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Judgment
Heard.
The present appeal has been filed against the impugned judgment and order dated 14.11.2018 passed by the learned Judge, Commercial Court (District Level), Raipur, wherein the learned Court below has dismissed the application under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'Act, 1996') filed by the appellant for partially setting-aside the Arbitral Award dated 04.10.2017.
The brief facts of this case are that the appellant herein is a proprietorship firm involved in the business of construction. Pursuant to a tender floated in 1994, the appellant entered into agreement dated 19-12-1994 for supply, erection, testing and commissioning of par-boiling plant as per specification of the then M.P. MARKFED and accordingly the rice mill was to be constructed at 11 different places, for which, Rs.15,84,000/- was worked out to be paid per plant. The work order was issued on 25-12-1994 and the appellant was required to complete the work within six months from the date of issuance of work order. The work could not be completed in time for different reasons and extension was initially given, that led to dispute. In 1998, the appellant filed his claim petition before the Arbitrator, who is the Managing Director of MARKFED. Subsequently, the new State of Chhattisgarh came into being in the year 2000 and thereafter, after much time elapsed, the application was filed before the High Court of Chhattisgarh to transfer the case to Chhattisgarh, wherein the High Court by order dated 05-07-2017 passed a direction that within a time frame of three months, the claim shall be adjudicated.
The appellant claimed an amount of Rs.1,47,12,580/- for 11 plants on different heads. The arbitrator only allowed the claim to the extent of Rs.79,200/- with simple interest @ 6% from the date of filing of the claim petition. Against such order, an application was filed before the Commercial Court under Section 34 of the Act, 1996 and the same having been dismissed, the present appeal has been filed.
Learned counsel for the appellant would submit that the delay occurred in commission of plant was mainly due to non-availability of the site, which was required to be provided by the respondent and when the dispute arose about the payment, the claim though was filed in erstwhile State of Madhya Pradesh in 1997 but nothing happened till long upto 2017. Eventually, the appellant had to file application before the High Court of Chhattisgarh after formation of the State of Chhattisgarh wherein the High Court passed direction on 05-07-2017 to decide the case within a stipulated time. He would further submit that thereafter the Arbitrator has passed the award on 04-10-2017 and by the time the Arbitrator passed the award, he got disqualified by amendment of Section 12 of the Act, wherein sub-section (5) was inserted, which refers to newly added Seventh Schedule. It is submitted that the said provision debars any officer or employee to act as an arbitrator if he has controlling influence in an affiliate of the litigant concern. He would further submit that the object and purpose of sub-section (5) of Section 12 as amended on 23.10.2015 read with Seventh Schedule of the Act makes the Managing Director ineligible to adjudicate when no separate written agreement exists to continue as Arbitrator and exercise his jurisdiction as such. He placed reliance on a case law laid down by the Supreme Court in Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited Versus M/s Ajay Sales & Suppliers {(2021) 17 SCC 248} and Bharat Broadband Network Ltd. Vs. United Telecoms Ltd. {(2019) 5 SCC 755} to contend that in order to achieve the object of the Act and to bring fairness, independence and impartiality, when the neutrality of the arbitrator is in question and the statutory bar is created, any award passed by him would be nullity. He would further submit that the language of the award would show that the words were picked up as verbatim from the pleadings of reply for the reason that the arbitrator himself was the Managing Director who has controlling influence of the respondent Markfed. He would further submit that when the statute creates a bar coupled with the fact of bias, the arbitrator could not have passed such award. He would further submit that under the circumstances, the case needs to be adjudicated afresh by another arbitrator to be newly appointed.
Per contra, learned counsel for the respondent would submit that initially the arbitral proceedings was commenced in the undivided State of Madhya Pradesh but after a long time on 04-11-2016 the appellant filed an application under Section 14 and the order of the High Court dated 05-07-2017 would show that the Managing Director of MARKFED was appointed thereby the interpretation would be the appellant consented with the appointment of Managing Director, who was acting as an arbitrator and the appellant participated in the said proceeding. Reliance is made to a case law laid down by Supreme Court in Sampada Yogesh Waghdhare Vs. State of Maharashtra {(2019) 5 SCC 682} to submit that once the arbitrator was appointed, the parties agreed to such appointment cannot come out with a different stand. He would further submit that the grounds which are raised before this Court were not raised before the Commercial Court and with respect to bias, it is stated that the claim was only with respect to the damages and the prayer of the appellant that the award be partially set aside cannot be entertained in view of the subsequent amendment of Section 34 of the Act, 1996. He placed reliance in MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 and Rajasthan Small Industries Corporation Limited v. Ganesh Containers Movers Syndicate {(2019) 3 SCC 282} and would submit that the scope of interference by this Court would, therefore, be very limited, which cannot be extended.
We have heard learned counsel for the parties. In the instant case, the tender was floated by the Markfed of the erstwhile M.P. on 17.05.1994, thereafter the agreement was executed on 19.12.1994 and in express terms of agreement, the work order was issued on 23.12.1994. In 1995-1996, for various reasons, extension of time was sought, which was granted by the respondents and in between 24.05.1996 and 02.05.1997 the work was completed and handed over to the M.P. MARKFED. The dispute having arisen, an application was filed on 16.08.1998 before the M.D. Markfed by invoking agreement clause. Thereafter, the M.D., Markfed started its process. In the meanwhile, pursuant to reorganization of the State of Madhya Pradesh, the new State of Chhattisgarh came into being. Since nothing transpired till long, the arbitration application was filed before the High Court of Chhattisgarh vide ARBA No.74 of 2016 wherein this Court on 05.07.2017 has passed the following order :
“(1) Learned Senior Counsel appearing for the respondents and Mr. Anbalgan P, Managing Director, Chhattisgarh State Cooperation Marketing Federation, Raipur jointly would submit that the arbitral proceedings would be concluded within a period of three months from today after getting records from the Madhya Pradesh State Cooperation Marketing Federation.
(2) The above statement is taken on record.
(3) Mr. Anbalgan P., M.D., Chhattisgarh State Cooperation Marketing Federation, Raipur submits that he has made a request for supplying the records but the Madhya Pradesh State Corporation Marketing Federation has not responded.
(4) Be that as it may, Madhya Pradesh State Cooperation Marketing Federation shall trace out the record and make available to the Chhattisgarh State Cooperation Marketing Federation promptly.
(5) With the aforesaid observations, the arbitration application stands finally disposed of.”
The appellant contends that the amendment was carried out on 23.10.2015 in the Act, 1996 wherein sub-section (5) was added to Section 12, which reads as follows :
“Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator :
Provided that the parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.”
The claim of the appellant is that the Managing Director being part of the management or has a similar controlling influence in an affiliate of the respondent Markfed would be disqualified to act as Arbitrator as the Arbitrator's relation with a party is obviously prohibited when he has any other past or present relation with a party being the employee, consultant, advisor etc. The appellant relied on case laws reported in (2021) 17 SCC 248 and (2019) 5 SCC 755 to show that it has been laid down that section 12(5) of the Act is a new provision which relates to de-jure inability of an arbitrator to act as such. Under this provision, any prior agreement to the contrary is wiped out by the non-obstante clause in Section 12 (5) the moment any person whose relationship with the parties or the counsel or the subject matter of the dispute falls under the Seventh Schedule. In sum and substance, it was contended that section 12(5) of the Act which relates to de-jure inability of an arbitrator despite existence of any prior agreement unless and until contrary is wiped out by non-obstante clause of section 12(5), the award would be a nullity and even the participation of the party to it will not cure the defect which is inherent in nature as by Act of law he becomes ineligible.
The case on which the reliance is placed in Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited Versus M/s Ajay Sales & Suppliers {(2021) 17 SCC 248} comparing to the facts of this case would be little different from that, on which reliance is placed by Appellant. In that case though the agreement was entered into on 19.12.1994 but the approach to the Arbitrator was on 19.10.2019 and in case of Bharat Broadband Network Ltd. Vs. United Telecoms Ltd. {(2019) 5 SCC 755} the dispute having arisen between the parties, the arbitration clause was invoked by the respondent from 03.01.2017. In the case on hand, the dispute arose on 16.08.1998 and much after long time, the application for arbitration was filed and the arbitration proceeding commenced. Subsequently, the State of Chhattisgarh came in existence in the year 2000. Since the State of Chhattisgarh came into being and the proceedings were in dormant stage an application was filed before the High Court to fast-track the case. The order of the High Court would also reflect that no fresh arbitration proceedings were commenced and only old arbitration proceedings were directed to be fast-tracked within a stipulated time.
Section 12 of the Arbitration Act provides parties with grounds on which they can challenge the appointment of an arbitrator based on justifiable doubts arising out of his professional, financial or personal relationships. Sub-section (1) to Section 12 requires any potential arbitrator to provide a full disclosure of any past or present relationship with the parties. However, the proviso to Section 12(5) draws a balance between party autonomy and potential bias affecting an arbitrator appointment. While Section 12(5) states that any potential arbitrator falling within one of the categories specified in Seventh Schedule will be ineligible for appointment, the proviso allows the parties to waive such ineligibility through an “express agreement” in writing”. The Act therefore recognizes that any potential ineligibility can be over-ridden by the parties only through an express agreement, and such a waiver cannot be inferred from mere conduct of parties. This position has been declared by the Supreme Court in Bharat Boardband Network Ltd. Vs. United Telcoms Ltd (2019) 5 SCC 755 (Supra) and Ellora Paper Mills Limited Vs. State of M.P. (2022) 3 SCC 1 where the Supreme Court has reaffirmed that filing of pleadings and mere participation by the parties cannot be interpreted as an implicit waiver on the ineligibility of the arbitrator under Section 12(5). The Court stressed upon the requirement of an express written agreement, through which parties repose their faith in the appointed arbitrator, which indicates their intention to waive the ineligibility under Section 12(5).
Now the question which falls for consideration before this Court is that when a notice invoking arbitration is issued prior to amendment Act, 2015 whether the old Act (Pre-amendment Act) shall be applicable or the new amended Act 2015. In this aspect, section 21 & 26 of the amended Act 2015 would be relevant which is as under:
“21. Commencement of arbitral proceedings.- Unless otherwise agreed by the parties, the arbitral proceedings in respect of a particular dispute commence on the date on which a request for that dispute to be referred to arbitration is received by the respondent.
“26. Act not to apply to pending arbitral proceedings.- Nothing contained in this Act shall 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 but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act.”
This issue also came up for interpretation before the Supreme Court in Shree Vishnu Constructions Versus Engineer in Chief Military Engineering Services 2023 SCC OnLine SC 600 wherein it has been observed that section 26 of the amendment Act 2015 provides that nothing contained in this Act shall 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 but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act. It is nobody’s case that both the appellant and respondent agreed for a different procedure after the amendment of 2015 came into being. Therefore as per Section 21 of the Principal Act, the arbitration proceedings can be said to have been commenced on the date on which a request for dispute to be referred to the arbitration is received by the respondent. Consequently the arbitral proceedings can be said to have been commenced in the month of August, 1998.
Further in case of BCCI vs. Kochi Cricket Pvt. Ltd, (2018) 6 SCC 287, the Court at para 37 to 39 while interpreting section 26 of the amendment Act, 2015 held thus:
“37. What will be noticed, so far as the first part is concerned, which states--
“26. Act not to apply to pending arbitral proceedings.--Nothing contained in this Act shall 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…”
is that : (1) “the arbitral proceedings” and their commencement is mentioned in the context of Section 21 of the principal Act; (2) the expression used is “to” and not “in relation to” ; and (3) parties may otherwise agree. So far as the second part of Section 26 is concerned, namely, the part which reads, “… but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act” makes it clear that the expression “in relation to” is used; and the expression “the” arbitral proceedings and “in accordance with the provisions of Section 21 of the principal Act” is conspicuously by its absence.
That the expression “the arbitral proceedings” refers to proceedings before an Arbitral Tribunal is clear from the heading of Chapter V of the 1996 Act, which reads as follows:
“Conduct of arbitral proceedings”
The entire chapter consists of Sections 18 to 27 dealing with the conduct of arbitral proceedings before an Arbitral Tribunal. What is also important to notice is that these proceedings alone are referred to, the expression “to” as contrasted with the expression “in relation to” making this clear. Also, the reference to Section 21 of the 1996 Act, which appears in Chapter V, and which speaks of the arbitral proceedings commencing on the date on which a request for a dispute to be referred to arbitration is received by the respondent, would also make it clear that it is these proceedings, and no others, that form the subject- matter of the first part of Section 26. Also, since the conduct of arbitral proceedings is largely procedural in nature, parties may “otherwise agree” and apply the Amendment Act to arbitral proceedings that have commenced before the Amendment Act came into force. [Section 29-A of the Amendment (sic Amended) Act provides for time-limits with which an arbitral award is to be made. In Hitendra Vishnu Thakur v. State of Maharashtra, (1994) 4 SCC 602 at p.633 : 1994 SCC (Cri) 1087, this Court stated : (SCC p. 633, para 26) “26…… (iii) Every litigant has a vested right in substantive law but no such right exists in procedural law. (iv) A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished. (v) A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication.” It is, inter-alia, because timelines for the making of an arbitral award have been laid down for the first time in Section 29-A of the Amendment (sic Amended) Act that parties were given the option to adopt such timelines which, though procedural in nature, create new obligations in respect of a proceeding already begun under the unamended Act. This is, of course, only one example of why parties may otherwise agree and apply the new procedure laid down by the Amendment Act to arbitral proceedings that have commenced before it came into force.] In stark contrast to the first part of Section 26 is the second part, where the Amendment Act is made applicable “in relation to” arbitral proceedings which commenced on or after the date of commencement of the Amendment Act. What is conspicuous by its absence in the second part is any reference to Section 21 of the 1996 Act. Whereas the first part refers only to arbitral proceedings before an Arbitral Tribunal, the second part refers to court proceedings “in relation to” arbitral proceedings, and it is the commencement of these court proceedings that is referred to in the second part of Section 26, as the words “in relation to the arbitral proceedings” in the second part are not controlled by the application of Section 21 of the 1996 Act.
Section 26, therefore, bifurcates proceedings, as has been stated above, with a great degree of clarity, into two sets of proceedings – arbitral proceedings themselves, and court proceedings in relation thereto. The reason why the first part of Section 26 is couched in negative form is only to state that the Amendment Act will apply even to arbitral proceedings commenced before the amendment if parties otherwise agree. If the first part of Section 26 were couched in a positive language (like the second part), it would have been necessary to add a proviso stating that the Amendment Act would apply even to arbitral proceedings commenced before the amendment if the parties agree. In either case, the intention of the legislature remains the same, the negative form conveying exactly what could have been stated positively, with the necessary proviso. Obviously, “arbitral proceedings” have been subsumed in the first part cannot re-appear in the second part and the expression “in relation to arbitral proceedings” would therefore, apply only to court proceedings which relate to the arbitral proceedings. The scheme of Section 26 is thus clear : that the Amendment Act is prospective in nature, and will apply to those arbitral proceedings that are commenced, as understood by Section 21 of the principal Act, on or after the Amendment Act, and to court proceedings which have commenced on or after the Amendment Act came into force.”
Further, the effect of Section 21 read with section 26 of the Act 2015 Amendment Act was examined by the Supreme Court in Aravali Power Co. (P) Ltd v. Era Infra Engg. Ltd (2017) 15 SCC 32 and taking note of section 26 of the 2015 Amendment Act, the Court laid down the broad principles as under :
“22. The principles which emerge from the decisions referred to above are :
22.1 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 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 to the officer whose decision is the subject-matter of the dispute.
22.1.2. Unless the cause of action for invoking jurisdiction under clauses (a) (b) or (c) of sub-section (6) of Section 11 of the 1996 Act arises, there is no question of the Chief Justice or his designate exercising power under subsection (6) of Section 11.
22.1.3. The Chief Justice or his designate while exercising power under sub-section (6) of Section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause.
22.1.4 While exercising such power under sub-section (6) of Section 11, if circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone-else.
22.2 In cases governed by the 1996 Act after the Amendment Act has come into force : if the arbitration clause finds foul with the amended provisions, the appointment of the arbitrator even if apparently in conformity with the arbitration clause in the agreement, would be illegal and thus the court would be within its powers to appoint such arbitrator(s) as may be permissible.”
(Emphasis applied)
The aforesaid proposition has been further considered by Supreme Court in S.P. Singla Constructions (P) Ltd. Versus State of H.P (2019) 2 SCC 488 : (2019) 1 SCC (Civ) 748 : (SCC p. 495, para 16) which reads as under:
“16. Considering the facts and circumstances of the present case, we are not inclined to go into the merits of this contention of the appellant nor examine the correctness or otherwise of the above view taken by the Delhi High Court in Ratna Infrastructure Projects case [Ratna Infrastructure Projects (P) Ltd. v. Meja Urja Nigam (P) Ltd., 2017 SCC OnLine Del 7808]; suffice it to note that as per Section 26 of the Arbitration and Conciliation (Amendment) Act, 2015, the provisions of the amended 2015 Act shall not apply to the arbitral proceedings commenced in accordance with the provisions of Section 21 of the principal Act before the commencement of the Amendment Act unless the parties otherwise agree. In the facts and circumstances of the present case, the proviso in Clause (65) of the general conditions of the contract cannot be taken to be the agreement between the parties so as to apply the provisions of the amended Act. As per Section 26 of the Act, the provisions of the 2015 Amendment Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of the 2015 Amendment Act (w.e.f. 23.10.2015). In the present case, arbitration proceedings commenced way back in 2013, much prior to coming into force of the amended act and therefore, the provisions of the amended Act cannot be invoked.”
We are also of the view that the 2015 Amendment Act which came into force i.e., on 23.10.2015) shall not apply to the arbitral proceedings which have commenced in accordance with the provisions of Section 21 of the principal Act, 1996 before the coming into force of the 2015 Amendment Act, unless the parties otherwise agree.”
(Emphasis supplied)
Again the said proposition has recently been followed in a mere recent decision rendered in Shree Vishnu Constructions 2023 SCC OnLine SC 600 (Supra).
The Supreme Court in case of Union of India Versus Parmar Construction Company (2019) 15 SCC 682 : 2019 SCC OnLine SC 442, in relation to application under Section 11(6) of the Act in a case where notice for arbitration is received/invoked prior to the Amendment Act , 2015 but the application under Section 11(6) of the Act is filed post Amendment Act, 2015, it is observed in paragraphs 25 to 26 as under:
“25. As on 1-1-2016, the 2015 Amendment Act was gazetted and according to Section 1(2) of the 2015 Amendment Act, it was deemed to have come into force on 23-10-2015. Section 21 of the 1996 Act clearly envisages that unless otherwise agreed by the parties, the arbitral proceedings in respect of a dispute shall commence from the date on which a request for that dispute to be referred to arbitration is received by the respondent and the plain reading of Section 26 of the 2015 Amendment Act is self-explicit, leaves no room for interpretation. …….”
Reading the language of sections 21 of 1996 and 26 of 2015 Amendment Act, the Supreme Court further held that conjoint reading of section 21 read with Section 26 leaves no manner of doubt that the provisions of the 2015 Amendment Act shall not apply to such of the arbitral proceedings which have commenced in terms of the provisions of Section 21 of the principal Act unless the parties otherwise agree.
Therefore, the law laid down in Parmar Construction Company(2019) 15 SCC 682 (supra) has specifically observed that new Amendment Act which came into force w.e.f. 23.10.2015 shall not apply to the arbitral proceedings which have commenced in terms of provisions of Section 21 of the principal Act, 1996 before coming into force of the 2015 Amendment Act, unless the parties otherwise agree. Similar view has been expressed in S.P. Sangla Construction Private Ltd. Versus State of Himachal Pradesh (2019) 2 SCC 488.
Therefore, during the pendency of the arbitration proceeding in the instant case, the provisions of the Amendment Act 2015 shall not be applicable to the facts of the present case. Further the appellant has raised the issue of bias to submit that the language of the award would show that the pleadings of reply in verbatim was adopted for the reason that the arbitrator himself was the Managing Director of the respondent, therefore, the respondent arbitrator was working in the interest of the arbitrator. The appellant has relied on a case law reported in (2019) 20 SCC 1 (M/s. Dyna Technologies Pvt. Ltd Versus M/s. Crompton Greaves Ltd.). A perusal of the award though reflects that at certain part, the pleading was reproduced as it is, however, the crux of the issue was that how much proof was placed by the appellant to establish his claim. Simply for the reason that such pleadings of reply was reproduced in the award, it cannot be inferred that the M.D. respondent was biased and acted unfairly. The reasoning assigned in the award shows that proper consideration was given as against the evidence which was adduced. The part of the evidence and adequacy has further been tested by the Commercial Court. Therefore, unless it is established that the arbitrator has acted in a patent illegality or acted beyond jurisdiction, the inference of like nature drawn in Ssangyong Engg. & Construction Co. Ltd (Supra) cannot be derived.
In view of the foregoing discussion, we are of the view that this appeal does not require any inference in the order of the Commercial Court. Accordingly, the appeal is dismissed.