THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.28 of 2011 Date: 03rd December, 2011 Between: M.Krishna Reddy S/o.Narasareddy …Applicant And Palakurthi Thikka Reddy S/o.Late Narayana Reddy & Ors. …Respondents *** THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.28 of 2011 ORDER: This application has been taken out by M.Krishna Reddy under sub-sections (5) & (6) of Section 11 of the Arbitration and Conciliation Act, 1996, (for short, ‘the Act’) r/w.Para.3 (i)(c) of the Scheme for Appointment of Arbitrators, 1996, to terminate the mandate of the arbitrator Sri Ch.Lakshminarayana appointed in accordance with the Arbitration Agreement, dated 07.04.2005 and appoint a substitute arbitrator for resolution of the disputes between the parties relatable to Memorandum of Understanding, dated 17.12.2004. 2. The case of the applicant as set out in the aﬃdavit filed in support of the application, in brief, is: A partnership ﬁrm was constituted by the applicant and his brother M.Dayakar Reddy to carry on the business of manufacture and sale of branded liquor. The applicant was the Managing Partner of the ﬁrm viz., M/s.Paras Collins Distilleries. Partnership ﬁrm was reconstituted on 01.08.2004. Palakurthi Thikka Reddy-1st respondent and 2 others joined as partners. In the reconstituted ﬁrm, the 1st respondent- Palakurthi Thikka Reddy was the Managing Partner of the firm. As per Clause 25 of the Deed of Partnership, disputes among the partners shall be referred to two arbitrators appointed by each of the parties. As there was disagreement among the partners, a Deed of Dissolution, dated 28.08.2004, was entered into by the parties canceling the partnership deed, dated 01.08.2004 and restoring the constitution of the ﬁrm by the original partners. Some understanding came to be arrived at between the 1st respondent and the applicant and the same came to be reduced into writing styled as ‘Memorandum of Understanding’, dated 17.12.2004. As per the Memorandum of Understanding, dated 17.12.2004, the 1st respondent undertakes to take over the unit on as is where is basis. As per Clause 16 of the Memorandum of Understanding, dated 17.12.2004, disputes among the parties are required to be resolved by way of arbitration. The parties entered into an arbitration agreement, dated 07.04.2005 appointing Sri Ch.Lakshminarayana for resolution of the disputes that have arisen among the parties relatable to the partnership business. The arbitrator commenced the proceedings and passed two interim awards. Subsequently, the arbitrator failed to conduct the further proceedings. The applicant approached the arbitrator on 26.02.2010 and requested him to ﬁx the date of hearing. But the arbitrator-2 nd respondent had not shown any inclination to continue the arbitration proceedings and thereby he withdrew from the oﬃce of arbitrator. Hence, this application seeking the prayer stated supra. For completion of narration of facts, I may refer para.4 of the aﬃdavit ﬁled in support of the application, which reads as hereunder: “It is further submitted that we have entered into an Arbitration Agreement dated 07.04.2005 where under one Ch.Lakshmi Narayana (Respondent No.2) was appointed as named Arbitrator for resolving the disputes relating to the ﬁrm that arose between us superseding the earlier agreement, dated 17.12.2004. The Arbitrator has commenced the Arbitration proceedings on the same day i.e., 7.4.2005 recorded the claims of the parties to the arbitration proceedings and also passed interim award in respect of some of the claims for which parties to the proceedings mutually agreed. It is also to state that another interim award was passed on 07.06.2005. It is respectfully submitted that I complied all the terms which are to be complied by me. I state that I have paid an amount of Rs.5,00,000/- by way of cash on the date of commencement of proceedings. The Hon’ble Arbitrator is yet to decide on some of the claims under which the amounts are payable to us by Thikka Reddy and others. It is respectfully submitted that the Arbitrator did not conduct any proceedings since 10.08.2005. We have approached the Arbitrator several times requesting him to ﬁx a date for Arbitration but in vain. I paid further some of Rs.5,00,000/- by way of cheques to the Arbitrator with the fond hope that the Arbitrator would commence the proceedings earnestly. However, the Arbitrator did not issue any notice ﬁxing the date for commencement of the proceedings. Having left with no other option, I have approached the Arbitrator on 26.02.2010 at his house along with my counsel and personally requested the Arbitrator to ﬁx an early date for continuation of proceedings. The Hon’ble Arbitrator ﬁxed the next date of hearing to 15.03.2010 between 4.30 PM. to 6.00 P.M. at Taj Deccan, Banjara Hills, Hyderabad, and informed us that the notices will be communicated to the parties. However, no notice was received by us. On 08.03.2010 I addressed a registered letter to the Hon’ble Arbitrator requesting him to ﬁx an early date for hearing of the Arbitration proceedings and also informed that I will be represented by advocates. I also informed the names of the advocates along with their addresses and requested him to communicate with my counsel. However the letter dated 08.03.2010 sent through registered post with acknowledgement due was returned on 26.03.2010 as unclaimed. Subsequently, I tried to contact the Arbitrator through phone but with no use. When I contact him at his residence I was informed by him that he is not inclined to continue the proceedings. The Hon’ble Arbitrator having received an amount of Rs.5,00,000/- through cheques on diﬀerent dates did not choose to complete the proceedings. It is to state that the Arbitrator resigned from service and convey to me that he will not be interested in being the Arbitrator. It is respectfully submitted the Arbitrator withdrew from his oﬃce and the Arbitration proceedings remained inconclusive. The Arbitration agreement does not specify the procedure to be followed under such contingency. Under such circumstances, I am constrained to approach this Hon’ble Court for appointment of another Arbitrator.” 3. The 1st respondent ﬁled counter-aﬃdavit on 06.07.2011 raising preliminary objection that all the parties, who are signatories to the arbitration agreement, dated 07.04.2005, are not made as parties to the present application. Thereafter, the applicant ﬁled application being Application No.593 of 2011 under Order I, Rule 10 of CPC seeking impleadment of Madugula Dayakar Reddy, Chavalam Ravi and Tatineni Srinivasarao, as parties to the arbitration application. The said application came to be allowed on 06.09.2011. 4. Respondents 1 and 3 ﬁled counter-aﬃdavits. Respondents 3 and 5 sailed with the applicant. 5. It is the 1st respondent, who opposed the prayer sought for in this application. It is stated in the counter aﬃdavit ﬁled by the 1 st respondent that the applicant has not divulged the true facts in the aﬃdavit ﬁled in support of the application. The applicant participated in the proceedings conducted before the Arbitrator till 28.08.2007. Therefore, the allegation in the aﬃdavit that the arbitrator did not conduct any proceedings since 10.08.2005 is utterly false. As on this day, the arbitrator has not withdrawn from conducting the arbitral proceedings and therefore, the oﬃce of arbitrator is not vacant and his mandate has not been terminated by the Court or by mutual agreement of the parties. The application is pre-mature, as there exists no vacancy of arbitrator. For better appreciation, I may refer para.10 of the counter-aﬃdavit, which reads as hereunder: “In reply to para.6 of the aﬃdavit, I humbly submit that the Arbitration Agreement between the parties i.e., Supplemental Deed dt.7.4.2005 to Partnership Deed dt.1.8.2004 is pursuant to Partnership Deed, dt.1.8.2004, but not MOU dt.17.12.2004 and the said alleged MOU dt.17.12.2004 is not mentioned in Supplemental Deed, dt.7.4.2005 (Arbitration Agreement between parties) or in Arbitration Agreement dt.7.4.2005 (between Arbitrator and parties). The allegation that the Arbitrator has not chosen to direct the parties to ﬁle their claims, rejoinders and failed to frame the issues are not true and correct in view of the facts borne out from the Arbitration Proceedings that the applicant made claims and I also made claims on 30.11.2006 and against which, the applicant also submitted his defence on 11.12.2006. The applicant, for the reasons best known to him, did not mention these proceedings that had taken place before the Arbitrator and his attending the said proceedings as mentioned above. The allegation of the applicant that the Arbitrator has withdrawn from his oﬃce and the mandate of the Arbitration has to be terminated is untenable., I submit that the mandate of the Arbitrator was not terminated and still he is continuing as Arbitrator and his seat is not vacant as such appointing a fresh Arbitrator does not arise at all. I respectfully submit that the application was ﬁled by the applicant with a prayer to terminate the mandate of the Arbitrator, and therefore, the same is not maintainable before this Hon’ble Court. Without terminating the mandate of the Arbitrator, appointment of fresh Arbitrator as on date, that too when the Arbitrator is not resigned from his oﬃce and intimated to all the parties to that eﬀect, appointment of fresh Arbitrator does not arise. Further, the petition is a premature one as even there exists any vacancy of Arbitrator, by virtue of alleged termination, the parties have to resort to recourse for appointment of new Arbitrator as originally agreed for such appointment in the first instance but not otherwise. Even taking into consideration of those factors, there is no cause of action arise as on date for such appointment of new Arbitrator under law.” 6. Heard Sri C.B.Rammohan Reddy, learned counsel appearing for the applicant, Sri A.Krishnam Raju, learned counsel appearing for the 1st respondent, Sri Balla Visweswara Rao, learned counsel appearing for respondents 3 and 5 and Sri G.Dinesh Kumar, learned counsel appearing for respondent No.4. 7. Learned counsel appearing for the applicant submits that the 2nd respondent-Arbitrator having passed interim awards on 07.4.2005 and 7.6.2005 failed to proceed further in the arbitral proceedings and when the applicant approached him to conduct further proceedings, he expressed his disinclination to continue the proceedings and therefore, it is to be inferred that the 2nd respondent- Arbitrator withdrew from his oﬃce necessitating the applicant to approach this Court for terminating the mandate and to replace the 2nd respondent by appointing another arbitrator. He would also submit that the circumstances of the case clearly come under sub-section (6)(c) of Section 11 of the Act empowering this Court to appoint arbitrator in place of the 2nd respondent. In a way, his contention is that since the 2nd respondent failed to perform his functions entrusted to him, vacancy has arisen and there being no agreement between the parties with regard to supply of vacancy, the only provision under which the applicant can move for ﬁlling up the vacancy is by way of moving an application under sub-section (6)(c) of Section 11 of the Act. A further submission has been made that the applicant has speciﬁcally pleaded in the aﬃdavit ﬁled in support of the application that the 2nd respondent-arbitrator informed the applicant of his disinclination in continuing the proceedings. Though the 2nd respondent has been served with notice in this application, he did not choose to contradict the said averments in the aﬃdavit ﬁled in support of the application by filing counter. In the absence of the counter contradicting the said averments in the affidavit, they remain unrebutted and in which case, there cannot be any diﬃculty in inferring that the arbitrator withdrew from the proceedings. In support of his submissions, reliance has been placed on the decisions of this Court in Sai Priya Construction Company v. K.Anantha Kumari Satya Raju and another[1], T.Srinivasa Rao, Railway Contractor, Chinaganjam v. Union of India, rep. by General Manager, South Central Railway, Secunderabad[2]. 8. Per contra; learned counsel appearing for the 1st respondent submits that the applicant suppressed material facts in the aﬃdavit ﬁled in support of the arbitration application and therefore, the application is liable to be dismissed. He would further submit that the 2nd respondent-arbitrator conducted proceedings till 28-8- 2007 and therefore, the case of the applicant that the 2nd respondent-arbitrator has not conducted the proceedings from 10-8-2005 is absolutely false. He would further submit that the applicant has to get the mandate of the arbitrator terminated by approaching the civil Court, as provided under sub-section (2) of Section 14 of the Act. Until and unless the mandate of the arbitrator is terminated by the civil Court, the application ﬁled by the applicant for appointing substitute arbitrator in place of the 2nd respondent is premature. 9. Learned counsel took me to the proceedings sheet maintained by the arbitrator, which indicates that the arbitrator conducted the proceedings till 28.8.2007. Learned counsel placed reliance on the decision of Delhi High Court in Surinder Pal Singh v. HPCL & Anr.[3], and the decision of this Court in N.N.Capoor v. A.Koteswara Rao and another [4] and K.Narayana Raju, Contractor v. Union of India rep. by its General Manager, South Central Railway, Secunderabad[5] 10. In Surinder Pal Singh’s case ( 3rd supra), the Delhi High Court was considering the question as to the procedure to be followed in the event of one party asserting that the mandate of the arbitrator has deemed to have been terminated while the other party has contradicting the same. Para (16) of the cited Judgment needs to be noted and it is thus:- “ Section 14 of the Act deals with failure or impossibilities on the part of the Arbitrator to act and, inter alia, provides that the mandate of the Arbitrator shall terminate if he becomes de jure or de facto unable to perform his functions or for other reasons failed to act without undue delay. A reading of sub-section (1)(b) of Section 14 would, however, show that the mandate of an Arbitrator can be terminated by the agreement of the parties. Such agreement may be arrived at because the Arbitrator has failed to act without undue delay. The question, however, is whether the mandate can be deemed to have been terminated even when, according to the other, it has not. The answer to that question is provided by sub-section 2 to Section 14, according to which if a controversy remains concerning any of the grounds referred to in Clause (a) of sub-section (1) of Section 14, a party may, unless otherwise agreed by the parties, apply to the court to decide on the termination of the mandate. This implies that in the event of a dispute regarding the termination of the mandate of an Arbitrator on account of his failure to act without undue delay, as is the position in the instant case, the issue has to be resolved only by the Court. The term `Court’ appearing in Section 14, as also elsewhere in the Act, means the principal civil Court of original jurisdiction in a district and includes the High Court in exercise of its ordinary original civil jurisdiction but does not include any civil court inferior to such civil Court. What is important is that party, who intends to have the issue regarding termination of the mandate resolved, has to apply to the competent court under Section 14(1) & (2) of the Act for such a determination. A suit for declaration and injunction for a relief, which the plaintiﬀ had claimed in the arbitration proceedings cannot be maintained by any such party on the assumption that the controversy regarding termination of the mandate, notwithstanding the mandate, according to it stood terminated”. 11. The facts, which are not in dispute, are:- The parties to the partnership deed dated 01-8-2004 named Ch. Lakshmi Narayana, Advocate, as an Arbitrator for resolution of the disputes relatable to partnership deed dated 01-8-2004. An arbitration agreement also came to be entered on 07-4-2005. The parties to the partnership deed are shown as one party and the arbitrator is shown as the other party to the arbitration agreement. For better understanding, I may extract the arbitration agreement dated 7-4-2005, which reads as hereunder:- “ ARBITRATION AGREEMENT This Arbitration agreement has entered into the parties on this the 7th day of April, 2005 by and between:- 1. M/s. Paras Collins Distilleries rep. by its a) Managing Partner Sri M.Krishna Reddy b) M.Dayaker Reddy c) P.Thikka Reddy d) Ch.Ravi e) T.Srinivasa Rao A n d 2. Ch.LAKSHMI NARAYANA, ADVOCATE, UNIT No.102, Plot No.120, Road No.3, S.R.K.Puram, HYDERABAD. (Arbitrator) This agreement has entered into by the above parties to resolve the disputes with relating to M/s. Paras Collins Distilleries as per clause No.25 of the partnership deed dated 1-8-2004 as supplemented on 7- 4-2005. The Arbitration Act, 1996 shall apply for disposal of the matter. The Arbitrator shall dispose off the matter within 45 days from 7-4-2005”. 12. The arbitrator passed an interim award on 17-6- 2005. Thereafter, there is no progress worth mentioning. According to the applicant, the arbitrator did not conduct any proceedings from 10-8-2005 whereas, it is the version of the respondent No.1 that the proceedings before the Arbitrator went on till 28-8-2007. The 1st respondent placed on record the photostat copy of the docket proceeding maintained by the arbitrator. The last proceeding before the arbitrator is dated 28-8-2007, which reads as hereunder:- “ Mr.P.Thikka Reddy, C.Ravi, M.Krishna Reddy present in person. Receivable from APBCL to be obtained by the Arbitrator upon authorisation letter duly submitted by P.Thikka Reddy for the same under copy to Arbitrator. Upon obtaining the same information from APBCL the Arbitrator shall issue notice to both parties and pass Award in their presence”. 13. Subsequent to 28-8-2007, the Arbitrator has not conducted any proceedings. The applicant ﬁled this application on 01.4.2011. It can be said without any fear of contradiction that the proceedings before the arbitrator become standstill for last more than three years and six months. The very object of choosing the 2nd respondent as an Arbitrator has been defeated. It is crystal clear from the arbitration agreement that the 2nd respondent as an arbitrator should dispose of the matter within 45 days from 7-4-2005. 14. The applicant has speciﬁcally pleaded in the affidavit ﬁled in support of the application that he contacted the Arbitrator at his residence and thereupon, the Arbitrator (2nd respondent) informed him of his disinclination to continue the proceedings. Despite notice being served on the 2nd respondent-Arbitrator, he did not choose to enter appearance to contradict the speciﬁc assertion made by the petitioner with regard to withdrawing from his oﬃce. Even it is not the case of the contesting respondents that the Arbitrator has taken any step subsequent to 28-8-2007. With this background of facts, let me now refer Section 14 of the Act. 15. Section 14 of the Act reads as hereunder:- 14: Failure or impossibility to act. (1) The mandate of an arbitrator shall terminate if- (a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and ( b) he withdraws from his oﬃce or the parties agree to the termination of his mandate. (2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate. (3) If, under this section or sub-section (3) of (section 13) , an arbitrator withdraws from his oﬃce or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of (section 12)” 16. From the provisions of Section 14 of the Act, it is abundantly clear that mandate of an Arbitrator shall stand terminated in two circumstances. Firstly; when he failed to perform his functions or for other reasons fail to act without undue delay and secondly; when the arbitrator withdraws from his office. 17. The facts placed on record come within the purview of sub-section (1)(b) of Section 14 of the Act. Therefore, the mandate of an Arbitrator shall stand terminated because of his withdrawing from the oﬃce. The question of the applicant approaching the civil Court for terminating the mandate arises if the fact situation of the case comes within the purview of sub-section 1(a) of Section 14 of the Act. The reason for my concluding that the fact situation comes within the purview of sub-section 1(b) of Section 14 is that the applicant specifically pleaded in para (4) of the aﬃdavit filed in support of the application that he contacted the Arbitrator at his residence and thereupon, the Arbitrator informed him of his disinclination to continue the proceedings. Though the Arbitrator has been shown as 2nd respondent, he did not choose to enter appearance and contradict the averment made in the aﬃdavit. Therefore, I am in no doubt to conclude that the fact situation of this case comes within the purview of sub-section 1(b) of Section 14 of the Act, in which case, the mandate of the Arbitrator shall stand terminated since he withdrew from his oﬃce. Consequent to termination of the mandate of the Arbitrator, substitute arbitrator is required to be appointed. 18. Accordingly, the Arbitration Application is allowed terminating the mandate of the 2nd respondent and in his place, Sri Justice D.S.R.Varma, a retired High Court Judge, is appointed as an Arbitrator. The learned Arbitrator is at liberty to fix his own fee. _____________________ B.SESHASAYANA REDDY, J Dt.03-12-2011 CS/RAR [1] 2006(2) ALT 70(DB) [2] 2009(2) ALT 724 [3] 2007(2) R.A.J 364 (Del) [4] 2011(5) ALD 493 [5] 2006(1) ALT 756