Nand Kishore Singh v. Central Coalfields Limited — 1991 DIGILAW 407 (PAT)

JUDGMENT S.B. SINHA, J. 1. This application is directed against an order dated 30.3.1991 passed by Sri V. Upadhyay, Subordinate Judge, 1st court, Ranchi, in Arbitration Title Suit No. 9 of 1989 whereby and whereunder the said learned court dismissed an application filed by the petitioner under sections 5 and 8 of the Arbitration Act, 1940 wherein the petitioner made a prayer to remove respondent no. 2 as sole Arbitrator and to appoint an indepndent Arbitrator to enter into a reference. 2. The fact of the matter lies in a very narrow compass. 3. On or about 1.12.1987, the petitioner entered into a contract with opposite party no. 1 for purchase of scraps. The said contract contained an arbitration clause being clause no. 21 of the General Conditions of Contract, in terms whereof the disputes and differences between the parties were to be referred to Chairman-cum-Managing Director of respondent no. 1. 4. Disputes and differences having arisen between the parties, a notice dated 21.11.1988 was sent by the petitioner to opposite party no. 2 requesting him to enter into a Reference within one month from the date of the said notice. However, when four months elapsed but the respondent no. 2 did not enter into the Reference, the petitioner filed an application before the learned court below purported to be under sections 5 and 8 of the Arbitration Act removal of the sole Arbitrator and to appoint an independent Arbitrator in his place. 5. In the said application, it was contented on behalf of the petitioner that respondent no. 2 has neglected to enter into the Reference. 6. The Opposite parties, namely, the Central Coalfields Limited as also the Chairman-cum-Managing Director who was the named Arbitrator filed a joint written statement on 2.6.1989 and inter alia, it was contended that there was no dispute or difference requiring the reference to the Arbitrator. 7. In the aforementioned written statement, not only the respondent no. 1 but also respondent no. 2 denied and disputed that any amount is payable to the petitioner by respondent no. 1. 8. By reason of the impugned order the learned court below rejected the said application holding, inter alia, therein that as in view of the arbitration agreement disputes and differences have to be referred to the Chairman-cum-Managing Director. Nobody except the said authority can be appointed as an Arbitrator. 9. Mr. 1. 8. By reason of the impugned order the learned court below rejected the said application holding, inter alia, therein that as in view of the arbitration agreement disputes and differences have to be referred to the Chairman-cum-Managing Director. Nobody except the said authority can be appointed as an Arbitrator. 9. Mr. B.B. Sinha learned counsel appearing for the petitioner raised two contentions in support of this application. Learned counsel firstly submitted that the learned court below has clearly misdirected himself insofar as it failed to take into consideration the scope and purport of the relevant provision of the Arbitration Act. According to the learned counsel, neglect or refusal to enter into a Reference by on Arbitrator within a reasonable period entitled the petitioner to file an application for his removal. The learned counsel further submitted that in any event, as the Arbitrator has shown a bias with regard to the subject matter of the suit by filing a written statement that the petitioner is not entitled to receive any amount from respondent no. 1, no justice can be expected from the respondent no. 2. Learned counsel in this connection has relied upon State of Uttar Pradesh & another vs. M/s. Sardul Singh Kulwant Singh & another reported in AIR 1985 Allahabad 67; in M/s. Manohar Singh Sahay & Co. vs. Jogendar Singh Kalra & another reported in AIR 1984 Patna 3: 1985 PLJR 285 and in International Authority of India vs. K.D. Bali & another Airport reported in AIR 1988 Supreme Court 1099. 10. Mr. M.M. Banerjee learned counsel appearing for the opposite party, on the other hand, submitted that in this case no arbitration agreement exists. According to the learned counsel, clause 21 of the General Conditions of Contract cannot be construed to be an arbitration clause. Learned counsel further submitted that in any event as respondent no. 2 has been appointed to be the sole Arbitrator under the said agreement the Court has no jurisdiction to appoint another Arbitrator. 11. In view of the rival contentions of the parties, the following questions arise for consideration in this application:– A. Whether clause 21 of the General Condition of Contract constitutes an arbitration agreement? B. Whether in the facts and circumstances of the case, the prayer of the petitioner to remove the Arbitrator is justified? 12. Re. 11. In view of the rival contentions of the parties, the following questions arise for consideration in this application:– A. Whether clause 21 of the General Condition of Contract constitutes an arbitration agreement? B. Whether in the facts and circumstances of the case, the prayer of the petitioner to remove the Arbitrator is justified? 12. Re. Question No. A:– Section 2 (a) of the Arbitration Act defines arbitration agreement-means:– "A written agreement to submit, present or future differences to arbitration, whether an arbitrator is named therein or not." Clause 21 of the General Conditions of Contract reads as follows:– "In case of any differences/dispute as arising out of the contract or the matter of difference and disputes if any, the decision of the Chairman-cum-Managing Director, Central Coalfield Ltd. shall be final and binding on the parties." Further reference of or appeal of any after the final decision of and by the Chairman/Managing Director, Central Coalfields Ltd., Ranchi will not be entertained in any way. 13. From a bere perusal of the aforementioned provision, it is evident that the same is:– (a) A written agreement. (b) The said agreement was entered into to submit the present or future difference to the arbitration of the Chairman-cum-Managing Director. (c) His decision is to be final and binding on the parties. 14. An arbitration clause in a contract is a collateral term as distinguished from its substantive terms, but nonetheless it is the integral part thereof. 15. There cannot be any doubt that both the parties to the aforementioned contract were ad idem that disputes and difference arising out of the contract would be referred to the Chairman-cum-Managing Director whose decision shall be final. 16. I have, therefore no doubt in my mind that clause 21 of the aforementioned General Conditions of Contract constitutes an arbitration agreement. Further, it appears that before the learned court below, the respondents themselves contended that clause 21 aforementioned is an arbitration agreement and the Chairman-cum-Managing Director of the respondent no. 1 is to be a sole arbitrator. 17. 16. I have, therefore no doubt in my mind that clause 21 of the aforementioned General Conditions of Contract constitutes an arbitration agreement. Further, it appears that before the learned court below, the respondents themselves contended that clause 21 aforementioned is an arbitration agreement and the Chairman-cum-Managing Director of the respondent no. 1 is to be a sole arbitrator. 17. In State of Uttar Pradesh vs. M/s. Sardul Singh reported in AIR 1985 Allahabad 67, a Division Bench of the said High Court held as follows:– "Sri N.P. Mishra learned Chief Standing counsel referred to clause 34 of the Agreement which provides as below:– "All dispute as in respect of the contract arising between contractor or and the department will be put up to the Chief Engineer, Madhya Ganga, Irrigation Department, Lucknow and his decision shall be final and legally binding on both the parties." "There is no merit in the submission that the aforesaid clause is not an arbitration clause. The mere absence of the word arbitration does not make any difference. The substance of the clause clearly is that all disputes between the contractor and the department will be referred to the arbitration of the Chief Engineer, Madhya Ganga, Canal, Irrigation Department and his decision shall be final and legally binding on the parties. It is the substance and not the form of an arbitration clause which is material. We accept the contention of Sri Lalji Sinha, learned counsel for respondent no. 1 that clause 34 of the Agreement is an arbitration clause." 18. In this view of the matter, in my opinion, clause 21 of the General Conditions of Contract constitutes an arbitration agreement. 19. Re. Question No. B:– Admittedly the petitioner gave a notice through his lawyer to the respondent no. 2 on 21.11.1988 to enter into a Reference. 20. The petitioner waited for more than three months and then filed an application before the court below on 2.3.1989. Joint written statement was filed by the respondents on 2.6.1990. In the aforementioned joint written statement, as noticed hereinbefore, the respondent no. 2 joined hands with respondent no. 1 in stating that the petitioner is not entitled to any amount from respondent no. 1. 21. When asked, Mr. M.M. Banerjee learned counsel appearing for the respondent frankly conceded that respondent no. 2 has not yet entered into reference. In the aforementioned joint written statement, as noticed hereinbefore, the respondent no. 2 joined hands with respondent no. 1 in stating that the petitioner is not entitled to any amount from respondent no. 1. 21. When asked, Mr. M.M. Banerjee learned counsel appearing for the respondent frankly conceded that respondent no. 2 has not yet entered into reference. This, in my opinion, constitutes a neglect or refusal on the part of the named Arbitrator to enter into a Reference. 22. In M/s. Manohar Singh Sahay & Co. vs. Jogendar Singh Kalra & another reported in AIR 1984 Patna 3, a Division Bench of this Court held:– "It is no doubt true that in view of the agreement between the parties, opposite party no. 1 having reposed his confidence in the named arbitrator, takes him for the better or worse. In that view of the matter, the court acting under S. 3 of the Act should exercise its power cautiously and sparingly and the parties complaining to it should not be relieved from the decision of the arbitrator because he fears that his decision may go against him. S. 8 (1) itself also indicates the grounds on which the authority of an arbitrator may be revoked and one of them being where he neglects or refuses to act. The conduct of the arbitrator in not acting for a long time is in itself a sufficient ground for appointment of another arbitrator in his place. The explanation to S. 9 referred to above, has put a time limit of one month after request by either party to enter upon the reference failing which he will be deemed to have neglected to act. The first point advanced by Mr. Prasad has, therefore, got no substance." 23. In State of Uttar Pradesh case (supra), the Allahabad High Court held:– "It is not disputed that respondent No. 1 sent 3 notices to respondent no. 2 on 4.10.1983 calling upon him to enter on and proceed with the reference within a month that the notices were duly served on respondent no. 2 and that he did not enter on the reference. In view of the Explanation referred to above this conduct of respondent no. 2 would amount to a neglect or refusal to act within the meaning of S. 8 (b) of the Act. 2 and that he did not enter on the reference. In view of the Explanation referred to above this conduct of respondent no. 2 would amount to a neglect or refusal to act within the meaning of S. 8 (b) of the Act. In view of this also, the Civil Judge was competent to appoint an arbitrator." 24. In this case, the petitioner in his lawyer's notice dated 21.11.1988 asked the Arbitrator to enter into a Reference within a period of one month. Evidently he did not do so for a period of three months. As noticed hereinbefore, although a written statement was filed on 2.6.1990, even at that point of time before the court below he did not enter into a Reference nor had shown any inclination to do so even before the court below. It now stands admitted that he has not entered into a reference even now. 25. Further, the respondent no. 2 should not have joined hands with respondent no. 1 in filing a written statement. Respondent no. 2 may be the Chairman-Cum-Managing Director respondent no. 1, but while acting as an Arbitrator, he must show his impartiality. 26. It is well known that a justice not only should be done, but also must manifestly appear to be done. Even if the petitioner has not been able to prove the actual bias as against respondent no. 2, there cannot be any doubt that in the facts and circumstances of this case, the petitioner has reasonable apprehension that respondent no. 2 would be bias as against him. 27. In State of Uttar Pradesh case (supra) the Allahabad High Court has held:– "We have carefully considered the submissions made before us. As respondent no. 2 had been impleaded as Arbitrator, there was no obligation on him to file any objection, much less join the objection filed by the appellants. If he could refrain from joining the appeals as an appellant, he could also stay away from the proceedings before the Civil Judge. He, however, did not retain his independent character and joined the objection filed by the appellants. Besides other pleas, he has assailed the claim of respondent no.1 as imaginary and false. He also took the plea that in fact there is no dispute in respect of the contract and the question of the same being decided by arbitration does not arise. Besides other pleas, he has assailed the claim of respondent no.1 as imaginary and false. He also took the plea that in fact there is no dispute in respect of the contract and the question of the same being decided by arbitration does not arise. There could be no better case of an arbitrator having not only become partisan and biased but also having expressed opinion on the merits of the case against a party." 28. In view of the fact that respondent no. 2 has joined hands with respondent no. 1 in denying the claim of the petitioner, there cannot be any doubt that the petitioner has a likelihood of bias. 29. In the Secretary to the Government Transport Department vs. Munuswamy Mudaliar and others reported in AIR 1988 S.C. 2232 , the Supreme Court held:– "Reasonable apprehension of bias in the mind of a reasonable man can be a ground for removal of the arbitrator. A predisposition to decide for or against one party without proper regard to the true merits of the dispute is bias. There must be reasonable apprehension of that predisposition. The reasonable apprehension must be based on cogent materials." It is true that there must be reasonable evidence to satisfy that there was a real likelihood of bias. Vague suspicions of whimsical, capricious and unreasonable people should not be made the standard to regular normal human conduct. 30. However, in this case, respondent no. 2 has shown his bias with regard to the subject matter as the specifically stated that the petitioners claim was not maintainable. In such a situation, the petitioner has a reasonable apprehension that he will not get justice at the hands of respondent no. 2. 31. Further in this case, the attitude of respondent nos. 1 and 2 must also be taken into consideration. Before the court below they took one stand but before this Court they had taken another stand, namely that there is no arbitration clause at all. 32. In this view of the matter, in my opinion the impugned order cannot be sustained. 33. In the result this application is allowed and the impugned order is set aside and the matter is remanded back to the learned court below for appointing an Arbitrator in accordance with law. In the facts and circumstances of the case, there will be no order as to costs.