Managing Director, Kerala State Film Development Corporation Ltd v. L. Rajendran
2024-08-22
C.S.SUDHA
body2024
DigiLaw.ai
ORDER : C.S. SUDHA, J. The revision petition under Section 115 CPC and original petition under Article 227 of the Constitution of India have been filed by the respondent, Kerala State Film Development Corporation Ltd. (the KSFDC), against the common order dated 26/10/2019 of the 1st Additional District Judge, Ernakulam, in C.M.A.(Arb.) No.978/2018 and C.M.A.(Arb.) No.303/2019. The parties herein will be referred to as described in C.M.A.(Arbitration) No.978/2018. 2. The petitioner in C.M.A.(Arb.) No.978/2018, producer of feature film by name 'Little Masters’, availed the facilities at Chitranjali Studio, Thiruvananthapuram, run by the KSFDC for the production of his movie relating to which the parties had entered into an agreement dated 01/09/2011. completed in December 2011. Thereafter, alleging deficiency in service and loss, the petitioner raised a dispute under clause 34 of the agreement and claimed an amount of Rs.60,60,000/-for the loss alleged to have been suffered by him under various heads. The respondent KSFDC rejected the request of the petitioner. The petitioner invoking the arbitration clause in the agreement filed Arbitration Request No.12 of 2013 before this Court. By order dated 18/03/2014, Sri. Paul Simon, Retd. District Judge was appointed as the sole Arbitrator. Pursuant to the said order, arbitral proceedings bearing number ARC (PS) 03/2014 commenced. 2.1. During the course of the proceedings, CW1 to CW4 were examined on the side of the petitioner. Thereafter, RW1 to RW3 were examined on the side of the respondent KSFDC. According to the petitioner, the examination of the then sound engineer of the KSFDC as RW4 could not be completed within a day and hence it was adjourned to another day. However, on the said day, the counsel for the petitioner was unable to appear before the Arbitrator for cross examining RW4 due to certain unavoidable circumstances. Though the Arbitrator was informed about the difficulty of the lawyer, without considering the same, he closed the examination of RW4 and adjourned the matter for hearing. The petitioner then filed I.A.No.06/2018 seeking permission to reopen the evidence and to recall RW4 for further cross examination. This application was allowed, and summons was issued to RW4. However, the witness never turned up for cross examination. Hence, the Arbitrator allowed the petitioner to take necessary steps to ensure the presence of RW4.
The petitioner then filed I.A.No.06/2018 seeking permission to reopen the evidence and to recall RW4 for further cross examination. This application was allowed, and summons was issued to RW4. However, the witness never turned up for cross examination. Hence, the Arbitrator allowed the petitioner to take necessary steps to ensure the presence of RW4. The petitioner moved C.M.A.(Arb.) No.978/2018 under Section 27 of the Arbitration and Conciliation Act, 1996 (the Act) requesting the court to issue a warrant to RW4 to procure his presence before the Arbitrator. 2.2. The respondent KSFDC filed a detailed counter affidavit inter alia contending that delaying tactics was being adopted by the petitioner; that sufficient opportunity had already been granted to the petitioner and that the Arbitrator was granting adjournments on the mere asking of the petitioner and hence the petition was liable to be dismissed. 3. The KSFDC alleging bias, delay, inefficiency and incompetence of the Arbitrator, moved C.M.A.(Arb.) No.303/2019 under Section 14(2) read with Section 15 of the Act for terminating the mandate of the Arbitrator. According to the KSFDC, the petitioner was unnecessarily protracting the matter and seeking adjournments repeatedly without any reasonable cause. Despite the adjournment requests and delaying tactics of the petitioner being strongly objected to by the KSFDC, the Arbitrator ignoring the same kept liberally granting the requests for adjournment. The Arbitrator has also been unable to complete the proceedings within the time limit prescribed under Section 29-A of the Act, which shows his inefficiency. The KSFDC has been made liable to Arbitrator's fees for all the posting dates on which adjournments were sought by the petitioner. As the arbitration proceedings continue indefinitely, the same is causing great financial liability and loss to the KSFDC. Moreover, the Arbitrator has no right to modify his fees, once the same has been fixed by consent of both the parties. The Arbitrator's fee has exceeded the rates specified in the Fourth Schedule of the Act besides the scales specified in Schedule A of the Kerala High Court (Fee Payable to Arbitrators) Rules, 2017. The respondent KSFDC is being compelled to pay amounts which exceed the fees that had been fixed by consent of the parties. Despite the irresponsible, callous and repeated defaults on the part of the petitioner, no action is being taken by the Arbitrator.
The respondent KSFDC is being compelled to pay amounts which exceed the fees that had been fixed by consent of the parties. Despite the irresponsible, callous and repeated defaults on the part of the petitioner, no action is being taken by the Arbitrator. This conduct raises doubts as to the impartiality of the Arbitrator and resultantly the Arbitrator has become de facto unable to perform his functions. The collection of unreasonable fees by the Arbitrator and insistence of the Arbitrator to pay fees in excess of the limits of de facto inability of the Arbitrator to perform his functions. There has been unreasonable interference and bullying by the Arbitrator during the examination of the witnesses of the respondents, namely, RW1 and RW4, which again raises justifiable doubt as to the impartiality of the Arbitrator. The Arbitrator has even refused to receive petitions filed by the KSFDC, which amounts to misconduct. Gross illegalities committed by the Arbitrator while passing various orders raise doubts as to the capability of the Arbitrator to adjudicate on the issues involved in the arbitration proceedings and so the Arbitrator has become de jure unable to perform his functions. The respondent KSFDC has lost confidence in the Arbitrator. Grant of long adjournments by the Arbitrator at the request of the petitioner and giving unnecessary postings has resulted in the failure of the Arbitrator to act without undue delay. No attempt has been made by the Arbitrator to ensure that the proceeding was not unduly delayed and to complete it expeditiously. Twelve months period stipulated in Section 29-A of the Act for passing the Award has expired long back. The Arbitrator has become de jure and de facto unable to perform his functions and there has also been a failure on the part of the Arbitrator to complete the proceedings without undue delay. The mandate of the Arbitrator therefore stands terminated and he has become functus officio. Hence, the petition seeking a declaration that the mandate of the Arbitrator stands terminated. 4. The petitioner filed objection denying all the allegations contained in the petition. The request for adjournments made by the petitioner was for valid reasons and due to unavoidable circumstances. In fact, it was the KSFDC who was delaying the matter by filing petitions one after the other. The KSFDC took several days for completing the cross examination of the petitioner and his witnesses.
The request for adjournments made by the petitioner was for valid reasons and due to unavoidable circumstances. In fact, it was the KSFDC who was delaying the matter by filing petitions one after the other. The KSFDC took several days for completing the cross examination of the petitioner and his witnesses. The allegation that the Arbitrator had unnecessarily interfered and bullied the witnesses of the respondent during the examination is incorrect and false. On the other hand, during the cross examination of RW1, the counsel appearing for the KSFDC kept interfering in the cross examination which was strongly objected to by the petitioner's counsel. Despite objections being raised, the Arbitrator never interfered in the matter as a result of which, many answers of RW1 which were in favour of the petitioner were not recorded. The Arbitrator was in fact acting in a partial and biased manner towards the KSFDC. There was never any irresponsible conduct or callousness or repeated defaults on the side of the petitioner as alleged by the respondent. The Arbitrator was unable to complete the arbitration proceedings within the time limit provided under Section 29-A of the Act because of the failure on the part of the respondent to make any earnest effort to complete the proceedings expeditiously. What remains now is the examination of RW4 alone. There is no bona fide in the petition and hence the same is liable to be dismissed. 5. Both the applications were heard and by the impugned common order, the applications were dismissed. Aggrieved, the respondent KSFDC has come up challenging the same. 6. Heard both sides. 7. The learned Senior counsel appearing for the KSFDC quite persuasively and strenuously canvassed for the termination of the mandate of the Arbitrator on the grounds of bias, incompetence and inefficiency of the Arbitrator. It was also pointed out that once the fee of the Arbitrator has been fixed as agreed to by either side, the same cannot be increased/varied unilaterally by the Arbitrator except with the consent of all the parties or by an order of the Court. In support of this argument, reference was made to the dictum in Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV, AIR 2022 SC 4413 : 2022 KHC 6871.
In support of this argument, reference was made to the dictum in Oil and Natural Gas Corporation Ltd. v. Afcons Gunanusa JV, AIR 2022 SC 4413 : 2022 KHC 6871. This plea for termination is stoutly opposed by the learned counsel appearing for the petitioner, who submitted that the claimant was and is always ready and willing to co-operate for an expeditious disposal of the proceedings before the Arbitrator. It was also pointed out that if the request of the respondent is allowed and a new Arbitrator is appointed, it would result in further monetary implications for the petitioner and also further delay in the proceedings, which is to be avoided at all cost. What now remains is the examination of RW4 alone, which can be directed to be completed within a fixed time frame by this court. However, the learned counsel for the KSFDC was not amenable to the suggestion of the petitioner and insisted on termination of the mandate of the Arbitrator and hence I proceed to consider the matter on merits. 8. C.M.A.(Arb.) No.303/2019 was filed by the KSFDC invoking Section 14(2) read with Section 15 of the Act. Referring to clause (a) in sub-section (1) of Section 14, it was submitted by the learned Senior counsel appearing for the KSFDC that due to inefficiency, incompetence and bias, the arbitrator has become de jure as well as de facto unable to perform his functions. He has also been unable to complete the proceedings without undue delay and therefore the grounds under Section 14(1)(a) have been clearly made out for terminating his mandate. 9. Section 14 reads thus - “14. Failure or impossibility to act. -(1) The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, 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.” (Emphasis supplied). 9.1. A reading of Section 14 makes it clear that the mandate of the Arbitrator would terminate and he would be substituted by another Arbitrator, if the two conditions as stated therein are fulfilled namely; (i) he becomes de jure or de facto unable to perform his functions or for other reasons, fails to act without undue delay; and (ii) he withdraws from his office or the parties agree to the termination of his mandate. If only both these conditions are satisfied, the mandate of the Arbitrator would stand terminated, and he would be substituted by another Arbitrator. Sub-section (2) of Section 14 says that if the 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. In the instant case, the KSFDC has no case that clause (b) of sub-section (1) is also attracted. 9.2. Further, I refer to the dictum in HRD Corporation (Marcus Oil and Chemical Division) v. Gail (India) Limited (formerly Gas Authority of India Ltd.), (2018)12 SCC 471 , in which the Apex Court held that after the amendment of the Act in the year 2016, a dichotomy is made between persons who become "ineligible" to be appointed as arbitrators, and persons about whom justifiable doubts exist as to their independence or impartiality. Since ineligibility goes to the root of the appointment, Section 12(5) read with the Seventh Schedule makes it clear that if the arbitrator falls in any one of the categories specified in the Seventh Schedule, he becomes "ineligible" to act as arbitrator. Once he becomes ineligible, under Section 14(1)(a), he becomes de jure unable to perform his functions since, in law, he is regarded as "ineligible".
Once he becomes ineligible, under Section 14(1)(a), he becomes de jure unable to perform his functions since, in law, he is regarded as "ineligible". To determine whether an arbitrator is de jure unable to perform his functions, it is not necessary to go to the Arbitral Tribunal under Section 13. Since such a person would lack inherent jurisdiction to proceed any further, an application may be filed under Section 14(2) to the Court to decide on the termination of his/her mandate on this ground. As opposed to this, in a challenge where grounds stated in the Fifth Schedule are disclosed, which give rise to justifiable doubts as to the arbitrator's independence or impartiality, such doubts as to independence or impartiality have to be determined as a matter of fact in the facts of the particular challenge by the Arbitral Tribunal under Section 13. If the challenge is not successful, and the Arbitral Tribunal decides that there are no justifiable doubts as to the independence or impartiality of the arbitrator / arbitrators, the Tribunal must continue the arbitral proceedings under Section 13(4) and make an award. It is only after such award is made, that the party challenging the arbitrator's appointment on grounds contained in the Fifth Schedule may make an application for setting aside the arbitral award in accordance with Section 34 on the said grounds. 10. The KSFDC has no case that any of the grounds under the Fifth or Seventh Schedule of the Act is attracted in the case on hand. In the aforesaid circumstances the KSFDC cannot invoke Section 14 of the Act. They also have no case that either clause (a) or (b) of left without any remedy. The KSFDC continues to maintain their stand of bias, prejudice, incompetence and inefficiency of the Arbitrator. On going through the voluminous pleadings of both sides, I find that both have raised allegations of bias and prejudice against the Arbitrator. However, the petitioner does not now raise any such allegation. Here I refer to Section 13 of the Act. “13. Challenge procedure. -(1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator.
However, the petitioner does not now raise any such allegation. Here I refer to Section 13 of the Act. “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 subsection (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 subsection (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.” Sub-section (1) envisages that parties may agree to a procedure for challenging an arbitrator. According to sub-section (2), failing an agreement between the parties, a party who intends to challenge an arbitrator shall within 15 days after becoming aware of the constitution of the arbitral tribunal, send a written statement of the reasons for the challenge to the arbitral tribunal. Sub-section (2) makes a reference to sub-section (3) of Section 12 of the Act which contains the grounds on which an arbitrator can be challenged. The grounds include justifiable doubts about the independence or impartiality of the arbitrator. Sub-section (3) of Section 13 contains the next step and provides that in such a situation either the arbitrator withdraws himself or the other party agrees to the challenge. Failing both, the arbitral tribunal is required to decide on the challenge. As per Sub-section (4) if the challenge to the arbitrator as above is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award.
Failing both, the arbitral tribunal is required to decide on the challenge. As per Sub-section (4) if the challenge to the arbitrator as above is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award. Sub-section (5) gives a right to the party challenging the arbitrator to make an application for setting aside the arbitral award in accordance with Section 34. 10.1. Here I refer to a Division Bench decision of the Delhi High Court in the case of Bharat Heavy Electricals Ltd. v. C. N. Garg, reported as 2001 (57) DRJ 154 . In the said case, apart from challenging the constitutional validity of Section 13(3) and (4) of the Act, the petitioner therein alleged that the sole arbitrator was biased and prejin which the court should order his removal. After referring to the object of the Act and the various provisions of the Act, it was held that one fact which permeates the Act is the emphasis on speedy disposal of arbitration proceedings. The Act unlike the old Act of 1940 has endeavoured to minimise judicial interference in the progress and completion of arbitration proceedings. That explains the introduction of Section 5 which bars judicial interference in arbitration proceedings. The legislature by bringing Section 5 was more than cautious while providing in explicit terms that no judicial authority shall intervene except where so provided. Thus, the clear mandate is to bar judicial interference except in the manner provided in the Act. If there is no provision to deal with a particular situation, courts cannot assume jurisdiction and interfere. The very purpose of arbitration, which is an alternate dispute redressal forum, is defeated once the courts interfere with these proceedings. The Act deals with the situation even when there is challenge to the constitution of the first instance. If a challenge before the arbitrator is not successful, the arbitral tribunal is permitted to continue the arbitral proceedings and make an arbitral award. Such a challenge to the constitution of the arbitral tribunal before the court is then deferred and it could be only after the arbitral award is made that the party challenging the arbitrator may make an application for setting aside an arbitral award and it can take the ground regarding the constitution of arbitral tribunal while challenging such an award.
Such a challenge to the constitution of the arbitral tribunal before the court is then deferred and it could be only after the arbitral award is made that the party challenging the arbitrator may make an application for setting aside an arbitral award and it can take the ground regarding the constitution of arbitral tribunal while challenging such an award. Law makers wanted to do away with provisions as contained in the old Act which enabled a party to approach the court in time and again during the pendency of the arbitration proceedings so that the proceedings were not unduly hampered. The mischief which existed in the earlier enactment and is sought to be removed by the present enactment cannot be allowed to be introduced by entertaining petitions in the absence of any provision in the Act in this respect. 10.2. Rejecting Section 13(3) and (4) of the Act levelled mainly on the grounds that the Act does not contain any remedy for a party who makes allegations of bias and prejudice against an arbitrator and that an arbitral award passed by such an arbitrator cannot be challenged, it was held that sub-section (5) of Section 13 provides that an aggrieved party can challenge the arbitrator and seek the relief of setting aside of such an arbitral award in accordance with Section 34 of the Act. Sub-clause (ii) of Clause (b) of sub-section (2) of Section 34 empowers the court to set aside an award where the court finds that the award is in conflict with the public policy of India. The Explanation to the clause shows that this clause has to be liberally interpreted. Public policy will include an award being challenged on account of fraud or corruption. Bias and prejudice are matters which are contrary to public policy and verge on corruption. Though the term 'public policy' is incapable of precise definition, it connotes some matter which concerns public good and public interest. The principles governing public policy are modification. Public policy comprehends only protection and promotion of public welfare. Principles of natural justice are founded on public policy. They are the very foundation of any administrative system. From time immemorial, the decisions of judicial or quasi-judicial bodies including administrative tribunals are tested on these principles.
The principles governing public policy are modification. Public policy comprehends only protection and promotion of public welfare. Principles of natural justice are founded on public policy. They are the very foundation of any administrative system. From time immemorial, the decisions of judicial or quasi-judicial bodies including administrative tribunals are tested on these principles. This initial application of the doctrine of natural justice to courts and quasi-judicial bodies has been extended even to administrative authorities who have the function of determining civil rights and obligation. Those whose duty is to decide must act judicially. The decision must be in consonance with this spirit and the Tribunal should act with a sense of responsibility. If a court is satisfied that there is merit in the allegations of bias and prejudice, the award will have to be set aside. Sub-section (5) of Section 13 has to be read along with Section 34 of the Act for this purpose. Subsection (5) of Section 13 specifically provides that party challenging the arbitrator may make an application for setting aside "such" an arbitral award in accordance with Section 34 of the Act. It clearly implies that challenge is permitted even on the grounds taken by the aggrieved party on which the challenge to the arbitral tribunal was made on the ground of bias and partiality of the arbitral tribunal. Moreover, sub-sections (1), (2) and (3) of Section 14 envisage a situation where the arbitrator may on his own, recluse himself on objection being taken qua his functioning as an arbitrator or where both the parties agree to his removal as per procedure accepted by them. If both fail, the arbitrator is required to decide on the challenge to his functioning as an arbitrator levelled by a party. The arbitrator is expected to be a fair person and if he finds that there is substance in the allegations, an arbitrator is expected to dispassionately rule on such an objection. Failing all this, the last resort for an aggrieved party is the challenge under Section 13(5) read with Section 34. (See also Dharam Prakash v. Union of India, 2007 KHC 7134 : AIR 2007 Del. 155 . 11. I am in respectful agreement with the aforesaid dictums.
Failing all this, the last resort for an aggrieved party is the challenge under Section 13(5) read with Section 34. (See also Dharam Prakash v. Union of India, 2007 KHC 7134 : AIR 2007 Del. 155 . 11. I am in respectful agreement with the aforesaid dictums. Hence at this point it is not necessary for this court to go into the allegations of bias and prejudice on the part of the arbitrator as the arbitration proceedings are yet to be concluded. After the arbitral award the aggrieved party will have a right to challenge the same, at which time the grounds of bias and prejudice urged by the KSFDC will have to be considered. Therefore, I refrain from going into the allegations of bias and prejudice and leave it open to the KSFDC to raise the same at the appropriate stage if such a need arises. 12. An argument was also advanced that the period contemplated under Section 29-A has expired and so the mandate of the Arbitrator has terminated. There seems to have been no agreement between the parties regarding the period within which the proceedings were to be completed. The Arbitrator in his proceedings dated 21/06/2014 has recorded thus -“Procedure for Arbitration will be in accordance with the principles of natural justice as agreed upon by both sides. Case will be decided on documentary evidence agreed upon by both parties. Parties agreed provisionally per sitting to be equally shared by both sides.” Section 29-A as it now stands is not applicable as it was inserted by Act 3 of 2016 w.e.f. 23/10/2015. Thereafter sub-section (1) was substituted w.e.f. 30/08/2019. Prior to its substitution, it stipulated that the award shall be made within a period of 12 months from the date the arbitral tribunal enters upon the reference. These changes came after the proceedings in this case started and therefore cannot be applied unless both parties agree to the same. Apparently, there is no such agreement. In the case on hand, the first order of the Arbitrator is dated 21/06/2014. However, even in 2019 when the petitions in question were moved before the District Court, the Arbitrator was yet to pass an award.
Apparently, there is no such agreement. In the case on hand, the first order of the Arbitrator is dated 21/06/2014. However, even in 2019 when the petitions in question were moved before the District Court, the Arbitrator was yet to pass an award. Though no period was fixed for completing the proceedings, the Arbitrator ought to have made all efforts to finish it in a time bound manner as the object of the alternative dispute resolution process of arbitration is to have expeditious and effective disposal of the disputes through a private forum of the parties' choice. 13. As far as C.M.A.(Arb.) No.978/2018 is concerned, the petitioner who moved the application seems to have no grievance against the order dismissing the same. The KSFDC challenges the same on the very same grounds raised in their petition. This application was dismissed as it was not moved in accordance with Section 27 of the Act. While dismissing the petition, liberty was given to move under Section 27 if need be. In the aforesaid circumstances, I find no grounds to interfere in the impugned order. In the result, C.R.P.No.807 of 2019 and O.P.(C)No.3041 of 2019 are dismissed. Interlocutory applications, if any pending, shall stand closed.