Arbitration Petition No. 3 of 1997

5th November, 1998

Petitioner Counsel: Shri M.K. NESARI with SEKHER NAPHADE with Mr.ARUN MEHTA

Cases Cited:
AIR 1966 SC 1036 [Para 9]
AIR 1992 SC 188 [Para 9]

JUDGMENT

JUDGMENT :- This petition has been filed under Section 12 of the Arbitration and Conciliation Act, 1996 with the prayer for removing 2nd Respondent as Arbitrator in the proceedings between the Petitioner and Respondent no.1. Respondent no.2 is the Managing Director of the Respondent no.1 The purchase order between the parties dated 21-5-1996 provided for the arbitration clause. It reads as under:

"Clause 10 - Arbitration : In case of any dispute, the same shall be referred to sole arbitrator, who is managing Director of Savitri Metals Ltd. whose decision/award shall be final and binding on both the parties without any demur or re-course."

2. The dispute and difference arose between the petitioner and Respondent no.1 in respect of business carried on between them. The Respondent no.1 invoked above -mentioned arbitration clause. Hence the Respondent no.2 sent a notice to the Petitioner. The petitioner sent reply and stating that there is no agreement between the Petitioner and Respondent no.1 regarding referring the dispute to the Arbitration and Respondent No.2 has no jurisdiction. Respondent no.2 sent another notice. The Petitioner filed his preliminary written statement. Respondent no.2 thereafter addressed 2 letters to the Petitioner. On 27-12-1997 the Petitioner's Advocate appeared before the learned Arbitrator and requested for time. The matter was adjourned to 6/1/1997. Thereafter this petition has been filed contending that respondent no.2 is a biased person, he is not impartial or independent Arbitrator as he is the Managing Director of the Respondent no.1. It is also contended that Respondent no.2 has no Jurisdiction to deal with the dispute and hence should be removed.

3. The learned Counsel for the Petitioner submitted that Respondent no.2 is a biased person and he cannot act as an independent or impartial Arbitrator and he is having no jurisdiction to decide and requires to be removed.

4. There is no dispute that procedure as laid down by Section 13 and 16 is not followed in this case by the petitioner.

5. I shall first consider the scheme of Sections 12, 13 and 16 of the Arbitration and Conciliation Act, 1996.

Section 12(3) deals with the grounds for challenge, the said sub-section 12 (3) reads as under" 12. Grounds for challenge:-

1. x

2. x

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."

Section 13 lays down the procedure for challenge. The said section reads as under:

"Section 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 sub section (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 sub section (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."

6. The analysis of the said section would make it clear that the parties are free to agree on the procedure for challenging the Arbitrator subject to sub section (4). Sub section 4 provides that if the challenge is unsuccessful or in other words, rejected, the arbitral tribunal shall continue the arbitration proceedings and make an award. If the parties have not agreed on the procedure, the party wanting to challenge has to send a written statement of the reasons for the challenge to the arbitral tribunal within 15 days as mentioned in sub section 2. The arbitral tribunal is given the power to decide on the challenge unless the Arbitrator himself withdraws or the other party agrees to the challenge. If the challenge is not successful, the arbitral tribunal has to continue the proceedings and make the award. After the award has been made, the party challenging the appointment of the Arbitrator can make an application for setting aside the said award in accordance with Section 34. If the Court sets aside the award it can also decided regarding entitlement to the fees of the Arbitrator. In my opinion, this shows the anxiety of the legislature not to permit the party to raise the plea of bias at interim stage and delay the arbitration proceedings. The effect of the conjoint reading of these 2 sections is that if such a plea of bias is not raised as per Section 13, then party cannot raise it later on for challenging the award under Section 34. If it is raised, rejected and arbitral award is passed against that party then it can challenge it under Section 34.

7. Perusal of section 16 also shows the same type of anxiety on the part of the legislature that the party to the proceedings should not delay the same, Section 16 dealing with competence of arbitral tribunal has to rule on its jurisdiction and power is given to it. If the arbitral tribunal comes to the conclusion that it has jurisdiction to decide it, then it is to proceed for the award. Under section 16(6) an aggrieved party is given a right to challenge award on that ground, in accordance with Section 34. If such a plea of jurisdiction is not raised at this stage then it cannot be raised under Section 34. However both under Section 13 and 16, a party cannot file such a petition unless the procedure contemplated thereby is followed. It can also be noted that if the arbitral tribunal accepts the plea about lack of its jurisdiction or that certain dispute is beyond the scope of its authority, an appeal lies from such order to court under Section 37 (2(a).

8. It is significant to note that Rule no.1 framed by this Court under Section 82 of the Arbitration and Conciliation Act, 1996 does not make any mention about such application under Section 12, 13 and 16 of the said Act, Rule 1 deals with entitling of application, affidavit and proceedings. The note to Rule 1(a) mentions applications contemplated to be made to court under various sections.

9. The learned Counsel for the Petitioner relied upon 3 judgments viz Dr. Prem Chand Singhvi and ors. It is under Bar Councils Act (1926). It has laid down the test regarding bias i.e. When a litigant can reasonably apprehend that a bias, attributed against to a member of the tribunal, might have operated against him in the final decision of the Tribunal. He then relied upon 1) A.I.R. 1966 Supreme Court 1036 - M/s Amarchand Lalitkumar V/s Shree Ambica Jute Mills Ltd. It is under Section 5 and 34 of the Arbitration Act, 1940 and 2) A.I.R. 1992 Supreme Court 188 - Jiwan Kumar Lohia and another V/s Durgadutt Lohia and Ors. It is under section 5,11,12 of Arbitration Act, 1940.

Both these judgments lay down tests for deciding 'bias'. It has been held that while considering whether there is a reasonable ground for apprehension that Arbitrator will be biased, on an application under Section 5, the Court should be satisfied that substantial miscarriage of justice will take place in the event of its refusal of the said application. They dealt with the jurisdiction of the Court to revoke the authority of the arbitrator under Section 5. In my opinion, the scheme evolved by Sections 12, 13 and 16 of the Arbitration and Conciliation Act, 1996 is totally different from what was provided under the Arbitration Act 1940. The departure is made in the present Act clearly with a view that spokes should not be put in passing the Arbitral Award by raising such pleas. Those sections are clear in that respect. There is no provision like Section 5 of the Act of 1940, in the present Act of 1996. Further Sections 12,13 and 16 fall in part I and Section 5 of the 1996 Act. mandates that no judicial authority shall intervene except where so provided by that part. Hence these judgments cannot be applied in the present case.

Hence I pass the following order:-

The petition is not maintainable. It is not maintainable. It is rejected.

Petition dismissed.