Herike Rice Mills vs State of Punjab and Others

N.K. Sodhi, J.—Whether the appointment of an Arbitrator and his decision over-ruling the challenge to his appointment can be questioned

in a petition filed under Article 226 of the Constitution and more so before the award has been made, is the question of law which arises for

determination in this case. Facts giving rise to this petition which are not in dispute may first be noticed.

By an agreement dated October 26, 1994 executed between the Punjab State Co-operative Supply and Marketing Federation Limited,

Chandigarh (for short the Markfed) and M/s Herike Rice Mills, Mehalkalan (for short the Miller), the former agreed to have paddy milled into rice

from the latter on the terms and conditions contained therein. There was an arbitration clause in the agreement which expressly stipulates that all

disputes and differences arising out of or in any manner touching or concerning the agreement, whatsoever, shall be referred to the sole arbitration

of the Managing Director of Markfed or any person appointed by him in this behalf and that it will be no objection to any such appointment that the

person appointed is or was an employee of the Markfed or that he had to deal with matters to which the contract relates and that in the course of

his duties as such employee he had expressed views on all or any of the matters in dispute or differences. It was further provided that the award of

the Arbitrator shall be final and binding on the parties. However, disputes arose between the parties and on an application filed by Markfed, Shri

P.J. Singh, Chief Manager (Monitoring) Markfed was appointed the Sole Arbitrator. The Arbitrator issued notice dated 6.6.1997 to the parties to

appear before him personally or through an authorised representative on 19.6.1997. The parties were also directed to submit their claim/counter-

claim, if any. On receipt of this notice, the Miller informed the Managing Director of Markfed that it was not agreeable to the appointment of the

sole Arbitrator and a request was made to appoint an Arbitrator u/s 11(3) of the Arbitration and Conciliation Act, 19% (for short the Act). The

Miller also moved an application before the Arbitrator challenging his appointment and pointed out that he was an employee of Markfed which

was a party to the dispute and, therefore, it was not expected that he (Arbitrator) would act impartially. It was also pointed out that it was his duty

u/s 12 of the Act to disclose in writing the circumstances likely to give rise to justifiable doubts as to his independence or impartiality which he had

failed to do so. A request was made that he should not proceed with the arbitration proceedings and that the matter should be referred back to the

Managing Director of Markfed for appointing another Arbitrator u/s 11(3) of the Act. The Arbitrator as per his Order dated 10.7.1997 did not

agree with the ground on which his appointment was challenged and consequently over-ruled the objection observing that the parties had already

agreed in the agreement for the appointment of a sole Arbitrator by the Managing Director of Markfed. He also observed that he had been validly

appointed u/s 11(2) of the Act as per the procedure agreed upon by the parties for the appointment of the Arbitrator. He, therefore, decided to

continue with the arbitral proceedings. It is this Order of the Arbitrator and also the notice dated 6.6.1997 issued by him informing the parties

about his appointment that have been challenged in this petition filed under Article 226 of the Constitution.

In the written statement filed on behalf of Markfed, it is pleaded by way of a preliminary objection that the Miller having executed the agreement

on October 26, 1994 containing the arbitration clause was bound by the same and was estopped from challenging the appointment of the

Arbitrator. It is further pleaded that the objection regarding the appointment of the Arbitrator haying been rejected, the Arbitrator is bound to

continue with the arbitration proceedings and that the Miller cannot challenge the appointment of the Arbitrator except in an application filed u/s 34

of the Act for the setting aside of the award in case one is made against the Miller. It was also urged on behalf of the respondents that the present

petition under Article 224 of the Constitution was not maintainable.

The argument of the learned counsel for the petitioner is that the appointment of the Arbitrator is in contravention of the provisions of Section 11

of the Act and that the Arbitrator on his appointment had failed to disclose in writing the circumstances which were likely to give rise to justifiable

doubts as to his independence or impartiality on account of his being an employee of Markfed which is party to the dispute and, therefore, the

appointment was invalid. It was also contended that the Miller had milled the paddy for Markfed in terms of the agreement and the Branch Officer

at Barnala issued no objection certificate to the petitioner indicating that there were no disputes between the parties. This being so, according to the

counsel, there was nothing that could be referred to the arbitration of the sole Arbitrator and, therefore, the proceedings before him were without

jurisdiction. Shri Dhuriwala also contended that Markfed being ah instrumentality of the State, a writ petition was maintainable to challenge the

actions of its Managing Director in appointing the sole Arbitrator. He has placed reliance on a judgment of the Apex Court in M.M.T.C. Ltd. v.

Sterling Industries (India) Limited AIR 1997 SC 605.

We have heard counsel for the parties and having gone through the provisions of the Act, we find no merit in the contentions advanced on behalf

of the petitioner. According to the Scheme of the Act, parties to an agreement are free to determine the number of arbitrators provided that such

number is not an even number and in the absence of such determination the arbitral Tribunal shall consist of a sole arbitrator. Sub-clause (2) of

Section 11 of the Act authorities the parties to agree on a procedure for appointing an arbitrator or arbitrators. Sub-section (3) then provides that

in the absence of any such agreement, in an arbitration with three arbitrators, each party shall appoint one arbitrator and the two appointed

arbitrators shall appoint the third arbitrator who shall act as the Presiding Arbitrator. If the procedure of Sub-section (3) is applicable and the

parties fail to appoint an arbitrator or the two appointed arbitrators fail to agree on the third arbitrator within the time stipulated therein the

appointment is to be made upon request of a party by the Chief Justice or any person or institution designated by him. Once an arbitrator is

appointed his appointment can be challenged only if circumstances exist that give rise to justifiable doubts to his independence for impartiality or if

he does not possess the qualifications agreed to by the parties. When a person is approached in connection with his appointment as an arbitrator

he is required to disclose in writing any circumstance likely to give rise to justifiable doubts as to his independence or impartiality. Again, Section

13 provides that parties are free to agree on an procedure for challenging the appointment of an arbitrator and in the absence of any such

agreement a party who intends to challenge the appointment shall within 15 days after becoming aware of the constitution of the arbitral Tribunal,

send a written statement of the reasons for the challenge to the arbitral Tribunal. Unless the arbitrator withdraws from his office or the other party

agrees to the challenge, the arbitral Tribunal is to decide on the challenge and if the challenge is not successful, the arbitral Tribunal has to continue

with the arbitral proceedings and make an arbitral award. After the award is made, a party challenging the appointment of the arbitrator can make

an application for setting aside the award in accordance with the provisions of Section 34 of the Act. Section 34 provides the grounds on which an

award can be set aside and one of the grounds is that the composition of the arbitral Tribunal was not in accordance with the agreement of the

parties or was in conflict with any provision in Part-I of the Act.

In the instant case, the Miller was informed about the appointment of the Arbitrator and there being no agreement between the parties, in regard

to the manner in which the appointment of the Arbitrator could be challenged, it filed an application before the Arbitrator challenging his

appointment. That challenge has been rejected by the Arbitrator as per the impugned Order dated 10.7.1997. This being so, the Arbitrator is

required by law to proceed with the arbitration proceedings till he makes the award. After the award is made and in case it goes against the Miller,

it will be open to it to challenge that award u/s 34 of the Act on the ground that the composition of the arbitral Tribunal was not in accordance with

the agreement of the parties or was not in accordance with Part-I of the Act which includes Section 11. The Miller cannot bypass this entire

procedure and challenge the Order of the Arbitrator before the award is made. Here, we find a distinct departure from the Model Law on which

the Act is based. The Parliament has enacted the Act on the lines of Model Law on International Commercial Arbitration as approved by the

General Assembly of the United Nations subject to slight modification suiting local conditions in our country. Under the Model law, a party has

been given a right to challenge the appointment of an arbitrator before the arbitrator himself and if that party is unsuccessful, Article 12(3) of the

Model Law grants to that party a last resort to the Court to challenge the appointment at that stage itself without waiting for the arbitrator to make

the award. However, Sub-sections (4) and (5) of Section 13 of the Act make a distinct departure in this regard, inasmuch as with a view to

prevent dilatory tactics the parliament has not allowed the unsuccessful party to challenge the appointment immediately when its challenge had been

unsuccessful before the arbitrator and requires such a party to wait and challenge the same only after the arbitral award has been made. When an

unsuccessful party cannot challenge the order of the arbitrator rejecting the challenge to his appointment even before a civil court before the, award

is made, how can a petition lie under Article 226 of the Constitution to Challenge that order when the award has yet to be made. Such a petition, in

our view, is not maintainable even though one of the parties to the dispute may be an instrumentality of the State otherwise amenable to the writ

jurisdiction of this Court. Even if the appointment of the arbitrator was invalid, as contended by the petitioner, the same will have to be decided by

the Court before which the validity of the award would be challenged. The argument that the Branch Manager of Markfed had issued a no

objection certificate to the petitioner and, therefore, there was no dispute between the parties which could be referred to the arbitration, is again a

matter which pertains to the merits of the dispute which cannot be gone into by this court and it is for the arbitrator alone to decide that issue. We

have, therefore, no hesitation in rejecting the argument advanced by the learned counsel for the petitioner. We have gone through the judgment of

the Apex Court in Sterling Industries'' case (supra) and find that it does not advance the case of the petitioner and is entirely on different facts.

In the result, the question posed in the opening part of the judgment is answered in the negative and against the petitioner and it is held that the

present petition is not maintainable.

For the reasons recorded above, the petition fails and the same is dismissed. Leaving the parties to bear their own costs.