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Judgment
A. Kulasekaran, J.—This application has been filed u/s 9(ii)(e) of the Arbitration & Conciliation Act, 1996 praying to pass an order of
injunction, restraining the respondents 1 and 2 from proceeding with the proposed arbitration proceedings on 14-5-2001 or any other date
subsequent thereto at Udipi pending disposal of the application.
It is the case of the applicant herein that the resondents 1 & 2 herein have leased out some machineries under agreement dated 30-12-95 to the
applicant herein. In the said agreement under Clause 32 arbitration is provided. One Mr. B.I. Sharma the 3rd respondent herein was appointed as
arbitrator who has sent notice to the parties including the applicant herein. According to the applicant, the respondents 1 and 2 had unilaterally
chosen to appoint the arbitrator of their choice which is illegal and arbitrary and unsustainable in law. It is the case of the applicant that as per the
Arbitration and Conciliation Act, both the parties have option to choose their respective arbitrators and in turn those arbitrators have a choice to
appoint an umpire to ultimately decide the issue in case there is conflict between them. But according to the applicant herein in this case the third
respondent arbitrator has been appointed unilaterally. Explaining all these aspects the applicant sent a letter dated 27-4-2001 to the respondent
and forwarded a copy to the arbitrator stating that they propose to appoint Mr. R.S. Ramanathan, Advocate, Chennai as their arbitrator. It is also
their case that the cause of action in respect of the transaction arose only at Chennai, that the branch office of the respondents 1 and 2 also situate
at Chennai and not in Udipi or in any other place of Karnataka. According to the appellant on reasonable apprehension they have filed the
application seeking for injunction since they felt the arbitrator may decide the matter ex parte in case if they do not appear on the date fixed on 14-
5-2001 by the arbitrator the 3rd respondent herein, and this Court has granted interim injunction on 8-5-2001 and the same was extended further
The respondents 1 and 2 filed a counter-affidavit as follows: The petitioner had availed a lease facility on 30-12-95 and took on lease certain
equipments required for their factory. In the lease agreement there has been a provision for arbitration. Under the said lease agreement a sum of
Rs. 2,47,500/- was payable per month for a period of 60 months. Subsequently the petitioner expressed some difficulty to make payments as
referred above and requested the respondents to make re-schedule of monthly payments in order to enable them to pay a lesser instalment.
Accordingly, a rescheduled agreement (Supplementary Agreement) dated 30-6-99 was entered into between the parties. It is the case of the
respondents that except the re-schedule, of payment the other conditions in earlier agreement dated 30-12-95 are same. Even after the
supplementary agreement, the applicant failed to pay the monthly instalments. Consequently the agreement was terminated by the respondents 1
and 2. Thereafter a notice dated 6-3-2001 was issued to the applicant calling upon them to pay the outstanding amount of Rs. 1,93,59,687/-
within 15 days therefrom. In the said notice they have also pointed out that in the case of non-compliance, the matter would be referred to
arbitrator whose name is mentioned in the agreement dated 30-12-95. The applicant having received the said notice sent a reply with certain false
allegations. No payment was received after the said notice. Therefore the matter was referred to the arbitrator whose name is mentioned in the
agreement dated 30-12-1995. The arbitrator also sent notice to the parties on 10-4-2001 by fixing the hearing on 14-5-2001. The said notice
was served on the applicant herein. According to the respondents 1 and 2 the arbitrator and the venue of arbitration was also fixed by mutual
consent as evident in the agreement. Therefore after agreeing to the venue and the appointment of arbitrator, it is not open to the applicant to
challenge the same. It is also the case of the respondents 1 and 2 that the cause of action or the jurisdiction is not the criteria for fixing the venue of
arbitration, and it is open to the parties concerned to consent on the place for conducting the Arbitration Proceedings. The present application filed
u/s 9(ii)(e) of the Arbitration and Conciliation Act, 1996 is not maintainable. According to the respondents 1 and 2, Section 9(ii)(e) only provides
for various Interim measures for protecting the interest of parties either before commencing the Arbitration proceedings or during the course of
Arbitration Proceedings, that it does not provide for challenging the Arbitration proceedings, as has been done in this case. According to the
respondents, all the matters raised in this application can be agitated before the arbitrator himself. Hence they prayed that the application deserves
to be dismissed and the interim injunction already granted is liable to be vacated.
The point for consideration in this application is, ''Whether the applicant herein is entitled to an injunction to restrain the respondents 1 and 2
from proceeding further with the proposed arbitration or not.
The Point : Learned counsel appearing for both the sides agreed that there is an agreement dated 30-12-95 was entered into between the
parties herein. Under Clause-32 of the said agreement it is provided as follows :
It is expressly agreed that in case any dispute between the parties concerning this agreement or any part thereto the interpretation of any clause of
the Agreement the Court/s in Udipi alone shall have the jurisdiction.
Further under Clause-33, it is provided as under:
(a) All disputes, differences and of claims arising out of this Lease Agreement shall be settled by arbitration, in accordance with the provisions of
the Indian Arbitration Act, 1940 or any statutory amendments thereof and shall be referred to the sole arbitration of Mr. B. I. Sharma, Advocate,
Udipi, or in case of death, refusal, neglect or incapacity to act as an arbitrator to the sole arbitration of Mr. T.M. Puranik, Advocate, Udipi. This
reference to the arbitrator shall be within the Clauses, Terms and Conditions of this agreement. The award given by the Arbitrator shall be final and
binding on all the parties concerned.
(b) Any party desirous of making a reference to the Arbitrator shall give 15 days Registered Acknowledgment Due Notice of his intention to do
so, to the other party at his usual place of business or residence of the place of his last notified address and the notice shall be deemed to have
been served when it would ordinarily have been delivered by post. The notice sent by the Arbitrator to the parties by Registered post at the
address mentioned in the Lease Agreement will be considered sufficient notice on the parties, whether such notice is received by them or not, or is
refused, or is returned undelivered.
(c) All costs and incidental expenses in connection with the arbitration proceedings commencing from the stage of reference to the Arbitrator till the
award is made into a decree of the Court shall be at the cost of the Lessee and shall form part of the amounts due to the company from the
Lessee.
(d) The Arbitrator so appointed shall, after accepting the reference hold such enquiry and adopt such procedures as deemed fit by the Arbitrator.
(e) The Arbitrator shall have power to pass interim order and also interim awards.
(f) The Arbitrator may with the consent of the party or otherwise pass order extending the period of making the award from time to time beyond
the statutory period of four months from the date of acceptance of reference.
(g) Arbitrator may, if he so chooses pass non-speaking award also. The mode of recovery may be separately mentioned in the award.
(h) The Arbitrator may, if so requested by any party to this agreement, file the award to the Court of competent jurisdiction.
Further both the parties agreed that the new Arbitration and Conciliation Act, 1996 (Act 26 of 1996) (hereinafter called as ''the Act''), is
applicable to this case. Learned counsel for the parties reiterated the contentions of their pleadings.
The agreement between the parties herein and the existence of the arbitration clause in the same are admitted. A notice was also issued by the
arbitrator to the parties concerned. The main contention put forth by the applicant herein is that the appointment of the 3rd respondent as arbitrator
is not valid under the Act. It is significant to note that Clause 33(a) of the agreement provides that,
All disputes, differences and of claims arising out of this Lease Agreement shall be settled by arbitration, in accordance with the provisions of the
Indian Arbitration Act, 1940 or any statutory amendments thereof and shall be referred to the sole arbitrator of Mr. B.I. Sharma, Advocate, Udipi,
or in case of death, refusal, neglect or incapacity to act as an arbitrator to the sole arbitration of Mr. T.M. Puranik, Advocate, Udipi. This
reference to the arbitrator shall be within the Clauses, Terms and Conditions of this agreement. The award given by the Arbitrator shall be final and
binding on all the parties concerned.
So also Clause 33(b) provides that,
Any party desirous of making a reference to the arbitrator shall give 15 days Registered Acknowledgment Due Notice of his intention to do so, to
the other party at his usual place of business or residence or the place of his last notified address and the notice shall be deemed to have been
served when It would ordinarily have been delivered by post. The notice sent by the Arbitrator to the parties by Registered Post at the address
mentioned in the Lease Agreement will be considered sufficient notice on the parties, whether such notice is received by them or not, or is refused,
or is returned undelivered.
However, it is contended by the learned counsel for the applicant that under the New Act, there should be mutual correspondence between the
disputing parties before appointing an arbitrator and also that both the parties have option to choose their respective arbitrators and in turn those
arbitrators have a choice to appoint an umpire to ultimately decide the issue in case there is a conflict in between them. Therefore it is contended by
the learned counsel for the applicant that in exercising such a right provided under the Act, the applicant has appointed an arbitrator from Chennai
but the same was not agreed to by the respondents 1 and 2. It is also vehemently argued by the learned counsel for the applicant that the 3rd
respondent arbitrator is not vested with the jurisdiction since no part of cause of action arose either in Udipi or any other place in Karnataka, but
only in Chennai.
At this juncture, it would be absolutely necessary to refer to Section 11 of the Act which reads thus :
Appointment of arbitrators :
(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
(2) Subject to Sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
(3) Falling any agreement referred to in Sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbirator, and the two
appointed arbitrators shall appoint the third arbitrator who shall act as the Presiding arbitrator.
(4) if the appointment procedure in subsection (3) applies and--
(a) a party fails to appoint an arbitrator within thirty days from receipt of a request to do so from the other party; or
(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be
made, upon request of a party, by the Chief Justice or any person or institution designated by him.
(5) Failing any agreement referred to in Sub-section (2), in an arbitration with a sole arbitrator, if the parties fall to agree on the arbitrator within
thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the
Chief Justice or any person or institution designated by him.
(6) Where, under an appointment procedure agreed upon by the parties,--
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution falls to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice
or any person or institution designated by him to take the necessary measure unless the agreement on the appointment procedure provides other
means for securing the appointment.
In the case on hand, the parties have agreed upon to appoint the 3rd respondent as arbitrator under Clause-33 of the agreement dated 30-12-95.
That being so, it is very clear as seen from Sub-section (6) of Section 11 that where the agreement formulated a procedure for appointment of an
arbitrator referable to Sub-section (2) of Section 11, it is open to the parties to take necessary measures for enforcing the procedure laid down in
the agreement for arbitration. It is crystal clear that under Sub-section (6) of Section 11, the Chief Justice or his designate is not to make any
appointment but to enforce or direct the party to appoint in terms of the agreement entered into between them. The Supreme Court in the decision
reported in Konkan Railway Corpn. Ltd. and Others Vs. M/s. Mehul Construction Co., : held as follows (Para-5) :
""An analysis of different sub-sections of Section 11 would indicate the character of the order, which the Chief Justice or his nominee passes
under Sub-section (6) of Section 11. Sub-section (3) and Sub-section (4) deal with cases, in which a party fails to appoint an arbitrator or the
arbitrators fail to agree on the third arbitrator and thus seek to avoid frustration or unreasonable delay in the matter of constitution of the arbitral
Tribunal. It authorises the Chief Justice of India or the Chief Justice of a High Court concerned, or any person or institution designated by him to
make the appointment upon request of a party, if the other party has failed to appoint an arbitrator within thirty days from the receipt of a request
to that end. Sub-sections (4)(5) and (6) designedly use the expression ""Chief Justice"" in preference to a Court or other authority as in paragraphs
(3) and (4) of Article 11 of the Model Law, obviously for the reason that the Chief Justice acting in its administrative capacity, is expected to act
quickly without encroaching on the requirements that only competent persons are appointed as arbitrators. Sub-section (4) does not lay down any
time limit within which the Chief Justice or his nominee, designated by him, has to make the appointment. It however expects that these
functionaries would act promptly. While Sub-sections (4) and (5) deal with removal of obstacles arising in the absence of agreement between the
parties on a procedure for appointing the arbitrator or arbitrators, Sub-section (6) seeks to remove obstacles arising when there is an agreed
appointment procedure. These obstacles are identified in Clauses (a), (b) and (c) or Sub-section (6). Sub-section (6) provides a cure to these
problems by permitting the aggrieved party to request the Chief Justice or any person or institution designated by him to take the necessary
measure i.e., to make the appointment, unless the agreement on the appointment procedure provides other means for securing the appointment.
Sub-section (6) therefore, aims at removing any dead-lock or undue delay inthe appointment process. This being the position, It is reasonable to
hold that while discharging the function under Sub-section (6), the Chief Justice or his nominee will be acting in his administrative capacity and such
a construction would sub-serve the very object of the new Arbitration Law.
In the above said decision, the Apex Court held that when the parties agreed upon for appointment of the arbitrator and the procedure, the Court
must implement the above procedure. Thus, the above decision of the Apex Court made it clear the difference between the nature of appointment
of the arbitrator under Sub-sections (3), (4), (5) and (6) of Section 11. The nature of order of appointment differs in the case where there is no
procedure agreed upon between the parties and when the procedure had been agreed upon between the parties for the appointment of an
arbitrator. In case, if an agreement is entered into between the parties provides the procedure for appointment of arbitrator, the Court has to
implement the above said procedure, but not to venture upon to pass an order otherwise. That being so, it is significant to note that in the case on
hand, the parties under agreement mutually agreed upon to appoint the 3rd respondent herein as sole arbitrator. Further, not content with that, the
parties also agreed upon for another sole arbitrator in the event of the earlier arbitrator''s refusal, neglect or incapacity etc., and that is evident
under Clause 33 (a) of the agreement. Another significant aspect in this case is that a supplementary agreement also has been entered into between
the parties herein on 30-6-99 i.e., subsequent to the enforcement of the new Act (Act 26 of 1996) and the said supplementary agreement
categorically mentions that except the changes mentioned relating to the re-schedule of monthly payment, all other terms and conditions of the lease
agreement dated 30-12-95 shall remain in force, and binding on the parties to the said agreement. Thus it is well settled that where an arbitrator is
named in the arbitration agreement, the provisions of Section 11 of the Act are not attracted and the Court will not have jurisdiction to try and
decide the petition filed by a party.
In this case, the applicant herein has invoked the provisions of Section 9(ii)(e) of the Act and has filed the present application seeking for an
injunction restraining the 3rd respondent from proceeding further with the proposed arbitration. Such application itself is unsustainable since under
the agreement dated 30-12-95, admittedly the applicant herein has given consent for the appointment of the 3rd respondent as sole arbitrator and
also for the venue of the arbitration proceedings. That being so, it is not open to the applicant now to challenge the appointment of the arbitrator
and the venue by way of the present application.
u/s 9(ii)(e) of the Act, this Court is vested with the jurisdiction to pass interim order to safeguard and protect the interests of the parties, but not
to challenge the appointment of the arbitrator and the venue. In such circumstances, he is not entitled to seek any interim relief u/s 9(ii)(e) of the
Act.
Learned counsel appearing for the respondents 1 & 2 relied on the decision of the Apex Court reported in Nimet Resources Inc. and Another
Vs. Essar Steels Ltd., : of the decision it has been held that.
The learned counsel had adverted to the decision of this Court in Konkan Railway Corpn. Ltd. and Others Vs. M/s. Mehul Construction Co., : in
which the nature of the order passed u/s 11(6) of the Act has been explained and it is also observed therein that in case of dispute between the
parties as to the existence or validity of an arbitration agreement it should be examined by the arbitral Tribunal itself. This is how this Court has
explained the position :
Section 16 empowers the arbitral Tribunal to rule on its own as well as on objections with respect to the existence or validity of the arbitration
agreement. Conferment of such power on the arbitrator under 1996 Act indicates the intention of the legislature and its anxiety to see that the
arbitral process is set in motion. This being the legislative intent, it would be proper for the Chief Justice or his nominee just to appoint an arbitrator
without wasting any time or without entertaining any contentious issues at that stage, by a party objecting to the appointment of an arbitrator. If this
approach is adhered to, then there would be no grievance of any party and in the arbitral proceedings, it would be open to raise any objection, as
provided under the Act. But certain contingencies may arise where the Chief Justice or his nominee refuses to make an appointment or an
arbitrator and in such a case a party seeking appointment of arbitrator cannot be said to be without any remedy.
Thus, in the above decision, the Apex Court held that Section 16 empowers the arbitral tribunal to rule on its own as well as on objection with
respect to the existence or validity of the arbitration agreement.
Further it is significant to note that Section 5 of the Act provides that notwithstanding anything contained in any other law for the time being in
force, any matters governed by this part, no judicial authority shall Intervene except where so provided in this part. Further Section 8(3) of the Act
provides that notwithstanding that an application has been made under Sub-section (1) and that the issues pending before the judicial authority, the
arbitration may be commenced or conducted and the arbitral award made. It is further provided u/s 34 that a party aggrieved by such an arbitral
award may make an application for setting aside such an award in accordance with the said provisions. That being so, the averment that the
applicant''s interest is affected by the arbitration proceedings initiated by the 3rd respondent cannot be accepted.
In the result, the application for injunction is dismissed. No costs. Consequently, the interim injunction already granted is hereby vacated.