JUDGMENT
Vijender Jain, C.J.
CM No. 180-CII of 2008
CM allowed. Exemption granted as prayed for.
CM Nos. 181-182-CII of 2008 (O&M)
1. This is a third round of litigation between the parties. I need not go into order dated 28.04.2006 passed in Arbitration Case No. 13 of 2005 by the then Acting Chief Justice holding that the Chief Engineer of the respondent-Corporation had entered into an arbitration on 22.02.2001 and, therefore, he will continue to act as an arbitrator, as the respondent-Punjab Small Industries & Export Corporation Ltd. has supplied the vacancy in terms of the arbitration clause. It seems that this order of the then Acting Chief Justice was challenged by the applicant-petitioner by filing a special leave petition which was dismissed.
2. Thereafter, the applicant-petitioner filed a petition under Section 14 of the Arbitration and Conciliation Act, 1996 (hereinafter to be referred to as ‘the Act’) inter alia with the prayer to terminate the mandate of respondent No. 2-Chief Engineer and appoint an independent person as an arbitrator for adjudication of the claim of the applicant-petitioner. The matter was heard at length. I would not repeat the grounds as mentioned in the petition for termination of the mandate, although same were similar to the one what has been contended by learned Counsel for the applicant-petitioner in the present petition. Suffice it to say that the applicant-petitioner apprehended that in view of certain letters written by the Chief Engineer, who is also acting as an arbitrator, after his appointment as an arbitrator, has created an apprehension of bias in the mind of the applicant-petitioner and the applicant-petitioner could not expect a fair award from such an arbitrator. The notings of the Chief Engineer creating such apprehension are dated 05.03.2001 and 12.04.2001.
3. On 13.11.2007, when Arbitration Case No. 26 of 2007 earlier came up for hearing, it was argued before me by learned Counsel for the non-applicant-respondents that in view of specific provisions of grounds of challenge as contained in Sections 12 and 13 of the Act, it was proper for the applicant-petitioner to have challenged the award on the basis of the aforesaid sections and this Court should not terminate the mandate of the arbitrator. After hearing learned Counsel for the parties, I made the following orders:
I have heard counsel for the parties at length.
I would not like to express any opinion on merits, in view of what has been argued before me and what is discernible from the record of this case at pages 101, 102, 128, 129 and the apprehension expressed by the petitioner at pages 86, 89 and 92. However, the object of the new Act is to minimise the interference of the courts in arbitration matters.
Therefore, I allow the petitioner to approach the arbitrator by pointing out from the documents mentioned above for terminating the mandate/arbitral proceedings. The petitioner shall file an appropriate application before the arbitrator within one week from today. The arbitrator shall decide the application within four weeks and if any order detrimental to the interest of the petitioner is passed, the petitioner shall be at liberty to approach this Court again.
Petition stands disposed of.
4. It seems that after this order, the applicant-petitioner filed an application before the arbitrator. The arbitrator passed an order on the application of the applicant-petitioner which is undated. According to the applicant-petitioner this order was received by it along with a forwarding letter sent by the arbitrator on 12.12.2007 and the same is to the following effect:
I have heard arguments of both the parties. There is no substance in allegations made by the claimant in his application dated 19.11.2007. Whatsoever views expressed by the undersigned as brought out in the said application were in the capacity of Chief Engineer and not as an arbitrator. Accordingly, application filed by the claimant is rejected. The undersigned shall continue to act as an arbitrator as per contract agreement and remain impartial.
Sd/-
Chief Engineer-cum-Arbitrator.
5. Aggrieved by the order passed by the arbitrator, the applicant-petitioner filed CM Nos. 180-182-CII of 2008 in Arbitration Case No. 26 of 2007. Notice of these applications was issued. Reply has been filed. I have perused the record of the case.
6. Mr. N.S. Boparai, learned Counsel for the non-applicant-respondents, has repeated the arguments which were addressed earlier with regard to maintainability of the application under Section 14 of the Act that the ground for challenge has been enumerated under Sections 12 and 13 of the Act and, therefore, the application moved by the applicant-petitioner under Section 14 of the Act cannot be maintained.
7. From the plain language of Section 14, it is apparent that mandate of the arbitrator can be terminated only on the basis of clauses (a) and (b) of Section 14(1) of the Act. Section 14 of the Act is to the following terms:
14. Failure or impossibility to Act:
(1) The mandate of an arbitrator shall terminate if:
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate.
(2) If a controversy remains concerning any of the grounds referred to in clause (a) of Sub-section (1), a party may, unless otherwise agreed by the parties, apply to the court to decide on the termination of the mandate.
(3) If, under this section or Sub-section (3) of Section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or Sub-section (3) of Section 12.
8. What learned Counsel for the non-applicant-respondents has contended is that bias cannot be a ground for invoking the provisions of Section 14 of the Act. It is further contended that only two courses are open to the applicant-petitioner, i.e. to file objections under Section 34 of the Act when the award will be made or to file an appeal as provided under Section 37 of the Act. Reliance in this regard has been placed by Mr. Boparai on S.B.P. & Co. v. Patel Engineering Ltd. and Anr. and relying upon para 46 of Patel Engineering Ltd.’s case it is contended before me that a Chief Justice will not interfere in the function of the arbitral tribunal under Articles 226 and 227 of the Constitution of India, as the same is not permissible.
9. It is further contended by Mr. Boparai that Chief Engineer was working in fiduciary capacity. He is Chief Engineer of the Department and in normal course he has to deal with the office work and also to watch the interest of the Corporation. To protect the interest of the Corporation, the notes relied upon by counsel for the applicant-petitioner, will not create an apprehension of bias, as the function of the arbitrator is different. Moreover, pursuant to the contract he was appointed as an arbitrator with the consent of the parties.
10. On the other hand, Mr. Sandeep Sharma, learned Counsel for the applicant-petitioner, has contended that the arbitrator who entered into the reference on 22.02.2001, wrote a letter to the General Manager (Legal) on 05.03.2001, i.e. after entering into the reference, which shows the bias of the arbitrator. As the letter is important, the same is reproduced below:
Subject : Construction of MGSIPA Campus Building, Sector 26, Chandigarh.
M/s. OPBK Construction Pvt. Ltd., contractor of MGSIPA Campus Building, vide fax dated 02.03.2001 (copy enclosed) have intimated that they have submitted their application in the Court of Civil Judge for appointment of an independent arbitrator.
In this connection it is intimated that request of party was first received on 9.11.2K and action was required to be taken within a month’s time from the date of its receipt, i.e. by 8.12.2K. As the then CE, Shri B.K. Bassi, retired on 30.11.2K so timely action could not be taken.
It is apprehended that with the appointment of external arbitrator, interest of the Corporation will be jeopardised. G.M. (Legal) is requested to look into the case and appropriate action be taken.
On the basis of this letter, it is contended before me by Mr. Sharma, learned Counsel for the applicant-petitioner, that although he has entered the reference on 22.02.2001, he never wanted any external arbitrator to be appointed, so that interest of the Corporation may not be jeopardised. That shows that any award contrary to the interest of the arbitrator was not acceptable to him. Mr. Sharma has relied upon another letter of the arbitrator dated 12.04.2001 which is at pages 100-102 of the paper book. What is relevant to the controversy is the extract which is reproduced below:
It is thus, strongly recommended that some reputed advocate may be engaged to defend these cases to safeguard the interest of the Corporation otherwise with the appointment of independent arbitrators from outside the Corporation, interest of the Corporation will be jeopardised and PSIEC may suffer huge financial losses in the form of unwanted awards expected to be announced by them.
11. On the basis of aforesaid letter, it is contended before me by learned Counsel for the applicant-petitioner that a bare perusal of the aforesaid extract shows the mind of the arbitrator who is also working as Chief Engineer and it goes a long way to show that independent arbitrators may give award against the Corporation, therefore, an arbitrator has to be the one who gives an award in favour of the Corporation.
12. Mr. Sharma has further contended that arbitration agreement is a sacrosanct document. Parties relegate themselves to the arbitration agreement by bypassing the normal remedy of filing a civil suit, this is done in order to have the mechanism of redressal of a dispute in a less time consuming manner. Therefore, the applicant-petitioner has agreed to the arbitration clause with open mind that the arbitrator may be the Chief Engineer of the respondent-Corporation, but the applicant-petitioner is not happy on account of the conduct expressed through these letters, as explained above, about the impartiality or fairness of the arbitrator. He further contended that the applicant-petitioner had filed an earlier petition on which this Court had passed order on 13.11.2007 relegating the applicant-petitioner to approach the arbitrator in view of the letters written by the arbitrator, as reproduced above. However, he has paid no heed to his request and again passed the impugned order. That shows the mind set of the arbitrator and there is no use of prolonging the arbitration proceedings before the said arbitrator who is not impartial and whose action is tainted with bias.
13. Mr. Sharma has contended that he can very well maintain his application under Section 14 of the Act, as the arbitrator has become de facto as well as de jure unable to perform his functions. To buttress his argument, learned Counsel has relied upon the encyclopaedic law dictionary of P. Ramanatha Aiyar’s Advanced Law Lexicon, Volume 2, in which at page 1215 word “De facto” has been defined and the same is as under:
De facto. (Lat.) In fact, actually, frequently used in contradistinction to de jure meaning rightful, legitimate, lawful. As a matter of fact.
According to the fact; in point of fact is antithetical to de jure.
In fact; an expression indicating the actual state of circumstances independently of any remote question of right or title.
(Lat.) of fact; founded in fact; in deed, in point of fact; actually, really. De facto signifies a thing actually done; that is done in deed. A king de facto (in fact) is one that is in actual possession of a crown, and hath no lawful right to the same; in which sense it is opposed to a king de jure (of right), who hath right to a crown, but is out of possession. (3 Inst. 7. Tomlin)
1. Actual; existing in fact; having effect even though not formally or legally recognized, e.g. a de facto contract,
2. Illegitimate but in effect, e.g. a de facto govt. (Black’s, 7th Edn. 1999).
By virtue of existence, rather than any legal right. E.g. the de facto owner of a property may be the person in occupation, whether or not he or she has legal title to the land (Banking).
Word “De jure” has been defined at page 1217 and the same reads as under:
De jure (Lat.) Of right; by law, ‘De jure’ means of right, legitimate; lawful; by right and just title. In this sense, it is the contrary of’ de facto’. It may also be contrasted with ‘de gratia’, in which case it means ‘as a matter of right’, as de gratia means ‘by grace or favour’. Again, it may be contrasted with de acquitate’, here meaning ‘by equity’; according to law; by right.
According to law; or in point of law antithetical to de facto.
De jure conventionis is ‘by the law of the convention’, it is said of the rights which are specifically established under any convention (copyright).
Independent of what obtains in fact.
14. According to learned Counsel for the applicant-petitioner, in view of the letters and the subsequent opportunities given to the arbitrator by this Court, the impugned order passed by the arbitrator has fortified the likelihood of bias as in the order, the arbitrator has stated “Whatsoever views expressed by the undersigned as brought out in the said application, were in the capacity of Chief Engineer and not as an arbitrator”. It has been contended by Mr. Sharma that in the impugned order, the arbitrator has not even stated that the views which have been expressed as Chief Engineer, will not be taken into consideration by him while making the award. Therefore, the arbitrator had a mind set which is not impartial and if the arbitrator is not acting impartially, then he in fact and in law is incapable of deliverance. In support of his contention, learned Counsel for the applicant-petitioner has cited judgment of Delhi High Court in Indira Rai and Anr. v. Vatika Plantations (P) Ltd. and Ors. 2006 (IV) AD (Delhi) 92; Division Bench judgment of Delhi High Court in Sushil Kumar Raut v. Hotel Marina and Ors. and for somewhat similar proposition another judgment of Delhi High Court in Interstate Constructions v. NPCC Limited 2004 (78) DRJ 240 : 2004(3) Arb. LR 421 (Del.). In support as to what constitutes as bias, learned Counsel cited State of W.B. and Ors. v. Shivananda Pathak and Ors. .
15. At this stage, Mr. Boparai says that contention of learned Counsel for the applicant-petitioner that arbitrator has not even stated that views which have been expressed as Chief Engineer, will not be taken by him while disposing of the matter as arbitrator, is not correct because in the order it has been clearly stated by him that the undersigned shall continue to act as an arbitrator as per contract agreement and remain impartial, which means that he had made it clear that views expressed in the order would not influence him while deciding the matter.
16. I have given my careful consideration to the arguments advanced by learned Counsel for both the parties. As a matter of fact, in view of 1996 Act, the interference of the courts has to be minimal. The arbitral tribunal is a creature of contract between the parties. Even though if occasion arises, the parties have to take recourse in terms of the procedure provided by the statute as it is a forum chosen by the parties by agreement, but in view of the fact that the applicant-petitioner had filed the petition in May 2007 and keeping in view the spirit of the Act, I had directed the applicant-petitioner to approach the arbitrator in view of Sections 12 and 13 of the Act, as at that stage the court was of the view that in view of expression of interest by the Chief Engineer on the subject matter of arbitration after he has entered the reference, was not which would create confidence in the parties. Pursuant to my directions, the applicant-petitioner filed an application before the arbitrator. But I am dismayed with the impugned order.
In contract between the parties, when one party is a private person and the other party is either government or instrumentality of the State, normally the persona designata is the government officer. But once a persona designata who happens to be a government officer, enters the role of an arbitrator, parties to the contract would like such person to be fair and impartial. The letters written by the Chief Engineer who was the arbitrator could have been justified if the same were written by him prior to entering of the reference. After he has entered the reference, the kind of views expressed by him are not only sweeping but gives an expression, particularly with reference to pages 101 and 103 of the paper book that he has made up his mind that any independent arbitrator would go against the respondent-Corporation, I would have still justified his continuation as an arbitrator but for the impugned order passed by him. Normally people functioning under fiduciary capacity by virtue of their official responsibilities have to take decisions. But when a person is acting as an arbitrator and an application has been placed before him confronting his order questioning his bias and he does not record in the order that these observations contained in letters written by him will not prejudice his mind in his role as an arbitrator, except saying that he will remain impartial, to my mind, has made him unfit to act as an arbitrator. He has disqualified himself to act as an arbitrator in given facts. In this regard, court will not be powerless and silent spectator for travesty of justice. Parties cannot be left at the mercy of such an arbitrator whose mind is pre-set. It will be unnecessarily continuing the proceedings. Under these circumstances, it would be appropriate for this Court to appoint another arbitrator.
18. Therefore, I terminate the mandate of the arbitrator, as in this case the appointing authority itself as per the arbitration clause is the Chief Engineer. Consequently, I appoint Justice G.C. Mittal (retired Chief Justice) as the sole arbitrator to adjudicate upon all the disputes between the parties.
The arbitrator shall fix his own fee.
The intimation of appointment be sent to the arbitrator.
Parties to appear before the arbitrator on 11.07.2008 at 4.00 p.m.
Applications stand disposed of.