 1981 had already been terminated by HPCL Page 3260 in terms of letter dated 6th April, 2001 and the termination communicated to the plaintiff rendering the suit infructuous. It was also urged that since both the parties had already agreed to refer all the disputes to arbitration which was in progress before the sole arbitrator, the plaintiff was not entitled to withdraw from the arbitration proceedings or shift the forum for determination of the questions raised by him. The defendant argued that so long as the proceedings before the Arbitrator were not terminated, there was no legal justification for the plaintiff to maintain a separate suit in regard to the very same subject matter.

6. In the second application, the defendant invoked Section 8 of the Act on the ground that all the issues that were raised in the suit were directly and substantially the same as fell for consideration of the Arbitrator and since the arbitration proceedings were pending, the suit was not maintainable.

7. In response to a court notice, the Arbitrator filed a reply, inter alia, stating that he is seized of the disputes arising out of the dealership agreement, suspension of supply as also notices issued to the plaintiff. He was not, however, aware of the termination of the license of the plaintiff nor was the validity of any such termination referred to him. The arbitrator also referred to an order passed by him on 6th April, 2001, whereby the plaintiff's contention that the arbitration proceedings had come to an end on 28th March, 2001, had been rejected.

8. Relying upon the provisions of Section 32 of the Act, the trial court repelled the contention urged by the plaintiff that the arbitration proceedings before the Arbitrator stood terminated. According to the trial court, the arbitration proceedings were still going on and the disputes between the parties to be decided by the Arbitrator. Having said so, the trial court went a step further to hold that since the legality and validity of the show cause notice issued to the plaintiff-appellant and the dispute regarding suspension of the supply to the petrol pump of the plaintiff were subjudice before the Arbitrator, no party could take any action, which would have the effect of jeopardizing the proceedings before the Arbitrator or undermining the authority of the arbitration. The Court observed:

By issuing the termination letter dated 6-4-2001, the defts. have bypassed the Arbitration Proceedings and have created a situation where if the Ld. Arbitrator comes to a conclusion that acts of the defts. were void ab initio, even then he will not be able to give a relief to the plaintiff because the Arbitration Proceedings are pending and the decision will take some time, but the Dealership Agreement has already been terminated on 6-4-2001 during the pendency of the Arbitration Proceedings. At this stage, no one can say that what will be the outcome to the Arbitration Proceedings. The Ld. Arbitrator has complete freedom to decide the matter as per law and facts before him and no party can be allowed to create a situation which will result in making the Arbitration Proceedings infructuous.

9. The Court has, on the above basis, suspended the operation of the termination letter, issued by HPCL with a direction to the plaintiff to appear before the Arbitrator on 27th April, 2001 to join the pending proceedings. Page 3261 It has further directed the plaintiff to raise the dispute regarding authority of the defendant to invoke Clause 26 of the Dealership Agreement and to terminate the said agreement during the pendency of the arbitration proceedings. The Arbitrator was directed to hear both the parties and decide the issue within six weeks thereafter. The order of the suspension of operation of letter has, in the meantime, been rendered inoperative by the trial Court, pending final adjudication by the Arbitrator. The operative portion of the order passed by the Arbitrator runs as under:

Accordingly, I, hereby, suspend the operation of the termination letter dated 6-4-2001 issued by the defendants with direction to the plaintiff to appear before Ld. Arbitrator on 27-4-2001 and joint the proceedings. The plaintiff is directed to raise the dispute on 27-4-2001 itself regarding authority of the defts. to invoke the Clause No. 26 of the Dealership Agreement and to terminate the Dealership Agreement during the pendency of the Arbitration Proceedings and Ld. Arbitrator is, hereby, directed to hear both the parties and decide the dispute within 6 weeks thereafter. The order of the suspension of the operation of the letter dated 6-4-2001 shall ceases to have effect on final decision being made by the Ld. Arbitrator on the dispute to be raised by the plaintiff before the Ld. Arbitrator on the dispute to be raised by the plaintiff before the Ld. Arbitrator as detailed above in respect of authority of the defendant to issue letter dated 6-4-2001 and its validity.

10. Both the parties have assailed the above direction before us in the two cross-appeals filed by them. The plaintiff has, at the same time, filed Arbitration Application No. 38/2002, seeking appointment of an independent person preferably a retired High Court Judge as a sole arbitrator to adjudicate upon the disputes between the parties. In this petition, the plaintiff-petitioner has, inter alia, asserted that he had requested the Chairman and the Managing Director of HPCL to appoint an alternative arbitrator despite the receipts whereof the CMD of the company had failed to do so, thereby entitling the plaintiff-petitioner to approach this Court for redress.

11. CM(M) No. 281/2001 filed by the plaintiff seeks a declaration to the effect that the authority of the Sh.S.P.Chaudhary, the nominated arbitrator stands terminated with effect from 28th March, 2001 and that the proceedings before the said Arbitrator have come to an end. A declaration that further proceedings conducted by the Arbitrator are null and void, has also been prayed for.

12. We have heard learned Counsel for the parties and perused the record. We propose to deal with the regular appeals that arise out of the suit filed by the plaintiff first.

13. The defendant-HPCL had sought rejection of the plaint filed by the plaintiff, inter alia, on the ground that the issues that were raised for adjudication of the Court were the very same issues that already stood referred for adjudication by the Arbitrator. So long as the arbitration proceedings remained pending no suit on the very same subject matter could be maintained by any party to the disputes. Section 32 of the Act governs the termination of arbitration proceedings. It reads:

Page 3262

32. Termination of proceedings.-(1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under Sub-section (2).

(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where-

(a) the claimant withdraws his claim, unless the respondent objects to the order and the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute,

(b) the parties agree on the termination of the proceedings, or

(c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.

(3) Subject to Section 33 and Sub-section (4) of Section 34, the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings.

14. It is evident from the above that the proceedings shall be deemed to be pending so long as one of the events envisaged by the above provision does not occur. Such proceedings stand terminated either by submission of final award or by making of an order by arbitral tribunal under Sub-section (2). It is common ground that no award has been made by the Arbitrator nor has the Arbitrator passed any order in terms of Sub-section (2) of Section 32 (supra) terminating the proceedings. The inference, therefore, is that the arbitration proceedings are pending and any matter that stands referred to the Arbitrator for adjudication cannot be agitated before a civil court so long as such proceedings remain inconclusive. That is because arbitration proceedings before an Arbitrator provide an alternative forum for determination of disputes between the parties that would ordinarily fall for determination before a civil court. The scheme of the Act and the very spirit underlying the same does not permit the very same subject matter being agitated before two different fora, except to the extent the civil courts have been given the powers by the specific provisions of the Act such as for making interim measures etc. That is evident even from a reading of Section 8 of the Act, which enjoins upon a judicial authority before whom any action is brought in a matter, which is the subject of an arbitration agreement to refer the parties to arbitration. The trial Court was, in that view of the matter, legally correct in holding that the arbitration proceedings before the Arbitrator do not stand terminated.

15. Mr.Bansal, counsel appearing for the appellant, however, argued by reference to Section 14 of the act that the mandate of an Arbitrator would terminate on the happening of one of the events enumerated there under. In particular, he urged that failure of the Arbitrator to act without undue delay could also ipso facto result in the termination of his mandate in which event the parties could invoke Section 15 of the Act and seek the appointment of a substitute Arbitrator.

16. Section 14 of the Act deals with failure or impossibilities on the part of the Arbitrator to act and, inter alia, provides that the mandate of the Arbitrator shall terminate if he becomes de jure or de facto unable to perform Page 3263 his functions or for other reasons failed to act without undue delay. A reading of Sub-section (1)(b) of Section 14 would, however, show that the mandate of an Arbitrator can be terminated by the agreement of the parties. Such agreement may be arrived at because the Arbitrator has failed to act without undue delay. The question, however, is whether the mandate can be deemed to have been terminated even when, according to one party, it has so terminated while, according to the other, it has not. The answer to that question is provided by Sub-section 2 to Section 14, according to which if a controversy remains concerning any of the grounds referred to in Clause (a) of Sub-section (1) of Section 14, a party may, unless otherwise agreed by the parties, apply to the court to decide on the termination of the mandate. This implies that in the event of a dispute regarding the termination of the mandate of an Arbitrator on account of his failure to act without undue delay, as is the position in the instant case, the issue has to be resolved only by the Court. The term 'Court' appearing in Section 14, as also elsewhere in the Act, means the principal civil court of original jurisdiction in a district and includes the High Court in exercise of its ordinary original civil jurisdiction but does not include any civil court inferior to such civil court. What is important is that party, who intends to have the issue regarding termination of the mandate resolved, has to apply to the competent court under Section 14(1) & (2) of the Act for such a determination. A suit for declaration and injunction for a relief, which the plaintiff had claimed in the arbitration proceedings cannot be maintained by any such party on the assumption that the controversy regarding termination of the mandate, notwithstanding the mandate, according to it stood terminated.

17. That is precisely what has happened in the instant case. The plaintiff has, without applying to the competent Court under Section 14 of the Act, assumed that there is a termination of the mandate of the Arbitrator, entitling him to agitate the matter in the civil court. That assumption was without any basis and contrary to the legal position flowing from Section 14. It follows that the suit filed by the plaintiff was not maintainable and the plaint could and ought to have been rejected on that ground by the court below.

18. Instead of rejecting the plaint, as indicated above and giving liberty to the plaintiff to seek redress under the provisions of the Act, the trial Court went a step further. It examined the question whether the termination of the agreement, pending finalisation of the arbitration proceedings was valid and declared that it was not. It also made a reference to the Arbitrator on the question of validity of the termination and suspended the operation of the termination order, in the meantime. This is evident from the operative part of the order, which has already been extracted by us above. In doing so, the trial court has transgressed its jurisdiction. If the suit filed before it was not maintainable, as the pending arbitration proceedings had not been terminated so far, nor was the mandate of the Arbitrator terminated, the question of examining the validity of the termination agreement in an application under Order VII Rule 11 filed before it did not arise. It is true that the termination of the agreement had come into existence during the pendency of the arbitration proceedings and could give rise to a fresh cause of action for the plaintiff but then any such dispute was itself referable to arbitration for which Page 3264 the party seeking the reference had to follow the procedure prescribed under the agreement or seek redress under the relevant provisions of the Act.

19. The trial court should have, in that view, asked the plaintiff to seek a reference from the designated authority on the question of validity of the termination order or to seek redress against any inaction on the latter's part. Pronouncing upon the validity of the termination order or suspending its operation or making a reference de hors the procedure prescribed for such references was neither necessary nor called for.

20. That brings us to Arbitration Application No. 38/2001 in which the plaintiff-petitioner has asked for the appointment of an independent Arbitrator. This application proceeds on the assumption that the mandate of Sh. S.P.Chaudhary, Arbitrator stood terminated upon expiry of the period of 10 months stipulated for completion of the proceedings under the arbitration Clause. That assumption, as already indicated above, is not correct as on date. There is no automatic termination of the mandate of the Arbitrator especially in cases where such termination is claimed by one party but denied by the other. The issue, as already observed earlier, has to be resolved by the Court competent to do so under Section 14(2) of the Act. In the absence of any such determination the petitioner's prayer for appointment of an independent Arbitrator is wholly misconceived and cannot be allowed. Besides the question of appointment of a substitute Arbitrator as envisaged under Section 15 of the Act can arise only after a vacancy occurs on account of termination of the mandate of the Arbitrator already nominated. No such termination having been agreed by the parties or adjudged by the Court, the question of substituting the nominated Arbitrator by another person under Section 15 of the Act does not arise.

21. That leaves us with CM (M) No. 281/2001. This petition has been filed under Article 227 of the Constitution for a declaration that the arbitration proceedings pending before the sole arbitrator have already come to an end and that any further proceedings by the sole arbitrator are null and void. In the light of what we have already observed earlier the remedy of a party seeking an adjudication on the question of termination of the mandate of an Arbitrator is to apply under Section 14(2) of the Act and not to seek intervention under the supervisory jurisdiction of the High Court. That apart the question whether there has been any failure on the part of the Arbitrator to act without undue delay may require appreciation of the facts and circumstances of the case especially those relating to the cause for the delay, if any. That exercise can be better undertaken in a proper petition under Section 14 of the Act instead of extraordinary proceedings under Article 227 of the Constitution.

22. In the result:

(i) RFA No. 186/2001 fails and is hereby dismissed.

(ii) RFA No. 283/2001, however, succeeds and is accordingly allowed. The order passed by the court below is set aside and the plaint filed by the plaintiff-respondent in this appeal rejected under Order VII Rule 11 of the CPC. The plaintiff-respondent shall, however, have the liberty of seeking appropriate redress in appropriate proceedings under Page 3265 Section 14(2) of the Act. It shall also have the liberty to seek an appropriate reference to the Arbitrator in regard to the validity of the order of termination of the agreement issued during the pendency of the arbitration proceedings.

(iii) Arbitration Application No. 38/2002 fails and is hereby dismissed with liberty to the petitioner to seek appointment of a substitute Arbitrator if the mandate of the Arbitrator already appointed is held to have terminated in appropriate proceedings under Section 14(2) of the Act, thereby causing a vacancy requiring the appointment of a substitute Arbitrator.

(iv) CM(M) No. 281/2001 also fails and is hereby dismissed with liberty to the petitioner to seek appropriate redress in accordance with law, keeping in view the observations made by this Court in the body of this order.

23. Parties to bear their own costs.