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AMICUS AI
Citation Codes
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Case Number
Attorney(S)
  • A.S Jaiswal
  • H.D Dangre and S.P Dharmadhikari
  • A.G Gharote
Judges
  • B.P Dharmadhikari, J.
Acts
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Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
  • A.S Jaiswal
  • H.D Dangre and S.P Dharmadhikari
  • A.G Gharote
Judges
  • B.P Dharmadhikari, J.
Acts
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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The present writ petition was filed under Articles 226 and 227 of the Constitution of India challenging an order of the District Judge, Nagpur in Misc. Civil Application No. 593 of 2004 dated 30 November 2004. That application had been brought by the petitioner under section 14 of the Arbitration and Conciliation Act, 1996 seeking closure of arbitration proceedings. The arbitration in question had been initiated by respondent No. 1 (a builder) before the arbitrator (respondent No. 17, Shri C.V. Kale) for specific performance of an agreement dated 16 February 1998 against the petitioner and respondents 2 to 16.

The petitioner had originally applied under section 14(2) of the Act contending (i) that the arbitrator was biased because Advocate Madnani—who appeared for the claimant builder—was also counsel for the arbitrator in the arbitrator's personal suit (Special Civil Suit No. 844/2003, C.V. Kale v. R.C. Sawarkar) and because the arbitrator's son acted as co-counsel with Advocate Madnani; and (ii) that there was effectively no dispute left to adjudicate because the claimant had allegedly assigned his interest in the suit property to Linkhouse Industries Ltd., and the petitioner had sold the property to Soham Co-operative Society and placed them in possession.

The arbitrator rejected the petitioner's challenges by order dated 24 October 2004 and directed the arbitration to proceed. The District Judge thereafter rejected the petitioner's application under section 14, issuing a considered 44-page ruling that (in substance) held that jurisdiction under section 14 was not proper and that the appropriate remedy lay under section 34 of the Act. The petitioner brought the present writ petition challenging the District Judge's order.

Legal Issues Presented

  1. Whether the arbitrator had become de jure or de facto unable to perform his functions under section 14(1)(a) of the Arbitration and Conciliation Act, 1996 on account of alleged bias and/or the alleged assignment/transfer of rights in the subject property.
  2. Whether an application under section 14 of the Act is a proper remedy in the circumstances alleged, or whether objections should be pursued under the challenge procedure contained in sections 12–13 or by way of an action under section 34 after an award is made.
  3. Whether transfers of the disputed property by parties during the pendency of arbitration proceedings (including assignment to third parties and sale/possession granted to the petitioner’s transferee) can render arbitration proceedings infructuous and thereby disqualify the arbitrator under section 14.
  4. Whether established tests for determining “bias” were correctly applied by the District Judge in rejecting the petitioner's application under section 14.

Arguments of the Parties

Petitioner’s Arguments

  • The arbitrator is biased because Advocate Madnani represents the claimant and is counsel for the arbitrator in the arbitrator’s personal suit, and the arbitrator’s son is co-counsel with Advocate Madnani.
  • The claimant allegedly assigned his interest in the suit property to Linkhouse Industries Ltd., and the petitioner sold the property to Soham Co-operative Society and placed them in possession, so there is effectively no dispute left to adjudicate; consequently the arbitrator has become de jure and de facto unable to perform his functions under section 14(1)(a).
  • The petitioner asserted that the arbitrator had professional and business connections (served as director for three years in a group of companies and acted as advocate for one of the directors), and had drafted an agreement appointing himself as arbitrator — matters which, the petitioner argued, support the bias contention.
  • Counsel for the petitioner relied on authorities (e.g., Ranjit Thakur, Koshy v. K.S.E. Board) to assert the tests for bias and that circumstances likely to lead to bias are sufficient.
  • The petitioner maintained that the challenge was correctly brought under section 14 and not under section 16.

Respondents 2 to 7 (colluding with petitioner) — Arguments

  • They argued that the District Judge failed to apply the correct legal tests for bias and that the facts before the Court justified action under section 14 rather than under sections 12/16.
  • They placed on record supporting case law and a chart explaining factual position on bias and assignment; they contended section 52 of the Transfer of Property Act had no application to transfers made to Soham Co-operative Society because arbitration proceedings are not a suit pending in Court and relied on Saurabh Kalani v. Tata Finance Ltd. for support.

Respondent No. 1 / Caveator — Arguments

  • Respondent No. 1 supported the District Judge’s order and contended that objections of the nature raised by the petitioner are not maintainable under section 14 during the pendency of arbitration proceedings.
  • He relied upon sections 5, 12 and 13 of the Act and contended that the arbitrator has to be challenged under the procedure in section 13 and, if the arbitrator decides against the challenger, the remedy is to challenge the eventual award under section 34.
  • He also relied upon section 16 and the Apex Court judgment in Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd. (2002) 2 SCC 388 to explain the statutory scheme and the limitation on judicial interference with interlocutory matters in arbitration.
  • It was further argued that the fact that an arbitrator is standing counsel for a party does not ipso facto disqualify him, with reliance on authorities to that effect.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Ranjit Thakur v. Union of India, (1987) 4 SCC 611 Cited by petitioner to indicate the tests to determine “bias”. Noted as relied upon by petitioner to elucidate the test for bias; court recorded the reliance but concluded the statutory challenge procedure governed the matter.
Koshy v. K.S.E. Board, AIR 1984 Kerala 23 Authority for proposition that actual proof of bias is not required; circumstances likely to lead to bias suffice. Recognised as relied on by petitioner; court nonetheless held the statutory mechanism (sections 12–13 and section 34) controls the remedy.
Hindu National School Management Trust Society v. Deputy Director of Education, AIR 1981 NOC 1 (FB, Allahabad) Authority cited for the meaning of "assign". Noted by parties; the Court considered submissions about assignment but did not accept assignment as a ground for invoking section 14.
Commissioner of Gift Tax, Madras v. N.S. Getty Chettiar, AIR 1971 SC 2410 Cited to support argument on the meaning of "assign". Referenced as part of parties' arguments about assignment; the Court did not treat assignment as disqualifying the arbitrator under section 14.
Anant Trimbak v. Vasant Pratap Pandit, 1979 Mh. L.J. 755 : AIR 1980 Bom. 69 Cited to explain the meaning of "assign". Identified as relied upon by counsel; the Court declined to accept assignment as a basis for section 14 relief at this interlocutory stage.
Hasmukhlal H. Doshi v. M.L. Pendse, 2000 (3) Mh. L.J. 690 Cited for the proposition that bias may constitute ground to hold an arbitrator de jure unable to perform functions. The Court observed this authority but explained that the statutory challenge procedure (sections 12–13) and the embargo in section 5 limit judicial intervention under section 14 in the circumstances of the case.
Nasiruddin v. S.T.A. Tribunal, AIR 1976 SC 331 Cited by petitioner to urge giving a full and natural meaning to the word "assign". Noted as relied upon by petitioner; the Court did not accept that an assignment in the circumstances rendered the arbitrator disqualified under section 14 at the interlocutory stage.
Sales Tax Officer v. Kanhaiya Lal, AIR 1959 SC 135 Also cited to support arguments on the meaning of "assign". Referenced by counsel; Court did not treat it as altering the statutory route for challenges to the arbitrator.
Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd., (2002) 2 SCC 388 Explains the scheme of the Act: sections 12 and 13 require disclosure and provide a mechanism to challenge arbitrators; interlocutory orders of the Tribunal are not ordinarily amenable to court interference and awards are challengeable under section 34. The Court expressly relied on the principles in this decision to hold that the arbitrator's decision on challenge must be allowed to stand (subject to section 34) and that section 14 relief was not available in these circumstances.
Saurabh Kalani v. Tata Finance Ltd., 2003 (4) Mh. L.J. 810 : 2004 (1) R.A.J. 120 Relied on by respondents to support the proposition that certain transfers do not affect arbitration procedure and to explain tests to be applied for bias. Referred to by parties and noted by the Court; used in submissions but the Court maintained that challenges should follow the statutory route.
Division Bench ruling of Andhra Pradesh High Court (unnamed) Held that the fact an arbitrator is standing counsel for one of the parties does not ipso-facto disqualify him. Cited by respondent No.1 to support that counsel relationship alone may not amount to disqualification; the Court accepted that mere standing counsel status is not automatically disqualifying for the purpose of section 14.

Court's Reasoning and Analysis

The Court's analysis proceeded from the statutory scheme of the Arbitration and Conciliation Act, 1996 and the controlling precedents it described. The Court observed that:

  1. Section 12 imposes an obligation on a designated arbitrator to disclose facts which may give rise to doubts about his independence and impartiality; a challenge is available where doubts exist or where the arbitrator lacks the qualifications agreed by the parties. Section 13 prescribes the procedure to be followed for such a challenge.
  2. The Arbitral Tribunal itself is to decide upon a challenge under section 13 (unless the arbitrator withdraws or the other party accepts the challenge). If the arbitrator negatives the challenge, he must continue the arbitration and make an award; that award can then be challenged under section 34. Similarly, a challenge to jurisdiction is resolved by the tribunal and, if rejected, proceeds to an award that can be challenged in a court under section 34.
  3. Relying on Konkan Railway and the statutory scheme, the Court emphasized that there is a limited role for judicial interference with interlocutory matters during ongoing arbitration and that the Act intends to restrict such interference.
  4. Although bias can constitute a ground for holding that an arbitrator is de jure unable to perform his functions (as noted in authorities like Hasmukhlal H. Doshi), the presence of a specific statutory regime (sections 12–13 and the embargo in section 5) means that the proper avenue is the statutory procedure and, ultimately, section 34, not an interlocutory invocation of section 14 in the circumstances before this Court.
  5. Transfers or assignment of rights in the subject property during the pendency of arbitration do not, per se, render an arbitrator de jure or de facto unable to perform his functions. Section 14(1)(a) contemplates disqualification personal to the arbitrator stemming from facts that make him incapable of adjudicating; it is not intended to enable a party to defeat arbitration by unilaterally rendering the dispute infructuous.
  6. The Court noted that Section 15 provides for substitution of an arbitrator where necessary, and that issues such as the effect of assignment or of alleged bias can be dealt with, if necessary, when an award is challenged under section 34.
  7. Having reviewed the District Judge's 44-page order, the Court found that the lower court had considered the arguments and applied the law to the facts; no perversity, manifest error or jurisdictional mistake was shown to justify interference by writ.

On the interlocutory request to continue the status quo order for two weeks, the Court granted two additional weeks to enable the petitioner to take further steps; it noted that the arbitrator's next listed step was the filing of a written statement but allowed the temporary extension in the interest of justice.

Holding and Implications

Holding: The writ petition is dismissed. The Court upheld the District Judge's rejection of the petitioner's application under section 14 of the Act and concluded that the remedy sought was not available at this interlocutory stage.

Implications:

  • Direct effect on the parties: The petitioner's challenge under section 14 was rejected; arbitration proceedings before the arbitrator (respondent No. 17) will continue and objections as to bias or the effect of any assignment may be raised before the arbitral tribunal and, if the tribunal rejects them, by challenge to any eventual award under section 34.
  • The Court granted a continuation of the interim status quo order for two weeks to enable the petitioner to take further steps; beyond that period, the interim order stands lifted unless further relief is obtained by the petitioner.
  • No broader substantive precedent was laid down beyond applying the established statutory scheme (sections 12–13, 14, 15 and 34) and the principle that interlocutory interference with arbitration is limited; the Court expressly treated the District Judge’s order as a correct application of existing law and not as creating new law.

Disposition: Petition dismissed with no order as to costs. Interim status quo extended for two weeks.

Petition dismissed.
Show full summary ...

    Vilas v. Ganesh Builders

    In this writ petition filed under Articles 226 and 227 of Constitution of India, the petitioner challenges order passed by District Judge Nagpur in Misc. Civil Application No. 593 of 2004 on 30 November, 2004 which is an application moved by him under section 14 of Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Act). I have heard Advocate Shri Jaiswal for the petitioner, Advocate Shri Gharote for respondents 2 and 7 (colluding with petitioner) and Advocate S.P Dharmadhikari for caveator/contesting respondent.

    2. The petitioner filed application under section 14(2) of the Act contending that on account of “Bias” and also on account of the fact that there is no dispute between parties now for adjudication, Arbitrator has become de jure and de facto unable to perform his functions and hence the arbitration proceedings pending before respondent number 17 Shri C.V Kale, Advocate, should be closed. The present respondent number one, a builder has initiated arbitration proceedings before respondent number 17 for specific performance of a agreement dated 16th February, 1998 against present petitioner and respondents 2 to 16. The “Bias” as pointed out in his application dated 4 October, 2004 by petitioner before the Arbitrator is that Advocate Madnani who appears for claimant builder is also the counsel for arbitrator in Arbitrator's personal case Special Civil Suit No. 844/2003, C.V Kale v. R.C Sawarkar before the Jt. Civil Judge, Sr. Division Nagpur and the son of Arbitrator is co-counsel with Advocate Madnani. Insofar as the other challenge is concerned, it is pleaded that the claimant builder has assigned his interest in suit property in favour of one Linkhouse Industries Ltd. and it is contrary to the alleged agreement between parties. It is further contended that in view of such assignment, the claimant builder has lost his right in the agreement of sale dated 16-2-1998. It is further mentioned that the petitioner also has on 7th August, 2004 sold suit property in favour of Soham Co-operative Society of Nagpur and has placed that society in possession. These landowners also do not have any title left in the suit property and therefore arbitration proceedings cannot proceed further. The applicant/petitioner contends that in view of this position the Arbitrator has become de jure and de facto unable to perform his function and mandate to Arbitrator has come to an end as contemplated by section 14(1)(a) of the Act. It is the contention of petitioner that Arbitrator functioned as director for three years of Mr. N. Kumar group of companies and he was also Advocate for Mr. Jagdish Harchandani - one of the directors of Kumar group of companies and that in January, 2004 Arbitrator drafted one agreement for Mr. Jagdish Harchandani appointing himself as Arbitrator in it. The Arbitrator has rejected all these challenges by his order dated 24-10-2004 and has directed arbitration to proceed further. The learned District Judge has negatived challenge to this order and rejected the application under section 14 of the Act filed before him by petitioner by passing an exhaustive order running into 44 pages considering the entire law on the point of “Bias” and also the scheme of the Act by ultimately holding that the jurisdiction invoked by petitioner is not proper and remedy lies under section 34 of the Act.

    3. Advocate for petitioner as also Advocate for respondents number 2 to 7 have assailed the order of District Judge on the ground that the learned District Judge has not considered the “Bias” by applying tests settled by law on the point and further that the facts warranting action under section 14 are entirely different and cannot form subject matter of section 12 or section 16 of the Act. Both of them have placed on record Xerox copies of relevant cases to show how “Bias” is required to be considered by the Courts. Counsel for petitioner has relied upon the judgment of Apex Court in the case of Ranjit Thakur v. Union of India, reported at (1987) 4 SCC 611 to point out test to determine “Bias”, and also judgment in the case of Koshy v. K.S.E Board, reported at AIR 1984 Kerala 23 to argue that actual “Bias” of Arbitrator is not required to be proved but existence of circumstances which are likely to lead to “Bias” are enough. He has also relied upon ruling of Full Bench of Allahabad High Court in the case of Hindu National School Management Trust Society v. Deputy Director of Education, reported at AIR 1981 NOC 1 to point out meaning of “assign”. The case of Commissioner, Commissioner Of Gift Tax, Madras v. N.S Getty Chettiar, reported at AIR 1971 SC 2410 and Anant Trimbak v. Vasant Pratap Pandit, reported at 1979 Mh. L.J 755 : AIR 1980 Bom. 69 are also cited to show the meaning of word assign. The judgment reported at 2000 (3) Mh. L.J 690 has been cited in support of contention that “Bias” is the ground to hold that de jure the Arbitrator cannot perform his functions. In the case of Nasiruddin v. S.T.A Tribunal, reported at AIR 1976 SC 331 and in Sales Tax Officer v. Kanhaiya Lal, reported at AIR 1959 SC 135 are pressed into service to urge to give the full and natural meaning to the word assign used in document executed by respondent number one in favour of Messers Linkhouse. Counsel for respondents number 2 to 7 has placed in a brief chart explaining the factual position as regards “Bias” and assignment and has also relied upon case law in support of his contention. It is his contention that section 52 of Transfer of Property Act has no application to the transfers made by landowners in favour of Soham Co-operative Society as arbitration proceedings are not suit and are not pending before in the Court. He draws support from judgment of this Court reported in the case of Saurabh Kalani v. Tata Finance Ltd., reported at 2003 (4) Mh. L.J 810 : 2004 (1) R.A.J page 120.

    4. Advocate for respondent number one/caveator has supported the impugned order. He has placed reliance upon provision of sections 5, 12 and 13 of the Act to contend that objections raised by petitioner are not maintainable under section 14 and during pendency of arbitration proceedings, no such application can be entertained. He contends that only remedy is to file application under section 34 of the Act after the award is declared. He also points out provisions of section 16 of the Act and the judgment of Hon'ble Apex Court Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd., reported at (2002) 2 SCC 388 to explain the scheme of the Act. He also relies upon Division Bench ruling of this Court reported at 2003 (4) Mh. L.J 810 : 2004 (1) R.A.J page 120 to point out the tests to be applied to find out to whether an Arbitrator is “Biased” or not. He has also relied upon the judgment of Division Bench of Andhra Pradesh High Court in which it has been held that the fact that the Arbitrator is standing counsel of one of the parties ipso-facto may not mean that he is disqualified himself.

    5. Counsel for petitioner has pointed out that his challenge is not under section 16 of the Act and assignment of interest by parties in suit property is not covered by sections 12, 13 or 16 of the Act. He further states that even if section 16 is held to be available, petitioner has option of moving either under section 16 or under section 14 and in the facts of present case remedy under section 14 is correctly opted.

    6. Perusal of judgment of Hon'ble Apex Court in the case of reported at (2002) 2 SCC 388 (supra), particularly concluding portion of paragraph 3 at page 394 of the report reveals that section 12 of the Act imposes obligation upon Arbitrator designate to disclose to the parties any facts which may give rise to doubts about his independence and impartiality. But challenge to Arbitrator is possible if there are doubts about his independence and impartiality or if he does not possess qualifications agreed to by the parties. Section 13 of the Act prescribes procedure therefor. The Arbitral Tribunal has to decide upon the challenge unless it withdraws or the other party accepts the challenge. If it negatives the challenge, it has to continue the arbitration proceedings and make an award and such award can then be challenged under section 34 of the Act. Same is the position even if challenge to the jurisdiction of Tribunal is rejected. Thus, the Court cannot be approached against interlocutory orders and the Tribunal has to make an award, which can be challenged, under section 34 of the Act. This Court has in the case of Hasmukhlal H. Doshi v. M.L Pendse, reported at 2000 (3) Mh. L.J 690, at page 697 observed that there could be no dispute that “Bias” may constitute the ground to hold that de jure the Arbitrator cannot perform his function. However, what happens once there is a specific provision made by the Act for a challenge to decision under section 13(3) of the Act and there is also an embargo in the shape of section 5? This Court has considered the situation in which the Arbitrator does not decide objections raised and also if it decides objections. In paragraph 11 at page 699 this Court has found that the object of legislation is to restrict judicial interference and as section 13(5) provides for a challenge and forum, it would not be open to Court to decide and consider that the mandate of the Arbitrator has been terminated under section 14.

    7. In the facts of present case, the Arbitrator has decided the challenge and in view of the law laid down by Hon'ble Apex Court and this Court, it is clear that remedy under section 14 of the Act is not available to petitioner. Further, act of transfer of property by any of the parties during pendency of arbitration proceedings cannot render the Arbitrator de jure or de facto unable to perform his functions. section 14(1)(a) is not applicable in situations where either party to the arbitration takes step in order to defeat the end result of arbitration proceedings. Such an interpretation will defeat the very purpose of the Act. Disqualification envisaged by this provision is personal to the Arbitrator and emerges because of his own voluntary or involuntary participation in the facts constituting it. It contemplates a situation in which Arbitrator enters a state that renders him incapable of adjudicating the dispute within the four corners of the law either generally or qua that particular dispute. His mandate is terminated because the dispute between the parties still survives and requires appointment of another Arbitrator for its resolution. Section 15 of the Act prescribes procedure for his substitution and also for further course of action open to such new Arbitrator. Thus the case of assignment as pleaded by petitioner cannot be a valid ground to invoke section 14(1)(a) of the Act as indirectly what is being contended is that the dispute is rendered infructuous by act of one of the parties to it. Such an act of any party will not create any disqualification in the Arbitrator and whether dispute survives or not may itself call for a decision. Contesting parties have placed necessary facts on record before the Arbitrator to enable them to raise appropriate challenges about his “Bias” or assignment or its effect in proceedings under section 34 after the award is made by Arbitrator. No adjudication about alleged “Bias” of Arbitrator or effect of assignment, if any; on arbitration proceedings is warranted at this state and issue is left open for consideration at section 34 stage, if required.

    8. All the counsels have invited the attention of this Court to the impugned order delivered by learned District Judge. I find that the learned Court below has considered all the arguments advanced before it and has also applied the law to the facts before it. No perversity or manifest error or jurisdictional mistake is pointed out to me in the matter. Conclusion reached by said Court does not call for any interference in writ jurisdiction. The petition accordingly fails and is dismissed with no order as to costs.

    9. At this stage Advocate Jaiswal makes a request for continuation of interim order of status quo, passed by this Court for a period of two weeks more to enable him to take further appropriate steps in the matter. Advocate Dangre, appearing for respondent No. 1, opposes this request. He states that the matter before the Arbitrator is only fixed for filing of Written Statement. However, in the interest of justice, two weeks time is granted to the petitioner to take appropriate steps in the matter, until then the interim order of status granted by this Court shall continue.

    Petition dismissed.
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    Comments

    Vilas v. Ganesh Builders
    (Jan 13, 2005)