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2007 DIGILAW 713 (MAD)

Shriram Investment Services Ltd. , rep. by its Director, Chennai v. Palki/Jeypad Investment (P) Ltd. , rep. by Balasubramaniam, Chennai

2007-02-26

M.JAICHANDREN

body2007
Judgment : The present original petition has been filed by the petitioner under Section 14(2), read with Section 10 of The Arbitration and Conciliation Act, 1996, (hereinafter referred to as The Act). The petitioner has stated that an Arbitral Tribunal was constituted pursuant to the agreement, dated 30A.2004, consisting of three Arbitrators, namely, one Mr.N.C.Sundararajan, Mr.T.L.Ram Mohan and Mr.V.Subramanian. The proceedings of the Arbitral Tribunal had commenced on 16. 2004 and the tenure of the Arbitral Tribunal, as agreed between the parties, under Section 7 of The Arbitration and Conciliation Act, 1996, comes to an end after 6 months from the date of commencement, i.e. 112. 2004. It has been further stated that the petitioner had raised preliminary objections before the Arbitral Tribunal, under Section 16(2) and (3) of the Act relating to jurisdiction of the Arbitral Tribunal. On 12. 2005, one of the Arbitrators passed an order terminating the Arbitral proceedings, under Section 32(2)(c) of the Act, and the other two Arbitrators, without assigning any reason, had decided to continue with the proceedings stating that the reasons for coming to such a conclusion would form part of the final Award. .2. It has been further stated that even though there is an appeal remedy available against the order passed under Section 16(2) and (3), under Section 37 of the Act, the petitioner had filed a civil revision petition under Article 227 of the Constitution of India in C.R.P.No.375 of 2005. The said petition was ejected on the ground of maintainability by an order of this Court, dated 15. 2006, holding that the petition was not maintainable against the order passed by the Arbitral Tribunal. The said order was challenged before the Supreme Court in S.L.P.No.12388 of 2006. The Supreme Court, relying on its earlier judgment, had held that the civil revision petition was not maintainable. Therefore, the petitioner had tiled an appeal under Section 37 of the Act be-fore this Court in C.M.A. No. 2894 of 2006. This Court had admitted the appeal on 29. 2006 and had granted interim stay of the impugned order, dated 12. 2005, passed by the Arbitral Tribunal. 3. The petitioner further states that the proceedings under Section 14 of the Act is a separate and independent proceedings to terminate the mandate of the Arbitrator when he be-comes dejure or defacto unable to perform his functions. 2006 and had granted interim stay of the impugned order, dated 12. 2005, passed by the Arbitral Tribunal. 3. The petitioner further states that the proceedings under Section 14 of the Act is a separate and independent proceedings to terminate the mandate of the Arbitrator when he be-comes dejure or defacto unable to perform his functions. The contingency mentioned under Section 14(1) of the Act is redressable before the Court under Section 14(2) of the Act. Since it is an original proceedings before the Court, the petitioner has an independent remedy, apart from the appeal under Section 37 of the Act. The petitioner has further submitted that one of the Arbitrators terminated the proceedings when he had become functus officio. Consequently, the other Arbitrators cannot proceed by virtue of a statutory bar, under Section 10 of the Act. Section 10 of the Act prescribes that the Arbitrators appointed by the parties shall not be even in number. Since one of the three Arbitrators appointed by the parties had terminated the proceedings, the other Arbitrators cannot proceed to hear the matter for lack of jurisdiction. Therefore, the order passed by the Arbitrators on 12. 2005, to continue with the proceedings, has been challenged in the present petition on the various grounds stated therein. Hence, the petitioner has prayed that this Court may be pleased to pass an order and judgment to terminate the mandate of the Arbitrators appointed by the agreement, dated 30.4.2004, as having become dejure and de-facto unable to perform the functions and to award the costs of the proceedings. .4. A counter statement has been filed by the respondent in the above Original Petition in which it is stated that the petition filed under Section 14 of the Arbitration and Conciliation Act, 1996, praying for an order and judgment to terminate the mandate of the Arbitrators appointed by agreement, dated 30.4.2004, is not maintainable and is liable to be rejected in limine. It has been further stated that the decision made by the Arbitral Tribunal, under Section 16 of the Act, rejecting the plea and continuing with the Arbitral proceedings can be set aside only under Section 34 of the Act, after the final Award is passed and therefore, the present petition is premature. It has been further stated that the decision made by the Arbitral Tribunal, under Section 16 of the Act, rejecting the plea and continuing with the Arbitral proceedings can be set aside only under Section 34 of the Act, after the final Award is passed and therefore, the present petition is premature. The petitioner having made a prayer before the Supreme Court for permission to cross-examine and participate in the arbitration proceedings is estopped from filing this petition to avoid participation in the arbitration proceedings amounts to abuse of process of Court. The de-cision of the Arbitral Tribunal, communicated by the letter, dated 12. 2005, to continue the arbitration proceedings, is a decision which does not finally determine the rights of parties and therefore, it is not a final order. Hence, the present petition is not maintainable. 5. It is stated that the Arbitral Tribunal comprises of 3 Arbitrators, namely, Mr. N.C. Sundararajan, Mr. T.L. Ram Mohan and Mr. V. Subramanian and it was constituted under the arbitration agreement, dated 30.4.2004. It is false to allege that the tenure of the Arbitral Tribunal comes to an end on the expiry of 6 months from the date of commencement of its proceedings i.e. 112. 2004. The arbitration proceedings were agreed to be completed within 6 months and it has nothing to do with the mandate or tenure of the Arbitrators. On the contrary, the intention of the parties, as indicated in the Arbitration Agreement, is that the arbitration should be settled according to the provisions of law contained in The Arbitration and Conciliation Act, 1996. There is no time stipulated for the mandate of the Arbitrators. No such contention was raised by the petitioner before the Arbitrators. Further, the petitioner had participated in the proceedings without any objections. However, the petitioner had gone before the Supreme Court praying for permission to cross-examine Mr.P.Balasubramaniam, who is representing the respondent herein. After having passed the order, Mr. T.L. Ram Mohan, who is one of the three Arbitrators constituting the Arbitral Tribunal continued with the arbitration proceedings and accepted remuneration for the conduct of the arbitration proceedings. Neither of the parties had raised any objections before the Arbitral Tribunal with regard to the time schedule of six months, since the intention was to continue with the mandate till the passing of the final Award. Neither of the parties had raised any objections before the Arbitral Tribunal with regard to the time schedule of six months, since the intention was to continue with the mandate till the passing of the final Award. There are no pleadings or evidence to show as to how one of the Arbitrators became dejure or defacto unable to perform his functions. It is false to claim that a contingency had occurred, as contemplated under Section 14(1) of The Arbitration and Conciliation Act, 1996, and that it is redressable under Section 14(2) of the Act. It is incorrect to state that one of the Arbitrators terminated the proceedings of the Arbitrators and that he had become functus officio. Such a contention is against the provisions contained in Section 29 of the Act. There is no bar under Section 10 of the Act for continuing and completing the arbitration proceedings as the mandate of all the three Arbitrators exist and continue as per law. 6. In the counter statement, dated 9. 2004, filed before the Arbitrators, the petitioner had admitted that the arbitration agreement was executed at the behest of the Chairman of the Shriram Group of Companies, namely, Mr.R.Thiagarajan. Having admitted the execution of the arbitration agreement, it cannot be held that the claimants cannot be ascertained. Factually, the agreement, dated 30.4.2004, records the proposal for settlement with one of the claimants. It is further stated that the decision, dated 12. 2005, of the Arbitral Tribunal to continue arbitration proceedings is in terms of Section 16(5) of The Arbitration and Conciliation Act, 1996, and it is legal and valid. The Arbitral Tribunal had decided to reject the plea raised by the petitioner, under Section 16 (5) of the Act and had rightly decided to continue the arbitration proceedings. Since there is no final adjudication on the merits of the case, the present petition is not maintainable in law. The objection has been filed only with the ulterior design to further delay the arbitration proceedings, which was commenced on 16. 2004. The petitioner having agreed for the arbitration and having signed the arbitration agreement, dated 30.4.2004, is estoppel from taking steps to see that the arbitration proceedings does not proceed on merits. The objection has been filed only with the ulterior design to further delay the arbitration proceedings, which was commenced on 16. 2004. The petitioner having agreed for the arbitration and having signed the arbitration agreement, dated 30.4.2004, is estoppel from taking steps to see that the arbitration proceedings does not proceed on merits. The Arbitral Tribunal, by a majority of two members out of the three Arbitrators, had decided to continue with the arbitration proceedings and communicated its decision by its letter, dated 12. 2005, and it was mentioned that the reasons for such decision was to be incorporated in the final Award of the Tribunal to be passed and the next sitting was fixed on 12. 2005. The decision of the Arbitral Tribunal was by a majority of two Arbitrators, under Section 29 of the Act, to continue the arbitration proceedings. However, one of the Arbitrators appointed by the petitioner-company decided to terminate the arbitration proceedings, wrongly and without jurisdiction, by its order passed under Section 32(c) of the Act on the ground of impossibility to continue as the parties to the proceedings could not be ascertained. Such an order does not give any cause of action under Section 14 of the Act. The said order is non-est in law and as it is a minority decision. It has been further stated that Mr.T.L.Ram Mohan who had passed the order of the termination, had subsequently attended and participated in the following hearings held on 12. 2005, 17. 2006, 18. 2006, 18. 2006, 19. 2006 and 30.9.2006. .7. It has been further stated that the petitioner had filed a civil revision petition, in C.R.P. (PD) No. 375 o 12005, before this Court and obtained an order of stay of the arbitration proceedings. The civil revision petition had been dismissed by an order of this Court, dated 15. 2005. The petitioner had preferred a special leave petition before the Supreme Court in S.L.P. (Civil) No. 12388 of 2006. The Supreme Court had disposed of the said petition by its order, dated 9. 2006. Before the Supreme Court, the petitioners counsel had prayed for permission to cross-examine Mr.P.Balasubramanian clearly indicating that the arbitral proceedings was to go on till the final award is passed. 8. The claimants had filed the combined claim statement on 16. The Supreme Court had disposed of the said petition by its order, dated 9. 2006. Before the Supreme Court, the petitioners counsel had prayed for permission to cross-examine Mr.P.Balasubramanian clearly indicating that the arbitral proceedings was to go on till the final award is passed. 8. The claimants had filed the combined claim statement on 16. 2004, after the commencement of the arbitration proceedings and the petitioner had filed the preliminary counter statement on 18. 2004. A reply was filed by the claimant on 18. 2004, and the petitioner had filed a counter statement, on 9. 2004. The petitioner had filed an application on 9. 2004, under Section 16(2) and (4) of the Act, praying for the termination of the proceedings. The claim was filed jointly by the two companies, namely, Palki Investments and Trading Co. Pvt. Ltd., and Jeypad Investment Pvt. Ltd. The aforesaid two companies are two different incorporated entities and Jeypad Investment Pvt. Ltd., is the assignee of rights from Palki Investments and Trading Co. Pvt. Ltd., to the knowledge of the petitioner-company. The agreement, dated 211. 1995, accepted by the petitioner, defines the parties as Shriram Investments Services Ltd., and Palki Investments and Trading Co. Pvt. Ltd. As there were disputes regarding the payment to be made by the petitioner-company to one of the respondents, namely, Jeypad investmentPvt. Ltd., which was the assignee of the rights under the contract, the Arbitration Agreement was executed on 30.4.2004 and Palki Investments and Trading Co. Pvt. Ltd., was joined as a party for affirming the rights of Jeypad Investment Pvt. Ltd. Therefore, there are two claimants, namely, Palki Investments and Trading Co. Pvt. Ltd., and Jeypad Investment Pvt. Ltd. From the facts and circumstances of the case, it cannot be held that it was not possible for the Arbitrators to identify the claimants. The petitioner-company having accepted Jeypad In-vestment Pvt. Ltd., as the claimant in the Arbitration Agreement cannot now, for the purposes of the case, state otherwise. Jeypad In-vestment Pvt. Ltd., was the claimant party in the Arbitration Agreement, dated 30.4.2004, and Palki Investments and Trading Co. Pvt. Ltd., was added as a party for assuring rights in favour of Jeypad Investment Pvt. Ltd. .9. It is further stated that the present application under Section 14 of the Act is not maintainable as it is subject to Section 15. Pvt. Ltd., was added as a party for assuring rights in favour of Jeypad Investment Pvt. Ltd. .9. It is further stated that the present application under Section 14 of the Act is not maintainable as it is subject to Section 15. It is not the case of the petitioner that it has exercised its right under Section 15 of the Act. In cases where there are 3 Arbitrators, if one of the Arbitrators terminate the proceedings, it is of no legal consequence in view of Section 29 of the Act. There is no legal crisis, as alleged by the petitioner, and it is incorrect to state that the other two Arbitrators have no jurisdiction. Factually, all the three Arbitrators are participating in the proceedings and therefore, the question of having an Arbitral Tribunal with even number of Arbitrators does not arise. The order passed by the minority Arbitrator, under Section 32(2)(c) of the Act, is not maintainable and as it is non-est in law and without any legal basis. The power under Section 32 of the Act is to be exercised by the Arbitral Tribunal only by a majority of the Arbitrators as per Section 29, and not by a minority Arbitrator. If such a power is conceded, the entire scheme of the Act will be frustrated by a dissenting minority Arbitrator. The power under Section 32 of the Act can be exercised by the final Arbitral Award by the majority Arbitrators. No cause of action has been shown by the petitioner, under Section 12 of the Act, to show that the Arbitral Tribunal is biased and ineligible to conduct the proceedings. There are no pleadings to show that the Arbitrators were unable to perform their functions. In such circumstances, the petition ought to be dismissed. 10. The Original Petition in O.P.No.724 of 2006, has been filed praying for an order to terminate the mandate of the Arbitrators appointed by an agreement, dated 30.4.2004, as they have become dejure/defacto unable to perform their functions. An application in O.A. No. 793 of 2006 has also been filed praying for an order of ad interim injunction to restrain the arbitrators appointed under the Arbitration Agreement, dated 30.4.2004, from proceeding to function in any manner pending disposal of the original petition. An application in O.A. No. 793 of 2006 has also been filed praying for an order of ad interim injunction to restrain the arbitrators appointed under the Arbitration Agreement, dated 30.4.2004, from proceeding to function in any manner pending disposal of the original petition. The main contention of the petitioner to terminate the man-date of the Arbitral Tribunal is for the reason that one of the Arbitrators, namely, Mr. T.L. Ram Mohan, has passed an order, in which it has been stated as follows: "13. In the present case in the state of pleadings and the stand taken by the parties, it has become impossible to continue the proceedings as we cannot speculate as to who is the claimant and who is the party liable to answer the counter claim. The parties them-selves do not appear to be anxious to take steps to clarify the matter. 14. In the circumstances, the continuation of the proceedings has become impossible. It is unfortunate that even after 8 months of our entering into arbitration, we are still unable to identify the parties to the claim petition. Any further hearing with this state of pleading would lead us no where. In my opinion it is impossible to proceed with the enquiry and it has become unnecessary to continue the proceedings. 15. I therefore direct the termination of the proceedings in terms of Section 32(2)(c) of the Act, disposing of the preliminary issue (1). In view of the above, no fining need be given on issue (2). Hence, the proceedings are terminated." It is seen that thereafter, by an order, dated 12. 2005, the Arbitral Tribunal had passed an order stating as follows: "Notice is hereby given that the next sitting of the Arbitral Tribunal will be held at No. 22, Krishnaswamy Avenue, Mylapore, Chennai -600 004 at 4.00 p.m. on Saturday, 12. 2005. In this connection the parties may note that the Arbitral Tribunal has considered the petition of the petitioner/respondents Shriram Investment Services Limited, dated 9. 2004 and 10. 2004. The Arbitral Tribunal has, by a majority, decided to continue with the proceedings referred for arbitration by the agreement, dated 30.4.2004. The reasons for coming to this conclusion will be forming part of the final Award of the Tribunal, to be given later. 2004 and 10. 2004. The Arbitral Tribunal has, by a majority, decided to continue with the proceedings referred for arbitration by the agreement, dated 30.4.2004. The reasons for coming to this conclusion will be forming part of the final Award of the Tribunal, to be given later. The parties are further informed that they may produce at the next hearing date such further evidence as they think fit for the conduct of the proceedings." 11. According to the petitioner, the Arbitral Tribunal has become dejure/defacto unable to perform it functions, since one of the Arbitrators passed an order terminating the Arbitral proceedings, under Section 32(2)(c) of the Act. Inspite of the objections raised by the petitioner the Arbitral Tribunal had continued to conduct the arbitral proceedings. Therefore, the petitioner had filed a civil revision petition in C.R.P. No. 375 of 2005, before this Court, challenging the order of the Arbitral Tribunal, dated 12. 2005. This Court, by an order, dated 15. 2006, dismissed the civil revision petition as not maintainable. Thereafter, the petitioner had filed a Special Leave Petition in S.L.P. No. 12388 of 2006, before the Supreme Court. By an order, dated 19. 2006, the Special Leave Petition was disposed of stating as follows: "Heard learned counsel for the parties. We have perused the order passed by the High Court and we are not inclined to interfere with the same. In view of the law laid down in SBP Company v. Patel Engineering Limited, (2005) 8 SCC 618 , Mr. Desai, learned senior counsel submits that any ad-verse observation made in the order of the High Court should neither adversely affect the rights of the petitioner nor should they he considered a final verdict on the subject. Mr. Desai also submits that any observation made by the High Court should not be taken into consideration by the Arbitral Tribunal. Mr. Divan, the learned senior counsel for the respondent submits that there is no difficulty if the Arbitration Tribunal does not take into consideration any observation made by the High Court and the observations made in the impugned order should not adversely affect the rights of the petitioner before the Tribunal. We think that in the facts and circumstances of the case any observation made by the High Court shall not adversely affect either party before the Arbitral Tribunal. Mr. We think that in the facts and circumstances of the case any observation made by the High Court shall not adversely affect either party before the Arbitral Tribunal. Mr. Desai submits that he wanted to cross-examine Mr.P.Balasubramanian and that right has been denied to him. Mr. Divan fairly concedes that if an application is moved by the petitioner before the Tribunal for cross-examination of Mr.P.Balasubramanian, he will not oppose the cross-examination of Mr. P. Balasubramanian. In view of the submission made by Mr.Divan, let the petitioner make an application before the Tribunal for cross-examination of Mr.P.Balasubramanian and the Tribunal may favourably consider permitting the cross-examination of Mr.P.Balasubramanian in the interest of justice. The Special Leave Petition is disposed of with the aforesaid observations." 12. From the order passed by the Supreme Court in the Special Leave Petition, it is clear that the petitioner wanted to participate in the arbitral proceedings by cross-examining one P. Balasubramanian. This would clearly go to show that the petitioner had recognised the fact that the Arbitral Tribunal had not become defunct dejure or defacto, as claimed by the petitioner in the present petition. It has also been stated that Mr. T.L. Ram Mohan had participated in the subsequent proceedings of the Arbitral Tribunal during a number of hearings subsequent to his order. Therefore, the man-date of Mr. T.L. Ram Mohan had not terminated as claimed by the petitioner. 13. The other contention raised by the petitioner is that the Arbitral Tribunal was originally given a period six months to complete the Arbitral proceedings, as agreed between the parties. The said period was to come to an end six months from the date of commencement of the Arbitral proceedings. Since the Arbitral proceedings had commenced on 16. 2004, the period of the Arbitral Tribunal should have ended on 112. 2004, in accordance with Section 7 of the Act. However, there is nothing shown on the part of the petitioner to substantiate the said claim. It is seen from the agreement, dated 30.4.2004, that the entire Arbitral proceedings shall be completed within six months of the date of commencement. Even after the six months period is said to have ended, both the parties had continued to participate in the Arbitral proceedings. While that being the case, it is not open to the petitioner to raise the said issue in the present petition. 14. Even after the six months period is said to have ended, both the parties had continued to participate in the Arbitral proceedings. While that being the case, it is not open to the petitioner to raise the said issue in the present petition. 14. On a careful perusal of he records available and on analysing the rival contentions put forth by the learned counsels appearing on behalf of the petitioner as well as the respondent, this Court is of the considered view that there is no impediment for the Arbitral Tribunal, consisting of the three Arbitrators, namely, Mr. N.C. Sundararajan, Mr. T.L. Ram Mohan and Mr. V. Subramanian to continue the arbitral proceedings. The said Arbitral Tribunal had been validly constituted pursuant to the agreement, dated 30.4.2004, in accordance with the provisions of The Arbitration and Conciliation Act, 1996. The proceedings of the Arbitral Tribunal had commenced on 16. 2004. 15. Under Section 16 of The Arbitration and Conciliation Act, 1996, it has been provided that the Arbitral Tribunal may rule on its own jurisdiction and a plea that the Arbitral Tribunal does not have the jurisdiction shall be raised not later than the submission of the statement of defence. However, it has also been provided that the Arbitral Tribunal may admit a later plea, if it considers the delay justified. In Clause 5 of Section 16, it has been provided that the Arbitral Tribunal shall decide on a plea, with regard to its jurisdiction and where the Arbitral Tribunal takes a decision rejecting the plea it may continue with the Arbitral proceedings to make the Arbitral Award. It has also been provided in Clause 6 of the said Section, that a party aggrieved by such an Arbitral Award may make an application for setting aside such an Arbitral Award in accordance with Section 34 of the Act. Further, in Section 29 of the Act, it has been provided that unless otherwise agreed by the parties, in Arbitral proceedings with more than one Arbitrator any decision of the Arbitral Tribunal shall be made by a majority of all its members. From a reading of the above provisions, it is clear that the procedure adopted by the Arbitral Tribunal in the present case is in accordance with the procedures prescribed in The Arbitration and Conciliation Act, 1996, and in consonance with the decisions of the Courts of Law. From a reading of the above provisions, it is clear that the procedure adopted by the Arbitral Tribunal in the present case is in accordance with the procedures prescribed in The Arbitration and Conciliation Act, 1996, and in consonance with the decisions of the Courts of Law. Therefore, this Court is of the considered view that the proceedings of the Arbitral Tribunal does not call for any interference from this Court. 16. In such circumstances, this Court is not inclined to accept the contentions raised on be-half of the petitioner to grant the order as prayed for. However, it is made clear that the observations made by this Court, while passing this order, will not in any way prejudice the Arbitral Tribunal in considering the claims of the petitioner on merits. In such circumstances, the above Original Petition stands dismissed. Consequently, U.A. No. 793 of 2006 is closed. No costs. Petition dismissed.