2019 (1) TMI 1376 - SC - Indian Laws

Appointment of Mr. J. P. Bansal, retired District Judge as the sole arbitrator - imposition of transit penalty - delay in transportation of containers - non-payment of handling charges of containers for various period of time - When the proceedings before the arbitrator was pending, whether the respondent was right in filing arbitration petition approaching the High Court under Section 11 and Section 15 of the Arbitration Act, 1996 for appointment of a substitute arbitrator? Held that - The respondent having participated in the proceedings before the arbitral tribunal for quite some time and also having expressed faith in the sole arbitrator, is not justified in challenging the appointment of the Managing Director of the appellant-Corporation as the sole arbitrator. The respondent has not placed any material to show that it has reason to believe that the arbitrator had not acted independently or impartially. The respondent has not brought on record any material to entertain an apprehension that the Managing Director of the appellant-Corporation is not likely to act independently or impartially - The fact that the sole arbitrator is the Managing Director of the appellant-Corporation is not a ground to raise a presumption of bias or lack of independence on his part. The arbitration Clause 4.20.1 of Schedule-4 (General Conditions) stipulates a high official i.e. - Managing Director of the Corporation not connected with the contract or the work executed by the respondent. Having participated in the entire arbitration proceedings and acquiesced in the proceedings, the respondent is estopped from challenging the competence of the arbitrator. The respondent was not justified in filing the arbitration petition seeking appointment of an independent arbitrator. Mere neglect of an arbitrator to act or delay in passing the award by itself cannot be the ground to appoint another arbitrator in deviation from the terms agreed to by the parties. The present Managing Director of the appellant-Rajasthan Small Industries Corporation Limited shall be the sole arbitrator and the Managing Director is directed to take up the matter and continue the proceedings and afford sufficient opportunity to both the parties to adduce further evidence and to make oral submissions and pass the final award within a period of four months - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether the respondent was justified in filing an arbitration petition under Section 11 and Section 15 of the Arbitration Act, 1996, while proceedings were pending before the sole arbitrator.
2. Whether the High Court was right in deviating from the arbitration agreement and appointing an independent arbitrator.
3. Whether the Managing Director became ineligible to act as an arbitrator by virtue of Section 12 of the Arbitration and Conciliation (Amendment) Act, 2015.
4. Whether the High Court was justified in terminating the mandate of the arbitrator and appointing a substitute arbitrator due to delay in passing the award.

Issue-wise Detailed Analysis:

1. Justification for Filing Arbitration Petition:
The respondent filed an application under Section 11 and Section 15 of the Arbitration and Conciliation Act, 1996, seeking the appointment of an independent arbitrator. The appellant contended that the respondent could not have moved the application under these sections due to the arbitration agreement, which stipulated that disputes should be resolved by the Managing Director or his nominee. The Court observed that the respondent had participated in the arbitration proceedings and had expressed faith in the sole arbitrator. The respondent's subsequent challenge to the arbitrator's appointment was not justified as they had voluntarily participated in the proceedings and had not raised any substantial grounds for bias or lack of independence.

2. High Court's Deviation from Arbitration Agreement:
The High Court appointed an independent arbitrator, Mr. J.P. Bansal (Retd.), District Judge, citing delays and changes in the arbitral tribunal. The Supreme Court held that the High Court was not right in appointing an independent arbitrator without considering the terms of the agreement, which specified that disputes should be referred to the Managing Director or his nominee. The Court emphasized that the parties should abide by the terms of the arbitration agreement and that the respondent was estopped from challenging the competence of the arbitrator after having participated in the proceedings.

3. Ineligibility of Managing Director as Arbitrator:
The respondent argued that by virtue of Section 12 of the Arbitration and Conciliation (Amendment) Act, 2015, the Managing Director became ineligible to act as an arbitrator. The Supreme Court noted that the arbitration proceedings commenced in 2009, before the Amendment Act came into force. Therefore, the provisions of the Amendment Act, 2015, were not applicable to the case. The Court cited previous judgments to support the view that the statutory provisions in force before the Amendment Act would govern the matter.

4. Termination of Arbitrator's Mandate Due to Delay:
The High Court terminated the mandate of the arbitrator appointed as per the agreement, citing delays in passing the award. The Supreme Court observed that mere neglect or delay by an arbitrator does not justify appointing another arbitrator in deviation from the agreed terms. The Court referred to legal principles and previous judgments, emphasizing that the appointment of a substitute arbitrator should be in accordance with the original agreement. The Court held that the High Court was not right in appointing an independent arbitrator without adhering to the terms of the agreement.

Remedy to the Respondent:
The Supreme Court set aside the award dated 21.01.2016, noting that the respondent was not given sufficient opportunity to present its case. The Court exercised its power under Article 142 of the Constitution to do complete justice between the parties. The Court directed the present Managing Director of the appellant to act as the sole arbitrator and to conclude the proceedings within four months, ensuring that both parties are given a fair opportunity to present their cases.

Conclusion:
The Supreme Court allowed the appeal, set aside the High Court's order appointing an independent arbitrator, and directed the present Managing Director of the appellant to continue as the sole arbitrator, ensuring a fair and timely resolution of the dispute.

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