2012 Supreme(Del) 1824

HIGH COURT OF DELHI
S. MURALIDHAR, J.
Shakti Bhog Foods Ltd.
Versus
Kola Shipping Ltd. & Another
O.M.P. 194 OF 2009
Decided On : 21-08-2012

Headnote:

The challenge in this petition under Section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’) by the Petitioner, Shakti Bhog Foods Ltd., is to an Award dated 11th February 2009 passed by the sole Arbitrator (Respondent No.2) in the dispute arising between the Petitioner and Kola Shipping Ltd., Respondent No.1, arising out of a voyage Charter Party (‘CP’) (fixture note) dated 18th July 2005, claimed by Respondent No.1 to have been executed between it and the Petitioner to load 13,500 metric tonnes (‘MT’) of bagged sorghum on board M.V. Kapitan Nazarev at the port of Kakinada, India.

Fact of the Case:

The Petitioner is engaged in the business of manufacturing and exporting food products, cereals, grains etc. It states that in the first week of July 2005 it was negotiating a deal with the Government of Niger for export of Sorghum (Jowar), which was to be shipped to the port of Cotonou in Benin in West Africa. The Petitioner states that it was looking for a ship and at that time the Respondent No.1 contacted it and offered its services since it was already having a vessel under a time charter with the head owners N.B. Two Shipping Ltd. (hereafter referred to as ‘head owners’). According to the Petitioner, it informed the Respondent No.1 that it might be in a position to charter the vessel only if the deal with the Government of Niger came through. According to the Petitioner, the deal did not come through despite negotiations and it kept Respondent No.1 apprised of the developments. According to the Petitioner since the Respondent No.1 was nevertheless insisting upon a regular CP (to be executed between them) and since the deal with the Government of Niger did not come yet through, the Petitioner offered Respondent No.1 in the alternative of export of Sorghum through the vessel for which the Respondent No. 1 had time charter, a consignment of maize for Colombo. The Petitioner maintains that there was no signed CP, and therefore no arbitration agreement between the parties.

Finding of the Court:

The Court proceeds to consider the above submissions by beginning with an examination of the copy of the fixture note/CP as produced by Respondent No.1. The relevant portion is Box No. 25 of Part I of the GENCON Form and it reads thus: “25. Law and Arbitration (state 19 (a), 19 (b) or 19 (c) of Cl. 19; if 19 (c) agreed also state Place of Arbitration) (if not filled in 19 (a) shall apply) (Cl. 19)” The space below the above lines is not left blank. The word “London” has been typed in that space. Going by the highlighted portion of the instruction, even if the number 19 (c) was not stated it is obvious since the place of arbitration i.e. London was stated in Box 25 it was Clause 19 (c) that applied and not 19 (a). Yet from the copy of the CP that has been produced it is seen that Clauses 19 (b) and 19 (c) have been scored out, and this was perhaps not correct considering the choice of place as ‘London’ was indeed indicated in Box 25. Clause 19 (c) reads: “Any dispute arising out this Charter Party shall be referred to arbitration at the place indicated in Box 25, subject to the procedures applicable there. The laws of the place indicated in Box 25 shall govern this charter party” (emphasis supplied). Consequently it appears that the Petitioner is right in its contention that with the parties having agreed to be governed by Clause 19 (c) it would be Sections 15, 16 and 18 EAA which would be the law governing the arbitration and not Clause 19 (a) and Section 17 EAA. Under Section 15 (3) EAA, “if there is no agreement as to the number of arbitrators, the tribunal shall consist of a sole arbitrator”. Under Section 16 (3) EAA, where the tribunal is to consist of a sole arbitrator “the parties shall jointly appoint the arbitrator not later than 28 days after service of a request in writing by either party to do so.” Upon failure to so appoint a sole Arbitrator then under Section 18 (2) EAA “any party to the arbitration agreement may (upon notice to the other parties) apply to the court to exercise its powers under this section.” However the learned Arbitrator missed noticing the purport of the filling up Box No. 25 with the name of the place as “London” and simply accepted the case of Respondent No.1 that it was Clause 19 (a) read with Section 17 EAA that applied.

Issues: 1. Whether there was a valid CP, and therefore a valid arbitration agreement, between the parties? 2. Whether the constitution of the arbitral Tribunal with Mr. Alan Oakley, Respondent No.2, as sole Arbitrator was valid? 3. Whether the failure by Mr. Alan Oakley to disclose the material fact concerning his having been an Arbitrator on behalf of Respondent No.1 in the arbitration on a related issue involving it and the head owners gives rise to justifiable doubts as to his independence and impartiality? 4. Whether the grounds mentioned in para 92 above when viewed collectively also give rise to serious doubts as to the validity of the impugned Award?

Ratio Decidendi: 1. The Court rejected the contention of the Petitioner that in terms of Section 34 (2) (a) (ii) of the Act, there was no valid CP, and therefore no valid arbitration agreement, between the parties. 2. The Court held that the constitution of the arbitral Tribunal with Mr. Alan Oakley, Respondent No.2, as sole Arbitrator was invalid. The Award rendered by such Tribunal is liable to be set aside under Section 34 (2) (a) (v) of the Act. 3. The Court held that the failure by Mr. Alan Oakley to disclose the material fact concerning his having been an Arbitrator on behalf of Respondent No.1 in the arbitration on a related issue involving it and the head owners gives rise to justifiable doubts as to his independence and impartiality. The impugned Award is opposed to the public policy of India on a collective reading of Sections 12 (3), 13 (5) and 34 (2) (b) (ii) of the Act and is required to be set aside on this ground. 4. The Court held that the grounds mentioned in para 92 above when viewed collectively also give rise to serious doubts as to the validity of the impugned Award.

Final Decision: The impugned Award dated 11th February 2009 is set aside. The petition is allowed with costs of Rs.50,000 which will be paid by Respondent No.1 to the Petitioner within four weeks from today. The pending applications are disposed of.