1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION APLICATION NO. 193 OF 2006 M/s. Mascot International. ... Applicant Vs Alps Container Pvt. Ltd. ... Respondents Mr. Gaurav Joshi with Mr. Naushad Engineer and Mr. Sunil Gangan i/b M/s. RMG Law Associates for the Applicant. Mr. Sanjay Jain with Ms. Sarika Mehra i/b L.J. Law for the Respondents. CORAM : S.J. VAZIFDAR, J. DATED : 12TH JULY, 2010. P.C. : 1. This is an application under section 11 of the Arbitration and Conciliation Act. 1996, for the appointment of an Arbitrator. 2. The Respondent does not deny the fact that an agreement dated 29th August, 2002, was entered into by it with the Applicant; that 2 clause 19 of the agreement pertains to arbitration and that the disputes raised by the Applicant fall within the purview of the arbitration clause. The contention on behalf of the Respondent, however, is that the arbitration agreement has exhausted itself inasmuch as the Arbitrator has already made an award dated 15th July, 2005 based on a settlement between the parties. 3. I have found that there was no settlement between the parties and that the document dated 15th July, 2005, is not an award. 4. The correspondence between the parties leading to the award and even thereafter was relied upon by both the parties in support of their rival submissions. Mr. Jain, the learned counsel appearing on behalf of the Respondents emphasized the reference to and the use of the terms `Arbitrator’ and “award” by the Applicant throughout the correspondence. It is true that the Applicant has referred to and used these terms, but in my view they have been used not in the legal sense at all. I agree with Mr. Joshi, the learned counsel appearing on behalf of the Applicant that at the highest, the so-called Arbitrator, one 3 Bhangar, was only a Mediator whose intervention was sought by both the parties and that the document dated 15th July, 2005, is not an award within the meaning of the term in the said Act. I will myself, however, for convenience refer to him as the Arbitrator. 5. By an e-mail message dated 26th February, 2005, addressed to the Respondents, the Applicant referred to the disputes between the parties and stated : “You are now aware that all matters have been discussed with “the Arbitrator – Mr. Satishbhai Bhangar” and as such, we are abiding by his instructions.” Mr. Jain relied upon the fact that the Applicant had itself referred to the said Bhangar as an Arbitrator. The correspondence, however, must be read as a whole. So read, it is clear that the said Bhangar was not appointed as an Arbitrator, did not act as an Arbitrator and never made any award. As far as this e-mail message is concerned, it is sufficient to note that thus far the matter had only been discussed. The said Bhangar had not been approached by the parties with any formal application. This by itself, however, would not necessarily militate against the appointment of an Arbitrator. 4 6. The Respondents, by a letter dated 15th June, 2005, addressed to the Applicant stated : “Arbitration settlement done by Mr. Satish Bhangar which had your acceptance ....”. In the next paragraph, the Respondents stated : “As per Arbitrator’s instructions, with your knowledge we started production of the said product.” The letter then refers to various things done by the Respondents allegedly pursuant to the instructions of the Arbitrator. . The letter also states : “As per Arbitrator’s decision for the scrap ......”. The mere use of the term `Arbitrator’ does not indicate the appointment of the said Bhangar as an Arbitrator. Indeed, it refers in one place to the “Arbitrator’s instructions” and in another to the “Arbitrator’s decision”. At this stage, there admittedly was no award. Even assuming that the Arbitrator had issued any instructions, the same did not constitute an award. Mr. Jain, however, submitted that the letter indicates that a settlement had been arrived at between the parties by this date. It is difficult to accept this submission. Had there been a settlement between the parties, the Arbitrator would surely have stated the same and made an award pursuant thereto. 7. The submission regarding a settlement is, in fact, belied by a 5 communication from the Arbitrator dated 30th June, 2005, to the Applicant. By this communication, the Arbitrator informed the Applicant that the hearing in the matter was fixed on 5th July, 2005, in his office. The Applicant was requested to be present with complete details. The heading of the communication stated “Settlement for arbitration in the matter” between the parties. If, indeed, there had been a settlement earlier, there would have been no question of the Arbitrator requesting the Applicant to be present with complete details. There would have been no question of fixing a hearing in the matter. The Arbitrator would then have merely made an award in terms of the alleged settlement. There is another aspect which must be noted. The communication dated 30th June, 2005, was addressed only to the Applicant. This, at the very least, indicates that the entire matter had proceeded only in an informal manner. The Arbitrator had met the parties and discussed the disputes with each of them independently even on the telephone. Quite apart from the question of misconduct, the same indicates his role, not as an Arbitrator, but as a Mediator intervening at the request of the parties. 6 8. Mr. Jain then relied upon a communication dated 2nd July, 2005, addressed by the Respondents to the Arbitrator. The first twelve paragraphs refer to the Respondents’ grievances regarding the Applicant. Paragraphs 13 to 17 read as under :- “13. The matter was brought to your kind knowledge and to consider the same after your intervention on a special request from you to restart the unit and complete their job. 14. In fact, they need all the Co-operation, Confirmation and Security from us and they utilize our factory premises for a small quantity of order and we had to incur heavy losses by loosing new customers. 15. Even for a small pitty matters like FDA Registration payment (second time) and for scrap which rightly does not belong to them but to justify might is right attitude. 16. As per your verbal confirmation we had given them delivery and received on account payment and the full Account Statement was sent to them on 15th June, 2005 by Courier as well as by email. 17. Against our request to payment they have started sending the threatening letter and we hereby submit our Statement for your ready reference to settle the issue once for all Amicable basis.” This, Mr. Jain submitted, was the statement of claim. If there was a settlement, where was the question of there being a 7 statement of claim? Indeed, the last sentence : “Dear Sir, We put our case in your able and capable hands as a Arbitrator for Justice” militates against there having been a settlement. The matter was still being pursued. It is also important to note that the communication does not even contain, much less quantify a claim. To this, Mr. Jain’s response was that the claim was orally communicated to the Arbitrator. 9. It is impossible to accept Mr. Jain’s submission. Such an approach in an arbitration is unheard of. It is impossible to accept that though the letter contains merely grievances about the Applicant’s conduct, the actual claim was communicated to the Arbitrator only orally. This would certainly justify setting aside an award, if made. That, however, is a different matter with which I am not concerned in an application under section 11. What is relevant is that this conduct indicates that none of the parties considered the said Bhangar’s role to have been that of an Arbitrator. Further, the statement of claim ipso facto negates any settlement having been arrived at between the parties before the Arbitrator. 8 10. As noted earlier, the Arbitrator had, by the communication dated 30th June, 2005, directed the Applicant to remain present on 5th July, 2005. It is nobody’s case that the Arbitrator called upon the Applicant to file a reply to the statement of claim. Nor is it anybody’s case that any hearing was held thereafter. Here again, the fact that these circumstances would warrant setting aside an award if so made is a different matter. What is significant about these facts is that they establish that the said Bhangar did not act as an Arbitrator, there was no reference to arbitration and consequently, there was no award. The entire matter would have proceeded differently had there been a reference to arbitration. 11. This brings me to the alleged award. The Arbitrator addressed a communication dated 15th July, 2005, to the Applicant. I will presume that a copy thereof was also sent to the Respondents as stated by Mr. Jain. I will also overlook the fact that the communication does not read like a formal award. Had the reference been to the said Bhangar as an Arbitrator, had the said Bhangar conducted the proceedings as an Arbitrator, the mere absence of form would not militate against the communication being an award if it could otherwise be construed as 9 one. As considerable emphasis was placed on this communication to defeat the present application, it is only fair that it is reproduced in extenso. It reads as under :- “To, M/s. Mascot International, Mumbai Kind Attn: Mr. Manek Shah / Mr. Sharad Chandiramani Sub: Arbitration Settlement Dear Sir, With reference to the above I had fixed up the hearing on Tuesday the 5th of July wherein you’re representative Mr. Sharad Chandiramani had appeared on behalf of your company wherein he was not able to produce any figures of stocks as per your records. On considering the facts of the case it is very obvious that you have defaulted in your commitments of setting the matter even though you had agreed to arbitration in the matter. Your allegations of stock statement not being provided by the manufacturer does not hold ground and cannot be construed as a default on the part of the manufacturer on the following grounds. (i) You have failed in your commitment of picking up a regular quantity as promised to the manufacturer and the fact that you have produced only 300 Tons over a period of 3 years establishes the fact that you have used the premises of the manufacturer as a warehouse causing him great inconvenience and loss of Revenue. (ii) It is a fact that the manufacturer was only getting a conversion charge and the entire RM/PM was to be supplied by you for which your representative was taking and 10 reporting daily consumption figures to you whereby you should have given a statement as per your records and only the difference could have been settled but you choose to take that as a ground for not clearing the material. I would also like to add over here when I settled the matter in February it was only in consideration of the relation that I used my influence to prevail upon the manufacturer to accept a price of 7500 instead of 6500 on the understanding that the entire quantity of 140 Tons would be produced and finished within 30-45 days. There again the manufacturer knowing your track record was not willing to commence production without the entire amount being deposited as his apprehensions were well founded and he proved to be correct when the production commenced you were duty bound to pay if not daily at least on a weekly basis the conversion charges, which once again you failed miserably. Even at this late stage I understand that although all the tubes are filled there are no cartons. Furthermore the entire production was completed around the 20th of April and you have not bothered to lift the material inspite of several reminders while using the same excuse of stock statement. Once again on my request and intervention you lifted 8000 cases and left behind 3000 cases without making further payments due to the manufacturer. In view of the serious breach of contract committed by you I hereby call upon you to compensate the manufacturer by way of penalty for the delay in clearing your stocks by paying a penalty at the rate of 3000 Rupees per day from the date of final completion of your production over and above the actual conversion and other costs agreed upon if you fail to perform the above within 7 days the manufacturer would be free to dispose 11 of your material to recover the dues at your cost and consequences. Thanking you, Yours faithfully, For MAGNA INDUSTRIES AND EXPORTS LIMITED Sd/- Satish Bhangar (Director)” Firstly, the communication ex-facie negates any settlement between the parties. If there was a settlement and an award in terms of the settlement was passed, the matter would end there. If there was a breach of that settlement/award or non compliance thereof, the Respondents’ remedy would have been to execute the award. Moreover, what the Arbitrator appears to have done is, in effect, pass directions for the enforcement of the alleged settlement. The communication does not even specify what the settlement was. It merely states that the Applicant had defaulted in its commitments of settling the matter. At the highest what appears to have happened is that during the informal discussions between the parties with the Arbitrator, certain ad-hoc proposals had been made and probably accepted. The communication indicates certain respects in which the Applicant failed to comply with its alleged agreement/settlement. The Arbitrator refers to his having settled the matter in February, 2005. 12 Here again, he refers only to certain aspects of the alleged settlement. An award, even in terms of a settlement, must of necessity, set out the entire settlement. At the cost repetition, it must be noted that the communication is not an award in terms of the settlement, but a record of certain aspects of the alleged settlement that the Applicant allegedly did not comply with. Here again, the fact that this communication, wrongly contended by the Respondents to be an award within the meaning of the said Act, is incapable of being executed, is another matter altogether. I repeatedly asked Mr. Jain how and on what basis the award could be executed. He was unable to furnish any answer. His only response was that – that could be seen at the time of the execution of the award. However, the fact that it is without a doubt incapable of being executed in fact indicates that it was not even meant to be an award. Indeed, the submission is really an insult to the said Bhangar for it suggests that he had absolutely no idea as to how an arbitration is to be conducted and the elementary ingredients of an award. 12. The conduct of the parties thereafter also militates against the communication dated 15th July, 2005 being an award. The mere fact 13 that in the communication that ensued between the parties thereafter the said Bhangar is referred to as an Arbitrator and the communication dated 15th July, 2005, is referred to as an award is not conclusive of the matter. It cannot have the effect of converting the communication into an award within the meaning of the said Act. 13. The letter dated 25th July, 2005, addressed by the Respondents to the Arbitrator supports the contention that the said Bhangar did not act as an Arbitrator and that the communication dated 15th July, 2005, was not an award. Had it been an award, there was no question of the Respondents communicating with him thereafter and seeking his intervention for issuing directions to the Applicant. Nor was it necessary for the Respondents to inform the Arbitrator as to what they intended to do pursuant to the alleged award. 14. Mr. Jain relied upon a letter dated 30th July, 2005, addressed by the Applicant to the Respondents as it referred to the “arbitration award” in support of his submission that the Applicant considered the communication dated 15th July, 2005, to be an award. The error in the submission arises on account of mistaking words used loosely for 14 substance, reading them in isolation and out of context. The letter, read as a whole, does not even remotely indicate the Applicant’s acceptance of the same as an award. In fact, the letter expressly states that there was no final arbitration settlement because the Arbitrator was continuously asking for details. In fact, the letter alleges that the Respondents, having started some business with the Arbitrator, wanted to take his assistance and influence him for finalizing the award. This, in fact, indicates that it was never the Applicant’s case that there already was an award in existence. The letter, in fact, calls upon the Respondents to send them a signed copy of the award, if at all there is any. 15. By a letter dated 1st August, 2005, addressed to the said Arbitrator, the Applicant protested that the Respondents were trying to work against the Applicant in spite of the said Bhangar being “our Arbitrator”. Needless to add that this attitude of the Applicant about considering the said Bhangar to be their Arbitrator was totally unwarranted. There is no question of an Arbitrator, appointed by a party, being “their Arbitrator”. To this extent, the Arbitrator’s response dated 4th August, 2005, was fully justified. 15 16. Mr. Jain relied upon a letter dated 3rd August, 2005, addressed by the Applicant to the Arbitrator inasmuch as the same yet again refers to the said Bhangar being an Arbitrator and the proceedings as arbitration proceedings. The letter states that the said Bhangar had agreed to arbitrate for the last production phase which was estimated to be 133.86 tons and that the Applicant had informed him that he had not arbitrated judiciously. The letter refers to the communication dated 15th July, 2005. Mr. Jain placed strong reliance upon the statement therein that the Applicant contended that they had the right to appeal against the “arbitration given by you on July 15, 2005”. It is important to note that the word “arbitration” is placed within the quotation marks. The letter also indicates that the Arbitrator had been conferring with the parties independently. The letter, by itself, cannot convert the communication dated 15th July, 2005, into an award, if in law it is an award. In fact, the letter read as a whole indicates that the Applicant contemplated that an arbitration would follow. The mere use of the terms `Arbitrator’ and `award’ are not decisive of the matter. 16 17. It is important at this stage to note, a letter dated 2nd August, 2005 addressed by the Arbitrator to the parties. It is necessary to set out this letter in extenso. It reads as under :- “Sub: Settlement in the arbitration matter between Mascot International and yourself. Dear Sir, I am in receipt of your letter dated 25th July and would like to record as follows: 1) I had agreed to arbitrate in the matter in good faith and spirit and the basic foundation on which the settlement was arrived at was on the following grounds. a) Approx 140 Tons to be produced @ 6500 processing charges along with all additional labour for clearing and other activities in lien of the long storage for over 2 years @ 125 per person per day. b) No debit Notes to be raised for any past performance/shortages/damages exceeding 5.5% c) Cost of Machine to be reimbursed to Alps Containers Pvt. Ltd. as agreed. d) Cost of Gel Toothpaste to be reimbursed as agreed. As per the above mentioned points in all fairness Mascot International should have performed in the true spirit of fair business practice. They have totally defaulted in fulfilling their commitments. Mascot International should have contested the settlement in the beginning when the terms of settlement were conveyed to them. However, they chose to use the good offices of the Arbitrator in taking advantage of picking up 90% of the material. In view of the above, I 17 would now record that as sufficient time has been given to Mascot International. I hereby award that you are now within your rights to take any remedial measures to recover your rightful dues. Thanking you, Yours faithfully, For MAGNA INDUSTRIES AND EXPORTS LIMITED Sd/- Satish Bhangar C.c. To, M/s. Mascot International” It is important to note a few aspects about this letter. Had the communication dated 15th July, 2005 been an award, there was no question of the said Bhangar making a further award informing the Respondents that it was within its right to take remedial measures to recover its dues. This itself shows that all the parties used the word “award” in a casual manner and not in the legal sense. It is also important to note that the said Bhangar purports to set out the terms of the settlement. These terms were not even set out in the communication dated 15th July, 2005. Apart from the fact that these facts would vitiate any award they in fact establish the Applicant’s case that there was no reference to arbitration as such and that in any event there was no settlement and that the communication dated 15th July, 2005 was not an award, either in terms of the settlement or 18 otherwise. 18. Further communication was also addressed to the said Bhangar much thereafter. For instance, by a letter dated 10th August, 2005, addressed to the said Bhangar, the Respondents stated : “As informed by you on phone to make the final settlement for collection of payment from Mascot International on job work and other charges, we inform you about the outstanding amount in different heads as under :” Thereafter, the Respondents stated eight items towards which it is entitled to various amounts, the net receivable being Rs. 7,49,683/-. The letter then continues as follows : “We request you to collect a pay slip of Rs.7,49,683/- in our favour before giving the delivery with this the account with Mascot International will be over and we inform you that the agreement between Alps Containers Pvt. Ltd. and Mascot International dated 29th August, 2002, is to be treated as over and cancelled from our side.” All this indicates that the involvement of the said Bhangar was informal and, at the highest, as a Mediator, not as an 19 Arbitrator. His intervention was sought much after the alleged award. That he could not have done so is one thing, but the fact that his intervention was sought in such an informal way establishes the Applicant’s case. 19. Mr. Jain relied upon a statement made on behalf of the Applicant to the Commissioner of Central Excise to the fact that in respect of the disputes they went to arbitration and the award was not acceptable to them. In view of the above facts, such statements made by or on behalf of the Applicant would make no difference. 20. In the circumstances, the application is made absolute in terms of prayer (a). Prayer clause (a) reads as under :- “(a) That the Hon’ble Chief Justice or any other Judge nominated in this behalf by the Hon’ble Chief Justice,be pleased to appoint a Arbitrator to be the Sole Arbitrator to adjudicate the disputes between the parties under Section 11 of the Arbitration and Conciliation Act 1996 as per the terms and conditions of arbitration clause contained in the Agreement dated 29th August, 2002 which is annexed hereto at Exhibit “A”.” Mr. Justice S.S. Parkar (Retd.) is appointed as the sole Arbitrator.