Smt. Arnapurna Roy vs Union Of Indian & Ors.

Instant appeal is filed by the appellant assailing the correctness, legality and judicial propriety of the impugned order dated 2^nd September, 1998 passed in connection with Misc. Case No.319/93/72/94 corresponding to T.S. No.228 of 1992 by the learned 1^st Additional Civil Judge (Senior Division), Cuttack, whereby, objection of respondent No.1-Union of India has been upheld resulting thereby setting aside the award of the Arbitrator dated 12^th May, 1992 on the grounds inter alia that the same is not legally tenable and therefore, liable to be interfered with and set aside in the interest of justice.

As pleaded on record, it is made to understand that in terms of Clause-18 of the agreement between the parties, the Director General, Posts and Telegraphs, New Delhi was the designated Arbitrator to adjudicate any such dispute between them. In fact, according to the said agreement clause, even if a dispute or any such difference arose concerning the subject matter of agreement or with reference to any of its clause, the same shall be referred to the arbitration of the Director General, Posts and Telegraphs, New Delhi, who may act as Arbitrator or appoint anyone else to arbitrate the dispute and that, there shall be no objection to the appointment of a Government servant to act as Arbitrator. It has also been stipulated therein that the decision of the Arbitrator shall be final and binding to the parties and the provisions of the Arbitration Act, 1940 or any statutory modification thereof shall apply.

According to the appellant, notice was given to the designated Arbitrator to adjudicate the dispute either by him or his nominee under Clause-18 of the agreement. Such notice was issued on 29^th March, 1985. It is further pleaded that when no response was received to such notice, Misc. Case No.224 of 1986 was filed before the learned Sub-Judge, 1^st Court, Cuttack by the appellant to appoint an Arbitrator and considering the same, by order dated 23^rd April, 1987, with a conclusion that there arose a dispute between the parties and as such, the Arbitrator has not responded in spite of a notice under Section 8(1) of the Arbitration Act, 1940 as per Clause-18 of the agreement between the parties, appointed the Director General, Posts and Telegraphs, New Delhi for its adjudication. As further made to understand, the appointed Arbitrator did not enter into the reference and therefore, the learned court below, by order dated 5^th January, 1991 in connection with Misc. Case No.512 of 1988, appointed Sri B.P. Das, Advocate as Arbitrator from out of the panel submitted by the Govt. Pleader for Union of India, but prior that, both the parties were directed to submit the names of Arbitrators for such appointment. The appointed Arbitrator entered into reference on 8^th February, 1991 and thereafter, the parties on 22^nd February, 1991 and 24^th March, 1991. The duration of the Arbitrator was extended on 12^th May, 1991, 14^th September, 1991 and 18^th December, 1991 with the consent of both the sides in order to facilitate the hearing and delivery of the award and according to the appellant, it was considered upon filing of the memos by them. At last, the award was signed and was filed before the learned Court below on 12^th May, 1992 in connection with T.S. No.228 of 1992, whereafter, respondent No.1 filed objections vide Misc. Case No.319/93/72/94. Subsequent to the objections dated 21^st September, 1992 and 22^nd September, 1992 in the suit by respondent No.1, reply to the same was received on 12^th May, 1993 and on 2^nd September, 1998 and finally, the award of the Arbitrator was set aside by the learned court below, which is under challenge at the behest of the appellant.

The objections of respondent No.1 before the learned court below to the award are extracted hereinbelow:

On the aforesaid grounds, the award was questioned.

After hearing both the sides, the learned court below ultimately reached at a conclusion that the appointment of the Arbitrator is not in terms of Clause-18 of the agreement and the termination of the appointed Arbitrator by an order in Misc. Case No.512 of 1988 is illegal and furthermore, the award is not a reasoned one in terms of Section 31(3) of the Arbitration and Conciliation Act, 1996. With the above findings, the learned court below set aside the award by the impugned order dated 2^nd September, 1998.

Heard Mrs. Moharana, learned counsel for the appellant and Mr. B. Moharana, learned Senior Panel Counsel appearing for Government of India.

Mrs. Moharana, learned counsel for the appellant would submit that the appointed Arbitrator did not enter the reference and hence, Misc. Case No.512 of 1988 was filed before the learned court below, wherein, a memo was filed on 19^th December, 1990 by the Govt. Pleader for Union of India informing that the Director General, Posts and Telegraphs, New Delhi is not available to adjudicate the dispute for the reason stated and as a result, he was removed by order dated 19^th December, 1990 and on the direction of the Court, both the parties filed a panel of names of Arbitrators and as the appellant agreed to the name of Sri B.P. Das, Advocate from out of the panel submitted by the Union of India, he was appointed as Arbitrator on 5^th January, 1991, inasmuch as, Union of India accepted the appointment and participated in the proceedings in pursuance of notice issued by the Arbitrator, who ultimately passed the award. The Union of India filed the objection under Section 30 of the Arbitration Act, 1940 vide Misc. Case No.319/179/93-94, hence, the contention of Mrs. Moharana, learned counsel is that respondent No.1 having participated in the arbitration without objection cannot challenge the appointment of the Arbitrator on any such ground pleaded. It is further contended that the Arbitrator was not obliged under the Arbitration Act, 1940 to pass a speaking award and therefore, the same cannot be challenged on such ground either. From out of the panel, when an Arbitrator is appointed, it was with the participation of Union of India, Mrs. Moharana, learned counsel submits that such appointment cannot be questioned thereafter especially when there is participation leading to passing of the award. It is also contended that the learned court below committed wrong in reaching at a conclusion with a finding that the appointment of Arbitrator is not in terms of Clause-18 of the agreement between the parties. The further submission is that learned court below grossly erred in applying the Section 31(3) of the Arbitration and Conciliation Act, 1996, more so when, the award is of the year 1992 before the said Act came into force. Lastly, it is contended that the Arbitrator is competent to award interest. In support of the contentions advanced, the case laws have been cited by Mrs. Moharana, learned counsel for the appellant, references of which are in the written note of argument, hence, not reproduced herein, claiming that the impugned order dated 2^nd September, 1998 admitting the objections of Union of India is not sustainable in law.

Mr. B. Moharana, learned Senior Panel Counsel, Government of India would submit that the learned court below did not commit any serious error in setting aside the impugned award considering the objections filed vide Misc. Case No. 319/179/93-94, for the fact that the very appointment of the Arbitrator is not in consonance with Clause-18 of the agreement between the parties. The further contention is that the Arbitrator passed a non-reasoned award and therefore, the learned court below rightly set it aside on such ground as the law mandates that it shall have to be a speaking one in view of Section 31(3) of the Arbitration and Conciliation Act, 1996. It is submitted that the award must be supported with reasons unless the parties have agreed to the contrary. In other words, the contention of Mr. B. Moharana, learned Senior Panel Counsel, Government of India is that even when the parties did not agree that no reasons are to be given, it was mandatory on the part of the Arbitrator to support the award with reasons and when it has not been complied with following Section 31(3) of the Arbitration and Conciliation Act, 1996, the impugned award dated 12^th May, 1992 could not have been allowed to stand.

Admittedly, the parties are bound by the terms of the agreement. According to the learned court below, the appointment of the Arbitrator is not in accordance with Clause-18 of the agreement as it was decided by the parties that any such dispute shall be settled by the Director General, Posts and Telegraphs, New Dehi or any other person appointed by him. Mrs. Moharana, learned counsel submits that the Arbitrator did not enter into reference for which he was removed by order of the learned court below in Misc. Case No.512 of 1988. In fact, this Court finds that the Arbitrator named in the agreement was appointed vide Misc. Case No.224 of 1986 dated 23^rd April, 1987 and since he failed to adjudicate the dispute, Misc. Case No.512 of 1988 was filed and ultimately, Sri B.P. Das, Advocate was appointed as the Arbitrator out of a panel submitted by the Govt. Pleader for Union of India. If in terms of Clause-18 of the agreement, an Arbitrator is appointed as agreed between the parties and he fails to enter into reference, the appellant having approached the learned court below vide Misc. Case No.512 of 1988 seeking appointment of any other Arbitrator after having given a notice to him in the year 1985, in the considered view of the Court, the decision vis-a-vis appointment of Sri B.P. Das, Advocate from out of the panel furnished to the learned court below does not become flawed. The designated Arbitrator having failed to enter into reference, a Court can appoint a new Arbitrator. In the case at hand, since the Arbitrator, namely, Director General, Posts and Telegraphs, New Delhi did not enter into reference and was removed by an order of the learned court below, it shall have to be held that he forfeited the right to appoint any other person as an Arbitrator in terms of the agreement between the parties, the reason being that such appointment in terms of the agreement entered into between the parties has failed and hence, therefore, the learned court below was approached vide Misc. Case No.512 of 1988. According to the Court, with the above events having taken place, any such appointment of an Arbitrator by an order dated 1^st January, 1991 of the learned court below cannot be challenged by the Union of India. The learned court below committed an error in insisting upon appointment of Arbitrator as per Clause-18 of the agreement by the designated Arbitrator, who himself failed to enter into reference.

Law is well settled that a Court can appoint an Arbitrator when the designated Arbitrator fails or refuses to act or if the agreed appointment and reference process breaks down. In other words, any such Arbitrator appointed under Section 8 of the Arbitration Act, 1940, if neglects or refuses to act or is incapable of performing the duty of an Arbitrator, the aggrieved party can serve a written notice requiring the appointment and in case, the vacancy is not filled or the parties/Arbitrator failed to act within the period of such notice, the Court having jurisdiction has the power to appoint a new Arbitrator. In the considered view of the Court, such an exercise is undertaken when the designated Arbitrator has not entered into reference. Any such appointment with judicial intervention applies only if the underlying agreement between the parties does not forbid filling the vacancy or provide an alternate remedy that excludes its jurisdiction. In the present case, neither the designated Arbitrator entered into reference nor there was any decision by him to appoint anyone as an Arbitrator in his place. In absence of any such response from the appointed/designated Arbitrator, the learned court below was well within the powers to consider appointment of a new Arbitrator, which is not prohibited under the contract. Once a designated Arbitrator was removed by a judicial order, this Court is of the view that he cannot play any role in the appointment of an Arbitrator in his place for the fact that the agreement has failed. Rather such removal order by a Court disentitles the designated Arbitrator from appointing anyone else to arbitrate the dispute. The designated Arbitrator may act any time before such removal order in accordance with the agreement. In the case of the appellant, when notice was given to the designated Arbitrator on 29^th March, 1985 and he was appointed as such by an order in Misc. Case No.224 of 1986, but did not enter into the reference instead expressed inability to undertake the exercise to arbitrate the dispute between the parties, he was rightly removed by the learned court below by order dated 5^th January, 1991 in Misc. Case No.512 of 1988. Neither the designated Arbitrator responded to the notice nor he was able to arbitrate the dispute or ever appointed anyone else as Arbitrator and even after an order of the learned court below in Misc. Case No.224 of 1986 failed to enter into reference and under the above circumstances, no option was left for the appellant except to demand appointment of any other Arbitrator and the learned court below considering such demand by order dated 5^th January, 1991 in Misc. Case No.512 of 1988 proceeded to appoint Sri B.P. Das, Advocate as the Arbitrator from the panel submitted by the Govt. Pleader for Union of India. In the considered view of the Court, the entire process is in accordance with law and therefore, such appointment of the Arbitrator cannot be questioned all the more when Union of India participated in the arbitration proceedings till the very end even with extensions allowed with the consent of both the sides.

The Union of India cannot be allowed to challenge the appointment of an Arbitrator after having actively participated in the arbitration and such participation operates as acquiescence or waiver under the general principles applied to a case under the Arbitration Act, 1940. When a counsel appearing for a party including Union of India agrees to a procedure or to an appointment before a Court and thereafter, the Union of India participates in the hearings without raising any formal objection, it is deemed that the jurisdiction of the Arbitrator has been accepted. A party cannot take a chance by fully participating in the arbitration proceedings and upon receiving an unfavourable award, turnaround and challenge the composition of appointment of the Arbitrator, even on any such ground like lack of explicit consent by the counsel. Under the Arbitration Act, 1940, once a party submits jurisdiction of the Arbitrator and participates fully in the reference, it is precluded from later invalidating the reference or the award on procedural grounds, which should have been raised at the inception of the proceedings.

Any counsel representing a party in legal or quasi-judicial proceedings possesses implied authority to make procedural concessions or to agree to the appointment of an Arbitrator to expedite the reference. By fully participating in the arbitration process submitting to the jurisdiction of the Arbitrator, a party is bound by the doctrine of waiver and estoppel. It cannot suddenly take a U-turn and challenge the legality in the appointment of the Arbitrator only after an adverse award is passed. The objections regarding the procedural irregularities or initial mode of appointment of Arbitrator, in the considered view of the court, must be raised promptly before the Arbitrator or with an application to remove the authority of the Arbitrator under the Arbitration Act, 1940, rather than waiting to challenge the final award on any such grounds after full participation.

With regard to extensions allowed by the Arbitrator, Mr. B. Moharana, learned Senior Panel Counsel, Government of India would submit that there was no any written instruction or consent given for the said purpose and therefore, Union of India is not bound by the same and hence, the impugned award thereafter upon expiry of the duration is a nullity. This Court is unable to subscribe to the above view challenging the award of the Arbitrator on such ground. When a party or its authorized counsel, who participated in the arbitration proceedings agreed to the extensions for making award to arrive at the earliest and continued to take part in the hearings stands to waive the right to object to the procedural timeline. Again, the doctrine of estoppel applies to prevent the party from turning back to invalidate an award they fully partook in. In the humble view of the Court, the Union of India cannot be allowed to approbate and reprobate meaning thereby that it cannot voluntarily submit to benefit from an extended arbitration proceeding with an implied consent and thereafter to question the jurisdiction or validity of the award. Even though herein, there has been no written consent submitted to the Arbitrator for extension of the period of arbitration, but Govt. Pleader for Union of India having submitted to the jurisdiction and participated in the proceedings with extensions taking place, it shall have to be concluded that there was consent by necessary implication. According to the Court, the Govt. Pleader appearing for the Union of India was possessed of implied authority to make such concessions with regard to the extension of timeline and not only that, he actively participated in the proceedings and hence, for such consensual extensions with the involvement of the parties or their counsel, the award passed by the Arbitrator thereafter is a valid one and binding on them. It is reiterated that with the active participation in the arbitration process after extension operates as a waiver of procedural irregularities or time limit. A party cannot take a chance on obtaining a favourable award and then contest the jurisdiction or timeline only after receiving an unfavourable result. It has been consistently held under Indian law that a party’s participation in out-of-time or extended proceedings backed by mutual consent or conduct prevents them from later claiming the award to be void due to expiry of duration of the arbitration. So, therefore, respondent No.1-Union of India cannot be allowed to allege that the extension of the arbitration period is without having its consent and therefore, the award is invalid.

Another ground of challenge is that the Arbitrator passed a non-speaking award, which is, hence, unenforceable. Under the Arbitration Act, 1940, it is not necessary for an Arbitrator to pass a reasoned award unless the arbitration agreement or deed of submission or an order of a Court expressly requires it. Law is settled by a decision of the Apex Court in Raipur Development Authority & others Vrs. M/s Chokhamal Contractors & others AIR 1990 SC 1426 to the effect that an award is not invalid nor can it be set aside or remitted merely because the Arbitrator did not give reasons for the decision. If the underlying arbitration agreement explicitly states that the Arbitrator must state reasons, he is legally bound to pass a speaking award. If an Arbitrator chooses to pass a reasoned award even when not contractually bound to do so, the Court may examine such reasons to find if any error of law is apparent on the face of such award. The legal position under the Arbitration Act, 1940 differs from the Arbitration and Conciliation Act, 1996 where assigning reasons is mandatory unless the parties agree otherwise.

As it is understood, under the Arbitration Act, 1940, the Arbitrator had no obligation to pass a speaking award, which is mandatory under the Arbitration and Conciliation Act, 1996. In the present case, the agreement between the parties did not stipulate anything to the contrary to oblige the Arbitrator to pass a speaking award. Nothing is brought to the notice of the Court by Mr. B. Moharana, learned Senior Panel Counsel, Government of India to satisfy that there has been any such agreement to mandate the Arbitrator in passing a speaking award. The learned court below referred to Section 31(3) of the Arbitration and Conciliation Act, 1996 to reach at a conclusion that the Arbitrator having not assigned reasons, the decision resulted in a non-speaking award. This Court is of the view that under the old law, a speaking award is not mandatory, which has been introduced under the Arbitration and Conciliation Act, 1996. So, the legal position is that an Arbitrator may pass a reasoned/speaking award but it is not mandatory for him to do so under the Arbitration Act, 1940 unless the parties agreed otherwise, however, in the Arbitration and Conciliation Act, 1996 assigning reasons is compulsory again with a default rule to the contrary. The record does not reveal anywhere that the parties have had any such agreement with a provision stipulated demanding the Arbitrator for a reasoned award and hence, the learned court below ought not to have held that the same is unenforceable referring to Section 31(3) of the Arbitration and Conciliation Act, 1996. At the cost of repetition, it has to be concluded that the learned court below completely erred with such a finding, more so when, the award was passed and sought to be enforced by a decree arrived much before the commencement of the Arbitration and Conciliation Act, 1996. Having said that, the conclusion of the Court is that for a non-speaking award by the Arbitrator, the learned court below should not have set it aside when it was not mandatory under the Arbitration Act, 1940.

As to the interest on award under the Arbitration Act, 1940, the law is well settled that an Arbitrator has inherent powers to award it for the period before and during the arbitration unless a specific clause in the agreement explicitly prohibits it. If the contract between the parties contains an express and specific prohibition against granting interest, the Arbitrator is bound by that term and cannot award it, for the fact that the agreement that prevents a party from claiming interest in a private contract is strictly construed. Of course, neither the Arbitrator nor the Court is empowered to award compound interest or interest upon interest under the Arbitration Act, 1940 as the statute only permits interest on the principal sum adjudged. In course of hearing, it is claimed by Mrs. Moharana, learned counsel for the appellant that the application for a reasoned award by the Arbitrator was disposed of before arrival of the award. The submission is that the original of the agreement filed before the Arbitrator on 16^th August, 1991 with such a provision on interest in the broadsheet was scored through after it was sent by the appellant and in that regard, evidence was received by the Arbitrator and upon considering the pleading, evidence and hearing of the parties, the award has been passed. It is further alleged that no such argument was ever advanced from the side of the Union of India before the learned court below challenging Items Nos.4 and 8 and therefore, it is estopped to raise the same for the first time before this Court. Considering the materials on record and submissions of learned counsel for the respective parties, there is no escape from the conclusion that rightly, the Arbitrator directed interest thereon having powers to do so in accordance with law. This Court is not inclined to enter into any such factual determination as to whether the provision on interest in the original agreement signed by the appellant was subsequently scored through. In any case, it has been taken judicial notice of by the Arbitrator while passing the award considering the claim of the appellant that such an award is to carry interest in terms of the provisions of the Interest Act, 1978. In the ultimate analysis and considering the contentions advanced referring to the case laws cited on behalf of the parties, the irresistible conclusion of the Court is that the impugned order dated 2^nd September, 1998 setting aside the award by the learned 1^st Additional Civil Judge, (Senior Division), Cuttack is not legally tenable and hence, the same deserves to be interferred with and set at naught.

Accordingly, it is ordered.

In the result, the appeal stands allowed, however, in the circumstances, there is no order as to the costs.