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2012 DIGILAW 1228 (BOM)

Rehmat Ali Baig v. Minocher M. Deboo

2012-07-09

D.Y.CHANDRACHUD, R.D.DHANUKA

body2012
Judgment : (Dr. D.Y. Chandrachud, J.) This appeal arises from the decision of a Learned Single Judge dated 8 July 2011 in an Arbitration Petition under Section 34 of the Arbitration and Conciliation Act, 1996. The challenge to an arbitral award has failed before the Learned Single Judge. 2. The Appellant and the Respondent are co-owners of a building in which the share of the Appellant is 42%, while that of the Respondent is 26%. There is a room admeasuring 200 sq.ft. According to the Respondent, who was the claimant in the arbitral proceedings, the Appellant obtained possession of the room from a tenant but sought to exclude the co-sharers. The Respondent instituted a suit before this Court for the recovery of a sum of Rs.4,05,600/-as his proportionate share in the value of the premises. The co-owners, who were impleaded as parties to the suit, were not appearing. By an order dated 13 October 2006, a Learned Single Judge of this Court recorded that the disputes between the Appellant and the Respondents shall be referred to arbitration by Hon'ble Mr.Justice Hosbet Suresh, former Judge of this Court since parties were agreeable to do so. The Court directed that “the costs of the arbitration shall be borne at the first instance by the Plaintiff, subject to suitable orders that the arbitrator may make”. 3. The Respondent filed his statement of claim before the Arbitrator and claimed that on the basis of a twenty six per cent share in the property, the prevailing market value of which was stated to be Rs.15.26 lakhs, his share would work out to Rs.4,05,600/-. The case of the Respondent was that the Appellant had instituted a suit in the Court of Small Causes against the tenant without the knowledge of the co-owners. Subsequently, when the co-owners were served with the writ of summons and when they questioned the Respondent, he meted out an assurance in the form of a statement dated 7 August 2001 that the benefits in respect of the suit premises would enure to all the co-owners. Subsequently, parties were alleged to have recorded this in an agreement dated 21 August 2001. The Appellant filed a written statement before the arbitral Tribunal and also raised a counter claim. The counter claim was on the basis that the Appellant had incurred legal expenses for obtaining vacant possession of the premises from the tenant. 4. Subsequently, parties were alleged to have recorded this in an agreement dated 21 August 2001. The Appellant filed a written statement before the arbitral Tribunal and also raised a counter claim. The counter claim was on the basis that the Appellant had incurred legal expenses for obtaining vacant possession of the premises from the tenant. 4. The sole Arbitrator allowed the claim of the Respondent in the amount of Rs.4,05,600/-together with interest at 12% per annum from the date of the suit instituted before this Court. In a challenge to the arbitral award under Section 34, the Learned Single Judge noted that there was no dispute about: (i) The share of each of the co-owners; (ii) The institution of the suit by the Appellant; and (iii) The fact that the premises were taken over by the Appellant by evicting the tenant. The Arbitrator noted that the Respondent had examined an approved valuer, who had computed the market value. There was nothing to discredit his evidence. The Appellant cross-examined the witness. Since the Appellant did not enter into the witness box, he was not able to prove the expenses which he had incurred, so as to seek contribution from the co-owners. On this basis, the claim of the Respondent was allowed. 5. The Appellant was not permitted to pursue his counter claim on the ground that he failed to deposit costs as directed by the Arbitrator for adjudicating upon the counter claim. The Arbitrator had by his order dated 20 August 2008 directed the Appellant to pay his fees for the counter claim. The Appellant was directed to deposit an amount of Rs.60,000/-on the basis of a hearing over a period of three days. The appellant was placed on notice that in case no deposit is made, the counter claim would not be taken into consideration. The Appellant made an application to place an additional written statement on record without a deposit of costs. The Arbitrator recorded that in the guise of filing an additional written statement, the Appellant actually wanted to include the counter claim. The Arbitrator by an order dated 15 December 2009 clarified that the additional written statement in so far as it sought to raise a counter claim could not be taken on the record. The Arbitrator recorded that in the guise of filing an additional written statement, the Appellant actually wanted to include the counter claim. The Arbitrator by an order dated 15 December 2009 clarified that the additional written statement in so far as it sought to raise a counter claim could not be taken on the record. Subsequently, when the Appellant filed an affidavit of evidence, he persisted in raising his counter claim and thereafter filed another application to introduce the counter claim. The Appellant stated that he would be willing to pay only an amount of Rs.5,000/-per sitting as the charges of the Arbitrator. The arbitral Tribunal has in a separate order dated 30 September 2010 recorded that the Appellant had made efforts to delay the proceedings. The order of the Tribunal on the deposit of costs was stated to have been challenged before a Learned Single Judge of this Court and thereafter, before the Division Bench without success. Despite this, the Appellant continued to assert his request to take the counter claim on record without deposit of the Arbitrator's fees. The Appellant also informed the Arbitrator that he did not wish to examine any witness. 6. The Learned Single Judge has recorded that the challenge to the Arbitration Petition under Section 34 was confined only to that part of the arbitral award by which the counter claim was rejected. In the circumstances, in this appeal, the Appellant cannot be heard to urge anything apart from the challenge pressed before the Learned Single Judge on the rejection of the counter claim. 7. Counsel appearing on behalf of the Appellant submitted that when a reference was made to arbitration by the order of the Learned Single Judge dated 13 October 2006, the Appellant had made it clear that he would not be in a position to deposit the Arbitrator's fees. Hence, the Learned Single Judge directed that the costs of the arbitration shall be borne, in the first instance, by the Respondent, subject to suitable orders that the Arbitrator may make. Counsel submitted that there was no justification for the arbitral Tribunal to reject the counter claim. It was urged that the arbitral Tribunal would have a lien on the arbitral award for unpaid costs of the arbitration under Section 39(1). Counsel submitted that there was no justification for the arbitral Tribunal to reject the counter claim. It was urged that the arbitral Tribunal would have a lien on the arbitral award for unpaid costs of the arbitration under Section 39(1). Consequently, it was urged, the Arbitrator ought not to have terminated the arbitral proceedings in respect of the counter claim under Section 38. 8. While making a reference to arbitration in terms agreed between the Appellant and the Respondent, the Learned Single Judge of this Court by his order dated 13 October 2006 directed that the costs of the arbitration shall be borne, in the first instance, by the Respondent, subject to suitable orders that the Arbitrator may make. The arbitral Tribunal was within its jurisdiction in terms of the order of this Court in issuing a direction to the effect that the Appellant shall deposit the costs towards the Arbitrator's fees in connection with the counter claim. Even otherwise, an arbitral Tribunal is entitled under Sub-section (1) of Section 38 to fix the amount of the deposit or supplementary deposit, as the case may be, as an advance for the costs referred to in Sub-section (8) of Section 31. Under Section 31(8)(a) the costs of an arbitration shall be fixed by the arbitral Tribunal unless otherwise agreed by the parties. For the purposes of clause (a), costs include reasonable costs inter alia relating to the fees and expenses of the Arbitrator. The proviso to Subsection (1) of Section 38 enunciates that where, apart from the claim, a counter claim has been submitted to the arbitral Tribunal, it may fix a separate amount of deposit for the claim and counter claim. Under sub-section (2) the deposit referred to in sub-section (1) shall be payable in equal shares by the parties. The proviso stipulates that where one party fails to deposit his share, the other party may pay that share. Under the second proviso, where the other party also does not pay the aforesaid share in respect of the claim or the counter claim, the arbitral Tribunal may suspend or terminate the arbitral proceedings in respect of such claim or counter claim, as the case may be. In the present case, in terms of the order passed by this Court initially, the Respondent was required to deposit costs subject to the orders of the Arbitrator. In the present case, in terms of the order passed by this Court initially, the Respondent was required to deposit costs subject to the orders of the Arbitrator. The Arbitrator was, in our view, within jurisdiction in requiring the Appellant to deposit an advance towards costs for adjudicating upon the counter claim. Sub-section (1) of Section 39 does make a provision under which the arbitral Tribunal, subject to a provision to the contrary in the arbitration agreement, is to have a lien on the arbitral award for any unpaid costs of arbitration. That however, does not override the power of the Arbitrator under the second proviso to Sub-section (2) of Section 38 to terminate the arbitral proceedings as regards the claim or the counter claim, as the case may be, for failure to pay the advance towards deposit of costs. An Arbitrator cannot be expected to continue adjudicating upon the claim or, as the case may be, a counter claim, without parties making a deposit of costs representing the reasonable fees and expenses of the Arbitrator. Relegating the arbitrator only to a claim of lien under Section 39 will result in an abuse of the process. A party which does not comply with an order of deposit will in cases make every effort to delay the proceedings by raising frivolous objections. Absent an obligation to comply with an order of deposit, a party may misuse the arbitral process. Arbitral proceedings take place before a private tribunal of the parties' choice. Parties who opt for arbitration cannot avoid complying with an order of deposit. The amount which was fixed by the Learned Arbitrator in the present case was evidently reasonable. Where a party which has been directed to deposit an advance towards the costs fails to do so, and the other party also does not deposit his share, the Arbitrator would be justified in taking recourse to the power conferred in Section 38(2) to terminate the counter claim as was done in the present case. The judgment of the Supreme Court in Union of India vs. Singh Builders Syndicate (2009) 4 SCC 523 )does not cover a situation such as the present. The present case involves a situation where a party has been recalcitrant in depositing his share of the reasonable costs determined by the Arbitrator towards the adjudication of the counter claim. The Arbitrator has acted fairly. The present case involves a situation where a party has been recalcitrant in depositing his share of the reasonable costs determined by the Arbitrator towards the adjudication of the counter claim. The Arbitrator has acted fairly. Though the counter claim of the Appellant was excluded, the Appellant participated in the adjudication of the claim and was allowed to cross-examine the Respondent's witness, as stated in the award. The Appellant did not step into the witness box. Before concluding we may record that during the course of the hearing of the Appeal, we had indicated to the Appellant that should the parties agree, the counter claim of the Appellant can be referred to arbitration by a member of the Bar who may be agreeable to acting as an Arbitrator on a nominal fee. On the request of the Court, an experienced member of the Bar present in Court informed the Court that he would be willing to act as an Arbitrator and as a matter of duty to the Court, he would leave the fixation of a nominal fee to any amount that the parties may agree. We suggested this course to the Appellant in order to allay his grievance that his counter claim was not considered by the Arbitrator. On taking instructions, Counsel appearing on behalf of the Appellant stated that the Appellant is not ready and willing. Having heard Counsel, we have, in the circumstances, adjudicated upon the rival contentions. 9. For these reasons, we do not find any reason to interfere with the judgment of the Learned Single Judge rejecting the challenge to the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996. The appeal shall accordingly stand dismissed. There shall be no order as to costs.