HIGH COURT OF MADHYA PRADESH, PRINCIPAL SEAT AT JABALPUR Case No. A.C. No.02/2016 Parties Name The [PRECEDENT] Date of Judgment 1[SECTION]/08/201[SECTION] Bench Constituted Single Bench Judgment delivered by Justice [ENTITY] Whether approved for reporting NO Name of counsels for parties Applicant: Shri [ENTITY], Senior Counsel with Shri [ENTITY], Adv. Respondents: Shri [ENTITY], Adv.
Law laid down - Significant paragraph numbers - (Order) 1[SECTION].08.201[SECTION]
In this application filed under [SECTION] of the [ACT], the applicant has prayed for following reliefs:
"(i) That, the Hon'ble Court be pleased to pass appropriate order considering the facts and circumstances mentioned above, for the change of arbitrator and to appoint a neutral or independent arbitrator directing him to decide the dispute within a period of three months.
(ii) That, any other relief which this Hon'ble court deems, just and necessary in the facts and circumstances of the case be also granted/awarded to the petitioner."
2. Draped in brevity, the admitted facts are that the applicant and the respondent No.1 entertained into an agreement (Annexure-P/3) which contains an arbitration clause (Clause 18). As per this clause, the Managing Director of the Corporation shall be the arbitrator whose award shall be final and binding on both the parties.
-:- 2 -:-
3. The applicant earlier filed A.C. No.20/20[SECTION] seeking direction to appoint an arbitrator. This matter was decided on 21.01.20[SECTION] and in the order it is recorded that the parties agreed for resolving the dispute by Managing Director of respondent No.1. A Review Petition No.[SECTION]5/20[SECTION] was filed by the applicant which was dismissed on 23.02.20[SECTION] (Annexure R-1/4).
4. Shri [ENTITY], Senior Counsel submits that in fact in the previous round no such consent for appointment of Managing Director as an arbitrator was given by the present applicant. In the previous round of litigation, the factum of such consent was wrongly recorded by this Court. For the sake of argument even if such finding of having given consent by the applicant is correct, the earlier Managing Director did not proceed with the arbitration in an appropriate manner and therefore arbitration proceedings could not be finalized. He submits that although two notices dated 09.03.20[SECTION] (Annexure-P/11) and 22.06.20[SECTION] (Annexure-P/12) were issued by the then arbitrator, despite fulfilling the formalities by the present applicant, the said arbitrator did not proceed further and in the result, the dispute could not be resolved. Mr. [ENTITY], learned senior counsel further contends that now, admittedly, the Managing Director stood retired on 31.12.20[SECTION] and thereafter no further proceeding has taken place.
5. On the basis of aforesaid factual matrix, learned counsel for the applicant advanced following submissions: (i) as per [SECTION]/[SECTION] and [SECTION] of the Amendment Act, 20[SECTION] the Chairman-cum-Managing Director cannot be appointed as an arbitrator; (ii) in fact, no consent was given by the applicant for appointment of CMD in AC. No.20/[SECTION]. This Court erroneously recorded the said consent on behalf of the applicant. Even otherwise, he submits that the said consent must be treated to be confined to the earlier Managing Director and cannot be stretched to cover the Managing Director by post; and (iii) as per [SECTION], [SECTION] and [SECTION] of the [ACT], this Court can appoint a substituted arbitrator.
6. Per-contra, Shri [ENTITY] learned counsel for respondent submits that present application is filed under [SECTION] of the Act of 1996 seeking change of arbitrator. This application is not maintainable and the proper remedy
-:- 3 -:-
for the applicant is to approach the "court" as defined under [SECTION] of the Act. In support of this contention ,he placed reliance on 2002 ([SECTION]) SCC [SECTION]36 [Grid Corpn. Of Orissa Ltd. vs. AES Corpn. & Ors.] and [PRECEDENT] [ [ENTITY] vs. Mr. A.K. Trivedi & Anr.]. It is argued that a conjoint petition under [SECTION] and [SECTION] of the Act would not lie because the petition under [SECTION] is to be heard and decided by the Chief Justice or his designate, whereas a petition under [SECTION] of the Act lies to the "court". Mr. [ENTITY], by placing reliance on the return submitted that the earlier Managing Director stood retired on 31.12.20[SECTION]. He submits that since the arbitrator was appointed by his designation, the Managing Director alone can act as an arbitrator.
[SECTION]. No other point is pressed by the parties.
8. I have heard the parties at length and perused the record.
As to Point No.(i)
9. Admittedly, the Amendment Act, 20[SECTION] came into being w.e.f. 01-01-2016. As per [SECTION] of the main act, the arbitration proceedings commenced on the date when demand to appoint an arbitrator by the applicant is received by the respondents. On superannuation of the earlier arbitrator/CMD, the arbitration proceedings will not come to an end. The proceedings already commenced could be continued by newly appointed arbitrator. The law makers were not oblivious of this kind of situation and, therefore, thought it proper to insert [SECTION] in the Amendment Act which provides that nothing contained in this Act shall apply to the arbitral proceedings commended, in accordance with the provisions of [SECTION] of the principle Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commended on or after the date of commencement of this Act.
10. A conjoint reading of [SECTION] of the Main Act and [SECTION] of the Amendment Act makes it crystal clear that the provisions of Amendment Act will not be applicable in the present arbitration proceedings. Thus, on the anvil of Amendment Act, it cannot be said that the CMD cannot act as an arbitrator.
-:- 4 -:-
As to Point No.(ii)
11. The arguments of applicant that in fact no consent was given by the applicant in AC. No.20/[SECTION] cannot be accepted because in this round of litigation the aforesaid aspect cannot be gone into. More so, when RP. No.[SECTION]5/[SECTION] filed by the applicant pregnant with this contention was dismissed by this Court on 23- 02-20[SECTION] (Annexure R-1/4). Thus, this arguments is devoid of substance.
As to Point No.(iii)
12. [SECTION] of the Act provides that mandate of an arbitrator shall terminate, if he becomes dejure or defecto unable to perform his function or for other reasons fails to act without undue delay. Such termination may take place if arbitrator withdraws from his office or the parties agreed to terminate his mandate. In addition, [SECTION] provides that mandate of an arbitrator shall terminate (a) where he withdraws from office for any reason, or (b) by or pursuant to agreement of the parties. In the present case, the earlier CMD was appointed as an arbitrator by this Court in AC. No.20/[SECTION]. Thereafter, the arbitrator issued notices to the present applicant on 09-03-20[SECTION] (Annexure P/11) and 22-06-20[SECTION] (Annexure P/12-A). The applicant's case in specific is that despite issuance of said notices, no progress could take place because of lethargy/inaction of CMD. The applicant had fulfilled the formalities/requirements as per the said notices but for the reasons best known to the then arbitrator, the arbitral proceedings could not proceed further and more than two and half years' time has elapsed from the date of issuance of first notice by the then arbitrator i.e. 09-03-20[SECTION]. It was also canvassed that new CMD after the retirement of earlier CMD has not assumed the role of arbitrator and has not started arbitral proceedings. In my view, although [SECTION] of the Amendment Act may not be a hurdle for appointment of a named officer, yet it cannot be forgotten that in spite of arbitration clause which provides a named arbitrator, the courts have issued directions for appointment of an independent arbitrator. Putting it differently, the appointment of a different independent arbitrator despite a contrary clause in the arbitration agreement is not unknown to law. In catena of judgments even prior to amendment of [SECTION] where courts have appointed the arbitrators, giving a go-by to the agreed arbitration clause in
-:- 5 -:-
certain contingencies and situations, having regard to the provisions of unamended [SECTION] of the Act which, inter alia, provided that while appointing the arbitrator, Chief Justice, or the person or the institution designated by him, shall have regard to the other conditions as are likely to secure the appointment of an independent and impartial arbitrator. See Datar Switchgears Ltd. v. Tata Finance Ltd. (2000) 8 SCC [SECTION]1] , [PRECEDENT] , Union of India v. Bharat Battery Mfg. Co. (P) Ltd (200[SECTION]) [SECTION] SCC 684] , [PRECEDENT], [PRECEDENT] and North Eastern Railway v.Tripple Engg. Works, (20[SECTION]) 9 SCC 288. Taking note of the aforesaid judgments, this Court in Union of India v. U.P. State Bridge Corpn. Ltd., (20[SECTION]) 2 SCC 52 summed up the position in the following manner:
"13. No doubt, ordinarily that would be the position. The moot question, however, is as to whether such a course of action has to be necessarily adopted by the High Court in all cases, while dealing with an application under [SECTION] of the Act or is there room for play in the joints and the High Court is not divested of exercising discretion under some circumstances? If yes, what are those circumstances? It is this very aspect which was specifically dealt with by this Court in Tripple Engg. Works (supra). Taking note of various judgments, the Court pointed out that the notion that the High Court was bound to appoint the arbitrator as per the contract between the parties has seen a significant erosion in recent past. In paras 6 and [SECTION] of the said decision, those judgments wherein departure from the aforesaid "classical notion" has been made are taken note of. It would, therefore, be useful to reproduce the said paragraph along with paras 8 and 9 hereinbelow:
"6. The "classical notion" that the High Court while exercising its power under [SECTION] of the [ACT] (hereinafter for short "the Act") must appoint the arbitrator as per the contract between the parties saw a significant erosion in ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn. Ltd (200[SECTION]) 5 SCC 304] , wherein this Court had taken the view that though the contract between the parties must be adhered to, deviations therefrom in exceptional circumstances would be permissible. A more significant development had come in a decision that followed soon thereafter in Union of India v.
Bharat Battery Mfg. Co. (P) Ltd. (200[SECTION]) [SECTION] SCC 684] wherein following a three-Judge Bench decision in [PRECEDENT] , it was held that once an aggrieved party files an application under [SECTION] of the Act to the High Court, the opposite party would lose its right of appointment of the arbitrator(s)
-:- 6 -:-
as per the terms of the contract. The implication that the Court would be free to deviate from the terms of the contract is obvious.
[SECTION]. The apparent dichotomy in ACE Pipeline v. Bharat Petroleum Corpn. Ltd., (200[SECTION]) 5 SCC 304 and Union of India v. Bharat Battery Mfg. Co. (P) Ltd., (200[SECTION]) [SECTION] SCC 684] was reconciled by a three-Judge Bench of this Court in [PRECEDENT], wherein the jurisdiction of the High Court under [SECTION] of the Act was sought to be emphasised by taking into account the expression "to take the necessary measure" appearing in [SECTION] and by further laying down that the said expression has to be read along with the requirement of [SECTION] of the Act. The position was further clarified in Indian Oil Corpn. Ltd. v.
Raja Transport (P) Ltd. (2009) 8 SCC 520 Para 48 of the Report wherein the scope of [SECTION] of the Act was summarised may be quoted by reproducing sub-paras (vi) and (vii) hereinbelow: (Indian Oil case [[PRECEDENT]] , SCC p. 53[SECTION]) "48. (vi) The Chief Justice or his designate while exercising power under [SECTION] shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause.
(vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded, ignore the designated arbitrator and appoint someone else."
8. The above discussion will not be complete without reference to the view of this Court expressed in [PRECEDENT], wherein the appointment of a retired Judge contrary to the agreement requiring appointment of specified officers was held to be valid on the ground that the arbitration proceedings had not concluded for over a decade making a mockery of the process. In fact, in para 25 of the Report in Singh Builders Syndicate this Court had suggested that the Government, statutory authorities and government companies should consider phasing out arbitration clauses providing for appointment of serving officers and encourage professionalism in arbitration.
9. A pronouncement of late in [PRECEDENT] followed the legal position laid down in Punj Lloyd Ltd. which in turn had followed a two-
-:- [SECTION] -:-
Judge Bench decision in Datar Switchgears Ltd The theory of forfeiture of the rights of a party under the agreement to appoint its arbitrator once the proceedings under [SECTION] of the Act had commenced came to be even more formally embedded in Deep Trading Co. subject, of course, to the provisions of [SECTION], which provision in any event, had been held in Northern Railway Admn. not to be mandatory, but only embodying a requirement of keeping the same in view at the time of exercise of jurisdiction under [SECTION] of the Act.'
[SECTION]. Speedy conclusion of arbitration proceedings hardly needs to be emphasised. It would be of some interest to note that in England also, [ACT] on the lines of [ACT], came to be enacted in the same year as the Indian law which is known as the [ACT] and it became effective from 31-1-199[SECTION].
It is treated as the most extensive statutory reform of the English arbitration law. Commenting upon the structure of this Act, [ENTITY] and [ENTITY] in their [ACT] companion volume to the 2nd Edn., have commented that this Act is founded on four pillars. These pillars are described as:
(a) The first pillar: Three general principles.
(b) The second pillar: The general duty of the Tribunal.
(c) The third pillar: The general duty of the parties.
(d) The fourth pillar: Mandatory and semi-mandatory provisions.
Insofar as the first pillar is concerned, it contains three general principles on which the entire edifice of the said Act is structured. These principles are mentioned by an English Court in its judgment in Deptt. of Economics, Policy and Development of the City of Moscow v. Bankers Trust Co. 2005 QB 20[SECTION] : (2004) 3 WLR 533 : (2004) 4 All ER [SECTION]46 : 2004 EWCA Civ 3[SECTION]] In that case, [ENTITY], L.J. succinctly summed up the objective of this Act in the following words: (QB p. 228, para 31) '31. Parliament has set out, in the [ACT], to encourage and facilitate a reformed and more independent, as well as private and confidential, system of consensual dispute resolution, with only limited possibilities of court involvement where necessary in the interests of the public and of basic fairness.' [SECTION] of the Act sets forth the three main principles of arbitration law viz. (i) speedy, inexpensive and fair trial by an impartial tribunal;
(ii) party autonomy; and (iii) minimum court intervention. This provision has to be applied purposively. In case of doubt as to the meaning of any provision of this Act, regard should be had to these principles.
[SECTION]. In the book [ENTITY] on the Law and Practice of Arbitration and Conciliation (3rd Edn. revised by Ms [ENTITY]), it is rightly observed that the [ACT] is also based on the aforesaid four foundational pillars.
-:- 8 -:-
16. First and paramount principle of the first pillar is "fair, speedy and inexpensive trial by an Arbitral Tribunal". Unnecessary delay or expense would frustrate the very purpose of arbitration. Interestingly, the second principle which is recognised in the Act is the party autonomy in the choice of procedure. This means that if a particular procedure is prescribed in the arbitration agreement which the parties have agreed to, that has to be generally resorted to. It is because of this reason, as a normal practice, the court will insist the parties to adhere to the procedure to which they have agreed upon. This would apply even while making the appointment of substitute arbitrator and the general rule is that such an appointment of a substitute arbitrator should also be done in accordance with the provisions of the original agreement applicable to the appointment of the arbitrator at the initial stage. [See [PRECEDENT]] ] However, this principle of party autonomy in the choice of procedure has been deviated from in those cases where one of the parties have committed default by not acting in accordance with the procedure prescribed. Many such instances where this course of action is taken and the Court appoint the arbitrator when the persona designata has failed to act, are taken note of in paras 6 and [SECTION] of Tripple Engg. Works. We are conscious of the fact that these were the cases where appointment of the independent arbitrator made by the Court in exercise of powers under [SECTION] of account of "default procedure". We are, in the present case, concerned with the constitution of substitute Arbitral Tribunal where earlier Arbitral Tribunal has failed to perform. However, the above principle of default procedure is extended by this Court in such cases as well as is clear from the judgment in Singh Builders Syndicate.
1[SECTION]. In the case of contracts between government corporations/State- owned companies with private parties/contractors, the terms of the agreement are usually drawn by the government company or public sector undertakings. Government contracts have broadly two kinds of arbitration clauses, first where a named officer is to act as sole arbitrator; and second, where a senior officer like a Managing Director, nominates a designated officer to act as the sole arbitrator. No doubt, such clauses which give the Government a dominant position to constitute the Arbitral Tribunal are held to be valid. At the same time, it also casts an onerous and responsible duty upon the persona designata to appoint such persons/officers as the arbitrators who are not only able to function independently and impartially, but are in a position to devote adequate time in conducting the arbitration. If the Government has nominated those officers as arbitrators who are not able to devote time to the arbitration proceedings or become incapable of acting as arbitrators because of frequent transfers, etc., then the principle of "default procedure" at least in the cases where Government has assumed the role of appointment of arbitrators to itself, has to be applied in the case of substitute arbitrators as well and the Court will step in to appoint the arbitrator by keeping aside the procedure which is agreed to between
-:- 9 -:-
the parties. However, it will depend upon the facts of a particular case as to whether such a course of action should be taken or not. What we emphasise is that Court is not powerless in this regard."
13. Paramount consideration of appointment of an arbitrator is the impartial and speedy resolution of dispute between the parties. [SECTION] is wide enough to include cases where named arbitrator is unable to perform his function or for other reasons" fails to act without undue delay. In the present case, there is an undue delay on the part of the named arbitrator. As noticed, the common string in the judgments mentioned in Para 12 shows that where the arbitrator gives go-by to the very purpose of arbitration, the courts are not powerless in this regard and can, in a fit case, appoint a suitable arbitrator. The Law Commission has also taken pains to emphasize on principle of impartiality and independence. The Apex Court in (201[SECTION]) 4 SCC 665 (Voestalpine Schienen Gmbh vs. Delhi Metro Rail Corporation Ltd.) reproduced the opinion of Law Commission which reads as under:-
"Commission believes the present position of law is far from satisfactory. Since the principles of impartiality and independence cannot be discarded at any stage of the proceedings, specifically at the stage of constitution of the arbitral tribunal, it would be incongruous to say that party autonomy can be exercised in complete disregard of these principles-even if the same has been agreed prior to the disputes having arisen between the parties. There are certain minimum levels of independence and impartiality that should be required of the arbitral process regardless of the parties' apparent agreement. A sensible law cannot, for instance, permit appointment of an arbitrator who is himself a party to the dispute, or who is employed by (or similarly dependent on) one party, even if this is what the parties agreed. The Commission hastens to add that Mr. [ENTITY], the ex officio member of the Law Commission suggested having an exception for the State, and allow State parties to appoint employee arbitrators. The Commission is of the opinion that, on this issue, there cannot be any distinction between State and non-State parties. The concept of party autonomy cannot be stretched to a point where it negates the very basis of having impartial and independent adjudicators for resolution of disputes. In fact, when the party appointing an adjudicator is the State, the duty to appoint an impartial and independent adjudicator is that much more onerous-and the right to natural justice cannot be said to have been waived only on the basis of a "prior" agreement
-:- 10 -:-
between the parties at the time of the contract and before arising of the disputes."
In the same judgment, it is further recorded :-
"The Commission has proposed the requirement of having specific disclosures by the arbitrator, at the stage of his possible appointment, regarding existence of any relationship or interest of any kind which is likely to give rise to justifiable doubts. The Commission has proposed the incorporation of the [SECTION], which has drawn from the Red and Orange lists of the [ACT] on Conflicts of Interest in International Arbitration, and which would be treated as a "guide" to determine whether circumstances exist which give rise to such justifiable doubts. On the other hand, in terms of the proposed [SECTION] of the Act and the [SECTION] which incorporates the categories from the Red list of the [ACT] (as above), the person proposed to be appointed as an arbitrator shall be ineligible to be so appointed, notwithstanding any prior agreement to the contrary. In the event such an ineligible person is purported to be appointed as an arbitrator, he shall be de jure deemed to be unable to perform his functions, in terms of the proposed explanation to [SECTION]. Therefore, while the disclosure is required with respect to a broader list of categories (as set out in the [SECTION], and as based on the Red and Orange lists of the [ACT]), the ineligibility to be appointed as an arbitrator (and the consequent de jure inability to so act) follows from a smaller and more serious sub-set of situations (as set out in the [SECTION], and as based on the Red list of the [ACT])."
[SECTION]. In view of catena of judgments mentioned hereinabove, I am unable to hold that in no circumstances, this Court can step into, entertain an application seeking change and substitution of arbitrator. In view of principles laid down in the various cases mentioned above, I am unable to hold that new CMD can be permitted to proceed further in the present arbitral proceedings. More so, when he did not pay any heed to the arbitral proceedings after 31-12-20[SECTION]. The very purpose of resorting to arbitral proceedings i.e. speedy resolution of dispute is frustrated. In view of Division Bench judgment of Supreme Court in the case of U.P. State Bridge Corporation Ltd. (supra) and other judgments of larger strength of judges, I am unable to seek assistance from the Single bench judgment in the case of Grid Corpn. Of Orissa Ltd. (supra) relied upon by Shri [ENTITY]. For the same reason, the Single Bench order of this Court in [ENTITY] (supra) cannot be pressed into service.
-:- 11 -:-
[SECTION]. This is trite law that mere wrong quoting of provision cannot be a reason to reject an applicant, if the jurisdiction/power can be traced from the relevant statute. Present application is filed by the applicant under [SECTION] of the Act. However, the pleadings and reliefs claimed shows that the applicant has prayed for appointment of an arbitrator. The said power is vested with this Court under [SECTION] of the Act. Hence, in view of existence of necessary ingredients for appointment of an arbitrator , this Court is satisfied that present application deserves to succeed. Accordingly, I deem it proper to appoint Hon'ble Shri Justice [ENTITY], Former Judge of this Court presently residing at E-[SECTION]/4[SECTION]8 Arera Colony, Bhopal (M.P.) as provisional arbitrator. Registry shall seek declaration from the learned arbitrator as per [SECTION] of the Act.
16. List this matter alongwith the declaration of learned arbitrator on 28-08-201[SECTION].
([ENTITY]) Judge s@if/mohsin