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IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA
JYOTSNA REWAL DUA, J.
Divisional Manager, H.P. State Forest Development Corporation Ltd. - Petitioner
Versus
Prem Lal and Others - Respondents
CMPMO Nos. 58, 59 & 60 of 2023
Decided On : 27-02-2023
Arbitration and Conciliation Act, 1996 - Section 12(5) and 36 – Arbitration agreement - Enforcement of arbitral awards - Promises, express and implied - Petitioner entered into an agreement with him on regarding extraction of resin and delivery thereof - According to petitioner, respondent did not engage adequate labour for extracting resin, hence, he could not supply required yield from the lot allotted to him - Contention of petitioner that Sub-section 5 of Section 12 read with Seventh Schedule of Act cannot be applied to instant case in view of agreement executed between parties prior to insertion of Section 12(5) read with Seventh Schedule of Act, cannot be accepted - Any prior agreement executed by parties contrary to mandate of sub-Section 5 of Section 12 and Seventh Schedule of Act, gets wiped out by non-obstante clause in Section 12(5).(Para 6)
Finding of Court :
A plain reading of Section 12(5) of Act makes it apparent that any person whose relationship with parties or counsel or subject-matter of dispute, falls under any of the categories specified in Seventh Schedule shall be ineligible to be appointed as an Arbitrator - It is not in dispute that Director (South) i.e. person appointed as an Arbitrator in instant matter falls in category specified in Seventh Schedule of Act - Equally, fact that a statement of claim may have been filed before arbitrator, would not mean that there is an express agreement in words which would make it clear that both parties wish Shri Khan to continue as arbitrator despite being ineligible to act as such - There is no pleading that any express agreement in writing satisfying the mandate of Sub-section 5 of Section 12 inclusive of its proviso and Seventh Schedule was ever executed by respondent - Director (South) continued to hold the arbitration proceedings even after enforcement of Sub-section 5 of Section 12 & Seventh Schedule of Act and passed the award on 11.12.2017 in CMPMO No.58 of 2023, 14.09.2017 in CMPMO No.59 of 2023 and in CMPMO No.60 of 2023 - In view of above pronouncements, it is amply clear that arbitration proceedings conducted by Arbitrator-Director (South) are non-est - Awards passed by such Arbitrator were void - Awards were not enforceable - Learned District Judge did not commit any error in dismissing the execution applications filed by petitioner, seeking enforcement of void awards.
Result : Petitions dismissed
JUDGMENT :
These three petitions involve identical questions of law and are based on similar facts, hence have been taken up together for decision. In all these petitions, challenge has been laid to separate but similar orders passed by the learned District Judge on 25.07.2022, whereby, petitioners’ applications in all the petitions moved under Section 36 of the Arbitration and Conciliation Act, 1996 (the Act, in short) for enforcement of arbitral awards (dated 11.12.2017 in CMPMO No.58 of 2023, 14.09.2017 in CMPMO No.59 of 2023 and 26.08.2017 in CMPMO No.60 of 2023), were dismissed. The arbitral awards were held un-executable. Aggrieved against the dismissal of the execution applications, the petitioners have preferred these three petitions.
2. For convenience, reference to CMPMO No.58 of 2023 has been made hereinafter for the purpose of factual matrix.
2(i) Respondent-Prem Lal was Forest Labour Supply Mate. The petitioner entered into an agreement with him on 20.03.2012 regarding extraction of resin and delivery thereof. According to the petitioner, the respondent did not engage adequate labour for extracting resin, hence, he could not supply the required yield from the lot allotted to him. For the shortfall in the supply of resin, the petitioner assessed the due compensation payable to it by the respondent at Rs.1,76,972/-. The respondent did not deposit the compensation despite issuance of notice to him. Consequently, invoking Clause 36 of the agreement dated 20.03.2012, the Managing Director of the petitioner-corporation on 24.09.2015, appointed its Director (South) as an Arbitrator for adjudicating the dispute, which statedly arose from the said agreement. The Arbitrator-Director (South) of the petitioner-corporation passed the award on 11.12.2017 awarding a sum of Rs.1,76,972/- in favour of the petitioner-corporation alongwith interest @ 9% per annum from the date of filing of the claim petition i.e. 07.11.2015.
2(ii) Application under Section 36 of the Act was moved by the petitioner before the learned District Judge for enforcement of arbitral award dated 11.12.2017. This application was dismissed vide order dated 25.07.2022. While dismissing the application, it was held that appointment of the Arbitrator as well as the arbitral award passed by the concerned Arbitrator was in violation of Section 12(5) and Seventh Schedule of the Act. The arbitral award, being sought to be enforced by the petitioner was void and unexecutable. The execution application was dismissed giving cause of action to the petitioner to institute the present petition.
3. Learned counsel for the petitioner has forcefully urged that the agreement was executed between the parties on 20.03.2012. Clause 36 of this agreement provided reference of dispute between the parties, arising out of the agreement, to the Managing Director, H.P. State Forest Development Corporation Ltd./Director concerned. The agreement came into force prior to the amendment of the Act whereby Sub-section 5 was inserted in Section 12 w.e.f. 23.10.2015. Learned counsel for the petitioner further submitted that Section 12(5) of the Act, therefore, could not be applied in the instant case. He further submitted that the parties had consented for appointment of the Arbitrator by signing the agreement dated 20.03.2012. Hence, in view of the proviso to Section 12(5) of the Act, the arbitral award passed by the Director (South) of the petitioner-corporation was saved. The arbitral award dated 11.12.2017 was lawfully passed and was required to be executed. The impugned order dated 25.07.2022, dismissing the petitioner’s application for enforcement of the arbitral award is illegal and is required to be set aside.
4. Having heard learned counsel for the petitioner and ongoing through the case file, I am of the considered view that these petitions lack merit. This is for the following reasons: -
4(i) Section 12(5) of the Act was inserted by the Act No.3 of 2016. It came into force w.e.f. 23.10.2015
The main legal point established in the judgment is the requirement of an express agreement in writing to waive the applicability of Section 12(5) of the Arbitration and Conciliation Act, 1996.
The necessity for an express written waiver to validate an arbitrator's appointment under Section 12(5) of the Arbitration and Conciliation Act, 1996.
A unilateral appointment of an arbitrator from an ineligible party is void ab initio without an express written waiver of Section 12(5) of the Arbitration and Conciliation Act, which cannot be implie....
The appointment of an arbitrator must comply with the Arbitration and Conciliation Act, particularly Section 12(5), which disqualifies certain individuals from serving as arbitrators.
The main legal point established in the judgment is the ab initio void nature of the arbitrator's appointment, as it was contrary to Section 12(5) of the 1996 Act. The court's decision was based on t....
An arbitrator's appointment violating Section 12(5) of the Arbitration Act without an express written waiver is invalid, rendering any adjudicated award void.
Arbitral Tribunal consisting of officers of State have become ineligible to become Arbitrators and to continue as Arbitrators.
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