Supreme Court of India
RAJASTHAN SMALL INDUSTRIES CORPORATION LIMITEDversusM/S GANESH CONTAINERS MOVERS SYNDICATE
- Citation
- 2019 INSC 82
- Decided
- 23 January 2019
- Disposal
- Appeal(s) allowed
- Bench
- R BANUMATHI
Holding
The parties are bound by the arbitration clause appointing the Managing Director as sole arbitrator; the MD was not disqualified under the 2015 amendment, the High Court erred in replacing him, and the award of 21‑01‑2016 is set aside with the MD directed to continue as sole arbitrator.
Summary
The dispute arose from a contract between Rajasthan Small Industries Corporation Ltd (RSIC) and M/s Ganesh Containers Movers Syndicate, which contained a clause appointing the Managing Director (MD) of RSIC or his nominee as the sole arbitrator. After several delays and changes of arbitrators, the MD acted as sole arbitrator but the award was finally passed ex‑parte on 21‑01‑2016. The respondent approached the High Court under Sections 11 and 15 of the Arbitration and Conciliation Act, 1996 seeking appointment of an independent arbitrator, arguing that the MD was ineligible under Section 12(5) of the 2015 Amendment Act and that the arbitrator’s delay justified termination of his mandate. The Supreme Court held that the parties were bound by the arbitration agreement, the MD was not disqualified because the proceedings commenced before the 2015 amendment and Section 26 prevents its retrospective application, and mere delay does not permit replacement of an arbitrator contrary to the agreement. Consequently, the High Court’s order appointing a new arbitrator was set aside, the award of 21‑01‑2016 was vacated, and the MD was directed to continue as sole arbitrator and render a fresh award within four months. The appeal was allowed.
Issues considered
- When does an arbitration agreement appointing a Managing Director as sole arbitrator bind the parties and preclude seeking an independent arbitrator?
- Whether Section 12(5) of the Arbitration and Conciliation (Amendment) Act, 2015 renders a Managing Director ineligible to act as arbitrator in proceedings that began before the amendment.
- Whether the High Court was justified in terminating the arbitrator’s mandate under Section 15 and appointing a substitute arbitrator.
- Whether the award dated 21‑01‑2016 is sustainable in view of procedural deficiencies and lack of opportunity to the respondent.
- Whether the respondent is estopped from challenging the competence of the arbitrator after participating in the proceedings.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11, s. 12, s. 13, s. 14, s. 15, s. 21, s. 26, s. 34
- Arbitration and Conciliation (Amendment) Act, 2015s. 12(5)
Subjects
Arbitration agreementSole arbitratorManaging DirectorSection 12(5) amendmentSection 15 terminationEstoppelAward set asideArticle 142Non‑retrospective applicationDelay in award
Judgment
[2019] 1 S.C.R. 559 559
RAJASTHAN SMALL INDUSTRIES A
CORPORATION LIMITED
v.
M/S GANESH CONTAINERS MOVERS SYNDICATE
(Civil Appeal No. 1039 of 2019) B
JANUARY 23, 2019
[R. BANUMATHI AND INDIRA BANERJEE, JJ.]
Arbitration and Conciliation Act, 1996 – ss.11 and 15 –
Appointment of arbitrator – Terms of contract provided for C
arbitration by the Managing Director of the appellant-Corporation
or his nominee – Respondent participated in the arbitral proceedings
– Arbitration petition by respondent seeking appointment of
independent arbitrator – Held: When the parties have consciously
agreed that the disputes or differences shall be referred to the
D
Managing Director himself or his nominee for sole arbitration and
having participated in the arbitral proceedings before arbitrator
for quite some time, the respondent cannot turn round and seek for
appointment of an independent arbitrator – Having participated in
the entire arbitration proceedings and acquiesced in the
proceedings, the respondent is estopped from challenging the E
competence of the arbitrator.
Arbitration and Conciliation Act, 1996 – Whether by virtue
of s.12 of the Amendment Act, the Managing Director of the
appellant-Corporation became ineligible to act – Held: After the
amendment to the Arbitration and Conciliation Act, 2015, s.12(5) F
prohibited the employee of one of the parties from being an arbitrator
– In the instant case, the agreement between the parties was entered
into on 28.01.2000 and the arbitration proceedings commenced
way back in 2009 and thus, the respondent cannot invoke s.12(5)
of the Amendment Act, 2015 – As per s.26 of the Act, the provisions
of the amended Act 2015 shall not apply to the arbitral proceedings G
commenced in accordance with the provisions of s.21 of the principal
Act, before the commencement of this Act unless the parties otherwise
agree – There was nothing to suggest that the parties had agreed
that the provisions of the new Act shall apply in relation to the arbitral
H
559
560 SUPREME COURT REPORTS [2019] 1 S.C.R.
A proceedings – The arbitration proceedings started way back in
2009 long before 2015 Amendment Act came into force and,
therefore, 2015 Amendment Act is not applicable to the case in hand
– The statutory provisions that would govern the matter are those
which were then in force before the Amendment Act – Therefore,
Managing Director was not ineligible to act as sole arbitrator –
B
Arbitration and Conciliation (Amendment) Act, 2015 – s.12.
Arbitration and Conciliation Act, 1996 – s.15 – Delay in
passing award – Termination of mandate and substitution of an
arbitrator – Mere neglect of an arbitrator to act or delay in passing
the award by itself cannot be the ground to appoint another
C arbitrator in deviation from the terms agreed to by the parties –
s.15 dealt with termination of the mandate and substitution of an
arbitrator – As per sub-section (1) of s.15, in addition to the
circumstances referred to in ss.13 and 14 of the Act, the mandate of
an arbitrator shall terminate where he withdraws from office for
D any reason or by or pursuant to the agreement of the parties – In
terms of sub-section (2), after termination of arbitrator’s mandate,
the appointment of the substitute arbitrator would be in accordance
with the rules applicable to the appointment of an arbitrator who is
being replaced – s.11(6) of the Act would come into play only when
there was failure on the part of the party concerned to appoint an
E arbitrator in terms of the arbitration agreement – In the instant
case, the High Court was not right in appointing an independent
arbitrator without keeping in view the terms of the agreement between
the parties and therefore, the impugned order appointing an
independent arbitrator/retired District Judge was not sustainable.
F Arbitration and Conciliation Act, 1996 – s.15 – Remedy to
the Respondent-Contractor – Arbitral Tribunal did not make
progress in the arbitration matter – As per the arbitral proceedings,
the chronological events were required to be ascertained and
reconstruction was required – Respondent filed application for
G appointment of independent arbitrator – The fact of arbitration
application was brought to the notice of Arbitral Tribunal –
Respondent prayed for keeping the arbitration proceedings in
abeyance – On the basis of available materials, the Arbitral Tribunal
passed the final award on 21.01.2016 – Whether the award was
sustainable – Held: Since the High Court was in seisin of the matter,
H
RAJASTHAN SMALL INDUSTRIES CORPN. LTD. v. GANESH 561
CONTAINERS MOVERS SYNDICATE
the Arbitral Tribunal could have given further opportunity to the A
respondent to put forth his case – The proceedings of the Arbitral
Tribunal was pending for quite some time from 2009 till 2015 and
after the respondent approached the High Court in May, 2015, the
arbitrator hurriedly passed the award – Respondent was repeatedly
praying for adjournment and was not present on the date of passing
B
of the final award – It was noted in the proceedings dated 17.08.2011
that the chronological events needed to be ascertained and
reconstruction was required – It is not known whether the same was
ascertained or not and whether reconstruction was done before
passing the final award on 21.01.2016 – Respondent made number
of claims under various heads – Respondent ought to have been C
given an opportunity to substantiate its claim under various heads
– Therefore, in order to do complete justice between the parties and
in exercise of powers under Art.142 of the Constitution of India,
award dated 21.01.2016 is to be set aside – The present Managing
Director of the appellant would be the sole arbitrator and the
D
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 – Constitution of
India – Art.142.
Constitution of India – Art.142 – Scope of – In exercise of E
power under Art.142, it is open to the court to mould the relief by
safeguarding the interest of parties – The paramount consideration
in such cases should be to ensure that there is no injustice caused –
The phrase “complete justice” engrafted in Art.142(1) is the word
of width couched with elasticity to meet myriad situations created F
by human ingenuity or cause or result of operation of Statute law
or law declared under Arts.32, 136 and 141 of the Constitution –
Arbitration and Conciliation Act, 1996.
Allowing the appeal, the Court
HELD: 1. As per Clause 4.20.1 of Schedule-4 (General G
Conditions), the parties have agreed that all disputes and
differences arising out of or in any way concerning the contract,
shall be referred to the Managing Director himself or his
nominees for the sole arbitration and that there will be no objection
to any such appointment on the ground that the person so H
562 SUPREME COURT REPORTS [2019] 1 S.C.R.
A appointed is an employee of the Corporation and that he has dealt
with the matter to which the contract relates. When the parties
have consciously agreed that the disputes or differences shall be
referred to the Managing Director himself or his nominee for
sole arbitration and having participated in the arbitral proceedings
before arbitrator for quite some time, the respondent cannot turn
B
round and seek for appointment of an independent arbitrator.
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-
C 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. On
D
the other hand, as per the proceeding of the arbitral tribunal dated
21.10.2010, the respondent had expressed its full faith in the
sole arbitrator and had also given a letter dated 21.10.2010 to
that effect. The fact that the sole arbitrator is the Managing
Director of the appellant-Corporation is not a ground to raise a
E presumption of bias or lack of independence on his part. [Paras
20, 21, 22][574-F-H; 575-A, F-G]
Indian Oil Corporation Limited and Others v. Raja
Transport Private Limited (2009) 8 SCC 520 : [2009]
13 SCR 510 – relied on.
F 2. Whether by virtue of Section 12 of the Amendment Act,
the Managing Director has become ineligible to act:
After the amendment to the Arbitration and Conciliation
Act, 2015, Section 12(5) prohibits the employee of one of the
parties from being an arbitrator. In the instant case, the agreement
G between the parties was entered into on 28.01.2000 and the
arbitration proceedings commenced way back in 2009 and thus,
the respondent cannot invoke Section 12(5) of the Amendment
Act, 2015. As per Section 26 of the Act, the provisions of the
amended Act 2015 shall not apply to the arbitral proceedings
H commenced in accordance with the provisions of Section 21 of
RAJASTHAN SMALL INDUSTRIES CORPN. LTD. v. GANESH 563
CONTAINERS MOVERS SYNDICATE
the principal Act, before the commencement of this Act unless A
the parties otherwise agree. [Para 23][576-B-D]
Board of Control for Cricket in India v. Kochi Cricket
Private Limited and others (2018) 6 SCC 287 : [2018]
2 SCR 829; Aravali Power Company Private Limited v.
Era Infra Engineering Limited (2017) 15 SCC 32 : B
[2017] SCR 497 – relied on.
TRF Limited v. Energo Engineering Projects Limited
(2017) 8 SCC 377 : [2017] 7 SCR 409 – distinguished.
3. Whether the High Court was right in terminating the
mandate of the arbitrator appointed as per the agreement: C
3.1 The proceedings of the arbitral tribunal continued till
17.08.2011. The proceeding of the arbitral tribunal dated
17.08.2011 showed that the “arbitrator observed that the file
regarding arbitration appears tampered/missing papers are
incomplete and therefore, the chronological events need to be D
ascertained and reconstitution will be required.” In this
background, the award was not passed till 2013. It is true that
there was some delay in passing the award. However, between
2011 and 2013, the respondent has not filed any application to
expedite the proceedings and for passing of the award. The E
respondent neither filed the Request Case for passing of the award
at an early date nor filed the petition under Section 14 for
termination of the mandate of the arbitrator that the arbitrator
has ‘failed to act without undue delay’. [Para 30][579-E-G]
Union of India and Others v. Uttar Pradesh State Bridge F
Corporation Limited (2015) 2 SCC 52; Union of India
v. Singh Builders Syndicate (2009) 4 SCC 523 : [2009]
3 SCR 563 – referred to.
3.2 Mere neglect of an arbitrator to act or delay in passing
the award by itself cannot be the ground to appoint another
G
arbitrator in deviation from the terms agreed to by the parties.
Section 15 deals with termination of the mandate and substitution
of an arbitrator. Sub-section (1) of Section 15 states that in addition
to the circumstances referred to in Sections 13 and 14 of the Act,
the mandate of an arbitrator shall terminate where he withdraws
H
564 SUPREME COURT REPORTS [2019] 1 S.C.R.
A from office for any reason or by pursuant to the agreement of the
parties. In terms of sub-section (2), after termination of
arbitrator’s mandate, the appointment of the substitute arbitrator
shall be in accordance with the rules applicable to the appointment
of an arbitrator who is being replaced. Section 11(6) of the Act
would come into play only when there was failure on the part of
B
the party concerned to appoint an arbitrator in terms of the
arbitration agreement. In the case in hand, the High Court was
not right in appointing an independent arbitrator without keeping
in view the terms of the agreement between the parties and
therefore, the impugned order appointing an independent
C arbitrator/retired District Judge is not sustainable. [Paras 31, 32,
34][579-G-H; 580-C-D; 581-H; 582-A-B]
S.B.P. and Company v. Patel Engineering Limited and
Another (2009) 10 SCC 293 : [2009] 15 SCR 340;
Yashwith Constructions (P) Ltd. v. Simplex Concrete
D Piles India Ltd. and Another (2006) 6 SCC 204: [2006]
3 Suppl. SCR 96 – relied on.
Russell On Arbitration, 20th Edition, Pg. 136 quoted
in Law relating to Arbitration and Conciliation, 9th
Edition, by Dr. P.C. Markanda at Pg. 620 – referred
E to.
4. Whether the award passed by the arbitrator dated
21.01.2016 sustainable.
4.1 Since the High Court was in seisin of the matter, the
Arbitral Tribunal could have given further opportunity to the
F respondent to put forth his case. The proceedings of the Arbitral
Tribunal was pending for quite some time from 2009 till 2015 and
after the respondent approached the High Court in May, 2015,
the arbitrator appears to have hurriedly passed the award. The
respondent was repeatedly praying for adjournment on
G 05.01.2016, 13.01.2016 and was not present on the date of passing
of the final award dated 21.01.2016. The respondent has to be
given an opportunity to substantiate its claim under various heads.
In order to do complete justice between the parties and in exercise
of power under Article 142 of the Constitution of India, the award
dated 21.01.2016 is set aside. In exercise of power under Article
H
RAJASTHAN SMALL INDUSTRIES CORPN. LTD. v. GANESH 565
CONTAINERS MOVERS SYNDICATE
142 of the Constitution of India, it is open to the court to mould A
the relief by safeguarding the interest of parties. The paramount
consideration in such cases should be to ensure that there is no
injustice caused. [Paras 36, 37][582-G-H; 583-A-B]
Raj Kumar and others v. Union of India and another
(2006) 1 SCC 737 : [2006] 1 SCR 169 – relied on B
4.2 The phrase “complete justice” engrafted in Article
142(1) is the word of width couched with elasticity to meet myriad
situations created by human ingenuity or cause or result of
operation of Statute law or law declared under Articles 32, 136
and 141 of the Constitution. In the case in hand, to relegate the C
respondent to challenge the award under Section 34 of the Act, it
would further prolong the litigation between the parties.
Considering the facts of the case and in order to do complete
justice between the parties, in exercise of power under Article
142 of the Constitution, award dated 21.01.2016 is set aside. The
present Managing Director of the appellant Corporation shall be D
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. [Paras 38, 39][583-E-H; 584-A] E
Ashok Kumar Gupta and another v. State of U.P. and
others (1997) 5 SCC 201 : [1997] 3 SCR 269 – relied
on.
Case Law Reference
F
(2015) 2 SCC 52 referred to Para 9
[2009] 13 SCR 510 relied on Para 21
[2018] 2 SCR 829 relied on Para 24
[2017] 7 SCR 409 distinguished Para 25
G
[2017] SCR 497 relied on Para 27
[2009] 3 SCR 563 referred to Para 29
[2009] 15 SCR 340 relied on Para 33
H
566 SUPREME COURT REPORTS [2019] 1 S.C.R.
A [2006] 3 Suppl. SCR 96 relied on Para 34
[2006] 1 SCR 169 relied on Para 37
[1997] 3 SCR 269 relied on Para 38
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1039
B of 2019.
From the Judgment and Order dated 22.04.2016 of the High Court
of Judicature for the State of Rajasthan (Jaipur Bench) at Jaipur in
S.B. Civil Misc. Application (Arbitration) No. 31 of 2015.
Annam D. N. Rao, Sudipto Sircar, Annam Venkatesh, Rahul
C Mishra, Advs. for the Appellant.
Shekhar Prit Jha, Ms. Himani Mishra, Ms. Sushmita M., Advs.
for the Respondent.
The Judgment of the Court was delivered by
D R. BANUMATHI, J. 1. Leave granted.
2. This appeal arises out of the judgment dated 22.04.2016 passed
by the High Court of Rajasthan at Jaipur Bench in and by which the
High Court has allowed the application filed by the respondent under
Section 11 and Section 15 of the Arbitration and Conciliation Act, 1996
E thereby appointing Mr. J. P. Bansal, retired District Judge as the sole
arbitrator to resolve the dispute between the parties.
3. Brief facts which led to filing of this appeal are as under:-
The appellant-Rajasthan Small Industries Corporation Limited
invited tender for “Handling and Road transportation of ISO
F containers and Cargo between Inland container Depots at Jaipur,
Jodhpur and Ports.” Respondent-Contractor participated in the said
tender and Letter of Intent was issued in favour of the respondent-
Contractor on 21.01.2000. The agreement was executed on 28.01.2000
between the parties. Initially, the contract period was of three years; but
G it was extended for another two years from 31.01.2003 by consent of
both the parties. Dispute arose between the parties regarding imposition
of transit penalty by the appellant upon the respondent for delay in
transportation of containers, non-payment of handling charges of
containers for various period of time and several other disputes. The
terms of the contract Clause 4.20.1 of Schedule-4 (General Conditions)
H
RAJASTHAN SMALL INDUSTRIES CORPN. LTD. v. GANESH 567
CONTAINERS MOVERS SYNDICATE [R. BANUMATHI, J.]
provided for arbitration by the Managing Director himself or his or her A
nominee for the sole arbitration. The respondent-Contractor requested
for appointment of the arbitrator in terms of Clause 4.20.1 of Schedule-
4 (General Conditions). One I.C. Shrivastava, IAS (Retd.) was appointed
as the sole arbitrator on 21.02.2005. Since the progress of the sole
arbitrator was not satisfactory in disposing the matter, the said sole
B
arbitrator was removed on 26.03.2009 and in his place, Chairman-cum-
Managing Director of the appellant-Corporation was appointed to act as
the sole arbitrator by the consent of both the parties.
4. For one reason or other, the arbitration proceedings could not
be concluded. According to the appellant, the matter was adjourned
repeatedly vide orders of the Arbitral Tribunal dated 10.02.2010, C
11.02.2010, 15.02.2010, 18.02.2010 and 10.03.2010 as no one appeared
on behalf of the respondent-Contractor. On 16.03.2010, the respondent
raised its doubts regarding impartiality of the newly appointed sole
arbitrator. The sole arbitrator passed the order dated 06.04.2010 stating
that the agreement Clause 4.20.1 of Schedule-4 (General Conditions) D
provides for arbitration by the Chairman-cum-Managing Director of the
Corporation or his nominee and that only at the joint request of both the
parties, the Chairman-cum-Managing Director has taken up the arbitration
to resolve the dispute between the parties. The proceedings further
continued fixing date of hearing on various dates till 17.08.2011.
E
5. On 07.02.2013, the respondent-Contractor sent a legal notice
to the appellant stating that even after so many requests, the sole arbitrator
has not passed the award and called upon the appellant to pay the amount
of Rs.3,90,81,602/- said to have been settled, along with the statutory
interest within one month. The appellant sent a reply dated 19.03.2013
stating that since the Chairman-cum-Managing Director has been F
transferred, award could not be passed and there is no question of payment
to the respondent-Contractor.
6. On 13.05.2015, the respondent-Contractor filed an application
under Section 11(6) and Section 15 of the Arbitration and Conciliation
Act, 1996 before the High Court seeking for appointment of an G
independent arbitrator for adjudication of dispute between the appellant
and the respondent in respect of agreement dated 28.01.2000. On
18.12.2015, it was brought to the notice of the arbitrator that an arbitration
application has been filed before the High Court. On 05.01.2016, the
Arbitral Tribunal adjourned the matter to 13.01.2016 as a last opportunity H
568 SUPREME COURT REPORTS [2019] 1 S.C.R.
A of hearing to the parties. On 13.01.2016, the arbitrator rejected the
application of the respondent-Contractor and his request to adjourn the
matter till hearing and final disposal of the arbitration application pending
before the High Court and held that the arbitration proceedings would
be finalized on the basis of available facts and therefore, adjourned the
matter to 21.01.2016. The sole arbitrator passed an ex-parte award on
B
21.01.2016.
7. The High Court vide impugned order allowed the arbitration
application thereby appointing Mr. J.P. Bansal (Retd.), District Judge as
the sole arbitrator. The High Court held that the respondent-Contractor
had to approach the High Court due to prolongation of the matter before
C the sole arbitrator who kept on changing one after another and only
after the notice of the arbitration petition was served upon the appellant-
Corporation, the arbitrator speeded up the proceedings and the ex-parte
award was passed on 21.01.2016 without hearing the respondent-
Contractor. The High Court was of the view that the arbitrator hurried
D up to conclude the proceedings with a view to frustrate the arbitration
application.
8. Mr. A.D.N. Rao, learned counsel for the appellant-Corporation
submitted that the High Court erred in not keeping in view of Clause
4.20.1 of Schedule-4 (General Conditions) that the respondent could not
E have moved the application under Section 11 and Section 15 of the
Arbitration and Conciliation Act, 1996 in the light of the agreement between
the parties and the competence of the arbitral tribunal to adjudicate the
dispute between the parties. It was further submitted that though the
arbitrator was ready to proceed with the matter, the arbitrator could not
make progress since the respondent was either not present or continually
F taking adjournments and when the arbitrator was proceeding with the
matter in right earnest, the respondent could not have approached the
High Court seeking appointment of an arbitrator. It was urged that in the
light of the fact that a final arbitral award has been passed by the arbitral
tribunal, the respondent could only challenge the same by way of an
G appeal under Section 34 of the Arbitration and Conciliation Act, 1996
and the impugned order of the High Court is liable to be set aside.
9. Ms. Mishra, learned counsel for the respondent-Contractor
submitted that in view of Section 12 of the Arbitration and Conciliation
(Amendment) Act, 2015, if the arbitrator is an employee/advisor or has
H any past or present business relation or being the Manager/Director
RAJASTHAN SMALL INDUSTRIES CORPN. LTD. v. GANESH 569
CONTAINERS MOVERS SYNDICATE [R. BANUMATHI, J.]
then he cannot be appointed as an arbitrator and not qualified to decide A
the dispute and therefore, the High Court has rightly appointed the fresh
independent arbitrator. It was submitted that the disqualification of the
person to hold the post of an arbitrator as enumerated in Seventh Schedule
of Arbitration and Conciliation (Amendment) Act, 2015 is a legal right
conferred upon the respondent-Contractor and there cannot be any
B
promissory estoppel against the statute by alleging that in the agreement
dated 28.01.2000, the respondent agreed that the dispute and differences
shall be referred to the Managing Director himself or his nominee for
the sole arbitration. Placing reliance upon Union of India and Others
v. Uttar Pradesh State Bridge Corporation Limited (2015) 2 SCC 52,
it was contended that when there is failure on the part of the arbitral C
tribunal to act and unable to perform its functions, it is open to a party to
the arbitration proceedings to approach the court for termination of the
mandate of the arbitrator and seek appointment of the substitute arbitrator.
The learned counsel for the respondent further submitted that in the
present case, since for a long period of about ten years, no award has
D
been passed and that the arbitrators were kept on changing for one
reason or other, the respondent was justified in approaching the High
Court for substitution or appointment of fresh arbitrator. It was submitted
that only after the respondent approached the High Court, the proceedings
were accelerated and award came to be passed.
10. We have carefully considered the contentions of both the parties E
and perused the impugned judgment and materials on record. The
following points arise for consideration:-
• In the light of the proceedings before the sole arbitrator on various
dates and when the proceedings before the arbitrator was
pending, whether the respondent was right in filing arbitration F
petition approaching the High Court under Section 11 and Section
15 of the Arbitration Act, 1996 for appointment of a substitute
arbitrator?
• When by virtue of arbitration agreement Clause 4.20.1 of
Schedule-4 (General Conditions), parties have agreed that the G
dispute, differences between the parties to be resolved by the
Managing Director or his nominee, whether the High Court
was right in deviating from the terms of the agreement between
the parties and appointing an independent Arbitrator?
H
570 SUPREME COURT REPORTS [2019] 1 S.C.R.
A • Whether by virtue of Section 12 of the Arbitration and
Conciliation (Amendment) Act, 2015, the Chairman-cum-
Managing Director has become ineligible to act as the arbitrator?
• Whether the High Court was right in terminating the mandate
of the arbitrator whom the parties have agreed and appointing
B substitute arbitrator on the ground that there was delay in passing
the award?
11. In deviation from the terms of the agreement, whether
the respondent was right in filing arbitration petition under Section
11 of the Arbitration Act:- Admittedly, the parties entered into an
C agreement dated 28.01.2000 for handling on road transportation of ISO
containers and cargo between the Inland Container Depot at Jaipur,
Jodhpur and Ports. The agreement was to remain in force for a period
of three years starting from 10.04.2000. The abovementioned agreement
was extended for another period of two years starting from 31.01.2003.
Clause 4.20.1 of Schedule-4 (General Conditions) provided for arbitration
D
which reads as follows:-
“4.20.1 All disputes and difference arising out of or in any way
concerning this Contract, shall be referred to the Managing Director
himself, herself or his or her nominees for the sole arbitration.
There will be no objection to any such appointment on the ground
E
that the person so appointed is an employee of the Corporation,
that he has dealt with the matters to which the contract relates
and that in the course of his duties. As such arbitration shall be
final and binding on the parties to the contract. If the person to
whom the matter was originally referred to for arbitration becomes
F unable to function on account of vacation of office, transfer,
resignation, retirement from services, suspension or for any other
reason, whatsoever, the Managing Director shall nominate another
person to take over his function as soon as possible. Such person
shall proceed further from the stage where the matter was left by
his predecessor. The arbitrator shall give reasons for the award.”
G
12. In order to appreciate the points, it is necessary to refer to the
details of various proceedings before the arbitrator, before the respondent-
Contractor approached the High Court. In terms of Clause 4.20.1, I.C.
Shrivastava, IAS (Retd.) was appointed as sole arbitrator by order dated
21.02.2005. Since the progress of the arbitration proceedings before the
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RAJASTHAN SMALL INDUSTRIES CORPN. LTD. v. GANESH 571
CONTAINERS MOVERS SYNDICATE [R. BANUMATHI, J.]
said arbitrator was not satisfactory, vide order No.RSIC/Legal/08-09/ A
23999-24001 dated 26.03.2009, appointment of I.C. Shrivastava, IAS
(Retd.) as arbitrator was withdrawn. Since records were not received
from the said arbitrator, an order was passed on 13.08.2009 in the presence
of both the parties, wherein it was agreed that the records of the case
are to be reconstructed and by the same order, it was decided to request
B
Additional Chief Secretary (SSI), Rukmani Haldea, IAS to be the sole
arbitrator. However, subsequently by the consent of both the parties
Chairman-cum-MD of the appellant-Corporation was appointed as the
sole arbitrator.
13. The matter was adjourned before the arbitral tribunal on
24.11.2009 and 30.11.2009 and other dates. It is seen from the order of C
the arbitral tribunal dated 08.01.2010, the earlier arbitrator was requested
number of times to handover the records connected with the case; but
he had not handed over the records and therefore, parties were advised
to exchange records so that the proceedings could begin and the matter
was adjourned. In the subsequent hearing on 25.01.2010, both the parties D
were represented by their counsel and therefore, the matter was adjourned
to 08.02.2010 for final arguments. On 08.02.2010, arguments of the
respondent-claimant was heard in part and the case was adjourned to
10.02.2010 on account of paucity of time. On the subsequent hearing
dates viz. 10.02.2010, 11.02.2010, 15.02.2010, 18.02.2010 and 10.03.2010,
there was no representation for the respondent-claimant and the matter E
was adjourned to 17.03.2010. Respondent-Contractor vide its letter dated
16.03.2010 addressed to the Chairman and Managing Director of the
appellant-Corporation raised doubts on impartiality of the arbitrator
expressing his desire to withdraw the arbitration from the present sole
arbitrator and was willing to get the matter adjudicated by the pervious F
arbitrator, I.C. Shrivastava who was already removed at the joint request
of the parties. By letter dated 18.03.2010, respondent requested for
adjournment of the matter. On the next date of hearing i.e. on 19.03.2010,
the respondent-Contractor has not entered appearance and the matter
was adjourned to 06.04.2010. On 06.04.2010, the respondent-Contractor
was appeared through its representative F.K. Sherwani. As seen from G
the proceeding of arbitrator dated 06.04.2010, though initially pressed
for arbitrator outside appellant-RSIC, finally gave his consent that
Chairman-cum-Managing Director may arbitrate.
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572 SUPREME COURT REPORTS [2019] 1 S.C.R.
A 14. On 29.04.2010, the matter could not be taken up as on
28.04.2010, the arbitral tribunal passed the order stating that the sole
arbitrator-CMD has to go to Mumbai for attending a very important
official work and the matter was adjourned to 19.05.2010. The matter
was then adjourned to 20.05.2010, 16.06.2010, 25.08.2010 and 21.10.2010.
It is seen that the respondent-claimant (vide letter dated 21.10.2010)
B
stated that they have full faith in the present sole arbitrator and that the
matter has to be decided at an early date on the basis of material available
on record at the earliest.
15. For want of reconciliation of records of the parties and certain
clarifications, by order dated 24.03.2011, the arbitrator directed both the
C parties to appear before him on 18.04.2011 along with complete records
relating to the claim and counter claim. On the next hearing dates i.e.
20.04.2011 and 21.04.2011, there were detailed discussions between the
parties and the sole arbitrator and accordingly, the respondent-Contractor
agreed to withdraw certain claims. By various correspondence dated
D 21.04.2011, 18.05.2011, 20.05.2011 and 24.05.2011, the arbitrator required
certain clarifications from both the parties to finalise the award and replies
were also received. On 17.08.2011, in the presence of both the parties,
the arbitral tribunal passed the following order:-
“The “file regarding this arbitration” appears tempered/missing
E paper or incomplete. Therefore, the chronological events need to
be ascertained and reconstruction will be required. The detailed
order will be passed informing both the parties in this respect.
They must wait till further order in this content.”
16. It was in the above background, the respondent-Contractor
F sent a legal notice dated 07.02.2013 stating that both the parties have
submitted their relevant claims before the sole arbitrator on 18.04.2011
and that it was mutually agreed to settle the claim after deduction of
some amount and that the amount was finalised and settled for
Rs.3,90,81,602/- and in spite of the fact that settled amount was agreed
between the parties, no award was passed by the arbitrator. The
G respondent sent another legal notice dated 07.03.2013 reiterating the
claim for Rs. 3,90,81,602/- along with statutory interest. The appellant-
Corporation has sent a detailed reply dated 19.03.2013 denying any
settlement and also denying that the amount was finalised for a sum of
Rs.3,90,81,602/-.
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RAJASTHAN SMALL INDUSTRIES CORPN. LTD. v. GANESH 573
CONTAINERS MOVERS SYNDICATE [R. BANUMATHI, J.]
17. It was in the above backdrop, on 13.05.2015, the respondent- A
Contractor filed an application under Section 11 and Section 15 of the
Arbitration and Conciliation Act, 1996 before the High Court for
appointment of an independent arbitrator for adjudication of disputes
and differences between the appellant-Corporation and the respondent-
contractor in respect of agreement dated 28.01.2000. When the said
B
petition was pending before the High Court, the arbitrator vide order
dated 18.12.2015 fixed the next date of hearing for 05.01.2016. The
respondent-Contractor sent a letter requesting to keep the arbitration
proceedings in abeyance. However, the Arbitral Tribunal adjourned the
matter to 13.01.2016 and then to 21.01.2016, on which date the final
award came to be passed by the Arbitral Tribunal. It was thereafter, by C
the impugned order dated 22.04.2016 passed by the High Court retired
District Judge, Mr. J.P. Bansal was appointed as the sole arbitrator to
resolve the dispute between both the parties.
18. As pointed out earlier, on 06.04.2010, though the respondent
initially pressed for arbitrator outside RSIC, then finally gave its consent D
for Managing Director to arbitrate. The said proceeding dated 06.04.2010
reads as under:-
“Shri F.K. Sherwani appeared on behalf of the Claimant and Shri
G.C. Garg and Shri R.K. Agarwal, Advocates appeared on behalf
of the Corporation. Shri F.K. Sherwani initially pressed for E
appointing an Arbitrator from outside RSIC. His apprehension
was that the CMD will not be an independent Arbitrator since he
is likely to take interest of the RSIC into consideration. This would
be more so due to the financial difficulties being faced by the
Corporation.
F
It was explained to Shri Sherwani that the agreement signed in
principle provides for arbitration by the Chairman or MD of the
Corporation or his nominee and also it was at the joint request of
both the parties that the arbitration was taken away from the
earlier Arbitrator. After discussions it was decided that the CMD
may arbitrate the dispute. Shri Sherwani also has given his consent G
that CMD may arbitrate.
The next date of hearing is fixed for 29.04.2010 at 3.00 PM.”
19. As seen from the order dated 21.10.2010, the respondent
submitted that “they do not want to prolong the matter further and
H
574 SUPREME COURT REPORTS [2019] 1 S.C.R.
A they have full faith in the present sole arbitrator and that they would
like the sole arbitrator to decide the case and pass an award on the
basis of material available on record at the earliest.” As stated earlier,
to that effect, Shri Ram B. Salve, sole proprietor of the respondent had
also given a letter dated 21.10.2010. Since the papers were missing or
incomplete, in the presence of both the parties, the arbitral tribunal vide
B
its order dated 17.08.2011 has decided that the chronological events
need to be ascertained and reconstruction will be required and a detailed
order will be passed informing both the parties in this regard. As seen
from the proceedings of the arbitral tribunal till that time, the respondent
voluntarily participated and acquiesced in the proceedings before the
C arbitral tribunal and also expressed faith in the sole arbitrator. Having
thus voluntarily participated in the arbitral proceedings, the respondent
has sent a legal notice dated 07.02.2013 to the appellant-Corporation
stating that in the arbitral proceedings, the respondent mutually agreed
to the claim and the matter was settled for a sum of Rs.3,90,81,602/-
and that in spite of repeated requests, the amount was not paid to the
D
respondent. The respondent also sent another legal notice dated
07.03.2013 reiterating its demand for payment of Rs.3,90,81,602/-. To
that effect, the appellant-Corporation has sent a detailed reply dated
19.03.2013.
20. It is in this backdrop, the respondent has filed the arbitration
E petition before the High Court under Section 11 and Section 15 of the
Arbitration and Conciliation Act, 1996 on 13.05.2015 seeking appointment
of an independent arbitrator. As noted earlier, as per Clause 4.20.1 of
Schedule-4 (General Conditions), the parties have agreed that all disputes
and differences arising out of or in any way concerning the contract,
F shall be referred to the Managing Director himself or his nominees for
the sole arbitration and that there will be no objection to any such
appointment on the ground that the person so appointed is an employee
of the Corporation and that he has dealt with the matter to which the
contract relates. When the parties have consciously agreed that the
disputes or differences shall be referred to the Managing Director himself
G or his nominee for sole arbitration and having participated in the arbitral
proceedings before arbitrator for quite some time, the respondent cannot
turn round and seek for appointment of an independent arbitrator.
21. The respondent having participated in the proceedings before
the arbitral tribunal for quite some time and also having expressed faith
H
RAJASTHAN SMALL INDUSTRIES CORPN. LTD. v. GANESH 575
CONTAINERS MOVERS SYNDICATE [R. BANUMATHI, J.]
in the sole arbitrator, is not justified in challenging the appointment of the A
Managing Director of the appellant-Corporation as the sole arbitrator.
In Indian Oil Corporation Limited and Others v. Raja Transport
Private Limited (2009) 8 SCC 520, this Court held as under:-
“34. The fact that the named arbitrator is an employee of one of
the parties is not ipso facto a ground to raise a presumption of B
bias or partiality or lack of independence on his part. There can
however be a justifiable apprehension about the independence or
impartiality of an employee arbitrator, if such person was the
controlling or dealing authority in regard to the subject contract or
if he is a direct subordinate (as contrasted from an officer of an
inferior rank in some other Department) to the officer whose C
decision is the subject-matter of the dispute.
44. While considering the question whether the arbitral procedure
prescribed in the agreement for reference to a named arbitrator,
can be ignored, it is also necessary to keep in view clause (v) of
sub-section (2) of Section 34 of the Act which provides that an D
arbitral award may be set aside by the court if the composition of
the Arbitral Tribunal or the arbitral procedure was not in
accordance with the agreement of the parties (unless such
agreement was in conflict with any provision of Part I of the Act
from which parties cannot derogate, or, failing such agreement, E
was not in accordance with the provisions of Part I of the Act).
The legislative intent is that the parties should abide by the terms
of the arbitration agreement.” [underlining added]
22. The respondent has not placed any material to show that it
has reason to believe that the arbitrator had not acted independently or F
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. On the other
hand, as noted earlier, as per the proceeding of the arbitral tribunal dated
21.10.2010, the respondent had expressed its full faith in the sole arbitrator
and had also given a letter dated 21.10.2010 to that effect. The fact that G
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. H
576 SUPREME COURT REPORTS [2019] 1 S.C.R.
A 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.
Whether by virtue of Section 12 of the Amendment Act,
B the Managing Director has become ineligible to act:-
23. After the amendment to the Arbitration and Conciliation Act,
2015, Section 12(5) prohibits the employee of one of the parties from
being an arbitrator. In the present case, the agreement between the
parties was entered into on 28.01.2000 and the arbitration proceedings
C commenced way back in 2009 and thus, the respondent cannot invoke
Section 12(5) of the Arbitration and Conciliation (Amendment) Act, 2015.
As per Section 26 of the Act, the provisions of the amended Act 2015
shall not apply to the arbitral proceedings commenced in accordance
with the provisions of Section 21 of the principal Act, before the
commencement of this Act unless the parties otherwise agree.
D
24. In Board of Control for Cricket in India v. Kochi Cricket
Private Limited and others, (2018) 6 SCC 287, this Court held that the
provisions of Amendment Act, 2015 (with effect from 23.10.2015) cannot
have retrospective operation in the arbitral proceedings already
commenced unless the parties otherwise agree. In the present case,
E there is nothing to suggest that the parties have agreed that the provisions
of the new Act shall apply in relation to the arbitral proceedings.
25. Contending that the sole arbitrator/Chairman-cum-Managing
Director, by virtue of 2015 amendment, has become ineligible to act as
the arbitrator, the learned counsel for the respondent placed reliance
F upon TRF Limited v. Energo Engineering Projects Limited (2017) 8
SCC 377. In the said case, though the agreement/purchase order was
dated 10.05.2014 (prior to the amendment), notice invoking arbitration
was issued on 28.12.2015 (after the Amendment Act 2015) and the
letter of the Managing Director nominating the arbitrator is dated
G 27.01.2016. In such factual matrix of the case, this Court has held that
the named arbitrator-Managing Director of the respondent therein had
become ineligible by operation of law and therefore, he cannot nominate
another person as an arbitrator. In para (54), it was held as under:-
“54. In such a context, the fulcrum of the controversy would be,
can an ineligible arbitrator, like the Managing Director, nominate
H
RAJASTHAN SMALL INDUSTRIES CORPN. LTD. v. GANESH 577
CONTAINERS MOVERS SYNDICATE [R. BANUMATHI, J.]
an arbitrator, who may be otherwise eligible and a respectable A
person. As stated earlier, we are neither concerned with the
objectivity nor the individual respectability. We are only concerned
with the authority or the power of the Managing Director. By our
analysis, we are obligated to arrive at the conclusion that once the
arbitrator has become ineligible by operation of law, he cannot
B
nominate another as an arbitrator. The arbitrator becomes ineligible
as per prescription contained in Section 12(5) of the Act. It is
inconceivable in law that person who is statutorily ineligible can
nominate a person. Needless to say, once the infrastructure
collapses, the superstructure is bound to collapse. One cannot
have a building without the plinth. Or to put it differently, once the C
identity of the Managing Director as the sole arbitrator is lost, the
power to nominate someone else as an arbitrator is obliterated.
Therefore, the view expressed by the High Court is not sustainable
and we say so.” [underlining added]
26. The facts of the said case are entirely different from the case D
in hand. In the said case, when notice invoking arbitration was issued on
28.12.2015, after the Amendment Act, 2015 came into force with effect
from 23.10.2015, by virtue of which the person named in the agreement
became ineligible to act as the arbitrator. In the case in hand, the
arbitration proceedings started way back in 2009 long before 2015
Amendment Act came into force and therefore, 2015 Amendment Act E
is not applicable to the case in hand. The statutory provisions that would
govern the matter are those which were then in force before the
Amendment Act.
27. To fortify our view, we can usefully refer to the decision of
this Court in Aravali Power Company Private Limited v. Era Infra F
Engineering Limited (2017) 15 SCC 32. In this case, the invocation of
arbitration was on 29.07.2015 and the arbitrator was appointed on
19.08.2015 and the parties appeared before the arbitrator on 07.10.2015
well before 23.10.2015 i.e. date on which the Amendment Act was
deemed to have come into force. It was held that the statutory provisions G
that would therefore govern the controversy are those that were in force
before the Amendment Act came into effect. This Court has therefore
directed that the arbitration, in pursuance of the appointment of the
arbitrator on 19.08.2015, shall proceed in accordance with law.
H
578 SUPREME COURT REPORTS [2019] 1 S.C.R.
A Whether the High Court was right in terminating the
mandate of the arbitrator appointed as per the agreement:-
28. The main question falling for consideration is whether the
High Court was right in terminating the mandate of the arbitrator appointed
as per the agreement and appointing a substitute arbitrator in the
B application filed under Section 11(6) and Section 15 of the Arbitration
Act. As pointed out earlier, the proceedings before the Arbitral Tribunal
proceeded till 17.08.2011 and thereafter, no progress was made. The
respondent issued legal notice on 07.02.2013 calling upon the appellant
to pay Rs.3.90,81,602/- alleging that the said amount was settled during
the course of proceedings before the Arbitral Tribunal. Reiterating the
C demand, the respondent has again sent the legal notice on 07.03.2013.
However, no award came to be passed. The respondent filed application
under Sections 11 and 15 of the Act of 1996 on 13.05.2015 seeking
appointment of an independent arbitrator for adjudication of the disputes
and differences between the appellant and the respondent.
D 29. In support of his contention, the learned counsel for the
respondent relied upon the decision in Union of India and others v.
Uttar Pradesh State Bridge Corporation Limited (2015) 2 SCC 52.
Learned counsel for the respondent contended that the arbitrator failed
to conclude the proceedings even after four years and the High Court
E rightly appointed the substitute arbitrator departing from the arbitration
clause in the agreement between the parties. In the said case, since the
Arbitral Tribunal did not pass award in spite of expiry of four years, the
respondent thereon filed Request Case No.10/2010 and the High Court
passed order dated 09.03.2011 giving the last chance to the Arbitral
Tribunal to complete the arbitral proceedings within a period of three
F months. In para (6) of the judgment, this Court pointed out that the High
Court took note of the various dates and hearings that are fixed by the
Tribunal between 25.03.2011 and 25.06.2011 and came to the conclusion
that the delay caused in the arbitral proceedings was intentional. After
referring to Union of India v. Singh Builders Syndicate (2009) 4 SCC
G 523 and other judgments, this Court observed that the delays and frequent
changes in the Arbitral Tribunal defeat the process of arbitration and
therefore, the appointment of the arbitrator by the court of its own choice
departing from the arbitration clause has become an acceptable
proposition of law which can be termed as a legal principle which has
come to be established by a series of judgments of this Court. Having
H
RAJASTHAN SMALL INDUSTRIES CORPN. LTD. v. GANESH 579
CONTAINERS MOVERS SYNDICATE [R. BANUMATHI, J.]
regard to the facts of the said case, observing that the delay in arbitral A
proceedings was intentional, in para (6) of Uttar Pradesh State Bridge
Corporation Limited, it was held as under:-
“6. The High Court took note of the various dates of hearings
that are fixed by the Tribunal between 25-3-2011 and 25-6-2011
and came to the conclusion that delay caused in the arbitral B
proceedings was intentional. So much so, the members of the
Arbitral Tribunal were continuing their dilatory tactics in deciding
the matter before it since 2007 and four years had passed in the
process. The Tribunal had faltered even after giving specific
directions to conclude the matter within three months and long
adjournments were granted thereby violating the specific directions C
of the High Court. Terming this attitude of the members of the
Tribunal as negligent on their part towards their duties with no
sanctity for any law or for the orders of the High Court, the High
Court allowed the petition of the respondent herein and set aside
the mandate of the Tribunal with the appointment of sole arbitrator D
by the Court itself.”
30. Having regard to the factual matrix of the present case, in our
considered view, the ratio of the said decision cannot be applied to the
case in hand. Per contra, in the present case, the proceedings of the
arbitral tribunal continued till 17.08.2011. From the proceeding of the E
arbitral tribunal dated 17.08.2011, it is seen that the “arbitrator observed
that the file regarding arbitration appears tampered/missing papers
are incomplete and therefore, the chronological events need to be
ascertained and reconstitution will be required.” It is in this
background, the award was not passed till 2013. It is true that there was
some delay in passing the award. However, between 2011 and 2013, the F
respondent has not filed any application to expedite the proceedings and
for passing of the award. The respondent has neither filed the Request
Case for passing of the award at an early date nor filed the petition
under Section 14 of the Act for termination of the mandate of the arbitrator
that the arbitrator has ‘failed to act without undue delay’. G
31. 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. We may usefully
refer to RUSSELL ON ARBITRATION, 20th Edition which reads
as under:- H
580 SUPREME COURT REPORTS [2019] 1 S.C.R.
A “Mere neglect of an arbitrator to act, as distinct from refusal or
incapacity, does not of itself give the court power to appoint another
arbitrator in his place. It does, however, give the court power to
remove him, whereupon there is a power to replace him.”*
*[RUSSELL ON ARBITRATION, 20 th Edition, Pg. 136
B quoted in Law relating to Arbitration and Conciliation, 9th Edition,
by Dr. P.C. Markanda at Pg. 620]
32. Section 15 deals with termination of the mandate and
substitution of an arbitrator. Sub-section (1) of Section 15 states that in
addition to the circumstances referred to in Sections 13 and 14 of the
C Act, the mandate of an arbitrator shall terminate where he withdraws
from office for any reason or by pursuant to the agreement of the parties.
In terms of sub-section (2), after termination of arbitrator’s mandate,
the appointment of the substitute arbitrator shall be in accordance with
the rules applicable to the appointment of an arbitrator who is being
replaced.
D
33. After analysis of the scheme of Sections 11, 14 and 15, in
S.B.P. and Company v. Patel Engineering Limited and Another
(2009) 10 SCC 293, this Court held that the legislature has repeatedly
laid emphasis on the necessity of adherence to the terms of agreement
between the parties in the matter of appointment of arbitrators and
E procedure to be followed for such appointment. In para (31), it was held
as under:-
“31. ………..Even Section 15(2), which regulates appointment
of a substitute arbitrator, requires that such an appointment shall
be made according to the rules which were applicable to the
F appointment of an original arbitrator. The term “rules” used in this
sub-section is not confined to statutory rules or the rules framed
by the competent authority in exercise of the power of delegated
legislation but also includes the terms of agreement entered into
between the parties.”
G 34. In Yashwith Constructions (P) Ltd. v. Simplex Concrete
Piles India Ltd. and Another (2006) 6 SCC 204, the Supreme Court
was called upon to examine the scope of Section 15 of the Act in the
backdrop of the fact that after resignation of the arbitrator appointed by
the Managing Director of the respondent company, another arbitrator
was appointed by him in accordance with the arbitration agreement. At
H
RAJASTHAN SMALL INDUSTRIES CORPN. LTD. v. GANESH 581
CONTAINERS MOVERS SYNDICATE [R. BANUMATHI, J.]
that stage, the petitioner thereon filed an application under Section 11(5) A
read with Section 15(2) of the Act praying for appointment of a substitute
arbitrator to resolve the disputes between the parties. The said application
was dismissed by the Chief Justice holding that Section 15(2) refers not
only to the statutory rules framed for regulating the appointment of
arbitrators but also to contractual provisions for such appointment
B
upholding the view taken by the Chief Justice. In para (4), it was held as
under:-
“4. ………The withdrawal of an arbitrator from the office for
any reason is within the purview of Section 15(1)(a) of the Act.
Obviously, therefore, Section 15(2) would be attracted and a
substitute arbitrator has to be appointed according to the rules C
that are applicable for the appointment of the arbitrator to be
replaced. Therefore, what Section 15(2) contemplates is an
appointment of the substituted arbitrator or the replacing of the
arbitrator by another according to the rules that were applicable
to the appointment of the original arbitrator who was being D
replaced. The term “rules” in Section 15(2) obviously referred to
the provision for appointment contained in the arbitration agreement
or any rules of any institution under which the disputes were
referred to arbitration. There was no failure on the part of the
party concerned as per the arbitration agreement, to fulfil his
obligation in terms of Section 11 of the Act so as to attract the E
jurisdiction of the Chief Justice under Section 11(6) of the Act for
appointing a substitute arbitrator. Obviously, Section 11(6) of the
Act has application only when a party or the person concerned
had failed to act in terms of the arbitration agreement. When
Section 15(2) says that a substitute arbitrator can be appointed F
according to the rules that were applicable for the appointment of
the arbitrator originally, it is not confined to an appointment under
any statutory rule or rule framed under the Act or under the scheme.
It only means that the appointment of the substitute arbitrator
must be done according to the original agreement or provision
applicable to the appointment of the arbitrator at the initial G
stage…….” [underlining added]
As held in Yashwith Constructions, Section 11(6) of the Act would
come into play only when there was failure on the part of the party
concerned to appoint an arbitrator in terms of the arbitration agreement.
H
582 SUPREME COURT REPORTS [2019] 1 S.C.R.
A In the case in hand, the High Court, in our view, was not right in appointing
an independent arbitrator without keeping in view the terms of the
agreement between the parties and therefore, the impugned order
appointing an independent arbitrator/retired District Judge is not
sustainable.
B 35. Remedy to the Respondent-Contractor:- The award
passed by the arbitrator dated 21.01.2016, whether sustainable, is the
next question falling for consideration. As discussed earlier, after
17.08.2011 the Arbitral Tribunal could not make progress and as per the
proceeding of the Arbitral Tribunal dated 17.08.2011, the arbitrator
observed that the “…..missing papers are incomplete…..the
C chronological events need to be ascertained and reconstitution will
be required….”. As pointed out earlier, the respondent filed application
under Sections 11 and 15 of the Act of 1996 before the High Court on
13.05.2015. As per the proceedings of the Arbitral Tribunal dated
18.12.2015, the arbitration application before the High Court was brought
D to the notice of the tribunal and the same was recorded. On 05.01.2016,
the respondent prayed for keeping the arbitration proceedings in abeyance
and the matter was adjourned for 13.01.2016. The Arbitral Tribunal
passed a detailed order on 13.01.2016 stating that the matter is pending
for quite some time and on the basis of the available facts and materials,
the matter will be finalized and adjourned the matter for 21.01.2016. On
E the basis of available materials, the Arbitral Tribunal passed the final
award on 21.01.2016 awarding a sum of Rs.1,38,000/-, Rs.83,000/- and
Rs.1,97,110/- in respect of claims at Serial Nos.3, 4 and 9 respectively to
the claimant and the respondent’s claim in respect of other claims was
rejected. So far as the counter claim of the appellant-Corporation in
F respect of Serial No.17, the arbitrator awarded a sum of Rs.58,39,018/-.
36. Since the High Court was in seisin of the matter, the Arbitral
Tribunal could have given further opportunity to the respondent to put
forth his case. The proceedings of the Arbitral Tribunal was pending for
quite some time from 2009 till 2015 and after the respondent approached
G the High Court in May, 2015, the arbitrator appears to have hurriedly
passed the award. It is pertinent to note that the respondent was
repeatedly praying for adjournment on 05.01.2016, 13.01.2016 and was
not present on the date of passing of the final award dated 21.01.2016.
As pointed out earlier, it was noted in the proceedings dated 17.08.2011
that the chronological events need to be ascertained and reconstruction
H
RAJASTHAN SMALL INDUSTRIES CORPN. LTD. v. GANESH 583
CONTAINERS MOVERS SYNDICATE [R. BANUMATHI, J.]
will be required. It is not known whether the same was ascertained or A
not and whether reconstruction was done before passing the final award
on 21.01.2016. The respondent has made number of claims under various
heads. The respondent has to be given an opportunity to substantiate its
claim under various heads. In order to do complete justice between the
parties and in exercise of power under Article 142 of the Constitution of
B
India, the award dated 21.01.2016 is to be set aside.
37. In exercise of power under Article 142 of the Constitution of
India, it is open to the court to mould the relief by safeguarding the
interest of parties. The paramount consideration in such cases should
be to ensure that there is no injustice caused. In Raj Kumar and others
v. Union of India and another (2006) 1 SCC 737, this Court held as C
under:-
“19. …….in exercise of our powers under Article 142 of the
Constitution in order to do complete justice to a section of the
personnel who would otherwise be placed in an inequitable
situation for which the authorities are also partly to blame. It is D
open to this Court to mould the relief by safeguarding the interest
of the parties even while declaring the law. The paramount
consideration in such cases should be to ensure that there is no
injustice caused…….”
38. The phrase “complete justice” engrafted in Article 142(1) is E
the word of width couched with elasticity to meet myriad situations
created by human ingenuity or cause or result of operation of Statute
law or law declared under Articles 32, 136 and 141 of the Constitution.
(VideAshok Kumar Gupta and another v. State of U.P. and others
(1997) 5 SCC 201) In the case in hand, to relegate the respondent to F
challenge the award under Section 34 of the Act, it would further prolong
the litigation between the parties. Considering the facts of the case and
in order to do complete justice between the parties, in exercise of power
under Article 142 of the Constitution, the award dated 21.01.2016 is set
aside.
G
39. In the result, the impugned order of the High Court dated
22.04.2016 is set aside and this appeal is allowed. 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
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584 SUPREME COURT REPORTS [2019] 1 S.C.R.
A 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.
It is made clear that the arbitrator may not be influenced by any of the
views expressed by the High Court.
B Devika Gujral Appeal allowed.
C
D
E
F
G
H
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