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2015 DIGILAW 416 (UTT)

Shivalik Drugs v. Lalit Kumar Jain

2015-08-31

SUDHANSHU DHULIA

body2015
JUDGMENT : Sudhanshu Dhulia, J. 1. This petition has been filed by the petitioners primarily with a prayer to terminate the mandate of the Arbitrator. 2. The petitioner No. 1 – M/s Shivalick Drugs is a partnership firm, which is engaged in the business of manufacturing Allopathic and Ayurvedic medicines. Petitioner No. 2 along with respondent No. 1 and respondent 2 are the three partners of the firm. They are all real brothers. The partnership deed of the firm contains an arbitration clause, which reads as under:- “12. That, in case of any dispute, the matter will, so far as possible, be referred to arbitration, subject, of course, to the provisions of the Indian Arbitration Act.” 3. Since a dispute arose between the partners, they had earlier approached this Court for appointment of an Arbitrator in terms of the Arbitration clause, referred above. The Hon’ble Chief Justice of this Court vide order dated 30.03.2012 appointed a retired Chief Justice of Uttarakhand High Court Sri V.K. Gupta as the sole Arbitrator. The petitioner No. 2 before this Court, however, later filed a petition before the Hon’ble Apex Court in which, inter alia, the appointment of the Arbitrator was also challenged and where initially an interim order was granted by the Hon’ble Apex court on 29.01.2013 and further proceedings before the Arbitrator were stayed, but finally on 07.02.2014, the petition was dismissed by the Hon’ble Apex Court. Proceedings were thereafter resumed before the Arbitrator, and each of the partners filed its respective claim before the Arbitral Tribunal. On 17.07.2014, the present petitioner No. 2 – Manoj Kumar Jain moved an application, inter alia, under Section 13 of the Arbitration and Conciliation Act, 1966 (from hereinafter referred to as “Arbitration Act”) requesting the Arbitrator to recuse himself from the arbitration proceedings. This application was based on his apprehension that the Arbitrator is closely associated with respondent No. 2 – Mr. Tosh Kumar Jain, (one of the three brothers). The reason for this apprehension appears to be that Mr. Tosh Kumar Jain had subsequently filed his separate statement of defence and counter-claim before the Tribunal on 09.07.2014, something which he had not done till that time. 4. In the application it has further been stated that respondent No. 2 – Tosh Kumar Jain has close relationship with the Arbitrator. The reason for this apprehension appears to be that Mr. Tosh Kumar Jain had subsequently filed his separate statement of defence and counter-claim before the Tribunal on 09.07.2014, something which he had not done till that time. 4. In the application it has further been stated that respondent No. 2 – Tosh Kumar Jain has close relationship with the Arbitrator. The reasons assigned are that earlier the late father of the Arbitrator – Sri Sat Pal Gupta was operating an agency in the name and style of “Desh Rakshak Aushdhalaya” at Jammu, which was operated by respondent No. 3 – Tosh Kumar Jain (respondent No. 2 – herein). He has also come to know that Mr. Tosh Kumar Jain was also in touch with the learned Arbitrator while he was the Chief Justice of Uttarakhand High Court. 5. This application of petitioner No. 2 – Manoj Kumar Jain was moved on 17.07.2014 before the Arbitrator and on that date itself i.e. on 17.07.2014, an order was passed on the said application by the Arbitrator, rejecting the challenge of the applicant on his independence and impartiality. The Arbitrator admitted that his father – Late Sri Satya Pal Gupta and the father of the applicant Sri Paras Kumar Jain were jointly engaged in the business of wholesale and retail sales of medicines for which he was operating an agency by the name of “Desh Rakshak Ashudhalaya” at Jammu. This company was being run by Sri Paras Kumar Jain, who was the father of the three brothers i.e. petitioner No. 2 – Manoj Kumar Jain and respondent Nos. 1 and 2 – Lalit Kumar Jain and Tosh Kumar Jain respectively. The father of the Arbitrator as well as the Arbitrator himself knew only Mr. Paras Kumar Jain. Since 1990, the father of the Arbitrator retired from his business, and ultimately passed away in the year 1998. The Arbitrator admits that he met Paras Kumar Jain and his three sons about 4 to 5 times at Haridwar when he was the Chief Justice of Uttarakhand High Court. None of them had ever met the Arbitrator at Nainital. When the arbitration proceedings came up before him he was told that Mr. Paras Kumar Jain, their father, had passed away on 15.05.2012. 6. None of them had ever met the Arbitrator at Nainital. When the arbitration proceedings came up before him he was told that Mr. Paras Kumar Jain, their father, had passed away on 15.05.2012. 6. It may also be of some relevance to note that the application under Section 11(6) of the Arbitration Act for appointment of an Arbitrator was filed by the present respondent No. 1 – Lalit Kumar Jain impleading petitioner No. 2 – Manoj Kumar Jain and present respondent No. 2 – Sri Tosh Kumar Jain, as respondents. On the first date of hearing before the learned Arbitrator when they represented personally through their counsels, it was told to the Arbitrator that he has been appointed as the sole Arbitrator, on a joint submission of all the parties. All this has come in the order dated 17.07.2014 of the Arbitrator. 7. At this juncture it must be stated that as there was an allegation of bias against the learned Arbitrator due to his “closeness” with one of the brothers, which allegedly come to the knowledge of the petitioner after the appointment of the Arbitrator, the counsel who had represented the present petitioner No. 2 (Mr. Manoj Kumar Jain) – Mr. Lalit Miglani appeared before this Court and stated that he had represented Mr. Manoj Kumar Jain as well as Tosh Kumar Jain in the earlier arbitration proceedings (ABRAP No. 17 of 2011), and the Arbitrator was appointed on a joint submission of all the parties, who agreed on the name of the Arbitrator. 8. As per the Arbitrator himself (as he states in his order dated 17.07.2014), things were moving smoothly before him till 08.07.2014, when the present petitioner No. 2 – Manoj Kumar Jain telephoned him and wanted to discuss the case with him. The Arbitrator declined this request and immediately thereafter on 17.07.2014 he moved an application asking the Arbitrator to recuse himself. The same day the Arbitrator rejected this challenge, as already referred above. Some important paragraphs of the order dated 17.07.2014, by which the challenge of petitioner No. 2 was rejected must be reproduced here. These are as under:- “Everything went on smoothly till 08.07.2014 when respondent No. 2 called me on telephone and wanted to discuss the case and I requested him not to do so and instead advised him to participate in the proceedings the next day. These are as under:- “Everything went on smoothly till 08.07.2014 when respondent No. 2 called me on telephone and wanted to discuss the case and I requested him not to do so and instead advised him to participate in the proceedings the next day. He had called me on phone a few times earlier also. He was trying to inform me about his illness and advised him to sent an e-mail to me which he did that very day. May be, he did not approve of my slight aloofness on the issue. On 09.07.2014, both the Claimant and Respondent No. 3 strongly disputed the version of Respondent No. 2 about his eyesight having become very weak in as much as they contended before me that he is normal and even drives his case himself in the evenings. I do not know if Respondent No. 2 got offended because of the developments taking place on 8th-9th July, 2014, but unfortunately the law has to take its own course and legal procedures cannot be thwarted for any reason or consideration. At the risk of reiteration I repeat that I have no special relationship at all with Respondent No. 3 and that for me all three brothers are equal and I have equal love and affection for all three of them specially after the demise of their father. It is unfortunate that Respondent No. 2 has entertained doubts about my independence and impartiality but I want to assure him that for resolving and adjudicating upon the dispute amongst the three brothers, I have no option but to act independently and impartially. He should be rest assured. Based on my aforesaid reasoning, facts and circumstances, I reject the application and decide to proceed in the matter.” 9. The Arbitrator while recusing himself had assigned reasons for doing so. This Court, however, vide its order dated 04.12.2014 had passed the following interim order, which still operates. It reads as under:- “Mr. Siddhartha Sah, Advocate, present for the petitioners. Issue notice to respondent nos. 1 & 2. Steps to be taken within a week. Respondents shall file their reply within three weeks. Apart from normal mode of service the petitioner shall also serve respondents by Dasti. List this matter on 05.01.2015 in a daily cause list. Meanwhile, though the proceedings may go on, but the Tribunal shall not pass its final award.” 10. 1 & 2. Steps to be taken within a week. Respondents shall file their reply within three weeks. Apart from normal mode of service the petitioner shall also serve respondents by Dasti. List this matter on 05.01.2015 in a daily cause list. Meanwhile, though the proceedings may go on, but the Tribunal shall not pass its final award.” 10. As far as the order regarding termination of the mandate of Arbitrator is concerned, the same cannot be done by this Court, as the mandate of the Arbitrator can be terminated only on the grounds given in Sections 14 and 15 of the Arbitration Act. As per Section 14 of the Arbitration Act the mandate of an Arbitrator terminates, if he becomes de jure or de facto unable to perform his function or for other reasons fails to act without undue delay or the parties agree to the termination of his mandate. In addition to it, there is further ground given in Section 15 of the Arbitration Act for termination of mandate of an Arbitrator firstly when he withdraws from his office for any reason and secondly by or pursuant to any agreement of the parties. 11. As we have seen, none of these grounds exist in the case at hand. The learned counsel for the applicant Mr. Siddartha Sah would, however, argue that since he has a reasonable apprehension of bias against the Arbitrator, it would be deemed that the Arbitrator is de jure unable to perform his function and it would be covered under Section 14(1)(a) of the Arbitration Act. We will refer to this aspect in a while. 12. My reading of the relevant provisions of the Act is that the present controversy before this Court is covered under Sections 12 and 13 of the Arbitration Act. What the present petitioners have done is that they have challenged the very appointment of the Arbitrator on grounds of his independence and impartiality. This would be hence covered under clause (3) of Section 12 of the Arbitration Act. Section 12 of the Arbitration Act reads as under:- “12. Grounds for challenge (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. Section 12 of the Arbitration Act reads as under:- “12. Grounds for challenge (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. (2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him. (3) An arbitrator may be challenged only if – (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the disqualifications agreed to by the parties. (4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.” 13. In such an event what should be the procedure. The procedure is given under Section 13 of the Arbitration Act, which reads as under:- “13. Challenge procedure.—(1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator. (2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. (3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. (4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award. (5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34. (6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.” 14. (6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.” 14. Even assuming for the sake of argument that the application under Section 13 of the Arbitration Act was well within limitation of sub-clause (2) of Section 13 of the Arbitration Act, when a challenge becomes unsuccessful then it is provided under clause (4) that the “arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.” That is the mandate of the law. It provides that when a challenge is made before the Arbitrator, inter alia, for his recused on grounds of his “independence” and “impartiality”, and such challenge ultimately fails, meaning thereby when Arbitrator rejects such an application, then the only procedure left is that the Arbitrator shall continue the arbitral procedure and make the final award, in terms of clause (4) of Section 13 of the Arbitration Act. 15. This does not mean that a person is without any remedy in such an event. In such a contingency, he can challenge the award on the ground of bias, even though bias is not a specific ground of challenge of an award under Section 34 of the Arbitration Act. All the same, in view of clause (5) of Section 13 of the Arbitration Act in such a given contingency (i.e. rejection of the challenge of appointment of Arbitrator on bias) it becomes a ground for challenge of the award. In other words once an Arbitrator rejects the claim of a party on the ground of independence and impartiality, the correct procedure is that the Arbitrator must proceed with the award and give its award subject to the other remedy available to the applicant after the award of the Arbitrator. Therefore, in the first place the present application which has been filed before this Court itself is not maintainable. 16. Apart from the above, the Constitutional Bench of the Hon’ble Apex Court in its seminal judgment in SBP and Co. Therefore, in the first place the present application which has been filed before this Court itself is not maintainable. 16. Apart from the above, the Constitutional Bench of the Hon’ble Apex Court in its seminal judgment in SBP and Co. Vs Patel Engineering Ltd. and another reported in 2005 (8) SCC 618 while laying down certain principles as regarding the appointment of Arbitrator under Section 11(6) of the Arbitration Act inter alia, said as under:- “Once the matter reaches the Arbitral Tribunal or the sole arbitrator, the High Court would not interfere with the order passed by the arbitrator or the Arbitral Tribunal during the course of the arbitration proceedings and the parties could approach the Court only in terms of Section 37 of the Act or in terms of Section 34 of the Act.” 17. Let us now examine another submission of the learned counsel for the petitioner, Mr. Siddharth Sah. He would argue that because of the bias the learned Arbitrator has made himself de jure incapable and hence his mandate has to be terminated. Once we start examining this matter in this light, the first challenge, the present applicant will have to face is again the maintainability of the present petition under Sections 14(2) of the Arbitration Act, as there is a preliminary objection of Mr. Manoj Tiwari, learned Senior Advocate, appearing for respondent No. 2 – Sri Tosh Kumar Jain that the present petition is effectively for terminating the mandate of an Arbitrator which can only be done by the principal Civil Court of original jurisdiction in a district, which would be before the learned District Judge, Haridwar in the present case. Section 14 of the Arbitration Act reads as under:- “14.Failure or impossibility to act.- (1) The mandate of an arbitrator shall terminate if--- (a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and (b) he withdraws from his office or the parties agree to the termination of his mandate. (2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate. (2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate. (3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12.” 18. Under clause (2) of Section 14 of the Arbitration Act on an application for terminating the mandate would allow before the court and a “court” has been defined under Section 2 (1)(e) of the Arbitration Act, which reads as under:- “2.Definitions.- (1) In this Part, unless the context otherwise requires,- (a) ….. (b) ….. (c) ….. (d) ….. (e) "Court" means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction, having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any civil court of a grade inferior to such principal Civil Court, or any Court of Small Causes” 19. The learned counsel for the respondent No. 2 relied upon a decision of Hon’ble Apex Court in Nimet Resources Inc. & another Vs Essar Steels Ltd. reported in 2009 (17) SCC 313 where in a similar circumstances though the Hon’ble Apex Court has clearly laid down that application for terminating the mandate of an Arbitrator was not maintainable before this Court. 20. The provisions of the Arbitration Act are clear as regards the termination of the mandate of an Arbitration. The remedy for the petitioner in such a case would only be before the Principal Civil Court at Haridwar. In case, however, the present petition is for seeking the removal of the Arbitrator for the reason that he is not independent and impartial, then as we have already examined the remedy is only at the stage of challenge of the award and not before that. 21. Even otherwise, this Court is of the view that the bias against an Arbitrator must be reasonable. There must be a reasonable apprehension of bias. 21. Even otherwise, this Court is of the view that the bias against an Arbitrator must be reasonable. There must be a reasonable apprehension of bias. This Court does not find that the apprehension of bias raised against the Arbitrator are reasonable. The allegations of bias are contained in Paragraph Nos. 5, 6 and 7 of the application of P.W.2 dated 17.07.2014. These are as under:- “5. That unfortunately, the applicant/respondent No. 2 has come to know that respondent No. 3 is closely associated to the Hon’ble Tribunal. Even though the applicant does not doubt the competency of this Hon’ble Tribunal, but unfortunately, the close relationship that has been disclosed between the Hon’ble Tribunal and respondent No. 3 casts a doubt and reasonable apprehension in the mind of the applicant with respect to the independence and impartiality of this Hon’ble Tribunal. 6. That the applicant has come to know that the respected father, Shri Sat Pal Gupta of this Hon’ble Tribunal operated an agency of Desh Rakshak Aushdhalaya – which is a company which is owned and operated by respondent No. 3. The agency was operated under the name of Lok Sewa Medical Hall, Jammu. The applicant has also came to know that this Hon’ble Tribunal and respondent No. 3 used to regularly visit each other when this Hon’ble Tribunal was presiding as the Hon’ble Chief Justice of Uttarakhand High Court. The applicant has also learnt that the relationship between respondent No. 3, this Hon’ble Tribunal and his family members continue till date. 7. That in view of the facts stated hereinabove, which have come to the knowledge of the applicant after 9th July, 2014, the applicant/respondent No. 2 has justifiable doubt as to the independence and impartiality of this Hon’ble Tribunal.” 22. In its order dated 17.07.2014 the learned Arbitrator states that all throughout he was known to the father of the three brothers and all the parties (three brothers) were known to him. The Arbitrator also states in his order that he was jointly informed by all the three brothers that he has been appointed as sole Arbitrator on a joint request of all the brothers. This court had put a specific question to the earlier counsel Mr. Pankaj Miglani, who had appeared in the Arbitration (in ABRAB No. 17 of 2011) on behalf of Mr. Manoj Kumar Jain and Mr. This court had put a specific question to the earlier counsel Mr. Pankaj Miglani, who had appeared in the Arbitration (in ABRAB No. 17 of 2011) on behalf of Mr. Manoj Kumar Jain and Mr. Tosh Kumar Jain who states that the name of the Arbitrator was suggested jointly by all the three brothers, i.e. all of the parties in dispute. The reason why petitioner No. 2 wants the Arbitrator to recuse himself is not the apprehension of the independence and impartiality of the Arbitrator but because of the fact that one of the brothers i.e. Mr. Tosh Kumar Jain who has now filed a separate claim petition. Since one of the brothers has chosen to file a separate claim, this it self cannot make a ground for bias against the Arbitrator. This Court, therefore, finds that the allegations of bias against the Arbitrator are also not well founded, from the perusal of record. 23. With the aforesaid observations and determination, this Court finds no ground to interfere in the present matter. Accordingly, the petition fails and is hereby dismissed. 24. Having made the above determination, however, this Court makes it clear that the rejection of this petition will not mean that the Arbitrator is not free to recuse on his own, if he so chooses.