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Tuesday, March 4, 2014

Arbitration & Conciliation Act - sec.11, 14, 32 - Termination of Arbitration proceedings by the Arbitrator for one reason or the other - Remedy is to approach concerned Civil court having jurisdiction challenging the termination order under sec. 32 read with sec.14 of the Act - No fresh petition is maintainable nor need to file writ petition or appeal - Apex court held that Having regard to the scheme of the Act and more particularly on a cumulative reading of Section 32 and Section 14, the question whether the mandate of the arbitrator stood legally terminated or not can be examined by the court “as provided under Section 14(2) = Lalitkumar V. Sanghavi (D) Th. LRs Neeta Lalit Kumar Sanghavi & Anr. …Appellants Versus Dharamdas V. Sanghavi & Ors. …Respondents = 2014 (March . Part) judis.nic.in/supremecourt/filename=41281

  Arbitration & Conciliation Act - sec.11, 14, 32 - Termination of Arbitration proceedings by the Arbitrator for one reason or the other - Remedy is to approach concerned  Civil court having jurisdiction challenging the termination order under sec. 32 read with sec.14 of the Act - No fresh petition is maintainable nor  need to file writ petition or appeal - Apex court held that Having regard to the scheme of the Act  and  more  particularly on a cumulative reading of Section 32 and Section 14, the  question  whether the mandate of the  arbitrator  stood  legally  terminated  or  not  can  be examined by the court “as provided under Section 14(2) = 

By his order  dated  29th  October,  2007,  the  presiding  arbitrator
informed the appellants that the arbitration proceedings  stood  terminated.
The relevant portion of the order reads as follows:
                 “The matter is pending since June,  2003  and  though  the
              meeting was called in between  June,  2004  and  11th  April,
              2007, the Claimant took no interest in matter.  Even the fees
              directed to be given is not paid.


                 In these circumstances please note  that  the  arbitration
              proceedings stands terminated. All interim orders  passed  by
              the Tribunal stand vacated.”
The original applicant in response to the letter of Arbitrator communicated as follows 
    “The Hon’ble Arbitral Tribunal is therefore  requested  to
              kindly revoke the said letter dated  29th  October  2007  and
              modify the same and kindly record that  the  proceedings  are
              being terminated due to non compliance  of  orders/directions
              as also non payment of fees and  charged  by  the  Respondent
              No.1”
the original applicant again filed a fresh application for arbitration but
That application  came  to  be  dismissed  by  the  order  under  appeal  in
substance holding that such an application invoking Section 11  of  the  Act
is  not  maintainable  -  with  an  observation  that  “the  remedy  of  the
application is by filing a writ petition not an  application  under  Section
11 of the Act”.
By  the  judgment  under  appeal,  the
Bombay High Court opined that the remedy of the appellant lies  in  invoking
the jurisdiction of the High Court under Article 226  of  the  Constitution.
In our view,  such a view is not in accordance  with  the  law  declared  by
this Court in S.B.P. & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618. 
  “45.  It is seen that some High Courts have  proceeded  on  the
             basis that any order passed  by  an  arbitral  tribunal  during
             arbitration, would be capable of being challenged under Article
             226 or 227 of the Constitution of India. We see no warrant  for
             such an approach.  Section  37  makes  certain  orders  of  the
             arbitral tribunal appealable.  Under Section 34, the  aggrieved
             party has an avenue for ventilating his grievances against  the
             award including any in-between  orders  that  might  have  been
             passed by the arbitral tribunal acting under Section 16 of  the
             Act. The party aggrieved by any order of the arbitral tribunal,
             unless has a right of appeal under Section 37 of the  Act,  has
             to wait until the award is passed by the Tribunal. This appears
             to be the scheme of the Act. The  arbitral  tribunal  is  after
             all, the creature  of  a  contract  between  the  parties,  the
             arbitration agreement, even though if the occasion arises,  the
             Chief Justice may constitute it based on the  contract  between
             the parties. But  that  would  not  alter  the  status  of  the
             arbitral tribunal. It will still  be  a  forum  chosen  by  the
             parties by agreement. We, therefore, disapprove  of  the  stand
             adopted by some of the High Courts that any order passed by the
             arbitral tribunal is capable of being  corrected  by  the  High
             Court under Article 226 or 227 of the  Constitution  of  India.
             Such an intervention by the High Courts is not permissible.”

That need not, however, necessarily mean that the application  such  as  the
one on hand is maintainable under Section 11 of the Act.

Section 14(2) provides that if there is any controversy regarding  the
termination of the mandate of the arbitrator on any of the grounds  referred
to in the clause (a) then an application may be made  to  the  Court  –  “to
decide on the termination of the mandate”.

12.   Section 32 of the Act on the other hand deals with the termination  of
arbitral proceedings.[1]

13.   From the language  of  Section  32,  it  can  be  seen  that  arbitral
proceedings get terminated either in the making of the final arbitral  award
or by an order of the arbitral tribunal under  sub-Section  2.   Sub-section
(2) provides that the  arbitral  tribunal  shall  issue  an  order  for  the
termination  of  the  arbitral  proceedings  in  the   three   contingencies
mentioned in sub-clauses (a) to (c) thereof.

14.   On the facts of the present case,  the  applicability  of  sub-clauses
(a) and (b) of Section 32(2) is clearly ruled out and we are of the  opinion
that the order dated 29th October, 2007 by  which  the  Tribunal  terminated
the arbitral proceedings could only fall within the  scope  of  Section  32,
sub-Section (2), sub-clause (c) i.e. the  continuation  of  the  proceedings
has become impossible.   By virtue of Section 32(3), on the  termination  of
the arbitral proceedings, the mandate of the arbitral  tribunal  also  comes
to an end.   Having regard to the scheme of the Act  and  more  particularly
on a cumulative reading of Section 32 and Section 14, the  question  whether
the mandate of the  arbitrator  stood  legally  terminated  or  not  can  be
examined by the court “as provided under Section 14(2)”.


15.   The expression “Court” is a defined expression under  Section  2(1)(e)
which reads as follows:-
           “Section 2(1)(e) “Court" means  the  principal  Civil  Court  of
           original jurisdiction in a district, and includes the High Court
           in exercise of its ordinary original civil jurisdiction,  having
           jurisdiction to decide the questions forming the subject- matter
           of the arbitration if the same had been the subject- matter of a
           suit, but does not- include any civil court of a grade  inferior
           to such principal Civil Court, or any Court of Small Causes;”



16.   Therefore, we are of the opinion, the apprehension  of  the  appellant
that they would be left remediless is without basis in law.

  2014 (March . Part) judis.nic.in/supremecourt/filename=41281
B.S. CHAUHAN, J. CHELAMESWAR, M.Y. EQBAL
                       
                                     Reportable




                        IN THE SUPREME COURT OF INDIA


                        CIVIL APPELLATE JURISDICTION


                       CIVIL  APPEAL NO. 3148 OF 2014
       [Arising out of Special Leave Petition (Civil) No.4267 of 2013]


Lalitkumar V. Sanghavi (D)
Th. LRs Neeta Lalit Kumar
Sanghavi & Anr.                                     …Appellants

      Versus
Dharamdas V. Sanghavi & Ors.                 …Respondents






                              J U D G E M E N T



Chelameswar, J.


1.    Aggrieved by an  order  dated  24th  September,  2010  in  Arbitration
Application No. 44/2008 on the  file  of  the  High  Court  of  Bombay,  the
instant SLP is filed by the  two  children  of  the  applicant  (hereinafter
referred  to  as  “the  original  applicant”)   in   the   above   mentioned
application.  The SLP is filed with a delay of  717  days.   Therefore,  two
IAs came to be filed, one seeking substitution of the legal  representatives
of the deceased appellant and the other for  the  condonation  of  delay  in
filing the SLP.

2.    The 1st respondent is the brother of the original  appellant  and  the
other respondents are the  children  of  another  deceased  brother  of  the
original applicant.  Respondents are served and  they  have  contested  both
the IAs.

3.     Accepting  the  reasons  given  in  the  applications,  we  deem   it
appropriate to condone the delay in preferring  the  instant  SLP  and  also
substitute  the  original  appellant   (since   deceased)   by   his   legal
representatives.  Both the IAs are allowed.  Delay  condoned.   Substitution
allowed.  Leave granted.

4.    The undisputed facts are that the parties herein are carrying on  some
business in the name and style of a partnership  firm  constituted  under  a
partnership deed dated 20th October 1962.   The  partnership  deed  provided
for the resolution of the disputes arising  between  the  partners  touching
the affairs of the partnership by means  of  an  arbitration.   In  view  of
certain disputes between the partners (details of which  are  not  necessary
for  the  present  purpose)  the  original   applicant   filed   arbitration
application  No.263/2002  under  Section   11   of   the   Arbitration   and
Conciliation Act, 1996 (hereinafter referred to as  ‘the  Act’,  for  short)
before the Chief Justice of the Bombay High Court which was disposed  of  by
an order dated 21st February, 2003 by a learned Judge  of  the  Bombay  High
Court, who was the  nominee  of  the  Chief  Justice  under  the  Act.   The
relevant portion of the order reads as follows:
                 “Considering that applicant respondent No.1 have appointed
              two arbitrators, Justice H. Suresh,  Retired  Judge  of  this
              Court is appointed as  presiding  arbitrator.   The  arbitral
              tribunal so constituted  to  decide  all  disputes  including
              claims and counter claims of the  parties  arising  from  the
              controversy. In case respondents do not  cooperate  with  the
              matter  of  appointment  of   third   arbitrator,   applicant
              initially to bear  the  made  part  of  final  award  in  the
              position, application disposed of accordingly.”

5.    By his order  dated  29th  October,  2007,  the  presiding  arbitrator
informed the appellants that the arbitration proceedings  stood  terminated.
The relevant portion of the order reads as follows:
                 “The matter is pending since June,  2003  and  though  the
              meeting was called in between  June,  2004  and  11th  April,
              2007, the Claimant took no interest in matter.  Even the fees
              directed to be given is not paid.


                 In these circumstances please note  that  the  arbitration
              proceedings stands terminated. All interim orders  passed  by
              the Tribunal stand vacated.”

6.    In  response  to  the  said  communication,  the  original  applicant,
through his lawyer, communicated to the arbitrators and also  the  advocates
of the respondents herein that the  order  of  the  arbitrators  dated  29th
October, 2007 does not reflect the true  factual  position  of  the  matter.
The relevant portion of the letter reads as follows:
                 “The Hon’ble Arbitral Tribunal is therefore  requested  to
              kindly revoke the said letter dated  29th  October  2007  and
              modify the same and kindly record that  the  proceedings  are
              being terminated due to non compliance  of  orders/directions
              as also non payment of fees and  charged  by  the  Respondent
              No.1”

7.    On 17.1.2008, the original  applicant  filed  arbitration  application
No.44/2008 with prayers (insofar  as  they  are  relevant  for  the  present
purpose) as follows:
              a) this Hon’ble Court be pleased  to  appoint  some  fit  and
              proper  person  as  arbitrator  for  entering  reference  and
              adjudicating upon the disputes in respect  of  M/s.  Sanghavi
              Brothers.


           b)    the Respondent No.1 to 4 be directed to deposit a  sum  of
           Rs.1,00,000/- towards costs  of  arbitration  and  fees  of  the
           Arbitrator.”




That application  came  to  be  dismissed  by  the  order  under  appeal  in
substance holding that such an application invoking Section 11  of  the  Act
is  not  maintainable  -  with  an  observation  that  “the  remedy  of  the
application is by filing a writ petition not an  application  under  Section
11 of the Act”.

8.    Within a couple of weeks thereafter, the original  applicant  died  on
7.10.2012.  The question is whether the High Court is  right  in  dismissing
the application as not maintainable.
 By  the  judgment  under  appeal,  the
Bombay High Court opined that the remedy of the appellant lies  in  invoking
the jurisdiction of the High Court under Article 226  of  the  Constitution.
In our view,  such a view is not in accordance  with  the  law  declared  by
this Court in S.B.P. & Co. v. Patel Engineering Ltd., (2005) 8 SCC 618.  The
relevant portion of the judgment reads as under:


             “45.  It is seen that some High Courts have  proceeded  on  the
             basis that any order passed  by  an  arbitral  tribunal  during
             arbitration, would be capable of being challenged under Article
             226 or 227 of the Constitution of India. We see no warrant  for
             such an approach.  Section  37  makes  certain  orders  of  the
             arbitral tribunal appealable.  Under Section 34, the  aggrieved
             party has an avenue for ventilating his grievances against  the
             award including any in-between  orders  that  might  have  been
             passed by the arbitral tribunal acting under Section 16 of  the
             Act. The party aggrieved by any order of the arbitral tribunal,
             unless has a right of appeal under Section 37 of the  Act,  has
             to wait until the award is passed by the Tribunal. This appears
             to be the scheme of the Act. The  arbitral  tribunal  is  after
             all, the creature  of  a  contract  between  the  parties,  the
             arbitration agreement, even though if the occasion arises,  the
             Chief Justice may constitute it based on the  contract  between
             the parties. But  that  would  not  alter  the  status  of  the
             arbitral tribunal. It will still  be  a  forum  chosen  by  the
             parties by agreement. We, therefore, disapprove  of  the  stand
             adopted by some of the High Courts that any order passed by the
             arbitral tribunal is capable of being  corrected  by  the  High
             Court under Article 226 or 227 of the  Constitution  of  India.
             Such an intervention by the High Courts is not permissible.”

That need not, however, necessarily mean that the application  such  as  the
one on hand is maintainable under Section 11 of the Act.

9.     Learned  senior  counsel  for  the  appellants,  Shri  Shyam   Divan,
submitted  that  if  application  under  Section  11  is   also   held   not
maintainable, the appellants would be left remediless while their  grievance
subsists.  On the other hand, learned senior  counsel  for  the  respondents
Shri C.U. Singh submitted that the appellant’s only remedy  is  to  approach
the arbitral tribunal seeking a recall of  its  decision  to  terminate  the
arbitration proceedings.

10.   Chapter III of the Act deals with the appointment,  challenge  to  the
appointment  and  termination  of  the  mandate  and  substitution  of   the
arbitrator etc.  Section 11 provides for the various  modes  of  appointment
of an arbitrator for the adjudication of  the  disputes  which  the  parties
agree to have resolved by arbitration.  Broadly speaking, arbitrators  could
be appointed either by the agreement between the parties  or  by  making  an
application to the Chief Justice of the High Court or the Chief  Justice  of
India, as the case may be,  as  specified  under  Section  11  of  the  Act.
Section 12(3) provides for a challenge to the appointment of  an  arbitrator
on two grounds. They are - (a) “that circumstances exist” which  “give  rise
to justifiable doubts as to”  the  “independence  or  impartiality”  of  the
arbitrator; (b) that the arbitrator  does  not  “possess  the  qualification
agreed to by the parties”.  Section 14 declares  that  “the  mandate  of  an
arbitrator shall terminate” in the circumstances  specified  therein.   They
are-


           “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 the 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.”






11.   Section 14(2) provides that if there is any controversy regarding  the
termination of the mandate of the arbitrator on any of the grounds  referred
to in the clause (a) then an application may be made  to  the  Court  –  “to
decide on the termination of the mandate”.

12.   Section 32 of the Act on the other hand deals with the termination  of
arbitral proceedings.[1]

13.   From the language  of  Section  32,  it  can  be  seen  that  arbitral
proceedings get terminated either in the making of the final arbitral  award
or by an order of the arbitral tribunal under  sub-Section  2.   Sub-section
(2) provides that the  arbitral  tribunal  shall  issue  an  order  for  the
termination  of  the  arbitral  proceedings  in  the   three   contingencies
mentioned in sub-clauses (a) to (c) thereof.

14.   On the facts of the present case,  the  applicability  of  sub-clauses
(a) and (b) of Section 32(2) is clearly ruled out and we are of the  opinion
that the order dated 29th October, 2007 by  which  the  Tribunal  terminated
the arbitral proceedings could only fall within the  scope  of  Section  32,
sub-Section (2), sub-clause (c) i.e. the  continuation  of  the  proceedings
has become impossible.   By virtue of Section 32(3), on the  termination  of
the arbitral proceedings, the mandate of the arbitral  tribunal  also  comes
to an end.   Having regard to the scheme of the Act  and  more  particularly
on a cumulative reading of Section 32 and Section 14, the  question  whether
the mandate of the  arbitrator  stood  legally  terminated  or  not  can  be
examined by the court “as provided under Section 14(2)”.


15.   The expression “Court” is a defined expression under  Section  2(1)(e)
which reads as follows:-
           “Section 2(1)(e) “Court" means  the  principal  Civil  Court  of
           original jurisdiction in a district, and includes the High Court
           in exercise of its ordinary original civil jurisdiction,  having
           jurisdiction to decide the questions forming the subject- matter
           of the arbitration if the same had been the subject- matter of a
           suit, but does not- include any civil court of a grade  inferior
           to such principal Civil Court, or any Court of Small Causes;”



16.   Therefore, we are of the opinion, the apprehension  of  the  appellant
that they would be left remediless is without basis in law.

17.   The appellants are at liberty to approach the  appropriate  court  for
the determination of the legality of the termination of the mandate  of  the
arbitral tribunal which in turn is based upon an order dated  29th  October,
2007 by which the arbitral proceedings were terminated.

18.   The appeal is dismissed.

                                                         ……………………………………..…J.
                                                   ( Dr. B.S. CHAUHAN )



                                                         …………………………………..……J.
                                                   ( J. CHELAMESWAR )



                                                         .……………………………………….J.
                                             ( M.Y. EQBAL )
New Delhi;
March 04, 2014

-----------------------
[1]    Section 32 - Termination of proceedings.
       (1) The  arbitral  proceedings  shall  be  terminated  by  the  final
arbitral award or by an order of the arbitral tribunal  under  sub-  section
(2).
      (2) The arbitral tribunal shall issue an order for the termination  of
the arbitral proceedings where-
            (a) the claimant withdraws his  claim,  unless  the  respondent
       objects  to  the  order  and  the  arbitral  tribunal  recognises  a
       legitimate interest on his part in, obtaining a final settlement  of
       the dispute,
            (b) the parties agree on the termination of the proceedings, or
            (c) the arbitral tribunal finds that the  continuation  of  the
       proceedings  has  for  any  other  mason   become   unnecessary   or
       impossible.
      (3) Subject to section 33 and sub- section  (4)  of  section  34,  the
mandate of the arbitral tribunal shall terminate  with  the  termination  of
the arbitral proceedings.



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