Himachal Pradesh High Court
Decided On: 12Th September vs Himachal Pradesh Forest Corporation on 12 September, 2024
Author: Jyotsna Rewal Dua
Bench: Jyotsna Rewal Dua
2024:HHC:8464
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA
Arb. Appeal No.110 of 2024
Decided on: 12th September, 2024
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Vipan Mahajan .....Appellant
.
Versus
Himachal Pradesh Forest Corporation
Limited .....Respondent
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Coram
Ms. Justice Jyotsna Rewal Dua
Whether approved for reporting?
For the Appellant: r Ms. Anjali Soni Verma, Advocate.
For the Respondent: Mr. Abhishek Nagta, Advocate.
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Jyotsna Rewal Dua, Judge
The appellant has taken exception to the order
dated 12.06.2024 passed by the learned District Judge,
dismissing appellant's objections preferred under Section
34 of the Arbitration and Conciliation Act, 1996 (in short
'the Act') against the award dated 03.10.2019 passed by the
learned Arbitrator.
2. Facts:-
2(i). Respondent-Corporation executed an agreement
with the appellant on 05.04.2014. The agreement pertained
_____________________
Whether reporters of print and electronic media may be allowed to see the order? Yes
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to resin extraction work and carriage of extracted resin upto
the roadside depot. The agreement contained a clause that
in the event of any dispute, the matter shall be referred to
.
the Sole Arbitrator to be appointed by the Managing
Director of the respondent-Corporation. Clause 52 of the
agreement deed providing for arbitration of the dispute
reads as under:-
"52. Any dispute/differences, or question which may at any
time arise between the parties in respect of the work to
be executed by the Contractors/Labour Supply Mate(s)
shall be referred for arbitration to the Managing Director
and/or Director (North), Director (South), Executive
Director, Director (Marketing), Director (P&D), H.P. State
Forest Corporation whose decision shall be binding on
both the parties."
2(ii). A dispute arose between the parties concerning
less supply of resin by the appellant to the respondent-
Corporation. The Managing Director of the respondent-
Corporation appointed Director (North), H.P. State Forest
Development Corporation Limited, Dharamshala to act as
an Arbitrator in terms of its order dated 13.05.2016.
2(iii). The Arbitrator entered upon the reference. From
the award passed by the learned Arbitrator on 03.10.2019,
it appears that the appellant attended one hearing before
the learned Arbitrator on 27.11.2017. The appellant did not
file his reply to the claim petition preferred by the
respondent. He did not even attend subsequent hearings,
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hence, was proceeded ex-parte by the learned Arbitrator on
08.12.2017.
2(iv). The Arbitrator passed the award on 03.10.2019
.
and allowed the claim petition preferred by the respondent.
Recovery of Rs.5,68,696/- was awarded in favour of the
respondent-Corporation and against the appellant. In case
of failure of the appellant to deposit the amount within 60
days from the issue of the award, interest @ 7% per annum
was also held payable.
2(v). The rappellant agitated the award dated
03.10.2019 by filing his objections under Section 34 of the
Act before the learned District Judge. His objections were
dismissed on 12.06.2024 on the ground that the objector
had failed to make out any ground for challenging the
award under any of the clauses of Section 34 of the Act.
It is in the aforesaid background that the
appellant has taken recourse to institution of present
appeal under Section 37 of the Act.
3. Learned counsel for the appellant submitted
that the issue raise by the appellant in the instant appeal is
that the learned Arbitrator, who passed the award on
03.10.2019, lacked the jurisdiction for passing the
aforesaid award. That he could not have passed the award
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in view of Section 12(5) of the Act. Reliance in support of
this submission was placed upon the decision rendered in
Divisional Manager, H.P. State Forest Development
.
Corporation Ltd. Versus Prem Lal 1 and connected
matters. Learned counsel further submits that the objection
with respect to jurisdiction of the Arbitrator, who had
passed the award, had been taken by the appellant before
the learned District Judge, however, it was not adjudicated
upon.
4. Learned counsel appearing for the respondent
admits the above position. Learned counsel has fairly
submitted that the decision rendered in the Prem Lal's
case1 has attained finality and fully applies to the facts of
the instant case as well.
In the aforesaid decision relied upon by the
learned counsel for the appellant, which involved similar
position on facts as is involved in the instant case, it has
been held that the award passed by the Arbitrator, i.e. an
employee of the respondent-State Forest Development
Corporation Limited/Director concerned, would be hit by
Section 12(5) of the Act. Such an award would be non-est in
CMPMO No.58 of 2023, decided on 27.02.2023
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the eyes of law and consequently void. Relevant paras from
the decision rendered in Prem Lal's case1 read as under:-
4. Having heard learned counsel for the petitioner and
ongoing through the case file, I am of the considered
.
view that these petitions lack merit. This is for the
following reasons: -
4(i) Section 12(5) of the Act was inserted by the Act No.3 of
2016. It came into force w.e.f. 23.10.2015 and reads as
under:-
"12(5) Notwithstanding any prior agreement to
be contrary, any person whose
relationship, with the parties or counsel or
the subject matter of the dispute, falls
under any of the categories specified in
the Seventh Schedule shall be ineligible to
be appointed as an arbitrator
Provided that parties may, subsequent
to disputes having arisen between them,
r waive the applicability of this sub-section
by an express agreement in writing."
A plain reading of Section 12(5) of the Act makes
it apparent that any person whose relationship with the
parties or counsel or the subject-matter of the dispute,
falls under any of the categories specified in the
Seventh Schedule shall be ineligible to be appointed as
an Arbitrator. It is not in dispute that the Director
(South) i.e. the person appointed as an Arbitrator in the
instant matter falls in the category specified in the
Seventh Schedule of the Act.
4(ii) Any person who becomes ineligible to act as an
Arbitrator in terms of Section 12(5) read with Seventh
Schedule of the Act cannot appoint/nominate another
Arbitrator for determining the dispute. Any appointment
of other person nominated by such person as an
Arbitrator for determining the dispute arising under the
arbitration agreement is void ab initio. The proceedings
so conducted will be non est. The awards passed by
such person, if any, are also void. [refer to (2017) 8 SCC
377, TRF Ltd. Vs. Energo Engineering Projects Ltd.;
(2019) 5 SCC 755, Bharat Broadband Network Limited
Vs. United Telecoms Limited.]
4(iii) In 2021 (17) SCC 248 Jaipur Zila Dugdh Utpadak
Sahkari Sangh Limited & Ors. vs. Ajay Sales &
Suppliers, an argument was raised that Sub-section 5
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of Section 12 read with Seventh Schedule to the Act
shall not be applicable to the facts of the case, more
particularly when the agreement between the parties
therein was executed prior to the insertion of Sub-
section 5 of Section 12 read with Seventh Schedule of
the Act. This submission was not accepted by the
.
Hon'ble Apex Court in view of the earlier decisions
rendered in TRF Ltd. Vs. Energo Engineering Projects
Ltd. (2017) 8 SCC 377, Bharat Broadband Network
Limited Vs. United Telecoms Limited and (2019) 5 SCC
377, Voestalpine Schienen GMBH Vs. Delhi Metro Rail
Corporation Limited (2017) 4 SCC 665. The Hon'ble
Apex Court observed that in the above precedents, it
has been observed that the main purpose for amending
the provision was to provide for 'neutrality of
arbitrators'. In order to achieve this, Sub-section 5 of
Section 12 lays down that notwithstanding any prior
agreement to the contrary, any person whose
relationship with the parties or counsel or the subject-
matter of the dispute falls sunder any of the categories
specified in the Seventh Schedule, he shall be ineligible
to be appointed as an Arbitrator. It was further
observed that in such an eventuality i.e. when the
arbitration clause finds foul with the amended provision
i.e. Sub-section 5 of Section 12 read with Seventh
Schedule of the Act, the appointment of an Arbitrator
would be beyond pale of the arbitration agreement.
Such would be the effect of non-obstante clause
contained in Sub-section 5 of Section 12. The relevant
paras from the judgment read as under: -
4.1 It is submitted that first of all Subsection (5) of
Section 12 read with Seventh Schedule to the
Act shall not be applicable to the facts of the
case on hand more particularly when the
agreement between the parties was prior to
insertion of Sub section (5) of Section 12 read
with Seventh Schedule to the Act. It is further
submitted that even otherwise the 'Chairman'
being an elected member shall not come within
Seventh Schedule to the Act. It is submitted that
'Chairman' is not included within disqualified/
ineligible person to be appointed in Seventh
Schedule of the Act.
5 ..............
6. It is not in dispute that distributorship
agreement between the parties was dated
31.03.2015 i.e. prior to the insertion of Sub-
2024:HHC:8464
section (5) of Section 12 and Seventh Schedule
to the Act w.e.f. 23.10.2015. It also cannot be
disputed that Clause 13 of the Agreement dated
31.03.2015 contained the arbitration clause and
as per Clause 13, any dispute and differences
arising out of or in any way touching or
.
concerning distributorship agreement shall be
resolved through arbitration. As per Clause 13
such a dispute shall be referred to the sole
Arbitrator - the Chairman, Sahkari Sangh.
6.1 .................
6.2 .................
6.3 So far as the submission on behalf of the
petitioners that the agreement was prior to the
insertion of Subsection (5) of Section 12 read
with Seventh Schedule to the Act and therefore
the disqualification under Subsection (5) of
Section 12 read with Seventh Schedule to the
Act shall not be applicable and that once an
arbitrator - Chairman started the arbitration
proceedings thereafter the High Court is not
r justified in appointing an arbitrator are
concerned the aforesaid has no substance and
can to be accepted in view of the decision of this
Court in Trf Ltd vs Energo Engineering Projects
Ltd, (2017) 8 SCC 377; Bharat Broadband
Network Limited vs United Telecoms Limited,
(2019) 5 SCC 755; Voestalpine Schienen GMBH
vs. Delhi Metro Rail Corporation Limited, (2017)
4 SCC 665. In the aforesaid decisions this Court
had an occasion to consider in detail the object
and purpose of insertion of Sub section (5) of
Section 12 read with Seventh Schedule to the
Act. In the case of Voestalpine Schienen GMBH
(Supra) it is observed and held by this Court
that the main purpose for amending the
provision was to provide for 'neutrality of
arbitrators'. It is further observed that in order
to achieve this, Subsection (5) of Section 12 lays
down that notwithstanding any prior agreement
to the contrary, any person whose relationship
with the parties or counsel or the subject-matter
of the dispute falls under any of the categories
specified in the Seventh Schedule, he shall be
ineligible to be appointed as an arbitrator. It is
further observed that in such an eventuality i.e.
when the arbitration clause finds foul with the
2024:HHC:8464
amended provisions (Subsection (5) of Section
12 read with Seventh Schedule) the
appointment of an arbitrator would be beyond
pale of the arbitration agreement, empowering
the court to appoint such arbitrator as may be
permissible. It is further observed that, that
.
would be the effect of non obstante clause
contained in subsection (5) of Section 12 and the
other party cannot insist on appointment of the
arbitrator in terms of the arbitration agreement."
Thus, contention of the petitioner that Sub-
section 5 of Section 12 read with Seventh Schedule of
the Act cannot be applied to the instant case in view of
agreement executed between the parties prior to
insertion of Section 12(5) read with Seventh Schedule of
the Act, cannot be accepted. Any prior agreement
executed by the parties contrary to the mandate of sub-
Section 5 of Section 12 and Seventh Schedule of the Act,
gets wiped out by the non-obstante clause in Section
12(5).
4(iv) The contention of the petitioner that the respondent had
signed the arbitration agreement and participated in the
arbitration proceedings are also of no avail in view of
the legal position settled in the aforesaid
pronouncements by the Hon'ble Apex Court. Proviso to
Section 12 (5) can only be invoked in case of 'existence
of express agreement in writing' of the parties to satisfy
the requirements of proviso to Section 12(5) of the Act
and not otherwise. It will be appropriate to quote
following paras from Jaipur Zila Dugdh Utpadak
Sahkari Sangh Limited case supra in this regard: -
10. Now so far as the submission on behalf of the
petitioners that the respondents participated in the
arbitration proceedings before the sole arbitrator-
Chairman and therefore he ought not to have
approached the High Court for appointment of
arbitrator under Section 11 is concerned, the same
has also no substance. As held by this Court in the
case of Bharat Broadband Network Limited (Supra)
there must be an 'express agreement' in writing to
satisfy the requirements of Section 12(5) proviso. In
paragraphs 15 & 20 it is observed and held as
under:
"15. Section 12(5), on the other hand, is a new
provision which relates to the de jure inability
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of an arbitrator to act as such. Under this
provision, any prior agreement to the contrary
is wiped out by the non obstante clause in
Section 12(5) the moment any person whose
relationship with the parties or the counsel or
the subject matter of the dispute falls under
.
the Seventh Schedule. The subsection then
declares that such person shall be "ineligible"
to be appointed as arbitrator. The only way in
which this ineligibility can be removed is by
the proviso, which again is a special provision
which states that parties may, subsequent to
disputes having arisen between them, waive
the applicability of Section 12(5) by an express
agreement in writing. What is clear, therefore,
is that where, under any agreement between
the parties, a person falls within any of the
categories set out in the Seventh Schedule, he
is, as a matter of law, ineligible to be
appointed as an arbitrator. The only way in
which this ineligibility can be removed, again,
r in law, is that parties may after disputes have
arisen between them, waive the applicability
of this subsection by an "express agreement in
writing". Obviously, the "express agreement in
writing" has reference to a person who is
interdicted by the Seventh Schedule, but who
is stated by parties (after the disputes have
arisen between them) to be a person in whom
they have faith notwithstanding the fact that
such person is interdicted by the Seventh
Schedule.
xxx xxx xxx
20. This then brings us to the applicability of the
proviso to Section 12(5) on the facts of this
case. Unlike Section 4 of the Act which deals
with deemed waiver of the right to object by
conduct, the proviso to Section 12(5) will only
apply if subsequent to disputes having arisen
between the parties, the parties waive the
applicability of subsection (5) of Section 12 by
an express agreement in writing. For this
reason, the argument based on the analogy of
Section 7 of the Act must also be rejected.
Section 7 deals with arbitration agreements
that must be in writing, and then explains that
such agreements may be contained in
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documents which provide a record of such
agreements. On the other hand, Section 12(5)
refers to an "express agreement in writing".
The expression "express agreement in writing"
refers to an agreement made in words as
opposed to an agreement which is to be
.
inferred by conduct. Here, Section 9 of the
Indian Contract Act, 1872 becomes important.
It states:
"9. Promises, express and implied.--In so
far as a proposal or acceptance of any promise
is made in words, the promise is said to be
express. In so far as such proposal or
acceptance is made otherwise than in words,
the promise is said to be implied." It is thus
necessary that there be an "express"
agreement in writing.
This agreement must be an agreement by
which both parties, with full knowledge of the
fact that Shri Khan is ineligible to be appointed
as an arbitrator, still go ahead and say that
they have full faith and confidence in him to
continue as such. The facts of the present case
disclose no such express agreement. The
appointment letter which is relied upon by the
High Court as indicating an express
agreement on the facts of the case is dated
17.01.2017. On this date, the Managing
Director of the appellant was certainly not
aware that Shri Khan could not be appointed
by him as Section 12(5) read with the Seventh
Schedule only went to the invalidity of the
appointment of the Managing Director himself
as an arbitrator. Shri Khan's invalid
appointment only became clear after the
declaration of the law by the Supreme Court in
TRF Ltd. (supra) which, as we have seen he-
reinabove, was only on 03.07.2017. After this
date, far from there being an express
agreement between the parties as to the
validity of Shri Khan's appointment, the
appellant filed an application on 07.10.2017
before the sole arbitrator, bringing the
arbitrator's attention to the judgment in TRF
Ltd. (supra) and asking him to declare that he
has become de jure incapable of acting as an
arbitrator. Equally, the fact that a statement of
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claim may have been filed before the
arbitrator, would not mean that there is an
express agreement in words which would
make it clear that both parties wish Shri Khan
to continue as arbitrator despite being
ineligible to act as such. This being the case,
.
the impugned judgment is not correct when it
applies Section 4, Section 7, Section 12(4),
Section 13(2), and Section 16(2) of the Act to
the facts of the present case, and goes on to
state that the appellant cannot be allowed to
raise the issue of eligibility of an arbitrator,
having itself appointed the arbitrator. The
judgment under appeal is also in correct in
stating that there is an express waiver in
writing from the fact that an appointment letter
has been issued by the appellant, and a
statement of claim has been filed by the
respondent before the arbitrator. The moment
the appellant came to know that Shri Khan's
appointment itself would be invalid, it filed an
r application before the sole arbitrator for
termination of his mandate."
There is no pleading that any express agreement
in writing satisfying the mandate of Sub-section 5 of
Section 12 inclusive of its proviso and Seventh Schedule
was ever executed by the respondent. The Director
(South) continued to hold the arbitration proceedings
even after enforcement of Sub-section 5 of Section 12 &
Seventh Schedule of the Act and passed the award on
11.12.2017 in CMPMO No.58 of 2023, 14.09.2017 in
CMPMO No.59 of 2023 and 26.08.2017 in CMPMO
No.60 of 2023.
In view of the above pronouncements, it is amply
clear that the arbitration proceedings conducted by the
Arbitrator-Director (South) are non-est. The awards
passed by such Arbitrator were void. The awards were
not enforceable. The learned District Judge did not
commit any error in dismissing the execution
applications filed by the petitioner, seeking enforcement
of the void awards. Hence, I find no merit in the instant
petitions and the same are dismissed so also the
pending miscellaneous application(s), if any."
2024:HHC:8464
5. In the instant case also, the claimant was
Himachal Pradesh State Forest Development Corporation
Limited, i.e. the present respondent. The Arbitrator, who
.
passed the award on 03.10.2019, was Director (North) of
the respondent-Corporation. Therefore, in view of Section
12(5) of the Act, the matter fell within the category specified
in Seventh Schedule of the Act. A person who becomes
ineligible to act as an Arbitrator in terms of Section 12(5)
read with Seventh Schedule of the Act cannot appoint/
nominate another Arbitrator for determining the dispute.
Appointment of other person nominated by such person as
an Arbitrator for determining the dispute arising under the
arbitration agreement is void ab initio. Therefore, it has to
be held that the proceedings so conducted by the learned
Arbitrator, culminating into passing of the award on
03.10.2019, were non-est. The award passed by such a
person is also void.
Accordingly, this appeal is allowed. The order
dated 12.06.2024 passed by the learned District Judge,
dismissing appellant's objections under Section 34 of the
Act, is set aside. The award passed by the learned
Arbitrator on 03.10.2019 is held to be non-est and void.
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The appeal stands disposed of in the above
terms, so also the pending miscellaneous application(s), if
any.
.
Jyotsna Rewal Dua
September 12, 2024 Judge
Mukesh
r to
