TaxTMI 
TaxTMI 
TaxTMI 
2017 (2) TMI 1570
X X X X Extracts X X X X
X X X X Extracts X X X X
.... payments in respect of each of the POs were made in advance by the Petitioner to the Respondent. 3. The case of the Petitioner is that sometime in February 2013, it received a notice from one Mohd. Arif describing himself as a sole Arbitrator having been appointed as such by the Respondent. The Petitioner was called upon to appear before the Arbitrator in respect of a statement of claim that was filed before the Arbitrator by the Respondent for the alleged recovery of price of goods sold to the Petitioner. Upon making enquiries from the Arbitrator, the Petitioner learnt that the arbitration proceedings had been initiated by the Respondent in December 2012 by filing a statement of claim before the Arbitrator. An order was passed by the Arbitrator on 29th January 2013 setting the Petitioner ex parte. 4. The case of the Petitioner, inter alia, is that the unilateral appointment of the Arbitrator by the Respondent is bad in law. It is further contended that without issuing notice under Section 21 of the Act invoking the arbitration clause, the Respondent could not have proceeded to arbitration. 5. Before the Arbitrator, the Petitioner appeared on 3rd April 2013 and raised a prelimi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d ONGC v. Saw Pipes AIR 2003 SC 2629. Reliance is also placed on Article 3 of the UNCITRAL Rules which formed the basis for Section 21 of the Act. It is submitted that the legislative intent was that arbitration proceedings commence only when a request for arbitration is sent by one party to the other. The filing of statement of claim was only a subsequent step in terms of Section 23 of the Act. (iv) On merits it is submitted that the impugned Award is against the public policy of India. In this context it is submitted that under Sections 12 (1) and 12 (2) of the Act, the Arbitrator failed to disclose that he was adjudicating other disputes of the Respondent as Arbitrator which were being heard contemporaneously. The Respondent had appointed the very same person as its Arbitrator in their claims against other parties. Two such cases were claims by the Respondent against Aksheat Engineering & Construction Service Private Limited and Aqua Marketing which fact is not disputed by the Respondent. Reliance is placed on the decision of this Court in Shakti Bhog Foods Limited v. Kola Shipping Limited & Anr. 193 (2012) DLT 421. (v) The Arbitrator lacked jurisdiction to conduct the proce....
X X X X Extracts X X X X
X X X X Extracts X X X X
....this amounted to an acceptance of the terms of the invoices. 9. Mr. Francis further pointed out that one of the specific issues framed by the learned Arbitrator was whether the Petitioner had received goods against invoice Nos. 15880, 16400 and 16403. After comparing the statement of account of both the parties as well as depositions of the witnesses, the Arbitrator answered the issue in favour of the Respondent. There was a factual finding that the goods under Invoice No. 15880 had been received and the quantity was found ok. 10. Mr Francis submitted that the Petitioner, on the other hand, could have resorted to Section 7 (2) of the Contract Act and could have insisted that the POs should have been accepted in the manner prescribed. Since the Petitioner failed to do so and in fact accepted the goods on the terms and conditions mentioned in the invoices, it could not be said that the terms and conditions of the invoices were not binding on the Petitioner. 11. Mr Francis also referred to the deposition of the Petitioner's witness, Gayatri Kapur who on the one hand claimed that there was no invoice of the Respondent, and on the other claimed that goods against invoice Nos. 16400 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... only state that disputes arising therefrom would be subject to the jurisdiction of the courts at Bangalore. The question then arises whether the mere acceptance of supplies by the Petitioner on the basis of invoices containing an arbitration clause would amount to acceptance by the Petitioner of such arbitration clause? 19.1 In Taipack Limited & Ors. v. Ram Kishore Nagar Mal (supra), the facts were that the Petitioner therein had placed an order on the Respondent therein for the supply of BOPP films. On the rear of the said PO dated 13th February 1997, it was mentioned that in Clause 10 "any terms stipulated in seller's confirmation or any other documents in addition or contradiction to what is mentioned in this order will not be acceptable to us unless specifically agreed to in writing". Clause 11 stated that any dispute arising out of the contract would be subject to the jurisdiction of Courts in Delhi "and the supplier expressly agrees to submit to such jurisdiction." Condition No. 4 read as under: "In case of any dispute the judgment of the Tribunal or any other authority appointed by the Paper Merchants Association (Regd.) Delhi will be final and binding." 19.2 The Respon....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mstances, the Court found that there was no arbitration agreement between the parties and that the arbitrator appointed by the Paper Merchants Association (Regd.) had no jurisdiction to adjudicate the disputes between them. 20. The Court finds that the facts of the case at hand are more or less similar to the facts of the above decision in Taipack Limited & Ors. v. Ram Kishore Nagar Mal (supra). Here also, the Respondent seeks to rely upon the endorsement on each of the invoices. That endorsement is only for the quantities as indicated in the invoices having been received. There is no deemed acceptance of the conditions appended to the invoices. The mere endorsement of Mr. Sanjeev that the quantity is ok cannot lead to an inference that the Petitioner agreed to the arbitration clause printed o the invoice. 21.1 Turing next to the decision in NSK India Sales Company Private Limited v. Proactive Universal Trading Company Private Limited (supra), there the Respondent placed orders on the Petitioner through POs. Pursuant thereto, supplies were made under the invoices raised by the Petitioner. The invoices were governed by the terms and conditions as set out in the General Terms of Bu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g for them. While it might be that the sale was complete subject to any objection which may be raised by the Respondent, the question of the existence of a valid arbitration clause was different. 22. In light of the legal position explained in the above decisions, the Court concludes that in the present case, there was no arbitration agreement between the parties which could be validly invoked by the Respondent. Consequently, the Arbitrator lacked jurisdiction to enter upon reference and proceed with the arbitration. The impugned Award must, therefore, be declared to be null and void. Is the notice under Section 21 mandatory? 23. While the above ground is by itself sufficient to invalidate the impugned Award, the Court proposes to also examine the next ground whether the Respondent could have, without invoking the arbitration clause and issuing a notice to the Petitioner under Section 21 of the Act filed claims directly before an Arbitrator appointed unilaterally by it? 24. Section 21 of the Act reads 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y, for the purposes of Section 11 (6) of the Act, without the notice under Section 21 of the Act, a party seeking reference of disputes to arbitration will be unable to demonstrate that there was a failure by one party to adhere to the procedure and accede to the request for the appointment of an arbitrator. The trigger for the Court's jurisdiction under Section 11 of the Act is such failure by one party to respond. 29. Of course, as noticed earlier, parties may agree to waive the requirement of such notice under Section 21. However, in the absence of such express waiver, the provision must be given full effect to. The legislature should not be presumed to have inserted a provision that serves a limited purpose of only determining, for the purposes of limitation, when arbitration proceedings commenced. For a moment, even assuming that the provision serves only that purpose viz. fixing the date of commencement of arbitration proceedings for the purpose of Section 43 (1) of the Act, how is such date of commencement to be fixed if the notice under Section 21 is not issued? The provision talks of the 'Respondent' receiving a notice containing a request for the dispute "to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etitioner in that case contended that the filing of an application under Section 34 of the 1940 Act was sufficient notice for the purposes of Section 37 (3) of the 1940. 31.3 Negativing the plea, the Court held that: "mere filing of an application under Section 34 cannot amount to commencement of arbitral proceedings. In my opinion, unless there is notice given by the party to other side for referring the dispute to arbitration, arbitral proceedings cannot be said to be commenced within the meaning of Section 21 of the Act. Section 85 clearly provides that unless arbitral proceedings have commenced before the commencement of the Act, the provisions of the new Act would apply and not the old Act." 32.1 In Oval Investment Pvt. Ltd & Ors.. v. Indiabulls Financial Services Limited & Ors. (supra), the Plaintiffs filed a suit for a declaration and perpetual injunction. The Plaintiffs had borrowed loans from Defendant No. 1. Each of the Agreements under which the loan was borrowed contained an identical clause as regards jurisdiction and arbitration. The disputes between the parties had to be referred to a sole arbitrator in Delhi in accordance with the Act. 32.2 The Plaintiffs state....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on of mandatory requirement like Section 21 of the Act, the arbitrator cannot examine that question as well. If the existence of the arbitration agreement is a sine qua non for commencement of arbitration proceedings and if such a question is to be examined only by the arbitrator, it is difficult to accept the proposition that the question whether a valid notice under Section 21 has been received by the Respondent in a claim petition cannot be gone into by the Arbitrator. The question really is not so much whether the requirement under Section 21 of the Act is mandatory or not. This Court is of the view that such a requirement is indeed mandatory for without the notice of invocation being received by the Respondent no arbitral proceedings can commence. The question really, therefore, is whether the arbitrator has the power to decide where this procedure under Section 21 of the Act has been complied with. In the considered view of the Court, given the scheme of the Act and the minimal scope of the interference by the civil courts, it must be held that this question can and should be examined by the arbitrator himself." 32.6 It was further observed that "the requirement of receipt o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....for a ground for setting aside an award, in a case where the applicant was not given proper notice of the appointment of an arbitrator or the arbitral proceedings. In this case, the factual position is that the first Respondent was not given proper notice of an appointment of an Arbitrator. Here again, we have to consider the specific language used under Section 34 (2) (iii) of the Act, which clearly mandates that the Applicant will have to be given a proper notice. Therefore, proper notice is the notice, which has to be served and received by a person concerned. We are of the view that Section 34 (2) (iii) has to be read with Section 21 of the Act. On a conjoint reading of Section 21 read with Section 34 (2) (iii), we have no doubt that the arbitral proceedings have not been commenced insofar as the first Respondent is concerned." 34.1 Now turning to the decisions relied upon by Mr Francis, learned counsel for the Respondent, in State of Goa v. Praveen Enterprises (supra) the issue before the Supreme Court concerned the filing of counter-claims. While interpreting Sections 21 and 43 of the Act, the following observations were made in paras 15 to 17: "15. In regard to a claim wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s the date on which the notice seeking arbitration was served on the other party, will be the relevant date for deciding the limitation in regard to Claims `A' and `B'. Be that as it may. 17. As far as counter claims are concerned, there is no room for ambiguity in regard to the relevant date for determining the limitation. Section 3(2)(b) of Limitation Act, 1963 provides that in regard to a counter claim in suits, the date on which the counter claim is made in court shall be deemed to be the date of institution of the counter claim. As Limitation Act, 1963 is made applicable to arbitrations, in the case of a counter claim by a respondent in an arbitral proceedings, the date on which the counter claim is made before the arbitrator will be the date of "institution" in so far as counter claim is concerned. There is, therefore, no need to provide a date of `commencement' as in the case of claims of a claimant. Section 21 of the Act is therefore not relevant for counter claims. There is however one exception. Where the respondent against whom a claim is made, had also made a claim against the claimant and sought arbitration by serving a notice to the claimant but subseque....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Section 12 (2) of the Act as stood prior to the amendment with effect from 23rd October 2015, there is a requirement for the arbitrator throughout the proceedings to disclose circumstances which may give rise to a reasonable apprehension of the lack of impartiality of the arbitrator. The law in this regard is well-settled. It has been discussed in extenso in a recent decision dated 6th December 2016 passed by this Court in O.M.P. No. 199 of 2008 (M/s. Lanco Rani JV v. National Highways Authority of India). Paras 38 to 45 hereunder are a verbatim extract from the said decision. 39. The Supreme Court in A.K. Kraipak v. Union of India (1970) 1 SCR 457, held that the principles of natural justice would apply to administrative proceedings as well. It explained as under: "the aim of the rules of natural justice is to secure justice or to put it negatively to prevent miscarriage of justice. These rules can operate only in areas not covered by any law validly made. In other words they do not supplant the law of the land but supplement it. The concept of natural justice has undergone a great deal of change in recent years. In the past it was thought that it included just two rules name....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th only limited possibilities of court involvement where necessary in the interests of the public and of basic fairness'. Section 1 of the Act sets forth the three main principles of arbitration law, viz. - (i) speedy, inexpensive and fair trial by an impartial tribunal; (ii) party autonomy; and (iii) minimum court intervention. This provision has to be applied purposively. In case of doubt as to the meaning of any provision of this Act, regard should be had to these principles." 41. The emphasis therefore is on "a fair trial by an impartial Tribunal". This forms the basis of Section 12 of the Act. Incidentally, there have been some significant changes to Section 12 with effect from 23rd October, 2015 which have further strengthened the requirements of disclosures by arbitrators to obviate any likelihood of bias. However, as far as the present case is concerned, when the AT was seized of the matter, Section 12 of the Act as it stood prior to the above amendment was relevant and it 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 giv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he leading judgment of Lord Hewart C.J. The facts of that case were that one of the Clerks to the Justices was a member of a firm of solicitors acting in a civil claim against the Defendant arising out of an accident that had given rise to the prosecution. The Clerk retired with the Justices who returned to convict the Defendant. On learning that the Clerk was a member of the firm of solicitors acting against the Defendant, the Defendant applied to have the conviction quashed. Lord Hewart CJ, who was satisfied that the conviction must be quashed reasoned that "a long line of cases shows that it is not merely of some importance but is of fundamental importance that justice should not only be done, but should manifestly and undoubtedly be seen to be done." 45. Explaining the above opinion of Lord Hewart CJ, the Court of Appeals in Director General of Fair Trading v. The Proprietary Association of Great Britain (supra) observed as under: "42. Had Lord Hewart asked the question 'was there any likelihood that the Clerk's connection with the case influenced the verdict?' he would have answered in the negative on the basis that he accepted the evidence that the Clerk had not interv....