SCA/12450/2005 1/39 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 12450 of 2005 For Approval and Signature: HON'BLE MR JUSTICE DN PATEL ============================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ============================================== GUJARAT ELECTRICITY BOARD - Petitioner(s) Versus MULTIPLEX TRADING AND INDUSTRIAL COMPANY LTD. - Respondent(s) ============================================== Appearance : Mr. Kamal B. Trivedi, Senior Advocate with MS LILU K BHAYA for the Petitioner. Mr. S.B.Vakil, Senior Advocate with MR BD KARIA for the Respondent. ============================================== CORAM : HON'BLE MR JUSTICE DN PATEL Date : 03/08/2005 SCA/12450/2005 2/39 JUDGMENT ORAL JUDGMENT By the consent of the learned counsels for both the sides, this special civil application is taken up for its final hearing. This petition has been preferred under Article 226 of the Constitution of India against the order dated 28th April, 2005 in Arbitration petition No. 26 of 2004 passed by the learned Designate of the Chief Justice under The Arbitration and Conciliation Act, 1996. (hereinafter referred to as “The Act of 1996”). By the impugned order, the learned Designate of the Chief Justice has appointed Shri S.D.Dave, Retired Judge of this Court as an Arbitrator. 2. Learned Senior Advocate Mr. Kamal B. Trivedi appearing for the petitioner mainly submitted that the order passed by the learned Designate of the Chief Justice suffers from several infirmities and they are as under: “(1) Section 11 of the Act of 1996 has not been properly appreciated, inasmuch as the fact that there is already an agreement between the parties. Clause 7 thereof is explicitly clear. SCA/12450/2005 3/39 JUDGMENT Clause 7 of the agreement points out the name of the arbitrator and the learned Designate of the Chief Justice ought to have appointed the arbitrator who is pointed out in clause-7 of the agreement. (2) The learned Senior Advocate Mr. Trivedi has also pointed out that as per section 11(1) of the Act of 1996, when there is an agreement in existence, the learned Designate of the Chief Justice has no power, jurisdiction and authority to appoint another arbitrator, than who is referred in Clause 7 of the agreement. The sanctity of the agreement ought to be maintained by the learned Designate. The only exception to section 11 of the Act of 1996 is an agreement in existence. Once the agreement is in existence and there is a name of arbitrator therein, the learned Designate of the Chief Justice ought not to have appointed another arbitrator. This tantamounts to novatio of the agreement which is not permissible. (3) The learned advocate for the petitioner has also submitted that as the learned Designate of the Chief Justice has not appreciated the fact that as a new Chairman of GEB has taken a charge, the contention of “bias” against the Chairman does not survive. Once the existence, validity and interpretation of clause-7 of the agreement is not in dispute, coupled with the fact that the Chairman of GEB has already been changed and another officer has taken over the charge, there was no reason for the learned Designate of the Chief Justice to appoint another arbitrator than who is named in clause-7 of the agreement.” 3. In support of his arguments, the learned Senior Advocate for the petitioner has also relied upon SCA/12450/2005 4/39 JUDGMENT following authorities:- (1) Michael Golodetz vs. Serajuddin and Co. reported in AIR 1963, SC 1044 (V 50C 155). (2) The Secretary to the Government Transport Department, Madras vs. Munuswamy Mudaliar reported in AIR 1988 SC 2232. (3) G. Ramchandra Reddy and Co. vs. Chief Engineer, Madras, MES reported in AIR1994 SC 2381. (4) State of Orissa vs. Narain Prasad reported in (1996) 5 SCC 740. (5) M/s. Indian Drugs and Pharmaceuticals Ltd. vs. M/s. Indo Swiss Synthetics Gem Manufacturing Co. Ltd. Reported in AIR 1996 SC 543. (6) Datar Switchgears Ltd. vs. Tata Finance Ltd. Reported in (2000) 8 SCC 151. (7) Bihar State Mineral Development Corporation Ltd. vs. Encon Builders (I) Pvt. Ltd. Reported in AIR 2003 SC 3688. (8) Union of India vs. Mohan Lal Puglia reported in (2004) 1 SCC 768. (9) Mallikarjun vs. Gulbarga University reported in (2004) 1 SCC 372. (10) Dharma Prathishthanam vs. Madhok Construction Pvt. Ltd. Reported in 2005 SC 214. (11) Dewan Chand vs. State of J and K reported n AIR 1961 Jammu and Kashmir 58 (v 48 C 24). (12) D.K.Gupta vs. Indian Oil Corporation Ltd. Reported in 2003 (1) Arbitration Law Reported 450(Orissa). From the aforesaid authorities, it is contended by the learned Senior Advocate for the petitioner that the petition is maintainable under Article 226 SCA/12450/2005 5/39 JUDGMENT of the Constitution of India against the order passed by the learned Designate of Chief Justice. This Court has plenary power. Alternative remedy is no ground for rejection of the writ petition and section 5 of the Act of 1996 can never restrict the power of this Court under Article 226 of the Constitution of India. 4. It is also submitted by the learned counsel for the petitioner that necessary procedure for preferring an application under section 11 of the Act of 1996 has not been followed or complied with. There is no notice given by the respondent to the petitioner for appointment of an arbitrator as envisaged by clause-7 of the agreement and, therefore, there is no question of lapse of 30 days from the date of receipt of notice whatsoever arises. This aspect of the matter has not been appreciated by the learned Designate of the Chief Justice. 5. The learned Senior Advocate for the petitioner has also compared the provisions of The Arbitration Act, 1940 and The Arbitration and Conciliation Act, 1996, SCA/12450/2005 6/39 JUDGMENT more particularly sections 11 and 16 of the new Act and has submitted that there are several judgments which are referred to hereinabove, which compels the Court to appoint named arbitrator referred to in the agreement. Once the agreement is in existence and there is a reference of arbitrator, the court should not re-write contract and appoint another arbitrator. All these aforesaid aspects of the matter have not been taken into consideration by the learned Designate of the Chief Justice and hence the impugned order dated 28th April, 2005 in Arbitration petition no. 26 of 2004 passed by the learned Designate of the Chief Justice deserves to be quashed and set aside. 6. The learned Senior Advocate Mr. S.B.Vakil appearing for the respondent has mainly contended that: (i) The present petition is not maintainable under Article 226 of the Constitution, mainly for the reason that whatever contentions have been raised by the petitioner in the writ petition under Article 226 of the Constitution, can also be raised under section 16 of the Act SCA/12450/2005 7/39 JUDGMENT of 1996. (ii) The learned Senior Advocate for the respondent has also submitted that as per section 5 of the Act of 1996, it is a legislative policy that the Court should not interfere once arbitrator is appointed under the Act of 1996. To minimise the intervention of the Court, section 5 has been enacted. The learned Senior Advocate for the respondent has also quoted the anology of election matters with arbitration proceedings, especially with the fact that once an arbitrator is appointed under section 11 of the Act of 1996, the Court should not, generally interfere with the arbitration proceedings. (iii) The learned Senior Advocate for the respondent has also relied upon the following judgments:- (1) Konkan Railway Corporation Ltd. vs. Rani Construction, (2002) 2 SCC 388, page 405 para 21. (2) Gird Corporation of Orissa Ltd. Vs AES Corporation and others (2002) 7 SCC 736 para 25. SCA/12450/2005 8/39 JUDGMENT (3) State of Orissa vs. Gokulnanda Jena (2003) 6 SCC 465 para 8 page 468. (4) Food Corporation of India vs. Indian Council of Arbitration (2003) 6 SCC 564. Paras 12,13,14 and 15 at page 468. (5) Hythro Power Corporation Ltd. vs. Delhi Transco Ltd. (2003) 8 SCC 35 para 11 at page 39. (6) Van Oord Acz India Pvt. Ltd. vs. Gujarat Adani Port Pvt. Ltd. XLVI (1) GLR 446. (7) New India Assurance Co. Ltd. vs. Hanjer Fiber Ltd. AIR 2003 Gujarat 311 (FB). 7. It has been pointed out from the aforesaid judicial pronouncements that the writ petition preferred by the petitioner is not tenable at law, for the reason that whatever grounds are available under section 16 of the Act of 1996 ought not to have been allowed to be raised in the petition under Article 226 of the Constitution of India. The golden thread running throughout the aforesaid judgments, is, not to interfere in the arbitration proceedings. The parties should be allowed to raise all the possible contentions before the arbitrator who is already appointed. 8. The learned Senior Advocate for the respondent has also submitted that the ground of bias against the named arbitrator in clause-7 of the agreement is not SCA/12450/2005 9/39 JUDGMENT raised for the first time in the arbitration petition before the learned Designate of the Chief Justice, nor was it taken for the first time in the reply in the writ petition before this Court, but it was taken at the very initial stage, that is, in the notice given by the respondent dated 11th May, 2004 (Annexure “B' collectively to the memo of the petition). The reply of the petitioner that there is a change in the chairperson of the GEB and therefore, “bias” will not be there in the newly appointed officer, but this is a contentious issue. It ought to be resolved by the arbitrator and not by this Court. 9. It is also contended by the learned Senior Advocate for the respondent that clause-7 of the agreement is not prescribing any procedure for appointment of the arbitrator, but it gives only the name of the arbitrator. Hence, whenever there is a failure by the petitioner to appoint an arbitrator within 30 days from the date of receipt of the notice, it is always open for the respondent to prefer an application under section 11 of the Act before the Court and it is within the powers of the SCA/12450/2005 10/39 JUDGMENT learned Designate of the Chief Justice to appoint an arbitrator and hence, it cannot be said that there is want of jurisdiction or lack of power and authority on the part of the learned Designate of the Chief Justice. A notice was given by the respondent to the petitioner on 11th May, 2004 for appointment of an arbitrator or arbitrators. The reply given by the petitioner is after lapse of 30 days and that too, it was an interim reply. The said interim reply was dated 14th June, 2004. Nothing was made sure, in the reply except the fact that the revision in the work order, requires the approval of the board and hence whatsoever is stated in the notice, shall be brought to the notice of the Board. No appointment of the arbitrator was made by the petitioner even after application dated 31.8.2005 under section 11 of the Act of 1996 is preferred by the respondent. Therefore, this tantamounts to waiver of the right by the petitioner and therefore, the learned Designate of the Chief Justice has all power, jurisdiction and authority to appoint an arbitrator. 10. The learned Senior Advocate for the respondent SCA/12450/2005 11/39 JUDGMENT has also submitted that as per section 12(4) of the Act of 1996, if chairperson of GEB is appointed as an arbitrator, the respondent loses its right of challenge as to his “independence or impartiality”, whereas, the petitioner is not losing any right to argue before the arbitrator appointed by the learned Designate of the Chief Justice, the grounds which are referred to in the memo of this petition. 11. The learned Senior Advocate for the respondent has also submitted that contentious issues like bias, forfeiture of the right of the respondent under section 12(4) of the Act etc. cannot be decided by this Court in exercise of extraordinary jurisdiction under Article 226 of the Constitution. There is also a dispute as to waiver of the right of the petitioner by their conduct of non-appointment of arbitrator within 30 days from the date of receipt of notice. All these issues are highly contentious issues. It is also not in dispute whether Chairman of Gujarat State Electricity Corporation Ltd. (GSECL) is also the Chairman of GEB. Various laws and sections are required to be interpreted. The learned Senior SCA/12450/2005 12/39 JUDGMENT Advocate for the respondent has also pointed out that in certain meetings between the petitioner and respondent, during the course of settlement of the disputes, the Chairman has participated and therefore, it creates bias in the mind of Chairman and therefore, such persons ought not to be appointed as arbitrator. There may be a change in the chairperson, but the resolutions passed by the Board are binding to the chairperson. Such binding effect, whether is there with the chairperson or not is also a matter of great dispute. The effect of the resolutions of the Board will always be there in the mind of chairperson. It is difficult to be removed. The effects of resolutions of the Board, are not clothes or umbrellas which can be changed so frequently. Whether new chairperson will act independently or not is a matter of facts and requires to be proved and therefore, the order passed by the learned Designate of the Chief Justice of appointment of Shri S.D.Dave, Retired Judge of this Court, as an arbitrator is true, legal, correct and in consonance with facts and law, therefore, may not be interfered with by this Court, especially when SCA/12450/2005 13/39 JUDGMENT very limited is the scope under Article 226 of the Constitution of India, in view of section 5 of the Act of 1996, coupled with judicial pronouncements as stated hereinabove. 12. Having heard the learned counsel for both the parties at length and looking to the facts and circumstances of the case and judicial pronouncements which are referred, hereinafter, I see no reason to interfere with the order dated 28th April, 2005 in Arbitration petition no. 26 of 2004 passed by the learned Designate of the Chief Justice, mainly for the following facts and reasons:- (i) There are several contentious issues like bias of the Chairman, GEB, as well as the waiver of right of appointment of arbitrator, if arbitrator is not appointed within 30 days of the date of receipt of notice. These contentious issues cannot be decided by this Court while exercising, powers conferred under Article 226 of the Constitution of India. The petitioner is at liberty to raise all the contentions before the arbitrator appointed by the learned SCA/12450/2005 14/39 JUDGMENT Designate of the Chief Justice vide impugned administrative order. (ii) Section 12 of the Act, 1996 upon which the argument is based reads as under: “12. Grounds for challenge: (1) xxx xxxx (2) xxx xxxx (3) An arbitrator may be challenged only if- (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties. (4) A party may challenge an arbitrator appointed by him or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.” As per section 12(4) of the Act of 1996, if the Chairman of GEB is appointed as an arbitrator, the respondent may lose its right to raise an objection as to “his independence or impartiality”, whereas before the arbitrator appointed by the learned Designate of the Chief Justice, the petitioner can raise all the contentions as to appointment of arbitrator, qualifications of the arbitrator, SCA/12450/2005 15/39 JUDGMENT jurisdiction of the arbitrator and the like. (iii) The grounds which are available under section 16 of the Act of 1996, ought to be avoided to be adjudicated upon, in exercise of the extraordinary jurisdiction under Article 226 of the Constitution of India. It has been decided by the Hon'ble Supreme Court the case of State of Orissa and others vs. Gokulnanda Jena reported in (2003) 6 SCC, 465, especially in paras 8, 9, 10 and 11 as under: “8. However, we must notice that in view of section 16 read with sections 12 and 13 of the Act, as interpreted by the Constitution Bench of this Court in Konkan Railway, almost all disputes which could be presently contemplated can be raised and agitated before the Arbitrator appointed by the Designate Judge under section 11(6) of the Act. From the perusal of the said provision of the Act, it is clear that there is hardly an area of dispute which cannot be decided by the arbitrator appointed by the Designated Judge If that being since an alternative efficacious remedy is available before the arbitrator, writ court normally would not entertain a challenge to an order of the Designated Judge made under section 11(6) of the Act which includes considering the question of jurisdiction of the arbitrator himself. Therefore in our view, even though a writ petition under Article 226 of the Constitution is available to an aggrieved party, ground available for challenge in such a petition is limited because of the SCA/12450/2005 16/39 JUDGMENT alternative remedy available under the Act itself. 9. Having come to the conclusion that a writ petition under Article 226 is maintainable as against the order made by the Designated Judge under section 11(6) of the Act on limited grounds, we will now consider whether such grounds are available to the petitioner to challenge the order of the Designated Court in the case in hand. For this purpose, we have noticed that grounds raised in the said writ petition, a copy of which has been enclosed with this petition. 10. The challenge of the appellant in the writ petition against the order of the Designated Judge is based on the following facts: (i) The contract between the parties was executed before the Act came into force, hence, the Act does not apply. (ii) Dispute is a stale one having arisen nearly 20 years ago. (iii) Clause 23 of the agreement contemplates the adjudication of a dispute by a company arbitrator. (iv) No person other than an arbitrator nominated in clause 23 of the agreement has any jurisdiction to entertain the disputes. 11. All these grounds of attack, in our opinion, can very well be raised before arbitrator appointed by the Designated judge, hence, on the facts, of the case, we find that the writ petition of the appellant was liable to be dismissed by the High Court. For this reason, we do not think it appropriate to remand the matter back to the High Court. Therefore, we dismiss this appeal permitting the appellant to raise all its contentions before the arbitrator appointed by the SCA/12450/2005 17/39 JUDGMENT Designated Judge.” (Emphasis supplied) From the aforesaid judgment, it is clear that even in existence of a contract between the parties and even in existence of the named arbitrator, in clause 23 of the agreement between the aforesaid two parties, if the learned Designate of the Chief Justice is appointing another arbitrator, all the four pleas which are referred to hereinabove in para- 10 can be raised before the arbitrator, so appointed by the learned Designate of the Chief Justice. Thus, in the present case also, there is an agreement. There is a named arbitrator. But looking to the facts and circumstances of the case, the learned Designate of the Chief Justice in the present case has appointed Shri S.D.Dave, a Retired Judge of this Court, as an arbitrator vide order dated 28th April, 2005 in Arbitration petition no. 26 of 2004. The petitioner can raise all the issues and contentions which are raised in the writ petition before the said arbitrator. (iv) In the present case, there is an allegation of SCA/12450/2005 18/39 JUDGMENT bias on the Chairman of the GEB, as per the notice issued by the respondent dated 11th May, 2004 (annexure “B” to the memo of the petition). This allegation is answered by the petitioner by stating the fact that the new Chairman has taken charge of the post and therefore, bias attached with the earlier Chairman is vanished. This Court is not accepting this defence firstly because, it requires to be adjudicated upon, secondly because, it is a contentious issue and thirdly because, this issue is capable of being raised before the arbitrator appointed by the learned Designate of the Chief Justice under section 16 of the Act of 1996. This Court is not going into the details whether this issue of bias raised by the respondent is correct or the defence raised by the petitioner is true and correct or not. This Court is also not going to decide whether the present chairperson is bound by the earlier resolution of the board or not. Neither this Court is going to decide whether bias has evaporated or vanished, no sooner did, the new chairman is taking charge of the post. Howsoever better may be the defence of the petitioner and SCA/12450/2005 19/39 JUDGMENT howsoever justifiable reason there may be, but it is not the function of this Court to adjudicate as to the existence or otherwise of bias of the Chairman of GEB who is the named arbitrator as per clause-7 of the agreement. It has been held by the Hon'ble Supreme Court in the judgment in the case of State of Orissa and others vs. Gokulananda Jena reported in (2003) 6 SCC, 564, in paragraphs 12, 13 and 14 as under: “12. The ratio of the decision in Mehul Construction proceeds on the basis that at a time when the matter comes before the Chief Justice or his nominee under section 11 it would not be appropriate for them to entertain any contentious issues between the parties and decide the same and that the decision of the Chief Justice or his nominee is merely an administrative order, the nature of the function performed by them being essentially to aid order, the nature of the function performed by them being essentially to aid the constitution, of an Arbitral Tribunal immediately, just by appointing an arbitrator without wasting any time. Even in case of refusal of the request to make an appointment of an arbitrator this Court observed that there is no involvement of any judicial or quasi judicial function and if at all, the remedy could be only to invoke jurisdiction under Article 226 of the Constitution of India seeking for a mandamus to have the reference made to an arbitrator. In the decision reported in Rani Construction dealing with the case of a challenge made to a reference and the nature of the decision taken to make the reference SCA/12450/2005 20/39 JUDGMENT to an arbitrator, the Constitution Bench of this Court held while affirming the earlier decision that the order of the Chief Justice or his designate under section 11 nominating an arbitrator is neither an adjudicatory order nor those functionaries could be held to be a Tribunal to make such a decision, the subject matter of an appeal under Article 136 of the Constitution of India. Adverting to section 16 of the 1996 Act, the Constitution Bench also held that questions relating to the improper constitution of an Arbitral Tribunal or its want of jurisdiction or objections with respect to the existence or validity of the arbitration agreement are matters which should be canvassed before the Arbitral Tribunal itself which has been specifically empowered to rule on such issues and on its own jurisdiction, as well. Unfortunately, the High