TaxTMI 
TaxTMI 
2017 (7) TMI 1288
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....1(6) of the Act, for such an application is not incompetent. For the sake of clarity, convenience and apposite appreciation, we shall state the facts from Civil Appeal No. 5306 of 2017. 2. The respondent-company is engaged in the business of procuring bulk material handling equipment for installation in thermal power plants on behalf of its clients like National Thermal Power Corporation (NTPC) and Moser Baer, Lanco Projects Ltd., etc. On 10th May, 2014, the respondent issued a purchase order to the appellant for the complete design, manufacturing, supply, transport to site, unloading, storage, erection, testing, commissioning and performance guarantee testing of various articles including wagon tippler, side arm charger, apron feeder, etc. To secure the performance under the purchase order, the appellant had submitted an advance bank guarantee and a performance bank guarantee. 3. As the controversy arose with regard to encashment of bank guarantee, the appellant approached the High Court under Section 9 of the Act seeking an order of restraint for encashment of the advance bank guarantee and the performance bank guarantee. As is reflectible from the impugned order, the said ....
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....rned designated Judge, had the intent of the amended Act been to take away a party's right to nominate a sole arbitrator, the same would have been found in the detailed list of ineligibility criteria enumerated under the Seventh Schedule to the Act and, therefore, the submission advanced by the appellant, the petitioner before the High Court, was without any substance. Additionally, the High Court noted that the learned counsel for the petitioner before it had clearly stated that it had faith in the arbitrator but he was raising the issue as a legal one, for a Managing Director once disqualified, he cannot nominate. That apart, it took note of the fact that the learned arbitrator by letter dated 28.1.2016 has furnished the requisite disclosures under the Sixth Schedule and, therefore, there were no circumstances which were likely to give rise to justifiable doubts as to the independence and impartiality. Finally, the designated Judge directed that besides the stipulation in the purchase order governing the parties, the court was inclined to appoint the former Judge as the sole arbitrator to decide the disputes between the parties. 6. Questioning the soundness of the order passed....
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....e nominated any other person as arbitrator is absolutely unsustainable, for the Fifth and the Seventh Schedules fundamentally guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence and impartiality of the arbitrator. To elaborate, if any person whose relationship with the parties or the counsel or the subject matter of dispute falls under any of the categories specified in the Seventh Schedule, he is ineligible to be appointed as an arbitrator but not otherwise. (b) The appellants have not been able to substantiate before the High Court how the appointment of the sole arbitrator falls foul of the Seventh Schedule and in the absence of that, the appeals, being devoid of merit, deserve to be dismissed. As far as language employed in the Fifth Schedule is concerned, it is also a guide, which indicates existence of circumstances that give rise to justifiable doubts as to the arbitrator's independence and impartiality and when such a stand has been abandoned before the High Court, the impugned order is totally invulnerable. (c) On a careful appreciation of the Fifth and Seventh Schedules of the amended Act, it is m....
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....on of disputes/arbitration reads as follows: "33. Resolution of dispute/arbitration a. In case any disagreement or dispute arises between the buyer and the seller under or in connection with the PO, both shall make every effort to resolve it amicably by direct informal negotiation. b. If, even after 30 days from the commencement of such informal negotiation, seller and the buyer have not been able to resolve the dispute amicably, either party may require that the dispute be referred for resolution to the formal mechanism of arbitration. c. All disputes which cannot be settled by mutual negotiation shall be referred to and determined by arbitration as per the Arbitration and Conciliation Act, 1996 as amended. d. Unless otherwise provided, any dispute or difference between the parties in connection with this agreement shall be referred to sole arbitration of the Managing Director of Buyer or his nominee. Venue of arbitration shall be Delhi, and the arbitration shall be conducted in English language. e. The award of the tribunal shall be final and binding on both; buyer and seller." 9. We have reproduced the entire Clause 33 to app....
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.... grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Explanation 2.-The disclosure shall be made by such person in the form specified in the Sixth Schedule. (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, or (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. (5) 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 sp....
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....lationship with the parties or counsel; (ii) relationship of the arbitrator to the dispute; and (iii) arbitrator's direct or indirect interest in the dispute. 14. In the present case, we are concerned with the first part of the Seventh Schedule. Be it noted, the first part has 14 items. For the present controversy, the relevant items are item nos. 1, 5 and 12, which read as follows: "1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party. xxxx xxxx 5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration. xxxx xxxx 12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties." 15. We will be failing in our duty, if we do not refer to some of the aspects which find mention in the Fifth Schedule. Our attention has been drawn to item nos. 22 and 24 of the Fifth Schedule. They are as follows: "22. The arbitrator has within t....
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....itrator to decide the dispute between the parties. 18. In Northern Railway Administration, Ministry of Railways, New Delhi v. Patel Engineering Company Limited (2008) 10 SCC 240, while dealing with the sub-section (6) of Section 11 and sub-section (8) of Section 11 and appreciating the stipulations in sub-sections (3) and (5), a three-Judge Bench opined that: "The expression "due regard" means that proper attention to several circumstances have been focused. The expression "necessary" as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. Necessary measures can be stated to be the reasonable steps required to be taken." 19. Being of this view, the Court ruled that the High Court had not focused on the requirement of having due regard to the qualification required by the agreement or other considerations necessary to secure appointment of an independent and impartial arbitrator and further ruled that it needs no reiteration that appointment of an arbitrator or arbitrators named in the arbitration agreement is not a must because while making the appointment, the....
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.... whether in a case falling under Section 11(6) of the Act, the opposite party cannot appoint an arbitrator after the expiry of 30 days from the date of appointment. Distinguishing the decisions of Naginbhai C. Patel v. Union of India (1999) 2 Bom CR 189 (Bom), B.W.L. Ltd. v. MTNL (2000) 2 Arb LR 190 and Sharma & Sons v. Engineer-in-Chief, Army Headquarters, New Delhi (2000) 2 Arb LR 31 (AP), the Court held: "19. So far as cases falling under Section 11(6) are concerned - such as the one before us - no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite ....
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.....D. (NR) of the respondent-Corporation. The arbitration clause further stipulated that if such E.D. (NR) was unable or unwilling to act as the sole arbitrator, the matter shall be referred to the sole arbitration of some other person designated by E.D. (NR) in his place who was willing to act as sole arbitrator. It also provided that no person other than E.D. (NR) or the person designated by the E.D. (NR) should act as an arbitrator. When the disputes arose between the parties, the appellant therein wrote to the Corporation for appointment of E.D. (NR) as the sole arbitrator, as per the arbitration clause. The Corporation informed the contractor that due to internal reorganization in the Corporation, the office of the E.D. (NR) had ceased to exist and since the intention of the parties was to get the dispute settled through the arbitration, the Corporation offered to the contractor the arbitration of the substituted arbitrator, that is, the Director (Marketing). The Corporation further informed the contractor that if he agreed to the same, it may send a written confirmation giving its consent to the substitution of the named arbitrator. The contractor informed that he would like to....
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....bitrator for resolution of the disputes in a situation that had arisen in the said case. 25. In Deep Trading Company v. Indian Oil Corporation and others (2013) 4 SCC 35, the three-Judge Bench referred to clause 29 of the agreement, analysed sub-sections 1, 2, 6 and 8 of Section 11 of the Act, referred to the authorities in Datar Switchgears (supra) and Punj Lloyd Ltd. v. Petronet MHB Ltd. (2006) 2 SCC 638 and came to hold that: "19. If we apply the legal position exposited by this Court in Datar Switchgears 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 9-8-2004, the dealer called upon the Corporation to appoint the arbitrator in accordance with the terms of Clause 29 of the agreement but that was not done till the dealer had made application under Section 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 under Section 11(6). Such appointment by the Corporation after forfeiture of its right is of no consequence and has not disentitled the deal....
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....ticeable, laid down that the dispute or difference of any nature whatsoever or regarding any right, liability, act, omission on account of any of the parties thereto or in relation to the agreement shall be referred to the sole arbitration of the Director (Marketing) of the Corporation or of some officer the Corporation who may be nominated by the Director (Marketing). 29. As the factual matrix of the said case would show, the appointing authority had not appointed arbitrator till the dealer moved the Court and it did appoint during the pendency of the proceeding. Be it noted that dealer had called upon the Corporation to appoint arbitrator on 9.8.2004 and as no appointment was made by the Corporation, he had moved the application on 6.12.2004. The Corporation appointed the sole arbitrator on 28.12.2004 after the application under Section 11(6) was made. Taking note of the factual account, the Court opined that there was a forfeiture of the right of appointment of arbitrator under the agreement and, therefore, the appointment of the arbitrator by the Corporation during the pendency of the proceeding under Section 11(6) of the Act was of no consequence and remanded the matter to ....
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....ement of both the parties to resolve the same within three weeks, failing which the matter would be referred to an arbitral tribunal comprising of three arbitrators and the seat of the arbitration would be New Delhi and further that the arbitration proceedings would be held in accordance with the rules and procedures of the International Chamber of Commerce (ICC) or UNCITRAL. As the agreement was terminated, the petitioner therein wrote to the respondent company to nominate the senior management to discuss the matter and to try and resolve the dispute between the parties. However, without exhausting the mediation process, as contemplated under Article 20(a) of the agreement, the respondent unilaterally and without prior notice addressed a request for arbitration to the ICC International Court of Arbitration and one Mr. V.V. Veedar was nominated as the arbitrator in accordance with ICC Rules. The correspondence between the parties was not fruitful and the petitioner filed an application under Section 11(4) read with Section 11(10) of the Act for issuance of a direction to the respondent to nominate an arbitrator in accordance with an agreement dated 28.1.2005 and the Rules to adjudi....
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....esaid case is in consonance with the binding authorities we have referred to hereinbefore. 36. Learned counsel for the respondent commenting on the authority in Walter Bau AG (supra) would submit that the decision rendered therein is not a precedent and for the said purpose, he has placed reliance upon Associated Contractors (supra) wherein a three-Judge Bench was dealing with a reference that gave rise to the following issue: "Which court will have the jurisdiction to entertain and decide an application under Section 34 of the Arbitration and Conciliation Act, 1996." 37. The three-Judge Bench was called upon to lay down the meaning of the term "court" under Section 2(1)(e) and Section 42 of the Act. The Court came to hold that an essential ingredient of Section 42 of the Act is that an application under Part I must be made to a court. The three-Judge Bench adverted to the definition of the court under Section 2(1)(e) of the Act and opined that the definition contained in the 1940 Act spoke of civil court whereas the definition of the 1996 Act which says court to be the Principal Civil Court of original jurisdiction in a district or the High Court in exercise of orig....
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....ations made to a court and Section 34 applications to set aside arbitral awards are applications which are within Section 42. (e) In no circumstances can the Supreme Court be "court" for the purposes of Section 2(1)(e), and whether the Supreme Court does or does not retain seisin after appointing an arbitrator, applications will follow the first application made before either a High Court having original jurisdiction in the State or a Principal Civil Court having original jurisdiction in the district, as the case may be. (f) Section 42 will apply to applications made after the arbitral proceedings have come to an end provided they are made under Part I. (g) If a first application is made to a court which is neither a Principal Court of Original Jurisdiction in a district or a High Court exercising original jurisdiction in a State, such application not being to a court as defined would be outside Section 42. Also, an application made to a court without subject-matter jurisdiction would be outside Section 42". 39. Relying on the said pronouncement, it is urged by the learned senior counsel for the respondent that the authority in Walter Bau AG (supra) is....
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....tters, dealt with the submission advanced by the learned counsel for the appellant that the three-Judge Bench in Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. (2013) 1 SCC 641 has not appositely understood the principle stated in major part of the decision rendered by the larger Bench in SBP's case. In the said case, the Court, after referring to paragraphs 39 and 47(iv), stated thus: "18. On a careful reading of para 39 and Conclusion (iv), as set out in para 47 of SBP case, it is limpid that for the purpose of setting into motion the arbitral procedure the Chief Justice or his designate is required to decide the issues, namely, (i) territorial jurisdiction, (ii) existence of an arbitration agreement between the parties, (iii) existence or otherwise of a live claim, and (iv) existence of the conditions for exercise of power and further satisfaction as regards the qualification of the arbitrator. That apart, under certain circumstances the Chief Justice or his designate is also required to see whether a long-barred claim is sought to be restricted and whether the parties had concluded the transaction by recording satisfaction ....
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....he present factual score projects a different picture altogether and we have to carefully analyse the same. 47. We are required to sit in a time machine and analyse the judgments in this regard. In Datar Switchgears (supra), it has been held that the appointment made by the respondent was invalid inasmuch as there was no proper notice by the appellant to appoint an arbitrator and before an application under Section 11(6) of the Act was filed, the arbitrator was appointed. Relevant part of clause 20.9 of the agreement in the said case postulates thus: "20.9. It is agreed by and between the parties that in case of any dispute under this lease the same shall be referred to an arbitrator to be nominated by the lessor and the award of the arbitrator shall be final and binding on all the parties concerned." The aforesaid clause lays down that the lessor shall nominate the arbitrator. 48. In Newton Engineering (supra), though the agreement has not been produced in the judgment, the Court has anaylsed in detail the purport of the arbitration clause in the agreement and ruled that the matter shall be referred to the sole arbitration of ED (NR) of the respondent Corporation....
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....case, i.e., Newton Engineering (supra), such a stipulation was postulated. 52. Regard being had to the same, we have to compare and analyse the arbitration clause in the present case. Clause (c), which we have reproduced earlier, states that all disputes which cannot be settled by mutual negotiation shall be referred to and determined by arbitration as per the Act, as amended. Clause (c) is independent of Clause (d). Clause (d) provides that unless otherwise provided, any dispute or difference between the parties in connection with the agreement shall be referred to the sole arbitration of the Managing Director or his nominee. 53. First, we shall deal with Clause (d). There is no quarrel that by virtue of Section 12(5) of the Act, if any person who falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as the arbitrator. There is no doubt and cannot be, for the language employed in the Seventh Schedule, the Managing Director of the Corporation has become ineligible by operation of law. It is the stand of the learned senior counsel for the appellant that once the Managing Director becomes ineligible, he also becomes ineligible t....
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....n it under Section 21(4) to an "officer", an order passed by such an officer was an order passed by the State Government itself 20 (1998) 7 SCC 162 and "not an order passed by any officer under this Act" within Section 42 and was not revisable by the State Government. It was pointed out that for the purpose of exercise of powers of revision by the State under Section 42 of that Act, the order sought to be revised must be an order passed by an officer in his own right and not as a delegate of the State. The State Government was, therefore, not entitled under Section 42 to call for the records of the case which was disposed of by an officer acting as its delegate." 54. Be it noted in the said case, reference was made to Behari Kunj Sahkari Awas Samiti v. State of U.P. 21, which followed the decision in Roop Chand v. State of Punjab22. It is seemly to note here that said principle has been followed in Chairman, Indore Vikas Pradhikaran (supra). 55. Mr. Sundaram, has strongly relied on Firm of Pratapchand Nopaji (supra). In the said case, the three-Judge Bench applied the maxim "Qui facit per alium facit per se". We may profitably reproduce the passage: "9. ... The princ....