BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED : 29/10/2007 CORAM: THE HONOURABLE MR.JUSTICE G.RAJASURIA C.M.A.(MD) No.2077 of 2000 and C.M.P.No.20023 of 2000 The Oriental Fire and General Insurance Co., Ltd., Divisional Office, Tuticorin. .. Appellant Vs 1.L.S.Marthandam 2.Sivakumar Spinning Mills Pvt. Ltd., Sankar Nagar through its M.D., D.Kandiah .. Respondents Prayer Appeal filed under Section 39 of the Arbitration Act, against the Judgement and Decree dated 11.08.2000 passed in Arbitration Original Petition No.138 of 1985 by the learned the Principal Subordinate Judge, Tirunelveli. !For Appellant ... Mr.C.Ramachandran ^For Respondent No.1 ... No appearance For Respondent No.2 ... Mr.R.Parthiban,No appearance :JUDGMENT
This appeal is focussed as against the Judgement and Decree dated
11.08.2000 passed in Arbitration Original Petition No.138 of 1985 by the learned
the Principal Subordinate Judge, Tirunelveli.
2. Heard the learned counsel appearing for the appellant and there is no
representation on behalf of the respondent No.1, despite service of notice.
3. A re’sume’ of facts absolutely necessary and germane for the disposal
of this appeal would run thus:
The appellant viz., the Oriental Fire and General Insurance Co. Ltd. and
the respondent No.2 herein, viz., Sivakumar spinning Mills Pvt. Ltd. entered
into a contract of fire insurance policy w.e.f. 30.01.1982 and it was renewed
upto the period ending 30.01.1983, under which the Insurance Company undertook
to indemnify the Spinning Mills in the event of fire. It so happened that a
fire accident occurred in the Spinning Mills on 15.01.1983 at about 10.25 p.m
resulting in loss. Thereupon, the Spinning Mills claimed amount from the
Insurance Company by filing claim form on 18.02.1983, demanding a sum of
Rs.17,86,178.96 (Rupees seventeen lakh seventy eighty six thousand one hundred
seventy eight and paise ninety six only); however the appellant honoured the
claim of the Spinning Mills only to the tune of Rs.3,590/- (Rupees three
thousand five hundred and ninety only) vide letter dated 28.10.1983, whereas the
Spinning Mills sent a lawer’s notice dated 07.11.1983, seeking clarification for
rejection of the claim of the Spinning Mills in respect of the rest of the
claim. Whereupon the Insurance Company sent the letter dated 21.11.1983 that
only stock in the godown was covered by the insurance policy concerned and not
in respect of goods elsewhere in the Mill premises. However, the Spinning Mills
took a different view. Thereupon invoking Clause No.18 of the Insurance Policy
for appointment of an arbitrator, the Mills sent notice to the Insurance Company
for getting appointed an arbitrator, suggesting the respondent No.1, the
deceased L.S.Marthandam as the arbitrator, vide its letter dated 29.10.2004.
However, the Insurance Company on 23.11.1984 sent their advocate notice
challenging the right of the mills for getting appointed an arbitrator relating
to this matter and also on the ground that R1 was an interested person.
According to the appellant when the liability itself is disputed, there is no
question of appointing an arbitrator.
4. Precisely, the contention of the Insurance Company was that if at all
R2 herein had any grievance it was not by way of getting appointed an arbitrator
but by filing a suit. There were exchange of notices and ultimately it appears,
the Spinning Mills appointed the respondent No.1 L.S.Marthandam, as the
arbitrator, who also sent notice to the Insurance Company fixing the date of
hearing. Thereupon, the Insurance Company appeared and raised its protest
stating that the appointment of arbitrator itself was not correct and that the
arbitrator had no jurisdiction to decide on the insurance coverage itself. As
per the appellant, if at all the coverage was accepted by the Insurance Company,
the quantum could be assessed by the arbitrator. However, the arbitrator
disregarding the contention of the Insurance Company proceeded to decide the
matter and assessed the quantum payable by the Insurance Company to the Mills at
Rs.17,86,178.96 and filed the award before the learned Sub Judge, Tirunelveli.
Before, the Court the Insurance Company raised the same grounds as set out
supra, however, the Court rejected and confirmed the award of the arbitrator.
5. Being aggrieved by and dissatisfied with such an order of the learned
Subordinate Judge, the present Civil Miscellaneous Appeal has filed by
reiterating the earlier stand of the Insurance Company. It is also the
additional ground of the Insurance Company that the arbitrator proceeded ex-
parte without giving due opportunity and that even though he proceeded ex-parte
he never took evidence from the Spinning Mills so as to arrive at his
conclusion.
6. The points for consideration are (i) whether the appointment of the
arbitrator is just and proper in this case and (ii) whether the proceedings
conducted by the arbitrator were legal and consequently whether the order of the
learned Subordinate Judge is valid?
7. The learned counsel for the appellant during arguments highlighted
clause 18 of the Insurance policy, which would run thus:
“If any difference shall arise as to the quantum to be paid under this
policy, (liability being otherwise admitted) such difference shall independently
of all other questions be referred to the decision of an arbitrator, to be
appointed in writing by the parties in difference, or if they cannot agree upon
a single arbitrator to the decision of two disinterested persons as arbitrators
of whom one shall be appointed in writing by each of the parties within two
calendar months after having been required so to do in writing by the other
party in accordance with the provisions of the Arbitration Act, 1940, as amended
from time to time and for the time being in force. In case either party shall
refuse or fail to appoint arbitrator within two calender months after receipt of
notice in writing requiring an appointment, the other party shall be at liberty
to appoint sole arbitrator, and in case of disagreement between the arbitrators,
the difference shall be referred to the decision of an umpire who shall have
been appointed by them in writing before entering on the reference and who shall
sit with the arbitrators and preside at their meetings”.
8. The learned counsel for the appellant by placing reliance on the above
said extract would develop his arguments to the effect that the very clause
would unambiguously and incontrovertibly demonstrate that the arbitrator could
be appointed only for the purpose of getting adjudicated the quantum and not
relating to the maintenability of the claim itself once it is disputed by the
Insurance Company.
9. The learned counsel for the appellant would further submit that there
cannot be any unilateral appointment of an arbitrator. Obviously and apparently
the Insurance Company disagreed with the appointment of the respondent No.1
L.S.Marthandam as an arbitrator, in such an event, what the Insurance policy
envisaged was that there should be appointment of one other arbitrator on the
side of the Insurance Company and still thereafter there should be an umpire
also. But such a procedure was not adhered to. The learned counsel for the
appellant convincingly submitted that there was no opportunity given also for
resorting to such procedures because the arbitrator at the first hearing itself
concluded the entire proceedings despite objection notice sent by the Insurance
Company challenging and impugning the very appointment itself. The learned
counsel for the appellant also by placing reliance on the decision of Hon’ble
Apex Court in Dharma Prathishthanam v. M/s.Madhok Construction Private Limited
reported in (2005)1 M.L.J.70(SC). The excerpts from it would run thus:
“If the arbitration clause does not name an arbitrator but provides for
the manner in which the arbitrator is to be chosen and appointed, then the
parties are bound to act accordingly. If the parties do not agree then arises
the complication which has to be resolved by reference to the provisions of the
Act. One party cannot usurp the jurisdiction of the Court and proceed to act
unilaterally. A unilateral appointment and a unilateral reference-both will be
illegal.
“A reference to a few decided cases would be apposite.
In Thawardas Perumal v. Union of India, (1955)2 S.C.J. (S.C.)23: (1955) 2
S.C.R.48: A.I.R.1955 S.C.468: 1955 S.C.J.445, a question arose in the context
that no specific question of law was referred to, either by agreement or by
compulsion, for decision of the Arbitrator and yet the same was decided of the
Arbitrator and yet the same was decided howsoever assuming it to be within his
jurisdiction and essentially for him to decide the same incidentally. It was
held that-
“A reference requires the assent of both sides. If one side is not
prepared to submit a given matter to arbitration when there is an agreement
between them that it should be referred, then recourse must be had to Court
under Sec.20 of the Act and the recalcitrant party can then be compelled to
submit that matter under Sub-sec.(4). In the absence of either, agreement by
both sides about the terms of reference, or an order of the Court under
Sec.20(4) compelling a reference, the arbitrator is not vested with the
necessary exclusive jurisdiction”.
A Constitution Bench held in Waverly Jute Mills Company Limited v. Raymond
and Company (India) Private Limited, (1963)3 S.C.R.203, that-
“An agreement for arbitration is the very foundation on which the
jurisdiction of arbitrators to act rests, and where that is not in existence, at
the time when they enter on their duties, the proceedings must be held to be
wholly without jurisdiction. And this defect is not cured by the appearance of
the parties in those proceedings, even if that is without protest, because it is
well settled that consent cannot confer jurisdiction”.
10. The cited precedent of the Hon’ble Apex Court posits the
proposition that there cannot be any unilateral appointment of an arbitrator.
Once, the Insurance Company disagreed for such appointment of arbitrator and
more specifically for the appointment of R1 L.S.Marthandam as the arbitrator on
the ground that he is an interested person, the Insurance Company ought to have
approached the Court for getting appointed an arbitrator, but R2 had not done
so. As such, this Court holds the entire proceedings got vitiated. The
challenge relating to the jurisdiction of the arbitrator to decide on the
applicability of arbitration clause 18, relating to this matter, in my opinion,
is not appears to be a controversial one, where of more than one view is
possible. However, in commensurate and inconsonance with the decision of the
Hon’ble Apex Court relating to unilateral appointment of arbitrator, I quash the
entire proceedings after setting aside the Judgment and Decree of the learned
Principal Sub Judge, Tirunelveli, dated 11.08.2000 in Arbitration Original
Petition No.138 of 1985.
11. Accordingly this Civil Miscellaneous Appeal is allowed. No costs.
Consequently, connected Miscellaneous petition is closed.
To
The Principal Sub Judge,
Tirunelveli