HIGH COURT OF DELHI : NEW DELHI OMP No. 7 OF 2006 & OMP No.29/2006 Judgment reserved on: July 17, 2007 Judgment delivered on: December 28, 2007. # M/s. Alcove Industries Ltd ..... Petitioner ! Through: Mr. A.S.Chandhiok, Senior Advocate with Mr. Sanjay Abbot, Advocate. versus $ M/s. Oriental Structural Engineers Ltd ..... Respondent ^ Through: Mr. P. V. Kapur, Senior Advocate with Mr. Anil Airi, Advocate. *CORAM HON'BLE MR. JUSTICE VIPIN SANGHI 1. Whether the Reporters of local papers may be allowed to see the judgment? 2. To be referred to Reporter or not? Yes 3. Whether the judgment should be reported Yes in the Digest? VIPIN SANGHI, J. : 1. By this order, I propose to disposed of OMP No.7/2006 and OMP No.26/2006 both preferred by the Petitioner under Section 12 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the `Act') seeking removal of respondent no.2, (the Sole Arbitrator) and appointment of an independent and impartial arbitrator in his place. Since, most of the facts and contentions are common to both the petitions, I am disposing them off by a common judgment, while OMP No.7/2006 & OMP No.29/2006 Page 1 of 55 making a note of the differences in facts and submissions in the two petitions. Background facts 2. The respondent no.1 i.e. M/s Oriental Structural Engineers Ltd had been awarded the work for conversion of existing road to four lane by widening and strengthening of the existing road starting from 140 km to 180 km and 180 km to 240 km in the State of Bihar, Aurangabad sector by the National Highway Authority of India (NHAI). This contract is referred to as the Principal Contract. In turn, respondent no.1 awarded a part of the work to the petitioner for the quarrying of rock boulders including transportation and feeding into crusher vide work order dated 19.12.2000. (OMP No.7/2006 has been preferred in relation to the Arbitration proceedings arising out of this work order). Vide separate work order dated 03.07.2002, various earth works to be done at the said road stretch were also awarded to the petitioner. (OMP No.29/2006 pertains to the Arbitration proceedings arising out of this work order). Though the works commenced, soon thereafter certain safety issues were raised by the petitioner which ultimately led to the works coming to a halt. Various correspondences were exchanged between the parties and each found the other in the wrong for the works not being performed under the contract. Consequently, disputes and differences arose between the parties. The work order/agreement dated 19.12.2000 contained an OMP No.7/2006 & OMP No.29/2006 Page 2 of 55 arbitration agreement in clause 23 in the following terms:- “23. All disputes in this contract shall be decided by an Arbitrator to be appointed by the Managing Director, Oriental Structural Engineers Ltd., New Delhi subject to the provisions of Indian Arbitration and Conciliation Act, 1996. The matter shall be under the jurisdiction of Delhi Courts only.” 3. The work order dated 03.07.2002 also contained an identical clause viz. clause No.26. 4. The petitioner invoked the arbitration agreement contained in clause 23 vide its letter dated 23.6.2003 and called upon the respondent no. 1 to suggest names of three retired High Court Judges from amongst whom one could be appointed as the sole arbitrator. 5. However, clause 23 of the work order/agreement provided that appointment of any arbitrator was to be made by the Managing Director of the Oriental Structural Engineers Ltd, New Delhi (the respondent no.1 herein). 6. The respondent no. 1 in its reply dated 01.07.2003 called upon the petitioner to submit its claim before the Managing Director for consideration of the matter. It appears that the petitioner filed a petition under Section 9 of the Act being OMP No.276/2003 seeking certain interlocutory reliefs and measures. This petition is stated to OMP No.7/2006 & OMP No.29/2006 Page 3 of 55 have been listed before the Court on 16.07.2003, and notice was issued by the Court returnable on 19.08.2003. Thereafter, respondent no. 2 was appointed as the Sole Arbitrator by the respondent no.1 vide letter dated 25.8.2003. The Sole Arbitrator i.e. respondent No.2 entered upon the reference on 27.8.2003. 7. On 17.9.2003 the petitioner requested the Sole Arbitrator to make a declaration as to his independence and impartiality. It was stated that as per the petitioners information, the respondent No.1 had done a lot of work with the Airport Authority of India (AAI) while the respondent No.2 was working for them. Vide letter of even date, the respondent no. 1 was also requested to furnish the details of works done by them for Airport Authority of India (AAI) during the period when respondent no. 2 was holding various posts with the AAI. 8. Both the respondents vide their separate letters dated 23.9.2003 replied to the two letters dated 17.9.2003. The respondent no.2 in his reply stated that in the past he had no relations with respondent no.1 except for working as an Arbitrator/member, Dispute Review Body in respect of some works executed by the respondent no. 1 for various Government Departments. Respondent No.1 also denied any suggestion that it had done any works as contractors under respondent No.2. 9. Thereafter, for about 16 months there was no further interaction between the petitioner and the sole Arbitrator. Vide letter OMP No.7/2006 & OMP No.29/2006 Page 4 of 55 dated 21st January, 2005 the respondent no. 2 called upon the petitioner to submit its statement of claim along with documents. 10. Petitioner responded with a letter dated 18.2.2005 expressing surprise at receiving the letter from respondent No.2 after such length of time, and also stated that they were under the impression that he had rescued himself in the matter. The petitioner also sought certain information with regard to the outcome of the other arbitration proceedings involving respondent no.1 wherein respondent no.2 was acting as an Arbitrator. 11. Since no reply was received, the petitioner again wrote to respondent No.2 on 21.4.2005 that on account of lack of any response from him to the letter dated 18.2.2005, it would be presumed that the arbitrator has recused himself in the matter. Vide reply dated 29.4.2005, respondent no. 2 denied the suggestion that he has recused himself from presiding as the Sole Arbitrator in the arbitration in question. It was also pointed out that, though in last five years he has been appointed as one of the Arbitrators in three arbitral tribunals involving respondent no.1, no award has been passed in any of those proceedings. 12. The petitioner not having doubts with regard to the independence and impartiality of respondent no.2 to act as the sole Arbitrator preferred this petition on 07.01.2006. 13. After the petition was filed, an amendment application OMP No.7/2006 & OMP No.29/2006 Page 5 of 55 being IA No.12365/2006 was moved in November, 2006 by the petitioner to amend the petition in the light of the facts disclosed in the reply filed by the respondent No.1 and for the purpose of introducing an additional ground for declaring that the mandate of the Sole Arbitrator stood terminated viz., that he had failed to act without undue delay. This application was allowed by me vide order dated 23.10.2007. 14. In OMP No.29/2006, vide letter dated 16.12.2005 the arbitration agreement contained in Clause 26 of the relevant work order dated 3.7.2002 was invoked and respondent No.1 appointed respondent No.2 as the arbitrator in this dispute also. This petition has also been filed on the ground that the sole Arbitrator i.e. respondent No.2 has lost his mandate on account of his de jure inability to function as an arbitrator due to the existence of justifiable grounds about his independence and impartiality. Petitioner's submissions: 15. The respondents have consistently failed to make a full disclosure of the relevant facts with regard to the past association of respondent no.2 with respondent no.1 and his involvement with the principal contract, of which the petitioner is awarded sub-contracts. There is a conscious effort on the part of the respondents to hold back and suppress the relevant information, which has trickled in from time to time during the course of correspondence exchanged with the OMP No.7/2006 & OMP No.29/2006 Page 6 of 55 respondents and also in the course of these proceedings. The disclosures made by the respondents from time to time with regard to the inter se dealings and association between the respondents give rise to justifiable doubts as to the independence and impartiality of respondent no.2 to act as the sole Arbitrator in the arbitral proceedings in question. The reply of respondent no.1 to the petition reveals that the arbitrator has complete personal knowledge of the project, and the principal contract. Admittedly, he is the Chairman of the Dispute Review Board for contract Package IV-D i.e. the Principal Contract, in relation to which the petitioner has been issued the two work orders as a sub-contractor. Admittedly, the second respondent is required to make 3 site visits every year to ascertain the projection conditions and status of work. He has personal knowledge of the conditions in which the work was to be performed by the petitioner which is bound to influence his objectivity in deciding the disputes between the parties and create a prejudice in his mind against the petitioner. Merely because the petitioner has agreed that respondent No.1 may nominate the Arbitrator, it does not mean that the nominee can be a person who is personally involved with, or aware of the circumstances in which the contracts were being executed, since the petitioner had not agreed to nomination of an arbitrator with such association with one of the parties or with such personal knowledge or involvement in the execution of the contracts. Respondent No.2, while functioning as the OMP No.7/2006 & OMP No.29/2006 Page 7 of 55 Chairman of the Dispute Resolution Board in relation to the principal contract would be confronted with, inter alia, the same issues which would need determination in arbitration in relation to the contracts in question, though the petitioners would not be involved in the former process. The views that he may form in those proceedings are bound to influence his determination in the Arbitration proceedings in question between the petitioner and respondent No.1. Respondent No.2 therefore suffers from de jure inability from functioning as an arbitrator in relation to the contracts between the parties and he has lost his mandate to so act. 16. As aforesaid, by way of an amendment which has been allowed by me, an additional ground has also been introduced in OMP No.7/2006 to say that the Arbitrator has failed to act without undue delay and on that account his mandate stands terminated. Since OMP No.29/2006 has been filed in respect of appointment of respondent No.2 as arbitrator made only on 16.12.2005, the issue of delay does not arise in this petition. 17. Learned Senior counsel for the petitioner Mr. A.S. Chandhiok has relied upon State of Arunachal Pradesh v. Subhas Projects and Marketing Ltd. & Anr. 2007 (1) Arb. LR 564 (Gauhati) (DB) and Shyam Telecom Ltd. V. Arm Ltd. 113 (2004) DLT 778 to support the contention that this court has the jurisdiction to interfere under Section 14 of the Act, when the mandate of the Arbitrator stands OMP No.7/2006 & OMP No.29/2006 Page 8 of 55 terminated. Reliance has also been placed on Indira Rai & Anr. v. Vatika Plantations P. Ltd. 127 (2006) DLT 646 to say that once the Arbitrator nominated by a party loses his mandate, the court is not powerless to appoint a substitute. Saurabh Kalani v. Tata Finance Ltd. & Anr. 2004 (1) Recent Arb. Judgments 120 (Bom) has been relied to say the Arbitrator is duty bound to disclose informations which may give rise to an apprehension of bias. He relies on the tests laid down therein for determining the aspect of possible bias. Respondent's submissions: 18. The respondent no. 1, first and foremost submitted that these petitions are not maintainable in law. The procedure to challenge the authority and competence of an arbitral tribunal, and the grounds on which the same can be challenged are contained in Sections 12 and 13 of the Act. The petitioner had raised a challenge to the authority and competence of respondent no.2, and the same has been rejected by him. Accordingly, the arbitral tribunal is now competent to proceed with the reference and make the arbitral award. The petitioner can now raise a further challenge, if it is still aggrieved, only after the arbitral award is made, at the stage of filing objections to the award under Section 34 of the Act. It is argued that the legislature has consciously prescribed the aforesaid procedure to minimise interference by the courts in the progress of the arbitral proceedings at intermediate stages, so that the arbitral proceedings are taken up OMP No.7/2006 & OMP No.29/2006 Page 9 of 55 expeditiously. Reference was also made to Section 5 of the Act which prohibits judicial authorities, which includes civil courts, from intervening in matters covered by Part I of the Act, except to the extent provided by Part I of the Act. The respondent also submits that the mere appointment of respondent no.2 as the Chairman of the Dispute Review Board does not impinge on his independence as an arbitrator in resolving the inter se disputes between the petitioner and respondent No.1. 19. Mr. P.V. Kapur, learned Senior counsel appearing for the respondent placed reliance upon G. Vijayaraghavan V. M.D.,Central Warehousing Corporation & Anr, 86(2006) DLT 844 ; Trishul Construction Co. V Delhi Development Authority, 1994(2) ALR 303 ; Novel Granites Ltd V. Lakhmi General Finance Ltd, 2003 (supl.) ALR 286 (Mad) to contend that mere appointment of the same person as an arbitrator in more than one matters by a party, or existence of a relationship of employer and employee between a party and the arbitrator does not, of itself, give rise to a justifiable doubt of bias or impinge on the independence or impartiality of an arbitrator. It does not constitute a ground for termination of the mandate of the arbitrator by the Court, as it does not constitute de jure inability to perform the functions of an Arbitrator. 20. Reliance has been placed upon Bharat Heavy Electricals Ltd V. C.N. Garg & Ors, 88(2000)DLT 242 (DB) ; OMP No.7/2006 & OMP No.29/2006 Page 10 of 55 Unipack Industries V. Subhash Chand Jain & Ors, 2002(61) DRJ 586 ; Dharam Prakash V. Union of India & another, 2007 III A.D. (Delhi) 103; M/s Newton Engineering and Chemicals Ltd. v. Indian Oil Corporation Ltd. & Ors. 2006 IX AD (Delhi) 243, to buttress the contention that once as arbitrator stands appointed as per the procedure agreed to by the parties for his appointment, the mandate of the arbitration can be challenged before the arbitrator himself only as per the procedure provided under Section 13 of the Act and if that fails, under Section 34 of the Act and there is no other provision under which arbitrator can be removed by the Court. 21. As far as ground of undue delay on the part of the Arbitrator in proceeding with the reference in relation to work order dated 19.12.2000 is concerned, the submission of the respondent is that the said ground is an afterthought inasmuch, as, the same was not even taken as a ground in the petition as originally filed. The delay, if any, is also stated to be solely attributable to the petitioner as it failed to file its statement of claim in time. Reliance has been placed on P.C.Sharma & Co.(M/s) v. DDA and Others, (2006)VI AD(Delhi)548 in this regard. Discussion & Decision: 22. It is well settled that the mere erroneous mention of a legal provision in a petition does not effect the maintainability of the petition itself, if otherwise, the court has the jurisdiction to entertain OMP No.7/2006 & OMP No.29/2006 Page 11 of 55 the petition and the petition itself discloses a cause of action. The mention of section 12 in the title of the petition therefore is not conclusive as to the nature of the petition, and its title would not be determinative of the issue of its maintainability before this court. (See 1999 (V) AD Delhi 52, 2001 IV AD Delhi 870). 23. To the extent that the Respondent contends that there is no power of removal of an arbitrator under the Act, the submission of the Respondent is well founded. Unlike the Arbitration Act 1940 (see Sections 5, 11 and 12 of the 1940 Act), the act contains no provision for the removal of the arbitrator on any ground. However, by virtue of section 14(1) of the Act, the mandate of an arbitrator terminates if one or more of the contingencies specifically provided for therein occur. Section 14(1) of the Act reads as follows: - “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.”. 24. This means that the termination of the mandate of the arbitrator upon the occurrence of any of the said contingencies is automatic by sheer force of law, i.e. ipso jure. There may be cases where there may be no scope at all for the parties to get into a OMP No.7/2006 & OMP No.29/2006 Page 12 of 55 controversy with regard to the automatic termination of the mandate of the arbitrator, such as, where he is declared to have become insolvent or insane, and such determination has attained finality, or where he may have suffered from such a debilitating diseases or ailment which robs him of his mental faculties. However, there may be cases where one party is of the view that the Arbitrator has ipso jure lost his mandate, while the other contends that the mandate of the arbitrator still subsists. When such a controversy arises, the same is to be resolved by the court by virtue of section 14(2) of the Act, which reads as under. “14(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.” 25. Therefore, a petition under Section 14(2) of the Act, to determine the issue as to whether the mandate of the arbitrator stands terminated on the occurrence of one or more of the contingencies contained in clauses (a) and (b) of Section 14(1) of the act would be maintainable. While deciding a petition under Section 14(2) of the Act, all that the court does is to declare whether the termination of the mandate of the arbitrator ipso jure has taken place or not. To that extent, the order of the court passed under Section 14(2) of the Act is merely declaratory, and is not in the nature of a mandatory or perpetual injunction to remove the arbitrator or to restrain him from OMP No.7/2006 & OMP No.29/2006 Page 13 of 55 acting as an arbitrator. Removal of an arbitrator postulates that the arbitrator is otherwise vested with mandate to proceed to function as an arbitrator, but the Court, for certain reasons, removes or dislodges him from that position. What follows post that declaration is a different matter. If the Court finds that the mandate of the Arbitrator stands terminated, it may or may not proceed to supply the vacancy, depending on the facts and circumstances of a particular case. However, merely because the Court may in the facts of a given case declare that the mandate of the existing Arbitrator stands terminated and thereafter proceeds to fill up the vacancy, that would not tantamount to the removal of the Arbitrator by the Court. 26. To determine whether a petition is one falling within the scope of Section 14(2) of the Act, one must look to the averments made in the petitions. In the two petitions before me the primary submission of the petitioner is that the arbitrator, i.e. Respondent No. 2 is de jure unable to perform his functions as an Arbitrator inasmuch, as, there is a justifiable and reasonable apprehension of bias against him on account of his past dealings/association with respondent No.1 as respondent No.2 has been appointed in various arbitral proceedings as an arbitrator, wherein respondent No.1 is a party. It is also argued that on account of his personal involvement with the principal contract, as the Chairman of the Dispute Resolution Board under that contract between Respondent No. 1 and the employer i.e. NHAI, Respondent OMP No.7/2006 & OMP No.29/2006 Page 14 of 55 No.2 is de jure disqualified to function as an Arbitrator. In that capacity respondent No.2 is obliged to make repeated visits to the site of the contracts between the petitioner and Respondent No.1, and therefore, has personal knowledge, information and involvement with the said contracts. It is also argued that the conduct of the respondents in holding back information with regard to their past associations, dealings and the involvement of Respondent No.2 with the contract in question gives rise to justifiable doubts as to the independent and impartiality of Respondent No.2 and this makes him de jure unable to perform his function as an arbitrator. 27. In one of the petitions, namely OMP No.7/2006, the additional submission is that the arbitrator has failed to act without undue delay and therefore has lost his mandate. 28. The aforesaid submissions of the petitioner need to be examined in greater detail which I shall presently be doing. However, in view of the said averments and arguments, it is clear that the present petitions disclose a cause of action for maintaining these petitions under Section 14(2) of the Act and I accordingly hold so. 29. I now turn to deal with the primary objection of the respondent that the challenge to the authority and competence of the sole Arbitrator raised under Sections 12 & 13 of the Act having been raised and turned down, it is not open to the petitioner to now file a petition under Section 14 of the Act, and the petitioner has no option at OMP No.7/2006 & OMP No.29/2006 Page 15 of 55 this stage but to participate in the Arbitral proceedings. It is argued that if he is still dissatisfied with the Awards that may be rendered by the sole Arbitrator, it would be open to him to challenge the arbitral awards under Section 34 of the Act, and in that process the petitioner may raise a challenge to the authority and competence of the Arbitrator as well before the Court. For this he relies on sub-Sections (4) and (5) of Section 13, which read as under: - “13. .................. (4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award. (5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34.” 30. It is often said that haste makes waste. The object of the Act is not merely to see that, good or bad, an arbitral award comes into existence at the earliest. The object is to see that the proceedings come to a finality without the intervention of the Court, unless such intervention by the Court is warranted in a given case and the same is permitted by the law. It would serve no purpose, and would rather be a wasteful expense of time and resources, if the arbitral proceedings which ought to be interdicted are allowed to continue and culminate OMP No.7/2006 & OMP No.29/2006