ORDER
D.V. Shylendra Kumar, J.
1. Arbitration and Conciliation Act, 1996 (Central Act 26 of 1996) (for short, ‘the Act’), though has the avowed object of following the United Nations Commission on International Trade Law (UNCITRAL), Model Law on Intentional Commercial Arbitration in 1985 and purports to amend and consolidate the laws relating to the domestic arbitration, international commercial arbitration and enforcement of foreign Arbitral awards and for allied matters thereto, the main thrust of functioning of the Act and matters which go for disputes resolution before the Arbitral Tribunal are in the context of domestic arbitration.
2. The Arbitration Act, 1940 and the present Act, successor to the 1940 Act, are legislations made for regulating the informal dispute resolution mode by recourse to arbitration before the Arbitral Tribunal and by the volition of the parties, by choosing a person of their choice to resolve the dispute between them. The essence of arbitration proceeding is that it is a voluntary submission by the parties to the jurisdiction of a person of their choice to resolve their difference/dispute in an informal manner without being weighed down either by the procedural wrangles or technicalities of legal issues or even from the effect of strict adherence and application of the laws. Parties seeking solution to a problem appeal more to the good sense, fairness, wisdom and the judgment of the Arbitrator in whom they repose confidence than for resolving the dispute by application of all relevant laws in a strict legal sense as is normally done before a Court of law. Even the Rules of evidence are not strictly required to be followed before an Arbitral Tribunal. A considerable degree of freedom is enjoyed by the Arbitrator for taking all such measures for expedient resolution of a problem or a dispute between the parties.
3. Though such is the object and scheme of the arbitration proceedings and is sought to be regulated by the present legislation i.e., the 1996 Act, in reality, it appears to be totally different. Though it is almost inevitable or even a fashion to have an arbitration clause in any agreement worth its name, disputes, bickerings, complications etc., begin at the threshold even for agreeing to an Arbitrator of mutual satisfaction of the parties, even agreeing for the arbitration process itself and even when such Arbitrators are agreed upon and appointed, during the process of arbitration, problems crop up, Arbitrators are unable to proceed, many of them withdraw or resign midstream and on many occasions parties are left high and dry and back to square one Parties promptly knock at the doors of the Courts for further guidance and orders.
4. The present scenario in this petition under Section 11(6) of the Act is no different. Though there is an agreement between the parties with an arbitration clause for appointment of sole Arbitrator by the petitioner for the resolution of dispute, which is a nationalized bank, it appears, this arrangement did not work and the parties agreed to an enlarged Tribunal by having nominees of each party. That also has not worked with the nominees on behalf of the petitioner-Bank withdrawing or resigning one after the other and the petitioner-Bank having come before this Court praying for orders under Section 11 of the Act for the removal of one of the Arbitrator who is presently acting as nominee of the respondent and who, according to Sri M.R.C. Ravi, learned Counsel for the respondent, has now become the sole Arbitrator which submission is promptly countered by Sri Urval N. Ramanand, the learned Counsel for the petitioner-Bank, who on the other hand contends that the agreed procedure between the parties has failed time and again and therefore the petitioner is left with no choice but to approach this Court either for requesting the Chief Justice or his nominee to take necessary measures, which submission of the learned Counsel for the petitioner is one for appointing a sole new Arbitrator and at any rate never to supplement or to act along with the surviving Arbitrator – the nominee of the respondent.
5. It appears that the present petition has a checkered history and has seen many situations and couple of Arbitrators. The matter had been heard at length earlier on the question in controversy and the following order had been passed in CMP. No. 78 of 2005, DD: 3-3-2006 (Canara Bank v. Klen and Marshalls Manufacturers and Exporters and Ors. 2006(3) Kar. L.J. 456):
Petition under Section 11 of the Arbitration and Conciliation Act, 1996 (for short, ‘the Act’), praying for relief by one of the parties impleading the other party to this petition, both of whom had received a notice dated 27-6-2005 (copy at Annexure-H) from the two agreed Arbitrators to resolve the disputes between them calling upon them to appear on a given date i.e., 23-7-2005 for the purpose of appointing a third Arbitrator. Annexure-H produced along with the petition reads thus:
M.A. Shama Iyengar,
No. 177, 3rd Cross,
Judges Colony,
Basaveswaranagar,
Bangalore-560 079
Justice S. Venkataraman (Retd.),
No. 161, 3rd ‘F’ Cross,
2nd Block, III Stage,
Judges Colony,
B as aveswaranagar,
Bangalore-560 079
Ph. 23225581/23221529
Date: 27-6-2005
Whereas, the respondent by letter dated 16-5-2005 appointed Sri M.S. Shama Iyengar as their Arbitrator to continue the arbitration proceedings initiated by the claimant consequent to withdrawal of Mr. Justice N.D. Venkatesh (Retd.) from the office of Arbitrator.
Whereas, Sri M.A. Shama Iyengar not having received any communication from the claimant appointing their Arbitrator till 20-6-2005, assumed office as sole Arbitrator and issued notices to both parties to appear before him on 23-7-2005 for continuing the proceedings.
Whereas, Sri M.A. Shama Iyengar received on 21-6-2005, the letter dated 18-6-2005 of the respondent appointing Mr. Justice S. Venkataraman (Retd.) as their Arbitrator.
Both the Arbitrators have agreed to have a preliminary meeting on 23-7-2005 to hear both parties and then to appoint a third Arbitrator.
Both parties/Advocates are required to appear on the above date and time at No. 161, 3rd Cross, 2nd Block, III Stage, Judges Colony, Basaveswaranagar, Bangalore-560 079 (Ph. 23225581)
Sd/-
Sri M.A. Shama Iyengar
Arbitrator
Sd/-
[S. Venkataraman]
Arbitrator
Copy to:
1. Canara Bank Leasing Division, Chennai
2. M/s. Klen and Marshalls, respondent
Parties not having appeared but on the other hand the respondent-Company having raised a preliminary objection in terms of the letter dated 27-6-2005 (copy at Annexure-J) objected to the very appointment or nomination of the Arbitrator nominated by the petitioner, on the premise that their nominee could have acted as the sole Arbitrator and that having been agreed to between the parties, there is no occasion for the petitioner to seek, for the another Arbitrator and subsequently the petitioner having joined issue on the factual aspects of the contents of respondents’ letter dated 27-6-2005 in terms of the reply dated 7-7-2005 (copy at Annexure-K) and ultimately having resulted in withdrawal of one of the Arbitrators from the arbitration proceedings in terms of his letter dated 30-9-2005 (copy at Annexure-X) addressed to the petitioner, which reads as under:
Justice S. Venkataraman (Retd.),
No. 161, 3rd Stage,
2nd Block, West of Chord Road,
Basaveswaranagar,
Bangalore-560 079
Ph: 3225581, 3221529
To:
The Canara Bank,
Leasing Division,
Project Finance Department,
Corporate Credit Wing,
Head Office, No. 112, J.C. Road,
Bangalore-560 002
Please take notice that the undersigned who has been appointed by the Canara Bank, Leasing Division as their Arbitrator in their letter dated 18-6-2005 to continue the arbitration proceedings between them and M/s. Klen and Marshalls Manufacturers and Exporters hereby withdraws from the office of the Arbitrator with immediate effect.
Sd/-
(Justice S. Venkataraman)
and the net result of these developments being that the agreed procedure between two Arbitrators to appoint a third Arbitrator having failed, the petitioner has approached this Court praying for taking ‘necessary measures’ in the facts and circumstances, including for the following reliefs:
(a) order removal of the 2nd respondent as Arbitrator in this case and quash all the proceedings conducted by him from the date of his appointment by the 1st respondent till 8-10-2005 as illegal and not binding on the petitioner;
(b) to appoint a new Arbitrator to conduct the arbitration work from the day Hon’ble Justice N.D. Venkatesh (Retd.) had his last sitting on 14-5-2005.
Notice having been issued, the respondent-company entered appearance through its Counsel Sri M.R.C. Ravi and filed objections, raising a preliminary objection as to the maintainability of the very petition. It is the case of the respondent-company that the petitioner should have taken recourse to the provisions of Section 12, 14 and 15 of the Act.
I have considered the preliminary objection and heard Sri Urval N. Ramanand, learned Counsel for the petitioner and Sri M.R.C. Ravi, learned Counsel for the respondent-company on this aspect.
Irrespective of the stands taken by the parties and the letters by the Arbitrators, submission of the Counsel with regard to the aspect as to whether a second Arbitrator in the first instance could have been co-opted contrary to the very agreement which enabled the petitioner to appoint a sole Arbitrator at its sole discretion, in view of Clause (12) of the agreement and irrespective of the stand on the part of the respondent-Company that the petitioner itself having agreed to continue Sri M.A. Shama Iyengar as Arbitrator, and thereafter the petitioner having no right or option to nominate or co-opt a second Arbitrator on the withdrawal of the Arbitrator who was their nominee (Justice N.D. Venkatesh) and appointing Justice S. Venkataraman as second or successor Arbitrator was not in order etc. I find it is not necessary for this Court to examine such contentions, is neither the scope of the petition nor is it open to the parties to contend so particularly in the light of the joint notice issued by the two Arbitrators which recites that they are the nominees of the parties and have agreed to issue notice for the purpose mentioned therein; such notice jointly issued by the Arbitrators binds the parties and it is not open for the parties to contend to the contrary at this stage before this Court in this petition.
If such is the premise on which this petition is to be examined, it is obvious that the agreed procedure between the two Arbitrators to appoint a third Arbitrator has failed so far, for whatever reasons, whether due to the withdrawal of the co-Arbitrator or due to the parties not having participated before the Arbitrators on the notified date or even by non-appointment of yet another successor Arbitrator by the petitioner in place of Justice S. Venkataraman, who has also withdrawn.
Though Sri M.R.C. Ravi, learned Counsel for the respondent submits that the petitioner could have availed of the relief in terms of Sections 12, 14 and 15 of the Act, and whether it was possible or not, it is not necessary to go into this hypothetical position, as the petitioner has come before this Court for necessary measure under Section 11(6) of the Act and as I find the situation is one which justifies this Court to act in exercise of Section 11(6) of the Act, no need to examine the other possibilities which the petitioner could have taken recourse to or not.
What this Court is concerned, is to examine and pass orders on the course of action permitted in law and if the Court is conferred with jurisdiction for such purpose. I find the situation is one right for this Court passing orders for taking ‘necessary measure’ in the absence of any impediment or other means provided under the agreement or as agreed between the parties on the failure of the appointed procedure. Neither Counsel is in a position to point out any such other means which could avoid or relieve the Court from taking ‘necessary measures’ in terms of Section 11(6) of the Act, which reads as under:
11. Appointment of Arbitrators.–xxx xxx
(6) Whereunder an appointment procedure agreed upon by the parties.–
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed Arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,
a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
Submission of Sri Ramanand, learned Counsel for the petitioner is that it is a case where action is warranted due to the Arbitrators to reach an agreement in terms of Clause (b) of Sub-section (6) of Section 11 of the Act. I find the submission is correct and merits acceptance.
However, before passing orders on the measures necessary to be taken in this situation, particularly as it is found that the forum of arbitration proceedings having failed to yield result to the parties, as Arbitrator after Arbitrator is withdrawing parties not expressing confidence in the available Arbitrator and the arbitration mechanism not having rescued the situation for the parties, this Court has to consider as to whether relegating the parties to arbitration proceedings yet again is worthwhile at all.
However, before passing such orders, learned Counsel for the parties to look up the law and to apprise this Court of the scope of the expression ‘necessary measure’ occurring in Section 11(6) of the Act, as to whether such ‘necessary measure’ can include relegating the parties to a forum not necessarily one contemplated under the Act but any other forum which is available otherwise also to the parties.
For such purpose, further hearing is adjourned by two weeks.
6. The matter had been adjourned to hear further the learned Counsel for the parties on the question of scope of the expression ‘necessary measure’ as it occurs in Section 11(6) of the Act.
7. I have heard further Sri Urval N. Ramanand, learned Counsel for the petitioner and Sri M.R.C. Ravi, learned Counsel for the respondent.
8. Submission of Ramanand is that the expression ‘necessary measure’ can only qualify the words for appointing an Arbitrator or Arbitrators as they occur in the latter part of Sub-section (2) of Section 11 of the Act and therefore the measure to be taken by the Chief Justice or his nominee in the absence of an alternative procedure provided for in the agreement itself is one for appointment of an Arbitrator and not for any other purpose, such as either to relegate the parties to have any other mode of resolution such as either one of filing a suit or even to go before the Debts Recovery Tribunal, which is the mode otherwise required to be followed by the petitioner-Bank, if it seek to recover any amount from the respondent. Section 11(2) of the Act reads as under:
11. Appointment of Arbitrators.-- x x x x x x (2) Subject to Sub-section (6), the parties are free to agree on a procedure for appointing the Arbitrator or Arbitrators.
9. In this context, learned Counsel for the petitioner has cited the decision of the Supreme Court in the case of S.B.P. and Co. v. Patel Engineering Limited (2005)8 SCC 618 : (2005)128 Comp. Cas. 465 (SC) and inter alia, submits that the power; that under Section 11(6) of the Act is one in the nature of judicial power, it is open to the petitioner to invoke this provision for the appointment of a sole Arbitrator for the resolution of disputes between the parties, as the agreed procedure between the parties has failed and the Court had such power to appoint an Arbitrator, while taking ‘necessary measure’ required to tide over the situation of the agreed procedure having failed.
10. Submission of Sri M.R.C. Ravi, learned Counsel for the respondent, on the other hand, is that the petition itself is not tenable for the reason that the petitioner ought to have worked its option under Section 15(2) of the Act and should have had the recourse of appointing an alternative Arbitrator in place of Justice S. Venkataraman, who has now withdrawn as the nominee of the petitioner-Bank. Submission is that the Bank ought to have appointed any other Arbitrator in place of Justice Venkataraman, as that could have resolved the situation and that it is mandatory on the part of the Bank to work this option and submitted that such submission finds sustenance from the decision of this Court rendered in the case of J.L. Prasad v. The General Manager, Southern Railway, Chennai 2002(1) Kar. L.J. 491 : (2002)1 Arb. L.R. 584 (Kar.).
11. Submission is that even without working the possibility of nominating or appointing an alternative Arbitrator in place of Justice Venkataraman, who has now withdrawn, the petitioner could not have come to this Court invoking Section 11(6) of the Act and such is the view taken by this Court in the said decision.
12. As was noticed earlier, the agreed procedure between the parties was only one for appointment of sole Arbitrator at the discretion of the petitioner-Bank. Though the submission of Sri M.R.C. Ravi, learned Counsel for the respondent is that the procedure had been mutually varied and a modified agreed procedure had come in place and unless it is demonstrated that that the modified procedure has also failed, in the manner as understood by this Court, on the interpretation placed on Section 11(6) of the Act, it cannot be said that the agreed procedure has failed. Such submission on the part of the respondent is countered by Sri Ramanand, learned Counsel for the petitioner by pointing out that even the modified agreed procedure has also failed; that the Bank though was entitled to nominate its sole nominee, relented to the satisfaction of the respondent for accommodating the name of the respondent’s nominee also as a co-Arbitrator, provided the nominee of the respondent and the nominee of the petitioner sit as a joint Arbitral Tribunal; that later even that procedure has not worked, as the joint sitting or hearing by the Arbitrators has become impossible, as has happened now with one of the Arbitrators albeit the nominee of the very Bank, has withdrawn, which according to the learned Counsel for the petitioner is due to certain uncalled for allegations made by the respondent etc. But the issue is not so much about the allegation or counter allegation but as to whether the agreed procedure has not worked as only on the failure of such procedure, provisions of Section 11(6) of the Act may come into operation.
13. Examination of the facts does indicate that the parties had modified the procedure for appointment of an Arbitrator as agreed upon, but even after that the present situation is one which indicates that the modified agreed procedure has also not worked and it appears that the petitioner has lost hope or faith in the working of the present mode of agreed procedure and it is for that reason the petitioner has approached this Court by filing this petition under Section 11 of the Act.
14. Though the learned Counsel for the respondent submits that it was a possibility for the Bank to have appointed an alternative Arbitrator in place of the Arbitrator who has now withdrawn, it appears that the Bank had worked this once and even then the procedure has not worked.
15. Whatever may be the reason attributed for such failure, it cannot be said that the petitioner-Bank had not worked on the alternatives available, but has petitioned this Court straightaway, as perhaps was the situation in the decided case by this Court in the case of J.L. Prasad, wherein the provision under Section 11(6) had been understood and interpreted. In the present case, the situation has gone even beyond that, I am of the view that it is not necessary to keep relegating the parties to workout a procedure which has in the understanding of at least one of the parties has not worked for the purpose of the resolution of their dispute.
16. To pick up the threads again from the introduction to the subject Act in this order, the arbitration proceedings and the Arbitral Tribunal can work only if the parties have confidence in the Arbitrator and are willing to co-operate with the Arbitrator. The Arbitrator by himself should be a person who inspires the confidence of the parties and not because he is thrust on the parties.
17. Unfortunately, the present trend appears to be one for seeking an order of the Court at every stage, significantly though the orders of the Court are for binding the parties. If the parties are keen to get orders from the Court, it is very obvious that they mutually understand that the agreements as between them is not working; that if the parties keep expressing lack of confidence in one or the other Arbitrator, Arbitral procedure does not work for them; that the Arbitral Tribunal is not one inspiring confidence in the parties, in which event, it will be an ironic and paradoxical situation to compel the parties to be still bound by the arbitration clause in the agreement and to have their disputes resolved only through the method of arbitration.
18. As noticed earlier, the Act is a price of legislation to pin down parties to an arbitration proceedings, if there is an arbitration clause in the agreement between the parties and for giving effect to the related developments. That means it is because of the volition of the parties. If the volition (of the parties) has not worked, it appears and at any rate, in my understanding, it appears so in the present case, there is no point in binding parties by Court orders and to compel them to go through the ordeal of an arbitration proceeding, which has neither worked for them nor both parties are willing to go through the process. Unfortunately, while the Act provides for an entry into the maze of arbitration, it does not provide for an exit and the Courts are left helpless but to keep passing orders for appointing Arbitrators or for taking subsequent necessary measures as of now under Section 11(6) of the Act and so forth and so on.
19. It is in this area that legislation is still needed. Legislation may have to take note of a failed Arbitral proceedings, a dispute not resolved over many years, an arbitration process not even taking off as in the present situation, where the arbitration proceeding has not progressed or at any rate it is stalled at every stage and in terms of Court order like the present one a new Arbitrator is to be appointed. Parties will be back to square one. It is in such situations that the legislation should provide an option or way out to the parties even if it is to be by means of a Court order for relieving the parties from such situations. An exit will have to be provided from this entanglement, so that parties can, when dispute resolution by the arbitration mechanism has failed, can be relieved of the same and allowed to have their disputes resolved in a normal and formal manner.
20. The exercise of finding an exit [a satisfactory answer to the question as to whether a receipt is income or not] from the maze of the Income-tax law while does remain one of the classic lamentations of the great Jurist Nani Palkhivala as revealed in his introduction to the ‘Law and Practice of Income-tax’ by Kanga and Palkhivala by quoting the celebrated regret of Lord Macnaghten, J., who observed that those who enter this labyrinth find exit by different paths in the case of Thomas Fattorini (Lancashire) Limited v. IR 24 TC 328, which reached the House of Lords and the House of Lords had an occasion to reverse the decision of Court of appeal who in turn had reversed the decision of Lord Macnaghten, J., who himself had reversed the decision of the Board of Referees and the Board of Referees having themselves reversed the decision of the Special Commissioners as an appellate body while the Special Commissioners had directed the profits of the assessee-Company should be deemed to be income in the hands of the Members of the company which had been reversed by the Special Commissioners as an appellate body.
21. It is in this context, Nani Palkhivala had remembered the observations of the great jurist “One recalls the classic regret of the great jurist that those who enter this labyrinth find exit by different paths”.
22. Unfortunately, for those who enter the labyrinth of arbitration proceedings leave alone exits through different paths, there is not even a single path for exit and it is this area which is required to be addressed by the Legislature. The situation unlike the case of the persons entering the labyrinth of Income-tax Laws finding many exits is one more comparable to the situation of Abhimanyu having entered the ‘Chakraviewha’ and who is unable to extricate himself from this vicious circle perishes within it. Let it not happen to the hapless litigants who opt for Arbitral dispute resolutions and enter the maze of arbitration proceedings and can perish within the maze when arbitration proceedings fail to yield results unless the Legislature provides a way out of this maze by suitable amendment of the existing law.
23. It may be relevant to quote here the observation of the Supreme Court in the case of Guru Nanak Foundation v. Rattan Singh and Sons which is as under:
Interminable, time consuming, complex and expensive Court procedures impelled jurists to search for an alternative forum, less formal, more effective and speedy for resolution of the disputes avoiding procedural claptrap and this led them to Arbitration Act, 1940 (‘Act’ for short;. However, the way in which the proceedings under the Act are conducted and without an exception challenged in Courts, has made lawyers laugh and legal philosophers weep. Experience shows and law reports bear ample testimony that the proceeding under the Act have become highly technical accompanied by unending prolixity, at every stage providing a legal trap to the unwary. Informal forum chosen by the parties for expeditious disposal of their disputes has by the decisions of the Courts been clothed with ‘legalese’ of unforeseeable complexity.
24. I am of the opinion that an exit path is definitely warranted and should be available at least for those who are entangled in the maze and are unable to extricate from it and such exit path can be as ordered by a Court in a situation and a case warranting the same for which Legislature may have to provide for by ushering in suitable change/amendment to the present Arbitration and Conciliation Act, 1996.
25. In the circumstances, I find it appropriate that an Arbitrator is nominated, to have the dispute between the parties resolved in accordance with the provisions of the Act.
26. For such purpose, Sri R.G. Desai, former Judge of this Court residing at No. 3367/Q, 13th Main, HAL II Stage, Indiranagar, Bangalore-560 008 is appointed as the sole Arbitrator who shall enter upon arbitration and have the matter arbitrated after issue of notice to the parties, fixing other modalities and also fee and other terms of the Arbitrator, place of sitting and such related matters.
27. The name of the learned Arbitrator is suggested by learned Counsel for the petitioner and not opposed to by the learned Counsel for the respondent.
28. The Arbitrator also to file a copy of the award before the Registry once the award is made for the purpose of the record though it is not the requirement of law that the Arbitrator has to file a copy of the award before this Court while passing an order under Section 11(6) of the Act. Such information may be useful for knowing that the arbitration proceedings has been concluded and in knowing the duration within which such arbitration proceedings has been concluded.
29. The Registrar General of this Court is directed to forward a copy this order to the Principal Secretary to the Government of India, New Delhi, for information and needful.
30. Petition allowed accordingly. No costs.