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2017 Supreme(Kar) 405
IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH
VINEET KOTHARI, H.B. PRABHAKARA SASTRY, JJ.
M/s Basai Steels Pvt. Ltd. - Appellant
Vs.
M/s Gobins India Engineering Pvt. Ltd. & Anr. - Respondents
M.F.A. No. 101307 of 2015 (AA) C/W. M.F.A.CROB. No. 100134 of 2015 (AA) In MFA No. 101307 of 2015
Decided On : 25-04-2017
For the Appellant : Sri. Padmanabha Mahale, Sri. Srinand A. Pachhapure
For the Respondents: Sri. Anant Hegde
Headnote:ARBITRATION AND CONCILIATION ACT, 1996 [C.A. No. 26/1996] - Sections 4, 11, 16 - Appointment of sole arbitrator - Objection as to jurisdiction - (Per Dr. Vineet Kothari, J.) Unilateral appointment and unilateral reference by one party without consent of other party - Appellants deemed to have waived and given up its objection by acquiescing to appointment of arbitrator by participating in proceedings is not allowed to raise objection of jurisdiction before High Court for first time.
ARBITRATION AND CONCILIATION ACT, 1996 [C.A. No. 26/1996] - Sections 11(1), (5), (6), 4, 16 - Appointment of sole arbitrator - Unilateral appointment and unilateral reference by one party without consent of other party - Appellants did not only raise any objection but also participated in arbitration proceedings having knowledge of fact that requirement of appointment of sole arbitrator under Section 11, not followed - After asking for time to file written statement/objections, abstaining and remaining ex parte in such proceedings - Held, The conduct and participation in proceeding and also not challenging composition of Arbitral Tribunal, either by filing defence or by raising objection, clearly amounts to waiver of rights to object under Section 4 of Act - Award passed by Tribunal cannot be said to be null and void.
[Per Dr. H. B. Prabhakara Sastry, J]: Appellant company through its General Manager appeared for second time before arbitrator, accompanied by its advocate. It was not mere appearance, but it also received copy of arbitration petition and prayed for time to file its counter/reply. This fact makes it very clear that, even after appellant noticing that appointment of sole arbitrator by respondent unilaterally, still it appeared before arbitrator. Said company did not merely watched proceedings, but it collected arbitration petition copy and prayed for time to file its objection and was succeeded in getting time in filing its statement of objection. Said act of appellant company cannot be called mere watching proceedings, on other hand, it is participation by said company in arbitral proceedings. Therefore, said respondent having knowledge of fact that petitioner company has not followed requirement under Section 11 of Act, in seeking appointment of sole arbitrator by Chief Justice still derogated same by participating in proceeding before arbitrator, which according to it was unilaterally appointed by respondent company. As such by its conduct and participation in proceeding and also not challenging composition of Arbitral Tribunal, either by filing its defence before arbitrator with such objection or by raising such contention before lower court, thus has waived its right to object and as such, now it cannot say that entire arbitral proceedings and award passed by arbitral tribunal is void ab initio, as such it is nullity. Thus, the requirement of approaching High Court for appointment of Arbitrator under Section 11 of Act can be waived by party in view of Section 4 of Act, since not approaching High Court has not proved to be fatal to case and in light of peculiar facts and circumstances of case.
[Per Dr. Vineet Kothari, J. (Concurring)]: Mandate under Section 11(5) of Act is on Court to appoint Arbitrator upon a request of either of parties but, compulsion is not on particular party to contract to seek such appointment of Arbitrator. Words used in Section 11(4) of Act, 'upon request of a party', by Supreme Court, or as case may be, High Court, such appointment shall be made, clearly shows that a party to contract who is unable to agree to appointment of an Arbitrator can approach Court for appointment of an Arbitrator. Limited role of Court is to appoint Arbitrator upon such request made, while leaving it absolutely free for parties themselves at an earlier stage to finalise such appointment. Under old Act, it was clear who is to approach Court for appointment (the party who gave the notice for appointment), whereas under new Act, it is left free for any of them to seek such appointment in case they cannot agree on the given name(s) before hand. It would be incongruous and unreasonable to bind down party who suggests name or appoints Sole Arbitrator from his side to still seek an appointment through Court Process under Section 11(5) of Act, even though other party remains silent or does not object to such appointment. Language of Section 11(5) of Act does not mandate him to do so. On contrary, party who may not agree to such name or intends to object to it should do so and seek appointment of Arbitrator through Court process by filing application under Section 11(5) of Act. That appears to be a more purposeful interpretation of new provision of Section 11(5) under 1996 Act. Party appointing Sole Arbitrator as is permitted under Section 10 of Act, unless otherwise indicated in Agreement between parties is not expected to wait endlessly for other party to either object to such appointment or approach Court under Section 11 of Act for appointment of Arbitrator. If within a reasonable period, other party neither raises any objection to appointment or suggested name of an Arbitrator, such other party should be deemed to have waived or given up his objections with regard to same, like in present case. His submitting to jurisdiction of Arbitrator appointed by another party and participation in such arbitral proceedings can further establish his acquiescence in matter or waiver of such objections. Such an objector, having not objected and having participated in arbitration proceedings although to limited extent and then allowing an ex parte Award against him by not further participating, cannot be permitted to raise bogie of illegal appointment of Arbitrator or later on, calling it to be a void ab initio Award. Such a plea is contrary to Scheme of new Act in process of appointment and composition of Arbitral Tribunal under Section 16 of Act of 1996, which stipulates that such objection should be raised at initial stage itself.
ARBITRATION AND CONCILIATION ACT, 1996 [C.A. No. 26/1996] - Sections 11(4), (5) - Appointment of arbitrator - Word 'The Party' in old Act of 1940 substituted by words ' A Party' in new Act of 1996 - Under old Act ' the party giving notice required to approach Court for appointment' - Under new Act it is left free for any of them to seek such appointment in case they cannot agree on given name(s) before-hand. Arbitration Act (10 of 1940) (Since repealed), Section 8.
[Per Dr. H. B. Prabhakara Sastry, J]: Section 11(5) of Act mentions that, where party fails to agree on appointment of sole Arbitrator, appointment shall be made upon request of a party, by Supreme Court or as the case may be, the High Court. As such, it is clear that it is not necessarily party who suggested name of an arbitrator alone, to go to Chief Justice under Section 11(5) seeking appointment of Arbitrator, on contrary. It is a party, which means either of party to dispute can make application to Chief Justice.
[Per Dr. Vineet Kothari,J. (Concurring)]: Section 8 of old Act 1940, ' the party who gives notice for appointment of an arbitrator' required to approach Court for appointment of arbitrator, if other party did not agree, in a significant departure, in Section 11 of new Act of 1996, words 'the party' substituted by words 'A party' . This change for obvious and avowed purpose was to let party who does not agree with appointment of sole arbitrator and parties cannot agree on name suggested by other party is required to approach High Court or Supreme Court, as the case may be for appointment of arbitrator.
ARBITRATION AND CONCILIATION ACT, 1996 [C.A. No. 26/1996] - Section 31 - Arbitration award - Award of interest - (Per Dr. H. B. Prabhakara Sastry, J.) Grant of 24% p.a. for pre-reference, pendente lite and post award period - Court reducing rate of interest to 18% - Except stating rate of interest at 24% is on higher side, no reason attributed for reducing rate of interest - Transaction commercial in nature - Respondent itself agreeing to rate of interest at 24% p.a. if bills not settled within stipulated period - Appellant though entering appearance, neither filing defence nor producing document showing agreed rate of interest - Awarded amount enhanced to Rs. 1,48,66,068/- and rate of interest also modified from 18% to 24%.
1. MFA No.101307/2015(AA) has been filed by the appellant therein under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’, for brevity), seeking setting aside of the judgment and award dated 05.01.2015 passed by the Court of Principal District and Sessions Judge, Ballari, in Arbitration Appeal No.6/2014, confirming the award dated 14.12.2013 passed by the Sole Arbitrator/respondent No.2 in A.C.A.C.P.(GOBINS) No.1/2013.
2. MFA Crob.100134/2015 has been filed by the respondent No.1 in MFA No. 101307/2015 under Order XLI Rule 22 of the Code of Civil Procedure R/w. Section 37 of the Act, seeking modification of the judgment and award dated 05.01.2015 passed by the Principal District Judge, Ballari, in Arbitration Appeal No.6/2014.
3. The appellant in MFA No.101307/2015 in its memorandum of appeal has taken a contention that, it was not effectively represented in the Arbitration proceedings. The Arbitrator entered into reference nearly four years after his appointment. The claim of the respondent therein is barred by limitation. The letter appointing the Arbitrator and the letter of consent by the Arbitrator are created documents. The appellant has further stated that the immediate Court below did not notice the fact that the award passed by the Arbitrator was an ex-parte award and the same was against the principles of natural justice. The orders of both the Courts below are also not sustainable as the appellant Company has been registered as a Sick Industrial Company with the BIFR, New Delhi. However, the said fact was not brought before the Court below due to oversight.
4. The appellant in MFA No.101307/2015, during the pendency of this appeal, filed I.A.No.1/2017 under Section 37 of the Act R/w. Order XLI Rule 2 of the Code of Civil Procedure, seeking leave to urge additional grounds in support of its appeal. In the additional grounds, it is contended that the Arbitration clause binding on both the parties clearly mentions that the dispute shall be referred to Arbitration consisting of two arbitrators, one is to be appointed by the Contractor and other by the Purchaser. In the event of failure on the part of either of the party to name the Arbitrator, the parties should, invoking the Arbitration clause, have to approach the High Court seeking appointment of the Arbitrator as required under Section 11 of the Act. It is only after the Chief Justice or any designated Judge of the High Court appoints an Arbitrator, the proceedings can be continued.
It is further stated that the place of arbitration was at Ballari. The award indicates that the Arbitration Tribunal was constituted at Chennai, without the concurrence of the appellant. With these, the appellant has prayed for setting aside of the judgment and award under appeal.
5. In response to the notice, the 1st respondent Company is appearing through its counsel.
6. The 1st respondent – M/s. Gobins India Engineering Pvt. Ltd., filed cross-objection under Order XLI Rule 22 of the Code of Civil Procedure R/w. Section 37 of the Act, under MFA Cross-objection No.100134/2015.
In its Cross-objection, the cross-objector/respondent contended that, in the petition, claim was made for Rs.1,48,66,068/-, including interest. The said claim was upheld by the Sole Arbitrator. The Court below, though dismissed the Arbitration application, erred in deducting Rs.46,00,000/- on the assumption that such amount was paid by the 1st respondent out of the claim of Rs.1,48,66,068/-. It ignored the fact that the deduction for the said amount was already given by the Cross-objector while making claim for the payment of Rs.1,48,66,068/-. It further contended that reduction of interest from 24% p.a. to 18% p.a. from the Court below was not warranted. With this, it has prayed for modification of the judgment and award under appeal and for awarding an enhanced amount from Rs.97,80,308/- to Rs.1,48,66,068/- and also to award interest at the rate of 24% p.a. from No
