Tramboo Joinery Mill Pvt. Ltd. vs Commissioner/Secretary to Govt. and Others

M. M. Kumar, C.J.—This order is in continuation of an earlier order passed in AA No. 7/2013. A copy of that order be added as part of

this order. The petitioner had earlier filed AA No. 7/2013 which was decided on 27.07.2013. In those proceedings it was concluded on the basis

of various judgments of Hon’ble the Supreme Court, namely, Datar Switchgears Ltd. Vs. Tata Finance Ltd. and Another, , Punj Lloyd Ltd. v.

Petronet MHB. Ltd. (2006) 2 SCC 638, Union of India (UOI) Vs. Bharat Battery Manufacturing Co. (P) Ltd., , S.B.P. and Co. Vs. Patel

Engineering Ltd. and Another, , Denel (Proprietary Limited) Vs. Govt. of India, Ministry of Defence, , Northern Railway Administration, Ministry

of Railway, New Delhi Vs. Patel Engineering Company Ltd., and Indian Oil Corporation Ltd. and Others Vs. Raja Transport (P) Ltd., that

following two principles with regard to appointment of arbitrator by the Court have emerged, which are set out below:-

(A) If one party demands the opposite party to appoint an arbitrator as per the agreed arbitration clause and if the opposite party fails to appoint

arbitrator within 30 days of demand made by the other party then the right to appoint arbitrator does not get automatically forfeited after the expiry

of 30 days of the demand. However, the right to appoint an arbitrator by such a party stands forfeited after the aggrieved party has moved the

Court u/s 11 of the Act.

(B) In view of law laid down by a three-Judge Bench of Hon'ble the Supreme Court in Patel Engineering Co. Ltd (supra), the principle which

emerges is that according to the scheme of Section 11 of the Act emphasis has been laid on upholding the terms of the agreement. The sanctity of

contractual terms must be adhered to and given effect as closely as possible. In other words the Court may ask to do what has not been done as

per the terms of agreement. The Court must first ensure that remedies provided for are exhausted. It is not mandatory for the Chief Justice or his

nominee to appoint the named arbitrators. But at the same time due regard has to be given to the qualifications required by the agreement and

other considerations including the one detailed in Section 11(8) of the Act.

In the aforesaid context this Court has set out the facts and has concluded that in pursuance of Clause 18 of the agreement dated 14.02.2011

the petitioner issued a notice on 15.11.2012 calling upon the respondents to appoint an arbitrator within a period of 30 days. However, the

arbitrator could not be appointed as the period of 30 days expired on 15.12.2012. After the expiry of 30 days the respondents were not able to

appoint the arbitrator which resulted in filing of AA No. 7/2013 on 15.05.2013. The arbitrator was appointed only after receipt of notice of that

petition. Consequently the respondents had lost the right to appoint the arbitrator after filing of that petition on 15.05.2013. This Court then posed

a question, whether in the facts and circumstances of the case and keeping in view the principle 'B' extracted in the preceding para, an independent

arbitrator is required to be appointed or a direction should be issued to the authority named in Clause 18 to appoint the arbitrator or to accept the

appointment already made on 10.06.2013. However, in AA No. 7/2013 the order dated 10.06.2013 appointing an arbitrator in accordance with

the arbitration clause was not challenged and this Court has granted liberty to the petitioner to challenge the order dated 10.06.2013 (Annexure-H)

by filing a fresh application. The instant petition has been filed in pursuance of liberty granted to the petitioner to challenge the order dated

10.06.2013.

According to the impugned order dated 10.06.2013, the Chairman, J&K State Forest Corporation-respondent has constituted a Board of

Arbitrators comprising of Shri A. K. Singh, IFS, Chief Wildlife Warden, J&K, as Chairman; and Shri Abdul Gani Hajam, IFS, Conservator of

Forests, IWDP and Shri T. Rabi Kumar, IFS, Special Secretary (Tech.) Forest Department as members. The order dated 10.06.2013 has been

challenged on various grounds by urging that the Board of Arbitrators has been appointed only after receipt of notice issued by this Court with the

object to render the petition infructuous and with a view to deprive the Court to make appointment of an independent arbitrator which is sufficient

proof of bias on the part of the Chairman. There are further allegations of deliberate violation of order dated 27.12.2012 passed by the Principal

District Judge u/s 9 of the Act. There are further allegations of deliberate delay in appointing the arbitrator so as to keep the petitioner-Unit non-

functional. The officers who have been named to constitute the Board of Arbitrators are subordinate of the Chairman and are working under him in

the Forest Department. They are closely associated with the Chairman who is the Forest Minister himself. All the officers appointed by the

Chairman are bound to obey his instructions and directions during the arbitral proceedings. According to the allegations the petitioner do not

expect a fair deal. According to the averments made in para 9, the impugned order was issued on 10.06.2013 and the Board of Arbitrators was

bound to initiate proceedings with prior information to the petitioner. However, it was kept as a guarded secret and no action in the matter had

since been taken. The members of the Board of Arbitrators have acted on the directions of the Chairman. The petitioner has also urged that

respondents have lost the right to appoint the Board of Arbitrators by issuing order dated 10.06.2013 as per the settled law.

In the objections filed by respondent nos. 2 and 3 the principal stand taken is that the Chairman, State Forest Corporation-cum-Minister suffers

from no bias and he is not closely associated with the members of the Board of Arbitrators. It has been alleged that there is no material on record

to draw any adverse inference against the Chairman, State Forest Corporation-cum-Minister or the members of the Board of arbitrators. Reliance

has been placed on Section 11 and 16 of the Arbitration Act.

Mr. M. Y. Bhat, learned counsel for the petitioner has argued that once there is a reasonable doubt in the mind of the Court with regard to the

independence of the Board of Arbitrators then there is no impediment for the Chief Justice to appoint an independent arbitrator instead of the

named arbitrator stipulated by the arbitration clause. In support of his submissions learned counsel has placed reliance on the observations made

by Hon'ble the Supreme Court in paras 19, 20 and 21 of the judgment rendered in the case of Deep Trading Company Vs. Indian Oil Corporation

and Others, . Mr. Bhat then and argued that there are no qualifications laid down in the arbitration Clause 18 of the agreement to appoint only a

particular type of person as an arbitrator. According to the learned counsel all that Clause 18 emphasizes is that the Chairman may himself conduct

the arbitration proceedings or may nominate any officer of the Government to conduct proceedings. Mr. Bhat has also placed reliance on the

observations made by Hon'ble the Supreme Court in the case of Bipromasz Bipron Trading SA Vs. Bharat Electronics Limited (BEL), .

Mr. Chashoo, learned counsel for the respondents has vehemently argued that once an arbitrator has been named with the consent of the parties

then there is no scope left for leveling allegations of bias or doubt of their independence. In support of his submissions learned counsel has placed

reliance on Secretary to Government, Transport Deptt., Madras Vs. Munuswamy Mudaliar and Another, and Ranjul Baruah Vs. Numaligarh

Refinery Ltd., .

Having heard the learned counsel for the parties and keeping in view the facts and circumstances of this case, I have reached the conclusion that

the prayer made by the petitioner to appoint an independent arbitrator other than the one named in Clause 18 of the agreement, deserves to be

granted.

It has come on record that there is a live dispute between the parties and a legal notice for appointment of arbitrator in terms of Clause 18 was

issued by the petitioner on 10.09.2012/15.11.2012. The period of one month came to an end and the petitioner landed in this Court by filing AA

No. 7/2013 on 15.05.2013. The matter was delayed for the reasons best known to the respondents and the order appointing the Board of

Arbitrators was passed only on 10.06.2013. The petitioner has leveled numerous allegations doubting the independent working of the Board of

Arbitrators because all of them are under the direct control of the Chairman State Forest Corporation-cum- Minister. Moreover the judgment of

Hon'ble the Supreme Court rendered in the case of Deep Trading Company (supra) in unmistakable terms lays down that once the party like the

respondents has forfeited its right to appoint an arbitrator then the Court would be competent to appoint an independent arbitrator. In that regard

reliance may be placed on the observations made in para 19, 20 and 21 of the judgment which are set out below in extenso:-

Section 11(8) provides that Chief Justice or the designated person or institution, in appointing an arbitrator, shall have due regard to two

aspects, (a) qualifications required of the arbitrator by the agreement of the parties; and (b) other considerations as are likely to secure the

appointment of an independent and impartial arbitrator. In Northern Railway Administration3, a three-Judge Bench of this Court considered the

scheme of Section 11. Insofar as Section 11(8) is concerned, this Court stated that appointment of the arbitrator or arbitrators named in the

arbitration agreement is not a must, but while making the appointment the twin requirements mentioned therein have to be kept in view.

If we apply the legal position exposited by this Court in Datar Switchgears1 to the admitted facts, it will be seen that the Corporation has

forfeited its right to appoint the arbitrator. It is so for the reason that on 09.08.2004, the dealer called upon the Corporation to appoint the

arbitrator in accordance with terms of Clause 29 of the agreement but that was not done till the dealer had made application u/s 11(6) to the Chief

Justice of the Allahabad High Court for appointment of the arbitrator. The appointment was made by the Corporation only during the pendency of

the proceedings u/s 11(6). Such appointment by the Corporation after forfeiture of its right is of no consequence and has not disentitled the dealer

to seek appointment of the arbitrator by the Chief Justice u/s 11(6). We answer the above questions accordingly.

Section 11(8) does not help the Corporation at all in the fact situation. Firstly, there is no qualification for the arbitrator prescribed in the

agreement. Secondly, to secure the appointment of an independent and impartial arbitrator, it is rather necessary that someone other than an officer

of the Corporation is appointed as arbitrator once the Corporation has forfeited its right to appoint the arbitrator under Clause 29 of the

agreement.

(Emphasis added)

The view of Hon'ble the Supreme Court, supports the principle that the Chief Justice or his designate has the power to appoint a person other

than the named arbitrator upon examination of the relevant facts which would tend to indicate that the named arbitrator would not likely be

impartial. In that regard reliance may be placed on the judgment of Hon'ble the Supreme Court rendered in the case of Bipron Trading SA (supra).

In para 49 of the judgment their Lordships of the Supreme Court have also held that once the named arbitrator is the direct subordinate to the

Chairman-cum-Managing Director, then it is not expected that he would act impartially. The aforesaid view is discernible from perusal of paras 48

and 49, which are set out below in extenso:-

In view of the aforesaid observations, it would not be possible to reject the petition merely on the ground that this Court would have no power

to make an appointment of an arbitrator other than the Chairman-cum-Managing Director or his designate. This Court would have the power to

appoint a person other than the named arbitrator, upon examination of the relevant facts, which would tend to indicate that the named arbitrator is

not likely to be impartial.

In this case, the petitioner had clearly pleaded that the named arbitrator is a direct subordinate of the CMD and employee of the respondent.

CMD is the controlling authority of all the employees, who have been dealing with the subject matter in the present dispute and also controlling

authority of the named arbitrator. Apprehending that the CMD, who had been dealing with the entire contract would not act impartially as an

arbitrator, the petitioner had issued a notice on 20th May, 2011. In this notice, it was pointed out that while the entire process of the performance

of the contract was going on, the CMD had issued a letter on 05.06 2009 to the petitioner stating that as per the company's directives, all pending

supplies as on that date were 'put on hold'. After the aforesaid communication, no communication was issued to the petitioner for supply of the

goods as per the Purchase Order dated 3.12.2009. Even subsequently, there were difficulties when a further lot of 24 units were supplied. The

detailed submissions made by the petitioner have been noticed in the earlier part of the judgment.

(Emphasis added)

It is thus evident that the power of the Chief Justice to appoint an independent arbitrator is not confined to those persons who have been

named in the arbitration agreement, particularly when in the facts and circumstances of the case the Court finds that the named persons in the

arbitration agreement are working under the control of the authority who has appointed them as such. Therefore, the principles enunciated in the

aforesaid judgment would be fully applicable to the facts of the present case.

The argument of Mr. Chashoo learned counsel for the respondents has failed to impress me because legal position which emerges from the

various provisions of the new Act and adopted in various judgments of Hon'ble the Supreme Court has to be followed. It does not lie in the mouth

of the respondents to first violate the provisions of appointing arbitrator within thirty days or before the filing of petition by the petitioner u/s 11 of

the Act and the claim enforcement of stipulation in the arbitration agreement. If allowed to do so, the respondents would be permitted to approbate

and reprobate, which is impossible proposition to accept. Therefore, I find no substance in the submission of Mr. Chashoo and reject the same.

As a sequel to the above discussion this petition succeeds. The order dated 10.06.2013 passed by the Chairman-State Forest Corporation-

cum-Minister is hereby quashed. Accordingly, I proceed to appoint Hon'ble Mr. Justice Muzaffar Jan, a former Judge of this High Court, as the

sole Arbitrator. The arbitrator shall commence the proceedings at the earliest and conclude the same expeditiously. A copy of this order along with

a copy of the order dated 24.07.2013 passed in AA No. 7/2013 be sent to the learned Arbitrator under registered post.

The petition stands disposed of.