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Judgment
V. Periya Karuppiah, J.—A. No. 3989 of 2009: This Application has been filed by the Petitioner in the O.P. seeking for the stay of further
proceedings pending before the 2nd Respondent initiated pursuant to the letter dated 11.7.2007 till disposal of the Original Petition. O.P. No. 400
of 2009: This Petition has been filed by the Petition u/s 14(1) & (2) of the Arbitration and Conciliation Act seeking for the termination of the
mandate of the Arbitrator.
The brief facts of the case is mentioned for the main O.P. No. 400:
2(1) The business of (mining and marketing of Iron ore minerals and allied products). The present Original Petition is being filed for terminating the
mandate of the 2nd Respondent from Arbitrating the disputes that have arisen under the Partnership Agreement dated 15.12.2003. The facts
leading to the filing of the Petition are given hereunder.
2(2) They are the lessee for mining Iron Ore and allied minerals in the tract of lands of an extent of 191.13 Hectares at Haraginadona Village,
Bellary District, having obtained from the Department of Mines & Geology, Government of Kamataka. The Petitioner has to pay a minimum
royalty of Rs. 4,39,886/- per year to the Government of Karnataka. The said royalty has to be paid every year, irrespective of the fact whether
any mining is done or not by the Petitioner.
2(3) The 1st Respondent who claimed to have expertise in mining operations and offered to provide his infrastructure and experience to exploit the
mines taken on lease by the Petitioner. After due deliberations, the Petitioner and the 1st Respondent entered in to Partnership Agreement on
15.12.2003 for the exploitation of the mineral from their leased mines. The main objectives of the Partnership was to remove Iron Ore Minerals
from the mines and market the same and to restart the pulverizing factory of the Petitioner situated at Bellagal Road, Karnataka State and put to
pulverize red oxide mineral and market the same. The Partnership Agreement was for a period of five years from the said date (i.e. from
15.12.2003 to 14.12.2008). All the duties and responsibilities of either of the parties have been specified in the said Partnership Agreement. The
agreement, inter alia, provides for sharing the profit and loss of the firm equally between the Petitioner and the First Respondent.
2(4) The start of mining operations, commenced pursuant to the Partnership Agreement, the First Respondent was irregular in keeping up his
commitments. The First Respondent did not report to the Petitioner as to the schedule of progress, quantum of minerals exploited and about the
day to day mining operations. The Petitioner had to frequently question the conduct of the 1st-Respondent and with great difficulty had to persuade
and get the particulars of the exploited minerals. It is needless to say the difficulties experienced by the Petitioner, when the exploitation of mines
were in progress during the currency of the Partnership Agreement.
2(5) The Partnership Agreement concluded on 14.12.2008, and all the rights and liabilities between the Petitioner and 1st Respondent crystallized.
A detailed audit was made on the various transactions that took place during the currency of the partnership. On the finalization of accounts, it has
been ascertained that the First Respondent is liable to pay the Petitioner in a sum of Rs. 11,40,08,017/- (Rupees Eleven Crores Forty Lakhs Eight
Thousand and Seventeen only), as and towards their 50% share in the Net Profits of the Firm.
2(6) All the efforts of the Petitioner to get their just entitlement of profits from the First Respondent did not fructify, despite pleading personally and
through several well wishers on various occasions. The Petitioner has been forced to take legal actions against the First Respondent as
contemplated in the Partnership Agreement. As such, a legal Notice dated 22.6.2009 was issued to the First Respondent demanding him to:
(a) pay the Petitioner''s share of the profits of the partnership as audited and finalised by the Company Auditors at Rs. 11,40,08,017/- (Rupees
Eleven Crores Forty Lakhs Eight Thousand and Seventeen only) along with interest @ 24% from the date of conclusion of partnership.
(b) vacate the mine site at Haraginadona Village, and remove all his men and machineries from the site:
(c) pay compensation for damaging the Petitioner''s machineries and infrastructure facilities at the mines estimated at Rupees one Crore;
(d) compensation for the loss of business and overheads in preventing the Petitioner from gainfully exploiting the mines (from 15.12.2008 till
20.6.2009) estimated at Rupees Three Crores; and
(e) ` 50 lakhs towards mental agony and suffering arising on account of the Respondents illegal activities above stated.
2(7) It was also made clear to the First Respondent through the said legal notice dated 22.6.2009, that if he fails to comply the demands made, the
Petitioner would resort to legal proceedings in terms of the Agreement for reference of disputes to arbitration. The First Respondent belatedly sent
a reply denying the contents and also abut the conclusion of the Agreement dated 15.12.2003. Though the Reply Notice is dated 30.6.2009, the
same was insufficiently addressed and reached out counsel only on 16.7.2009. Even before any reply was received, the Petitioner moved this
Hon''ble Court for interim reliefs u/s 9 of the Arbitration and Conciliation Act, 1996 and an order of injunction was made in O.A. No. 686 of 2009
and other reliefs.
2(8) The legal Notice dated 22.6.2009 the First Respondent has written to his Auditor at Hyderabad, to scrutinize the accounts sent by us. The
First Respondent also through his letter dated 9.7.2009 written to his Second Respondent seeking certain reliefs. The 2nd Respondent acting on
the Letter dated 8.7.2009 of the 1st Respondent had sent letter dated 11.7.2009 directing the Petitioner to appear before him on 28.7.2009 at
Bellary in connection with the dispute arising out of Partnership Deed dated 15.12.2003. On going through the Letter dated 11.7.2009 the
Petitioner immediately through Letter dated 18.7.2009 challenging the mandate of the 2nd Respondent to Arbitrate disputes. As many as 12
grounds of challenge has been raised and all the apprehensions raised therein are bona fide. The Petitioner craves the leave of this Court to treat
the ground of challenge made by the Petitioner through their letter dated 18.7.2009 as part and parcel of this Petition.
2(9) A few instances as regards the 2nd Respondent herein to demonstrate that he had become de-jure incompetent to perform the functions of an
Arbitrator in the disputes between the Petitioner and 1st Respondent herein. The following are instances:
(a) The main dispute that is to be adjudicated upon shall be the status of the Partnership Agreement dated 15.12.2003 between Petitioner and the
1st Respondent herein. The contention of the Petitioner is that the said Agreement has come to a conclusion as early as by 14.12.2008 and the
rights and liabilities of the parties have cristalised. However, the 1st Respondent is unwilling to concede the factual position and contends that the
Agreement has not concluded. Even before the disputes are referred to the 2nd Respondent, the 2nd Respondent purportedly on acting upon the
letter dated 8.7.2009 sent by the 1st Respondent herein has decided that the agreement dated 15.12.2003 is still in force. Such a finding by the
2nd Respondent in connection with an important aspect of the dispute by itself has rendered the 2nd Respondent de-jure impossible to function as
the Arbitrator.
(b) The 2nd Respondent by holding that the Partnership Agreement dated 15.12.2003 is in force, has prejudged the important issue in dispute
even before the same fell for consideration before him. Further such a finding on an important issue has been made even without giving an
opportunity to the Petitioner to submit their contentions on the issue.
2(10) Even the 1st Respondent herein has expressed his apprehension on the independence and impartiality of the 2nd Respondent to arbitrate the
disputes through his letter dated 2.7.2009 addressed to his Auditor. For the sake of brevity the relevant portion of the said letter is extracted
hereunder:
I also fear that Sri A. Rajagopal, the Special Officer, is in league with my Partner or is clandestinely lending support to him by non-assertion of his
rights as Special Officer with powers of giving an arbitral award.
The said Letter dated 2.7.2009, written the 1st Respondent is filed along with the typed set of papers and the Petitioner craves the leave of this
Court to treat the said Letter as part and parcel of this Affidavit.
2(11) The important aspect to demonstrate that the 2nd Respondent is entitled for a 5% commission on the profits of the Partnership Firm. As
such, the 2nd Respondent has a fiduciary connection/involvement in the matter that is to be adjudicated. The applicant bona fide apprehend that in
view of 5% share in the profits, there is every possibility that the 2nd Respondent might fix fictitious/jacked-up amounts as profits so as to enrich
himself in the share of profits. The higher the profits, the 2nd Respondent is going to fix the profits while adjudicating the disputes, the higher will be
his share of profits. Therefore, the fiduciary relationship and the personal gains which the 2nd Respondent has in the matter shall disqualify him from
adjudicating the disputes. The 2nd Respondent is going to be a beneficiary of the likely outcome from the award, which is to be adjudicated upon.
No person could be permitted to judge an issue, the adjudication of which is likely to benefit him"".
2(12) They have already sent a Notice on 21.7.2009 to the 1st Respondent indicating 5 names of persons who are willing to Arbitrate the dispute,
with an option to concur the nomination from the list sent. Failing nomination, the Petitioner has made it clear that the Petitioner shall approach this
Court seeking appointment of Arbitrator.
2(13) For the aforesaid circumstances it has became clear that the mandate of the 2nd Respondent to arbitrate the disputes gets terminated by
operation of law. The 2nd Respondent has become de-jure incapable to perform his functions as Arbitrator in the matter.
2(14) Therefore, the Petitioner most humbly prays that in the above said circumstances this Court may be pleased to pass an order to terminate the
mandate of the 2nd Respondent herein, from adjudicating the dispute between the Petitioner and the 1st Respondent herein arising from the
Partnership Agreement dated 15.12.2003 and pass suitable orders.
The objections raised in the counter filed by the 1st Respondent would be as follows:
The Petitioner and the 1st Respondent entered into a Partnership Agreement on 15.12.2003. Para 5 is not relevant for an Application under sub-
sections (1) & (2) of Section 14 of the Act. In para 6 of the Application, the Petitioner has made an attempt to found a claim for recovery of Rs.
11,40,08,017/- from the 1st Respondent. The 1st Respondent do not intend to waste the precious time of this Court by elaborately refuting the
claim of the Petitioner. The 1st Respondent do not own even a rupee to the Applicant but it is the Applicant, who owes the 1st Respondent money
in terms of a few crores. The 1st Respondent consider that the claim as wholly irrelevant for the purpose of filing a Petition under sub-sections (1)
& (2) of Section 14 of the Arbitration Act. It is a monetary dispute between the Petitioner and the 1st Respondent for the settlement of which the
proper forum is the ""Arbitral Proceedings"". In para 7 does not relate to the allegation of ""incompetence"" imputed to the ""Arbitrator"". It is not
known how disputes between the Petitioner and the 1st Respondent would be a ground to impugn the competence of the Arbitrator. Para 7 of the
application does not fall under the ambit of sub-sections (1) & (2) of Section 14 of the Act. The Petitioner says that the Arbitrator (2nd
Respondent) issued notices both to the 1st Respondent and the Petitioner on 11.7.2009 stating that he entered upon Arbitral proceedings,
directing both of them to maintain status quo and requesting them to appear before him on 22.7.2009 with all their documents and records.
Therefore, the 1st Respondent was ready to participate in the arbitral proceedings but the Petitioner took an untenable stand that the Arbitrator is
not competent and in a way refused to participate. But what is unethical on the part of the Petitioner is that he deliberately suppressed the fact that
the Arbitrator by his Letter dated 27.7.2009 repudiated all the allegations and requested the Petitioner to co-operate with him. After that the
Petitioner filed O.P. No. 400 of 2009 seeking termination of the mandate of the Arbitrator.
3(2) The suppressions betray the depravity of the Petitioner and his desperate attempt to mislead this Court and create repugnance against the 1st
Respondent and the Arbitrator. Hence, the 1st Respondent pray that the Letter dated 27.7.2009 sent by the Arbitrator to the Petitioner may be
treated as part and parcel of this Counter Affidavit.
3(3) The Arbitrator has become de jure incompetent to perform the functions of the Arbitrator. In support of his version, the Petitioner quotes
some instances which are narrated in sub-paras (a) & (b) of para 10. In para 10(a), the Arbitrator has given a finding that the Agreement dated
15.12.2003 is still in force. The Arbitrator has prejudged the issue holding that the Agreement is in force. It may be noticed that in the Letter dated
27.7.2009, the Arbitrator while refuting all the allegations made by the Petitioner has explicitly stated that he made a passing remark about the
subsistence of the period of the Agreement and has never given any finding and much less an award.
3(4) The Petitioner has not correctly comprehended the meaning of the word ""de jure"" which is used to project the Arbitrator as ""incompetent-de
jure"". Section 14 of the Act is the governing provision in regard to cases falling under de facto and de jure circumstances. Section 12 is titled as
failure or impossibility"" to act. The definition of ""failure and impossibility"" is explained in the words ""de facto and de jure"". There is no failure on the
part of the present Arbitrator. As regards the incapacity of the Arbitrator to Act, a situation should emerge when the Arbitrator is legally declared
as incompetent to conduct the Arbitral proceedings. Only in such a situation the Arbitrator becomes de jure unable to perform his functions. In the
present case the Arbitrator has become neither ""de facto"" incompetent"" nor has he become ""de jure incompetent"". A party by merely levelling
allegations against the Arbitrator cannot claim the Arbitrator has become de jure incompetent. In the context of all the allegations being repudiated
by the Arbitrator vide his Letter dated 27.7.2009, the question of his becoming de jure incompetent does not arise at all.
3(5) The Petitioner has claimed that because the 1st Respondent expressed an apprehension about the attitude of the Arbitrator, it means that the
1st Respondent to dispense with the present Arbitrator. This is a weird logic. When the 1st Respondent have invested a few Crores of Rupees as
a partner on the development of the mine and production of mineral and when the other partner (the Petitioner) has been evading to render
accounts and the lenience or latitude shown by the Arbitrator in granting time to the Petitioner to render accounts, naturally the 1st Respondent had
an apprehension. The 1st Respondent''s apprehension cannot be interpreted as his readiness to remove the present Arbitrator to facilitate an
amicable settlement of the disputes, since he is chosen Arbitrator of the Applicant and the 1st Respondent.
3(6) The Petitioner''s version that there is a possibility for the Arbitrator ""to fix fictitious and jacked up amounts as profits to enrich himself in the
share of profits"" deserves to be rejected. The accounts relating to the expenditure incurred at Bellary on mining operations have been accepted
both by the Petitioner and the 1st Respondent. The rest of the accounts relate to the items of expenditure incurred by the Petitioner at Madras. The
1st Respondent did not know if it is the contention of the Petitioner that there are ""fictitious and jacked up amounts"" in the accounts to be furnished
by the Petitioner and for this reason he has been avoiding to render accounts. As and when the accounts are furnished, a qualified and experienced
Chartered Accountant would scrutinize and audit the accounts and on verification, that the accounts are drawn up in terms of the Partnership Deed
dated 15.12.2003 and the earlier Agreement dated 3.9.2003. If the profits decline not only the Special Officer but the 1st Respondent and the
Petitioner also would get a smaller share. Likewise, if the profits are more all the three would get more. It is not conceivable that when the profits
swell, it is only the Special Officer who would be benefited. Both the Partners would be benefited much more than the Special Officer because the
partners'' shares are far more higher. The Petitioner has ascribed the Arbitrator with ""fiduciary relationship"". There is already a sole Arbitrator who
has commenced Arbitral proceedings. There is no need to appoint a new Arbitrator and much less is there a need to approach this Court for
appointment of an Arbitrator.
3(7) Arbitrator has not become either de facto or de jure unable to perform his functions. No court has barred him from performing his functions.
Therefore, the characteristics of both ""de facto"" and ""de jure"" positions cannot be attributed to the 2nd Respondent. The Arbitrator has not failed
to Act. The Arbitrator has not withdrawn from his office nor have both the parties agreed to the termination of his mandate. Sub-clause (2) of
Section 14 of the Act does not operate in the present case. No controversy remains in respect of the grounds referred to in clause (a) of sub-
section (1) of Section 14 of the Act. The instances quoted by the Petitioner in support of his plea for the termination of the mandate are imaginary
and unsupported by facts. The grounds adduced by the Petitioner do not give him locus standi to file this Application A. No. 3989 of 2009.
3(8) The very intendment and lofty objective behind the Arbitration Act is to render prompt and quick justice to the disputants and to lessen the
existing burden on the Courts. It is surprising that the Petitioner has filed this Application with an ulterior motive to subvert the Arbitral proceedings
initiated by the 2nd Respondent. Hence, the 1st Respondent prays that this Application be dismissed with costs and expenses of the 1st
Respondent.
In the aforesaid Petition and Application, this Court has granted an order of interim stay of the proceedings pending before the 2nd
Respondent/Arbitrator initiated on his Letter dated 11.7.2009.000
Heard Mr. M.S. Krishnan, learned Senior Counsel appearing for Mr. V. Sreekanth, learned Counsel for the Petitioner and Mr. A.L. Somayaji,
learned Senior Counsel appearing for Ms. Narmada Sampath, learned Counsel for the 1st Respondent. No appearance for the 2nd Respondent.
The learned Senior Counsel Mr. M.S. Krishnan would submit in his argument that the Petitioner and the 1st Respondent entered into a
Partnership Agreement on 15.12.2003 for a period of 5 years for the purpose of mining iron ore and allied minerals in the tract to an extent of
191.13 hectares at Haraginadona Village, Bellari District, Karnataka, after having obtained permission from the Department of mines and Geology,
Govt. of Karnataka with certain terms and conditions. He would also submit that the said period of Agreement ended by 14.12.2008 and all duties
and responsibilities of either parties as specified in the Partnership Agreement would come to an end and the rights of both parties have
crystallised. He would also submit that a detailed Audit Report was prepared by the Common Auditor and it would show that the 1st Respondent
would be liable to pay the Petitioner a sum of Rs. 11,40,08,017/-, towards his 50% share in the net profit of the Firm. He would also submit that
the request of the Petitioner with the 1st Respondent did not fructify despite he pleaded personally and through several well wishers on various
occasions and therefore, a legal notice was sent on 22.6.2009 demanding for the said payment with interest at 24% p.a., and ask him to vacate the
mine site and also to pay compensation for damages caused to the machineries belonging to the Petitioner and also compensation for loss of
business for exploiting the mines from 15.12.2008 till 20.6.2009 which is beyond the period of agreement and also ` 50 lakhs towards mental
agony and sufferings of the Petitioner. He would also submit that the said notice was belatedly replied by the 1st Respondent and in order to
protect the mines, the Petitioner approached this Court and obtained an order of injunction in O.A. No. 686 of 2009 u/s 9 of the Arbitration and
Conciliation Act.
He would also submit that the 1st Respondent sent a Letter to the Auditor to verify the accounts sent by the Petitioner and also sent a letter on
8.7.2009 to the 2nd Respondent seeking certain reliefs and the 2nd Respondent had acted on the letter and directed the Petitioner to appear
before him on 28.7.2009 at Bellari, in connection with the dispute arising out of Partnership Deed dated 15.12.2003. He would further submit that
he immediately sent a Letter to the Arbitrator on 18.7.2009 challenging the mandate of the Arbitrator on 12 grounds mentioned therein. He would
also submit that the 2nd Respondent as an Arbitrator is ""de jure"" incompetent to perform as an Arbitrator because the 2nd Respondent had acted
on the Letter written by the 1st Respondent dated 8.7.2009 and stated that the Partnership Agreement dated 15.12.2003 was still in force despite
the said period was already over by 14.12.2008. He would also submit that such a finding of the 2nd Respondent in connection with the dispute
without having any enquiry of the parties would make the 2nd Respondent ''de jure'' impossible to function as an Arbitrator. He would also submit
that the 2nd Respondent had pre-judged an important issue and gave a finding and that would also make him ""de facto"", impossible to act as an
Arbitrator. He would further submit in his argument that the independence and impartiality of the 2nd Respondent to arbitrate the disputes has been
apprehended by the Petitioner. He would also submit that the 2nd Respondent was already a Special Officer along with the 1st Respondent and he
was lending support to the 1st Respondent by non-assertion of his right as Special Officer with a power of giving an arbitral award. He would also
submit that the said fact has been also mentioned in the Letter dated 2.7.2009 written by the 2nd Respondent to the Auditor.
He would further submit that the 2nd Respondent was also a beneficiary on the profits of the Partnership Firm since he was entitled to 5%
commission on the profits and the 2nd Respondent if continued as Arbitrator he might fictitious or jacked up amounts as profits so as to enrich
himself in the share of profits and therefore, there is a likelihood of the 2nd Respondent acting on bias. He would further submit that the said
involvement of the 2nd Respondent in the Agreement itself would go to show that he is also impliedly one of the parties to the Agreement and he
cannot be permitted to judge the issue through adjudication of which would likely to benefit him. He would otherwise submit that no person shall
be a judge for his own cause is the celebrated dictum. He would also refer to catena of judgments of the Hon''ble Apex Court, and Delhi High
Court in support of his arguments which are as follows:
1 J. Mohapatra and Co. and Another Vs. State of Orissa and Another,
Bharat Sanchar Nigam Ltd. and Another Vs. Motorola India Pvt. Ltd.,
Manak Lal Vs. Dr. Prem Chand,
Bihar State Mineral Dev. Corpn. and Another Vs. Encon Builders (I) Pvt. Ltd.,
Cantonment Executive Officer and Another Vs. Vijay D. Wani and Others, ; and
Ashvika Construction Pvt. Ltd. Vs. Govt. of India and Others
Quoting those above judgments, he would also stress that if the mandate of the 2nd Respondent is continued without any termination certainly,
he would act biasedly and would also act against the said principles that no person shall judge on his own cause. He would also submit that the
judgment of Delhi High Court as referred already and yet another judgment of Guwahati High Court reported in 2007 (1) Arb. LRT 564 Guwahati
would go to show that there is no necessity for resorting to terminate the mandate before the Arbitrator u/s 13 of the Act, but it could be initiated
before Court to terminate the mandate of the Arbitrator u/s 14 of the Act. He would also submit that the request of the Petitioner is very much
bona fide and the mandate of the Arbitrator may be terminated u/s 14 of the Act and necessary directions may be given to approach this Court for
appointment of new Arbitrator in his place. He would, therefore, request the Court to allow the application and to extend the stay till the new
Arbitrator is appointed through process of law.
The learned Senior Counsel Mr. A.L.. Somayaji, appearing for the 1st Respondent would submit in his argument that the 2nd Respondent was
working in the partnership had in between the Petitioner and the 1st Respondent as Special Officer and since he has got experience in mining and
he was appointed as a named Arbitrator in case of any disputes arise in between the Petitioner and the 1st Respondent. He would further submit
that the Petitioner and the 1st Respondent had very much aware of the appointment of the 2nd Respondent as an Arbitrator and the 2nd
Respondent was therefore a named Arbitrator. He would, therefore, submit that the parties had agreed to have the service of the 2nd Respondent
as Arbitrator since he was very much aware of the mining procedures and the dispute in between parties and the 5% commission is nothing but a
remuneration to the 2nd Respondent for he was working as a Special Officer. He would also submit that when the 2nd Respondent was appointed
as Arbitrator by the parties in the Partnership Agreement itself and the parties have appointed him wide open their eyes, there is no disqualification
for the said named Arbitrator to continue the Arbitration proceedings on the initiation of such proceedings by him. He would also submit that the
dictum as put-forth by the learned Senior Counsel for the Petitioner that no man shall be a judge for his own cause is not at all disputed but the said
dictum is not applicable to the present case since the parties themselves had selected the 2nd Respondent as a named Arbitrator for solving their
disputes. He would further submit in his argument that the 2nd Respondent has not acted biasedly nor prejudged any dispute in between parties but
had asked the Petitioner to appear before him in pursuance of the Arbitration proceedings in respect of the disputes had in respect of the
Agreement dated 15.12.2003. He would also submit that the tenure of Partnership Agreement is not restricted to only 5 years and the said clause
would go to show that the tenure would be extended till the capital invested by the 1st Respondent has been satisfied through the profits and
therefore, the argument that the Partnership Agreement was lapsed on 14.12.2008.
He would also submit that when the facts are such it is peculiar to state that the 2nd Respondent has pre-judged the tenure of Partnership
Agreement. He would also submit that the scope of Section 14 is different from the scope of Section 34 and other proceedings before the
Arbitrator u/s 13 of the Act. He would also submit that whenever the parties agreed to terminate the mandate of the Arbitrator in case, or the
Arbitrator did not recuse himself or when it was refused by the Arbitrator u/s 13 of the proceedings, it could be only possible for the termination of
the mandate. He would also submit that when once Arbitral proceedings have commenced, the Authority of the Arbitrator cannot be terminated
and it could be agitated only u/s 34 of the Act, after the Arbitral award has been made. He would also submit in his argument that the
disqualification or to challenge the mandate of the Arbitrator who commenced the Arbitration proceedings could be in accordance with Section 12
of the Act and Section 12 sub-section (4) of the Act would be quite clear that the disqualification of an Arbitrator for challenging his mandate
should have been known to the person only after his appointment.
Referring to the aforesaid provision, the learned Senior Counsel would argue that both the Petitioner as well as the 1st Respondent had known
full well that the 2nd Respondent was the Special Officer of the Partnership Firm and he has an interest in the profit of the partnership and after
knowing full well about his interest in the partnership and also upon his special knowledge over the mining process, he was referred as a named
Arbitrator and therefore, it cannot be said that the challenge of the mandate of the Arbitrator as put forth by the Petitioner is attracted under the
provisions of Section 12. He would further submit that an Arbitrator cannot be a judge and he need not follow the procedures contemplated in the
procedural law. When the Arbitrator is a named person and even he being an employee of one of the parties, his mandate cannot be challenged
after the commencement of the arbitration and before the passing of arbitral award and it may be challenged only after passing an arbitral award in
the proceedings u/s 34 of the said Act. He would cite catena of judgments in support of his arguments which are as follows:
S.B.P. and Co. Vs. Patel Engineering Ltd. and Another,
Ace Pipeline Contracts Private Limited Vs. Bharat Petroleum Corporation Limited,
Neeraja Chowdhry v. State of M.P., AIR 1988 SC 1099(1);
Newton Engineering and Chemicals Ltd. Vs. Indian Oil Corporation Ltd. and Others,
Herike Rice Mills Vs. State of Punjab and Others,
Vijay Singh Amar Singh and Co. Vs. Hindustan Zinc Limited and Others, and
Executive Engineer Sardar Sarovar Narmada Nigam Vs. Bhaven Construction and Another,
In support of his arguments he would once again submit that no person shall be a judge for his own cause is not applicable to the present facts
of the case and the challenge of the mandate of the Arbitrator and the termination sought for u/s 14 would not be possible as sought for by the
Petitioner in this Petition. He would, therefore, request the Court to dismiss the Petition as well as the Application with costs of the 1st
Respondent.
I have given anxious thoughts to the arguments advanced on either side.
The main Original Petition has been filed by the Petitioner seeking for the termination of the mandate of the 2nd Respondent from adjudicating
the disputes between the Petitioner and the 1st Respondent arising from the Partnership Agreement dated 15.12.2003 and also to pass suitable
orders along with the said Application has been filed in A. No. 3989 of 2009 seeking for the stay of the Arbitral proceedings initiated by the 2nd
Respondent. In the said Application this Court has passed an order of interim stay and it is being continued. Before the launch of these
proceedings, the Petitioner had applied for injunction against the 1st Respondent restraining him from interfering with the mining process in the Suit
site, belonging to the Petitioner in O.A. No. 686 of 2009 and an interim injunction has been granted in favour of the Petitioner. Along with the said
Application, a Commissioner was also appointed at the request of the Petitioner and the Commissioner inspected the suit property and took
machineries belonging to the Petitioner and the Respondent and submitted a report. In the meanwhile, an Application for providing Police help to
enforce the order of injunction and the said Application was ordered and subsequently, since the 1st Respondent had removed all his machineries
and vacated the mining site. The Application seeking for injunction was withdrawn and other allied Application was closed by this Court.
Therefore, I could see that the 1st Respondent had vacated the mining premises and it is in the occupation of the Petitioner.
Now, the dispute in between the Petitioner and the 1st Respondent would be in respect of the profit sharing and the proprietary right of the 1st
Respondent to continue the Partnership Agreement more than 5 years as per the clause 3 made in the Partnership Agreement. These two points
have to be decided only by the Arbitrator and this Court has no jurisdiction to decide those points. Now, the only point to be considered before
this Court is as to whether the mandate of the Arbitrator, conferred on him under Clauses 15 & 16 of the Partnership Agreement be terminated by
this Court under the provisions of Section 14 of the Act?
The arguments put forth by the learned Senior Counsel Mr. M.S. Krishnan was that no person shall be a judge for his own cause, it is admitted
by a celebrated maxim. It has been laid down by the Hon''ble Apex Court in various pronouncements. He would also refer to in the agreement that
the principle has been followed and applied not on the judges of the Court but also on the Presiding Officer in the Quasi-Judicial proceedings.
In a judgment of the Hon''ble Apex Court reported in Manak Lal Vs. Dr. Prem Chand, it has been clearly laid down as follows:
4.........It is well settled that every member of a Tribunal that is called upon to try issues in Judicial or Quasi-Judicial proceedings must be able to
act judicially; and it is of the essence of judicial decisions and judicial administration that Judges should be able to act impartially, objectively and
without any bias. In such cases the test is not whether in fact and bias has affected the judgment; the test always is and must be whether and litigant
could reasonably apprehend that a bias attributable to a member of the Tribunal might have operated against him in the final decision of the
Tribunal. It is in this sense that it is often said that justice must not only be done but must also appear to be done. As Viscount Cave, L.C. has
observed in Frome United Breweries Co. v. Bath Justices, 1926 App Case 586 at p.590 (A):
This rule has been asserted, not only in the case of Courts of Justice and other judicial Tribunals, but in the case of authorities which, though in no
sense to be called Courts, have to act as judges of the rights of others.
He would rely upon the judgment of the Hon''ble Apex Court reported in J. Mohapatra and Co. and Another Vs. State of Orissa and
Another, . The relevant passage would be as follows:
Justice should not only be done but should manifestly be seen to be done, Justice can never be seen to be done if a man acts as a judge in his own
cause or is himself interested in its outcome. The principle nemo judex in causa sua, that is, no man shall be a Judge in his own cause, is firmly
established and is applicable not only to Judicial proceedings but also to Quasi-Judicial and Administrative proceedings.
There is, however, an exception to the above rule that no man shall be a judge in his own cause, namely, the Doctrine of Necessity. An
adjudicator, who is subject to disqualification on the ground of bias or interest in the matter which he has to decide, may be required to adjudicate
if there is no other person who is competent or authorised to adjudicate or if a quorum cannot be formed without him or if no other competent
Tribunal can be constituted. In such cases the Principle of Natural Justice would have to give way to necessity for otherwise there would be no
means of deciding the matter and the machinery of justice or administration would break down.
In the aforesaid judgment of the Hon''ble Apex Court it had been given a dictum that no man shall be a judge for his own cause with an
exception.
For the same principle, another judgment of the Hon''ble Apex Court reported in Bihar State Mineral Dev. Corpn. and Another Vs. Encon
Builders (I) Pvt. Ltd., has been laid down as follows:
There cannot be any doubt whatsoever that an Arbitration Agreement must contain the broad consensus between the parties that the disputes
and differences should be referred to a Domestic Tribunal. The said Domestic Tribunal must be an impartial one. It is a well-settled principle of law
that a person cannot be a judge of his own cause. It is further well settled that justice should not only be done but manifestly seen to be done.
Actual bias would lead to an automatic disqualification where the decision-maker is shown to have an interest in the outcome of the case.
Actual bias denotes an Arbitrator who allows a decision to be influenced by partiality or prejudice and thereby deprives the litigant of the
fundamental right to a fair trial by an impartial Tribunal.
Yet another judgment of the Hon''ble Apex Court reported in Cantonment Executive Officer and Another Vs. Vijay D. Wani and Others, , has
been laid down upon in order to explain the question of bias. The relevant passage would run as follows:
The question of bias is always the question of fact. The Court has to be vigilant while applying the principles of bias as it primarily depends on
the facts of each case. The Court should only act on real bias not merely on likelihood of bias. In the present case, so far as the members of the
Committee who conducted a disciplinary inquiry were also the members of the Cantonment Board where the report was to be considered,
decided and whether to accept it or not and finding the Respondent (herein) guilty or not. The very fact that these three persons who conducted
inquiry were also the members of the Board and that the Board was to take a decision in the matter whether the report submitted by the Enquiry
Committee should be accepted or not. Therefore, the participation of these three members in the Committee has given a real apprehension in the
mind of the Respondent that he will get a fair justice in the matter because the three members who submitted the report would be interested to see
that their report should be accepted. This bias in this case cannot be said to be unreal, it is very much real and substantial one that the respondent is
not likely to get a fair deal by such Disciplinary Committee.
................
Similarly, in R. v. Bow Street Metropolitan Stipendiary Magistrate, exp Pinochet Ugarte (No. 2), it was observed that a Judge is automatically
disqualified from hearing a matter in which he has a pecuniary interest in the outcome as also when the decision would lead to promotion of a cause
in which he is involved, together with one of the parties.
On a careful understanding of the aforesaid dictum laid down by the Hon''ble Apex Court, it could be understood that the principle laid down
by the Hon''ble Apex Court that no man shall be a judge for his own cause is indisputable. Whether such dictum is applied to a case, where the
parties have vide open their eyes and entered into an agreement to appoint the 2nd Respondent as named Arbitrator for settling the disputes is a
question.
It has been argued by the learned Senior Counsel Mr. A.L. Somayaji that the knowledge of the 2nd Respondent on the subject was
considered and since he was not only an Employee but also acting as a Special Officer as mentioned in Clause 8 of the Partnership Agreement
would establish that his special knowledge was the cause for his appointment as named Arbitrator.
Mr. A.L. Somayaji relied upon a judgment reported in Ace Pipeline Contracts Private Limited Vs. Bharat Petroleum Corporation Limited, The
relevant passage would be as follows:
In the present case, in fact the Appellant''s demand was to get some retired Judge of the Supreme Court to be appointed as Arbitrator on the
ground that if any person nominated in the Arbitration clause is appointed, then it may suffer from bias or the Arbitrator may not be impartial or
independent in taking decision. Once a party has entered into an Agreement with eyes wide open it cannot wriggle out of the situation that if any
person of the respondent BPCL is appointed as Arbitrator he will not be impartial or objective. However, if the Appellant feels that the Arbitrator
has not acted independently or impartially, or he has suffered from any bias, it will always be open to the party to make an Application u/s 34 of
the Act to set aside the award on the ground that Arbitrator acted with bias or malice in law or fact.
In view of our above discussion, we find no reason to interfere with the order passed by the learned Single Judge of the High Court of Delhi in
Arbitration Petition No. 181 of 2005. The Arbitrator has already been appointed. He should proceed in the matter and decide the dispute
expeditiously. Consequently, the Appeal is dismissed with no order as to costs.
In the aforesaid judgment, it has been mentioned that when the parties have wide open their eyes and appointed the person who has
knowledge in the subject, it cannot be disputed that the proceedings of the Arbitration has been commenced. In a judgment cited by the learned
Senior Counsel J. Mohapatra and Co. and Another Vs. State of Orissa and Another, an exception is given towards necessity. Therefore, the
principle cited by the Hon''ble Apex Court to the dictum namely no person shall be a judge for his own cause is also having an exception, in case
of necessity. In the judgment of the Hon''ble Apex Court reported in Ace Pipeline Contracts Private Limited Vs. Bharat Petroleum Corporation
Limited, , it has been held that the parties when appointed a named Arbitrator cannot question the mandate. The terms of the Partnership
Agreement would go to show that the Petitioner and the 1st Respondent appointed the 2nd Respondent as named Arbitrator only for his skills in
the mining process, and also after considering his necessity to decide the dispute in between Petitioner and the 1st Respondent. Therefore, the
principle that no man can be a judge for his own cause is not applicable to the present case.
In such circumstances, whether the 2nd Respondent had acted biasedly by stating that the tenure of the Partnership Agreement is still holding
good has to be considered. For that the relevant Clause 3 of the Partnership Agreement has to be extracted:
Duration of Partnership: Five years or till the fulfillment of the condition that the capital invested by CSN is recovered by him whichever is more.
In the said duration of partnership, the 5 year period or till the fulfillment of the condition that the capital invested by C. Sathyanarayana is
required by him whichever is more. Therefore, I could see that there is no biased attitude in the tenure of the Partnership Agreement from the
Arbitrator. Now coming to the revocation of the Authority for termination of mandate u/s 14 is concerned, I could see that the reasons mentioned
by the Petitioner for the termination of mandate in the Petition are not sufficient u/s 12 of the Act. No doubt, all these particulars were not found by
the Petitioner after the appointment of the Arbitrator since he was a named Arbitrator. The point for consideration is whether the mandate of the
Arbitrator is liable to be terminated. For concluding the said request of the Petitioner, it has become necessary to extract the provisions of Section
14 of the Arbitration and Conciliation Act:
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 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 (3) of Section 12.
The power conferred upon the Court as per Section 14 of the Act is the undue delay when the Arbitrator had not completed the Arbitral
proceedings within the time limit. This Petition has not been admittedly filed after the Petitioner has approached the Arbitrator to terminate his
mandate u/s 13 of the Act. If for any reason, the Arbitrator has conceded that there is no Petition filed u/s 14 of the Act. In case, the Arbitrator has
not conceded, so then only the Petitioner has to resort this Court u/s 14 of the Act. On a careful reading of Section 14 of the Act, if the Arbitrator
becomes unable to perform his functions as de jure or de facto or for any other reasons for making him fail to act without undue delay and it is
disputed and the controversy remains the party can approach the Court to terminate the mandate with the rider that unless otherwise agreed by the
parties. The reasons submitted by the Petitioner for the Arbitrator''s inability to do his functions as de jure or de facto has not been agreed by the
other parties. In the said circumstance, it is not possible to hold that the Petitioner can seek for termination of the mandate of the Arbitrator for the
disabilities mentioned in Section 14(1)(a) of the Act without any agreement with the other parties. If it is so, the 1st Respondent should also come
for the termination of the mandate. Moreover, it is quite clear that the challenges shown as grounds for the termination of mandate should contain
any of the grounds referred to in the Section or sub-section (3) of Section 12. We have already seen that the grounds raised by the Petitioner are
not attracted under the grounds referred to in Section 12 of the Act.
The judgment of Guwahati High Court reported in 2007 (1) Arb. LRT 564 Guw. would lay down that the ''de jure'' inability referred to in
Section 14 comprehend all conceivable legal short comings existing or acquired by an Arbitrator disqualifying him to discharge from the role.
Relying upon the said passage, it was argued that de jure inability to decide the dispute in which he was involved could be considered as legal
infirmity by the learned Senior Counsel appearing for the Petitioner. It is further relied upon by the said judgment for the finding that the Court has
got power u/s 14 of the Act to terminate the mandate and there is no pre-requisite to go for the procedure u/s 13 before the Arbitrator and after
exhausting the same to come to Court. The said exhausting principles would not apply to the present case, because it was found that the grounds
raised by the Petitioner for terminating the mandate are not covered u/s 12 nor has been consented to terminate the mandate u/s 14(2) of the Act.
In the said circumstance, I could see that the termination of mandate cannot be resorted to, at the present stage.
The judgment of the Hon''ble Apex Court reported in J. Mohapatra and Co. and Another Vs. State of Orissa and Another, has given an
exception to such persons who have got special knowledge and the necessity to appoint him as an Arbitrator and he cannot be disqualified or
terminated from the Authority as Arbitrator since the necessity to decide the dispute is found in the Partnership Agreement itself. When the
Petitioner and the 1st Respondent selected a particular mode of settlement of the dispute and agreed without any undue influence or pressure, for
making the Arbitration clause to appoint the 2nd Respondent as a named Arbitrator, then how he could precluded by raising such type of
objections. Merely because the Arbitrator is an employee cum special officer of one of the parties cannot be a ground for non-enforcing the
provisions of Arbitration Clause. Even otherwise, the said reason was not found by the Petitioner after the appointment of Arbitrator but even at
the time of entering into a Partnership Agreement the Arbitration clause was entered. The selection was by mutual consent and the disability of any
kind in that person chosen could not be a ground to terminate the mandate unless both parties agreed to terminate the mandate of the Arbitrator.
The judgment of Punjab and Haryana High Court reported in Herike Rice Mills Vs. State of Punjab and Others, had also considered a similar
circumstance, and decided as follows:
5.............. Again, Section 13 provides that parties are free to agree on an procedure for challenging the appointment of an Arbitrator and in the
absence of any such Agreement a party, who intends to challenge the appointment shall within 15 days after becoming aware of the constitution of
the Arbitral Tribunal, send a Written Statement of the reasons for the challenge to the Arbitral Tribunal. Unless the Arbitrator withdraws from his
office or the other party agrees to the challenge, the Arbitral Tribunal is to the challenge, the Arbitral Tribunal is to decide on the challenge and if
the challenge is not successful, the Arbitral Tribunal has to continue with the Arbitral proceedings and make an Arbitral award. After the award is
made, a party challenging the appointment of the Arbitrator can make an Application for setting aside the award in accordance with the provisions
of Section 34 of the Act.
It has been categorically mentioned that once the mandate of the Arbitrator cannot be terminated, it is for the person, who approaches the
Court has to go for setting aside the award on the same ground u/s 34 of the Act, after the award has been made by the Arbitrator. The said view
taken by the Punjab and Haryana High Court is quite in consonance with the judgment of the Hon''ble Apex Court and the provisions of Sections
12 to 14 of the Act. Therefore, I am also on the considered view that the mandate of the Arbitrator cannot be terminated on the reasons put forth
by the Petitioner u/s 14 of the Act. The Arbitration proceedings have already been commenced and on the issue of notice by the 2nd Respondent
to appear before Court for enquiring the dispute.
In the said circumstance, this Court cannot terminate the mandate of the Arbitrator in accordance with the provisions of Section 14 of the Act.
It is always permissible for the Petitioner to go for setting aside the award after the 2nd Respondent/Arbitrator has completed the Arbitral
proceedings and passed an award, u/s 34 of the Act on the same grounds. The order passed by this Court may not influence the facts and
circumstances of the case in the said Petition.
With the aforesaid observation, I am of the considered view that the Petitioner has not made out any grounds to terminate the mandate of the
Arbitrator under the provisions of Section 14 of the Act. Accordingly, the main Original Petition is dismissed. Consequently, the Stay Application
filed in A. No. 3989 of 2009 is also dismissed. No costs.