Mobile View
Main Search Advanced Search Disclaimer
Cites 16 docs - [View All]
Section 12 in THE ARBITRATION AND CONCILIATION ACT, 1996
The Code Of Civil Procedure (Amendment) Act, 2002
THE ARBITRATION AND CONCILIATION ACT, 1996
Section 13 in THE ARBITRATION AND CONCILIATION ACT, 1996
Section 2 in THE ARBITRATION AND CONCILIATION ACT, 1996
Citedby 1 docs
Ou vs C on 5 December, 2008

User Queries
Bombay High Court
Union Of India (Uoi) vs Tolani Bulk Carriers Limited on 29 November, 2001
Equivalent citations: 2002 (2) BomCR 256
Author: D Deshmukh
Bench: D Deshmukh

JUDGMENT

D.K. Deshmukh, J.

1. This is a petition filed under section 34 of the Arbitration and Conciliation Act, 1996 for setting aside the award dated 15th April, 1999. The facts that are relevant and material for deciding this petition are that the parties had entered into a charter party agreement dated 19th May, 1995 whereby the respondent chartered their vessel M.V. Prabhu Gopal to the petitioners to carry certain goods. The vessel discharged at two ports, the first was Vishakhapatnam where the vessel discharged part of the goods. The vessel discharged at the second port being Haldia, the balance of the goods. According to the respondents the vessel incurred demurrage charges at the discharge port for which the respondents made a claim amounting to Rs. 1,08,00,431/-. On this amount of demurrage charge, dispute arose between the parties.

2. In the agreement between the parties there was an arbitration clause. Therefore the disputes were referred to arbitration under the Act. The respondents invoked the arbitration clause and appointed Shri K.P. Patel as their arbitrator and also appointed Messrs Bhatt & Saldanha, as Advocates to represent them in the arbitration proceedings. The petitioners appointed Ms. J.K. Bhatt as their arbitrator and the two arbitrators appointed Mr. N. Sukumaran as the Presiding Arbitrator.

3. During the pendency of this arbitration proceedings the petitioners came to know that the son of Shri K.P. Patel, the arbitrator appointed by the respondents, was a partner in the firm of Messrs Bhatt & Saldanha, who were representing the respondents before the arbitrators. According to the averments in the petition they came to know of this fact on 5th February, 1999. They entered into correspondence with Messrs Bhatt & Saldanha for confirmation of this fact and when the fact was confirmed that the son of arbitrator Shri K.P. Patel is a partner of Messrs Bhatt & Saldanha, which was representing the respondents before the arbitrators the petitioners filed an application under sections 12 and 13 of the Act challenging the appointment of Shri K.P. Patel, as an arbitrator. That application was opposed by the respondents and the said application came to be decided by an order dated 23rd March, 1999.

4. In the proceedings for deciding the application Shri Patel did not take part but he signed the order rejecting the application. As the application was rejected further proceedings took place and finally an award was made by the arbitrators directing the petitioners to pay the amount of claim made by the respondents with interest. In the present petition the order passed the application under sections 12 and 13 of the Act as also the final award are challenged.

5. There is no dispute before me that son of Shri Patel, the arbitrator, is a partner in the firm of Advocates which represented the respondents before the arbitrator. The learned Counsel appearing for the petitioners submits that section 12 of the Act casts a duty on an arbitrator to disclose in writing any circumstance likely to give rise to justifiable doubt as to his independence or impartiality. According to the learned Counsel therefore a duty is cast on the arbitrator to disclose to the parties to the arbitration in writing any circumstance likely to raise justifiable doubts as to his independence. According to the learned Counsel Shri Patel, the arbitrator was duty bound to disclose to the parties to arbitration that his son is a partner in the firm of Advocates which represented the respondent before him. According to the learned Counsel the failure of Shri Patel to disclose this information amounts to breach of a statutory duty imposed on the arbitrator by section 12 of the Act. According to the learned Counsel section 12 of the Act incorporates a procedural safeguard. The duty imposed on the arbitrator to disclose is a mandatory duty and failure of Shri Patel to do so vitiates the entire arbitration proceedings. In support of his submission learned Counsel appearing for the petitioners relies on a judgment of the Supreme Court in the case of Ranjit Thakur v. Union of India and others, . The learned Counsel further submits, relying on the observations of the Supreme Court in the same judgment that admittedly the son of one of the arbitrator, Shri Patel, being a partner in the firm of Advocates which represent the respondents, creates real likelihood of bias as also a reasonable apprehension in the mind of the parties to the proceedings and therefore. In the submission of the learned Counsel the award is liable to be set aside.

6. The learned Counsel appearing for the respondents does not dispute, as observed above, the fact that son of Shri Patel is partner of the firm which represents the respondents before the arbitrator but relying on the judgment of the Supreme Court in the case of Kumaon Mandal Vikas Nigam Ltd. v. Girja Shankar Pant and others, reported in 2001(1) Supreme Court Cases 182, the learned Counsel submits that any of the test of real likelihood of bias which was laid down by the Supreme Court is now diluted and award can be set aside only if the facts and circumstances of the case disclose that there is a real danger of bias. The learned Counsel also invited my attention to the various judgments of the English Courts some of which have been referred to in the judgment in Kumaon Mandal Vikas Nigam Ltd.'s case as also in the judgment of the Supreme Court in Ranjit Thakur's case. According to the learned Counsel non disclosure of the fact by Shri Patel would not vitiated the entire proceedings because of the scheme of sections 12 and 13. I say that/act. According to the learned Counsel section 13 contemplates a challenge being raised before the same arbitrator. It empowers the same arbitrator to decide the case and it further empowers the same arbitrator to go ahead with the trial in case the challenge fails. In the submission of the learned Counsel therefore in this case the Court will have to make an enquiry to find out from the award whether in fact a bias is disclosed in favour of one of the parties from the award.

7. According to the learned Counsel the subject matter of the arbitration was the damage claimed at Haldia port which is within the jurisdiction of the Calcutta High Court and therefore this Court will not have jurisdiction to entertain this petition. The learned Counsel in support of his submission relies on the definition of the term 'port' found in section 2(e) of the Act as also judgment of the Madras High Court in the case of The Electrical Manufacturing Co. Ltd., Calcutta and another v. The Crompton Engineering Co. (Madras) Ltd., . The learned Counsel submits that as the subject matter of the arbitration was the amount of demurrage claimed by the authorities of the Haldia port this Court would not have the jurisdiction to entertain this petition. The learned Counsel appearing for the petitioners on the other hand submits that this Court will have jurisdiction to entertain this petition because admittedly the respondents have their registered office at Mumbai and carries on business at Mumbai and hence according to the learned Counsel this petition is maintainable in this Court. The learned Counsel relied upon a judgment of the Supreme Court in the case of Food Corporation of India v. Evdomen Corporation, as also the judgment of the Supreme Court in the case of Hakim Sing v. Gammon (India) Ltd., as also judgment of the Full Bench of the Delhi High Court in the case of Shri Ram Rattan Bhartia v. Food Corporation of India and another, .

8. Now if in the lights of these rival submissions if the record of the case and the provisions of the Act are examined, it is clear that there is no dispute between the parties that Shri Patel was appointed as arbitrator by the respondents: the respondents appointed Messrs Bhatt & Saldanha as their Advocates and that son of Shri Patel was a partner in the firm Messrs Bhatt & Saldanha. Considering the relationship between the arbitrator Shri Patel and a partner of the firm of Advocates which was appearing before him in the dispute, in my opinion Shri Patel, arbitrator, was duty bound to disclose to the parties the said relationship under section 12 of the Act.

Section 12 of the Arbitration and Conciliation Act, 1996 reads as under:

12. Grounds for challenge.---(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.

(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section

(1) unless they have already been informed of them by him.

(3) An arbitrator may be challenged only if

(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, of

(b) he does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

9. It is clear from the provisions of section 12 quoted above that the Act casts a duty on the arbitrator to disclose in writing any circumstances likely to give rise to justifiable doubt as to his independence or impartiality. Therefore at the outset Shri Patel was under a duty to disclose to the parties that his son is a partner in the firm of Advocates which represents the respondents before him. It is to be seen that by this Act the entire law of arbitration has been drastically changed. The power of the Court to interfere with the award made by the arbitrator is now extremely limited in view of the provisions of section 34 of the Act and therefore, section 12 is in the nature of a procedural safeguard afforded to a party by the Act. Section 12 casts a solemn duty on an arbitrator, who is put in position of a Judge to disclose to the parties his interest which is likely to give rise to a reasonable doubt about his independence in the mind of the parties. So far as the question of justifiable doubts as to independence or impartiality is concerned the basis is whether the party to the dispute would have reasonable apprehension in his mind about the independence of the arbitrator and not whether the arbitrator thinks that he is capable of being impartial. The following observations from para 17 of the judgment of the Supreme Court in the case of Ranjit Thakur in my opinion are pertinent. The said paragraph 17 reads thus:

17. As to the tests of the likelihood of bias what is relevant is the reasonableness of the apprehension in the in that regard in the mind of the party. The proper approach for the Judge is not to look at his own mind and ask himself, however, honestly. Am I biased? ; but to look at the mind of the party before him.

In such a situation, in my opinion, the Court has to look at the impression, which would be given to the other people. In the present case the son of arbitrator Shri Patel was a member of the firm of Advocates which represented the respondents before him. In my opinion, it was the duty of Shri Patel, the arbitrator, to disclose to the parties the said fact in writing as contemplated by the said section.

10. So far as the judgment of the Supreme Court in Kumaon Mandal Vikas Nigam Ltd.'s case relied upon, as far as the respondents are concerned para 30 of the judgment is relevant and it reads as under:

"30. Recently however, the English Courts have sounded a different note, though may not be substantial but the automatic disqualification theory rule stands to some extent diluted. The affirmation of this dilution however is dependent upon the facts and circumstances of the matter in issue. The House of Lords in the case of R.V. Bow Street v. Bow Streed Metropolitan Stipendiary Magistrate, Exhibit Pinochet Ugarte (No. 2) observed: In civil litigation the matters in issue will normally have an economic automatically disqualified if he stands to make a financial gain as a consequence of his own decision of the case. But if, as in the present case, the matter at issue does not relate to money or economic advantage but is concerned with the promotion of the cause, the rationale disqualifying a Judge applies just as much if the judge's decision will lead to the promotion of a cause in which the Judge is involved together with one of the parties."

11. In the present case however, the term, which has been used by section 12 is the circumstances material to raise a justifiable doubt as to the independence or impartialities of an arbitrator. The question, therefore, is when a party comes to know that the son of the arbitrator is a partner in the firm of Advocate which is representing the other side and the arbitrator did not disclose it, will this not raise a justifiable doubt as to the independence of the arbitrator in the mind of the party. The answer to me appears to be in the affirmative and therefore in my opinion the arbitrator was under duty to disclose his relationship with a partner of the firm of Advocates. The Supreme Court in its judgment in Ranjit Thakur's case held that procedural safeguards which are provided against bias by a statute are mandatory in nature and non-compliance of it results in vitiating the entire proceedings. The observations of the Supreme Court in paras 11 to 14 are pertinent. They read thus:

11. The procedural safeguards contemplated in the Act must be considered in the context of and corresponding to the plenitude of the summary jurisdiction of the Court-martial and the severity of the consequences that visit the person subject to that jurisdiction. The procedural safeguards should be commensurate with the sweep of the powers. The wider the power, the greater the need for the restraint in its exercise and correspondingly, more liberal the construction of the procedural safeguards envisaged by the statute. The oft-quoted words of Frankfurter, J., in Vitrelli v. Seaton are again worth recalling: If dismissal from employment is based on a defined procedure, even though generous beyond the requirements that bind such agency, that procedure must be scrupulously observed. This judicially evolved rule of administrative law is now firmly established and, if I may add, rightly so. He that takes the procedural sword shall perish with that sword.

12 The history of liberty said the same learned Judge has largely been the history of observance of procedural safeguards.

13. We are afraid, the non-compliance of the mandate of section 130 is an infirmity which goes to the root of the jurisdiction and without more, vitiates the proceedings. Indeed it has been so held by this Court in Prithi Pal Singh v. Union of India, where Desai, J., referring to the purpose of section 130 observed: (S.C.C. pp. 167-68, S.C.C. (Cri.) p. 667, para 32)

Whenever an objection is taken it has to be recorded. In order to ensure that anyone objected to does not participate in disposing of the objection. This is a mandatory requirement because the officer objected to cannot participate in the decision disposing of the objections. The provisions conferring a right on the accused to object to a member of the Court-martial sitting as a member and participating in the trial ensures that a charge of bias can be made and investigated against individual members composing the Court-martial. This is pre-eminently a rational provision which goes a long way to ensure a fair trial.

14. What emerges, therefore, is that in the present case there is a non-compliance with the mandate of section 130 with the attendant consequence that the proceedings of the summary Court-martial are rendered infirm in law. This disposes of the first limb of the contention (a).

In my opinion, therefore, once it is held that the provisions of section 12 are mandatory in nature and as admittedly in the present case there has been breach of that mandatory provision the entire proceedings including the award made by the arbitrator must be held to have been vitiated for non-compliance with the provisions of section 12 of the Act by the arbitrator Shri Patel.

12. So far as the objection raised by the learned Counsel for the respondents as to the jurisdiction of this Court to entertain this petition is concerned under section 34 an application for setting aside the award can be made to the Court. The term Court has been defined by section 2(e) of the Act which reads as under: 2(e) "Court" means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary original civil jurisdiction having jurisdiction to decide the questions forming the subject-matter of the arbitration if the same had been the subject-matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes.

A perusal of the provisions of section 2(e) quoted above shows that in so far as the High Court having original civil jurisdiction are concerned they get jurisdiction to entertain a petition under section 34 against an award made by an arbitrator if the subject matter of the arbitration award made by an arbitrator had been subject matter a suit would the High Court have the jurisdiction to entertain that suit. The learned Counsel in support of his submission relied upon a judgment of the Madras High Court in the case of The Electrical Manufacturing Co. Ltd., referred to above. In my opinion, the law laid down by the Madras High Court in the case of the The Electrical Manufacturing Co. Ltd., cannot be said to be a good law in view of the judgment of the Supreme Court in the case of Food Corporation of India cited above. The Supreme Court in that judgment has held that the phrase Civil Court having jurisdiction to decide would refer to a Court having jurisdiction under section 20 of the Civil Procedure Code to decide the suit. The Supreme Court further held that in view of the provisions of section 120 of the Civil Procedure Code the provisions of section 20 will not apply to a High Court in exercise of its original jurisdiction. And the Court will have to look into the Letters Patent which governs the jurisdiction of the High Court to entertain suits in its original civil jurisdiction. The Supreme Court considered the provisions of section 12 of the Letters Patent and held that this Court will have jurisdiction to entertain the suit because the respondents have their registered office at Bombay. The relevant observations of the Supreme Court are to be found in para 8 of the judgment, which reads as under:

8. However, under section 120 of the Civil Procedure Code, sections 16, 17 and 20 of the Civil Procedure Code do not apply to a High Court in the exercise of its original civil jurisdiction. Jurisdiction of the Bombay High Court to entertain a suit under its ordinary civil jurisdiction is determined by Clause 12 of the Letters Patent of the Bombay High Court. Under Clause 12 of the Letters Patent, a place where the defendant, or each of the defendants where there are more than one, at the commencement of the suit, carry on business would be a place where the Court would have jurisdiction. Therefore, under Clause 12 of the Letters Patent of the Bombay High Court, the Bombay High Court would have jurisdiction over the subject matter of the dispute in the present case because the appellant does carry on business in Bombay.

13. To my mind the provisions of section 2(e) themselves are very clear. They in clear terms lay down that if the suit can be instituted in a Court on the subject matter of the arbitration then that Court gets the jurisdiction to entertain the arbitration petition. In considering whether this Court will get jurisdiction to entertain the suit on the subject matter of the arbitration award the Court has to look into the provisions of the relevant law relating to the jurisdiction of the Court to entertain the suit, including Clause 12 of the Letters Patent. The Court has to find out whether instead of starting the arbitration proceedings, if the party had filed a suit, whether that suit could have been entertained by the High Court. In any case in view of the judgment of the Supreme Court in the case of Food Corporation of India, the position is no more open to any debate. In my opinion, therefore this Court has jurisdiction to entertain this petition.

14. In view of the above therefore this petition has to be granted in terms of prayer (a), it is accordingly granted. Petition disposed of.

Certified copy expedited.