IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE PIUS C.KURIAKOSE FRIDAY, THE 24TH APRIL 2009 / 4TH VAISAKHA 1931 AR.No. 44 of 2008() ------------------- PETITIONER (S): -------------------- M/S.MOTOROLA INDIA PRIVATE LIMITED A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND HAVING ITS OFFICE AT MOTOROLA EXCELLENCE CENTRE,415/2, SECTOR 14, MEHRAULI GURGAON ROAD, GURGAON-122 001 (HARYANA). BY ADV. SRI.E.K.NANDAKUMAR SRI.A.K.JAYASANKAR NAMBIAR SRI.ANIL D. NAIR SRI.NITHIN GEORGE RESPONDENT(S): --------------- 1. BHARAT SANCHAR NIGAM LIMITED, A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 AND HAVING ITS OFFICE AT 'STATESMAN HOUSE', CONNAUGHT CIRCUS, NEW DELHI-110001. REPRESENTED BY MANAGING DIRECTOR. 2. CHIEF GENERAL MANAGER, KERALA TELECOM CIRCLE, BHARAT SANCHAR NIGAM LIMITED, HAVING ITS OFFICE AT RTP BUILDING, LUKES LANE, PULIMMODU, THIRUVANANTHAPURAM-1, KERALA. ADV. SRI.K.RAMAKUMAR, SENIOR ADVOCATE FOR R1-2 SRI.P.VIJAYAKUMAR, SC, BSNL FOR R1-2 THIS ARBITRATION REQUEST HAVING BEEN FINALLY HEARD ON 16/12/2008, THE COURT ON 24/4/2009 DELIVERED THE FOLLOWING: PIUS C. KURIAKOSE, J. ----------------------------------------------- A.R. No. 44 OF 2008 ----------------------------------------------- Dated this the 24th day of April, 2009 O R D E R M/s. Motorola India (P) Ltd. is once again before this court invoking the power of the Chief Justice under subsection (6) of section 11 of the Arbitration and Conciliation Act, 1996 and the Scheme for Appointment of Arbitrators. The earlier motion of the applicant was AR. No.18/06 which was allowed by this court under Annexure P7 order. Annexure P7 was approved by the Honourable Supreme Court under Annexure P8. As in Annexure P7 case the respondents in this application are Bharat Sanchar Nigam Limited and the Chief General Manager, Kerala Telecom Circle of BSNL Ltd. Annexure P1 dated 4-1-2001 is copy of the tender notice issued by the second respondent on behalf of the first respondent inviting bids from eligible bidders for the planning, engineering, supply, installation and commissioning of GSM based cellular mobile network in AR. N0. 44/08 -2- the telecom circles of the Southern Region covering the States of Kerala, Karnataka, Tamil Nadu and Andhra Pradesh. The applicant submits that disputes have arisen between them and the first respondent on account of what is described as arbitrary and illegal actions of the first respondent in purporting to withhold monies rightfully due and payable to the applicant under Annexure P1. Applicant refers to and extracts clause 20, the arbitration clause in Annexure P1 as contained in section 3 thereof. The applicant points out that it is evident from clause 20.1 of Annexure P1 that any dispute which arises under the tender or in connection therewith would be referred to the sole arbitration of respondent No.2 or in case his designation is changed or his office is abolished, in such cases to the sole arbitration of the Officer for the time being entrusted with the functions of the second respondent. It is pointed out that clause 20.1 further provides that if respondent No.2 or AR. N0. 44/08 -3- the said officer is unable or unwilling to act as such, then the disputes should be referred to the sole arbitration of some other persons appointed by respondent No.2 or the said officer. The applicant highlights the last line of clause 20.1 and mentions that the last sentence of clause 20.1 expressly states that the agreement to appoint an arbitrator should be in accordance with the Arbitration and Conciliation Act, 1996. The applicant relies on Annexure P2 clarification issued by the first respondent wherein it has been clarified that while appointing arbitrator in accordance with the relevant Arbitration Act, the arbitrator shall be a neutral party and due care will be taken to appoint an arbitrator in accordance with the provisions of the Act. 2. The applicant claims on the basis of Annexure P2 that the person to be appointed as arbitrator by the second respondent should be a neutral person belonging neither to the applicant nor to the first respondent. Annexure P3 AR. N0. 44/08 -4- dated 25-10-05 is copy of the notice invoking arbitration clause sent by the petitioner through its lawyers in the light of the disputes between the parties. Subsequently, the General Manager (CMTS), BSNL, Trivandrum sent Annexure P4 letter to the applicant calling upon the applicant to refer the disputes arising out of Annexure P1 agreement to the second respondent CGMT who alone is the concerned authority in terms of Annexure P1. To Annexure P4 dated 8-11-200t the applicant readily sent Annexure P4(2) and (3) dated 17-11-2005 stating that Annexure P3 was correctly addressed and that copy of Annexure P3 was marked to second respondent so that he could appoint an independent arbitrator since he himself was disqualified from acting as arbitrator having dealt with the tender and the decision to withhold payments due to the petitioner under the tender. Pursuant to Annexure P4 (2) and (3) the second respondent appointed one N.Haribabu, GM(O), Office of the PGM, TD AR. N0. 44/08 -5- Ernakulam to act as arbitrator and Annexure P5 is the communication issued in that regard. On receiving Annexure P5 the applicant informed the first respondent that the appointment of Sri.N.Haribabu was unjustified and illegal. The first respondent would refute the stand of the applicant and contend that there was no justification or illegal sanction for attributing bias on the arbitrator. The applicant would reiterate their stand by letter dated 31-1- 2006 rejecting the appointment of Sri.Haribabu as the arbitrator inter alia on the ground that there are justifiable doubts about the impartiality and neutrality of Sri.Haribabu in as much as he is an employee of the first respondent and a subordinate officer of the second respondent. Annexure P6 collectively are copies of these letters. The applicant produced Annexure P7 and submits that in the context of certain other disputes which arose between the applicant and the first respondent relating to alleged liability of the AR. N0. 44/08 -6- applicant for delay, the applicant approached this Court under section 11(6) seeking appointment of an independent and impartial arbitrator and that this court allowed the said application and appointed Mr.Justice K.T.Thomas, a retired Judge of the Supreme Court of India. Against Annexure P7 the applicant filed a special leave petition before the Hon'ble Supreme Court. But the Supreme Court would confirm Annexure P7 by Annexure P8 judgment. Referring to certain passages in the judgment of the Supreme Court, the applicant highlights that the test of impartiality and independence of the arbitrator required by section 12 of the Act would not be satisfied if the CGM Kerala Circle is to be appointed as arbitrator. The applicant concedes that they filed objections before the arbitrator on 2nd December, 2005 inter alia taking the ground that the arbitrator suffered from inherent bias and lacked independence. But by Annexure P9 the objections were overruled by the AR. N0. 44/08 -7- arbitrator. The applicant submits that thereafter the applicant participated in the arbitration proceedings under protest. After Annexure P8 judgment of the Supreme Court was available the applicant submitted a fresh application dated 28-9-2008 before the arbitrator seeking withdrawal of the arbitrator from the post of sole arbitrator contending that the mandate stood de jure terminated in view of the judgment of the Supreme Court and sought reference of the disputes to arbitration before Mr. Justice K.T.Thomas since both parties will have to appear before Mr. Justice K.T.Thomas pursuant to Annexure P8 for adjudication of other disputes and differences arising under the very same contract. Annexure P10 is copy of the said application. But AnnexureP10 was dismissed by the arbitrator by Annexure P11 order dated 29-9-2008. Seeking reconsideration of Annexure P11 the applicant submitted Annexure P12 application which was also dismissed by the arbitrator by AR. N0. 44/08 -8- Annexure P13 order. 3. The applicant contends that a mere perusal of Annexure P13 would demonstrate that the arbitrator is de jure incapable of performing his duties as an arbitrator. According to the applicant, from the very outset the appointment of Sri.Haribabu as arbitrator for arbitration of present disputes was illegal, invalid and null and void, since it was in violation of the mandatory principles of impartiality and neutrality of an arbitrator, that Sri. Haribabu, an employee of the first respondent was appointed as the arbitrator. The applicant submits that by letter dated 17- 10-08 the applicant's counsel informed the second respondent that the mandate of the arbitrator stood terminated particularly in the light of the judgment of the Supreme Court Annexure P8 as Sri.Haribabu is de jure disqualified to act as arbitrator and requested the second respondent to confirm that Mr.Justice K.T.Thomas who was AR. N0. 44/08 -9- already appointed as the sole arbitrator under the same contract, would act as the arbitrator in relation to the disputes that were referred to him. That letter was also answered in the negative by the second respondent by Annexure P14 letter dated 18-10-2008. According to the applicant, in view of the judgment of the Supreme Court, Annexure P8 there is no room for doubt that themandate of N.Haribabu stands terminated as he is de jure disqualified to act as an arbitrator. Without prejudice to that contention the applicant also contends that the mechanism for appointment of an arbitrator under the contract is void and cannot be given effect to and therefore only this Court has the jurisdiction to appoint an arbitrator. Hence the arbitration request seeking the following relief: “Appoint a sole arbitrator being an independent and impartial arbitrator for adjudication of disputes between the petitioner and the first respondent arising from the tender”. AR. N0. 44/08 -10- 4. A joint counter affidavit has been filed by respondents 1 and 2 raising various contentions. At the outset it is contended that the application is not maintainable in law or on facts. It is submitted that an application under subsection (6) of section 11 is not maintainable when a duly appointed arbitrator is already in seizin of the matter. It is also submitted that the dispute regarding termination of the mandate of arbitrator is not liable to be agitated in an application under subsection (6) of section 11. More specifically it is contended that subsection (6) of section 11 is not attracted in this case (a) since the CGMT had already appointed arbitrator in terms of clause 20 and under the provisions of the Act, (b) since there was no failure of two arbitrators to reach an agreement in this case and © since there was no failure on the part of CGMT to perform his functions. It is then submitted that Sri.Haribabu, whose competence and AR. N0. 44/08 -11- functioning is also challenged in the instant application is not made a party to this application and hence the petition is bad for non-joinder of necessary parties. Without prejudice to the contention regarding maintainability, it is alleged that the instant application amounts to gross abuse of process of this court. It is pointed out that the objective of the applicant is to delay the adjudication of the instant arbitration by the present arbitrator, where the case stands posted for evidence for cross examination of witnesses on the side of the applicant. Annexure R2(a) copy of notice of posting on resumption of hearing is produced in this context. It is contended that the instant application before this court is the 4th attempt of the respondent to wriggle out of the ongoing proceedings for the reason that in view of the manifest failure to fulfill various technical and contractual obligations the applicant apprehends that they may not be entitled to any favourable decision. It is submitted that AR. N0. 44/08 -12- though there was no justifiable basis for the challenge against the impartiality and independence of the arbitrator appointed, the applicant's challenge was considered by the arbitrator with all seriousness. Annnexure R2(b) copy of the written submission made on behalf of the applicant and Annexure R2(c) copy of the arguments in reply submitted by BSNL are produced in this context. It is submitted that it is after considering all the issues that Annexure P9 order was passed. Annexure P9 order has become final and is binding on the parties. It is pointed out that the applicant continued to participate effectively in the arbitration proceedings after filing proof affidavit and documents. Referring to section 13 of the Arbitration and Conciliation Act it is contended that when a challenge against the arbitrator fails, the arbitrator is entitled to proceed with the hearing and finally the affected party can challenge the decision rendered under section 13 or 16 of the Act only AR. N0. 44/08 -13- through an application under section 34 against the final award and not otherwise. It is submitted that the applicant is indirectly trying to by-pass the legal mandates of sections 13(4), 13(5) and 16 of the Act. 5. The counter affidavit details how the issues which are being arbitrated by Mr.Justice K.T.Thomas which are different from the issues which are being arbitrated by Sri.N.Haribabu. Annexures R2(d), R2 (e) are produced by the respondent in this context. It is pointed out that the only ground on which the BSNL resisted the applicant's request for arbitration was that the dispute was an excepted matter and hence not arbitrable. It was that contention which was ultimately repelled by the Hon'ble Supreme Court by Annexure P 8. By Annexure P8 decision rendered in the limited context considering the background of the case cannot be extended any further to hold that CGMT is incompetent to be the appointing authority or to find that AR. N0. 44/08 -14- clause 20 is unconscionable and illegal. It is submitted that the mechanism provided under clause 20 of the agreement for appointment of the arbitrator is absolutely legal and proper after mutual consent of the parties and hence the parties cannot retract from the position. Neither this Court in Annexure P7 nor the Hon'ble Supreme Court in Annexure P8 accepted the proposition of the petitioner that clause 20 which enables appointment of CGMT as arbitrator is illegal. Annexure P13 order, it is submitted was finally passed by the arbitrator applying his mind to all the objections in the application submitted by the applicant under section 14 of the Act alleging that the arbitrator is de jure disqualified. Annexure R2(f) order dated 6-10-08 permitting variation of the earlier order and the consequential corrected order Annexure R2(g) are produced. It is pointed out that it was subsequent to R2(g) that the applicant filed a request before the CGMT on 17-10-08, significantly on the date of AR. N0. 44/08 -15- the proposed hearing of the matter by the arbitrator for cross-examination of the witnesses of the applicant. Annexure R2(h) is copy of the above request of the applicant. R2 (g) addressed to CGMT who became functus officio after the appointment of Sri.N.Haribabu as arbitrator was certainly meant to be a dilatory tactics. Still as a matter of fairness, BSNL conceded for an adjournment whereupon under the request of the applicant the case was adjourned sine die. Later CGMT has declined the request on proper grounds. Annexure R2(i) is copy of the letter dated 18-10-08 issued by the CGMT. 6. I have heard the submissions of Sri.Ciccu Mukhopadyaya, Advocate and Mr.Abhjeet Sinha, Senior Advocate on behalf of the applicant and those of Sri.P. Vijayakumar, Advocate and Sri.K.Ramakumar, Senior Advocate on behalf of the respondent. The learned counsel for the applicant drew my attention to subsection (8) of AR. N0. 44/08 -16- section 11 and section 12 and section 14 of the Arbitration and Conciliation Act. The learned counsel drew my attention also to the various exhibits placed on record particularly, Annexures P3, P7 and P11. The learned counsel would place reliance on the judgment of the Delhi High Court in Alcove Industries Ltd. v. Oriental Structural Engineers Ltd. (2008 (1) Arb. LR 393 (Delhi) to argue that on the occurrence of any of the contingencies mentioned in section 14 of the Arbitration and Conciliation Act the mandate of the arbitrator terminates automatically - ipso jure by force of law. Mr. Ciccu Mukhopadyaya relied on the very same decision to argue that the availability of a remedy under section 34 of the Act to have the award set aside is no good answer to the argument that the mandate of the arbitrator stands terminated by the apparent bias of the arbitrator. Relegating the petitioner to remedy under section 34 will be wasteful expense of time and resources, AR. N0. 44/08 -17- since the award to be passed ultimately would not stand scrutiny in the eyes of law. Counsel submitted on the authority of the very same decision that what the law stipulates as a disqualification to become or remain an arbitrator in a given dispute is not the existence of actual bias, but the existence of such facts and circumstances as are likely to give rise to justifiable doubts as to his independence and impartiality. In the instant case there exists justifiable doubts regarding the impartiality and independence of Sri.Haribabu. Mr.Ciccu Mukhopadyaya relied also on the judgment of Gauhati High Court in State of Arunachal Pradesh v. Subhash Projects & Marketing Ltd. (2007(1) Arb. LR 564) to argue that the quintessence of an arbitral procedure is fairness, and impartiality is an essential attribute of fairness. Therefore it is not enough to provide just any arbitration, not even a speedy arbitration but also an impartial arbitration. An arbitrator earns the AR. N0. 44/08 -18- prerogative of conducting the proceedings by the confidence he commands. Fairness, impartiality, independence and neutrality are the indispensable qualities of an arbitrator, so submitted the learned counsel on the authority of the above decision. The omission to invoke the procedure provided under section 13(2) will operate as an estoppel against a party from invoking the remedy available under section 14, so submitted Mr.Mukhopadyaya. The judgment of the Calcutta High Court in Kailash Saving Units Pvt. Ltd. v. S.K.Ghosh, (1983 Arb. LR 404) was also relied on by the learned counsel to argue that when the arbitrator becomes a Judge in his own cause, actual bias need not be proved to vitiate the award. The judgment of K.K.Narendran, J. in Koshy v. K.S.E.B. (1983 KLT 674) was also relied on in this context by Mr.Mukhopadyaya to argue that the court has always power to grant leave to revoke the arbitrator's authority. Supporting his argument that appointing Justice AR. N0. 44/08 -19- K.T.Thomas in substitution of Sri.Haribabu will be justifiable the learned counsel relied on the judgment of the Delhi High Court in Cinevistaas Ltd. v. Prasar Bharati, (2008(106) DRJ 682) wherein the Delhi High Court after substituting an arbitrator, appointed Justice D.P.Wadhwa who was already in seizin of similar connected disputes. 7. Sri. K.Ramakumar, senior counsel for the respondents would answer the submissions of Sri.Mukhopadyaya on the basis of the various contentions raised in the counter affidavit. Strong reliance was placed by him on the judgment of the Supreme Court in Secretary to Government, Transport Dept. Madras v. Munuswamy Mudaliar and another, (1988 (Supp) SCC 651) to argue that a named and agreed arbitrator cannot and should not be removed in exercise of a discretion vested in the Court under section 5 of the Act (Arbitration Act, 1940) unless there is allegation against the named arbitrator either AR. N0. 44/08 -20- against his honesty or capacity or mala fide or interest in the subject matter or reasonable apprehension of bias. Mr.Ramakumar would submit that bias means a predisposition to decide for or against one party, without proper regard to the true merits of the dispute. There must be reasonable apprehension of that predisposition based on cogent material. The test for bias, according to the learned senior counsel, is whether a reasonable intelligent man, fully appraised of all the circumstances with apparent bias. Capricious and unreasonable people should not be made the standard to regulate normal human conduct. Mr. Ramakumar placed reliance also on the judgment of the Supreme Court in Dharma Prathishthanam v. Madhok Construction (P) Ltd. (2005 9 SCC 686) and particularly paragraph 31 of the judgment. Counsel argued that when parties have entered into a contract and settled a procedure, due importance has to be given to such procedure and the AR. N0. 44/08 -21- court has to respect the terms of the contract entered into by the parties and shall endeavour to give importance and effect to the contract. In this context the learned senior counsel relied on the judgment of the Supreme Court Datar Switchgears Ltd. v. Tata Finance Ltd. (2000) 8 SCC 151. 8. I have considered the rival submissions addressed at the bar in the light of the pleadings raised by the parties and the ratio emerging from the various decisions cited at the Bar. The instant application is an application under section 11(6) of the Arbitration and Conciliation Act, 1996 and the prayer is that the Chief Justice or the designate Judge appoints a sole arbitrator being an independent and impartial arbitrator for adjudication of the disputes between the parties which are subject matter of the arbitration request. It is not in dispute that clause 20 of section 3 of Ext.P1 contract incorporates a valid arbitration agreement between the parties at clause 20.1. Clause 20.1 reads as AR. N0. 44/08 -22- follows: “In the event of any question,dispute or difference arising under the agreement or in connection therewith (except as to the matters, the decision to which is specifically provided under this agreement), the same shall be referred to the sole arbitration of the CGM, Kerala Telecom Circle, BSNL or in case his designation is changed or his office is abolished, then in such cases to the sole arbitration of the officer for the time being entrusted (whether in addition to his own duties or otherwise) with the functions of the CGM, Kerala Telecom Circle, BSNL or by whatever designation such an officer may be called (hereinafter referred to as the said officer), and if the CGM, Kerala Telecom Circle or the said officer is unable or unwilling to act as such, then to the sole arbitration of some other person appointed by the CGM, Kerala Telecom Circle or the said Officer. The agreement to appoint an arbitrator will be in accordance with the Arbitration and Conciliation Act 1996. There will be no objection to any such appointment on the ground that the arbitrator is a Government Servant or that he has to deal with the matter to which the agreement relates or that in the course of his duties as a Government Servant he has expressed his views on all or any of the matters in dispute. The award of the arbitrator shall be final and binding on both the parties to the agreement. In the event of such an arbitrator to whom the matter is originally referred, being transferred or vacating his office or being unable to act for any reason whatsoever, the CGM, Kerala Telecom Circle, BSNL or the said officer shall appoint another AR. N0. 44/08 -23- person to act as an arbitrator in accordance with terms of the agreement and the person so appointed shall be entitled to proceed from the stage at which it was left out by his predecessors.” Clause 20.1 quoted above itself is relied on by the applicant to maintain the instant arbitration request under subsection (6) of section 11. Subsection (6) of section 11 comes into play when (a) a party fails to act as required under that procedure or (b) the parties, or the two appointed arbitrators fail to reach an agreement expected of them under that procedure or (c) a person including an institution, fails to perform any function entrusted to him or it under that procedure. It is provided that under the above circumstances party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. According to me, subsection (6) of section 11 cannot have application in this case where concededly AR. N0. 44/08 -24- the appointing authority viz., CGM,