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2017 DIGILAW 735 (CAL)

Jaydeb Purakait v. Indusind Bank Ltd

2017-08-31

I.P.MUKERJI

body2017
JUDGMENT : I.P. MUKERJI, J. 1. This application is framed under Section 11 of the Arbitration and Conciliation Act, 1996. But during the course of hearing of the application Mr. Sarkar learned counsel for the petitioner tried run an alternative case that the appointing authority or appointed arbitrator was not proceeding with the arbitration with due diligence or was refusing to act. Hence, he should be removed under Section 14 of the said Act. 2. Now, the short background of the case is that on 31st October, 2012 the parties entered into a loan cum hypothecation agreement. A loan of Rs. 20,00,000 advanced by the respondent with which the petitioner bought a Mahindra MN 25 Tipper of 25 tons. The loan amount was to be paid in monthly instalments. 3. The agreement contained an arbitration clause by which the respondent had the right to nominate an arbitrator. The petitioner allegedly committed default in the payment of the instalments. 4. In 2015 the respondent invoked the arbitration Clause under Section 21 of the Arbitration and Conciliation Act, 1996 and appointed Ms. Rajani Ramdas as the sole arbitrator. 5. On 8th March, 2016 the learned arbitrator made and published an award. This was received by the petitioner on 16th April, 2016. He moved this court under Section 34 of the Arbitration and Conciliation Act, 1996 by making an application to set it aside (AP 486 of 2016). This application stood consideration before Mr. Justice Soumen Sen. On 19th July, 2017 his lordship set aside the award. A notable feature of the order was that since apparently the respondent objected to the court appointing an arbitrator asserting that it had the right under the agreement to appoint one, the court accepted that argument, ordered a fresh reference without appointing an arbitrator. 6. This has given rise a fresh dispute. 7. There is no dispute that in terms of this court’s order dated 19th July, 2007 the respondent was to appoint an arbitrator in terms of the arbitration clause. On 15th March, 2017 the petitioner wrote to the respondent alleging that no steps had been taken by them to appoint an arbitrator. In those circumstances, they appointed Mrs. Chandrika Joshi an advocate of this court as the sole arbitrator and requested the respondent to concur with her appointment. After receipt of that letter, on 21st March, 2017 the respondent appointed Mr. In those circumstances, they appointed Mrs. Chandrika Joshi an advocate of this court as the sole arbitrator and requested the respondent to concur with her appointment. After receipt of that letter, on 21st March, 2017 the respondent appointed Mr. Partha Sarathi Basu an advocate of the court as the arbitrator. 8. It was submitted at the bar that there was no delay on the part of the respondent to appoint an arbitrator. On 19th July, 2016 this court had set aside the award and ordered a fresh reference. If the petitioner wanted a fresh reference, he ought to have approached the respondent to appoint an arbitrator. He made the approach for the first time through the letter dated 15th March, 2017 which was promptly acted upon the respondent by appointing an arbitrator on 21st March, 2017. 9. On 31st March, 2017 the petitioner protested against this appointment by saying that the respondent had no authority to do so. This is a little surprising because in their letter dated 15th March, 2017 the petitioner has specifically acknowledged the right of the respondent to appoint an arbitrator in paragraph-21 of the letter. However, in the later paragraphs he claimed that the arbitrator had to be appointed by consent of the parties. Each of the parties would appoint one arbitrator. The two appointed arbitrators would appoint three arbitrator. 10. It is very difficult to understand the exact stand of the petitioner. In their letter dated 31st March, 2017 the petitioner takes another stand that the respondent had no authority to appoint an arbitrator a second time after the award had been set aside and a fresh reference had been ordered by the court. On 25th April, 2017 the respondent asserted their authority to appoint an arbitrator. 11. The facts of this case attract the principles of law laid down by Justice Indira Banerjee in the case of Ramjee Power Construction Ltd. v. Damodar Valley Corporation reported in (2009) 2 Cal LT 394. This was an application asking the court to declare that the mandate of the arbitrator had terminated and for appointment of a substitute arbitrator. Section 15 (2) of the Arbitration and Conciliation Act, 1996 lays down: “15. This was an application asking the court to declare that the mandate of the arbitrator had terminated and for appointment of a substitute arbitrator. Section 15 (2) of the Arbitration and Conciliation Act, 1996 lays down: “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.” 12. Now, the question arose whether the rules “mentioned” in the said subsection were to mean the arbitration agreement or the provisions of the Arbitration and Conciliation Act, 1996. This court held that if an arbitrator was appointed under the agreement and his authority terminated by the court, the substitute arbitrator would be appointed according to the terms and conditions of the agreement. But if the initial appointment had been made by the court under Section 11 of the said Act, the parties had already lost the right to appoint an arbitrator, under the arbitration agreement, irreversibly. The court had to intervene under Section 11 to make the appointment in the event of termination of the court appointed arbitrator’s mandate. 13. Now, look at the situation in this case. Initially, the arbitrator had been appointed according to the arbitration agreement. This court by its order dated 19th July, 2016 had set aside the award and directed that there should be a fresh reference. Hence, a new arbitrator had to be appointed. Following the principles of the above case, since the initial arbitrator was appointed according to the arbitration agreement, the party having the right under the agreement to appoint an arbitrator had to appoint the substitute arbitrator. The respondent was to make an appointment under the agreement. Till the middle of March, 2017 they did not make any appointment. Only when the petitioner wrote to them on 15th March, 2017 appointing an arbitrator did the respondent appoint an arbitrator on 21st March, 2017. Therefore, this appointment of the arbitrator was made after eight months of the order dated 19th July, 2016. Till the middle of March, 2017 they did not make any appointment. Only when the petitioner wrote to them on 15th March, 2017 appointing an arbitrator did the respondent appoint an arbitrator on 21st March, 2017. Therefore, this appointment of the arbitrator was made after eight months of the order dated 19th July, 2016. The Supreme Court in N.B.C.C. Ltd. v. JG Engineering (P) Ltd. reported in AIR 2010 SC 640 approved the Division Bench judgement of this court from which the appeal arose which said: “Once the mandate of the arbitrator terminates, the person required to appoint arbitrator is required to fill up the vacancy with utmost expedition, failing which the provisions of Section 11(6) of the 1996 Act would be attracted. In the instant case, as per the Arbitration agreement the Chairman-cum Managing Director was required to appoint a new arbitrator in case the arbitrator became unable to continue, whatever be the reason, Even thought the time limit for conclusion of arbitration expired on 30th September, 2005, the Chairman-cum-Managing Director of the respondent did not appoint another arbitrator.” 14. The question is whether the appointment made by the letter dated 21st March, 2017 was in accordance with law? 15. In my opinion, the respondent took a very long time to appoint an arbitrator. Under Section 11 (6) of the said Act, where, under an appointment procedure, a party fails to act as required under that procedure or a person including an institution fails to perform any function entrusted to him thereunder, the other party may approach the court under Section 11 of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator. In this sub-section no time limit is prescribed. 16. Therefore, the respondent was enjoined with a duty to make the appointment of an arbitrator within a reasonable period of time. That reasonable time period had lapsed, in my opinion before 21st March, 2017. The respondent had lost its right to appoint an arbitrator. Neither the petitioner has any right to appoint an arbitrator. 17. I do not hesitate to say that the appointment of the arbitrator by the respondent by their letter dated 21st March, 2017 was absolutely contrary to law. This appointment had no effect. Their arbitrator had no authority. 18. In those circumstances in exercise of this court’s power under Section 11 (6) of the said Act I appoint Mr. Supriyo Bose, Sr. This appointment had no effect. Their arbitrator had no authority. 18. In those circumstances in exercise of this court’s power under Section 11 (6) of the said Act I appoint Mr. Supriyo Bose, Sr. Advocate, Bar LibraryClub to be the arbitrator to adjudicate upon the disputes of the parties mentioned in this petition and also those might arise between them on the filing of the statement of claim, counter statement and counter-claim if any, further to the direction of the learned arbitrator. The fees of the learned arbitrator at the rate of Rs. 20,000/- per sitting are to be borne by the parties in equal shares. The learned arbitrator is entitled to appoint a clerk and stenographer and to fix their charges. Those charges shall be borne by the parties in equal share. 19. The learned arbitrator requested to make and publish an award within one year of service upon him of a copy of this order. 20. This application is accordingly disposed of. 21. Certified photocopy of this Judgment and order, if applied for, be supplied to the parties upon compliance with all requisite formalities.