M/S Prime Industries Ltd. vs Seil Ltd & Anr.
2010 Latest Caselaw 2708 Del

        *                IN THE HIGH COURT OF DELHI AT NEW DELHI


                                                      Reserved on : 17.05.2010
        %                                            Date of decision :21.05.2010

        +                             FAO(OS) No.480/2008


        M/S PRIME INDUSTRIES LTD. ...                     ...       ...       ...APPELLANT

                                       Through :        Dr.Manish Singhavi,
                                                        Mr.Vinay Kumar Sharma
                                                        and Mr.Bhagwan Swarup
                                                        Shukla, Advocates.


                                        -VERSUS-


        SEIL LTD & ANR.                                 ...       ...       RESPONDENTS

                                        Through :       Mr.D.K.Malhotra
                                                        with Mr.Rajesh Malhotra,
                                                        Advocates.

        CORAM:
        HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
        HON‟BLE MS. JUSTICE VALMIKI J. MEHTA


        Whether the Reporters of local papers
        may be allowed to see the judgment?                             YES

        To be referred to Reporter or not?                              YES

        Whether the judgment should be                                  YES
        reported in the Digest?



        SANJAY KISHAN KAUL, J.

1. The plea of the appellant to seek adjudication of

disputes before a Single Arbitrator in accordance with

the arbitration clause rather than a panel of arbitrators

as per rules of Indian Council of Arbitration („ICA‟ for

short) has given rise to the present appeal from the

impugned judgment of the learned Single Judge dated _____________________________________________________________________________________________

23.10.2008. The learned Single Judge on the

interpretation of the arbitration clause came to a

conclusion that the arbitration has to be by a panel of

three arbitrators and thus allowed the preliminary

objection of the respondents that the composition of

arbitration tribunal was not in accordance with the

agreement between the parties. The award passed by

the Single Arbitrator thus stood negated on this

preliminary objection.

2. The facts of the case are that the respondents entered

into an agreement with the petitioner on 10.06.1994 in

respect of its manufactured products of Vanaspati and

Vegetable oils. Respondent No.2, a unit of respondent

No.1, wanted to source the supplies of Vanaspati and

vegetables products of the petitioner for marketing the

same under their own established brand names. The

agreement styled as MOU was valid for 2 years with a

stipulation of renewal for a further period through

consent of parties and could be terminated by either

party giving notice in writing. It is under this MOU that

the respondents placed orders on the petitioner to the

extent of 1562.975 metric tons till March, 1995

whereafter no further orders were placed.

3. The grievance made by the petitioner was that the

respondents failed to lift the minimum quantity required

to be lifted or purchased in respect of two years - 5,000

metric tons in the first year and 6,000 metric tons in the

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second year. The MOU contained an arbitration clause,

which reads as under:

" 18. Arbitration

All disputes between the parties hereto arising out of this agreement shall be referred to an arbitrator appointed by Indian Council of Arbitration, New Delhi and the provisions of the Indian Arbitration Act for the time being in force shall be applicable to such reference. Such reference will be decided as per rules of Indian Council of Arbitration. The award decision so given shall be final and binding upon the parties."

4. The petitioner filed an application being AA No.120/1996

under Section 11(6) of the Arbitration and Conciliation

Act, 1996 („the said Act‟ for short) for appointment of an

arbitrator and that application came to be disposed of by

an order dated 02.07.1999 recording the consent on

behalf of the parties that an arbitrator can be appointed

in terms of the aforesaid Article 18 of the MOU dated

10.06.1994. The consent of parties was also recorded

that the arbitrator would be entitled to decide the

question of existence of arbitration agreement or

otherwise in terms of Section 16 of the said Act. The

matter was referred to ICA for appointment of arbitrator.

5. In view of the aforesaid order, the petitioner addressed a

letter to the ICA on 10.11.1999. The ICA in turn vide

letter dated 06.01.2000, addressed to the respondent

No.1, referred to the fact that the claim amount of

Rs.6,81,12,565/- under the rules of ICA had to be

determined by an arbitral tribunal of three arbitrators

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unless the parties to the dispute agree to refer the

disputes to a sole arbitrator {rule 21(b)}. However, on

18.01.2000, counsel for the petitioner took a position

that Clause 18 of the MOU referred to reference of

disputes to „an arbitrator‟ and thus only a sole arbitrator

was required to be appointed. It is at that stage that

ICA on 30.01.2000 took a stand that the disputes could

be decided by a sole arbitrator and appointed Justice

K.N.Singh, Retired Chief Justice of India as the sole

arbitrator. The respondents once again moved an

application before the arbitrator claiming that the

constitution of the arbitral tribunal of a sole arbitrator

was contrary to Rule 21(b) of ICA Rules and also contrary

to Clause 18, being the arbitration clause of the MOU

and thus sought appropriate orders under Section13(2)

of the said Act. This application was, however, rejected

by the arbitrator on 06.12.2000. The arbitrator came to

the conclusion that clause 18 of the MOU no doubt

referred to the rules of ICA for purposes of a decision to

be arrived at by the arbitrator but that would not affect

the agreement of the parties to appoint a sole arbitrator

under the first part of clause 18. The arbitration clause

was thus segregated into two parts - the first part

relating to appointment of a sole arbitrator and

conferring authority on ICA for that appointment and the

second part relating to the procedure and other matters

in deciding the reference as per rules framed by the ICA.

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The conclusion thus reached was that if the agreement

had stated that the disputes shall be settled by

arbitration in accordance with rules of ICA then Rules 20

and 22 (b) would be applicable but the language of

clause 18 of MOU was to the contrary where reference

had to be made to a sole arbitrator to be appointed by

the ICA and there was a further agreement that the

provisions of the Act and the rules of ICA would apply in

deciding the reference.

6. The arbitrator after deciding the aforesaid application

proceeded to adjudicate the disputes on merits and

passed an award dated 30.07.2005 holding that the

petitioner was entitled to Rs.1,13,68,273/- as damages

with interest from the date of filing of the claim till the

date of award at the rate of 6 per cent per annum as

also future interest and costs. This award was

challenged by the respondents by filing an application

under Section 34 of the said Act. One of the grievances

raised was that since the constitution of the arbitral

tribunal was not according to the agreement between

the parties, the award was liable to be set aside by

virtue of Section 34(2) (a)(v) of the said Act. The basic

plea advanced was that since the claim of the petitioner

was more than 50 lakhs, a panel of three arbitrators was

envisaged under Rule 21(b) of the ICA Rules. Rule 21

reads as under:

"Rule 21 : The number of arbitrators to hear a dispute shall be determined as under:

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a) Where the claim does not exceed Rs. 50 lakhs and where the arbitration agreement does not specify three or more arbitrators, the reference shall be deemed to be to a sole arbitrator, unless the parties to the dispute agree to refer the dispute to three arbitrators within thirty days from the date of notification of request for arbitration.

b) Where the claim exceeds Rs. 50 lakhs the dispute will be heard and determined by three arbitrators, unless the parties to the dispute agree to refer the dispute to a sole arbitrator within thirty days from the date of the notification of the request for arbitration.

c) Where there arbitrators have to be appointed as per the above sub-rule and any of the parties to the dispute fails to make the necessary deposit towards the cost and expenses of arbitration, instead of three arbitrators, the Registrar may appoint a sole arbitrator, irrespective of the value of the claim."

7. Learned Single Judge in terms of the impugned order

dated 23.10.2008 found favour with the arguments

advanced on behalf of the respondents. The substratum

of the plea is that the reference to „an arbitrator‟ has to

be understood as the dispute resolving mechanism

rather than a conscious agreement of parties to refer the

disputes to a sole arbitrator and while interpreting an

Act or Regulation, a term in singular would include plural

and vive versa in view of Section 13(2) of the General

Clauses Act, 1897. A judgment which has been strongly

relied upon is CMC Ltd v. Unit Trust of India; AIR 2007 SC

1557. The arbitration clause in that case stated that the

dispute shall be settled by arbitration, each party to

appoint an arbitrator and the arbitrators appointed had

to in turn appoint an umpire. The decision of the umpire _____________________________________________________________________________________________

in case of disagreement between the arbitrators

appointed by the parties would be final and the

arbitration proceedings were to be conducted in

accordance with the rules prescribed by ICA. In those

facts it was held that the parties retain the power of to

appoint an arbitrator and were free to adopt the

procedure for the same and the arbitration would be

governed by ICA rules. On the other hand, learned

counsel for the petitioner predicates his plea on the right

of the parties to choose the forum of arbitration of a

single arbitrator alone and such agreement of parties

ought to prevail. The expression „an arbitrator‟ is thus

sought to be given the meaning which is explicit in the

expression and not merely an intention to get the

disputes resolved through the process of arbitration. A

further fact pleaded is that clause 21(b) of the ICA Rules

itself envisages the eventuality of a single arbitrator in

case of agreement between the two parties and thus

arbitration of a single arbitrator is not alien to the ICA

Rules more specifically rule 21(b).

8. The findings of the learned Single Judge are based on a

reading of Rule 21(b) of the ICA Rules which provide for

an arbitral panel of three arbitrators in case the claim

exceeds Rs.50 lakhs. Undisputedly, the claim in the

present case exceeded Rs.50 lakhs. There is no

agreement between the parties to refer the disputes to a

sole arbitrator as per latter part of clause 21(b) of the

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ICA Rules. Learned Single Judge has relied upon the

observations made by the Supreme Court in Iron & Steel

Co.Ltd v. Tiwari Road Lines; 2007 (5) SCC 703 which

underline the importance of courts respecting the

mandate of the parties as contained in their agreement.

This observations has been read along with the view

taken in Basavarajappa v. Gurubasamma and Ors; 2005

(12) SCC 290 that a term expressed in singular would

include plural and vice versa by applying Section 13(2)

of the General Clauses Act. The learned Single Judge

was of the view that the widely used expression „sole

arbitrator‟ or such like expressions had not been used.

9. Another judgment strongly relied upon by learned

counsel for the respondents, as also forming basis of the

impugned judgment, is that of Orissa High Court in

Gayatri Projects Ltd. v. State of Orissa Through the

Executive Engineer, Heads Works Division, At/P.O.Samal,

Dist. Angul; 2004 (2) Arb.L.R. 394. The said judgment

dealt with Orissa Arbitration Tribunal Rules, 1979 and

constitution of Tribunal consisting of three members

under those rules. It was held that the same was not in

any manner repugnant to the provisions of the said Act

which came into force subsequently. The agreement

between the parties contemplated that if either of the

parties to the agreement was aggrieved by the decision

of the adjudicator, it was open to the said party to refer

the dispute to „an arbitrator‟ and the procedure followed

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by the Orissa Arbitration Tribunal shall be followed in

such a case. Orissa had only one Arbitration Tribunal

constituted under the provisions of said Rules and

therefore it was held that the parties in that case had

agreed to refer the disputes to the Arbitration Tribunal

which existed. The expression „an arbitrator‟ was held

to include the Arbitration Tribunal constituted by the

Government under the provisions of the said Rules.

Learned Single Judge has agreed with this view of the

Orissa High Court.

10. We are unable to persuade ourselves to agree with

the view taken by the learned Single Judge. It is trite to

say that the will of the parties as reflected in the

agreement must prevail in case of constitution of an

Arbitration Tribunal. Thus each arbitration clause would

have to be given a meaning as per its phraseology. If

the arbitration clause 18 of the MOU is examined in that

context, we are of the considered view, that there are

three parts to the arbitration clause. The first part deals

with reference of disputes between the parties to the

agreement to be referred to „an arbitrator‟ appointed by

ICA, New Delhi. The second part stipulates that the

provisions of the said Act would be applicable to such a

reference. The third part provides that a reference

would be decided as per rules of ICA. We find the that

expression „an arbitrator‟ must be given its full effect

and the said phrase would not have been used but for

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the intent to appoint a sole arbitrator. The parties are

limited companies and are duly advised by legal

counsels who would have taken care to use the

appropriate word/phraseology. The first part does not

say that the disputes should be referred to the

arbitration of arbitrators appointed in accordance with

Rules of ICA. If such a phraseology would have been

used then only the question of rules 21(b) of the ICA

mandating a panel of three arbitrators would apply in

the present case. The view taken by the learned

arbitrator in deciding the application 06.12.2000 is thus

correct. We also note that the petitioner had

approached the Court by filing an application under

Section 11(6) of the said Act for appointment of an

arbitrator. The order passed on that application on

02.07.1999 also shows the same intent. The order reads

as under:

" Learned counsel for the parties agree for appointment in terms of article 18 of the Memorandum of Agreement dated 10.06.1994. All disputes between the parties may be referred for arbitration and the rules of Indian Council of Arbitration by the Arbitrator appointed by Indian Council of Arbitration. It is agreed to by the learned counsel for the parties that Arbitrator shall be entitled to decide the question of existence of the arbitration agreement of otherwise in terms of Section 16 of the Act as well as all other objections, claims and counter claim which may be raised by the parties. The matter of accordingly referred to the Indian Council of Arbitration for appointment of Arbitrator."

(emphasis supplied) _____________________________________________________________________________________________

11. The aforesaid shows the use of the expression "the

arbitrator" and the expression "arbitrator". This order

was passed by consent of parties. Thus, the intent even

at that stage was to have the appointment of a single

arbitrator.

12. We find reliance on Gayatri Projects Ltd. v. State of

Orissa Through the Executive Engineer, Heads Works

Division, At/P.O.Samal, Dist. Angul‟s case (supra) as

misplaced as the facts of that case were quite different.

It has been repeatedly observed by the Supreme Court

that a judgment is based on facts and is not to be read

like a statute. It has been observed by a Constitution

Bench of the Supreme Court in Padma Sundara Rao v.

State of Tamil Nadu; (2002) 3 SCC 533 as under:

"9. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances are made in the setting of the facts of a particular case, said Lord Morris in British Railways Board v. Herrington 9.

Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases."

13. The facts of that case show that there was already

an existing tribunal of three arbitrators under the Orissa

Arbitration Tribunal Rules, 1979 and the question was

whether the reference of disputes to the arbitration

tribunal was to that particular tribunal. Since the _____________________________________________________________________________________________

arbitration was under those rules and there was only one

pre-appointed tribunal of three arbitrators, it was

naturally held in that context that the reference to „an

arbitrator‟ under those rules should mean a reference to

that arbitration tribunal. The facts of the present case

are quite different.

14. The judgment in CMC Ltd v. Unit Trust of India‟s

case (supra) does not really support the respondents as

the arbitration clause in that case was quite different

contemplating appointment of arbitrators. In fact, the

ratio of the said judgment is that the parties should be

free to adopt the procedure for appointment of

arbitrator. There is no question of the singular including

plural here as the intent of the parties is clear to appoint

a sole arbitrator even if the expression „sole arbitrator‟

has not been used. The expression „an arbitrator‟ is as

good an expression as „sole arbitrator‟.

15. Our attention has also been drawn by learned

counsel for the petitioner to a recent judgment in Comed

Chemicals Limited vs. C.N.Ramchand; (2009) 1 SCC 91.

The arbitration clause which was found to be applicable

to the agreement between the parties was under:

"12. If there be any dispute pertaining to meaning of this MoU or of any nature, will be solved and decided by appointing an independent arbitrator acceptable to all the parties and if not solved by him can be referred to court of law and for which the jurisdiction will be Vadodara."

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16. The expression „an arbitrator‟ is elucidated in para

34 of the judgment as under:

"34. For the foregoing reasons, in my opinion, the application filed by the Company must be allowed by holding that the case is covered by clause (f) of sub-section (1) of Section 2 of the Act. It is a case of international commercial arbitration and is covered by Clause 12 of the MoU. Since there is a dispute between the parties, it has to be decided by an arbitrator. The clause extracted hereinabove provides for an arbitrator i.e. sole arbitrator and hence only one arbitrator should be appointed. I, therefore, appoint Mr.Madhukar Fanse, retired Judge, City Civil Court, Ahmedabad as the sole arbitrator to decide the dispute between the parties."

17. The aforesaid thus leaves no manner of doubt that

the expression „an arbitrator‟ implies a sole arbitrator

and thus our view finds support from the aforesaid

judgment.

18. Learned counsel for the petitioner has also rightly

drawn strength from the commentary on The Law and

Practice of Arbitration and Conciliation Second Edition by

O.P.Malhotra and Indu Malhotra where the aspect of

appointment of sole arbitrator has been dealt with in

para 10-07 at pages 464-466. The arbitration of a sole

arbitrator has been observed to be more expeditious and

in a domestic arbitration in common law countries a sole

arbitrator is the norm because a tribunal of three or

more arbitrators adds substantially to the costs of

litigation and is apt to delay the proceedings. It has

been observed in the commentary as under:

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"The sole arbitrator is a complete tribunal. In the absence of a contrary intention of the parties, an arbitration agreement is deemed to provide that reference shall be to a single arbitrator (sole arbitrator)."

19. If the present case is examined in the conspectus

of what we have discussed aforesaid, we are clearly of

the view that the intent of the parties as contained in

clause 18 of the MOU was to have an arbitration through

a sole arbitrator to be appointed by the ICA. The fact

that the arbitration is to be governed by the procedure

and rules of ICA would make no difference to this

appointment of the sole arbitrator.

20. The result of the aforesaid is that the appeal is

allowed, the impugned order dated 23.10.2008 of the

learned Single Judge is set aside and the matter is

remanded back to the learned Single Judge to decide the

objections of the appellant and respondents on merits in

accordance with law being OMP No.468/2006 and OMP

No.419/2005. The petitioner shall also be entitled to

costs quantified at Rs.15,000/-.

SANJAY KISHAN KAUL, J.

        MAY 21, 2010                                             VALMIKI J. MEHTA, J.
        dm

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