Food Corporation Of India vs Indian Council Of Arbitration & ...
2015 Latest Caselaw 4164 Del

*     IN THE HIGH COURT OF DELHI AT NEW DELHI

                                                 Reserved on: May 15, 2015
                                               Pronounced on: May 25, 2015


+     CM(M) 359/2009, C.M. No. 7591/2015 and 7525/2015
      FOOD CORPORATION OF INDIA                ..... Petitioner
                  Through: Appearance not given.

                          versus

      INDIAN COUNCIL OF ARBITRATION & ANR. ..... Respondents

Through: Mr. Yakesh Anand and Mr. Nimit Mathur, Advs. for R-1 and 2.

CORAM:

HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE R.K.GAUBA

MR. JUSTICE R.K. GAUBA

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1. This Civil Miscellaneous (Main) petition under Article 227 of the Constitution of India seeking direction to the first respondent (Indian Council of Arbitration) to conduct the arbitration proceedings on the basis of schedule of fee as in force at the time of registration of arbitration case (in 2003) was dismissed by a learned Single Judge by order dated 17.07.2014 holding that the issue raised herein cannot be decided in such jurisdiction. The order of the learned Single Judge was, however, set aside by the Supreme Court by order dated 02.02.2015 in Civil Appeal No. 14.02/2015 arising out of SLP (Civil) No. 29682/2014 remitting the controversy relating

to fee of the arbitrators to be addressed by a Division Bench of this Court. The matter has been placed before us in terms of the order dated 14.05.2015 of Hon'ble the Chief Justice.

2. The narration of the background facts leading to this lis is necessary at this stage.

3. The respondent Indian Council of Arbitration (ICA) is described as a society registered under the Societies Registration Act sponsored by the Ministry of Commerce in the Government of India. It was established in 1965 as an institution, inter alia, to provide arbitration services and facilitate settlement of commercial disputes, domestic and international, through arbitration. The ICA framed its own set of rules (Rules of Arbitration) which have been amended/revised from time to time, inter alia, in view of the enactment of the Arbitration and Conciliation Act, 1996 as also to take into account the need to increase fee and levy of costs and expenses.

4. The petitioner Food Corporation of India (FCI) is a public undertaking under the control of Ministry of Food and Civil Supplies in the Government of India. It had entered into a number of agreements (stated to be in all 384 cases) with certain millers for storage-cum-milling of paddy. The agreements dated 19.10.1994 and 21.12.1994 with the second respondent is one of such contractual arrangements. The contracts with millers, inter alia, contained arbitration clauses, the effect whereof was that in the case of dispute or difference arising between the parties, the same shall be settled by arbitration "in accordance with the rules of arbitration of the Indian Council of Arbitration" and the award made in pursuance thereof shall be binding on the parties. The arbitration clauses conferred upon the Senior Regional Manager/Zonal Manager of FCI, the authority to

"appoint/nominate" arbitrator from out of those in the panel of arbitrators maintained by ICA. The arbitration clause also conferred on the said functionary of FCI the discretion to appoint another arbitrator from the panel of ICA in the event of the arbitrator originally appointed being not available for various reasons including vacation of office, death, etc.

5. It is stated that disputes arose between the FCI on the one hand and the millers (including the second respondent) on the other which necessitated invocation of the arbitration clauses in all such contracts. The petition itself refers to 333 similarly placed cases having arisen (all of different District Offices of FCI in Punjab) for references to be made to arbitration. The petitioner, having served upon the millers legal/demand notices, made request(s) to Indian Council of Arbitration (ICA) sometime in early 1998 for arbitral proceedings to be initiated. In the case of the second respondent herein, the claim to such effect was lodged with ICA on 26.02.1998 along with the requisite registration fee payable in terms of rules of arbitration of ICA as were in force at that point of time i.e. Rules of Arbitration as amended with effect from 01.03.1998 (hereinafter referred to as "1998 Rules").

6. It is stated that on 04.03.1998, the Registrar of ICA, in whom the discretion to appoint (or not to appoint) arbitrator vested, in terms of rule 16(a), sent communication(s) to FCI declining to proceed with the request(s) for arbitration in the above-mentioned cases on the ground the arbitration clauses in the agreements were not in accordance with the ICA arbitration clause. It is pertinent to mention in this context that in terms of the ICA rules of arbitration, in the event of the parties to the dispute failing to agree (in terms of rule 22), the discretion to appoint a particular arbitrator from the

ICA panel, would vest in the Registrar, in consultation with the Chairman of the Arbitration Committee or, in his absence, in consultation with the designated member of the governing body. Clearly, the reservation on the part of ICA was to the arbitration clauses conferring such discretion not on the Registrar of ICA but on a functionary of the claimant (FCI), one of the disputant parties.

7. The FCI took the matter to Ministry of Commerce in the Government of India. In spite of a communication from Ministry of Commerce, ICA persisted with the refusal to get engaged in the arbitration proceedings on the ground that the arbitration agreement was not in accord with its norms. This led to the petitioner approaching this Court under Section 11(6) of the Arbitration and Conciliation Act, 1996.

8. As many as 333 identical arbitration applications were filed, to cover all similarly-placed disputes with various millers, the case of second respondent herein being subject matter of arbitration application No. 173 of 1999. All the said 333 arbitration applications were dismissed as pre-mature by a common judgment dated 10.02.2000. It was held that the said applications under Section 11(6) were not maintainable since there was no failure to act under the procedure agreed upon by the parties wherein it was the FCI which had to appoint the arbitrator and there was no obligation to follow the rules of ICA.

9. The common judgment dated 10.02.2000 in the afore-mentioned 333 connected matters was challenged before the Supreme Court by Civil Appeal Nos. 4655-4809 of 2003 arising out of SLP (Civil) No. 15578-15762 of 2000. The said civil appeals were allowed by the Supreme Court by judgment dated 17.07.2003.

10. We may extract the following paragraphs of the judgment to note the reasons for which the Supreme Court issued the directions to ICA to proceed with the arbitration references:-

"The fact that there is an agreement between parties to have their disputes resolved by reference to arbitration and that it should be through the ICA and in accordance with the rules or procedure prescribed by the ICA is not in controversy. As indicated earlier even assuming without accepting for purposes of consideration that there is any infirmity in the arbitration clause which go to undermine as claimed by the respondents the legality, propriety and validity of the constitution of the Tribunal and/or even if there be any objections as to the existence of an enforceable or valid arbitration agreement, it had to be adjudicated by the very Arbitral Tribunal after a reference is made to it on being so constituted and it is not for the ICA or the learned Judge in the High Court to undertake this impermissible adjudicatory task of adjudging highly contentious issues between the parties. As observed by the Constitution Bench of this Court, there is nothing in Section 11 of the 1996 Act that requires the party other than the party making the request to be noticed and that it does neither contemplate a response from the other party nor contemplate any decision by the Chief Justice or his nominee on any controversy that the other party may raise, even in regard to its failure to appoint an Arbitrator within the stipulated period. The legislative intent underlying the 1996 Act is to minimize the supervisory rules of courts in arbitral process and nominate/appoint the Arbitrator without wasting time, leaving all contentious issues to be urged and agitated before the Arbitral Tribunal itself. Even under the old law, common sense approach alone was commended for being adopted in construing an arbitration clause more to perpetuate the intention of parties to get their disputes resolved through the alternate disputes redressal method of arbitration rather than thwart it by adopting a narrow, pedantic and legalistic interpretation.

Keeping into consideration all these aspects, we consider it just and more appropriate, proper and reasonable - both in law and in equity and interests of justice to direct ICA to forthwith and not later than sixty days from this date nominate the Arbitrator as sought for by the appellants and place the matters before such Arbitrator, leaving open to the parties to raise and pursue all objections and contentions and thereby seek for the decision of the Arbitrator as envisaged under Section 6 of the 1996 Act, besides getting adjudication of the respective disputes in these cases on merits and in accordance with law. Both parties will have leave and liberties to do so before the Arbitrator on being nominated/appointed by the ICA, pursuant to these orders."

(emphasis supplied)

11. The ICA by various communications (letter dated 29.08.2003 in the case relating to dispute involving second respondent), nominated the arbitrators and called upon FCI to deposit the amount of `22,000/- each towards cost and expenses of arbitration. It may be mentioned here that the arbitration fee, deposit of which thus demanded, was in terms of the 1998 Rules as then in force. The FCI made the deposits of arbitration fee pursuant to the said communications in each case. The deposits were duly acknowledged and by way of further communications (in October, 2003), ICA informed the FCI the status of appointment of arbitrator in various cases.

12. It is not in dispute that ICA amended the rules of arbitration with effect from a certain date in 2002 (effective date is not clarified) and then with effect from 01.11.2003 and later again with effect from 01.01.2005. Concededly, the schedule of fee in terms of the said rules also came to be revised (increased upwards) correspondingly with each such amendment.

For convenience, the amended rules shall hereinafter be referred as 2002 Rules, 2003 Rules and 2005 Rules respectively.

13. It appears that post the amendment of rules in 2005, ICA sent various communications (letters dated 02.08.2007, 29.08.2007, 22.12.2007 and 08.01.2008, in the case of second respondent) calling upon the petitioner to deposit the arbitration fee in terms of the revised schedule appended to 2005 Rules. The FCI challenged this demand through the petition at hand seeking a direction to ICA to proceed ahead with the arbitration proceedings as per the schedule of fee applicable at the time of registration of the arbitration case (or in the alternative, as in force on 17.07.2003 when the Supreme Court had issued the directions) and not to demand the enhanced arbitration fee in terms of 2005 Rules.

14. It may be mentioned at this stage that in relation to the dispute involving the second respondent, the ICA (pursuant to the directions of the Supreme Court) had appointed Mr. J.C. Seth as the sole arbitrator. On the application of Mr. J.C. Seth, arbitrator (C.M. No. 19281/2012), he was impleaded as a party to these proceedings order dated 03.05.2013 passed by a learned Single Judge (then in seisin of the case). The grievance of the arbitrator was that his fee had not been paid even though he had conducted certain proceedings. Some interim directions were given by the learned Single Judge in such regard including a clarificatory order issued on 13.09.2013.

15. On 01.04.2014, a learned Single Judge (then dealing with the case) recorded the following proceedings:-

"Counsel for the respondent states that all the matters have been decided in Arbitration.

After hearing counsel for the parties agreed that the only issue which requires adjudication in this petition is whether the arbitrators will be paid at the prevailing rate applicable as per the terms of ICA on 01.01.2005 or as per the Rules applicable in 2002. Counsel for the petitioner states that upon the ICA's demand the fees and cost etc. were paid in 2003 itself, when the 2002 Rules were applicable. However, by the time the arbitrators were appointed and the proceedings could actually start, the ICA requested the FCI on 02.08.2007 to pay further monies on the basis of the revised and subsequently applicable arbitral rules, i.e. in view of the amendment of Rule 34 (4) of ICA's Rule of Arbitration. Upon direction of this Court the differential amount between 2002 and 2005 has been deposited in the Court.

Counsel for the petitioner states that the respondent-ICA are bound by the terms on which the arbitration dispute was referred to them, by their first letter of 2003, whereby they have raised the demand towards arbitration and incidental fees; that insofar as FCI had paid the entire amount way back in 2003 itself their liability in this regard ceased from the date of payment; that it is entirely because of ICA's action or inaction that the matter could not be proceeded with after receipt of the payment by them; therefore the petitioner cannot be charged or held liable to pay the subsequently increased fees as per the revised fee schedule. Learned counsel further lays emphasis on the Supreme Court order dated 17.7.2003 which had directed that the arbitrators be appointed within six days of that order. Yet for the reason best known to them the ICA's did not appoint the arbitrators.

Mr. Yakesh Anand, the learned counsel for respondent no. 1, however, states that there is no default in appointment of arbitrators instead that the petitioner itself requested the ICA not to appoint the arbitrators in a few cases on the ground that negotiations for settlement of the disputes were underway between FCI and the millers.

At this stage, Mr. Yakesh Anand, learned counsel for respondent no. 1 seeks some time to bring on record certain orders and documents which he says would be pertinent for the

adjudication of this case. He says that those documents related to either parallel proceedings or proceedings identical to one pending before this court.

He may do so before the next date of hearing.

Re-notify on 17.07.2014."

(emphasis supplied)

16. Clearly, by the above submissions, the scope of these proceedings was enlarged by both sides so as to bring up for adjudication the controversy about the arbitration fee in all similarly-placed/connected matters which had arisen parallely.

17. It is necessary at this stage to also take note of the submission before the Supreme Court, of certain facts against above backdrop, as reflected in the following para extracted from the order dated 02.02.2015:-

"...There are 325 arbitration cases pertaining to disputes between the appellant and the millers and there is fees hike by the respondent which is approximately amounting to `3,65,30,100/-. We have stated the figure as has been urged by Mr. Kaul.

XXX

...We have been apprised that the differential amount has been deposited in the High Court of Delhi. The same shall remain in deposit till the matter is disposed of by the Division Bench of the High Court."

18. There indeed is no doubt that the request for initiation of arbitration proceedings was lodged with ICA by the FCI in 1998 and requisite fee and other charges in terms of rules then in force were duly deposited. ICA, however, had some reservations in view of the difference in the phraseology

of the arbitration clause. The difference of opinion on this count took some time to get resolved. It was only in August 2003 that ICA agreed to proceed ahead and made the appointment of arbitrators, in compliance with the directions of the Supreme Court in the judgment dated 17.07.2003. On the request of ICA, FCI made good the deficiency in the deposit of the arbitration fee and other costs and expenses in terms of the rules then in force (2002 Rules). The fact, however, remains that the arbitration proceedings did not commence immediately thereafter. The reason for the delay, or rather deferment of proceedings before the arbitral Tribunals were not of the ICA but at the instance of FCI. There is abundant material to support the contention to this effect of the first respondent, which we may presently take note of on the basis of documents submitted.

19. By letter dated 04.06.2005, the Deputy Commissioner (Commerce) on behalf of Senior Regional Manager of the Punjab Regional Office of FCI requested the Registrar, ICA to "again...defer the arbitration proceedings for another month beyond 15.05.2005" since the matter was under "active consideration" with the headquarters at New Delhi "for final decision/guidelines". Noticeably, the request concerned 374 paddy shelling cases pending with ICA, New Delhi relating to paddy milling contracts in Punjab for 1994-95. The expression "again requested" indicates that this communication was in continuation of similar request made earlier (as per the submissions of the counsel for ICA, the first such request was made in September/October, 2004). The request for deferment was reiterated by letters dated 06/07.06.2005 (though relating to 34 arbitration cases of Bhatinda District), 08.06.2005 (in respect of six other similar cases of District Office, Chandigarh), 08/09.06.2005 (concerning 56 such cases of

District Office Patiala), 09/10.06.2005 (of 111 cases of Faridkot District Office), 10.06.2005 (of 20 such cases of Gurdaspur District Office), 14/17.06.2005 (of two specific cases of Jalandhar District Office) and 16/17.06.2005 (60 such cases of Firozpur District Office). Similar communications dated 27.09.2005 (of District Office, Chandigarh), 20.03.2006 (of Regional Office, Chandigarh), 24.03.2006 (of District Office Bhatinda) and 12.03.2006 (also of District Office Bhatinda) confirm that further action on the references for arbitration made to ICA was deferred on the specific requests of FCI. The communication dated 20.03.2006 of Punjab Regional Office of FCI covered 374 such matters for the reasons that the effort for "out of Court settlement" by the FCI was in final phase. FCI requested the arbitration proceedings to be deferred for another three months beyond 16.03.2006.

20. In the teeth of the above material on record, it cannot be argued that ICA was going slow. There is no doubt that though FCI had taken these cases to ICA in 1998 for arbitration proceedings, on pursuit of which course, in the wake of directions of the Supreme Court in 2003, ICA had agreed to go ahead, the actual arbitration proceedings could not take off till 2007. It is clear that the efforts of FCI to get the disputes settled "out of Court" did not bear fruit wherefore it now (in 2007) required to push ahead with arbitration. By such time, however, the rules of arbitration had been amended by ICA twice, once in 2003, and then, again in 2005. Apparently, the arbitrators earlier appointed in 2005 (at the time when 2002 Rules was in position) were not inclined to take responsibility at the old rates of remuneration. It is for these reasons, and on such account, that ICA informed FCI by letter dated 30.05.2007 that the arbitration fee would now have to be enforced in

terms of the 2005 Rules. Given the chronology noted above, we find the objection raised by FCI to this requirement wholly unfair and improper.

21. The learned counsel for the petitioner has referred to order dated 09.11.2009 passed in arbitration petition no. 175 of 1999. Nothing turns on the advice rendered in the said order to ICA to divide these matters into convenient batches. The fact that the issue of administrative expenses of ICA was left open at that stage is inconsequential. Given the controversy that has arisen, it is essential that the issue is now settled. Since the rules of ICA also prescribe the administrative fee, there is no room for argument that it needs to be computed "on actual basis".

22. The FCI may have taken the above-mentioned dispute to ICA in 1998. The initial reluctance on the part of ICA to take up the responsibility of these matters may not have been proper. But, the fact remains that after directions had been given by the Supreme Court in July 2003, ICA fell in line and decided to appoint the arbitral tribunals for each of these cases. Appointments were also made in the wake of the judgment of the Supreme Court. But, the delay in effective proceedings occurred because by such time FCI had decided, on its own volition, to instead pursue the alternative course of mutual settlement. In these circumstances, ICA cannot be held responsible for delay in the further process. It rather abided by the request of the claimant (FCI) and kept deferring further action as suggested.

23. The ICA as the institution through the aegis of which FCI intended to pursue the course of dispute resolution by arbitration was a choice made by it of its own free will and volition when it entered into various contracts with the millers. It is not a case where ICA had imposed its services on FCI. Instead, it is FCI which opted to avail of the services of ICA and knocked at

its door for assistance. As observed by the Supreme Court in the order dated 17.07.2003, under the agreements in which FCI entered, both the parties (including FCI) were obliged not only to have the dispute resolved by means of arbitration but also, and more particularly, through the agency of ICA and "in accordance with" the rules and procedure prescribed by it. It is to be assumed that when FCI incorporated the arbitration clause in the various agreements with the millers resolving to get the disputes referred for settlement by arbitration in accordance with the rules and procedures prescribed by the ICA, it was aware and conscious that such rules adopted by ICA also prescribed the schedule of fee which was amenable to amendment from time to time.

24. It may be that the ICA rules do not envisage levy of higher administrative or arbitrators fee in the event of amendment being brought into effect during the pendency of arbitral proceedings. There may have been some merit in the objection raised by FCI to the amended fee being charged, if the arbitration proceedings had commenced. As noted above in the cases at hand, this has not been the scene. The arbitral proceedings were pressed by FCI and commenced only after 2005 Rules had come into force.

25. In the above facts and circumstances, the arbitrators who took up the cases some time in 2007 or thereafter cannot be denied the fee that would be payable to them for services rendered during the period for which 2005 Rules had become operative. For same reasons, ICA is also entitled to claim other costs and administrative expenses chargeable under the rules, as amended with effect from 01.01.2005.

26. The FCI cannot take the position that ICA must apportion the liability of cost of arbitral proceedings (administrative fee or arbitrator's fee)

between the parties to each case and recover it accordingly. It is FCI which took these matters for arbitration to ICA. It must pay the charges to ICA and then, if so entitled, get its due reimbursed from the opposite party in terms of each arbitral award.

27. For the foregoing reasons, we hold the petitioner accountable for payment not only of the arbitration fee but also costs and other administrative expenses to ICA in the above-mentioned arbitration cases, in accordance with ICA rules of arbitration as amended on 01.01.2005. Accordingly, ICA would be entitled to draw from the deposit made in the Court the appropriate amount calculated in above terms. Needless to add, if there is any deficiency in the amount deposited, FCI will be liable to make it good immediately upon intimation to such effect being received from ICA. Further, the ICA shall be obliged to pay forthwith to the arbitrators their dues from the amount thus drawn.

28. The petition is disposed of in above terms.

R.K.GAUBA (JUDGE)

S. RAVINDRA BHAT (JUDGE)

MAY 25, 2015 ik