AJN 00-APEAL320.11 : 1 : IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO.320 OF 2011 IN ARBITRATION PETITION NO.449 OF 2009 Messrs Heart & Soul Entertainment Limited, having Registered Office address at, Flat No.105, Matru Chaya Building No. 42, MHADA Complex, Near Oshiwara Police Station, Jogeshwari (West), Mumbai – 400 102. ) ) ) ) ) ) ) ) ... Appellant Versus Deepak Shivkumar Bahry, aged 62 years, Indian Inhabitant C-1, Marin House, 29th Road, Water field Road, Bandra (West), Mumbai – 400 050. ) ) ) ) ) ... Respondent Mr. Yasin Mohammed, Director of the appellant, in person. Mr. Gaurang Joshi with Mr. Vaibhav Sugadhare and Mr. Samshee Garad i/b Khaitan & Jaykar for the respondent. CORAM: MRS. RANJANA DESAI & RANJIT MORE, JJ. DATE ON WHICH THE ORDER IS RESERVED : 25TH JULY, 2011. DATE ON WHICH THE ORDER IS PRONOUNCED: 2ND AUGUST, 2011. AJN 00-APEAL320.11 : 2 : P.C. :- 1. The appellant is a producer of a film, while the respondent is the director. In this appeal, the appellant has challenged order dated 29/4/2011 passed by learned Single Judge (D.K. Deshmukh, J.) in Arbitration Petition No. 449 of 2009. By the impugned order, learned Single Judge has allowed the arbitration petition filed by the respondent by setting aside award dated 9/3/2009 passed by the Sole Arbitrator Advocate Mr. Poojari. 2. The facts disclose that an agreement was entered into between the parties on 20/2/2006. It was followed by addendum dated 7/11/2006. The arbitration clause of the agreement reads as under: “16. That in case of any dispute or difference arising out of interpretation of this agreement, it shall be referred to be Arbitrator in compliance with the Arbitration Act, 1940.” 3. Though in the arbitration clause there is reference to AJN 00-APEAL320.11 : 3 : Arbitration Act, 1940, the parties are agreed that the arbitration agreement would be governed by the Arbitration & Conciliation Act, 1996 (for short, “the Arbitration Act”). The basic challenge to the award was that the appointment of the arbitrator was contrary to law. Learned Single Judge upheld the challenge. 4. On behalf of the appellant, its director Mr. Yasin Mohammed appeared in person. He also tendered his written submissions. Mr. Mohammed submitted that the appointment of the arbitral tribunal was in accordance with the procedure for appointment of the arbitrator laid down as per the arbitration agreement addendum dated 7/11/2006. He submitted that the respondent had consented to the appointment of the arbitrator through his affidavit in reply dated 14/8/2008 filed in Arbitration Petition No.590 of 2008. He particularly relied on paragraphs 7 and 8 thereon. He further submitted that the arbitration clause does not say that there should be appointment of arbitrator by mutual consent or arbitrator AJN 00-APEAL320.11 : 4 : should be appointed jointly. It only refers to appointment of one arbitrator. There was, therefore, no illegality in the appointment of the arbitrator. He submitted that the objection to the appointment of Advocate Mr. Poojari as arbitrator ought to have been raised before Advocate Mr. Poojari himself. In this connection, he relied on the judgment of the Supreme Court in Gas Authority of India Limited & Anr. v. Keti Construction (I) Ltd. & Ors. (2007) 5 SCC 38 where the Supreme Court has held that a challenge to the jurisdiction of arbitrator has to be raised at the threshold before the arbitral tribunal and normally not later than the statement of defence. He relied on the following paragraphs of the said judgment. “24. The whole object and scheme of the Act is to secure an expeditious resolution of disputes. Therefore, where a party raises a plea that the arbitral tribunal has not been properly constituted or has no jurisdiction, it must do so at the threshold before the arbitral tribunal so that remedial measures may be immediately taken and time and expense involved in hearing of the matter before the arbitral tribunal which may ultimately be found AJN 00-APEAL320.11 : 5 : to be either not properly constituted or lacking in jurisdiction, in proceedings for setting aside the award, may be avoided. The commentary on Model Law clearly illustrates the aforesaid legal position. 25. Where a party has received notice and he does not raise a plea of lack of jurisdiction before the arbitral tribunal, he must make out a strong case why he did not do so if he chooses to move a petition for setting aside the award under Section 34(2)(v) of the Act on the ground that the composition of the arbitral tribunal was not in accordance with the agreement of the parties. If plea of jurisdiction is not taken before the arbitrator as provided in Section 16 of the Act, such a plea cannot be permitted to be raised in proceedings under Section 34 of the Act for setting aside the award, unless good reasons are shown.” He submitted that learned Single Judge failed to appreciate this point and, therefore, the impugned order be set aside. 5. Mr. Joshi, learned counsel for the respondent, on the other hand, submitted that the respondent had never consented for the appointment of Advocate Mr. Poojari as AJN 00-APEAL320.11 : 6 : Sole Arbitrator. The respondent's advocate had communicated this fact to the appellant's advocate. A letter was also written to the Sole Arbitrator taking objection to his appointment. He submitted that the judgment cited by Mr. Mohammed has no application to the facts of this case because in this case, the appointment of the arbitrator itself is illegal. He relied on the judgment of the Supreme Court in Dharma Prathishthanam v. Madhok Construction (P) Ltd., (2005) 9 SCC 686 where the Supreme Court has said that unilateral appointment and unilateral reference is illegal and, in such case, the only solution is to seek the appointment of the arbitrator from the court. Counsel submitted that the view taken by learned Single Judge is unassailable and merits no interference. 6. In our opinion, there is no merit in the appeal. To understand the rival contentions, it is necessary to have a look at certain facts. AJN 00-APEAL320.11 : 7 : 7. On 18/9/2006, the appellant wrote a letter to Advocate Mr. Poojari requesting him to act as an Arbitrator. On 3/10/2008, advocate of the respondent addressed a letter to the advocate of the appellant stating that the arbitration clause in the agreement had been waived by the parties and in any event at no point of time, the respondent had consented to the appointment of Advocate Mr. Poojari to act as an arbitrator. On 24/10/2008, advocate of the respondent addressed a letter to Advocate Mr. Poojari that the respondent had not consented to his appointment as an arbitrator and that he should not proceed with arbitration proceedings. 8. On 7/8/2010, the appellant filed a petition under Section 9 of the Arbitration Act seeking security in respect of its claims, being Petition No.590 of 2009. On 13/3/2009, learned Single Judge (Kathawalla, J) disposed of the same by recording an agreement between the appellant and the respondent that the appellant would appoint Advocate Mr. Poojari, as its arbitrator, while the AJN 00-APEAL320.11 : 8 : respondent would appoint the President of the Indian Motion Pictures Producers Association as his arbitrator. The parties further agreed that the two arbitrators would appoint a third arbitrator and the arbitral award would be rendered within twelve weeks. 9. On 24/3/2009, the Arbitration Petition under Section 9 of the Arbitration Act which was already disposed of, was mentioned by the respondent making a grievance that in order to circumvent order dated 13/3/2009 passed by learned Single Judge (Kathawalla, J.) constituting arbitral tribunal by consent of the parties, Advocate Mr. Poojari had already passed award dated 9/3/2009 which was engrossed on stamp paper dated 13/3/2009. Learned Single Judge by his order dated 26/3/2009 made certain observations about the fraudulent nature of the award passed by Advocate Mr. Poojari. He passed strictures against Advocate Mr. Poojari. On 15/7/2009, the appellant withdrew the appeal filed by him against orders passed by learned Single Judge (Kathawalla, J.) dated 13/3/2009 and AJN 00-APEAL320.11 : 9 : 26/3/2009 because a petition for review had been filed before learned Single Judge. It must be stated here that Advocate Mr. Poojari filed a petition for review of order dated 26/3/2009. On 14/11/2009, learned Single Judge (Kathawalla, J.) recalled the observations made by him against Advocate Mr. Poojari on the ground that the said observations were made without hearing him. The above facts do indicate the appointment of the Sole Arbitrator was unilateral. Paragraphs 7 and 8 of the affidavit in reply dated 14/8/2008 filed by the respondent do not reflect the alleged consent given by the respondent as alleged by the appellant. 10. The respondent filed Arbitration Petition No.449 of 2009 challenging the award passed by the Sole Arbitrator - Advocate Mr. Poojari, under Section 34 of the Arbitration Act. 11. On 14/7/2010, learned Single Judge (Smt. Roshan Dalvi, J.) decided Arbitration Petition No.920 of 2010 filed AJN 00-APEAL320.11 : 10 : by the appellant under Section 9 of the Arbitration Act and Arbitration Petition No.449 of 2009 filed by the respondent. Learned Single Judge set aside arbitral award dated 9/3/2009 passed by Advocate Mr. Poojari and maintained order dated 13/3/2009 passed by learned Single Judge (Kathawalla, J.) thereby referring the parties to arbitration to the Arbitral Tribunal constituted by the said order as it was constituted by consent of the parties. Learned Single Judge disposed of Petition No.920 of 2010 filed by the applicant under Section 9 of the Arbitration Act by passing certain protective orders. 12. The appellant filed appeal against order dated 14/7/2010 passed by learned Single Judge (Smt. Roshan Dalvi, J.). His grievance was also in regard to orders passed by learned Single Judge dated 13/3/2009 and 26/3/2009. The Division Bench noted that the appellant wanted to stand by the arbitral award dated 9/3/2009 published on 13/3/2009 and it did not want to pursue any further arbitral proceedings. The Division Bench also AJN 00-APEAL320.11 : 11 : quoted the respondent's stand as indicated before it that he would have been agreeable to having a fresh set of arbitral proceedings before a former judge of this court, since that course of action is not being agreed to by the appellant, the respondent also does not desire to carry out an arbitral proceeding before an arbitral tribunal. The Division Bench further observed that in that view of matter, order of learned Single Judge dated 13/3/2009 constituting a fresh tribunal would not survive since the parties did not desire to conduct any further arbitral proceedings in their dispute. The Division Bench further observed that consequently order dated 26/3/2009 passed by learned Single Judge (Kathawalla, J.) would also not revive. The Division Bench observed that learned Single Judge (Smt. Roshan Dalvi, J.) had set aside award dated 13/3/2009 passed by Advocate Mr. Poojari in view of the order dated 13/3/2009 passed by Kathawalla, J. constituting arbitral tribunal by consent. Therefore, learned Single Judge (Smt. Roshan Dalvi, J.) did not consider the merit of the challenge of the respondent to AJN 00-APEAL320.11 : 12 : the arbitral award. The Division Bench, therefore, set aside order dated 13/3/2009 passed by Kathawalla, J. constituting an arbitral tribunal. The Division Bench set aside order of learned Single Judge (Smt. Roshan Dalvi, J.) in Arbitration Petition No.449 of 2009. It restored Arbitration Petition No.449 of 2009 to the file of the learned Single Judge for fresh consideration of the challenges to the arbitral award under Section 34 of the Arbitration Act. Accordingly on remand of the Arbitration Petition No.449 of 2009, it was heard afresh by another learned Single Judge (D.K. Deshmukh, J.) Learned Single Judge upon consideration of relevant provisions of the Arbitration Act held that the appellant had unilaterally invoked the arbitration. The appointment of arbitrator is not by any agreement between the parties. The appellant did not follow the procedure laid down under the Arbitration Act. He, therefore, set aside the arbitral award dated 9/3/2009. The said order is challenged in this petition. AJN 00-APEAL320.11 : 13 : 13. We find the reasoning of learned Single Judge unassailable. The arbitration clause quoted by us hereinabove does not provide for any procedure for appointment of arbitrator. Learned Single Judge has analyzed Section 11 of the Arbitration Act, more particularly sub-section (5) thereof and held that if there is no agreement between parties agreeing on a procedure for appointment of an Arbitrator and if the parties to the arbitration agreement do not, by an agreement between them, appoint an Arbitrator then an application has to be made by one of the parties to the Chief Justice for appointment of an Arbitrator. In this case, the parties had not agreed upon a procedure. The appellant unilaterally appointed Sole Arbitrator. The respondent through his advocate wrote to the appellant as also to the Sole Arbitrator stating that he had not consented to the appointment of the Arbitrator. It is pertinent to note that on 13/3/2009, Arbitration Petition No.590 of 2008 was disposed of by Kathawalla, J. by constituting an arbitral tribunal by consent of the parties. Surprisingly, the Sole AJN 00-APEAL320.11 : 14 : Arbitrator despite the objection, proceeded with the proceedings and ex-parte passed an award and it was tendered before Justice Kathawalla on 13/3/2009, that is on the same day on which by consent of the parties arbitral tribunal was constituted. These events are distressing. Reliance placed by Mr. Mohammed on Gas Authority of India Limited is misplaced. In this case, objection to appointment of the Sole Arbitrator was raised and, the Sole Arbitrator decided it against the respondent. The appointment of Sole Arbitrator itself is contrary to law. Following paragraph from Dharma Prathishthanam, makes the legal provision very clear. “Thirdly, if the arbitrator is not named and the authority who would appoint the arbitrator is also not specified, the appointment and reference shall be to a sole arbitrator unless a different intention is expressly spelt out. The appointment and reference # both shall be by the consent of the parties. Where the parties do not agree, the Court steps in and assumes jurisdiction to make an appointment, also to make a reference, subject to the jurisdiction of the Court being invoked in that regard. We hasten to add that mere inaction by AJN 00-APEAL320.11 : 15 : a party called upon by the other one to act does not lead to an inference as to implied consent or acquiescence being drawn. The appellant not responding to respondent's proposal for joining in the appointment of a sole arbitrator named by him could not be construed as consent and the only option open to the respondent was to have invoked the jurisdiction of Court for appointment of an arbitrator and an order of reference of disputes to him. It is the Court which only could have compelled the appellant to join in the proceedings.” 14. In the circumstances, we find no substance in the appeal. The appeal is rejected. This does not, however, prevent the appellant from seeking appointment of Arbitrator by following provisions of the Arbitration Act if he so desires. We make it clear as to waiver of arbitration clause and other related factual issues, we have expressed no opinion. 15. The appeal is rejected. [SMT. RANJANA DESAI, J.] [RANJIT MORE, J.]