M/S National Rubber Corporation vs M.R. Choudhary & Ors
2009 Latest Caselaw 3215 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI

+                 OMP.No.271/2000

%                           Date of decision: 18th August 2009

M/S NATIONAL RUBBER CORPORATION ....Petitioner
                       Through: Mr. Sanjay Parikh, Mr Abinash K
                                Mishra, Mr Titin Sahni and Ms Mamta
                                Saxena, Advocates

                               Versus

M.R. CHOUDHARY & ORS                               ... Respondents
                       Through: Mr Ambar Qamaruddin, Advocate for
                       Respondents No 2 and 3.


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.    Whether reporters of Local papers may
      be allowed to see the judgment?                No

2.    To be referred to the reporter or not?         No

3.    Whether the judgment should be reported        No
      in the Digest?


RAJIV SAHAI ENDLAW, J.

1. Petition under Section 34 of the Arbitration Act 1996 is

preferred with respect to the arbitral award dated 2nd August, 2000

of the respondent No.1 arbitrator. Disputes and differences had

arisen between the respondents No. 2 and 3 (Union of India &

Controller of Stores of the respondent No.2, Northern Railway) and

the petitioner out of the order dated 1st February, 1994 placed by the

respondent Railways on the petitioner for delivery of goods of the

total value of Rs 54,96,504/- with delivery period upto 1st March,

1994. Upon the failure of the petitioner to supply the entire quantity

of goods inspite of extension of delivery period till 25th November,

1994, the respondent cancelled the said order on 12th December,

1994 at the risk and costs of the petitioner for the balance quantity.

The bid of the petitioner was the lowest in the tender issued by the

respondent for the said purpose but the petitioner, inspite of

acceptance of its bid, failed to deposit the security leading to the

cancellation of the said bid also on 2nd May, 1995. In these

circumstances, the respondent Union of India claimed damages of Rs

23,90,806.60p from the petitioner. The petitioner also made a claim

for refund of security deposit of Rs 1,01,000/-

2. The arbitrator has in the award found that the respondent had

given enough opportunities to the petitioner to supply the balance

quantities but the petitioner had failed to supply the same. The

award also records that the general damages claimed by the

respondent were worked out on the market price on or around the

date of the breach of the contract since the advertisement for the

tender was opened on 17th August, 1995 and lowest rates were taken

into consideration for determining the prevailing market price. It is

also recorded that the rates taken into consideration in this regard

were for the goods of the same specification as the goods subject

matter of the agreement which had been breached. The award has

thus allowed the said claim of the respondent for general damages

and deducts therefrom the security deposit of Rs 1,01,000/-. Interest

at 18% per annum w.e.f. 15th December, 1995 being the date the

respondent had asked the petitioner to pay the said general damages

has also been awarded to the respondent.

3. The award also records that the petitioner had in its additional

written statement brought out certain other issues. The arbitrator

has held that he was appointed on 13th November, 1997 and any

challenge to his appointment ought to have been made within 15

days of appointment and which the petitioner had not done and the

issue of appointment raised in the additional written statement was

barred under the Act. The arbitrator held nine hearings till 5th May,

2000. The award records that most of the hearings were of the

duration of two hours each.

4. It is the case of the petitioner that in the hearing on 5th May,

2000 the representative of the petitioner alongwith the lawyer had

gone to attend the hearing before the arbitrator but the arbitrator

was not present in his Chamber till 3.25 p.m.; that even after arrival

of the arbitrator, the representative and advocate of the petitioner

were made to wait and only thereafter called upon to argue; that the

lawyer of the petitioner took a preliminary objection that the

arbitration proceedings could continue only under the 1996 Act and

the proceedings being conducted by the arbitrator were without

jurisdiction; that the arbitrator on hearing so lost his temper and

started shouting at the representative and advocate of the petitioner

as to why they had been wasting the time of the arbitrator if they

had objection to his appointment; that though the counsel for the

petitioner pointed out that the objections in this regard had been

taken as early as in October, 1998 but the arbitrator continued

shouting and abusing the representative and advocate of the

petitioner and threatened that he will write such an order against

the petitioner which the petitioner will not be able to challenge upto

the Supreme Court. The petitioner claims to have written a letter

dated 12th May, 2000 recording the aforesaid to the General Manger,

Northern Railway with copy to the arbitrator and other persons.

5. The next date before the arbitrator was 15th May, 2000.

However, none on behalf of the petitioner appeared before the

arbitrator on that date. The arbitrator as such adjourned the hearing

and vide letter dated 12th June, 2000, admittedly delivered to the

petitioner, fixed the next date as 3rd July, 2000. It is further the case

of the petitioner that the advocate representing the petitioner before

the arbitrator and who is the same advocate as representing the

petitioner herein, vide letter dated 20th June, 2000 to the petitioner

expressed inability to appear on 3rd July, 2000 owing to the

humiliation meted out on 5th May, 2000 and asked the petitioner to

make alternative arrangement. It is the admitted position that none

on behalf of the petitioner appeared before the arbitrator on 3rd July,

2000 also and on which date the arbitrator concluded the

proceedings and thereafter published the award dated 2nd August,

2000 (supra). The petitioner thereafter wrote a letter dated 4th

September, 2000 to the arbitrator and sought copies of the

proceedings.

6. Thus it will be seen that though the petitioner had contested

the claim of the respondent before the arbitrator by filing a reply

thereto but the petitioner did not chose to make submissions before

the arbitrator.

7. The counsel for the petitioner has before this court also at the

outset taken the same plea as before the arbitrator on 5th May, 2000

and which is alleged to have led to the arbitrator losing his temper.

8. It is not in dispute that the arbitrator was appointed vide letter

dated 13th November, 1997 of the appointing authority and entered

into reference on 20th November, 1997. As per the terms and

conditions of the agreement between the parties, the disputes were

to be referred to the sole arbitration of a Gazetted Railway Officer to

be appointed by the General Manager, Railways.

9. The petitioner has as annexures to its petition filed its letter

dated 18th December, 1997 in response to the letter dated 20th

November, 1997 of the arbitrator informing of having entered into

reference and inviting remarks and claims and counter claims from

the petitioner. The petitioner in the said letter dated 18th December,

1997 did not take any objection to the appointment of the arbitrator

or found fault therewith and only contended that it had not been

furnished the copy of the claim of the respondent Union of India and

sought direction for being supplied copy thereof. The same was

supplied to the petitioner under cover of letter dated 2nd January,

1998 of the arbitrator. The petitioner filed a written statement dated

10th March, 1998 to the said claim petition and in which also no

challenge was made to the appointment of the arbitrator. On the

contrary, the petitioner made a counter claim for refund of its

security deposit of Rs 1,01,000/- with interest before the arbitrator.

Had the petitioner had any objection to the appointment of the

arbitrator, the question of the petitioner making the counter claim

would not have arisen. The respondent thereafter filed a rejoinder

and reply to the counter claim on 15th September, 1998.

10. An additional written statement appears to have been filed by

the petitioner before the arbitrator alongwith an application seeking

directions, in or about October, 1998. In the said additional written

statement the petitioner for the first time took a plea that the

arbitration proceedings being under the 1996 Act, had to be before

an arbitral tribunal of three arbitrators, one each to be appointed by

each party and the third to be appointed by the two arbitrators. In

the application it was also submitted that the arbitrator should lay

down the procedure to be followed after assessing from the parties

the points of disputes and whether they would like to examine any

witness.

11. The arbitrator vide his letter dated 19th April, 1999 called upon

the respondent Union of India to file the response to the said

additional written statement.

12. The pleadings were thereafter completed on the same also. In

the meanwhile, the petitioner also wrote letters proposing the name

of its arbitrator and calling upon the respondent to nominate its

arbitrator under the procedure which, according to the petitioner,

was applicable under the 1996 Act.

13. The first question urged before this court also is that under the

1996 Act, the arbitration could not be of a Gazetted Officer of the

Railways appointed by the General Manager concerned of the

railways as agreed between the parties and had to be by an arbitral

tribunal of three arbitrators. Prima facie, finding the said

proposition of the counsel for the petitioner to be preposterous, it

was indicated to the counsel that if he pressed the same, it would be

subject to costs, if unsuccessful. The counsel for the petitioner has

vehemently pressed the said objection before this court and relied

upon on MMTC Ltd Vs Sterlite Industries (India) Ltd (1996) 6

SCC 716; Thyssen Stahlunion GMBH Vs Steel Authority of

India Ltd (1999) 9 SCC 334; Shetty's Constructions Co. Pvt Ltd

Vs Konkan Railway Construction (1998) 5 SCC 599. I am

however unable to find any of the said judgments laying down any

such proposition, that upon coming into force of the 1996 Act, the

agreement between the parties providing for sole arbitration of the

Gazetted Officer of the railways appointed by the General Manager

concerned of the railways to have become void.

14. The counsel for the petitioner also referred to the provisions of

Sections 10 and 11 of the Act but again this court was unable to

comprehend as to how on the basis thereof submissions as aforesaid

could be made. Inspite of making it so clear to the counsel, no

explanation was forthcoming.

15. It was sought to be suggested that under the 1996 Act there

cannot be an arbitration of a sole arbitrator and also that once

Section 10(1) and Section 11(2) give freedom to the parties to

determine the number of arbitrators, the agreement of a date prior

to the coming into force of the Act providing for a sole arbitrator to

be appointed by one of the parties is no longer good and enforceable.

However, the argument again is found to be preposterous. The Act

in Section 10(1) and Section 11(2) does not purport to interfere with

the existing agreement of the parties. If as per the existing

agreement the arbitration is to be of a sole arbitrator or if the said

sole arbitrator is to be appointed by one of the parties, that

agreement's sanctity has not been disturbed by the Act. No

provision of the Act makes the existing agreements of arbitration

otiose. In fact, Section 85(2) of the Act provides for arbitration

under Agreements of a date prior to coming into force of the new

Act, under the provisions thereof and no where suggests that the

parties shall have to arrive at a fresh agreement as to the

constitution of the arbitral tribunal. Even otherwise the purport of

the new Act was not to remodel the existing contracts between the

parties qua arbitration. In fact, the Supreme Court in Narayan

Prasad Lohia Vs Nikunj Kumar Lohia (2002) 3 SCC 572 has gone

to the extent of dismissing the challenge to an arbitral award in an

arbitral proceedings commenced after coming into force of the new

Act on the ground of the arbitration being of an even number of

arbitrators in contravention of Section 10(1) of the Act. Further,

Section 10(2) of the Act expressly recognizes the arbitration of a sole

arbitrator.

16. Attention of the counsel for the petitioner was invited to

Northern Railway Administration, Ministry of Railway, New

Delhi Vs Patel Engineering Company Ltd (2008) 10 SCC 240 and

Union of India Vs M/s Singh Builders Syndicate 2009(4) SCALE

491. The Supreme Court in Singh Builders Syndicate (supra) also

has not held such government contracts providing for appointment of

an arbitrator by an appointing authority of the concerned

department of the Government to be bad under the 1996 Act. All

that has been done is to suggest that the government department

should consider restructuring their contracts to provide for

arbitration by a neutral person rather than by their own officers.

17. The next contention of the counsel for the petitioner is that the

arbitrator ought to have dealt first with the objection taken under

Section 16 of the Act. It is urged that the award is bad for the reason

of the arbitrator having not first rendered a decision on the said

aforesaid objection and in straightway pronouncing the award.

18. In my view the aforesaid contention of the petitioner does not

arise in the facts of the present case inasmuch as the petitioner after

raising the said objection stopped appearing before the arbitrator.

The arbitrator even in the absence of the petitioner was not required

to first render the finding on the same. Even otherwise I find that

the Bombay High Court in Scan Organics Ltd Vs Mukesh Babu

Financial Services Ltd 1998(3) RAJ 240 (Bom) has held that the

arbitrator is not required to, before proceeding further with the

matter, dispose of the plea taken under Section 16. The same view

was taken under the old Act in Premier Fabricators Vs Heavy

Engineering Corporation Ltd. (1997) 4 SCC 319. I am also of the

view that the arbitral tribunal is not bound to first adjudicate pleas

taken under Section 16 of the Act and in their wisdom/discretion are

entitled to defer the decision on the said plea till alongwith the

award. Though I must hurry to add that for the sake of economizing

time and costs, unless the arbitral tribunal for reasons to be

recorded holds that the said plea cannot be adjudicated, it is

preferable to adjudicate the same immediately. In the present case

the arbitrator has, in the award, dealt with the plea of the petitioner

and held that the plea was taken by the petitioner after the

prescribed time of 15 days and is not tenable. In view of my having

independently reached the conclusion that the plea aforesaid has no

merit, no ground for interference under Section 34 is made out.

19. The next contention of the counsel for the petitioner is that the

bias in favour of the respondent is evident from the conduct of the

arbitrator in the hearing on 5th May, 2000 as described hereinabove.

It is contended that the plea with respect to the said bias was taken

immediately after hearing on 5th May, 2000 and the arbitrator has

failed to deal with the same also. Reliance on the parameters of bias

is placed on Ranjit Thakur Vs Union of India (1987) 4 SCC 611,

Dr G. Sarana Vs University of Lucknow (1976) 3 SCC 585, Bihar

State Mineral Development Corpn. Vs Encon Builders (I) Pvt

Ltd (2003) 7 SCC 418.

20. In the present case, the petitioner after 5th May, 2000 when the

bias of the arbitrator in favour of the respondent is stated to have

spilled out, the petitioner did not appear before the arbitrator. On

the contrary, the petitioner merely wrote to the appointing authority

of the arbitrator in this regard. Of course the petitioner sent a copy

of the said letter to the arbitrator also but the same cannot be

equated with sending a written statement to the arbitrator in this

regard within the meaning of Section 13(2) of the Act. Moreover,

under Section 13(3) of the Act, unless the arbitrator so challenged

withdraws from his office, he is entitled to continue the arbitral

proceedings. The only remedy of a party in that case is to challenge

the award at the time of petition under Section 34 of the Act. That

being the position of law, no prejudice has been suffered by the

petitioner inasmuch as the plea of the petitioner is now for

consideration before the court.

21. Without the petitioner appearing before the arbitrator and

arguing bias and thereby inviting the arbitrator to return a finding

thereon, the petitioner cannot be permitted to take up the plea under

Section 34 of the Act. The petitioner in the present case by choosing

to deliberately absent itself from two consecutive hearings before

the arbitrator and of which hearings it had notice failed to press the

plea, if any, available to it of bias and is now precluded from raising

the same before this court. Even otherwise on the basis of the

averments aforesaid I am unable to make out any case of bias. The

officers of Union of India who in the matter of such contracts are

acting merely in the exercise of their official duties/functions have no

personal interest in the matters and merely by virtue of being an

officer of the Union of India cannot be said to be biased. If that were

to be so, most of the contracts where Union of India or its various

branches are parties and all of which provide for such arbitrations

would have come to a naught. Challenges such as this have been

made in the past and have not succeeded. For a case of bias to be

made out, the party alleging the same has to show something more.

In the present case there is nothing. It appears that the petitioner

after participating in the proceedings and after being unable to

prove its case decided to absent from the proceedings and set up the

ground of the incident of 5th May, 2000. Had any such incident

occurred the best fora to raise the same before, was the arbitrator

himself. However, the petitioner chose not to do the same. Perhaps

the petitioner feared that if it appeared before the arbitrator, the cat

would come out of the bag and the truth would have been recorded.

The petitioner thereafter filed the present proceedings before this

court and has already delayed the enforcement of the award by nine

years.

22. The reliance on NTPC Ltd Vs Siemens Atkeingesellschaft

(2001) 4 SCC 451, Konkan Railway Corporation Ltd Vs Rani

Construction Pvt Ltd (2002) 2 SCC 388 and SBP & Company Vs

Patel Engineering Ltd (2005) 8 SCC 618 is misconceived. I am

even otherwise reluctant to believe the incident of 5th May, 2000

alleged by the petitioner. No affidavit of the advocate for the

petitioner who is alleged to have been humiliated has been filed

before this court. Besides the lawyer, Shri Balwant Singh and P.S.

Bindra, representatives of the petitioner are also stated to have been

present in the said hearing. Their affidavits have also not been filed.

The petition is accompanied with the affidavit of only one Mr Ranbir

Singh, partner of the petitioner. In fact the petitioner has filed as

annexure Z to the petition an authorization letter dated 25 th April,

2000 whereby the petitioner had authorized Mr K.S. Walia to appear

on its behalf before the arbitrator on 5th May, 2000. Ordinarily such

authorization letter would be made only when the said Mr K.S. Walia

alone was to appear before the arbitrator on that date inasmuch as if

the advocate was also to be appearing, there would have been no

necessity to prepare such a letter. There is no explanation as to why

the said Mr K.S. Walia did not appear on 5th May, 2000 and why the

other representatives who are alleged to have appeared alongwith

the lawyer appeared on that date. I also find on the arbitral record

received in this court, a letter dated 5th May, 2000 of the arbitrator

recording the proceedings of that date. It is recoded therein that

due to pre-engagement of the lawyer of the petitioner he had to

leave early. It is further recorded therein that though the

representatives of the petitioner had earlier represented that they

had nothing to argue regarding the appointment of sole arbitrator

but the same had been raised again. It is also significant that though

the incident is stated to have been of 5th May, 2000, the first letter

thereafter is claimed to have been sent only on 12th May, 2000. Had

any such incident as alleged occurred, representation would have

been immediately made of the same. It appears that the letter dated

12th May, 2000 is an afterthought, after the petitioner decided to

absent from the arbitration proceedings.

23. Even if the challenge of the petitioner based on the incident of

5th May, 2000 is to be believed, the same still does not constitute any

case of bias. The arguments of the petitioner have been found to be

preposterous by this court also. As aforesaid, at the time of hearing

only it was informed to the counsel for the petitioner that in the

event of his being unsuccessful, he would be burdened with costs.

Even if the arbitrator is understood to have reacted sharply to the

argument challenging his appointment after arbitral proceedings had

been underway for some time and after arguments on merit having

commenced the same still does not make out a case of bias for the

award to be set aside on the said ground.

24. The counsel for the petitioner has next contended that the

claims were barred by time. The only basis of the said argument is

that while the first cause of action accrued to the respondent on 12 th

December, 1994 i.e., on termination of the contract, the claim

petition is dated 22nd December, 1997 i.e. after three years of the

said date. However, upon attention of the counsel for the petitioner

being invited to the letter dated 13th November, 1997 of appointment

of arbitrator, and which must be in pursuance to invocation of

arbitration prior thereto and to Section 21 of the Act, whereunder

the arbitration is deemed to have commenced on the date of

invocation, the counsel did not press the said argument further. The

premise of limitation being three years is also erroneous. I may

however notice that the counsel for the petitioner had attempted to

bring the plea of limitation also under Section 16 of the Act. That in

my opinion was a wrong approach. Limitation is a mixed question of

law and facts and cannot be said to be with respect to the

arbitrator's own jurisdiction or with respect to existence or validity

of the arbitration agreement.

25. The counsel for the petitioner lastly urged that the award does

not deal with any of the pleas of the petitioner in its written

statement. In my view the petitioner having stopped appearing

before the arbitrator, the arbitrator was not required to deal with

the various pleas in the written statement. The arbitrator has else

found the petitioner to be in breach and has awarded damages to the

respondent/railways therefor. The award to this extent is not found

to be in contravention of any substantial law of this country and

nothing has been pointed out that the award is contrary to any terms

of the agreement of the parties. No merit is found in any of the pleas

challenging the award. No case under Section 34 of the Act is made

out. The petition is dismissed. For the reasons aforesaid, the

petitioner is also burdened with costs of Rs 50,000/- of these

proceedings.

RAJIV SAHAI ENDLAW (JUDGE) 18th August, 2009 M