FLEXO FOAM PVT. LTD. v. RAJASTHAN STATE ROAD TRANSPORT CORPORATION
2016-06-03
MOHAMMAD RAFIQ
body2016
DigiLaw.ai
ORDER : MOHAMMAD RAFIQ, J. This application under Section 11 of the Arbitration and Conciliation Act, 1996(for short 'the Act') has been filed by the applicant M/s. Flexo Foam Pvt. Ltd. through its Director, Rupesh Jain praying for appointment of independent sole arbitrator for resolving its dispute with the non-applicant arising out of the agreement dated 28.04.2008 and purchase order dated 02.05.2008. Non-applicant, Rajasthan State Road Transport Corporation (for short 'the Corporation') floated a tender for supply of 900 sets of 3x2 high back non-reclining type readymade passenger bus seats for super-express blue line buses in the year 2007-08. Bid of the applicant was accepted and agreement dated 28.04.2008 was executed between the parties. The non-applicant placed a purchase order dated 02.05.2008 upon the applicant for aforesaid supply. As per the applicant, it supplied the material to the non-applicant, but before taking delivery, a team of the officers of the respondent-corporation inspected the goods at the factory of the applicant. The applicant raised 201 bills amounting to Rs. 6,28,97,224/-, out of which Rs. 5,90,71,620.68 were paid and amount of Rs. 38,25,603.32 has been withheld by the non-applicant. The non-applicant conveyed the aforesaid fact to the applicant vide letter dated 24.12.2010 contending therein that this communication was being made as per BBC decision taken in its meeting dated 07.12.2010 duly approved by the Chairman. Mr. N.K. Maloo, learned Senior Counsel appearing on behalf of the applicant argued that amount of Rs. 11,12,176.32 has wrongly been withheld by the non-applicant on account of reduction in excise duty. While the non-applicant claims that benefit of reduction in excise duty should go to them, whereas according to the applicant, the non-applicant unduly claimed such benefit because as per terms of the agreement and purchase order, the rate approved by the non-applicant was inclusive of excise duty. It is further argued that a sum of Rs. 3,47,427/- has been withheld by the non-applicant on account of alleged failure of samples. Thus, a total amount of Rs. 38,25,603.32 has unduly been withheld by the non-applicant. It is argued that despite persistent demand of the applicant, non-applicant has not made payment of outstanding dues. As per Clause 5 of the agreement, payment was to be made by the non-applicant-corporation within 15 days from the date of supply. The applicant is, therefore, entitled to interest @ 15% p.a. which comes to Rs. 4,21,724/-.
It is argued that despite persistent demand of the applicant, non-applicant has not made payment of outstanding dues. As per Clause 5 of the agreement, payment was to be made by the non-applicant-corporation within 15 days from the date of supply. The applicant is, therefore, entitled to interest @ 15% p.a. which comes to Rs. 4,21,724/-. The amount of earnest money withheld by the non-applicant should have also been refunded to the applicant. In these circumstances, the applicant served a legal notice on the non-applicant through its advocate on 23.04.2012 calling upon it to pay the outstanding amount as well as the earnest money along with interest @ 15% p.a. from respective due date till the date of payment. The non-applicant did not respond to the same. Rather, it vide letter dated 18.05.2012 demanded a sum of Rs. 1,66,035/- from the applicant towards failed samples otherwise the same was to be deducted from the earnest money. The applicant refuted the same vide its letter dated 28.06.2012. Learned Senior Counsel argued that Chairman of the Corporation has disqualified himself now to act as sole arbitrator because order dated 24.12.2010(Annexure-3), by which the aforesaid amount has been withheld by the Corporation, has been authenticated by the Chairman himself. No one can be judge of his own case. Despite that, the applicant made a request to the corporation for referring the disputes for adjudication by Chairman or his nominee as sole arbitrator vide its letter dated 12.10.2010, but the corporation failed to act and appoint arbitrator as per applicant's request. Subsequently, when vide order dated 24.12.2010 it has been conveyed to the applicant that order is being issued as per BBC decision taken in its meeting dated 07.12.2010 against the applicant, which has been duly approved by the Chairman, it became evident that he has disqualified himself to act as an arbitrator and cannot act impartially, being biased and prejudiced. Therefore, the applicant was left with no option except to approach this Court. Learned Senior Counsel, in support of his arguments, has relied upon the judgments of the Supreme Court in Bihar State Mineral Development Corporation & Another Vs. ncon Builders (I) (P) Ltd., (2003) 7 SCC 418 ; Bipromasz Bipron Trading SA Vs. Bharat Electronics Limited (BEL), (2012) 6 SCC 384 and Indian Oil Corporation Limited & Others Vs. Raja Transport Private Limited, (2009) 8 SCC 520 . Mr.
ncon Builders (I) (P) Ltd., (2003) 7 SCC 418 ; Bipromasz Bipron Trading SA Vs. Bharat Electronics Limited (BEL), (2012) 6 SCC 384 and Indian Oil Corporation Limited & Others Vs. Raja Transport Private Limited, (2009) 8 SCC 520 . Mr. S.C. Mittal, learned counsel for the non-applicant opposed the application and submitted that present application is not maintainable because the applicant without invoking arbitration clause contained in the agreement dated 28.04.2008 has approached this Court. Relying upon the judgment of this Court in M/s. Simpark Infrastructure Pvt. Ltd. Vs. Jaipur Municipal Corporation, 2013 (1) WLC(Raj.). 272, learned counsel argued that sub-section (6) of Section 11 of the Act cannot be invoked directly on expiry of 30 days notice under subsection (4) of Section 11 of the Act, by ignoring the agreed arbitral procedure. It is argued that Chairman of the nonapplicant-corporation by mere reason of approval of order dated 24.12.2010 has not disqualified himself to act as sole arbitrator. The applicant has signed the agreement containing the clause wherein Chairman of the corporation has been named as sole arbitrator. It would therefore be bound by it. Besides, it is argued that had the applicant served notice on the non-applicant for referring the dispute to the sole arbitrator, the Chairman might have referred the dispute to its nominee, rather than adjudicating the same by himself. Learned counsel relied upon the judgments of the Supreme Court in M/s. Hindustan Petroleum Corporation Ltd. Vs. Rajasthan Fauji Rakshak Cooperative Society Ltd. and argued that as per the law enunciated therein if the arbitrator has been named in the agreement, ordinarily dispute should be referred to the named arbitrator. Reliance has also been placed on the judgment of the Supreme Court in Ace Pipeline Contracts Pvt. Ltd. Vs. Bharat Petroleum Corporation Ltd. wherein it has been held that once a party has entered into an agreement with eyes wide open, it cannot wriggle out of the situation that if any person of the respondent is appointed as arbitrator, he will not be impartial or objective. It is contended that letter dated 12.10.2010 was never received by the non-applicant and by the aforesaid letter, the applicant did not invoke arbitration clause, therefore, present applicant would not be maintainable.
It is contended that letter dated 12.10.2010 was never received by the non-applicant and by the aforesaid letter, the applicant did not invoke arbitration clause, therefore, present applicant would not be maintainable. The applicant has filed copy of the aforesaid notice dated 12.10.2010 with postal receipt along with the affidavit with the rejoinder, which show that although notice dated 12.10.2010 was addressed to General Manager(B/B), M/s. Rajasthan State Road Transport Corporation, Parivahan Marg, Jaipur, but as per the postal receipt, it has been sent to General Manager, RSRTC, Jagatpura. Therefore, notice dated 12.10.2010 was sent to wrong address. It is argued that if the parties have agreed for a procedure to refer the dispute to the arbitration as contemplated under Section 11(2) of the Act, that procedure has to be complied with even as per the provisions of Section 11(6) of the Act, before approaching the Court for appointment of independent arbitrator. Since the applicant has not complied with the aforesaid procedure; present application is not maintainable and liable to be dismissed as such. Reliance in this connection has been placed on the judgments in India Household and Healthcare Ltd. Vs. LG Household and Healthcare Ltd., AIR 2007 SC 1376 ; The Iron and Steel Company Ltd. Vs. M/s. Tiwari Road Lines, AIR 2007 SC 2064 ; Standard Corrosion Controls Pvt. Ltd. Vs. Sarku Engineering Services SDN BHD, AIR 2009 SC 1138 ; M/s. Guru Kripa (A Partnership Firm) Vs. Hindustan Petroleum Corporation Limited, 2015 (2) WLC(Raj.) 467. Mr. N.K. Maloo, learned Senior Counsel rejoined and refuted claim of the non-applicant that notice dated 12.10.2010 was not served on the applicant. He has invited attention of the Court towards affidavit filed by Mr. P.C. Jain, Manager of the applicant-company with the rejoinder and submitted that copy of notice/letter dated 12.10.2010 and postal receipt have been annexed therewith. I have given my anxious consideration to rival submissions and carefully perused the material on record as well as judgments cited by the parties.
He has invited attention of the Court towards affidavit filed by Mr. P.C. Jain, Manager of the applicant-company with the rejoinder and submitted that copy of notice/letter dated 12.10.2010 and postal receipt have been annexed therewith. I have given my anxious consideration to rival submissions and carefully perused the material on record as well as judgments cited by the parties. Clause 9(i) of the agreement dated 28.04.2008 contains arbitration clause, which reads as under: "9(i) In case of a dispute arising between the parties with regard to interpretation of these terms of Agreement of their fulfillment the dispute shall be referred to the Chairman, RSRTC for arbitration who will be the Sole Arbitrator and whose decision shall be final and binding on BOTH PARTIES." Aforesaid arbitration clause would show that if any dispute arises between the parties with regard to interpretation of the terms of Agreement or their fulfillment, the dispute shall be referred to the Chairman, RSRTC for arbitration, who will be the Sole Arbitrator and whose decision shall be final and binding on both the parties. Indisputably, payment on three different counts was withheld with approval of the Chairman of the Corporation. In these circumstances, the core question which arises for consideration is whether the Chairman, being named in the agreement or his nominee, can be permitted to act as the Sole Arbitrator or this Court should on the present application appoint an independent arbitrator. The Supreme Court in Bihar State Mineral Development Corporation & Another(supra) was dealing with a case where agreement between the parties was for excavation and stacking of minerals when empowered the Managing Director to terminate the agreement in the specified events and to impose fine. The agreement further provided that disputes, if any, would be referred to the Managing Director, whose decision would be final and binding on the parties. Claims and counter claims were filed by the parties in that case. The Supreme Court held that assuming that the provision in the agreement for referring the disputes to the Managing Director was an arbitration agreement, the test of bias against the Managing Director in that case stood fully satisfied. Therefore, he lacked jurisdiction to adjudicate the said dispute, as nobody can be a judge in his own case.
The Supreme Court held that assuming that the provision in the agreement for referring the disputes to the Managing Director was an arbitration agreement, the test of bias against the Managing Director in that case stood fully satisfied. Therefore, he lacked jurisdiction to adjudicate the said dispute, as nobody can be a judge in his own case. Since the act of bias was referable to the Managing Director's action during the execution of the agreement, the question whether the contractor had entered into the contract with his eyes wide open was held to be irrelevant. The Supreme Court in Indian Oil Corporation Limited & Others(Supra) held that unless the named arbitrator was the controlling or dealing authority in regard to the subject contract or was a direct subordinate of the officer whose decision was the subject matter of the dispute, the mere fact that he was an employee of one of the parties, cannot be a ground to raise a presumption of bias, partiality or lack of independence or impartiality on his part. In that case, after receiving the respondent's notice, the appellant neither referred the matter to its Director (Marketing), nor did it take any step for the appointment of the arbitrator and it did not act as required under the agreed procedure. When the matter reached the Supreme Court, the respondent opposed the same on the ground that in view of the emphasis on the independence and impartiality of the arbitrator in Sections 11(8), 12(1) and (3) and 18 of the Act and having regard to the basic principle of natural justice that no man should be judge in his own cause, any arbitration agreement to the extent it nominated an officer of one of the parties as arbitrator would be invalid and unenforceable. The Supreme Court held that arbitration is a binding voluntary alternative dispute resolution process by a private forum chosen by the parties. If a party, with open eyes and full knowledge and comprehension of the relevant provision enters into a contract with a Government/statutory corporation/public sector undertaking containing an arbitration agreement providing that one of its Secretaries/Directors shall be the arbitrator, he cannot subsequently turn around and contend that he is agreeable for settlement of the disputes by arbitration, but not by the named arbitrator, who is an employee of the other party.
The fact that named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his part. The Supreme Court, however, further observed that there can be a justifiable apprehension about the independence or impartiality of an employee arbitrator, "if such person was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate (as contrasted from an officer of an inferior rank in some other department) to the officer whose decision is the subject matter of the dispute". The Supreme Court in the aforesaid case further held that the condition in arbitration clause that no person other than that designated therein should act as arbitrator being contrary to the Act was liable to be ignored. In Bipromasz Bipron Trading SA(supra), named arbitrator was direct subordinate of CMD, who was dealing with subject dispute and CMD's orders were to be adjudicated upon by the arbitrator. The Supreme Court held that apprehension of the petitioner therein that arbitrator appointed by respondent would not be impartial was reasonable. Further, CMD himself would not be able to act independently and impartially being amenable to directions issued by Ministry of Defence. Hence, retired Chief Justice of High Court was appointed as sole arbitrator to adjudicate upon the disputes between the parties. All the aforesaid judgments are of the period prior to promulgation of the Arbitration and Conciliation (Amendment) Act, 2015(for short 'the Act of 2015'). Appointment of an independent and impartial arbitrator has been emphasised now even by the Parliament in the newly introduced Act of 2015, especially in Clauses 1 and 5 of the Fifth Schedule with reference to explanation to Section 12(1)(b) and Clauses 1 and 5 of Seventh Schedule with reference to Section 12(5) of the Act.
Appointment of an independent and impartial arbitrator has been emphasised now even by the Parliament in the newly introduced Act of 2015, especially in Clauses 1 and 5 of the Fifth Schedule with reference to explanation to Section 12(1)(b) and Clauses 1 and 5 of Seventh Schedule with reference to Section 12(5) of the Act. Section 12(1) of the Act provides that when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances, (a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality and (b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Section 12(5) of the Act provides that notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule, shall be ineligible to be appointed as an arbitrator. Clauses 1 of both Schedule Fifth and Seventh are similarly worded which provide that if the arbitrator is an employee, consultant, advisor or has other past or present business relationship with a party, it would give rise to justifiable doubts as to his independence or impartiality. Clauses 5 of both Schedule Fifth and Seventh also provide that for a similar consequence, if any arbitrator happens to be manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. Sub-section (5) of Section 12 of the Act has been given overriding effect over any prior agreement to the contrary. Therefore, independence and impartiality of arbitrator as mandated by the Act of 2015 has now been made a paramount consideration for appointment of arbitrator. The Supreme Court in Northern Railway Administration Vs.
Sub-section (5) of Section 12 of the Act has been given overriding effect over any prior agreement to the contrary. Therefore, independence and impartiality of arbitrator as mandated by the Act of 2015 has now been made a paramount consideration for appointment of arbitrator. The Supreme Court in Northern Railway Administration Vs. Patel Engineering Company Limited, supra, observed that Section 11(6) of the Act of 1996 provides that the Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to; (a) any qualifications required of the arbitrator by the agreement of the parties; and (b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator. It was held that appointment of arbitrator or arbitrators named in the arbitration agreement is not a must, but while making appointment the twin requirements of sub-section (8) of Section 11 have to be kept in view, considered and taken into account. Mandate of law contained in sub-section (6) of Section 11 of the Act has to be followed in all such cases, which provides that, “a party may request the Chief Justice or any person or institution designated by him to take the necessary measures.” The expression “necessary” as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. This expression has to be read with the requirement in Section 11(8) of the Act that the Chief Justice or the person or an institution designated by him in appointing an arbitrator shall have “due regard” to the two cumulative conditions contained in Sections 11(8)(a) and (b) relating to qualifications and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. As held by the Supreme Court in Northern Railway Administration, Ministry of Railway, New Delhi (supra), the Court must first ensure that the remedies provided for are exhausted. But at the same time, due regard has to be given to the qualifications required by the agreement and other considerations. The expression “due regard” means that proper attention to several circumstances have been focused. The expression “necessary” as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act.
The expression “due regard” means that proper attention to several circumstances have been focused. The expression “necessary” as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. Necessary measures are the steps which are reasonably required to be taken, one of which is to secure appointment of an independent and impartial arbitrator. The fact that the notice served by the applicant pertains to part claim with regard to withholding of payment of one head and such notice was served on another venue would not lead to assumption that the notice was not served. Besides, when this Court has come to the conclusion that the Chairman, having authenticated the decision of withholding of payment due to the applicant, neither he nor his nominee can be allowed to act as sole arbitrator. At this stage now, it would not be just and proper to require the applicant again to serve fresh notice on the non-applicant and thereafter approach this Court by filing fresh application under Section 11 of the Act for appointment of independent arbitrator. In view of above discussion, the application deserves to succeed and the same is accordingly allowed. Hon'ble Mr. Justice N.L. Tibrewal (Retd.) R/o Plot No. 1, Scheme No. 8, (Near Mahadeo Nagar) Gandhi Path, Queens Road, Jaipur (Mobile No. 9414056192 and Telephone No. 0141-6512681) is hereby appointed as an independent sole arbitrator to resolve the disputes between the parties. Payment of the cost of arbitration proceedings and the arbitration fees shall be made as per the Manual of Procedure for Alternative Dispute Resolution, 2009, of this Court. A copy of this order be sent to Hon'ble Mr. Justice N.L. Tibrewal (Retd.) R/o Plot No. 1, Scheme No. 8, (Near Mahadeo Nagar) Gandhi Path, Queens Road, Jaipur ( Mobile No. 9414056192 and Telephone No. 0141-6512681).