1 arbp693-09 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.693 OF 2009 M/s Prathima Industries Private Limited. ....Petitioner V/s. Bharat Petroleum Corporation Ltd and Others ....Respondents Ms. Gauri Godse for the petitioner. Mr. Majmudar i/b M. P. Savla & Co. for the respondents. CORAM : S.J. VAZIFDAR, J. DATE : 1ST SEPTEMBER, 2010. P.C. :- 1. This is an application under section 11 (6) read with section 15 (1) (b) and 15 (2) of the Arbitration and Conciliation Act, 1996 for the appointment of an arbitrator in place of the 2nd respondent. 2. The circumstances in which this application is made are unusual. Both the parties admit having entered into an agreement which contains an arbitration clause. The disputes between them were referred to the sole arbitration of the 2nd respondent in accordance therewith. The 2nd respondent held several meetings and the proceedings before him had concluded. The parties were only awaiting the 2nd respondent making and publishing his award. The 2nd respondent failed to do so for over a year. There is therefore no dispute between the parties about the existence of an arbitration agreement. Nor is there any dispute about the fact that the disputes between them were properly required to be referred to arbitration 2 arbp693-09 in accordance with the agreement. 3. The 1st respondent however content that the petitioner had at one stage in the correspondence contended that in view of the 2nd respondent having failed to make and publish his award for over a year despite repeated requests to do so the arbitration agreement stood frustrated. It is for this reason that the 1st respondent contends that a substitute arbitrator cannot be appointed. The 1st respondent further contends that even the 2nd respondent cannot now be called upon either to act as an arbitrator/continue to act as an arbitrator or to make and publish the award on the basis of the proceedings which had admittedly concluded before him. 4. In view of this contention it is necessary to note only a few facts without considering the disputes on merits. 5. The petitioner and the first respondent had entered into two LPG Cylinder Supply Agreements dated 1st May 1999 and 29th March 2000. Clause 17 thereto contains an arbitration agreement. Disputes and differences having arisen between the parties the petitioner invoked the arbitration clause by a letter dated 31st March 2003. As per the terms of the arbitration clause the marketing director of the 1st respondent appointed the 2nd respondent who is the general manager of the 1st respondent as the sole arbitrator. By a letter dated 23rd July 2003 the 2 nd respondent accepted the appointment and issued directions to the parties about filing their pleadings. The petitioner filed its statement of claim 16th August 2003 and the 1st respondent filed a reply thereto on 29th November 2004. 6. Several hearings were thereafter held before the arbitrator/2nd 3 arbp693-09 respondent. Written submissions were filed by the parties before the 2nd respondent on 3rd May 2005. By a letter dated 9th January 2006 the 2nd respondent confirmed that the final hearing of the disputes was held on 6th September 2005 and called upon the 1st respondent to submit the written arguments by 30th January 2006. 7. The 2nd respondent having failed to make an award the petitioner by its letter dated 7th December 2006 requested him to do so or at least to communicate the status of the award. 8(A). The 2nd respondent even thereafter failed to make and publish his award. The petitioner therefore by a letter dated 12th March 2008 stated that as per clause 17 (B) the award ought to have been made in writing and published by the 2nd respondent within two years after entering upon the reference or within such extended time not exceeding a further 12 months as the sole arbitrator shall by writing under his own hand appoint. The petitioner contended that accordingly the award ought to have been made and published latest by 22nd July 2006 and that the 2nd respondent having failed to do so the arbitration clause was frustrated. The petitioner further stated that in view thereof the 2nd respondent had become functus officio and that no award could therefore be passed. The petitioner further stated that the parties are as such free to pursue other permissible legal remedies and that the period up to date is excluded for the purpose of limitation. (B). It is in view of this letter that it is contended on behalf of the 1st respondent that the matter / disputes can no longer be decided in arbitration and that the petitioner ought to be relegated to a civil suit. The 4 arbp693-09 further correspondence, the facts and the conduct of the parties however establishes that it would be unfair and improper to judge the petitioners reaction on the basis of the solitary statement that the arbitration agreement stood frustrated, in isolation and out of context. The correspondence read as a whole does not indicate the petitioner having intended to abandon the arbitration agreement. 9. By a further letter dated 4th July 2008 the petitioner stated that as the matter had progress to the end and only the award remained to be published it would be in the interest of justice if an arbitrator is appointed in the matter to take over the matter and the record and to deliver the award. The petitioner therefore requested 1st respondent to appoint an arbitrator under the provisions of clause 17 (A) of the terms and conditions of the agreement for the delivery of an award. 10. Further correspondence ensued in which the petitioner repeated its request for the appointment of an arbitrator. The 1st respondent however took the stand that in view of the petitioners said letter dated 12th March 2008 the arbitration clause had been deleted and/or did not exist anymore. The question therefore of appointing an arbitrator did not arise. 11. The petitioner by a letter dated 2nd April 2009 clarified that it had never contended that the arbitration clause did not exist and that what it meant was that the award had not been declared within the stipulated time and that it was necessary to extend the time for declaring the award. The petitioner contended that the arbitration proceedings are still pending. The petitioner, it is important to note, stated that the 1st respondent may 5 arbp693-09 appoint a new arbitrator or even reappoint the 2nd respondent for declaring the award in terms of the arbitration clause. 12. The appointing authority of the 1st respondent by a letter dated 17th June 2009 stated that he had no difficulty in appointing an arbitrator to adjudicate the disputes between the parties but that in view of the petitioner's aforesaid contention there was now no arbitration clause and in the absence of an arbitration clause it had no power or appoint an arbitrator. It may be noted that it was not the 1st respondents case that there was no arbitration clause then in existence. 13. The arbitration clause reads as under :- “17. ARBITRATION: (a) Any dispute or difference of any nature whatsoever any claim, cross-claim, counter claim or set off of the Corporation against the Contractor or regarding any right, liability, act, omission or account of any of the parties hereto arising out of or in relation to this Agreement shall be referred to the Sole Arbitration of the Director (Marketing) of the Corporation or of some Officer of the Corporation who may be nominated by the Director (Marketing). The Contractor will not be entitled to raise any objection to any such Arbitrator on the ground that the Arbitrator is an Officer of the Corporation or that he has dealt with the matters to which the contract relates or that in the course of his duties as an Officer of the Corporation he had expressed views on all or any other matters in dispute or difference. In the event of the Arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, the Director (Marketing) as aforesaid at the time of such transfer, vacation of office or inability to act any in the discretion of the Director (Marketing) designate another person to act as Arbitrator in accordance with the terms of the Agreement to the end and intent that the original Arbitrator shall be entitled to continue the Arbitration Proceedings notwithstanding his transfer or vacation of office as an officer of the corporation if the Director (Marketing) does not designate another person to act as Arbitrator on such transfer, vacation of office or inability of original Arbitrator. Such persons shall be 6 arbp693-09 entitled to proceed with the reference from the point at which it was left by his predecessor. It is also a term of this contract that no person other that the Director (Marketing) or a person nominated by such Director (Marketing) of the Corporation as aforesaid shall act as Arbitrator hereunder. The Award of the Arbitrator so appointed shall be final conclusive and binding on all parties to the Agreement subject to the provisions of the Arbitration Act, 1940 or an, statutory modification or re- enactment thereof and the rules made thereunder for the time being in force shall apply to the Arbitration proceedings under this clause; (b) The Award shall be made in writing and published by the Arbitrator within two years after entering upon the reference or within such extended time not exceeding further twelve months as the sole Arbitrator shall be a writing under his own hands appoint. The parties hereto shall be deemed to have irrevocably given their consent to the Arbitrator to make and publish the Award within the period referred to herein above and shall not be entitled to raise any objection or protest thereto under any circumstances whatsoever. (c) The Arbitrator shall have power to order and direct either of the parties to abide by, observe and perform all such directions as the Arbitrator may think fit having regard to the matters in difference i.e. dispute before him. The Arbitrator shall have all summary powers and may take such evidence oral and/or documentary, as the Arbitrator in his absolute discretion thinks fit and shall be entitled to exercise all powers under the Indian Arbitration Act, 1940 including admission of any Affidavit as evidence concerning the matter in difference i.e. dispute before him. (d) The parties against whom the Arbitration proceedings have been initiated, that is to say, the Respondents in the proceedings shall be entitled to prefer a cross claim, counter claim or set off before the Arbitrator in respect of any matter an issue arising out of or in relation to the Agreement without seeking a formal reference of arbitration to the Director (Marketing) of such counter claim, cross claim or set off and the Arbitrator shall be entitled to consider and deal with the same as if the matters arising therefrom has been referred to him originally and deemed to form part of the reference made 7 arbp693-09 by the Director(Marketing). (e) The Arbitrator shall be at liberty to appoint, if necessary any accountant or engineering or other technical person to assist him, and to act by the opinion so taken. (f) The Arbitrator shall have power to make one or more Awards whether interim or otherwise in respect of the dispute and difference and in particular will be entitled to make separate Awards in respect of claims or cross claims of the parties. (g) The Arbitrator shall be entitled to direct any one of the parties to pay the costs of the other party in such manner and to such extent as the Arbitrator may in his discretion determine and shall also be entitled to require one or both the parties to deposit funds in such proportion to meet the Arbitrator’s expenses whenever called upon to do so. (h) The parties hereby agree that the courts in the city of Mumbai alone shall have jurisdiction to entertain any application or other proceedings in respect of anything arising under this Agreement and any Award or Awards made by the Sole Arbitrator hereunder shall be filed in the concerned courts in the City of Mumbai only/.” 14. It is in these circumstances that the present application has been filed. As noted above the entire arbitration proceedings concluded before the 2nd respondent. Several hearings were held, written submissions were filed and all that remained to be done was for the 2nd respondent to have made and published his award which he failed to do. The parties have thus been put to enormous expense and inconvenience. It would be unjust to both, the petitioner and the 1st respondent to conclude the arbitration proceedings in these facts at this stage. This is a fit case 8 arbp693-09 where a new arbitrator ought to be appointed. I see no reason why the petitioner ought to be made to suffer for no fault of its own. On behalf of the petitioner Ms. Godse reiterated the petitioners stand that it has no objection to the appointing authority either appointing a new arbitrator or even the 2nd respondent. 15. It would be an error to read the letter dated 12th March 2008 in isolation and out of context. The petitioner was understandably frustrated by the fact that the award had not been made for over a year despite requests. The petitioner therefore invited the attention of the respondents to the provisions of clause 17 which stipulates a time limit for the award being made and published. The petitioner did not abandon the arbitration clause. It merely stated that the arbitrator not having made the award within the stipulated time became functus officio. It is in this context that the petitioner further stated that the arbitration clause was frustrated. It would be erroneous to read this solitary sentence to mean that the petitioner had abandoned the arbitration agreement. Nor do I read the petitioner's assertion that the parties are free to pursue other legal remedies as an indication of the petitioner's intention to file a suit in a civil court. One of the permissible legal remedies is an application for the appointment of a substitute arbitrator. There is nothing in the subsequent conduct of the petitioner which even remotely suggests that it abandoned the arbitration clause with or without the intention of filing a suit in a civil court. 16. In the normal circumstances this would have been a fit case for the appointment of a new arbitrator. However neither the petitioner nor the 9 arbp693-09 1st respondent has made any allegations of mala-fides against the 2nd respondent. The only grievance against the 2nd respondent is that he failed to publish the award within the time stipulated by the arbitration agreement. The parties have already incurred considerable expenses in the arbitration proceedings before the 2nd respondent. It would be convenient therefore for both the petitioner and the 1st respondent that the 2nd respondent is appointed instead of a new substitute arbitrator. I would however leave the choice to the 1st respondent as it has a right to appoint an arbitrator under clause 17. Under clause 17 even in the event of the arbitrator to whom the matter is originally referred being unable to act for any reason the 1st respondents Director (Marketing) is entitled to designate another person to act as the arbitrator in accordance with the terms of the agreement. 17. In the circumstances the arbitration petition is disposed of by directing the 1st respondent to appoint an arbitrator in place of the 2nd respondent. It is clarified that the 1st respondent shall be entitled to appoint/reappoint the 2nd respondent. There shall be no orders to costs.