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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION APPLICATION NO. 110 OF 2008
Mahindra Lifespace Developers Ltd., )
a company incorporated under the )
Companies Act, 1956, and having their )
office at 5th Floor, Mahindra Towers, )
Worli, Mumbai - 400 018. ).. Applicant
Vs.
1. The New Great Eastern Spinning & )
Weaving Company Ltd., a Company)
incorporated under the provisions )
of the Companies Act, 1913 and )
is an existing company under the )
Companies Act, 1956 having its )
registered office at 25-29, )
Dr. Ambedkar Road, )
Mumbai - 400 027. )
2. Rozal Mehta, an Indian Inhabitant, )
residing at Carmichael House, )
Carmichael Road, )
Mumbai - 400 026. ).. Respondents
--
Shri Virag Tulzapurkar, Senior Advocate i/by M/s. Little & Company
for the Applicant.
Shri D.D. Madon, Senior Advocate i/by M/s. Kanga & Co. for the
Respondents.
--
CORAM : SWATANTER KUMAR, C.J.
JUDGMENT RESERVED ON : 20TH MARCH, 2009.
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JUDGMENT PRONOUNCED ON : 16TH APRIL, 2009.
JUDGMENT :
Simple but pertinent questions of law arise for
consideration in this Petition under Section 11 of the Arbitration and
Conciliation Act, 1996 ( hereinafter referred to as the “Act” ). On
behalf of the Applicant, it is contended that the parties had not
appointed any Arbitrator and Shri Rozal Mehta, Respondent No.2 who
had acted as a Conciliator and resultantly acquired disqualification for
being nominated as an Arbitrator. Thus Respondent No.2 cannot be
appointed as an Arbitrator in terms of Section 11(8)(b) of the Act. The
Applicant, thus, prays for an appointment of an independent
Arbitrator.
2. On the other hand, the Respondent No.1 objects to the
very maintainability of the present Petition, as it contends that
Respondent No.2 was appointed and had acted as an Arbitrator thus
the mandate of an Arbitrator could be revoked or substituted only
upon a petition being filed satisfying the grounds and reasons stated
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in Section 12(15) of the Act and such a Petition under Section 11 of
the Act is not maintainable and is misconceived. In order to examine
the merits or otherwise of these contentions, reference to the basic
facts of the case is necessary. Mahindra and Mahindra Limited
entered into an agreement with Respondent No.1 for developing an
immovable property situated at 25-29, Dr. Ambedkar Road, Mumbai.
Mahindra and Mahindra Limited, by virtue of a scheme presented in
the Court was amalgamated with the Company known as Gesco
Corporation Ltd. and by an order dated 24th October, 2001 the merger
was allowed. Gesco Corporation Limited came into existence. On or
about 24th December, 2002, Gesco Corporation Ltd. changed its
name to Mahindra Gesco Developers Ltd. Again on 25th October,
2007, Mahindra Gesco Corporation Ltd. changed its name into
Mahindra Lifespace Developers Ltd., the Applicant in the present
case. The Applicant and Respondent No.1 executed a Composite
Service Agreement on 14th July, 1995. This agreement read with the
original Memorandum of Understanding provided for detail terms and
conditions for execution of the development of the property. The
Applicant took several steps to develop the property. According to
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the Applicant, because of non cooperative attitude adopted by the
Respondent No.1 and despite at the Applicant rendering financial
assistance the contract could not be concluded as desired.
3. According to the Applicant, it was willing to perform all its
obligations under the terms and conditions of the agreement and even
had advanced monies in excess of Rs.35 crores to Respondent No.1
besides putting in a lot of time and labour. In the long past years,
the parties had been meeting, negotiations had taken place but
nothing could be successfully concluded. Respondent No.2 was the
named arbitrator under the terms of the Agreement. He had also
participated in various meetings between the parties which did not
result in any decision. Clause 19 of the Composite Service
Agreement provided for reference to the sole Arbitrator to adjudicate
the disputes and differences which may arise between the parties.
The clause reads as under:-
“19. All disputes and differences between the
parties hereto including interpretation of any
clause herein contained arising out of or under
this Agreement shall be referred to the sole
arbitration of Mr Rozal Mehta, or in the event of::: Downloaded on – 09/06/2013 14:31:33 :::
5his non-availability Mr………………… whose
decision shall be final and binding on the
parties hereto. The arbitration proceedings
shall be held in Bombay and shall be inaccordance with and subject to the provisions
of the Indian Arbitration Act, 1940 or anystatutory modification or re-enactment thereof
for the time being in force.”
3. Respondent No.2 vide his letter dated 7th January, 1996
had made certain suggestions and had also referred to offers made
by Kanoria i.e. Representative of Respondent No.1. He even
commented upon the extent of profit that the parties could make by
the executing of the project. The Respondent No.1 vide its letter
dated 21st June, 1996 addressed to the Executive Director of the
Applicant while refuting the allegations made in the letter of the
Applicant dated 7th January, 1996 also referred with some emphasis
on the participation of Respondent No.2. The relevant portion of the
said letter reads as under:-
“…..Your letter further mentions the submission
of certain papers by NGE but unfortunately
does not go on to elaborate the reasons behindthe same remaining pending which you are
aware of and so is Mr. Rozal Mehta. In case
there remains any confusion on this score in
your mind I suggest you may have a fresh and
detailed discussion once again with Mr. Rozal::: Downloaded on – 09/06/2013 14:31:33 :::
6Mehta who has repeatedly assured me that all
such issues have been thoroughly and
repeatedly discussed by him with M & M and on
the basis of which assured me on severaloccasions that they would be satisfactorily
resolved but which unfortunately continue toremain pending.
With regard to you suggestion for a
meeting we may do so at any time suitable toyou after 3.30 p.m. Tomorrow. The presence of
Mr. Rozal Mehta in the discussions would be
most helpful as he is closely aware of all
developments.”
4.
Vide letter dated 4th December, 1996 the Respondent
No.1 informed the Applicant that Shri Rozal Mehta should speak to
both the parties separately and try to bridge the gap. A meeting
between the parties appears to have been held on 7th October, 2002
wherein matters regarding money to be advanced to Applicant were
discussed and it was also decided that the arbitration process shall
proceed in parallel to the development of project and Shri Rozal
Mehta, Respondent No.2 to be provided legal assistance by either of
the parties. Vide letter dated 5th June, 2003 the Respondent No.1
again wrote to the Applicant in furtherance to the meeting held on 7th
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October, 2002 indicating the need for setting aside the arbitration
process, opted for mediation and called upon a positive response
from the Applicant.
5. Again Shri Rozal Mehta, Respondent No.2, had on 1st
April, 2003 written a private and confidential letter and had noticed, in
furtherance to the discussion that took place between Kanti Kanoria,
and Hemant that no formal arbitration would take place and the
parties would, in a sealed cover, submit their claims and process of
mediation would start. The terms of mediation were put to the
parties. It was also stated by Respondent No.2 that it was virtually
impossible for him to wear two hats i.e. one of an Arbitrator and the
other of a Mediator, and he would prefer the role of Mediator. Vide
letter dated 15th January, 2008 the Applicant wrote to the Respondent
No.1 that there were disputes between the parties and they should be
referred to an independent arbitrator to be appointed by the parties.
This letter was responded by Respondent No.1, by its letter dated
23rd January, 2008, stating that it would agree to have the disputes
between the parties referred to arbitration in terms of Clause 19 to
Shri Rozal J. Mehta, Respondent No.2 herein. To this, the
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Applicant raised an objection and stated that instead of providing
legal assistance to Shri Rozal Mehta, it will be better to appoint an
independent arbitrator. However, vide letter dated 16th February,
2008, Respondent No.1 reiterated that the arbitration would be only
before Respondent No.2 and it was not willing for his substitution.
In the light of these facts, the Applicant filed the present petition under
Section 11(2) and 11(6) read with Section 80 of the Act for
appointment of a suitable person to act as a Sole Arbitrator and refer
the disputes between the parties to such an Arbitrator.
6. From the above narrated facts, it is clear that there is no
dispute either to the execution or the existence of the arbitration
agreement. The dispute only relates to the appointment of a Sole
Arbitrator in the backdrop of the contentions raised by the learned
Counsel appearing for the parties. First of all it needs to be noticed
that Clause 19 of the Composite Service Agreement, the arbitration
clause contained in the main Agreement between the parties refers
to the appointment of a named Sole Arbitrator but at the same time
the expression “or in the event of his non-availability Mr.
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______________ whose decision shall be final and binding on the
parties thereto” indicates that the agreement between the parties had
contemplated non-availability of Respondent No.2 to act as a Sole
Arbitrator and name of the substitute/alternate Arbitrator was left
blank, thus leaving it open for appointment of any other Sole
Arbitrator other than Respondent No.2. This construction itself may
not be absolutely befitting but in the facts and circumstances of the
case it is of some significance. From the documents afore-referred, it
is clear that Respondent No.2 had been acting in once capacity or the
other in order to bring the parties to a compromise. He, vide his letter
dated 7th January, 1996, had even projected the minimum profits
resulting from the execution of the project. Respondent No.1 vide its
different letters including 4th December, 1996 had indicated that
Respondent No.2 understood the points of view of the parties, should
meet them separately and try to bridge the gap. Thus, there is no
document on record which in unambiguous terms appoints by
consent of the parties Respondent No.2 as Sole Arbitrator. On the
contrary, as noticed by Respondent No.2 himself, he had been
wearing different hats from time to time. According to Respondent
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No.2, he had indicated that he would prefer to resolve the disputes
between the parties as a Mediator. A Mediator is a term having
distinct with connotation and distinct functions and obligations to that
of an Arbitrator. An Arbitrator is primarily a Tribunal to resolve the
dispute by adjudicative process in accordance with law. In the letter
of 1st April, 2003, it was specifically recorded “on Friday the 28th
March 2003 wherein we had agreed that no formal arbitration would
take place.” These words clearly indicate that the parties had
decided not to pursue the arbitral forum even if it had commenced.
There are serious contentions raised even to this aspect of the matter
as to whether the sole arbitrator had entered upon the reference and
had in fact conducted arbitration proceedings at any stage. Firstly, it
is not quite certain, at least the Court is not convinced that Shri Rozal
Mehta had been appointed as a sole arbitrator in accordance with law
and he had acted as the sole arbitrator to adjudicate differences
and/or disputes between the parties. The emphasis of the Applicant
is that Respondent No.2 had acted as a Mediator and the
correspondence exchanged by him as well as his conduct with the
parties is that of a Mediator and not that of an arbitrator. No attempts
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had been made by him to settle the dispute between the parties by
adjudication process and that he had clearly worked as a Conciliator
or Mediator between the parties, also had tried to bring them together
and in fact had even put forth the proposal of one side the parties with
greater emphasis to that correspondence. The Agreement dated 14th
July, 1995 was subsisting and was treated as effective and binding
between the parties as late as on 27th November, 2007. While
referring to the letter dated 30th October, 2007 wherein the Applicant
informed Respondent No.1, after noticing the four options which
even included that the decision of the sole arbitrator shall be final and
bind. The Applicant had clearly stated that it, in view of the conduct
of the parties, reserved its right to chose one of the options at an
appropriate time. In other words, the parties were not ad idem that
Shri Rozal Mehta, Respondent No.2 had actually acted as the sole
arbitrator. In various correspondence exchanged between the
parties, which has already been referred by the Court, there is no
unambiguous or definite record to show that Respondent No.2 had
been appointed as the sole arbitrator and he had so acted in that
capacity. Once that is not so, the question of removing the arbitrator
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for making an appointment in his place would hardly arise and the
contention of the Respondent No.1 that the present Application under
Section 11 of the Act is not maintainable is without substance and
merit. The provisions of Sections 12 to 14 would be invocable only
when there is a mandate for appointment of an arbitrator which can
be revoked in the facts and circumstances of a case.
7. There is definite documentation on record to show that
Respondent No.2 acted as a Mediator or Conciliator and always
attempted to reconcile the dispute between the parties by mutual
agreement and persuasion. In fact, as already noticed, he himself in
his letter dated 1st April, 2003 had noticed that during the discussions
between the parties and him, it was agreed that the process of
mediation would start on both parties submitting their claims in sealed
envolope, and had clearly stated that he could not wear two hats, i.e.
one of an Arbitrator and the other of a Mediator. He had also stated
that he had been acting as an Mediator and would step down as an
Mediator when ever his role as an Arbitrator would be called for and
would look into the matter. The letter dated 21st June, 1996 (Exhibit-
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C) indicates that Respondent No.2 was present in all the meetings
between the parties. It also refers to discussion of Respondent No.2
with one party and consequent assurances being given to the other
party. Vide letter dated 15th January, 2008, the Applicant had clearly
stated that the arbitration agreement should be invoked and had
requested for an appointment of any independent arbitrator. The
distinction between the arbitration and mediation is well known and
accepted now. The arbitration in no uncertain terms is an
adjudication process which an arbitral tribunal performs in
accordance with law while mediation is a conflict resolution method
where a neutral person facilitates discussions between the parties in
an attempt to get the parties to reach an agreement that is mutually
agreeable to both the parties. In short mediation is a method to
dissolve disagreement designed to help disputing parties resolve their
own dispute even without obtaining legal counsel. It is a non-
adversarial approach to conflict resolution and the approach of
mediator is to encourage mutual agreement rather than to impose a
settlement. It is not simplicitor a remedy but a system having
appropriate of dispute resolution. One must remember that litigant
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should not feel that by resorting to mediation he is going to get justice
of second class. Legitimacy of action of court in referring matter to
mediation depends upon quality of mediation process which is
offered. It is, therefore, important to keep in mind the objectives of
mediation.
(i) It is to facilitate parties resolving dispute
themselves;
(ii)
To provide fair and expeditious ADR process;
(iii) To provide effective and cost effective ADR
process;
(iv) To provide informal ADR process.
For all kinds of mediation, the basic training of a mediator is for
transforming “No” to “I will think over the solution” and further to “I
think it is a better solution”. It definitely would require specialised
communication skills. Mediator has to apply universal principles of
persuation in the process of mediation. Cialdini has stated six such
principles, namely,
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(a) Reciprocity : People feel obligated to give
back to others who have given to them.
(b) Linking : We prefer to say “yes” to those we
know and like.
( c) Consensus : People decide what’s
appropriate for them to do in a situation by
examining and following what others are
doing.
(d) Authority : People rely on those with
superior knowledge or perspective for
guidance on how to respond AND what
decision to make.
(e) Consistency : Once we make a choice/take
a stand, we will encounter personal and
interpersonal pressure to behave
consistently with that commitment.
(f) Scarcity : Opportunities appear more
valuable when they are less available.”
8. The role of Respondent No.2 as reflected from the record
on the Court file was primarily that of a mediator and not that of an
arbitrator. There is no much doubt that Respondent No.2 had acted
as Mediator or Conciliator between the parties and had put forward a
point of view of one party to the other. Thus, in view of a fine
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distinction between the Conciliator and Arbitrator, the action is not a
greater significance in the present case, and as held in Salem
Advocate Bar Association, T.N. v. Union of India, (2005)6 SCC 344,
that “in conciliation, there is a little more latitude and a conciliator can
suggest some terms of settlements too.” Attempts made by
Respondent No.2 were actually for resolving the disputes between
the parties by recourse to the process of mediation rather than by
adjudication process. He talked to the parties individually, putforth
proposal of one party to the other and tried to bring up a commonly
acceptable solution to their problems. Thus, this is not a function of
an arbitrator. Another way of looking at it is as to what the parties
actually understood and practiced as a result of the role played by
Respondent No.2. As far as the Applicant is concerned, all
throughout, it took up the stand as to whether Respondent No.2
should act as a Conciliator or Mediator and ultimately requested for
an independent arbitrator because of the bar contained in Section 80
of the Act. The Respondents No.1 did aver in the correspondence
that Respondent No.2 acted as an arbitrator but he himself made it
clear that he was acting as Mediator and would give up that role and
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consider the role of an arbitrator as and when occasion arose. It
may not be absolutely essential for this Court to examine in a greater
detail when there is a bar contained in Section 80 of the Act.
Because it would always be better and in the interest of justice to
appoint an arbitrator in which both the parties have failed and where
there is no genuine apprehension or bias. The Applicant had made
certain averments in his Arbitration Application and resultantly had
asked for an appointment of an independent arbitrator. The
provisions of Section 80 of the Act are pleaded as a bar to the
appointment of Respondent No.2 as an arbitrator. At this stage, it
may be appropriate to refer to the arbitration clause between the
parties. Clause 19 states that “All disputes and differences between
the parties hereto including interpretation of any clause herein
contained arising out of or under this Agreement shall be referred to
the sole arbitration of Mr. Rozal Mehta, or in the event of his non-
availability Mr………………… whose decision shall be final and binding
on the parties thereto.” In other words, the parties had
contemplated and the arbitration clause so specifically provides that
some other sole arbitrator could be appointed in the event
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Respondent No.2 could not be available for any reason. No prejudice
will be caused to any of the parties into proceedings and it would be
in the interest of justice, equity and good conscious that some other
person is appointed as Sole Arbitrator in terms of Clause 19 of the
Agreement between the parties rather than Respondent No.2.
9. The parties infact can agitate their controverted
contentions even before the Arbitrator. This being an Application for
appointment of an Arbitrator, there is limited scope for this Court to
play larger role, as the contentions are left open to be urged before
the Learned Arbitrator in terms of Section 16 of the Act.
10. Resultantly, Shri S.P. Bharucha, former Chief Justice of
India is appointed as Sole Arbitrator to enter upon reference to
adjudicate the disputes between the parties.
11. The Arbitration Application is allowed and accordingly
stands disposed of. No order as to costs.
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CHIEF JUSTICE
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