Madras High Court

M.Suresh vs T.V.Sundaram Iyengar & Sons Pvt. ... on 29 November, 2022

                                                                    Arb.O.P.(Comm.Div.) No.222 of 2022

                                  IN THE HIGH COURT OF JUDICATURE AT MADRAS

                                                DATED: 29.11.2022

                                                     CORAM

                                  THE HONOURABLE MR.JUSTICE SENTHILKUMAR
                                              RAMAMOORTHY

                                        Arb.O.P.(Comm.Div.) No.222 of 2022

                     M.Suresh
                     Proprietor,
                     Samvrooms Automotives
                     No.69/4, Vallam Road,
                     Thirukanurpatti Village,
                     Thanjavur 613 303                                       ... Petitioner


                                                       vs.

                     1. T.V.Sundaram Iyengar & Sons Pvt. Ltd.
                        No.7B, TVS Building,
                        West Veli Street,
                        Madurai 625 001.

                     2. TVS Motor Company Limited,
                        Regd. Office “Chaitanya”,
                        No.12, Khader Nawaz Khan Road,
                        Nungambakkam,
                        Chennai 600 006.

                     3. Mr.V.Karthic,
                        Senior Advocate
                        Sole Arbitrator
                        Having Office at No.336, Shaw Wallace Building

                     1/12


https://www.mhc.tn.gov.in/judis
                                                                            Arb.O.P.(Comm.Div.) No.222 of 2022

                         2nd Floor, Thambu Chetty St, Chennai-1                     ... Respondents


                     PRAYER:             Arbitration Original Petition filed under 14(1)(A) of the

                     Arbitration and Conciliation Act read with Section 11 (6) of the Arbitration

                     and Conciliation Act, 1996, pleased to Terminate the appointment of the

                     learned Arbitrator /third Respondent herein and consequently appoint a new

                     Arbitrator to adjudicate the disputes between Petitioner and 1 st and 2nd

                     Respondents arising out of the stockist agreement dated 22.06.2019.

                                        For Petitioner     : Ms.Dakshyani Reddy

                                        For Respondents    : Mr.Satish Parasaran, Senior Advocate
                                                             for M/s.R.Parthasarathy for R1 & R2
                                                           **********

                                                           ORDER

The petitioner had entered into a stockist agreement dated 22.06.2019

with the first and second respondents herein. Upon disputes arising in

relation thereto, the arbitral tribunal was constituted by order dated

22.03.2021 in O.P. No.78 of 2021. Shortly thereafter, by communication

dated 08.04.2021, learned Arbitrator provided a disclosure in terms of

Section 12 of the Arbitration and Conciliation Act 1996 (the Arbitration

Act). In the said disclosure, learned Arbitrator stated, in relevant part, as

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under:

“Had appeared for TVS group companies prior to 2016, in my capacity as Partner T.S.Gopalan & Co Advocates Chennai.”

Upon receipt thereof, the petitioner provided its no objection in the following

terms:

“I have no objection to your appointment as an Arbitrator to adjudicate the disputes arising under the Stockiest Agreement dated 22.6.2019 in terms of the order of the High Court dated 22.3.2021 in O.P.78 of 2021.

However, I request you to again defer the preliminary hearing to the 2nd week of May 2021 given the rising number of Covid 19 cases all over India and my inability to come over to Chennai. I will be deeply obliged.”

2. Thereafter, hearings of the arbitral tribunal were scheduled. The

respondents herein filed a statement of claim and the petitioner filed a

statement of defence and made counter claims. Upon completion of

pleadings, the first and second respondents herein/claimants examined

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witnesses who were, in turn, cross-examined by learned counsel for the

petitioner. By contending that the disclosure of learned arbitrator was

examined by the petitioner only when the matter was listed for the cross-

examination of the witnesses of the first and second respondents herein, an

application was filed by the petitioner herein under Sections 12 and 13 of

the Arbitration Act. By such application, learned Arbitrator was challenged

on the ground that there are justifiable doubts as to his independence or

impartiality since he had acted as counsel for the first and second

respondents previously. The said application was rejected by an order dated

20.04.2022. In the said order, learned arbitrator adverted to the declaration

made by him and the no objection of the petitioner in response thereto. The

present petition is filed in these facts and circumstances.

3. Learned counsel for the petitioner submits that learned arbitrator is

ineligible as per entry 6 of the VII Schedule of the Arbitration Act.

Consequently, it is asserted that a petition under Section 14 of the

Arbitration Act is both maintainable and sustainable. In order to buttress

this contention, learned counsel relies upon the judgment of the Hon'ble

Supreme Court in Bharat Broadband Network Limited v. United Telecoms

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Limited (Bharat Broadband), (2019) 5 SCC 755. With reference to

paragraphs 11, 12 and 15 thereof, it is contended that the ineligibility under

Section 12(5) can be cured only by an express agreement as per the proviso

to Section 12(5). As regards the letter issued by the petitioner, it is stated

that the said letter does not make reference to the declaration of the learned

arbitrator and that such no objection was given by the petitioner without

examining the disclosure. In this connection, learned counsel draws

reference to the application filed under Sections 12 and 13, particularly

paragraphs 8 to 20 thereof.

4. The second ground of challenge is based on the order passed by

learned arbitrator. With specific reference to paragraph 7 thereof, learned

counsel submits that the arbitral tribunal recorded a conclusion that the

application under Sections 12 and 13 was filed only to overcome the liability

to pay the fees of learned arbitrator. According to learned counsel, this

evidences bias and brings the matter within the ambit of Section 14.

5. In response to these contentions, learned senior counsel for the first

and second respondents submits that learned arbitrator recorded the

conclusion in paragraph 7 of the order in the factual context of the

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petitioner herein failing to make payments of any of the bills issued by

learned arbitrator. He also submits that the fact that learned arbitrator acted

as counsel for the first and second respondents herein prior to 2016 does not

fall within the scope of even entry 20 of Schedule V of the Arbitration Act

and certainly does not fall within the scope of entry 6 of Schedule VII.

Therefore, he submits that the petition is bereft of merits.

6. The Arbitration Act provides for a challenge before the arbitral

tribunal if the party challenging the arbitral tribunal is of the view that there

are circumstances justifying doubts as to the impartiality or independence of

the arbitrator(s). Schedule V of the Arbitration Act is intended to act as a

guide to determine whether such circumstances exist. Therefore, Schedule V

cannot be construed as exhaustive. If a challenge under Sections 12 and 13

is rejected by the arbitral tribunal, Sub-section 4 of Section 13 provides that

the arbitral tribunal is entitled to proceed with the arbitral proceedings and

pronounce the award. Such award will, however, be subject to challenge

under Section 34 on the ground that the rejection of such challenge warrants

interference.

7. Section 12(5) of the Arbitration Act provides that a person, whose

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relationship with parties or counsel to the dispute or to the dispute or

interest in the dispute falls within entries 1 to 19 of Schedule VII, is

ineligible to be appointed as arbitrator in the absence of an express waiver

by an agreement in writing entered into after disputes arise between the

parties. If the arbitrator is ineligible in terms of Section 12(5), it is open to

the aggrieved party to petition this Court under Section 14 of the Arbitration

Act as per the law laid down in Voestalpine Schienen GmbH v. DMRC Ltd.

(2017) 4 SCC 665 and HRD Corporation v. GAIL (India) Ltd. (2018) 12

SCC 471 and Bharat Broadband. Therefore, notwithstanding the rejection

of the challenge under Sections 12 and 13, the question to be decided is

whether the challenge before this Court falls within the scope of Section

12(5) read with Schedule VII and Section 14 of the Arbitration Act.

8. Learned counsel for the petitioner contended that learned arbitrator

is ineligible in terms of entry 6 to Schedule VII. Entry 6 is set out below:

“The Arbitrator's law firm had a previous but terminated involvement in the case without the arbitrator being involved himself or herself.”(emphasis added)

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On perusal of entry 6, it is clear that it applies when the arbitrator's law firm

had a previous but terminated involvement in the case. When entries 1-19 in

Schedule VII, which are common to entries 1-19 in Schedule V, are

compared and contrasted with entries 20-31 in Schedule V, it is evident that

the past relationship between the arbitrator and one of the parties to the

dispute, whether as counsel or arbitrator, is dealt with in entries 20-24 of

Schedule V and not in Schedule VII. Besides, the expression “in the case”

should not be robbed of meaning. Therefore, the only reasonable

construction of the phrase “in the case” in entry 6 of Schedule VII is

involvement in the dispute referred for arbitration. From the declaration of

the learned arbitrator, there is no indication that the law firm, with which

learned arbitrator was previously associated, was involved in the dispute

before the arbitral tribunal and the petitioner has also failed to provide any

evidence of such involvement. Consequently, entry 6 clearly does not apply

to the present case. Learned counsel for the petitioner has also been unable

to establish that the circumstance falls within any of the other 18 entries in

Schedule VII. Hence, it is concluded that the challenge is not on any of the

enumerated grounds in Schedule VII.

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9. In Clarke Energy India Pvt. Ltd. v. SAS EPC Solutions Pvt. Ltd.,

2021-5-L.W.92, I concluded that Schedule VII only deals with ineligibility

arising out of conflict of interest, whereas Section 14 of the Arbitration Act

is attracted if the arbitrator is de jure or de facto unable to exercise

functions. I also concluded that de jure inability extends beyond open-and-

shut legal disability. Inasmuch as Schedule VII is confined to three

categories of conflict of interest, I further concluded that a petition may be

maintainable and sustainable under Section 14 even if bias outside the

context of conflict of interest is established. However, this was subject to the

caveat that the threshold should necessarily be set at a high level so as to

avert the derailment of arbitral proceedings by a disgruntled party thereto.

10. In this case, the allegation of bias is on the basis of the

following conclusion in paragraph 7 of the order in the Sections 12 and 13

application. The said paragraph, in relevant part, is set out below:

“7. ....In the instant case, the declaration made by me was categorical in that I had appeared for some of the T V S Group Companies prior to 2016 when I was a Partner of M/s.T.S. Gopalan & Company and the same was informed and not demurred by the

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petitioner/respondent. The petitioner/respondent has only filed this petition so as to overcome his liability to pay the fees of the Arbitrator.”

In the factual context of the petitioner failing to honour the bills of learned

arbitrator, which is noticed in paragraph 4 of the order, the above

observation was made. This observation does not, by any stretch of

imagination, meet the exacting threshold for interference under Section 14

on the ground of bias. Therefore, the petitioner has failed to make out a case

warranting interference under Section 14. Hence, Arb.O.P.(Com.Div.)

No.222 of 2022 is dismissed without any order as to costs. The period

during which there was a stay of arbitral proceedings shall be excluded

while computing time limits for purposes of Section 29A of the Arbitration

Act.