Research › Search › Judgment

Andhra High Court · body

2018 DIGILAW 269 (AP)

Vinod Baid v. Chadalavada Krishnamurthy

2018-04-13

RAMESH RANGANATHAN

body2018
ORDER : 1. This application is filed, under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short the 1996 Act), seeking appointment of a Sole Arbitrator, to decide the inter se disputes between the applicant and the respondents, on the ground that the mandate of the earlier Arbitrator stood terminated under Section 14(1)(a) of the 1996 Act. Facts, to the limited extent necessary, are that, pursuant to a Memorandum of Understanding entered into on 9.12.2008, the applicant continued as the Chairman and Whole-Time Director of the Company whereas the 1st respondent was designated as the Managing Director of the Company. Certain disputes arose between the parties, resulting in a fresh Memorandum of Understanding being entered into on 14.9.2011. The applicant invoked the jurisdiction of this Court, under Section 11 of the 1996 Act, seeking appointment of a Sole Arbitrator and, by order in AA No. 86 of 2013 dated 4.10.2013, a retired Judge of this Court was appointed as the Sole Arbitrator to adjudicate the disputes among the parties. The learned Arbitrator was requested to make an award within five months from the date on which he entered reference. Several extensions appear to have been granted thereafter, and on the ground that no award was passed even by December, 2017, the application in AAMP No. 1158 of 2017 was filed to substitute the Sole Arbitrator, by appointing any other competent Sole Arbitrator, or a panel of Arbitrators, to continue the proceedings. 2. Several extensions appear to have been granted thereafter, and on the ground that no award was passed even by December, 2017, the application in AAMP No. 1158 of 2017 was filed to substitute the Sole Arbitrator, by appointing any other competent Sole Arbitrator, or a panel of Arbitrators, to continue the proceedings. 2. Both Sri Milind G. Gokhale, learned Counsel for the applicant and Sri T. Surya Satish, learned Counsel for the 2nd respondent, would submit that the Sole Arbitrator did not pass an award within the time granted by this Court initially, or within the period as extended from time to time; there was undue delay on his part in passing an award; consequently his mandate stood terminated under Section 14(1)(a) of the 1996 Act; as a consequence of the Arbitrator being terminated, by operation of law under Section 14(1)(a), the applicant is entitled to invoke the jurisdiction of this Court seeking appointment of a substitute Arbitrator under Section 11(6) read with Section 15(2) of the 1996 Act; since the Arbitrator was appointed by the High Court, under Section 11(4) and (5) of the 1996 Act, the power to terminate his mandate and appoint a substitute Arbitrator in his place, lies only with the High Court on its jurisdiction being invoked under Section 11(6) read with Section 15(2) of the 1996 Act in view of Section 29 of the 1996 Act, failure on the part of the Arbitrator, to pass an award within twelve months, results in automatic termination of his mandate; and as a matter of abundant caution, an Original Petition has been filed before the City Civil Court, Hyderabad under Section 14(2) of the 1996 Act. Both the learned Counsel would rely on a Division Bench judgment of this Court in Deepak Galvanising and Engineering Industries Pvt. Ltd. vs. Government of India, 1997 (5) ALD 765 , the Allahabad High Court in Rungta Projects Ltd. vs. Government of Uttar Pradesh, 2012 (6) ADJ 214 and the Supreme Court in NBCC Limited vs. J.G. Engineering Private Limited, (2010) 2 SCC 385 , in this regard. 3. On the other hand Sri Sripada Prabhakar, learned Counsel appearing on behalf of Sri Ch. 3. On the other hand Sri Sripada Prabhakar, learned Counsel appearing on behalf of Sri Ch. Ramesh Babu, learned Counsel for the 1st respondent, would submit that the jurisdiction of this Court could not have been invoked by the applicant seeking appointment of a substitute Arbitrator, as the original Arbitrator appointed by this Court still continues to hold office; the jurisdiction to determine, whether or not the mandate of the Arbitrator stands terminated, is not conferred on the High Court under Section 11(6) of the 1996 Act, but on the competent civil Court under Section 14(2) thereof; and it is only after the mandate of the Arbitrator is terminated, by a competent civil Court under Section 14(2) of the 1996 Act, can an application be made, under Section 15(2) thereof, for appointment of a substitute Arbitrator. Learned Counsel would rely on a Division Bench judgment of this Court in Gurcharan Singh Sahney vs. Harpreet Singh Chabbra, 2016 (4) ALD 141 (DB) : 2016 (3) ALT 593 (DB). 4. While Section 11 of the 1996 Act relates to appointment of Arbitrators, Section 11(4) and (5) of the 1996 Act confer power on the High Court to appoint an Arbitrator. Section 11(6) of the 1996 Act confers power on the High Court to take the necessary measure. Termination of the mandate of an Arbitrator is governed not by Section 11, but by Section 14 of the said Act. Section 14 relates to failure or impossibility to act and, under sub-section (1)(a) thereof, the mandate of Arbitrator terminates, and he shall be substituted by another Arbitrator, if he becomes de jure or de facto unable to perform his functions or, for other reasons, fails to act without undue delay. While the mandate of an Arbitrator would stand terminated if he fails to act without undue delay, Section 14(2) of the 1996 Act stipulates that, 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. If the parties, to the arbitration agreement, are not ad-idem on the failure of the Arbitrator to perform his functions, or of his having acted without undue delay, then the controversy relating to these issues can only be resolved by way of an application to the Court, which shall decide on the termination of the mandate. 5. Section 2(e)(i) of the 1996 Act defines Court to mean, in the case of an arbitration other than an international commercial arbitration, the Principal Civil Court of original jurisdiction in a district, and includes the High Court, in the 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 the suit, but does not include any civil Court of a grade inferior to such Principal Civil Court, or any Court of small Causes. The High Court of Judicature of Telangana and Andhra Pradesh at Hyderabad does not exercise ordinary original civil jurisdiction except in the exercise of its admiralty jurisdiction; and, consequently, it is only the Principal Civil Court of original jurisdiction in Hyderabad District which, in view of Section 2(e)(i) of the 1996 Act, is the Court which, on an application being made before it under Section 14(2), can decide on whether or not the mandate of the Arbitrator stands terminated for his failure to act without undue delay. 6. Section 15(1) of the 1996 Act stipulates that, 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. Section 15(2) stipulates that, 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. The rules that are applicable, to the appointment of an Arbitrator being replaced, are clauses in the arbitration agreement Gamesa Wind Turbines Pvt. Ltd. Chennai vs. Mytrah Energy (India) Ltd. Hyderabad, Order in Arbitration Application No. 55 of 2015 dated 27.12.2017, reported in 2018 (2) ALD 91 . The rules that are applicable, to the appointment of an Arbitrator being replaced, are clauses in the arbitration agreement Gamesa Wind Turbines Pvt. Ltd. Chennai vs. Mytrah Energy (India) Ltd. Hyderabad, Order in Arbitration Application No. 55 of 2015 dated 27.12.2017, reported in 2018 (2) ALD 91 . An application seeking appointment of a substitute arbitrator can only be made if the mandate of the original arbitrator terminates and, if there is a controversy or a dispute between the parties as to whether or not the mandate of the arbitrator stood terminated, such a controversy can only be resolved by way of a petition filed under Section 14(2) before the Court as defined in Section 2(e)(i) of the 1996 Act, and not by way of an application, under Section 11(6) of the 1996 Act, to the High Court. 7. Section 29-A of 1996 Act was inserted by Act 3 of 2016 with retrospective effect from 23.10.2015. While it is debatable whether the said provision would apply to cases where an Arbitrator has been appointed prior thereto, I shall, for the limited purpose of the present case, proceed on the premise that the said provision would apply. Section 29-A(1) stipulates that an award shall be made within a period of twelve months from the date the arbitral Tribunal enters upon the reference. Under Section 29-A(3) the parties may, by consent, extend the period, specified in sub-section (1) for making an award, by a further period not exceeding six months. It is not in dispute that, in the present case, even the six months period, after expiry of the twelve month period stipulated in Section 29-A(1), has expired. Section 29-A(4) stipulates that, if the award is made within the period specified in sub-section (1) or the extended period specified under sub-section (3), the mandate of the Arbitrator shall terminate unless the Court has either prior to, or after, expiry of the period so specified, extended the period. Under the proviso thereto, while extending the period under Section 29-A(4), if the Court finds that the proceedings have been delayed for reasons attributable to the arbitral Tribunal, then, it may order reduction of fees of the Arbitrators not exceeding five per cent for each month of such delay. Under the proviso thereto, while extending the period under Section 29-A(4), if the Court finds that the proceedings have been delayed for reasons attributable to the arbitral Tribunal, then, it may order reduction of fees of the Arbitrators not exceeding five per cent for each month of such delay. Section 29-A(5) stipulates that extension of the period, referred to in sub-section (4), may, on the application of any of the parties, be granted only for sufficient cause, and on such terms and conditions as may be imposed by the Court. Section 29-A(6) stipulates that, while extending the period referred to in sub-section (4), it shall be open to the Court to substitute one or all of the Arbitrators and, if one or all of the Arbitrators are substituted, the arbitral proceedings shall continue from the stage already reached, and on the basis of the evidence and material already on record and the Arbitrators, appointed under the section, shall be deemed to have received the said evidence and material. Sub-section (8) of Section 29-A provides that it shall be open to the Court to impose actual or exemplary costs upon any of the parties under this section. Section 29-A(9) provides that an application, filed under sub-section (5), shall be disposed of by the Court, as expeditiously as possible, and endeavour shall be made to dispose of the matter within a period of sixty days. 8. While it is no doubt true that the time limit specified under Section 29-A(1), for an award to be made, is twelve months from the date the arbitral Tribunal enters upon a reference, sub-section (4) stipulates that the mandate of the Arbitrators shall terminate unless the Court has, either prior to or after expiry of the period so specified, extended the period. The proviso to clause (4) of Section 29-A confers power on the Court to reduce the fees payable to an Arbitrator, if reasons for the delay is attributable to the arbitral Tribunal itself. Unlike Section 11 of the 1996 Act which, in several of its sub-sections, repeatedly refers to the High Court, both Sections 14(2) and 29-A of the 1996 Act refer only to a Court and not to the High Court. Unlike Section 11 of the 1996 Act which, in several of its sub-sections, repeatedly refers to the High Court, both Sections 14(2) and 29-A of the 1996 Act refer only to a Court and not to the High Court. In the light of the definition of a Court, under Section 2(e)(i) of the 1996 Act, it is evident that Parliament was conscious of the distinction between a High Court, on the one hand, and Court on the other; and, since both Sections 14(2) and 29-A refer only to a Court and not the High Court, it is only the jurisdiction of the Court, as defined in Section 2(e)(i) of the 1996 Act, which can be invoked, and not that of the High Court. Different use of words in two provisions of a Statute is for a purpose. If the field of the two provisions/Articles were to be the same, the same words would have been used. B.R. Enterprises vs. State of U.P. (1999) 9 SCC 700 : AIR 1999 SC 1867 : 1999 (3) ALD (S.C.S.N.) 31. When words of different import are used in a Statute, in two consecutive provisions, it would be difficult to maintain that they are used in the same sense, and the conclusion must follow that the two expressions have different connotations. Member, Board of Revenue vs. Arthur Paul Benthall, AIR 1956 SC 35 : (1955) 2 SCR 842 . When the Legislature has taken care of using different words/phrases in different sections, normally different meaning is required to be assigned to the language used by the Legislature. If, in relation to the same or similar subject-matter, different words of different import are used in the same statute, there is a presumption that they are not used in the same sense. Arthur Paul Benthall's case (supra), Oriental Insurance Co. Ltd. vs. Hansrajbhai V. Kodala, (2001) 5 SCC 175 : AIR 2001 SC 1832 . If the legislative intention was not to distinguish, there would have been no necessity of expressing the position differently. When the situation has been differently expressed the Legislature must be taken to have intended to express a different intention. CIT vs. East West Import and Export (P) Ltd. (1989) 1 SCC 760 . If the legislative intention was not to distinguish, there would have been no necessity of expressing the position differently. When the situation has been differently expressed the Legislature must be taken to have intended to express a different intention. CIT vs. East West Import and Export (P) Ltd. (1989) 1 SCC 760 . Use of two different words High Court and Court, in Section 11 on the one hand, and Sections 14(2) and 29-A on the other, necessitate the presumption that they are not used in the same sense. 9. In Deepak Galvanising and Engineering Industries Private Limited's case (supra), a Division Bench of this Court, on its jurisdiction under Section 11(5) of the 1996 Act being invoked, observed that the mandate of the Arbitrator shall be deemed to have been terminated if he failed to act without undue delay under Section 14(1)(a) of the 1996 Act. While the aforesaid observations were made, by the Division Bench of this Court, in an application filed under Section 11(5) of the 1996 Act, the fact remains that neither were the provisions of Section 14(2) noticed in the said judgment nor was the jurisdiction of the High Court, to entertain an application to declare that the mandate of the Arbitrator stood terminated under Section 14(1)(a) of the 1996 Act, put in issue therein. Reliance placed, on behalf of the applications, on the Division Bench judgment in Deepak Galvanising and Engineering Industries Private Limited's case (supra), is misplaced. 10. In Rungta Projects Ltd.'s case (supra), a learned Single Judge of the Allahabad High Court, following the judgment of the Division Bench of this Court in Deepak Galvanising and Engineering Industries Private Limited's case (supra), observed that, where the mandate of the Arbitrators stands terminate under Section 14(1), a substitute Arbitrator is required to be appointed. In the aforesaid judgment of the Allahabad High Court, the learned Single Judge, after examining the facts of the case before him, concluded that the mandate of the Arbitrator stood terminated; and held that, as there was no controversy that the mandate of the Arbitrator stood terminated, there was no need to get the mandate terminated under Section 14(2). In the case on hand the 1st respondent does not agree with the applicant that the mandate of the Arbitrator stood terminated because of undue delay on his part in passing the Award. In the case on hand the 1st respondent does not agree with the applicant that the mandate of the Arbitrator stood terminated because of undue delay on his part in passing the Award. Sri Sripada Prabhakar, learned Counsel appearing on behalf of the 1st respondent, would emphatically state that the 1st respondent disputes the applicant's contention of undue delay on the part of the Arbitrator. As it is evident that there is a controversy, regarding the mandate of the Arbitrator standing terminated under Section 14(1)(a) of the Act, such a controversy can only be resolved on the jurisdiction of the Court, as defined in Section 2(e)(i) of the 1996 Act, being invoked. 11. In NBCC Limited's case (supra), an application was made to the Calcutta High Court, under Section 14 of the 1996 Act, for a declaration that the mandate of the Arbitrator stood terminated. The Calcutta High Court held that the mandate of the Arbitrator stood terminated. On the matter being carried in appeal, the Supreme Court observed: "........With reference to the contention made by the appellant that the Arbitrator having concluded the proceedings could not be said to have failed to act so as to attract the provisions of Section 14 of the Act, which will call for termination of the arbitration proceeding. It is pertinent to mention here that the Arbitrator had not concluded the proceedings as had been agreed to by the parties within the time fixed for doing so. The mandate of the Arbitrator was terminated only because of the fact that the Arbitrator having failed to conclude his proceedings within time did not warrant to be continued as an Arbitrator in the absence of the consent of both the parties. It is clear from a bare reading of sub-section (1)(a) of Section 14 of the Act, the mandate of an Arbitrator shall terminate if he fails to act without undue delay. In the present case, it is clear that the Arbitrator had extended the time provided to it without any concrete reasons whatsoever and thus his mandate was liable to be terminated. Sub-section (1)(b) further states that the mandate of an Arbitrator shall also stand to be terminated if he withdraws from his office or the parties agree to the termination of his mandate. Sub-section (1)(b) further states that the mandate of an Arbitrator shall also stand to be terminated if he withdraws from his office or the parties agree to the termination of his mandate. From a perusal of the records and the submissions of the parties, we observe that the mandate of the Arbitrator was extended by an agreement between the parties, which was not extended beyond 30.9.2005. Thus it can be construed that the parties had not agreed to the extension of the mandate of the Arbitrator failing which, the mandate was automatically terminated. Further, sub-section (2) of Section 14 of the Act stipulates that if a controversy remains concerning any of the grounds referred to under clause (a) of sub-section (1), a party may, unless otherwise agreed to by the parties, apply to the Court to decide on the termination of the mandate. Thus, the respondent rightly applied to the Court for the termination of the mandate of the Arbitrator pursuant to the provisions of this section, and the Court was within its jurisdiction to decide accordingly........." (Emphasis supplied) 12. As noted hereinabove, the word Court has been defined, under Section 2(e)(i) of the 1996 Act, to mean not only the Principal Civil Court of original jurisdiction in a district, but to also include the High Court in the exercise of its ordinary original civil jurisdiction. The High Court at Hyderabad does not exercise ordinary original civil jurisdiction except in admiralty matters and, consequently, it would not fall within the definition of a Court under Section 2(e)(i) of the 1996 Act. Unlike this High Court, the Calcutta High Court exercises ordinary original civil jurisdiction and, consequently, an application under Section 14(2) of the 1996 was rightly filed, in the aforesaid case, before the Calcutta High Court. 13. In Gurcharan Singh Sahney's case (supra), reliance on which is placed by Sri Sripad Prabhakar, learned Counsel appearing on behalf of the 1st respondent, the scope of Section 14(2) arose for consideration and a Division Bench of this Court observed: "............Section 14(1)(a) of the Act relates to termination of the mandate of an Arbitrator if, for other reasons, he fails to act without undue delay. The word delay is qualified by the word undue. Undue delay, and not mere delay, would alone justify the Court declaring that the mandate of the Arbitrator stands terminated. The word undue means unjustified, unwarranted, unreasonable, excessive, inordinate. The word delay is qualified by the word undue. Undue delay, and not mere delay, would alone justify the Court declaring that the mandate of the Arbitrator stands terminated. The word undue means unjustified, unwarranted, unreasonable, excessive, inordinate. In order to declare that the mandate of the Arbitrator stands terminated, the Court must be satisfied that the delay, on the part of the Arbitrator is unjustified, inordinate or unwarranted. For the Court, exercising jurisdiction under Section 14(2) of the Act, to declare that the mandate of the Arbitrator stands terminated, the petitioner was not only required to plead but also to prove that the Arbitrator had failed to act without undue delay. The word fail means neglect, go wrong or fall short of what is expected. What the petitioner was required to plead and prove is that the Arbitrator had neglected to act without excessive or inordinate delay........." (Emphasis supplied) 14. For the reasons stated hereinabove, I am satisfied that the jurisdiction of this High Court cannot be invoked, by way of an application under Section 11 of the 1996 Act, to declare that the mandate of the Arbitrator stands terminated under Section 14(1)(a) thereof. Any such application can only be made, under Section 14(2), before the Court as defined under Section 2(e)(i) of the 1996 Act. As the jurisdiction of the civil Court has already been invoked, under Section 14(2) of the 1996 Act, suffice it to make it clear that the said petition, filed under Section 14(2) of the 1996 Act, shall be considered by the civil Court on its merits and in accordance with law. The application is, accordingly, disposed of. Liberty is granted to the 1st respondent to make an application seeking continuance of arbitral proceedings and for extension of time for the Arbitrator to pass an award.