M/S Anik Industries Ltd vs M/S Shree Rajasthan Sintex Ltd
2024 Latest Caselaw 9269 Raj

Rajasthan High Court - Jodhpur

M/S Anik Industries Ltd vs M/S Shree Rajasthan Sintex Ltd on 22 October, 2024

Author: Pushpendra Singh Bhati

Bench: Pushpendra Singh Bhati

[2024:RJ-JD:41566-DB]

      HIGH COURT OF JUDICATURE FOR RAJASTHAN AT
                       JODHPUR
                D.B. Civil Misc. Appeal No. 1516/2023

M/s Anik Industries Ltd., 610, Tulsiyani Chamber, Naraman Point,
Mumbai Corporate Office 201, Mahakosh, House, 7/5 South
Tukoganj,     Indore      (Madhya          Pradesh)        through    Vijay   Joshi,
Assistant General Manager (Commercial)
                                                                      ----Appellant
                                         Versus
M/s Shree Rajasthan Sintex Ltd., a Registered Company Under
the Indian Companies Act 1956 having its Registered Office at
SRSL House, Rashtriya Raj Marg No. 8 Pulla, Bhuwana Road,
Udaipur and having its Office at Second Floor 439 Kalbadevi
Road, Mumbai through its Manager (Commercial) Shri Kamal
Chordiya.
                                                                    ----Respondent


For Appellant(s)             :     Mr.Deelip Kawadia, Adv.
                                   Mr.Sidharth Mandawat, Adv.
For Respondent(s)            :     Mr.Sanjeev Johari, Sr. Adv. assisted by
                                   Mr.Shubhankar Johari, Adv.
                                   Mr.Lalit Parihar, Adv.



     HON'BLE DR. JUSTICE PUSHPENDRA SINGH BHATI

HON'BLE MR. JUSTICE MUNNURI LAXMAN

Judgment

Judgment Reserved on : 23.09.2024

Judgment Pronounced on : 22.10.2024 <><><> [Per Hon'ble Mr. Justice Munnuri Laxman] :

1) The present Civil Misc. Appeal is directed against the order

dated 18.03.2023 passed by the learned Judge, Commercial

Court, Udaipur on the file of Civil Misc. Case No.38/2018 (C.I.S.

No.38/2018), wherein and whereby the award dated 23.03.2015

passed by the Arbitral Tribunal was set aside.

[2024:RJ-JD:41566-DB] (2 of 16) [CMA-1516/2023]

2) The appellant herein is the claimant before the Arbitral

Tribunal (hereinafter referred to as, "the Tribunal") and the

respondent herein is the respondent before the Tribunal. For

convenience, the ranks of the parties as were referred before the

Tribunal is maintained.

3) The sum and substance of the case of the claimant is that

it is engaged in the business of Coal Trading amongst other

businesses. The respondent is having Industrial Plant at

Dungarpur (Rajasthan). The claimant supplied coal for the

respondent Industrial Plant for generation of power under various

purchase orders placed by the respondent from time to time

during the period of October 2009 and August 2010.

4) The respondent raised a dispute with regard to supply of

18,689 metric tons of coals worth of Rs.5,72,84,744/- with regard

to quality of the coal supplied during the period of November 2009

to August 2010 with reference to eight purchase orders. The

claimant had received Rs.4,54,54,061/- out of eight purchase

orders and for the balance amount of Rs.1,18,30,683/-, the claim

was filed before the Tribunal.

5) The respondent denied the claim set up by the claimant.

According to the respondent, the coal supplied was of not upto the

quality agreed between the parties; on account of supply of coal

with the low quality, the respondent's industrial plant and

machinery were damaged. The respondent assessed the damages

of Rs.1,12,01,110/. The respondent has given debit of

Rs.55,25,851/- out of due amount. It has withheld

Rs.40,39,933/-. As the claimant was not ready to take such

money on account of debit notes set up by the respondent, after

[2024:RJ-JD:41566-DB] (3 of 16) [CMA-1516/2023]

adjusting the above two amounts, an amount of Rs.16,41,326/-

was claimed as damages in the counter-claim.

6) Before the Tribunal, no oral evidence was adduced by both

the parties. The Tribunal was asked to decide the claim and

counter-claim on the basis of the documentary evidence only.

After hearing the respective counsel and by considering the

evidence on record, the Tribunal partly allowed the claim of

claimant granting Rs.40,39,903/- with interest @ 15% per annum

from 15.02.2011 till realisation and dismissed the counter-claim of

the respondent.

7) The respondent assailed the order award of the Tribunal

before the Commercial Court, Udaipur under Section 34 of the

Arbitration and Conciliation Act raising various grounds. During the

pendency of such petition before the Commercial Court, Udaipur,

the respondent raised additional ground of non-disclosure by one

of the Arbitrator i.e. Mr. Ramesh Saboo about his affiliation with

one of the sister-concern of the claimant-Company. The

Commercial Court after considering the contentions and grounds

raised by respondent has set aside the award on the ground of

perversity in the findings of the Tribunal with regard to counter-

claim, and also disqualification incurred by one of the Arbitrator on

account of non-disclosure of his affiliation with the sister-concern

of claimant-Company. Aggrieved by the same, the present appeal

has been filed by the claimant.

8) Heard both the counsel for the parties and appeal was

taken for final disposal at admission stage since the issue involved

in the present appeal is short one.

[2024:RJ-JD:41566-DB] (4 of 16) [CMA-1516/2023]

9) In the light of arguments and grounds in the appeal, the

following points emerges for consideration:

(i) Whether the findings of Tribunal in granting the part claim to the claimant and rejecting the counter-

claim of the respondent suffers from any perversity.

(ii) Whether non-disclosure of one of the Arbitrator about his affiliation with the sister-concern results in any apparent bias so as to vitiate the award.

POINT NO:1

10) A close scrutiny of the award of the Tribunal reveals that

the Tribunal with regard to claims made by the rival parties to the

arbitration shortlisted the disputes to three purchase orders i.e.

1/10, 2/10 and 3/10. The total value of such a supply is

Rs.55,25,681 + Rs.40,39,933=Rs.95,65,614/-. The Tribunal found

that the coal supplied under the above three purchase orders

suffers from inferior quality and upheld the claim of the

respondent with regard to supply of inferior quality coal by the

claimant. Such conclusion was reached basing on the laboratory

reports placed by the respondent. The contention of the claimant

that such inferior quality coal was result of improper storage

facility, was rejected. The claim of the respondent with regard to

substandard supply of coal was upheld. It was held that the

respondent is rightly entitled for debit of Rs.55,25,681/- from the

value of the coal supplied, which is proportionate to the

percentage of inferior quality of coal found as per the Laboratory

reports. The Tribunal also considered the admissions of the

respondent in the counter-claim that the claimant did not come

forward to receive the balance of 40,39,933/- on account of debit

[2024:RJ-JD:41566-DB] (5 of 16) [CMA-1516/2023]

of some amounts on account of inferior quality of coal and such

amounts were payable to claimant. The claim of the claimant was

partly allowed to the extent of such admission i.e. Rs.40,39,933/-

and interest as stated herein abvore.

11) The counter-claim of the respondent was rejected on the

ground that entire claim was based on the certificate of Chartered

Engineer. The Tribunal found that the claimant had no access to

the industry of the respondent to know the truthfulness of

assessment of damage made by the Chartered Engineer to the

machinery of the industry on account of supply of inferior quality

of coal. The Tribunal also found that there is no other independent

evidence other than the assessment of Chartered Engineer. The

Tribunal has not accepted the damages on account of lack of

independent corroborative evidence to the assessment made by

the Chartered Engineer. Consequently, the respondent's claim was

rejected.

12) An elaborate discussion has been made by the Tribunal

and in fact, the original claim of respondent was with regard to

supply of inferior quality of coal and the debits made by the

respondent with regard to three purchase orders proportionate to

the percentage of inferior quality found in the Laboratory reports,

was upheld. The main reason for dismissal of counter-claim was

on account of lack of independent corroborative evidence and the

entire claim was based on the assessment of damages by

Chartered Engineer of respondent, who is very interested. Further,

the claimant was not given access to the damage part of industrial

machinery. The Chartered Engineer's assessment was an

interested evidence. For the said reasons, the Tribunal insisted for

[2024:RJ-JD:41566-DB] (6 of 16) [CMA-1516/2023]

corroborative evidence of independent assessment, which is

lacking in the present case.

13) As seen from the impugned order in the present appeal,

the Commercial Court without seeing the reasoned order of the

Tribunal with regard to counter-claim simply found that the

Tribunal has erred in not considering the counter-claim. The

interference of the Commercial Court in the findings of the award

would arise only in case such award suffers from perversity.

Seeing from the appreciation of evidence on record while

adverting to the counter-claim, the Tribunal considered the claim

set up by the respondent, which is based on the Chartered

Engineer assessment. The Tribunal found that there was no access

to the claimant with regard to damaged industry and there is no

independent corroborative evidence to the assessment made by

the Chartered Engineer. Such findings are well reasoned findings

and such findings do not suffer from any perversity. The

Commercial Court was wrong in holding that the Tribunal has not

considered the counter-claim in right perspective without

appreciating the material on record. Therefore, such a finding of

the Commercial Court is liable to be set aside and accordingly, is

set aside.

POINT NO.2

14) The contention raised by the learned counsel for the

appellant/claimant before this Court is that the learned

Commercial Court was at fault in holding that the non-disclosure

of affiliation by one of the Arbitrator i.e. Ramesh Saboo with the

sister-concern of the claimant-Company has resulted in

disqualification, which according to him, is not a correct. Such

[2024:RJ-JD:41566-DB] (7 of 16) [CMA-1516/2023]

ineligibility and disqualification was expressly stated in the

Seventh Schedule of Amendment to the Arbitration and

Conciliation Act, 1996 after 2015. Prior to the said Amendment

Act, there was no existence of such specific circumstance, which

would give raise to justifiable doubt as to his independence and

impartiality.

15) In the present case, one of the Arbitrator was not an

advisor or acted as a counsel to the parties to the arbitration

proceedings. He has only filed Vakalatnama in the case pending

before the concerned court representing the sister-concern of the

claimant-Company. Such non-closure is not a circumstance, which

would give rise to justifiable doubt as to his independence and

impartiality of Arbitrator. The reason being that prior to the

Amendment Act of 2015, there is no ineligibility with regard to

existence of specific circumstances as referred in Fifth and

Seventh Schedule after Amendment of 2015. The representation

of one of the Arbitrator in one of the sister-concern of the

claimant-Company is not the circumstance, which would disentitle

him to incur ineligibility or disqualification per se.

16) The learned counsel for the claimant-appellant also

submitted that the Apex Court in various judgments has upheld

the appointment of Arbitrator, who is the employee of one of the

parties to the arbitration proceedings. In the present case, one of

the Arbitrator is not either employee or advisor or representing

the parties to the proceedings but incidentally, he was

representing only sister-concern of the claimant-Company, which

is one of the affiliate of the Company, which is party to the

proceedings. The specific circumstance of affiliation of the

[2024:RJ-JD:41566-DB] (8 of 16) [CMA-1516/2023]

Company was brought in by way of amendment in 2015, which

makes such circumstance per se as an ineligibility to be appointed

as an Arbitrator, which was not there prior to the Amendment. In

fact, the courts were not accepting the apparent bias basing on

the employment of one of the Arbitrator, who happened to be

employee of one of the parties to the proceedings. According to

learned counsel, the amended provisions do not apply to the

present case since the arbitration proceedings are prior to the

amended Act.

17) The learned counsel for the claimant-appellant also

contended that the Tribunal constitution shows that it is three

member Tribunal. The Presiding Arbitrator was Justice V.S.Kokje

(Retd.) and other two Co-Arbitrators are Justice Panachand Jain,

Retd. (Co-Arbitrator) and Ramesh Saboo (Co-Arbitrator) and there

is unanimous conclusion from the Arbitral Tribunal and such a

conclusion was arrived basing on the own admission of respondent

with regard to withholding of awarded amount under the Tribunal.

Further, the rejection of counter-claim was based on absence of

independent evidence. Such findings cannot be interfered. The

non-disclosure has no impact on the unanimous findings of the

Tribunal and no actual bias has been caused. In fact, such

affiliation was not recognized principle prior to the Amendment of

2015. In support of his case, the learned counsel for the claimant-

appellant has relied upon the decisions of Apex Court rendered in

the case of Aravali Power Co. Pvt. Ltd. Vs. Era Infra

Engineering Ltd., reported in (2017) 15 Supreme Court Cases

32 and in the case of Indian Oil Corporation Ltd. & Anr. Vs.

Raja Transport Pvt. Ltd., reported in (2009) 8 SCC 520.

[2024:RJ-JD:41566-DB] (9 of 16) [CMA-1516/2023]

18) The learned counsel appearing for the respondent has

contended that there is suppression of material fact by one of the

Arbitrator i.e. Ramesh Saboo with regard to his engagement in

one of the litigation of sister-concern of the claimant-Company.

Such a suppression is one of the circumstance, which creates

doubt as to the independence and impartiality of the Arbitrator.

Such suppression can be one of the ground to hold that the

appointment of Arbitrator, Rameshm Saboo, suffer from

disqualification. The Commercial Court rightly entertained his

claim and rightly set aside the impugned order, which requires no

interference.

19) In support of his contention, the learned counsel for the

appellant has relied upon the decisions of Apex Court rendered in

the case of Vinod Bhaiyalal Jain & Ors. Vs. Wadhwani

Parmeshwari Cold Storage Pvt. Ltd., reported in (2020) 15

SCC 726 and in the case of V.K.Dewan & Company Vs. Delhi

Jal Board & Ors., reported in (2010) 15 SCC 717.

20) The undisputed facts show that the arbitration proceedings

in the present case were commenced prior to the Amendment Act

of 2015. The unamended Section 12 of the Arbitration and

Conciliation Act, 1996 reads as follows:-

"12. Grounds for challenge.-- (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.

(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.

[2024:RJ-JD:41566-DB] (10 of 16) [CMA-1516/2023]

(3) An arbitrator may be challenged only if--

(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or

(b) he does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made."

21) Subsequent to the amended Act, the following amendment

was made to Section 12 of the Act of 1996, which reads as

under:-

12. Grounds for challenge.-- [(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,--

(a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-

matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and

(b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months.

Explanation 1.--The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.

Explanation 2.--The disclosure shall be made by such person in the form specified in the Sixth Schedule.]

(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.

(3) An arbitrator may be challenged only if--

[2024:RJ-JD:41566-DB] (11 of 16) [CMA-1516/2023]

(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or

(b) he does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

[(5) 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 shall be ineligible to be appointed as an arbitrator:

Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.]"

22) Two Schedules were introduced to the Arbitration and

Conciliation Act specifying the existence of relationship of the

Arbitrator with the parties to the proceedings and the

circumstance, which gives rise to justifiable doubts as to his

independence and impartiality. Such specific circumstances were

not found in the old Act of 1996. A reading of old provision makes

it clear that a duty was caused upon the Arbitrator to disclose in

writing any circumstances likely to give rise to justifiable doubt as

to his independence and impartiality. Such a duty is continuous

one from the appointment to the conclusion of arbitral

proceedings. If a circumstance exists, it gives a ground for

challenge to the continuation of arbitrator.

23) Under the new provision, there is a specific reference of

ineligibility in the circumstances referred under the Seventh

Schedule. This means per se there is an ineligibility if there exist

any circumstance, which is specifically referred in the Seventh

Schedule. Such a per se ineligibility, which has been statutorily

[2024:RJ-JD:41566-DB] (12 of 16) [CMA-1516/2023]

recognized under the amended provision, was not in existence

under the old provision. If the disclosure is made as required

under the old and new Act, the party may challenge the Arbitrator

or waive any of the future objections. However, under the new

provision, there is a per se ineligibility, if there exit any of the

specific circumstance refereed in the Seventh Schedule. However,

the parties in writing can waive such a disqualification. The effect

of non-disclosure depends upon nature of facts and

circumstances, which are undisclosed. The non-disclosure per se is

not a ground to incur disqualification or ground of annulment

under old provision. The non-disclosed information is relevant to

assess relevancy and magnitude of non-disclosed information. In

case, non-disclosed facts and circumstance is a material, it may

result disqualification or annulment. The various decisions of the

Apex Court carves out difference between independence and

impartiality of the Arbitrator. There can be a situation where an

arbitrator may be independent but lack impartiality or vise versa.

The impartiality is a more subjective concept when compare to

independence. The independence is more objective concept, which

may be straightforwardly ascertained by the parties at the outset

of the arbitration proceedings in the light of the disclosures made

by the arbitrator, whereas partiality would likely to arise during the

arbitral proceedings.

24) The UK Court of Appeal, in the case of Director General

of Fair Trading Vs. Proprietary Association of Great Britain

& Ors., [Case No.C/2000/3582], decided on 21.12.2000 has

made a distinction between 'actual bias' and 'apparent bias'.

'Actual bias' demonstrates a situation where a judge has been

[2024:RJ-JD:41566-DB] (13 of 16) [CMA-1516/2023]

influenced by partiality or prejudice in reaching conclusions.

Whereas, the 'apparent bias' denotes existences of reasonable

apprehension that the judge may have been or may be biased.

The test is whether actual bias in a given circumstance exist, for

that it requires onerous standard of proof, however, if the

circumstances which would create room for justifiable

apprehension of bias, then there is actual bias. The concept of

apparent bias would arise in a situation where the existence of the

circumstances which would create a justifiable apprehension of

bias in the minds of the parties to the proceedings. The concept of

apparent bias is not recognized by the Apex Court prior to the

Amendment Act. On account of such non-recognition, to give more

credibility to the arbitration proceedings, the Law Commission has

proposed the amendment to the proceedings, which resulted 2015

Amendment Act incorporating specific instances of circumstances,

which would given reasonable apprehension to the third party that

judge may have been or may be biased, which constitutes

apparent bias. The facts in cases of Aravali Power Co. Pvt. Ltd.

(cited supra), Indian Oil Corporation Ltd. (cited supra) and

other judgments (cited supra) show that an employee of the

parties to the proceedings was considered to be not a

circumstance, which would give rise to a reasonable apprehension

of bias. If such is a view of the Apex Court prior to the

Amendment Act, the position of Ramesh Saboo, Advocate was not

worse than the employee. Ramesh Saboo was only engaged as a

counsel in one of the case during the proceedings of arbitration.

Such engagement was not with reference to the parties

proceedings but affiliate of one of the parties i.e. the claimant-

[2024:RJ-JD:41566-DB] (14 of 16) [CMA-1516/2023]

Company, which is the sister concerned company. The concept of

affiliation with the affiliate company was specifically introduced in

the Amendment Act of 2015. There was no such concept prior to

the amendment. The engagement of sister-concern of the

claimant-Company in one of the legal battle of sister-concern with

the third party is better than the position of an employee, who is

employed with one of the party to the proceedings. This means

the concept of apparent bias was not a recognized principle under

old provision that led to the introduction of Sub-Section (5) of

Section 12 and Fifth & Sixth Schedule to the Arbitration and

Conciliation Act, 2015.

25) The reliance of the learned counsel for the respondent

upon the decision rendered in the case of V.K.Dewan &

Company (cited supra) shows that it is a case where one of the

Arbitrator was appointed as its consultant during the pendency of

arbitral proceedings. In the said background, the Court held that

such a circumstance would give rise to a reasonable apprehension

that arbitrator may have been or may be biased. Such

appointment gives scope for advises with reference to the matter

in dispute In the present case, the engagement of one of the

Arbitrator was not a direct party to the proceedings but it is a

sister-concern company. Another decision relied upon by the

learned counsel for the respondent is in the case of Vinod

Bhaiyalal Jain (cited supra), wherein one of the Arbitrator was

engaged counsel with one of the parties to the proceedings and in

the said background by placing reliance on V.K.Dewan &

Company's case (supra), the Apex Court set aside the

appointment of Arbitrator.

[2024:RJ-JD:41566-DB] (15 of 16) [CMA-1516/2023]

26) In the present facts and circumstances of the case, the

appointment of one of the arbitrator as a legal counsel to one of

the case of the sister-concern of the claimant-Company is not

worse than allowing an employee to engage to act as an

arbitrator. This principle of apparent bias by virtue of the affiliation

of arbitrator with the parties to the proceedings on the basis of

employment and/or engagement was not a recognized principle by

the Apex Court in view of the judgments rendered in the case of

Aravali Power Co. Pvt. Ltd. and Indian Oil Corporation Ltd. (cited

supra). Though there is non-disclosure of information as was

required under Section 12 of Arbitration and Conciliation Act, such

a non-disclosure is not a material fact or circumstance, which

would invalidate the appointment of Ramesh Saboo, Advocate as

an arbitrator. The reason is that the amount awarded is admitted

amount withheld by the respondent. Another important aspect of

the present case is that there is a unanimous decision of the

Arbitral Tribunal and the award of the Tribunal clearly reflects well

considered award. Every aspect of the dispute was referred and

answered. In fact, the claim of the respondent with regard to

inferior quality of coal was accepted by the Tribunal and the

counter-claim was only rejected on the basis of lack of

independent corroboration. These findings clearly show the

absence of lack of independence and impartiality. The majority

view of the Tribunal is taken into consideration, even if the view of

the Arbitrator Ramesh Saboo is discarded, still the award holds

good. In the said background of the facts, we find that the

impugned order of the Commercial Court requires to be set aside.

[2024:RJ-JD:41566-DB] (16 of 16) [CMA-1516/2023]

27) In the result, the civil misc. appeal is allowed. The

impugned order dated 18.03.2023 passed by the learned Judge,

Commercial Court, Udaipur is set aside.

28) All pending interlocutory applications, if any, shall stand

disposed of.

(MUNNURI LAXMAN),J (DR. PUSHPENDRA SINGH BHATI),J

NK/-

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