1 cap8-10 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION CIVIL APPLICATION NO.8 OF 2010 IN ARBITRATION PETITION NO.5 OF 2005 Raosaheb G. Shinde ....Applicant Ori.Petitioner V/s. Kum.Bharati V. Paithankar & Anr. ....Respondents Mr.M.M. Sathaye for the Applicant/Original Petitioner. Mr.Y.V. Divekar with Dr.Pallavi Divekar i/b Mr.Y.D. Patil for the Respondent. CORAM : S.J. VAZIFDAR, J. DATE : 12TH AUGUST, 2010. ORAL JUDGMENT :- 1. By this Civil Application, the Applicant seeks the appointment of an arbitrator in place of the earlier arbitrator who has withdrawn from the arbitration. 2. The question that falls for consideration is whether in an application for the appointment of a substitute arbitrator on account of the termination of the mandate of an arbitrator who was appointed pursuant to an order under section 11 which has attained finality, the Respondent can be permitted to raise contentions which it was entitled to raise in the original application under section 11 for the initial appointment of an arbitrator. I have answered the question in the negative. 2 cap8-10 3(A). The Applicant had filed the above Arbitration Petition under section 11 of the Arbitration and Conciliation Act, 1996. By an order dated 14.10.2005, Mr.Justice D.R. Dhanuka, a retired Judge of this Court was appointed with the consent of the parties. By an order dated 13.1.2006, it was clarified that the order dated 14.10.2005 was not with the consent of the parties. (B). The Respondents informed the learned arbitrator that they could not afford his fees. Consequently the learned arbitrator by a letter dated 10.1.2006 resigned. (C). The Applicant thereafter filed Civil Application No.1 of 2006 in the above Arbitration Petition for the appointment of an arbitrator in place of the said arbitrator. This Civil Application was disposed of by an order dated 17.3.2006. Mr.Justice B.C. Gadgil (Retd.) was appointed as a sole arbitrator. (D). By an order dated 16.3.2007, the Special Leave Petition filed by the Respondent against this order was dismissed. 4. Thus the above orders attained finality. The arbitration thereafter proceeded before the learned arbitrator. 5. The learned arbitrator by a letter dated 4.2.2009 addressed to the Registrar General of this Court, withdrew from the arbitration. It is in these circumstances that the present Civil Application has been filed for the appointment of an arbitrator in place of the said arbitrator. 6. Mr.Divekar, the learned counsel appearing on behalf of the Respondent opposed the application on the ground that the agreement 3 cap8-10 which is said to contain the arbitration clause is forged and that the application is barred by limitation. 7. Once an application under section 11 of the said Act for the initial appointment of an arbitrator is allowed, in an application for the appointment of a substitute arbitrator, a party cannot be permitted to raise the objections which were available to it in the original application under section 11 for the initial appointment of an arbitrator. The order under section 11 for the initial appointment of an arbitrator, if not set aside, is final and binding between the parties at all stages on the question as to whether there is a valid arbitration agreement and as to whether the disputes ought to be referred to arbitration. This aspect cannot be questioned in an application for the appointment of a substitute arbitrator, including under sections 14 and 15. Objections and contentions in this regard are barred on the principles of res-judicata, constructive res-judicata or in any event on principles analogous thereto. These principles have been applied in and extended to proceedings other than suits and even at different stages of the same proceeding. 8. Entirely different considerations arise in an application for the appointment of a substitute arbitrator where the initial appointment was pursuant to an order under section 11 which has attained finality. In such cases, the consideration would for instance be whether the mandate of the appointed arbitrator has terminated under sections 12 to 15 or otherwise. I am not concerned here with a case where the arbitrator was not appointed pursuant to an order in an application under section 11. I, therefore, express no opinion regarding such a case. 4 cap8-10 9. A view to the contrary would defeat the purpose of the Act. It would enable the Respondent in every application for appointment of a substitute arbitrator to re-agitate the grounds which were taken earlier and to urge fresh grounds which ought to have been taken when the original application had been filed. There would be no finality in cases relating to the appointment of arbitrators under section 11. 10. Mr. Divekar, however, submitted that in view of the Supreme Court in M/s.S.B.P. & Co. v. M/s.Patel Engineering Ltd. & Anr., (2005) 8 SCC 618, over-ruling its earlier judgment in Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd., 2002 (2) SCC 388, this Court is bound to consider the application afresh, to wit as if it was an original application for the initial appointment of an arbitrator under section 11 of the said Act. He submitted that the order dated 14th October, 2005, was passed on the basis of the law as declared by the Supreme Court in Konkan Rly. and is, therefore, wrong. 11. I do not agree. Considering the above facts, it is not open to the Respondents to raise these grounds. The order dated 14.10.2005 in this petition was passed before the judgment of the Supreme Court in M/s. S.B.P. & Co. vs. M/s. Patel Engineering Ltd. & anr. which was delivered on 26.10.2005. The order has attained finality as to the question whether the disputes between the parties ought to be referred to arbitration leaving the parties to raise objections under section 16 of the Act as regards questions of jurisdiction. That order has attained finality for two reasons. 12. Firstly, in M/s.S.B.P. & Co. v. M/s.Patel Engineering Ltd. & Anr., the Supreme Court held as under :- 5 cap8-10 “46. We, therefore, sum up our conclusions as follows: (x)* Since all were guided by the decision of this Court in Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd (2002)2SCC 388 and orders under Section 11(6) of the Act have been made based on the position adopted in that decision, we clarify that appointments of arbitrators or Arbitral Tribunals thus far made, are to be treated as valid, all objections being left to be decided under Section 16 of the Act. As and from this date, the position as adopted in this judgment will govern even pending applications under Section 11(6) of the Act.” In view of the above observations, the order dated 14.10.2005 must be deemed to be valid, as it was passed before the judgment in M/s.S.B.P. & Co. v. M/s.Patel Engineering Ltd. & Anr. 13. Secondly, these observations in paragraph 46(x) of M/s. S.B.P. & Co.’s case only saved orders passed earlier which had attained finality from being questioned in review or appeal. An order even if wrong in view of a subsequent binding judgment does not cease to be binding between the parties until it is set aside. The order dated 14th October, 2005, has attained finality having neither been reviewed, nor set aside in appeal. It, therefore, in any event binds the parties. 14. The applicability of the principles of res-judicata and constructive res-judicata are not dependent upon whether the previous decision was right or wrong whether on a point of fact or in a point of law. The decisions as to inherent lack of jurisdiction stand on a different footing but I am not concerned with such cases in the present matter. A Full Bench of the Calcutta High Court in Tarini Charan v. Kedar Nath, AIR 1928, Cal. 6 cap8-10 777 held as under :- “In these circumstances, it matters nothing whether the decision was right or wrong and it matters nothing whether the error, if any, was an error on a point of fact or on a point of law. The matter directly and substantially in issue was a sensible and concrete question as to the rights of the parties and the conditions and terms of the defendant’s tenancy. To decide it correctly, it was necessary to find the facts and to apply the law. If the Munsif did not succeed in ascertaining the exact facts or in applying the law correctly, the remedy of the defendant, if he had a remedy, was to challenge the Munsif’s decision in a superior Court. But S. 11, Civil P.C. and the principle which it embodies would be brought to nothing if it were held that it was open to him to litigate again the question of validity of the terms as to interest, or his obligation to comply with it.” The Full Bench expressly held as erroneous a decision of the Division Bench of the Calcutta High Court in Alinunisa v. Shama Charan (1905) 32 Cal. 749 = 9 Cal. Weekly Notes, 466. In Alinunisa’s case it was observed that the principle of res-judicata would not prevail when the law has been since determined to be otherwise by a judicial decision. The Division Bench held as under :- “In that case it may be noticed, a Full Bench decision had overruled a decision regarded as good law at the time of the previous suit. Now in the present case I am by no means satisfied that there has been any change in the current of decisions comparable with the change which was considered in the case cited. But I am clearly of opinion that the reasoning which Maclean, C.J., and Holmwood, J., adopted in the case mentioned is erroneous. The legislature by statute, may alter the rights of parties and when it does so, it makes such provision as it thinks proper to prevent injustice. Courts of law are in no way authorized to alter the rights of parties. They profess, at all events, to ascertain the law, and if the binding character of a decision upon a concrete question as to the term of particular holding is to fluctuate with every alteration in the current of authority, the courts will become an instrument for the unsettlement of rights rather than for the ascertainment 7 cap8-10 thereof. The principle relied upon is abhorrent to S. 11, Civil P.C., and to the general intention of the doctrine of res judicata. If authority be wanted for its rejection a very plain authority can be found in the case of Gowri Koer v. Audh Kuar (1884) 10 Cal.1087. ................................................................................................ (1) The question whether decision is correct or erroneous has no bearing upon the question whether it operates or does not operate as res judicata. The doctrine is that in certain circumstances, the court shall not try a suit or issue but shall deal with the matter on the footing that it is a matter no longer open to contest by reason of a previous decision. In these circumstances, it must necessarily be wrong for a court to try the suit or issue, come to its own conclusion thereon, consider whether the previous decision is right and give effect to it or not according as it conceives the previous decision to be right or wrong. To say, as a result of such disorderly procedure, that the previous decision was wrong and that it was wrong on a point of law, or on a pure point of law, and that therefore it may be disregarded, is an indefensible form of reasoning. For this purpose, it is not true that a point of law is always open to a party.” I am in respectful agreement with the judgment. I would extend and apply the ratio to matters under section 11 of the Arbitration and Conciliation Act, 1996. A view to the contrary would result in orders under section 11 never attaining finality, if in an application for appointment of a substitute Arbitrator, the contentions available regarding the initial appointment of an Arbitrator can be gone into. Moreover the judgment has been cited with approval by the Supreme Court in S. Nagaraj v. B.R. Vasudeva Murthy, (2010) 3 SCC 353. The Supreme Court held :- “60. In the common judgment impugned in the present appeals, however, the High Court has taken a view that the orders passed by the Karnataka High Court in the earlier proceedings in WP No. 11412 of 1990 and WA No. 7574 of 1996 do not operate as res judicata as the case of the inamdars with reference to the provisions of the Inams Abolition Act and the law laid down by this Court on various aspects were not 8 cap8-10 considered in the earlier writ petitions and writ appeal and the decisions rendered by the Division Bench of the Karnataka High Court in WA No. 7574 of 1996 were per incuriam. The High Court has failed to appreciate that the principle of per incuriam has relevance to the doctrine of precedents but has no application to the doctrine of res judicata. To quote Rankin, C.J. of the Calcutta High Court in Tarini Charan Bhattacharjee v. Kedar Nath Haldar AIR 1928 Cal 777 (AIR p.781) “(1) The question whether decision is correct or erroneous has no bearing upon the question whether it operates or does not operate as res judicata. The doctrine is that in certain circumstances the court shall not try a suit or issue but shall deal with the matter on the footing that it is a matter no longer open to contest by reason of a previous decision. In these circumstances it must necessarily be wrong for a court to try the suit or issue, come to its own conclusion thereon, consider whether the previous decision is right and give effect to it or not according as it conceives the previous decision to be right or wrong. To say, as a result of such disorderly procedure, that the previous decision was wrong and that it was wrong on a point of law, or on a pure point of law, and that therefore it may be disregarded, is an indefensible form of reasoning. For this purpose, it is not true that a point of law is always open to a party.” 15. Thus, on this question it matters not whether the order under section 11 for the initial appointment of an arbitrator was passed before or after the judgment of the Supreme Court in M/s.S.B.P. & Co. vs. Patel Engineering Ltd. & ors. Even if the order was passed after the judgment, in an application for the appointment of a substitute arbitrator, the contention whether the matter ought to be referred to arbitration or not is not permissible or relevant so long as the order is not set aside. For the adjudication of these questions,the parties must apply under/avail of section 16. 16. The pending applications referred to in paragraph 46(x) of the 9 cap8-10 judgment of the Supreme Court are the applications which were originally filed under section 11 and not the applications which are made for appointing a substitute arbitrator under section 15(2) of the said Act. The question that arises in this Civil Application neither arose for the consideration of nor was decided by the Supreme Court. 17. Both the learned counsel relied upon the judgment of the Supreme Court in M/s.Yashwith Constructions (P) Ltd. v. M/s.Simplex Concrete Piles India Ltd. And Anr. AIR 2006 SC 2798 and in particular the following observations in paragraphs 4 and 5 :- “4. In our view, the learned Chief Justice and the Division Bench have rightly understood the scope of Section 15 of the Act. When the arbitrator originally appointed in terms of the arbitration agreement withdrew for health reasons, the Managing Director, as authorised originally by the arbitration agreement, promptly appointed a substitute arbitrator. It is true that in the arbitration agreement there is no specific provision authorising the Managing Director to appoint a substitute arbitrator if the original appointment terminates or if the originally appointed arbitrator withdraws from the arbitration. But, this so- called omission in the arbitration agreement is made up by the specific provision contained in Section 15(2) of the Act. The withdrawal of an arbitrator from the office for any reason is within the purview of Section 15(1)(a) of the Act. Obviously, therefore, Section 15(2) would be attracted and a substitute arbitrator has to be appointed according to the rules that are applicable for the appointment of the arbitrator to be replaced. Therefore, what Section 15(2) contemplates is an appointment of the substituted arbitrator or the replacing of the arbitrator by another according to the rules that were applicable to the appointment of the original arbitrator who was being replaced. The term “rules” in Section 15(2) obviously referred to the provision for appointment contained in the arbitration agreement or any rules of any institution under which the disputes were referred to arbitration. There was no failure on the part of the party concerned as per the arbitration agreement, to 10 cap8-10 fulfil his obligation in terms of Section 11 of the Act so as to attract the jurisdiction of the Chief Justice under Section 11(6) of the Act for appointing a substitute arbitrator. Obviously, Section 11(6) of the Act has application only when a party or the person concerned had failed to act in terms of the arbitration agreement. When Section 15(2) says that a substitute arbitrator can be appointed according to the rules that were applicable for the appointment of the arbitrator originally, it is not confined to an appointment under any statutory rule or rule framed under the Act or under the scheme. It only means that the appointment of the substitute arbitrator must be done according to the original agreement or provision applicable to the appointment of the arbitrator at the initial stage. We are not in a position to agree with the contrary view taken by some of the High Courts. 5. Since here, the power of the Managing Director of the respondent is saved by Section 15(2) of the Act and he has exercised that power on the terms of the arbitration agreement, we see no infirmity either in the decision of the learned Chief Justice or in that of the Division Bench. We do not think it necessary in this case to go into the question whether the writ petition before the High Court was maintainable on the basis that it challenged an order of the Chief Justice rendered on 4-3-2005, prior to the date of the decision in SBP & Co. v. Patel Engg. Ltd.1 rendered on 26-10-2005.” This judgment is of no assistance to either party. It does not deal with the question that arises in this case. 18. There is however one aspect which requires clarification. The initial order appointing the first arbitrator was passed on 14.10.2005. The judgment of the Supreme Court in M/s.S.B.P. & Co. v. M/s.Patel Engineering Ltd. & Anr., was delivered on 26.10.2005. The order appointing the second Arbitrator was passed on 22.7.2007. On 25.11.2007, the learned arbitrator held inter-alia that in view of the law laid down by the Supreme Court, the High Court while deciding the application under section 11 of the said Act has exclusive jurisdiction to decide the questions 11 cap8-10 regarding the existence or otherwise of the arbitration agreement and that section 16 of the said Act is not applicable when an arbitrator is appointed by the High Court. Section 16 of the said Act is applicable only when the parties appoint an arbitrator without recourse to section 11 of the said Act. By an order dated 25.11.2007 for similar reasons, the learned arbitrator held that the question of limitation also cannot be decided by the arbitrator. 19. In view of the fact that the initial appointment of an arbitrator was prior to the judgment of the Supreme Court in M/s.S.B.P. & Co. v. M/s.Patel Engineering Ltd. & Anr., it must follow that in this case the learned Arbitrator would have jurisdiction to decide these questions also. Mr.Sathaye, the learned counsel appearing on behalf of the Applicant fairly states that it will be open for the Respondents to raise these issues before the arbitrator and that the parties would be at liberty to challenge any decision in that regard in the award under section 34 of the said Act. 20. In the circumstances, Hon’ble Mr.Justice S.K. Shah (Retd.) is appointed as a substitute Arbitrator. 21. The parties shall be entitled to rely upon the record that was before the earlier arbitrators and with the leave of the substitute arbitrator, they shall be entitled to file further documents or pleadings. The operation of this order is stayed upto and including 15.10.2010. The civil application is accordingly disposed of.