Punjab State Warehousing Corporation vs Shiv Shankar Rice Mills and Others

Satish Kumar Mittal, J.—This order shall dispose of three civil revisions bearing C.R. No. 2750 of 2007, C.R. No. 2751 of 2007 and C.R. No. 2752 of 2007 in which common questions of facts and law are involved. The Punjab State Warehousing Corporation has filed these petitions under Article 227 of the Constitution of India for setting aside the order dated 22.2.2007 whereby the Additional District Judge, Moga has declined to entertain the application moved by the petitioner u/s 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ''the Act of 1996'') for setting aside the award of the Arbitrator on the ground that the costs assessed by the Arbitrator u/s 31 of the Act of 1996 have not been paid and, therefore, he has a lien on the award, hence no challenge can be made to the award till such time the costs are paid. The facts are taken from Civil Revision No. 2751 of 2007.

Undistputely, as per the arbitration clause existing in the agreement between the parties, Shri V.P. Anand was appointed as sole Arbitrator to adjudicate the dispute between the parties. The fee and cost of the arbitration were not paid by both the parties as there was some dispute about the quantum of fees and costs. With the consent of the parties, the proceedings of the arbitration were concluded and it was ordered that the dispute regarding fees would be decided on the basis of the documents on record. However, both the parties did not pay the fee and cost which were fixed as Rs. 44,100/- for each party.

On 7.9.2005, the award was pronounced and was signed by the Arbitrator. The Arbitrator made it clear that he was making and delivering the award and not withholding the same till the payment of fee and cost though the same had not been paid by the claimant. However, he decided that u/s 39(1) of the Act of 1996, the award will be operative in the competent court for admission only when the fee and cost fixed by the Arbitrator is paid and no objection from the Arbitrator is attached with objections or execution application to be filed u/s 34 or 36 of the Act of 1996.

Respondent No. 1 after paying his share of fee and cost to the tune of Rs. 44,100/- filed an application for enforcement of the said award. On the other hand, the petitioner filed objections u/s 34 of the Act of 1996 before the competent court challenging the said award on various grounds without making any payment of its share of the fee and cost to the Arbitrator. The Additional District Judge, Moga dismissed those objections being not maintainable while recording the following reasons:

Heard. There is no dispute about the fact that lien on the award as permissible u/s 39 of the Arbitration and Conciliation Act, 1996 (hereinafter in short referred as the "Act") is envisaged that the assessment of the costs incurred during arbitration proceedings is within exclusive purview of the Arbitrator and the costs so assessed are liable to be recovered. The arbitrator is within his right not to deliver the award except on payment of the costs demanded by it but since the costs has not been paid as per the lien created by the Arbitrator. So, the award cannot be challenged in the Court u/s 34 of the "Act". Costs which had been assessed by the Arbitrator had not been paid; and he had reserved lien regarding costs on the proceedings of award and unless such costs of the arbitration proceedings are made, the arbitral award cannot be challenged u/s 34 of the Act. In view of the discussion held above, petition filed by the petitioner Punjab State Ware Housing Corporation being not maintainable is hereby dismissed.

Against the said order, the instant revision petitions have been filed.

During the pendency of this petition, the petitioner moved an application u/s 39(2) of the Act of 1996 for permission to deposit in the Court an amount of Rs. 44,100/- in lieu of fee and cost of respondent No. 2-Arbitrator and for passing an order directing respondent No. 2 to give no objection for filing objections to the award made by him. A prayer has also been made that whatsoever amount the court finds due to the Arbitrator the same may be paid from the amount deposited.

Counsel for the petitioner submitted that the Additional District Judge has erred in law while refusing to entertain the application filed by the petitioner on the aforesaid ground. He submits that while adjudicating the application u/s 34 of the Act of 1996, the court can either allow the application or dismiss the same, but it cannot refuse to entertain the application on the ground that fee and cost of the Arbitrator has not been paid particularly in a situation wherein Arbitrator has not exercised his right to hold a lien over the award. Rather he delivered and singed the award, but put a condition that the parties to the award can file the objections u/s 34 or execution application u/s 36 of the Act of 1996, after depositing their respective shares of the fees and costs and obtain no objection from the Arbitrator. The learned Counsel submits that Section 39 of the Act of 1996 contemplates that in case an arbitral tribunal refuses to deliver its award except on payment of the costs, as determined by it, either of the party may make an application on payment of the costs in the court with a direction to the arbitral tribunal to deliver the award. On such application, the court may after such inquiry, as it thinks fit, determines the money payable to the arbitral tribunal as tees and costs and the remaining amount, if any, can be refunded to the applicant and ejection can be issued to the arbitral tribunal to deliver the award.

The learned Counsel further submits that now when the petitioner has deposited the amount of fee and cost of its share, i.e., Rs. 44,100/- before the competent court with an application u/s 39(2) of the Act of 1996 for determining the fee and cost payable to the Arbitrator and for payment of the same from the amount deposited by it (sic) Arbitrator, the impugned order is liable to be set aside with a direction to the Additional District Judge, Moga to decide the objections filed by the petitioner u/s 34 of the Act of 1996 on merits. Counsel submits that since respondent No. 1 has (sic) the execution application u/s 36 of the Act of 1996 after getting no objection certificate from the Arbitrator on making the payment of its share, the right of the petitioner will be seriously prejudiced if his objections u/s 34 of the Act of 1996 are not decided on merits. He further submitted that as far as fee and cost of the Arbitrator are concerned, his interest has been protected by depositing the said amount in the court u/s 39(2) of the Act and the court may after adjudicating his entitlement, can pay the same to the Arbitrator from the said amount. Therefore, the impugned order is liable to be set aside with a direction to the Additional District Judge; Moga to decide the objections of the petitioner on merits.

Counsel for respondent No. 1 raised preliminary objections regarding maintainability of the petition. He submitted that vide impugned order the objections filed by the petitioner u/s 34 of the Act have been dismissed and against such an order, an appeal lies to the court under Clause (b) of Sub-section (1) of Section 37 of the Act of 1996, therefore, this revision petition is, not maintainable. In support of his contention, learned Counsel relied upon a Division Bench decision of Allahabad High Court in U.P. Co-operative Sugar Factories Federation Ltd. and Others Vs. P.S. Misra and Another, , wherein it was held that the rejection of the application moved u/s 34 of the Act would fall within Clause (b) of Sub-section (1) of Section 37 of the Act of 1996 and it would be immaterial as to whether such application has been rejected for want of jurisdiction or otherwise on merit. The said provision does not clarify anywhere that if an application u/s 34 is rejected on merits alone, only then the appeal would lie. The ground of rejection may be multifarious but it is only the rejection of application, which would give a right to the appellant to file an appeal. Therefore, the learned Counsel submits that the contention raised by the counsel for the petitioner that vide impugned order, the objections filed by the petitioner have been dismissed being not maintainable, is not an appealable order, is having no force.

On the contrary, learned Counsel for the petitioner submitted that even if this Court comes to the conclusion that against the impugned order, an appeal should have been filed instead of a revision petition, it is open for this Court to convert this revision in appeal as the appeal also lies before this Court. In support of his contention, learned Counsel for the petitioner relied upon a decision of the Supreme Court in Essar Constructions v. N.P. Rama Krishna Reddy 2000 (3) R.C.R. (Civil) 281, wherein against the order of dismissal of the application for condonation of delay in filing the objection u/s 30 of the Act, a revision was filed before the High Court and 4he same was converted into an appeal, was held to be legal and valid.

After hearing the counsel for the parties and going through various provisions of Section 37 of the Act of 1996,1 am of the opinion that against the impugned order only an appeal lies and not a revision. Whether the objections filed by a party u/s 34 of the Act against the award are dismissed being not maintainable or on merits or on limitation, it makes no difference; the dismissal or rejection of the objections amounts to refusing to set aside an arbitration award u/s 34 of the Act of 1996. If the Court rejects the objections filed by a party u/s 34 of the Act of 1996 for whatsoever reason, it amounts to refusal to set aside the award. The words "refusal to set aside the arbitration award" cannot be limited to mean only a refusal on merits. The refusal to set aside the arbitration award may be on any ground. Thus, Division Bench of the Allahabad High Court in U.P. Co-operative Sugar Factories Federation Ltd.''s case (supra) has rightly held that the ground of rejection may be multifarious, but it is only the rejection of application, which would give a right to the appellant to file an appeal. However, keeping in view the fact that even an appeal against the impugned order lies to this Court and this Court is having jurisdiction to convert the revision into an appeal, in the interest of justice, when a plea of maintainability of the revision is taken, in view of the law laid by the Supreme Court in Essar Constructions case (supra), I deem it appropriate to convert the instant three revision petitions into appeals. Registry is directed to register these appeals subject to payment of requisite court-fees by the petitioner within three weeks from today.

In this case, both the parties in the arbitration proceedings did not pay the fee and cost of the arbitration as fixed by the Arbitrator. As per Section 39 of the Act of 1996, arbitral tribunal shall have a lien on the arbitration award for any unpaid cost of the arbitration. The arbitral tribunal can refuse to deliver its award if the costs of the Arbitrator has not been paid. He can withhold the delivery of the arbitral award. In the instant case, the Arbitrator has not exercised his right to deliver the award except on payment of fee and cost demanded by him. Rather he made and delivered the award and not withheld the same till the payment of fee and cost. He signed the award and provided copies of the signed award to both the parties. However, he imposed a condition that the parties to the award can file objections or execution application u/s 34 or Section 36 of the Act of 1996 only on obtaining no objection from the Arbitrator after making payment of fee and cost as fixed by the Arbitrator. Respondent No. 1 after making the payment of its share filed the execution application. The petitioner decided to file objections for setting aside the award u/s 34 of the Act of 1996 on various grounds without making payment of fee and cost as fixed by the Arbitrator. The said objections have been dismissed by the court being not maintainable on the ground that the amount of fee and cost of the share of the petitioner have not been paid to the Arbitrator.

Without going into the controversy, whether in the facts and circumstances of the case, dismissal of the objections filed by the petitioner u/s 34 of the Act on the ground that the same being not maintainable, is legal or not, I am of the opinion that the interest of justice would be fully met if the objections filed by the petitioner before the Additional District Judge, Moga are directed to be decided on merits, in view of the fact that now the petitioner has deposited the amount of fee and cost of the Arbitrator u/s 39 of the Act of 1996 with the court for payment of the Arbitrator. The very purpose of the provisions of Section 39 of the Act of 1996 is to ensure the payment of fee and cost of the arbitration to the arbitral tribunal by both the parties. The right of lien on the arbitral award and right to withhold the award was given to the arbitral tribunal to secure the payment towards the fees and costs of the arbitration proceedings. Though in this case the Arbitrator has not withheld the delivery of the award in exercise of his lien, but he imposed a condition that the parties to the award can file objections to the award u/s 34 of the Act of 1996 on payment of their respective shares. The petitioner was having some grouse on the quantum of fee and cost fixed by the Arbitrator. It did not pay the amount as determined by the Arbitrator, and it deposited the claimed amount in the court with a request to determine the amount payable to the Arbitrator and to pay the same from the said amount. In view of these facts, in my opinion, the petitioner is entitled to get its objections filed u/s 34 of the Act decided on merits. Consequently, I allow these appeals and set aside the impugned order dated 22.2.2007 passed by the Additional District Judge, Moga and remand the matter to the Additional District Judge, Moga for deciding the objections filed by the petitioner on merits after providing full opportunity to the parties in accordance with law.