Full Judgment Text
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 6960 OF 2011
Vinod Bhaiyalal Jain & Ors. .… Appellant(s)
Versus
Wadhwani Parmeshwari Cold …. Respondent(s)
Storage Pvt. Ltd.Through its Director & Anr.
J U D G M E N T
A.S. BOPANNA, J.
1. The appellants herein are before this Court assailing
the order dated August 30 and 31, 2007 passed by the High
Court of Judicature at Bombay in First Appeal No. 187 of
2007. The said appeal was filed by the respondent No.1
herein invoking Sec. 37(1)(b) of the Arbitration and
Signature Not Verified
Digitally signed by
MAHABIR SINGH
Date: 2019.07.24
16:58:04 IST
Reason:
Conciliation Act, 1996 (hereinafter referred as the ‘Act 1996’
for short). Through the said appeal the respondent No.1
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herein had assailed the order dated 06.11.2006 passed by
the Principal District Judge, Nagpur in MCA No. 538/2006
in the proceedings under Sec. 34 of the Act, 1996.
2. The brief facts are that the respondent No.1 herein
owns a cold storage at Nagpur. Sri Suresh Wadhwani
manages the same. The appellants herein who are the sons
of Sri Bhaiyalal Jain are engaged in business as commission
agents for agricultural products. In that regard they had
utilised the services of cold storage during the year 2004 for
keeping 50 bags of ‘Shingada’ which is an agricultural
product. According to the appellants herein the respondent
No. 1 had failed to store the goods in an appropriate manner
which had caused damage to the same. The appellants
therefore got issued a notice dated 18.05.2006 seeking for
compensation. The respondent No. 1 herein by its reply
dated 27.05.2006 not only denied the claim put forth by the
appellants herein but also made counter claim. Thus,
dispute arose between the parties. According to respondent
No. 1 herein, the parties were governed by an arbitration
clause and the parties had agreed to refer the dispute, if
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any, to the Arbitrator, Sri S.T. Madnani, Advocate. The said
arbitration clause is contained in the very receipt issued in
respect of the storage of goods. The respondent No. 1,
therefore through their claim dated 03.06.2006 submitted
nd
the same before the learned Arbitrator 2 respondent Sri.
S.T. Madnani.
3. The father of the appellants herein in that background
got issued a notice dated 08.06.2006 disputing the very
existence of the arbitration clause and more particularly the
appointment of Sri S.T. Madnani, Advocate as an Arbitrator
was disputed and it was contended that the said Advocate
being the counsel for the respondent No. 1 and its partners
in other cases cannot act as an Arbitrator in respect of the
disputes to which the respondent No. 1 is a party. A copy of
the same was also dispatched to the learned Arbitrator.
Further, the appellants also addressed letters dated
29.07.2006 and 07.08.2006 which was taken note by the
learned Arbitrator in the order sheet of the proceedings as
also in the award passed. Despite the same, unmindful of
such objection raised and terming it as inconsequential, the
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learned Arbitrator proceeded with the matter in the absence
of the appellants herein and passed the award dated
08.08.2006 directing the appellants herein to pay the claim
amount as ordered. The learned Arbitrator also imposed a
cost of Rs.43,000/ on the appellants. It is in that light the
appellants claiming to be aggrieved filed the petition under
Sec. 34 of the Act, 1996 before the District Judge, Nagpur
raising objection to the award, more particularly with regard
to the conduct of the learned Arbitrator. The learned
District Judge while appreciating the same was of the
opinion that the learned Arbitrator had in fact acted as a
counsel for Sri Suresh, a partner of respondent No. 1, which
fact was not disclosed in terms of Sec. 12 of the Act, 1996
and also on taking note of Sec. 13 of the Act, found the
objection justified and set aside the award by order dated
06.11.2006.
4. The respondent No. 1 who was aggrieved by the same
had filed the appeal under Sec. 37(1)(b) of the Act, 1996 to
the High Court. The learned Judge of the High Court while
examining this aspect of the matter was of the opinion that
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the objection raised with regard to Sri S.T. Madnani,
Advocate acting as the Arbitrator was raised by Sri
Bhaiyalalji Jain who is the father of the appellants herein
and not by the appellants themselves and as such the same
cannot be construed as an objection by a party to the
proceedings as contemplated under Sec. 13 of the Act.
Further it was held that merely because the learned
Arbitrator had appeared as a lawyer in one mesne profits
case for the respondent No. 1, it would not make a
reasonable man believe that the Arbitrator was biased and
there was a possibility that the Arbitrator would rule in
favour of the respondent No. 1. It was further observed that
a fairminded person would never have thought that the
learned Arbitrator was biased merely because he had
appeared as a lawyer for the party to arbitration in another
case. In that view by the impugned order the learned Judge
of the High Court set aside the order passed in the
proceedings under Sec. 34 of the Act, 1996 and restored the
award passed by the learned Arbitrator. The appellant
herein is therefore before this Court in this petition.
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5. Having heard the learned counsel for the parties at
length, it is noticed that issues arising herein for
consideration at the threshold is with regard to the
existence or otherwise of the Arbitration clause governing
the parties and more particularly with regard to the conduct
of the Arbitrator. It is only if the said two hurdles placed at
the threshold is crossed, the question of considering the
merits of the claim and the correctness or otherwise of the
award passed by the learned Arbitrator would arise for
consideration.
6. On the issue relating to the validity of arbitration
clause, the learned counsel for the appellants would
contend that the clause relied upon by the respondent No.1
to raise the claim before the Arbitrator is with reference to
Clause No.9 printed as the terms and conditions on the
overleaf of the receipt for storage. In that view, it is
contended that there is no consensus ad idem namely, there
is no meeting of minds between the parties regarding
reference of dispute to the Arbitrator and such term printed
in the receipt cannot be relied upon. Though such
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contention is put forth the said issue need not detain this
Court for long. This is for the reason that as rightly pointed
out by the learned counsel for the respondent No.1, it is the
very case of the appellants herein that the appellants not
being satisfied with the Arbitrator named in the Arbitration
Clause had filed the Petition under Section 11 of the Act,
1996 in M.C.A.No.61/2006 before the Designated Court
seeking the appointment of an independent Arbitrator.
Since that is the undisputed position, the appellants are
estopped from raising the contrary contention at this stage.
Hence, the contention in that regard is rejected.
7. With regard to the contention that Sri S.T. Madnani,
Advocate ought not to have acted as the Arbitrator since he
was also the counsel for the respondent No.1 in another
case, the same requires consideration. Not only from the
observations contained in the order of the High Court it is
noticed that the said learned Arbitrator had appeared as a
counsel for the respondent, it is also seen from the records
that as per the vakalatnama dated 29.03.2004 the learned
Arbitrator has filed the vakalat in Mesne Profit Case
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No.7/2004 to which Sri Prakash, one of the partners of the
respondent No.1 herein was a party. Though it is sought to
be made out that the said Sri Prakash has nothing to do
with respondent No.1, as pointed out by the learned counsel
for the appellants, the supporting affidavit for making the
solemn affirmation in respect of the First Appeal No.180 of
2007 filed under Section 37(1)(b) of the Act, 1996 relating to
this very proceeding is made by the said Sri Prakash. Thus,
it is clear that Sri S.T. Madnani, learned Arbitrator had
acted as a counsel in another case for one of the parties to
the dispute in the instant case. In that circumstance it is
also not a case where the learned Arbitrator had proceeded
in the matter by oversight or without having knowledge of
such conflict of interest. As noticed, a legal notice had
been secured to be issued on behalf of the appellants herein
raising objection in that regard. Though such notice was
issued on the instructions given by the father of the
appellants, it is not by a rank outsider nor have the
appellants disowned it to be ignored. In addition, one of the
appellants namely, Sri Jagdish had also addressed a
communication dated 07.08.2006 requesting the learned
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Arbitrator to stop the proceedings since they had filed a
petition in the High Court for appointing an independent
Arbitrator which was also for the reason that present
Arbitrator could not have acted.
8. The learned Arbitrator had taken note of the letters at
Exhibits 68 and 70 as narrated in the very award passed by
the learned Arbitrator. Despite the same, the learned
Arbitrator has proceeded with the matter instead of staying
his hands. In that background, the observations as made
by the High Court to hold that the objection raised was not
sustainable as it did not comply with the requirement of
Section 13 of the Act, 1996 is not justified. In fact, the
provision as contained in Section 12 of the Act, 1996 even
prior to the amendment effected on 23.10.2015 would cast
an obligation for disclosure. The preamended subsection
(1) to Section 12 of the Act, 1996 reads as follows:
“(1) When a person is approached in connection
with his possible appointment as an arbitrator, he
shall disclose in writing any circumstance likely to
give rise to justifiable doubts as to his
independence or impartiality.”
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If the above provision is kept in view, though technically as
on 27.02.2004 when the storage receipt was drawn out and
the Arbitration Clause came into existence there was no
circumstance for disclosure of the present nature, it is seen
that he has immediately thereafter, on 29.03.2004 filed the
vakalat for one of the parties. Thus, as on 03.06.2006 when
the claim was lodged before the learned Arbitrator both the
events of, he being appointed as an Arbitrator and also as a
counsel in another case had existed, which was well within
the knowledge of Sri. S.T. Madnani and in that
circumstance, it was the appropriate stage when he ought to
have disclosed the same and refrained from entertaining the
claim. If in that background, the decision in the case of
V .K. Dewan and Co. vs. Delhi Jal Board and Ors. (2010)
15 SCC 717 relied upon by the appellants is kept in view, it
was in the fairness of things that Sri S.T. Madnani should
not have acted as an Arbitrator.
9. In the ultimate analysis since we are not adverting to
the merits of the claim and in that regard since, we have not
adverted to the finding recorded by the learned Arbitrator on
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the merits of claim we would not venture to examine with
regard to the ultimate conclusion on the claim as to whether
it is justified or not. However, in the above background,
what is to be seen is that there has been a reasonable basis
for the appellants to make a claim that in the present
circumstance the learned Arbitrator would not be fair to
them even if not biased. It could no doubt be only a
perception of the appellants herein. Be it so, no room
should be given for even such a feeling more particularly
when in the matter of arbitration the very basis is that the
parties get the opportunity of nominating a judge of their
choice in whom they have trust and faith unlike in a normal
course of litigation where they do not have such choice.
10. That apart when one is required to judge the case of
another, justice should not only be done, but it should also
seem to be done is the bottom line. Hence in that
background, if the present circumstance is taken not, there
was reasonable basis for the appellants to put forth such
contention which resulted in the situation wherein they had
not participated in the arbitration proceedings. If nothing
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else, atleast propriety demanded that the learned Arbitrator
should have recused in the present facts; but he has failed
to do so. In that view, such an award passed by the learned
Arbitrator was not sustainable and the learned District
Judge was justified in entertaining the petition under
Section 34 of the Act, 1996 to set aside the award. In that
view, we are of the opinion that the learned Judge of the
High Court of Judicature at Bombay was not justified in
allowing the appeal filed under Section 37(1)(b) of the Act,
1996.
11. In view of the above;
(i)
the judgment dated 30 and 31 of August, 2007
passed by the High Court of Judicature at
Bombay, Nagpur Bench in First Appeal No.187 of
2007 is set aside;
(ii)
consequently, the judgment dated 06.11.2006
passed by the Principal District Judge Nagpur in
MCA No.538/2006 setting aside the award dated
08.08.2006 is restored;
(iii) the parties are reserved the liberty of availing
their remedy of arbitration in accordance with law
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and all contentions on merits relating to the
claim/counter claim are left open.
(iv) The appeal is allowed with no order as to costs.
………………………,J.
[R. BANUMATHI]
………………………,J.
[A.S. BOPANNA]
New Delhi,
July 24, 2019
CA No.6960 of 2011