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TMI Blog2017 (7) TMI 1288X X X X Extracts X X X X X X X X Extracts X X X X ..... tent. For the sake of clarity, convenience and apposite appreciation, we shall state the facts from Civil Appeal No. 5306 of 2017. 2. The respondent-company is engaged in the business of procuring bulk material handling equipment for installation in thermal power plants on behalf of its clients like National Thermal Power Corporation (NTPC) and Moser Baer, Lanco Projects Ltd., etc. On 10th May, 2014, the respondent issued a purchase order to the appellant for the complete design, manufacturing, supply, transport to site, unloading, storage, erection, testing, commissioning and performance guarantee testing of various articles including wagon tippler, side arm charger, apron feeder, etc. To secure the performance under the purchase order, the appellant had submitted an advance bank guarantee and a performance bank guarantee. 3. As the controversy arose with regard to encashment of bank guarantee, the appellant approached the High Court under Section 9 of the Act seeking an order of restraint for encashment of the advance bank guarantee and the performance bank guarantee. As is reflectible from the impugned order, the said petitions were pending consideration when the High Court de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o take away a party's right to nominate a sole arbitrator, the same would have been found in the detailed list of ineligibility criteria enumerated under the Seventh Schedule to the Act and, therefore, the submission advanced by the appellant, the petitioner before the High Court, was without any substance. Additionally, the High Court noted that the learned counsel for the petitioner before it had clearly stated that it had faith in the arbitrator but he was raising the issue as a legal one, for a Managing Director once disqualified, he cannot nominate. That apart, it took note of the fact that the learned arbitrator by letter dated 28.1.2016 has furnished the requisite disclosures under the Sixth Schedule and, therefore, there were no circumstances which were likely to give rise to justifiable doubts as to the independence and impartiality. Finally, the designated Judge directed that besides the stipulation in the purchase order governing the parties, the court was inclined to appoint the former Judge as the sole arbitrator to decide the disputes between the parties. 6. Questioning the soundness of the order passed by the High Court, Mr. Sundaram, learned senior counsel for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Schedules fundamentally guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence and impartiality of the arbitrator. To elaborate, if any person whose relationship with the parties or the counsel or the subject matter of dispute falls under any of the categories specified in the Seventh Schedule, he is ineligible to be appointed as an arbitrator but not otherwise. (b) The appellants have not been able to substantiate before the High Court how the appointment of the sole arbitrator falls foul of the Seventh Schedule and in the absence of that, the appeals, being devoid of merit, deserve to be dismissed. As far as language employed in the Fifth Schedule is concerned, it is also a guide, which indicates existence of circumstances that give rise to justifiable doubts as to the arbitrator's independence and impartiality and when such a stand has been abandoned before the High Court, the impugned order is totally invulnerable. (c) On a careful appreciation of the Fifth and Seventh Schedules of the amended Act, it is manifest that grounds provided thereunder clearly pertain to the appointed arbitrator and not relating to the appoin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the buyer and the seller under or in connection with the PO, both shall make every effort to resolve it amicably by direct informal negotiation. b. If, even after 30 days from the commencement of such informal negotiation, seller and the buyer have not been able to resolve the dispute amicably, either party may require that the dispute be referred for resolution to the formal mechanism of arbitration. c. All disputes which cannot be settled by mutual negotiation shall be referred to and determined by arbitration as per the Arbitration and Conciliation Act, 1996 as amended. d. Unless otherwise provided, any dispute or difference between the parties in connection with this agreement shall be referred to sole arbitration of the Managing Director of Buyer or his nominee. Venue of arbitration shall be Delhi, and the arbitration shall be conducted in English language. e. The award of the tribunal shall be final and binding on both; buyer and seller." 9. We have reproduced the entire Clause 33 to appreciate the dispute resolution mechanism in its proper perspective. Sub-clause (c) of Clause 33 clearly postulates that if the dispute cannot be settled by negotiation, it has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch person in the form specified in the Sixth Schedule. (2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him. (3) An arbitrator may be challenged only if- (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties. (4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. (5) 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: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing." 11. We have referred to both the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... controversy, the relevant items are item nos. 1, 5 and 12, which read as follows: "1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party. xxxx xxxx 5. The arbitrator is a 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. xxxx xxxx 12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties." 15. We will be failing in our duty, if we do not refer to some of the aspects which find mention in the Fifth Schedule. Our attention has been drawn to item nos. 22 and 24 of the Fifth Schedule. They are as follows: "22. The arbitrator has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties. xxxxx xxxxx 24. The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties or an affiliate of one of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : "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 can be stated to be the reasonable steps required to be taken." 19. Being of this view, the Court ruled that the High Court had not focused on the requirement of having due regard to the qualification required by the agreement or other considerations necessary to secure appointment of an independent and impartial arbitrator and further ruled that it needs no reiteration that appointment of an arbitrator or arbitrators named in the arbitration agreement is not a must because while making the appointment, the twin responsibilities of sub-section (8) of Section 11 have to be kept in view, considered and taken into account. The Court further observed that if the same is not done, the appointment becomes vulnerable. In the said case, the Court set aside the appointment made by the High Court and remitted the matter to make fresh appointment keeping in view the parameters indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Arb LR 31 (AP), the Court held: "19. So far as cases falling under Section 11(6) are concerned - such as the one before us - no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... should act as an arbitrator. When the disputes arose between the parties, the appellant therein wrote to the Corporation for appointment of E.D. (NR) as the sole arbitrator, as per the arbitration clause. The Corporation informed the contractor that due to internal reorganization in the Corporation, the office of the E.D. (NR) had ceased to exist and since the intention of the parties was to get the dispute settled through the arbitration, the Corporation offered to the contractor the arbitration of the substituted arbitrator, that is, the Director (Marketing). The Corporation further informed the contractor that if he agreed to the same, it may send a written confirmation giving its consent to the substitution of the named arbitrator. The contractor informed that he would like to have the arbitration as per the provisions of the Act whereby each of the parties would be appointing one arbitrator each. The Corporation did not agree to the suggestion given by the company and ultimately appointed Director (Marketing) as the arbitrator. The contractor, being aggrieved, moved the High Court of Delhi for appointment of arbitrator under Section 11(6)(c) of the Act and the learned Single J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me to hold that: "19. If we apply the legal position exposited by this Court in Datar Switchgears to the admitted facts, it will be seen that the Corporation has forfeited its right to appoint the arbitrator. It is so for the reason that on 9-8-2004, the dealer called upon the Corporation to appoint the arbitrator in accordance with the terms of Clause 29 of the agreement but that was not done till the dealer had made application under Section 11(6) to the Chief Justice of the Allahabad High Court for appointment of the arbitrator. The appointment was made by the Corporation only during the pendency of the proceedings under Section 11(6). Such appointment by the Corporation after forfeiture of its right is of no consequence and has not disentitled the dealer to seek appointment of the arbitrator by the Chief Justice under Section 11(6). We answer the above questions accordingly. 20. Section 11(8) does not help the Corporation at all in the fact situation. Firstly, there is no qualification for the arbitrator prescribed in the agreement. Secondly, to secure the appointment of an independent and impartial arbitrator, it is rather necessary that someone other than an officer of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authority had not appointed arbitrator till the dealer moved the Court and it did appoint during the pendency of the proceeding. Be it noted that dealer had called upon the Corporation to appoint arbitrator on 9.8.2004 and as no appointment was made by the Corporation, he had moved the application on 6.12.2004. The Corporation appointed the sole arbitrator on 28.12.2004 after the application under Section 11(6) was made. Taking note of the factual account, the Court opined that there was a forfeiture of the right of appointment of arbitrator under the agreement and, therefore, the appointment of the arbitrator by the Corporation during the pendency of the proceeding under Section 11(6) of the Act was of no consequence and remanded the matter to the High Court. The arbitration clause in Newton Engineering (supra) clearly provided that if the authority concerned is not there and the office ceases to exist and parties are unable to reach any agreed solution, the arbitration clause shall cease to exist. Such a stipulation was not there in Deep Trading Company (supra). That is the major distinction and we shall delineate on the said aspect from a different spectrum at a later stage. 30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent company to nominate the senior management to discuss the matter and to try and resolve the dispute between the parties. However, without exhausting the mediation process, as contemplated under Article 20(a) of the agreement, the respondent unilaterally and without prior notice addressed a request for arbitration to the ICC International Court of Arbitration and one Mr. V.V. Veedar was nominated as the arbitrator in accordance with ICC Rules. The correspondence between the parties was not fruitful and the petitioner filed an application under Section 11(4) read with Section 11(10) of the Act for issuance of a direction to the respondent to nominate an arbitrator in accordance with an agreement dated 28.1.2005 and the Rules to adjudicate upon the disputes which had arisen between the parties and to constitute an arbitral tribunal and to proceed with the arbitration. 32. When the matter was listed before the designate of the Chief Justice of this Court, it was referred to a larger Bench and the Division Bench, analyzing the various authorities, came to hold thus: "35. ... Once the provisions of the ICC Rules of Arbitration had been invoked by Devas, the proceedings initia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to entertain and decide an application under Section 34 of the Arbitration and Conciliation Act, 1996." 37. The three-Judge Bench was called upon to lay down the meaning of the term "court" under Section 2(1)(e) and Section 42 of the Act. The Court came to hold that an essential ingredient of Section 42 of the Act is that an application under Part I must be made to a court. The three-Judge Bench adverted to the definition of the court under Section 2(1)(e) of the Act and opined that the definition contained in the 1940 Act spoke of civil court whereas the definition of the 1996 Act which says court to be the Principal Civil Court of original jurisdiction in a district or the High Court in exercise of original civil jurisdiction. That apart, Section 2(1)(e) further goes on to say that the court would not include any civil court of a grade inferior to such Principal Civil Court, or a Small Cause Court. The Court discussed with regard to the concept of 'court', referred to the meaning of the phrase "means and includes", reverted to the judgment in State of Maharashtra v. Atlanta Limited (2014) 11 SCC 619 and also reproduced few passages from the seven-Judge Bench in SBP & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case may be. (f) Section 42 will apply to applications made after the arbitral proceedings have come to an end provided they are made under Part I. (g) If a first application is made to a court which is neither a Principal Court of Original Jurisdiction in a district or a High Court exercising original jurisdiction in a State, such application not being to a court as defined would be outside Section 42. Also, an application made to a court without subject-matter jurisdiction would be outside Section 42". 39. Relying on the said pronouncement, it is urged by the learned senior counsel for the respondent that the authority in Walter Bau AG (supra) is not a precedent. 40. We have discussed in detail to understand the context in which judgment in Associated Contractors (supra) was delivered. Suffice it to mention that in Walter Bau AG (supra), the designated Judge only reiterated the principles which have been stated by a two-Judge or three-Judge Bench decisions that had dealt with Section 11 of the Act. We may also hasten to make it clear that the authority in Associated Contractors (supra) deals with a different situation and it has nothing to do with the conundrum that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purpose of setting into motion the arbitral procedure the Chief Justice or his designate is required to decide the issues, namely, (i) territorial jurisdiction, (ii) existence of an arbitration agreement between the parties, (iii) existence or otherwise of a live claim, and (iv) existence of the conditions for exercise of power and further satisfaction as regards the qualification of the arbitrator. That apart, under certain circumstances the Chief Justice or his designate is also required to see whether a long-barred claim is sought to be restricted and whether the parties had concluded the transaction by recording satisfaction of the mutual rights and obligations or by receiving the final payment without objection." 43. It is worthy to note here that in the said case, the Court set aside the impugned order as the designated Judge had entered into the billing disputes, which he could not have. The purpose of referring to these two judgments is that apart from the fact that the Designated Judge can, at the initial stage, adjudicate upon his jurisdiction, he is also entitled to scrutinize the existence of the condition precedent for the exercise of his power and also the dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the parties that in case of any dispute under this lease the same shall be referred to an arbitrator to be nominated by the lessor and the award of the arbitrator shall be final and binding on all the parties concerned." The aforesaid clause lays down that the lessor shall nominate the arbitrator. 48. In Newton Engineering (supra), though the agreement has not been produced in the judgment, the Court has anaylsed in detail the purport of the arbitration clause in the agreement and ruled that the matter shall be referred to the sole arbitration of ED (NR) of the respondent Corporation and if the said authority is unable and unwilling to act, the matter shall be referred to the sole arbitration of some other person designated by ED (NR) in his place who is willing to act as a sole arbitrator. The said post had ceased to exist and as the parties intended the matter to go to arbitration, the respondent substituted the arbitrator with the Director (Marketing) in the arbitration clause subject to the written confirmation giving the consent by the contractor. The contractor informed the Corporation that it would like to have the arbitrator appointed under the Act whereby each of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ging Director or his nominee. 53. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is the stand of the learned senior counsel for the appellant that once the Managing Director becomes ineligible, he also becomes ineligible to nominate. Refuting the said stand, it is canvassed by the learned senior counsel for the respondent that the ineligibility cannot extend to a nominee if he is not from the Corporation and more so when there is apposite and requisite disclosure. We think it appropriate to make it clear that in the case at hand we are neither concerned with the disclosure nor objectivity nor impartiality nor any such other circumstance. We are singularly concerned with the issue, whether the Managing Director, after becoming ineligible by operation of law, is he still eligible to nominate an arbitrator. At the cost of r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was disposed of by an officer acting as its delegate." 54. Be it noted in the said case, reference was made to Behari Kunj Sahkari Awas Samiti v. State of U.P. 21, which followed the decision in Roop Chand v. State of Punjab22. It is seemly to note here that said principle has been followed in Chairman, Indore Vikas Pradhikaran (supra). 55. Mr. Sundaram, has strongly relied on Firm of Pratapchand Nopaji (supra). In the said case, the three-Judge Bench applied the maxim "Qui facit per alium facit per se". We may profitably reproduce the passage: "9. ... The principle which would apply, if the objects are struck by Section 23 of the Contract Act, is embodied in the maxim: "Qui facit per alium facit per se" (What one does through another is done by 21 (1997) 7 SCC 37 22 AIR 1963 SC 1503 oneself). To put it in another form, that which cannot be done directly may not be done indirectly by engaging another outside the prohibited area to do the illegal act within the prohibited area. It is immaterial whether, for the doing of such an illegal act, the agent employed is given the wider powers or authority of the "pucca adatia", or, as the High Court had held, he is clothed with the pow ..... X X X X Extracts X X X X X X X X Extracts X X X X
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