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2013 DIGILAW 1118 (KAR)

M. R. Raghuram v. M. R. Jayaram

2013-09-18

RAM MOHAN REDDY

body2013
ORDER Ram Mohan Reddy, J : The facts briefly stated are thus : Parties to the Memorandum of Confirmation of Oral Family Settlement dated 25.7.1998, by consensus, agreed to appoint Sri. K.R. Prasad, as a sole arbitrator, in respect of differences arising out of implementation or interpretation of the settlement and his finding to be binding on all of them. The arbitrator having entered upon reference and held proceedings on several dates of hearing during a period of one year, nevertheless, by notice dated 17.11.2011, Annexure-F, withdrew from arbitration. Petitioner filed CMP No.173/2011 invoking sub-section (5) of Section 11 of the Arbitration and Conciliation Act, 1996 (for short 'Act') whence, this Court, by order dated 20.2.2013, disposed of the petition reserving liberty to the petitioner to issue a notice invoking clause 20 of the Memorandum of Settlement to appoint an arbitrator. Pursuant thereto, the petitioner, through learned Counsel, issued a notice dated 23.2.2013, Annexure-H, to the respondents proposing Sri. Kukkaje Ramakrishna Bhat, retired District Judge, as a sole arbitrator to continue the arbitration proceeding and called upon the respondents to concur with the appointment, which when acknowledged was responded to by reply dated 22.3.2013, Annexure-K, informing the petitioner that they do not concur with the appointment of any substitute arbitrator, since Sri. K.R. Prasad, an arbitrator, was a family friend and the intention of the parties was to settle the dispute by arbitration only through the said person and none else. Hence this petition. 2. Petition is opposed by filing statement of objections of respondent Nos. 1 to 9 inter alia reiterating that clause 20 of the Memorandum of Confirmation of Oral Family Settlement does not provide for appointment of a substitute arbitrator in place of Sri K.R. Prasad, arbitrator by consensus, and in view of the settled law that a substitute arbitrator can be appointed according to the Rules applicable to appointment of the arbitrator to be replaced and in the absence of the Rules, since there was no intention of the parties to appoint a substitute arbitrator, petitioner cannot seek appointment of Sri. Kukkaje Ramakrishna Bhat, retired District Judge, Bangalore, as a substitute arbitrator. 3. Kukkaje Ramakrishna Bhat, retired District Judge, Bangalore, as a substitute arbitrator. 3. Having heard the learned Counsel for the petitioner and the learned Senior Counsel for the respondents, the question for decision making is : "Whether in the absence of a specific provision to appoint a substitute arbitrator, if the original appointment terminates or if the originally appointed arbitrator withdraws from the arbitration, in the Memorandum of Confirmation of Oral Family Settlement dated 25.7.1998, Annexure-A, the omission is made up by Section 15(2) of the Arbitration and Conciliation Act, 1996?" 4. Clause 20 of Annexure-A, reads thus : "20. In respect of any difference arising out of the implementation or interpretation of this Recollection of Memorandum of Settlement, the same shall be referred to Sri. K.R. Prasad, who shall be the sole arbitrator and his findings shall be binding on all the parties hereto." 5. The aforesaid clause does not provide for appointment of a substitute arbitrator in the event of Sri. KR. Prasad, the appointed arbitrator, withdraws from arbitration. 6. Section 15 of the Act reads thus : "15. Termination of mandate and substitution of arbitrator : (1) In addition to the circumstances referred to in Section 13 or Section 14, the mandate of an arbitrator shall terminate– a. where he withdraws from office for any reason; or b. by or pursuant to agreement of the parties. (2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. (3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal. (4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal." 7. Sub-section (2) of Section 15 is attracted in the matter of appointment of a substitute arbitrator according to the Rules that are applicable to the appointment of an arbitrator being replaced. It is obvious that the term "Rules" set forth supra refers to Clause 20 of Memorandum of Confirmation of Oral Family Settlement, Annexure-A, whereunder disputes are referred to arbitration. Sub-section (2) of Section 15 is attracted in the matter of appointment of a substitute arbitrator according to the Rules that are applicable to the appointment of an arbitrator being replaced. It is obvious that the term "Rules" set forth supra refers to Clause 20 of Memorandum of Confirmation of Oral Family Settlement, Annexure-A, whereunder disputes are referred to arbitration. If there is no failure on the part of the concerned party as per the arbitration agreement to fulfill his obligation would not attract the jurisdiction of the Hon'ble Chief Justice under Section 11(6) of the Act to appoint a substitute arbitrator. 8. In the opinion of this Court, the answer to the question formulated supra is no more res integra in the light of the observation of the Apex Court in Yashwith Constructions (P) Ltd. Vs. Simplex Concrete Piles India Ltd. and Another, (2006) 6 SCC 204 , at paragraph 4 which reads thus : "4. In our view, the learned Chief Justice and the Division Bench have rightly understood the scope of Section 15 of the Act. When the arbitrator originally appointed in terms of the arbitration agreement withdrew for health reasons, the Managing Director, as authorized originally by the arbitration agreement, promptly appointed a substitute arbitrator. It is true that in the arbitration agreement there is no specific provision authorizing the Managing Director to appoint a substitute arbitrator if the original appointment terminates or if the originally appointed arbitrator withdraws from the arbitration. But, this so called omission in the arbitration agreement is made up by the specific provision contained in Section 15(2) of the Act. The withdrawal of an arbitrator from the office for any reason is within the purview of Section 15(1)(a) of the Act. Obviously, therefore Section 15(2) would be attracted and a substitute arbitrator has to be appointed according to the rules that are applicable for the appointment of the arbitrator to be replaced. Therefore, what Section 15(2) contemplates is an appointment of the substituted arbitrator or the replacing of the arbitrator by another according to the rules that were applicable to the appointment of the original arbitrator who was being replaced. The term "rules in Section 15(2) obviously referred to the provision for appointment, contained in the arbitration agreement or any Rules of any Institution under which the disputes were referred to arbitration. The term "rules in Section 15(2) obviously referred to the provision for appointment, contained in the arbitration agreement or any Rules of any Institution under which the disputes were referred to arbitration. There was no failure on the part of the concerned party as per the arbitration agreement, to fulfill his obligation in terms of Section 11 of the Act so as to attract the jurisdiction of the Chief Justice under Section 11(6) of the Act for appointing a substitute arbitrator. Obviously, Section 11(6) of the Act has application only when a party or the concerned person had failed to act in terms of the arbitration agreement. When Section 15(2) says that a substitute arbitrator can be appointed according to the rules that were applicable for the appointment of the arbitrator originally, it is not confined to an appointment under any statutory rule or rule framed under the Act or under the Scheme. It only means that the appointment of the substitute arbitrator must be done according to the original agreement or provision applicable to the appointment of the arbitrator at the initial stage. We are not in a position to agree with the contrary view taken by some of the High Courts." (Emphasis supplied) 9. The decision in Yashwith's case, supra, was referred to in the later decision of the Apex Court in National Highways Authority of India and Another Vs. Bumihiway DDB LTD. (JV) And Others, (2006) 10 SCC 763 , at paragraph 33 which reads thus : "Reliance was placed on Yashwith Construction P. Ltd. Vs. Simplex Concrete Piles India Ltd., wherein this Court had reiterated the well settled law and held that there was no failure on the part of the concerned party as per arbitration agreement, to fulfill his obligation in terms of Section 11 of the Act so as to attract the jurisdiction of the Chief Justice under Section 11(6) of the Act for appointing a substitute arbitrator. Obviously, Section 11(6) of the Act has application only when a party had failed to act in terms of the arbitration agreement." 10. Obviously, Section 11(6) of the Act has application only when a party had failed to act in terms of the arbitration agreement." 10. The facts obtaining therein relates to two appointed arbitrators who resigned from arbitration proceeding without appointing the presiding arbitrator and on such default, it was Indian Road Cross (IRC) which was required to appoint the presiding arbitrator to whom notice was issued and even before the appointment, the parties approached the Hon'ble Chief Justice designate invoking Section 11(6) of the Act to appoint a presiding arbitrator. It was held that it was for the petitioning party to approach the IRC for appointment of presiding arbitrator in terms of the procedure contemplated under the contract agreement and not to invoke the jurisdiction of the Hon'ble Chief Justice under Section 11(6) of the Act. At paragraph 44, it was further observed thus : "44. xxxx xxxx. The parties have entered into a contract after fully understanding the import of the terms so agreed to from which there cannot be any deviation. The Courts have held that the parties are required to comply with the procedure of appointment as agreed to and the defaulting party cannot be allowed to take advantage of its own wrong." 11. Although, learned Senior Counsel for the respondents placed reliance upon the subsequent decision of the Apex Court in ACC Limited (Formerly known as the Associated Cement Company Ltd.) Vs. Global Cements Limited, (2012) 7 SCC 71 nevertheless, would not come to the aid of the respondents in the light of the observations at paragraph 17, which reads thus : "Section 15(2) of the Act provides that where a substitute arbitrator has to be appointed due to termination of the mandate of the previous arbitrator, the appointment must be made according to the rules that were applicable to the appointment of the arbitrator being replaced. No further application for appointment of an independent arbitrator under Section 11 will lie where there has been compliance with the procedure for appointment of a substitute arbitrator. On appointment of the substitute arbitrator in the same manner as the first, no application for appointment of independent arbitrator under Section 11 could be filed. Of course, the procedure agreed upon by the parties for the appointment of the original arbitrator is equally applicable to the appointment of a substitute arbitrator, even if the agreement does not specifically say so. Of course, the procedure agreed upon by the parties for the appointment of the original arbitrator is equally applicable to the appointment of a substitute arbitrator, even if the agreement does not specifically say so. Reference may be made to the judgment of this Court in Yashwith Constructions (P) Ltd. Vs. Simplex Concrete Piles India Ltd. and Another." (Emphasis supplied) 12. Regard being had to the authoritative pronouncements of the Apex Court noticed supra, and applying the same to the facts of this case, petition invoking jurisdiction under Section 11(6) of the Act is maintainable. The submission of the learned Senior Counsel for the respondents pales into insignificance. The failure on the part of the respondents in not extending consent to the appointment of a substitute arbitrator, it cannot but be said that the petitioner was entitled in law to invoke the jurisdiction under Section 11(6) of the Act. 13. Since the parties have, not, by consent, agreed upon appointment of a substitute arbitrator, it is appropriate to appoint Sri. Justice N.D. Venkatesh, retired Judge of this Court, as a substitute arbitrator and to continue the arbitration proceeding. 14. Sri. Justice N.D. Venkatesh, retired Judge of this Court, is requested to enter upon reference and conduct the arbitration proceeding at the Bangalore Arbitration Centre in accordance with the Appointment of Arbitrators by the Chief Justice of High Court Scheme, 1996.