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ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL ARBITRATION PETITION (L) NO. 27638
OF 2023
Era International .. Petitioner
Private Limited Previously known as
Swiss Singapore India Pvt Ltd
.. Respondent
…
Mr. Rahul Totala with Mr.Manish Priyadarshi with Mr.Naman
Maheshwari, Ms.Vidisha Rohira and Ms.Apeksha Agarwal i/b
Ashwin Poojari, R.T. Legal for the petitioner.
Mr.Rushabh Sheth with Mr.Sayeed Mulani and Ms.Akshata
Kadam and Ms.Ria Goradia i/b Mulani & Co. for respondent no.1.
Mr.Vikram Nankani, Sr. Advocate with Mr.Sumeer Nankani, Anuja, Ms.Neha Bhosale, Ms.Laveena Tejwania and Mr.Divadkar i/b NDB Law for respondent no.2.
JUDGMENT
1 The present petition is filed by the petitioner Era International (for short “Era”) a partnership firm engaged in the activity, of import of quality coal from global sellers and catering to a diverse clientele operating brick kilns and various industries within India. The Petition filed under Section 14 read with Section 11 of the Arbitration and Conciliation Act, 1996, seek reliefs in the backdrop of three contracts entered in or about September 2022, with the respondent Aditya Birla Global Trading India Private Limited (for short “ABGTI”) in form of sale contracts for supply of distinct quantities of US coal. Copies of the distinct contracts dated 27/9/2021, 7/10/2021 and 9/10/2021 are enclosed along with the petition, and it is the case of the petitioner that from time to time, it has deposited earnest money (EMD) in furtherance of the said contract, which contained certain standard clauses.
2 Clause no.6 of the subject Contract provide for quality determination and stipulate that the quality of the coal shall be final, as per Load Port Report and according to Clause 14, the risk of loss or damage to the goods is transferred from seller to the buyer on execution of the contract and it contemplate that the title will pass to the buyers from the sellers, when the entire payment is made by the buyer and the delivery note is issued by the seller. It is the case of Era, the petitioner that Clause no.6 of the said contract mandated the submission of a Load Port Report (LPR) for the supplied coal for quality determination and it accuses respondent no.1 ABGTI of violating the contract by failing to provide contract wise LPR, as required under clause 6 of the Sale contract for quality determination, and this ultimately gave rise to a dispute. Era attribute unprofessional conduct to the representative of the Aditya Birla, and as a consequence, it opted not to lift the cargo and never took possession of the goods (coal) in question. The disputes further aggravated, it is alleged that respondent no.1 in an arbitrary manner, issued a threat to sell the material to a third party and book the loss on the petitioner’s account. The petitioner requested the respondent no.1 to furnish detail information concerning disposal rates and to obtain confirmation of the said rates from the petitioner before selling it to third party. Correspondence was exchanged between the parties and according to the petitioner, in a completely whimsical manner, the respondent no.1 through an email dated 6/4/2022 conveyed to the petitioner that owing to the alleged breach of contract no.1 and 2, the respondent no.1 was compelled to dispose off the contractual cargo to third party, as a measure to mitigate losses to be communicated to the petitioner shortly. Further, the respondent no.1 purportedly adjusted the EMD deposited by the petitioner against the sale contract no.1 and sale contract no.2, respectively, and claimed alleged losses of Rs.50,91,224.78 from the petitioner. At a little later point, the respondent no.1 communicated the sale of third contractual cargo covered by sale contract no.2 and purportedly offset the EMD deposited by the petitioner and assessed and alleged loss of Rs.67,14,69.21 in respect of sale contract no.3.
3 The petitioner, by addressing an email on 13/5/2022, submitted objections regarding the respondent no.1’s action in relation to the sale of contractual cargo and sought release of the EMD, but as expected, the respondent no.1 did not pay any heed to the request of the petitioner. An attempt was made to reconcile the sale price with request to refund the surplus amount, but even this did not yield any result. It is in this background the petitioner received a notice from the respondent no.1 invoking arbitration in terms of clause no.23 of sale contract no.2, which the petitioner declined and insisted for refund of the EMD.
4 The petitioner received a letter dated 3/2/2023 from the respondent no.1’s Advocate’s Law Firm Mulani & Company and the letter was addressed to the Registrar, Mumbai Centre for International Arbitration (MCIA) and the referral was sought for appointment of an arbitrator concerning sale contract no.2 dated 7/10/2021.
5 The petitioner is aggrieved by the process of appointment of Arbitrator to resolve the dispute, by MCIA – respondent no.2. It is sought to be contended by the petitioner that Rule 3.[1] of the MCIA Rules 2017 mandate that any party intending to commence arbitration as the claimant shall furnish a written request for a reference before respondent no.2 along with the requisite details and in this case, the respondent no.1’s Advocate/ firm is neither a claimant nor a party to the ongoing dispute and therefore, it lacks standing to initiate reference on behalf of respondent no.1 and the reference in question, suffer from acute deficiency, specifically the absence of the requisite letter of authority, Power of Attorney, Vakalatnama, board resolution etc. from respondent no.1. Upon the reference being made on 24/3/2023, the MCIA registered the request and converted the same into arbitration case no. MCIA/Arb/63/2022 and designated Ms.Ila Kapoor as a Sole Arbitrator to preside over the disputes pertaining to sale contract dated 7/10/2021.
6 The petitioner felt aggrieved by nomination of the Arbitrator and when the Arbitrator scheduled the initial hearing for 7/4/2023, the petitioner became aware of the appointment. As per the petitioner, Ms. Ila Kapoor is a Partner at Shardul Amarchand Mangaldas, a Law firm based in New Delhi and as per the petitioner, the said Law firm had previously represented the group of companies of respondent no.1 on numerous occasions. Hence, on 6/4/2023, the petitioner via email explicitly conveyed to the Arbitrator about its reservations and indicated that since the arbitration proceedings are expected to be conducted in a fair and impartial manner and the Arbitrator shall not be connected, directly or indirectly with the parties to Arbitration. Despite the petitioner’s objection the respondent no.2, nominated Ms.Ila Kapoor, in respect of sale contract no.3 and even this time, the petitioner was aggrieved by appointment of the Arbitrator and it did not extend consent due to reservations about her appointment. In the interest of ensuring complete independence and impartiality, the petitioner requested respondent no.2 to appoint a retired judicial officer, either from the Punjab and Haryana High Court, or from the Bombay High Court as a Sole Arbitrator, however, this request was not considered.
7 The Arbitrator continued with the proceedings and issued instructions to submit Statement of Claim/counter claim by order dated 9/6/2023. Despite specific objections raised, the learned Arbitrator continued with the proceedings and the petitioner submitted an application u/s.12 and 13 of the Arbitration and Conciliation Act, 1996, in conjunction with Schedule V with Schedule V and VII before the Arbitrator which was accompanied with relevant documents and copies of internet screen shots, to demonstrate that the Arbitrator, either personally or through her Law firm was providing legal services to respondent no.1. The respondent no.1 submitted an extensive reply opposing the application and according to the petitioner, the Arbitrator refrained from providing any statement regarding impartiality and integrity. Vide email dated 26/7/2023, the Arbitrator forwarded the petitioner’s challenge and the respondent’s reply to the MCIA for resolution in terms of Rule 10 of the MCIA Rules of 2017 and the Arbitral proceedings were in the mean time, suspended, pending the petitioner’s challenge.
8 The petitioner requested the MCIA to offer an opportunity of hearing in person, so as to meet its claim regarding appointment of Ms.Ila Kapoor as the Sole Arbitrator. It is the case of the petitioner that though, it kept on persuading the MCIA for an opportunity of hearing, the petitioner was informed on 7/9/2023, that it had arrived at a decision, which shall be communicated subsequently. On 8/9/2023, the MCIA dismissed the petitioner’s challenge by asserting it, as misconceived and by reasoning, that the Arbitrator’s Law Firm (Shardul Amarchand Mangaldas) has not represented any Aditya Birla Entity, in connection with the transaction cited by the petitioner and it was also reflected that, the Managing Partner of the law firm served on the advisory council of BITS Law School, in her personal capacity, which position, by no stretch of imagination, shall compromise with her role as an Arbitrator giving rise to any doubt about her independence and impartiality. 9 MCIA therefore, permitted the nominated Arbitrator to proceed ahead and conduct the arbitral proceedings and it is in this background the petitioner has sought the relief, of terminating the mandate of the Arbitrator i.e. respondent no.3 who was appointed by respondent no.2 in relation to sales contract dated 7/10/2021 and thereafter, appoint an independent Arbitrator by exercising the power u/s.11 of the Arbitration and Conciliation Act, 1996. By way of interim order, it is also prayed that the respondent no.2 and 3 be restrained from proceeding ahead with arbitration.
10 I have heard learned counsel Mr.Rahul Totala for the petitioner, whereas Mr.Rushabh Seth has represented respondent no.1. Learned senior counsel Mr.Vikram Nankani represent respondent no.2, who would passionately support the decision of the MCIA, in rejecting the submissions advanced by Mr.Totala. Mr.Nankani has raised a preliminary objection about the maintainability of the caption proceedings u/s.14 of the Act of 1996, and it is submitted by him that clause no.23 of sales contract executed between the parties set out the Arbitration agreement and it is agreed between the parties that the disputes arising between them shall be resolved by Arbitration in accordance with the Arbitration Rules of Mumbai Centre for International Arbitration (MCIA Rules) and thus, according to him, they formed part of the arbitration agreement and the parties are thus governed by the said Rules for the purpose of administration and conduct of the arbitral proceedings. By relying upon various clauses of the MCIA Rules, it is his contention that the Rules and the procedure set out, therein, for conduct of Arbitration(s) are comprehensive and they stand on par with globally accepted standards and principles. Further, according to Mr.Nankani, the Rules are in consonance with the scheme of 1996 Act, and are framed in tune with the overall object of Arbitration, being an alternate, efficacious and expeditious Dispute Resolution Mechanism. Having accepted the MCIA rules as a part of the Arbitration Agreement and since the bedrock of an arbitration is party autonomy, Mr.Nankani would urge that the primacy has to be afforded to the agreement of the parties, to be governed by institutional rules and for this purpose, he would rely upon the decision of the Apex Court in case of Amazon.com NV Investments Holdings LLC Vs. Future
Relying upon the said pronouncement of the Apex Court, it is his submission that after agreeing to be governed by the institutional rules, no party can participate in proceeding before an emergency arbitrator and after losing, turn around and say that the award is nullity. He would submit that when once the parties have agreed to have the proceedings conducted through the arbitral institution, it is not now open to the petitioner to oppugn the process itself; particularly, when as per the procedure contemplated in the MCIA Rules, he raised an objection about the appointment of an Arbitrator and the same has been turned down. Mr.Nankani would further submit that the petitioner himself has acted on the MCIA Rules as he invoked them for the purpose of challenging the appointment of the Arbitrator by preferring an application in terms of Rule 10. Having agreed to be governed by the MCIA Rules, which provide for a full-fledged mechanism for the purpose of challenging the Arbitrator’s appointment, the learned Senior counsel would urge that, now it is not open to the petitioner to maintain the caption proceedings u/s.14 of the Act, as it does not confer appellate jurisdiction on this Court, sitting in Appeal against the decision of MCIA Council dismissing the petitioner’s challenge to the Arbitrator. According to Mr.Nankani, when the MCIA Rules contemplate the procedure for arbitration and the parties have agreed to a procedure which include the procedure of challenge to an Arbitrator, and the Council has ruled upon the same, a twofold blow cannot be mounted by approaching this Court under Section 14, when the remedy available under the Rules is availed by approaching the Council and the Council having declared its verdict, that the arbitration shall continue through the appointed arbitrator according to Mr.Nankani, a second attack to the nomination of Arbitrator, cannot be raised, by taking recourse to Section 14 of the Arbitration and Conciliation Act, and the remedy available is to assail the award passed by the Arbitrator, under Section 34 of the Arbitration and Conciliation Act.
11 Mr.Nankani would lay his emphasis upon the words “unless otherwise agreed by the parties” in sub-section (2) of Section 14, as he would develop his argument, by asserting that when the parties implicitly agreed to be referred to the arbitration Council, and preferred the institutional arbitration, now, the parties should follow the same route and when, once under Rule 19(2), the Council has pronounced its decision, then, it cannot be subjected to challenge before the Court. He would also rely upon Rule 36 of the MCIA Rules which provide that the decision of the Chairman, the counsel and the Registrar, with respect to all matters relating to arbitration shall be conclusive and binding upon the parties and the Tribunal and the Chairman, the Counsel and the Registrar shall not be required to provide reasons for such decisions. He would also rely upon Rule 36.[2] of the MCIA Rules which provide that the parties shall be taken to have waived, any right of Appeal or Review in respect of any decision of any Chairman, the Council and the Registrar to any State, Court or other judicial authority.
12 Mr.Rushabh Seth, representing the respondent no.1 join Mr.Nankani in raising challenge to the maintainability of the petition u/s.14(2), in view of the fact that the parties have agreed to the procedure by referring the disputes to MCIA and the rules formulated, provide that the decision taken by MCIA Council, would be final and binding on the parties. It is also his contention that the petition u/s.14(2) of the Act, would not be maintainable, in view of the challenge to the mandate of the Arbitrator having already decided u/s.13 of the Act of 1996. Mr.Seth would involve the law laid down by this Court in case of Hasmukhlal H. Doshi and Anr, Vs. M.L. Pendse, Retired Chief Justice of the Karnataka High Court and Ors,[2] and the specific observations in paragraph no.14 of the Law Report.
13 According to him, the decision of the Bombay High Court was followed and accepted by Andhra Pradesh High Court in case of Yashwitha Constructions (P) Ltd. Vs. Simplex Concrete where it is reiterated that procedure for challenge u/s.14 is not open to a party who has already resorted to Section 13 and the recourse only available is u/s.14 to terminate the mandate of the Arbitrator. Mr.Seth further submit that the petitioner made a specific application under Seventh Schedule citing de jure 2 (2000) 3 Mh.L.J, 690 3 (2008) 4 ANDH LT 266 ineligibility of the arbitrator and called upon the counsel to specifically decide the said issue under the challenge procedure provided under Rule 10 of the MCIA Rules and having obtained a decision on he same, the petitioner is precluded from reagitating the same issue before this court as one more attack.
14 Dealing with the aforesaid preliminary submission, Mr.Totala, learned counsel for the petitioner would submit that if the appointment of arbitrator is hit by Seventh Schedule, he is ineligible to continue as an Arbitrator and his mandate is automatically terminated. Mr.Totala do not dispute that the parties agreed for resolution of their disputes through the Mumbai Centre for International Arbitration and he has no objection for the arbitration being conducted as per the Arbitration Rules of the MCIA Arbitration, but he would submit that at the time of signing of the Agreement, which has an MCIA clause, the petitioner did not contemplate that an Arbitrator, nominated by MCIA Council would be unfit or his appointment shall be hit by Schedule V or Schedule VII of the Act of 1996, and if it is so, then he becomes de jure ineligible and cannot continue as such. Mr.Totala submit that the Seventh Schedule applies both to adhoc and institutional arbitrations equally. Apart from this, according to Mr.Totala, Arbitration Act, 1996 equally governs the adhoc arbitration and institutional arbitrations and therefore, the provisions, in form of Sections 12 to 14 would govern the institutional arbitration too. By relying upon non obstante clause in Section 12, Mr.Totala would urge that any person, with any kind of relationship set out in Seventh Schedule would be ineligible for appointment of arbitrator, unless the parties waive the ineligibility expressly, in writing, in terms of proviso to section 12(5). He would further submit that in view of Section 12(5) of the Act and the law laid down by the Apex Court in Jaipur Zilla Dugdh Utpak Sahkari Sangh Limited & Ors. Vs. Ajay Sales & Suppliers,[4] and the decision in case of Bharat Broadband Network Limited Vs. United Telecoms Limited[5], any agreement between the parties contracting out of the remedy u/s.14(2) to approach the Court, cannot mean to include a challenge on account of the circumstances contemplated in Seventh Schedule, which by virtue of law, as a disqualification for the Arbitrator to proceed. According to him, the ineligibility accruing in the wake of Seventh Schedule applies strictly and the only manner to waive such application is by an express agreement in writing between the parties. It is also the argument of Mr.Totala, that MCIA is a private arbitral institution and not an ‘arbitral institution’ as defined u/s.2(ca) of the Arbitration and Conciliation Act (Amendment) Act, 2019 and in case of any inconsistency in the MCIA Rules, with the Act of 1996, the Act shall prevail. It is also
5 2019 (5) SCC 755 his specific submission that the impugned decision of the MCIA Council under the garb of MCIA Rules cannot permit violation of Section 12(5) read with Seventh Schedule and there is no bar to get the issue adjudicated through this court u/s.14(2), inspite of an application u/s.13(2) before the Tribunal is rejected, as both sections operate in distinct fields. In any case, he would submit that an award passed by a person who is ineligible to act as an Arbitrator by virtue of Section 5, is a nullity and cannot be enforced and party autonomy cannot be used as a shield, to cure such an illegality and this Court definitely shall exercise its power when the mandate of law is breached or circumstances, so require. I shall first deal with the argument of maintainability of the petition advanced by Mr.Nankani and Mr.Seth and which is strongly contested by Mr.Totala. In the scheme of the Arbitration and Conciliation Act, 1996, as contained in Chapter 3, which provides for composition of Arbitral Tribunal, Section 11 contemplated that subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbtirators. Sub-Section (3-A) of Section 11 permit the Supreme Court and High Court to designate the arbitral institutions for the purpose of this Act. (3-A) The Supreme Court and the High Court shall have the power to designate, arbitral institutions, from time to time, which have been graded by the Council under Section 43-I for the purposes of this Act. Sub-section (8) of Section 11 introduced with effect from 23/10/2015 also require a disclosure from the prospective arbitrator and it reads to the following effect:- 11(8) The arbitral institution referred to in sub-sections (4), (5) and (6) before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to - (a) any qualifications required for the arbitrator by the agreement of the parties; and (b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.
15 Section 12 of the Act of 1996 provide the grounds for challenging the appointment of a prospective arbitrator and subsection (1) inserted by the Act 3 of 2016 provide that, when a person is approached in connection with his possible appointment, as an Arbitrator, he shall disclose in writing any circumstances: a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, whether financial, business, professional or other kind, which is likely to give rise to justifiable doubts as to his independence or impartiality; and (b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months. Explanation 1 and 2 appended to Section 12 to subsection (1) provides as under:- Explanation 1.—The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator. Explanation 2.—The disclosure shall be made by such person in the form specified in the Sixth Schedule.] It is also relevant to reproduce sub-sections 3,[4] and 5 of Section 12, which reads thus:- (3) An arbitrator may be challenged only if— (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties. (4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. (5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator: Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing... Section 13 is a provision for challenging the appointment of arbitrator and it contemplate thus:-
13 Challenge procedure - 1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator. (2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. (3) Unless the arbitrator challenged under sub-section (2) withdraws from his office or the other party agrees to the challenge, the arbitral tribunal shall decide on the challenge. (4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award. (5) Where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34. (6) Where an arbitral award is set aside on an application made under sub-section (5), the Court may decide as to whether the arbitrator who is challenged is entitled to any fees.
16 In the Scheme of the Enactment, it is also necessary to take note of Section 14, which provide for termination of the mandate of the arbitrator and its substitution by another arbitrator in the following manner:-
14 Failure or impossibility to act – (1) The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, 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 (2) of Section 12. Apart from this, Section 15 contemplate some additional circumstances when the mandate of the Arbtirator shall stand terminated, where the arbitrator withdraws from office for any reason, or by or pursuant to the agreement of the parties, the mandate is terminated.
17 In order to ensure the sanctity of the process of arbitration, which necessarily is dependent upon its basic character being resolution through a neutral and impartial person, to act as an Arbitrator, when a person is approached in connection with his possible appointment, sub-section (1) of Section 12 contemplate that he shall disclose in writing any circumstances, such as existence, either direct or indirect, of any past or present relationship with, or interest in any of the parties or in relation to the subject matter in dispute, whether financial, business, professional or other kind which is likely to give rise to justifiable doubt as to independence or impartiality.
18 In determining so, the grounds stated in the Fifth Schedule shall be the guiding factor and the disclosure is to be made in the form specified in Sixth Schedule. Further, if from the time of the appointment of the Arbitrator, and throughout the Arbitral proceedings, any contingency occur which would give rise to justifiable doubts about the independence or impartiality of the Arbitrator, then the Arbitrator shall inform of such circumstances. An appointment of Arbitrator can be challenged only if the circumstances exist that give rise to justifiable doubts as to his independence or impartiality. Another provision of much significance is introduced in Section 12, by way of sub-section (5) with effect from 23/10/2015, which reads thus:- “(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an Arbitrator.”
19 In the wake of the insertion of the aforesaid provision, any person whose relationship, either with the parties or counsel or the subject matter of the dispute, fall within the ambit of Seventh Schedule, he shall be ineligible to be appointed as an Arbitrator, though it is permissible for the parties to waive the applicability of the sub-section, only by an express agreement in writing. Sub-section (5) begins with a non-obstante clause stating any “prior agreement to the contrary”, which stipulate that any person with any kind of relationship as set out in Seventh Schedule, would be ineligible to be appointed as an Arbitrator. Even if such an Arbitrator is appointed, he shall be ineligible to continue as such with only one exception, i.e. when the parties waive the ineligibility, expressly. Any prior agreement to the contrary between the parties is thus nullified by the mandate of sub-section (5) of Section 12 and the said provision read with Schedule VII, is the mandatory and re-negotiable provision.
20 In this statutory scheme, when the dispute between the parties was referred to MCIA, it nominated an Arbitrator and upon this appointment, the petitioner expressed doubt as according to it, the appointment was hit by Section 12(5) read with Seventh Schedule. Though the petitioner raised a challenge to the appointment of the Arbitrator, it was turned down by the decision of the Council by referring to Rule 10 of the MCIA Rules, which provide a complete mechanism for challenging the appointment, if circumstances give rise to justifiable doubts as to the Arbitrator’s impartiality and/or independence. 10.[9] of the MCIA Rules, however, provide that if the Council rejects the challenge, the Arbitrator shall continue with the Arbitration and he shall proceed with the Arbitration. Rule
10.11 further stipulate state that the Council’s decision under the Rules shall be final and binding on the parties.
21 The question that arises for consideration is, whether this finality and bindingness of the decision of the Council, would prevent this Court from exercising the power available under subsection (2) of Section 14, which clearly stipulate that if a controversy remains concerning any of other grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed, apply to the Court, to decide on termination of the mandate. Sub-section (1) of Section 14 clearly contemplate that the mandate of the Arbitrator shall terminate, if he become de jure or de facto unable to perform his functions and the Arbitrator who, in the wake of sub-section (5) of Section 12 is ineligible to be appointed as an Arbitrator, in the wake of his appointment falling in any of the category in Seventh Schedule, would incur a de jure inability to perform his functions as an Arbitrator. In such a scenario, when a controversy remains whether an Arbitrator has incurred an ineligibility and it is left to the Court to pronounce upon the same, as to whether the mandate of the Arbitrator is terminated, merely on the ground that the parties have agreed to refer their disputes to the MCIA i.e. Institutional Arbitration, will not by itself exclude the applicability of sub-section (2) of Section 14 or it shall not denude the Court of this power.
22 The Arbitration and Conciliation Act contemplate reference of disputes to an Arbitral Tribunal, which means either a Sole Arbitrator or a panel of arbitrators. The reference of dispute to the Arbitral Tribunal can be made either by reference to an arbitral institution, which is defined in Section 2(ca) as an institution designated by the Supreme Court or the High Court under the Act, or it can be on adhoc basis. It must be specifically noted that the Act, and in particular, part -1, which relate to those arbitrations, where the place of arbitration is in India do not make any distinction between institutional arbitration and adhoc arbitration. For all purposes, the Arbitrations shall be governed by Part-1 and it would even cover applicability of Section 12 to Once Arbitration has commenced, the power to be exercised by the Arbitral Tribunal as contemplated under Chapter IV also do not make any distinction, whether the arbitration is being conducted through institutional arbitration or it is an adhoc arbitration. As far as MCIA is concerned, it is recognised arbitral institution and it is not in dispute that the Supreme Court as well as this Court, on various occasions, have referred arbitrations to MCIA and it is one of the leading international arbitral institutions in the country. For the purpose of uniformity and certainty, MCIA has framed its own Rules in the year 2017 and the rules govern the arbitration conducted through MCIA. However, clause 1.[1] of the Rules clearly stipulate as below:- “1.[1] Where parties have agreed to refer their disputes to the MCIA for arbitration (whether before or after a dispute has arisen), the parties shall be deemed to have agreed that the arbitration shall be conducted and administered in accordance with these Rules or (unless the parties have agreed otherwise) such amended rules as the MCIA may have adopted hereafter and may be in effect on the date of commencement of the arbitration, and that such Rules have been incorporated by reference into their agreement. If any of these Rules are in conflict with a mandatory provision of law applicable to the arbitration or the arbitration agreement from which the parties cannot derogate, that mandatory provision shall prevail.” If any of these Rules are in conflict with a mandatory provision of law applicable to the arbitration or the arbitration agreement from which the parties cannot derogate, that mandatory provisions shall prevail. The Rules have defined “Council” to mean council of arbitration of the MCIA and includes a Committee of the Council. In tune with the Arbitration and Conciliation, 1996, the MCIA Rules provide for the procedure to be adhered to, in conduct of the arbitration proceedings through the MCIA and the proceedings shall commence when a written request for arbitration is received by the Registrar, which is accompanied with a Statement of Claim. It is followed by the response to the request for arbitration and the response may also include the Statement of Defence and the Statement of counter claim. The Rules also lay its emphasis on independence, impartiality and availability of arbitrator and in sync with the Act of 1996, the prospective arbitrator shall sign a statement of acceptance, availability, impartiality and independence in the form prescribed by MCIA. In the said statement, the prospective arbitrator, in terms of Rule 6.2, shall disclose any facts or circumstances, which may give rise to justifiable doubts about his impartiality or independence and he shall immediately disclose to the parties any such circumstances, which may arise any time during the proceedings.
23 Rule 10 of the Rules of 2017 provide the procedure for challenge of arbitrators and it provide thus:- “10.[1] Any Arbitrator may be challenged if circumstances exist that give rise to justifiable doubts as to the arbitrator’s impartiality and/or independence, and/ or if the arbitrator does not possess any requisite qualification which the parties have previously agreed, and/or if the arbitrator becomes de jure or de facto unable to fulful his functions and/or is not fulfilling those functions in accordance with the Rules or within the prescribed time limits. 10.[4] The notice of challenge shall be filed with the Registrar and shall be sent simultaneously to the other party, the Arbitrator who is being challenged and the other members of the Tribunal. The notice of challenge shall be in writing and shall state the reasons for the challenge. 10.[5] When an arbitrator is challenged by one party, the other party may agree to the challenge. The challenged arbitrator may also withdraw voluntarily from his office. In neither case does this imply acceptance of the validity of any of the grounds for the challenge. 10.[6] In instances referred to in Rule 105, a substitute arbitrator shall be appointed in accordance with the procedure referred to in Rule 11, even if during the process of appointing the challenged arbitrator a party had failed to exercise his right to nominate an arbitrator. The time-limits provided in Rule 11 shall commence from the date of receipt of the agreement of the other party to the challenge or the challenged arbtirator’s withdrawal.”
24 Upon the Arbitrator been prevented to act as such, either by de jure or de facto, he shall be replaced on the Council’s own initiative and a substitute arbitrator shall be appointed. The decision of the Council has accorded finality and relying upon the said Rule, the argument of Mr.Nankani is that it will exclude the operation of Section 14 of the Arbitration and Conciliation Act, 1996, and the only remedy available would be challenging of the arbitral award u/s.34 of the Arbitration and Conciliation Act. 1996.
25 It may be true that bed-rock of arbitration, an alternate dispute resolution process is party autonomy and consent of the parties is of paramount importance. It is in the light of this, the parties have agreed to refer the disputes to arbitration to be conducted through MCIA and have also agreed to be governed by the MCIA Rules. However, merely because the Arbitration is being conducted through MCIA as an institutional arbitration, it shall not exclude the power of the Court to decide on termination of the mandate, if any controversy remains, concerning any of the grounds referred to in clause (a) of subsection (1) of Section 14. By no stretch of imagination, the words used in sub-section (2) of Section 14 “unless otherwise agreed by the parties” would amount to surrender of this remedy in favour of the MCIA Council. Merely because a party has participated in an Arbitration conducted by MCI, which is conducted by a set form of rules, it is no where suggested that the Court shall not exercise its power, wherever the statute permit it to be exercised, whether it is at the stage of sub-section (2) of Section 14 or u/s.34 or Section 37, in form of an Appeal.
26 The legislature was more than cautious while providing, in explicit terms, that no judicial authority shall intervene in the matters governing part-1 except where so provided in the said part. The clear mandate is, therefore, to bar judicial interference except in the manner provided in the Act, conversely, if there is no provision to deal with a particular situation, Courts cannot assume jurisdiction and interfere. The minimal interference when arbitration is resorted to, as a mode of resolution of disputes, which was found to be effective in expeditious disposal of the same, the Courts interference during the arbitration proceedings is done away with. Juxtaposed against the old Act of 1940 as against the present Act of 1996, the new Act cover a situation, even when there is a challenge to the constitution of the Arbitral Tribunal and it is left to the Arbitrator to decide the same in first instance. If a challenge before the Arbitrator is not successful, the Arbitral Tribunal is permitted to continue with the arbitral proceedings and make an arbitral award. A challenge to the Constitution of Arbitral Tribunal before the Court, is then deferred and it could only be raised after the arbitral award is met, when the parties seek setting aside of the Award and it can then take a ground regarding the constitution of the Arbitral Tribunal. The cause of action to be chartered out in such contingency is spelt out in the Act itself and this is based on a principle that Court’s inference during the pendency of the arbitral proceedings would be clearly against the spirit of the 1996 Act. The mischief which existed in the earlier enactment is sought to be removed by allowing interference only when and at the stage which is clearly set out by the Statute itself, as interference at every stage would defeat the object of speedy redressal of disputes.
27 A party who has any grievance against the Arbitrator on account of the bias and prejudice is also set out in the enactment itself and before the stage of challenge of award u/s.34 comes, Section 13 of the Act of 1996 provide for the challenge procedure and the Arbitral Tribunal itself is empowered to decide upon the challenge. On a challenge being raised, it is open for the Arbitrator to recuse himself on the objection being taken qua his functioning as an Arbitrator or where both the parties agree to his removal as per the procedure accepted by them. If both fail, the Arbitrator is required to decide on the challenge to his functioning as an arbitrator, levelled by a party. Since the Arbitrator is expected to be a fair person and if he finds that there is substance in the allegations, he is expected to dispassionately rule on such objection. However, failing on this, the last resort for an aggrieved party is the challenge u/s.13(5) r/w Section 34 of the Act. Finely tuned with the ethos of the Act of 1996 which encourages speedy progress of arbitration proceedings without judicial interference, it is only when the circumstances exist that give rise to justifiable doubts as to independence or impartiality of Arbitrator or when the Arbitrator do not possess the qualifications agreed to by the parties, his appointment shall be subject to challenge and this challenge can be raised before the Arbitrator himself. However, sub-section (5) of Section 12 contemplate a situation where, account of a relationship of a person with the parties or Council or subject matter of the dispute, falls under any of the categories specified in Seventh Schedule, such person is ineligible to be appointed as an Arbitrator and he becomes de jure or defacto unable to perform his functions. In such a situation, Section 14 of the Act of 1996 comes into play which provide for a termination of mandate of an Arbitrator and his substitution in such a contingency. When a controversy remains whether the Arbitrator has incurred an eligibility de jure or defacto, unless it is otherwise agreed between the parties, will resort to the remedy available that is applying to the Court to decide on termination of the mandate. The Act of 1996 do not make any distinction in arbitration to be conducted, adhoc or institutional procedures and rules. When the parties chose to proceed with adhoc arbitration, they have a choice of drafting and carving out their own rules and procedures which fit the need of their dispute. Institutional arbitration, on the other hand, is the one in which the specialized institution with ha permanent character, intervenes and assumes the function of aiding and administering the arbitral process, as provided by rules of such institution. Essentially, the contours and the procedure of the arbitration proceedings are determined by the institution designated by the parties, such institutions may provide qualified arbitrators empanelled with it and the institution offer assistance in form of Secretariat and professional staff. As a result of the structured procedure and administrative support provided by the institutional arbitration, it has certain advantages which are unavailable to the parties opting for adhoc arbitration.
28 The 246th Law Commission Report noted one of the prominent object of the Arbitration and Conciliation Bill, 1995, being to minimise the supervisory rules of the courts in arbitral process. While focussing its attention upon the institutional arbitration, the Commission had recommended addition of Explanation 2 to Section 11(6A) of the Act, with a hope that the High Court and the Supreme Court, while acting in exercise of their jurisdiction u/s.11, shall take steps to encourage the parties to refer their disputes to institutionalized arbitration, and it also accorded legislative sanction to the rules of institutional arbitration, which recognise the concept of “An emergency Arbitrator”.
29 Since the parties who agree to be bound by the decision of an Arbitrator, which is the outcome of an arbitration proceedings, they have chosen to arbitrate and not litigate. In a case where they decide to rely upon the institutional arbitration, where it has a set of rules right from selecting and appointing the arbitrator(s) and to be governed by such institutional rules, the proceedings undoubtedly will be governed by the rules framed by the institution. However, for the principle underlying in the conduct of the arbitral proceedings, the institutional arbitration shall not deviate and would be still governed by the provisions of the Act of 1996. This necessarily would be indicative of the fact that at the stages where the judicial intervention is permitted by the statute, then, this right is available to a party, whether it has participated in an adhoc arbitration or an institutional arbitration. The remedy available u/s.94 to contest an appointment of an Arbitrator on the ground that it falls within the Seventh Schedule and the Arbitrator is thus ineligible to be appointed and continue with the arbitral proceedings, and thus, he having incurred de jure inability to perform his functions, would ultimately result in the mandate of the Arbitrator being terminated. Though, in the present case, the petitioner deemed it appropriate to raise this challenge before the Arbitrator, which was ultimately placed before the Council and on finding no merit in the same, the objection is rejected. The petitioner has therefore, knocked the doors of the Court in the wake of sub-section (2) of Section 14 as the controversy remains whether the Arbitrator appointed by the MCIAC has become de jure ineligible to act as an Arbitrator and it is the specific case of the petitioner that he has not waived the applicability of sub-section (5) by any express agreement in writing and definitely not, by merely submitting itself to the process of arbitration as contemplated by the MCIA rules, and therefore, it find the aforesaid stand justifying the exercise of power under sub-section (2) of Section 14 and I am unable to agree with Mr.Nankani who has suggested that once the Council has taken a decision, it has attained finality and it shall be to the exclusion of the power of this Court under sub-section (2) of Now coming to the merits of the matter, the objection of the petitioner about the appointment of the Arbitrator by the MCIA will have to be tested on the principle against bias, being one of the fundamental principles of natural justice, which apply to all judicial and quasi judicial proceedings. Independence and impartiality of arbitrator/s is the hallmark of arbitration proceedings and a person who fall within the ambit of Section 12(5) read with Schedule VII, would render himself ineligible to conduct arbitration and this being so, the objection that was raised by the petitioner before the Council, was to the effect that the law firm of the nominee arbitrator i.e. Shardul Amarchand Mangaldas, where the respondent no.3, the appointed arbitrator is an equity partner, has represented the affiliates of Aditya Birla Finance Limited, with the particulars provided and therefore, it was contended that the Arbitrator had become dejure ineligible to act in the said capacity. It is this objection which has been rejected and the Arbitrator is directed to continue with the proceedings. Mr.Totala has specifically invoked Clause no.7 of the Seventh Schedule, which provides for the following:- “the Arbitrator’s law firm currently is the significant commercial relationship with one of the parties or with of one of the parties” It is on account of this relationship of the nominated arbitrator with the respondent, a serious objection is raised, as if a person who is ineligible to act as an Arbitrator, declare an Award, it would be a nullity and is not enforceable. Mr.Totala has made it clear that he is not at all objecting to the procedure of MCIA and shall abide by the MCIA rules, but what he is objecting to, is the Arbitrator being conducted by respondent no.3 and if the Arbitrator is replaced/ substituted, he shall go on with the proceedings. I find substance with the submission of Mr.Totala as the respondent no.3 could not have acted as an Arbitrator in the wake of the cloud raised by the petitioner and sufficient material has been placed to demonstrate the clash of interest. It is not in dispute that the Arbitrator nominated has association with Shardul Amarchand Mangaldas & Co. as from the proceedings itself, it is evident. The address of the nominee in the proceedings is indicated as follows:- “Shardul Amarchand Mangaldas & Co, Amarchand Towers, 216, Okhla Industrial Estate, Phase III, New Delhi 110020. email: ila.kapoor@amsshardul.com” 30 The petitioner has annexed the list of proceedings where the respondent is represented by Shardul Amarchand Mangaldas, the firm, and since the arbitration is expected to be conducted by an independent mind, with an impartial attitude, and the appointment of the nominee arbitrator is hit by Schedule VII read with Section 12(5), I deem it appropriate to direct the MCIA to substitute the Arbitrator and appoint an independent Arbitrator to continue with the arbitral proceedings. The necessary exercise shall be carried out within a period of four weeks from the date of receipt of the order by MCIA. The counsel for the petitioner shall communicate the order to MCIA. Petition is made absolute in the aforesaid terms. ( SMT.
BHARATI DANGRE, J.)