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2008 DIGILAW 790 (DEL)

Sharma Enterprises v. National Building Construction Corporation Ltd.

2008-08-20

RAJIV SAHAI ENDLAW

body2008
JUDGMENT Rajiv Sahai Endlaw, J. 1. This petition invokes Sections 14 and 15 of the Arbitration Act, 1996 to declare that the mandate of respondent No. 2 appointed as the arbitrator by the chairman of respondent No. 1 stands terminated de jure or de facto. The case has had a chequered history which can be summarised as under. 2. Disputes arose out of a contract dated 18th January, 1991 between the petitioner and the respondent No. 1. Suit No. 3446/1992 under Section 20 of the Arbitration Act, 1940 came to be filed by the petitioner for appointment of arbitrator. The said suit was disposed of vide judgment dated 2nd December, 1997. It is recorded in the said judgment (a) that the respondent No. 1 had terminated the agreement with the petitioner on 22nd September, 1992; (b) that the petitioner had vide its letter dated 20th June, 1992 invoked the arbitration clause in the agreement and called upon the respondent to appoint an arbitrator; (c) that the respondent had failed to appoint the arbitrator leading the petitioner to file the suit No. 3446/1992; (d) that the respondent had, in the course of those proceedings, not disputed the arbitration agreement but had resisted the suit on the ground that an arbitrator, namely, Shri Daljit Singh, General Manager of the respondent had already appointed as the sole arbitrator on 27th January, 1993 and as such the suit had been rendered infructuous. The petitioner claimed to be entitled to have an independent arbitrator appointed. 3. This Court in the judgment dated 2nd December, 1997, inter alia, held that the Chairman-cum-Managing Director of the respondent initiated action for appointment of arbitrator only upon receipt of notice of the suit; that the respondent had forfeited its right to appoint an arbitrator in terms of the arbitration agreement and the petitioner was justified to seek the appointment of an independent arbitrator. This Court, accordingly, appointed justice G.C. Jain (Retd) as the sole arbitrator to adjudicate the disputes spelt out as, 1. Whether the respondent is liable to pay the sum of Rs 1,08,47,848.00 (Rupees one crores eight lakhs forty seven thousand eight hundreds forty eight only) as per break up given in letter dated 8.9.92 annexed with the petition as annexure Q?" 2. Whether respondent is liable to pay interest @24% p.a. on the said amount from the date the same became due till its realization? Whether respondent is liable to pay interest @24% p.a. on the said amount from the date the same became due till its realization? between the petitioner and the respondent. .4. I may mention that in the aforesaid judgment of this Court, the letter dated 27th January, 1993 of the Chairman-cum-Managing Director of the respondent appointing Mr Daljit Singh as arbitrator has been reproduced as under: .NOW THEREFORE, I R.C. KEHAR, the Chairman-cum-Managing Director, NBCC Ltd., New Delhi in exercise of the powers conferred on me, do hereby appoint Shri Daljeet Singh, General Manager, NBCC Ltd., Calcutta as the sole arbitrator to decide and make his Award regarding the disputes/claims mentioned in Annexure Q of the petition bearing Suit No. 3446/96 (except the disputes/claims pertaining to the Bank Guarantees and the disputes/claims in respect of which the decision of a particular authority is stated to be as final), and also the counter-claims of the respondents, if any, subject however to their admissibility under the terms and conditions of the contract. .5. An appeal (FAO(OS) 33/1998) was preferred by the respondent against the aforesaid judgment and which was allowed vide order dated 9th July, 1999 of a Division Bench of this Court. In the meanwhile, Justice G.C. Jain, appointed as the independent arbitrator, expired and an application was moved by the petitioner for appointment of a new arbitrator in his place. Justice Satpal was appointed by this Court vide order dated 9th September, 1998 in place of Justice G.C. Jain. The Division Bench held that the petitioner had, prior to the institution of the suit, not served any notice on the appointing authority for appointment of the arbitrator and that only on filing of the suit the notice thereof was served on the appointing authority and the appointing authority had within the stipulated period appointed Mr Daljit Singh as the sole arbitrator. It is further recorded in the order of the Division Bench that "Needless to add that the counter claim of the appellant before the named arbitrator appointed by Chairman-cum-Managing Director is within period of limitation. Objection of the respondent as regards limitation for raising counter claim was only to that counter claim, which was filed by the appellant before Shri Satpal." .The Division Bench further held that Shri Daljit Singh will proceed to adjudicate upon the claims and the counter claims. 6. Objection of the respondent as regards limitation for raising counter claim was only to that counter claim, which was filed by the appellant before Shri Satpal." .The Division Bench further held that Shri Daljit Singh will proceed to adjudicate upon the claims and the counter claims. 6. A Special Leave Petition was preferred by the petitioner herein against the order of the Division Bench of this Court. The said Special Leave Petition was disposed of vide order dated 18th October, 2000 of the Apex Court. The Apex Court noted in the order that the respondent herein in the Memorandum of Appeal preferred before the Division Bench made it clear that the appointment of Justice Jain was not being questioned and in effect the prayer in appeal was confined to treating the appointment of the sole arbitrator pursuant to the arbitration agreement between the parties and not on account of default or negligence of the Managing Director to make an appointment in terms of the agreement and for referring the counter claim to the said arbitrator. The Apex Court further noted that the respondent herein had not questioned before the Division Bench the order of the Honble Single Judge appointing Justice Satpal as an arbitrator in place of Justice G.C. Jain. The Apex Court further noted that the respondent had filed a review application before the Single Judge against the order appointing Justice Satpal in place of Justice G.C.Jain. The Apex Court, accordingly, held that the appeal before the Division Bench, in fact, had become infructuous and ought to have been so disposed of. The Apex Court, accordingly, set aside the order of the Division Bench leaving it open to the respondent herein to pursue the review application filed by it before the Single Judge. 7. The review application filed by the respondent before the Single Judge was disposed of on 6th February, 2001 on the concession of the counsel for the respondent herein that since a number of hearings had already taken place before Justice Satpal and since the respondent had from time to time had given consent for extension of time for making of the award by Justice Satpal, the respondent was not pressing the review application. It was further ordered that the said concession ought not to however be treated as a precedent for other cases. 8. It was further ordered that the said concession ought not to however be treated as a precedent for other cases. 8. The respondent herein, thereafter, filed an application dated 16th March, 2002 before Justice Satpal (Arbitrator) for taking on record the counter claim of the respondent. The said application was dismissed vide order dated 16th March, 2002 of the Arbitrator Justice Satpal holding, inter alia, that only the disputes as set out above had been referred to him and that no disputes pertaining to the counter claim of the respondent had been referred to him. 9. The respondent thereafter filed IA. No. 3/2002 in appeal disposed of by the Apex Court on 18th October, 2000. The respondent in the said application contended that since justice Satpal had declined to entertain its counter claim, the order dated 18th October, 2000 be modified and the counter claim of the respondent be also referred to the arbitrator (Justice Satpal). The said application was dismissed vide a non-speaking order dated 23rd September, 2002. 10. It may also be noted that the petitioner herein filed yet another petition under Section 20 of the Arbitration Act and which was numbered as suit No. 2858A/2000 for reference of certain other claims to the arbitrator Justice Satpal. The said petition was decided vide order dated 4th December, 2002 and the additional claims of the petitioner were also referred to the arbitrator Justice Satpal. .11. The respondent wrote a letter dated 7th February, 2002 to the appointing authority under the agreement stating that a sum of Rs 9,49,94,421.38 was due and payable by the petitioner to the respondent; that the said claim was initially filed in the form of a counter claim before Justice Satpal; that Justice Satpal had ruled that the said claim of the respondent had not been referred to him by the court and the said stand of the arbitrator was confirmed by the Supreme Court; it had therefore become necessary for the respondent to invoke the arbitration clause in the agreement for adjudication of its claims against the petitioner. The respondent, therefore, requested its Chairman-cum-Managing Director being the person designated in the arbitration clause in the agreement to appoint an arbitrator for adjudication of the claims of the respondent. The respondent, therefore, requested its Chairman-cum-Managing Director being the person designated in the arbitration clause in the agreement to appoint an arbitrator for adjudication of the claims of the respondent. The Chairman-cum-Managing Director of the respondent vide his letter dated 18th February, 2003 noted that the respondent had vide its letter dated 7th February, 2003 invoked the arbitration clause and requested for appointment of an arbitrator and appointed respondent No. 2 herein Shri A.K. Gupta, Deputy General Manager of the respondent as sole arbitrator regarding the claims/disputes of the respondent against the petitioner. 12. The petitioner immediately vide its letter dated 13th February, 2003 controverted the appointment of respondent No. 2 as arbitrator as aforesaid and, thereafter, filed the present petition for declaration that the mandate of the said Shri A.K. Gupta impleaded as respondent No. 2 in this petition had been terminated and that Shri A.K. Gupta was de jure and de facto unable to perform his function as an arbitrator. By an order dated 3rd April, 2003 in the present petition, the implementation of the letter dated 18th February, 2003 of the Chairman-cum-Managing Director of the respondent No. 1 and any proceedings before Shri A.K. Gupta, arbitrator appointed by the said letter, were stayed. 13. The principal contention of the counsel for the petitioner is that the claim of the respondent emanates from the agreement which was terminated on 22nd September, 1992. As such, the requisition of the respondent on 7th February, 2003 to the person designate in the agreement as the authority for the appointment of arbitrator was highly belated and time barred. It was further the contention that in the face of the proceedings aforesaid, Shri A.K. Gupta was not entitled to perform his function as an arbitrator. On the contrary, the counsel for the respondent urged that all the said pleas should be taken by the petitioner before the arbitrator, under Section 16 of the Act and ought not to be entertained in a petition under Sections 14 and 15 of the Act. .14. The 1996 Act in Section 5 prohibits judicial intervention except where so provided by the Act itself. Section 14 of the Act is titled "failure or impossibility to act". The court has been permitted to intervene where the arbitrator becomes unable to perform his functions de jure or de facto or for other reasons fails to act without undue delay. The 1996 Act in Section 5 prohibits judicial intervention except where so provided by the Act itself. Section 14 of the Act is titled "failure or impossibility to act". The court has been permitted to intervene where the arbitrator becomes unable to perform his functions de jure or de facto or for other reasons fails to act without undue delay. What is the meaning to be assigned to the words de facto, de jure and what are the other reasons. The counsel for the petitioner would urge that in a given situation where the arbitration has been invoked mala fide, as is contended, has been done in the present case, it is the courts duty to intervene and to hold that there is no mandate to arbitrate. The counsel for the petitioner lays heavy emphasis on SBP & Company v. Patel Engineering Limited 2005 8 SCC 618 and has urged that powers of the court under Section 14 are akin to those under Section 11(6) of the Act as now interpreted by the Constitution Bench of the Apex Court and since the Apex Court has held that the court at the stage under Section 11(6) of the Act is empowered to decide whether the claim was a dead one or a long barred claim or was sought to be resurrected and also as to whether the parties have concluded the transaction by recording satisfaction of their mutual rights and obligations, so should the court, even where arbitrator has been appointed without intervention of the court, if called upon under Section 14 of the Act and if finds that the arbitration is sought of a dead or a long barred or a nonexistent claim, should step in and set aside the appointment. 15. On the contrary the counsel for the respondents would contend that the respondents claims against the petitioner, in spite of the respondents having raised the same long back and in spite of the orders aforesaid that the arbitrator would also adjudicate its claims, have not been adjudicated on merits till date. He would further submit that an award on the petitioners claims would not be an award on the respondents claims and would not be barred by res judicata or constructive res judicata. He would further submit that an award on the petitioners claims would not be an award on the respondents claims and would not be barred by res judicata or constructive res judicata. Reliance was placed on para 8 of judgment in State of Orissa v. Gokulananda Jena AIR 2003 SC 4207 and conclusion in sub-para (ix) of para 47 of SBP & Company to contend that where Arbitral Tribunal is constituted without resource to Section 11(6), it will have jurisdiction to decide all matters as contemplated in Section 16 and since alternate remedy is available the court should not entertain the challenge. Reliance was also placed on Kunhayammed and Ors. v. State of Kerala (2006) 6 SCC 359 to contend that by dismissal of SLP and application by Apex Court, there was no res judicata. The counsel for petitioner in rejoinder relied on Wellington Associates Ltd v. Kirit Mehta AIR 2000 SC 1379 approved in SBP & Co to contend that availability of remedy under Section 16 was held not to bar exercise of jurisdiction under Section 11(6) of the Act. 16. Section 32 of the Act provides for the ways of termination of arbitration proceedings. The Division Bench of this Court has held in Surinder Pal Singh v. HPCL 136 (2007) DLT 646 that the proceedings shall be deemed to be pending so long as one of the events envisaged in Section 32 does not occur. 17. This Court in Shyam Telecom Ltd v. ARM Ltd 113(2004) DLT 778 held that the de jure impossibility referred to in Section 14 is the impossibility which occurs due to factor personal to the Arbitrator and de facto occurs due to factors beyond the control of arbitrator. It was further held that non conclusion of arbitral proceedings within the agreed time rendered the arbitrator de jure unable to continue with the proceedings. .18. I may also notice United India Insurance Co. Ltd. v. Kumar Texturisers and Anr. AIR 1999 Bom 118 where an Honble Single Judge held that the court, under Section 14 of the Act has no jurisdiction to declare that no dispute existed for arbitration. However, those were the pre SBP & Co days. .18. I may also notice United India Insurance Co. Ltd. v. Kumar Texturisers and Anr. AIR 1999 Bom 118 where an Honble Single Judge held that the court, under Section 14 of the Act has no jurisdiction to declare that no dispute existed for arbitration. However, those were the pre SBP & Co days. The Apex Court since then has held (see para 32 of SBP & Co) that the party ought not to be compelled to participate in arbitration proceedings extending over a period of time by incurring substantial expenditure and then to come to the court with an application under Section 34 of the Act seeking setting aside of the award on the ground that there was no arbitration agreement or that there was nothing to be arbitrated upon when the Tribunal was constituted. The Apex Court juxtaposed intervention by court before award with saving of time and expenditure before arbitral tribunal and opted / favoured the latter. 19. Whether the approach favoured by the Apex Court in arbitration with intervention of court under Section 11(6), can be applied/extended to arbitrations without intervention of courts, where parties have themselves appointed the arbitrator - by enabling the parties to at initial stage of arbitration only approaching the court under Section 14 of the Act for declaration that in fact there is no arbitration agreement or that the claim is a dead one, as in the present case. 20. The Apex Court under the 1940 Act was faced with a situation similar to that in the present case in Panchu Gopal Bose v. Board of Trustees for Port of Calcutta [1993] 3 SCR 361 . There also, works were executed in 197879, bills were sent on 12th July, 1979 and for the first time on 28th November, 1989 reference to arbitration was sought. On receipt thereof, suits, inter alia, under Sections 5, 12 and 33 of the 1940 Act were filed. The Single Judge of the Calcutta High Court held that the claim was made long after 10 years and was to be hopelessly barred by time and held that the arbitration cannot be proceeded with and finding the same to be an exceptional case for interference, cancelled the arbitration clause. The appeal to the Division Bench was dismissed and the Apex Court was approached. The appeal to the Division Bench was dismissed and the Apex Court was approached. In that case also the contention of the petitioner was that the petitioner had legally invoked the arbitration clause and the arbitrator was bound to be appointed and the court could not scuttle the procedure by exercising the power under Section 5 of the 1940 Act. 21. At this stage Section 5 of the 1940 Act may be quoted: The authority of an appointed arbitrator or umpire shall not be revocable except with the leave of the Court, unless a contrary intention is expressed in the arbitration agreement. 22. The Apex Court in that case held that under Section 5 read with Section 12(2)(b) of the 1940 Act, the court had been given power in the given circumstances to grant leave to a contracting party to have the appointment of the arbitrator or umpire removed and the Arbitration Agreement revoked. The court further held that the said discretion has to be exercised cautiously and sparingly considering that the parties should not be relieved of a tribunal they have chosen because they fear that the arbitrators decision may go against them. The grounds on which the power could be exercised were put under five heads as under: (1) Excess or refusal of jurisdiction by arbitrator; (2) Misconduct of arbitrator; (3) Disqualification of arbitrator; (4) Charges of fraud and; (5) Exceptional cases. The Apex Court further held that all the provisions of the Indian Limitation Act applied to arbitration and noticed that an arbitration is deemed to have commenced when one party to the arbitration agreement serves on the other party a notice requiring the appointment of the arbitrator. The same is the position under the 1996 Act. 23. The Apex Court further noted quoting Robertsons History that honest men dread arbitration more than they dread law suits. The court, also cited with approval Pegler v. Railway Executive 1948 AC 332 where the House of Lords held that just as in the case of actions the claim is not to be brought after the expiration of a specified number of years from the date on which the cause of action accrued, so in the case of arbitrations, the claim is not to be put forward after the expiration of the specified number of years from the date when the claim accrued. The Apex Court quoting Mustiu and Boyds Commercial Arbitration held that there is no undoubtedly jurisdiction in the court to interfere by way of injunction to prevent the respondent from being harassed by a claim which can never lead to a valid award for example in cases where claim is brought in respect of the alleged Arbitration agreement which does not really exist or which has ceased to exist and also where the dispute lies outside the scope of Arbitration agreement. The Apex Court upheld the decision of the Single Bench of the High Court and dismissed the Special Leave Petition. 24. Though in 1996 Act, there is no literal equivalent of Section 5 of the 1940 Act but, in my opinion, Section 5 of the old Act as interpreted in Panchu Gopal Bose (supra) finds place in the form of Section 14 of the 1996 Act. There can be no other interpretation of the authority given to the court to terminate the mandate of the arbitrator when the arbitrator de jure is unable to perform this function. The de jure impossibility can be nothing but impossibility in law. Judicial notice can be taken of the fact that a large number of arbitration contracts are standard form contracts and in which really speaking there is no negotiation. Judicial notice can also be taken of the fact that the Government and the Governmental agencies are the largest employers of contractors and all their contracts invariably contain an arbitration clause empowering their own officials to appoint the arbitrators. Unless the provisions of Section 14 are read inconsonance with what has been laid down in SBP & Company (supra), it would give a tool in the hands of the employers to harass the contractors, to invoke arbitration clauses in long finished contracts, to deprive the contractors of payments under the current contracts. 25. However, the said power under Section 14 has to be exercised sparingly and with great caution and on the same parameters as laid down by Apex Court in SBP & Co, (in para 39) in relation to Section 11(6). Only when from the facts there is no doubt that the claim is dead or long barred or that the transaction has been concluded, is the said power to be exercised. Only when from the facts there is no doubt that the claim is dead or long barred or that the transaction has been concluded, is the said power to be exercised. If it is not possible to so decide without intricate enquiry into law and facts, it will be appropriate to leave the question to be decided by the arbitral tribunal. 26. Thus, I hold that in a petition under Section 14 of the Act, if the court finds that the arbitration without intervention of the court has been invoked of a long dead claim or of a claim not arbitrable, the court is empowered to terminate the mandate of the arbitrator. 27. Applying the aforesaid principles to the present case, it is to be noticed that the respondent had made its claim as far back as in 1993 itself. It is for this reason only that Mr Daljit Singh was appointed as the arbitrator to adjudicate the claims of the respondents also. The Division bench also had ordered that the counter claim of the respondents before Mr Daljit Singh was within limitation. When the matter went to the Apex Court also, the Apex Court gave liberty to the respondents to pursue its review application before the Single Judge. The said review application, however, came to be dismissed on 6th February, 2001. The respondents soon thereafter did prefer its claims before the arbitrator. However, the said application was dismissed on 16th March, 2002 and the respondent immediately wrote to the appointing authority for appointment of the arbitrator. In the aforesaid circumstances, it cannot really be said at this stage that the claims of the respondents are a dead one or which the respondent is seeking to resurrect after long lapse of time. The counsel for the respondent has rightly contended that it has to be adjudicated whether the claims of the respondents are within time or not. Under Section 21 of the 1996 Act also, the arbitration is deemed to have commenced on the date on which the request is made for reference to arbitration. In the present case the request by the respondent appears to have been made within limitation. The respondent thereafter has been pursuing its counter claim in one form or the other as hereinabove noted but without any success. In the present case the request by the respondent appears to have been made within limitation. The respondent thereafter has been pursuing its counter claim in one form or the other as hereinabove noted but without any success. It can be determined only on proper adjudication whether the counter claims are within time or not, whether the respondent has slept over its rights or not. 28. The present case does not fall in the exceptional category where power under Section 14 of the Act to terminate the mandate of the arbitrator can be invoked. It is appropriate to leave the question to be decided by the arbitral tribunal. 29. The Petition therefore fails and is dismissed, however, with no order as to costs. Petition dismissed.