Pinaki Das Gupta Petitioner v. Publicis (India) Communication & Ors. S

Mukul Mudgal, J.:— This is an application under Sections 14 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the Act’), mainly founded on the plea that the arbitration proceedings against the petitioner were initiated, based upon theconsent of the Advocate, Shri P.K Mittal, who was not given any authority to accord consent for participation of the petitioner in the arbitration proceedings.

2. The petition avers as under:—

(a) The petitioner held 26.25 per cent shares in M/s. Madhyam Advertising (P) Ltd (henceforth referred to as a company) and entered into a sale agreement with the respondent which provided for various terms including para 27(iii) of the arbitration agreement which reads as under:

“..... any and all disputes and/or claims arising under this Agreement and/or out of or in connection with the execution, interpretation, performance and/or non performance of this Agreement shall be referred to arbitration in accordance with the provisions of the (Indian) Arbitration and Conciliation Act 1996 or any re enactment or modification thereof then in force. The reference shall be to a sole arbitrator jointly appointed by the Parties. If the Parties are unable to agree to a sole arbitrator then the reference shall be in three arbitrators appointed as follows: One Arbitrator appointed by the vendors, one arbitrator appointed by the purchaser and the third arbitrator to be appointed by the aforesaid two arbitrators. The arbitration shall be held in Mumbai, India. “

i) the petitioner's case is that due to disputes between the parties an application was moved by it for appointment of an arbitrator and this Court on April 11, 2003 appointed the former Chief Justice of India as the sole arbitrator. This even led to the issue of oppression and mismanagement filed before the Company Law Board to be referred to arbitration by the order of Company Law Board dated January 31, 2002.

ii) Inspite of knowing of the pending arbitration proceedings, the respondent company initiated parallel arbitration proceedings under the same agreement. The arbitration proceedings were invoked for mala fide reasons and actuated by ulterior motives and in fact in OMP 156 of 2001 disposed of by this court, the respondent company had assured the Court that the matter had been referred to arbitration.

iii) On 10th June 2003, the petitioner's counsel in response to the notice dated 8th May 2003 sent by the respondent company for appointment of an a arbitrator did not either refuse to accept or agreed to the appointment of any arbitrator.

iv) On July 23, 2003 Mr. P.K Mittal, Advocate without any authority, sent a notice of dispute under the aforesaid agreement to the lawyers of the respondent company on behalf of the petitioners and some others and sought to invoke the arbitration clause;

v) There was no need for the petitioner to do so since the arbitrator already stood appointed on June 11, 2003 by this Court.

vi) On August 4 2003 Shri P.K Mittal informed the advocate for the respondent company of the acceptance of Mr. Justice D.R Dhanuka (Retd) as the sole arbitrator.

vii) Thereafter on December 30, 2003 Shri P.K Mittal informed Justice Dhanuka that he did not have a former vakalatnama to represent the petitioner rn the arbitration.

viii) The continuance of the parallel arbitration proceedings have led to the present proceedings under Section 14 of the Act.

3. It is not in dispute that the petitioner is one of the erstwhile Directors of Madhyam Enterprises. Mr Kapur while refuting the plea of the petitioner about not giving mandate to Mr. Mittal has placed reliance on the affidavit of Mr. Mittal and Mr. Sushil Sharma, the auditor of the company whose director, the petitioner is, who supported the plea that such mandate was given to Shri P.K Mittal, Advocate. However, he has raised a preliminary objection that the Court may assume that the mandate was not given as contended by the learned counsel for the petitioner and thus proceed to determine his preliminary objection. He has raised the preliminary issue based upon the plea that Section 5 of the Act limits the extent of judicial intervention except as specified in part I of the Arbitration and Conciliation Act, 1996. It is further submitted that failure or impossibility to Act contemplated by Section 14 presupposes the existence of a mandate which mandate cannot terminate if it did not exist in the first place. He has further submitted that in any case it is not open to the petitioner to even question the arbitrator's jurisdiction except by raising of a plea under Section 16 of the Act which permits the Arbitral Tribunal to rule on its own jurisdiction. He has further raised a plea based upon the provisions of Section 34(2)(a)(iii) & 34(2)(a)(v) that objection could be raised under these subsections against the award. The relevant Sections 14, 16, 34(2)(a)(iii) & (v) of the Act read as follows:—

“5. Extent of judicial intervention.— Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.

14. Failure of impossibility to act — (1) The mandate of an arbitrator shall terminate if—

(a) He become 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 subsection (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 his section or subsection (3) of section 12.

16. Competence of arbitral tribunal to rule on its jurisdiction—(1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,—

(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and

(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator.

(3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.

(4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified.

(5) The arbitral tribunal shall decide on a plea referred to in subsection (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.

(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34.

34. Application for setting aside arbitral award—(1) Recourse to a court against an award may be made only by an application for setting aside such award in accordance with sub-section (2) and subsection (3).

(2) An arbitral award may be set aside by the court only if—

(a) the party making the application furnishes proof that—

i).....

(ii).....

(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(iv)........

(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or

.......”

4. The respondent's counsel thus submits that even the mandate of the arbitral tribunal which according to him is purportedly terminated can only be questioned under the provisions of Section 16. He submits that the plea that no authority was bestowed upon Mr. Mittal to agree to Arbitration and an averment made by Mr. Mittal that such authority was bestowed upon him cannot be adjudicated under Section 14 of the Act as sought to be done by this Court. He further submits that the provisions of section 14 would be inapplicable if there is mandate and a litigant cannot question the mandate under the provisions of section 14 so as to even suggest de jure termination.

5. The counsel for the petitioner in-reply to the preliminary objection has submitted that he had not authorized P.K Mittal to issue any notice on his behalf to the respondents' lawyers who did it without authority or vakalatnama from petitioner. Thereafter the petitioner also on 7th August, 2003 written to Mr. Mittal on coming to know that on 4th August, 2003 he had agreed to the appointment of the arbitrator on the petitioner's behalf. The learned counsel for the petitioner in reply to the aforesaid preliminary objection has submitted that the words ‘Mandate of Arbitrator shall terminate’ cannot bear the meaning suggested by Mr. Kapur, to the effect that a termination of mandate could only take place if it existed in first place. He, therefore submitted that there was no basis for his participation in the arbitration proceedings and whatever if any be the authority for arbitration, it stood de jure terminated by the 7th August, 2003 letter issued by the petitioner to Shri Mittal on the basis of which Mr. Mittal made a statement on 18th September, 2003 to the arbitrator that the petitioner was not a party to the counter claim. It was also submitted that the former Chief Justice of India had already been appointed as an arbitrator by this Court's order dated 11th November, 2003 in A.A No. 186/2002. It has also been stated that proceedings before the arbitrator, Justice Dhanuka are mala fide and subsequent to the appointment of Shri Y.V Chandrachud, the former Chief Justice of India as an arbitrator by this court on 11th November, 2003.

6. I am unable to agree with the pleas of the learned counsel for the petitioner and the preliminary objection of the respondent is bound to succeed. While interpreting the statute, the Statement of Objects and Reasons of the Act are required to be kept in mind particularly object 4(v) which provides for minimization of Court's role in the arbitral process. Thus the Court has a limited role except as specified in part I particularly in the pending proceedings. The purpose of expeditious disposal, the avowed rationale behind the process of arbitration, would be the first casualty in case judicial intervention at the preliminary stage is allowed by the Court to permit the plea of the petitioner that there was de jure termination of the mandate of the arbitrator. Furthermore this Court in a recent judgment in Prasar Bharati v. Stracon, passed in Arb. P. No. 28/04 on 30th September, 2004 has while considering the effect of the judgments of the Supreme Court held the following to be the position of law emanating from the judgments of the Supreme Court:—

“5.. The principles of law which therefore govern the appointment/constitution of an arbitrator/arbitral tribunal under Section 11 of the Act which emerge from the aforesaid judgments of the Supreme Court are as follows:—

(a) an order under Section 11(6) nominating an arbitrator is not an adjudicatory one [Konkan Rly's case (supra)]

(b) No judicial functions can be discharged under Section 11 and not even a dispute regarding the validity or existence of an arbitration agreement can be gone into in the exercise of administrative power under Section 11 [Hythro Power Corprn's case (supra)]

(c) Even if an infirmity in the arbitration clause goes to determine the legality, validity and propriety of the constitution of the arbitral tribunal, it has to be exercised by the arbitral tribunal and under Section 11 the High Court cannot undertake the highly judicial determination of highly contentious issues. The legislative intent underlying the 1996 Act was to minimize and limit the supervisory role of Courts and to ensure that all contentious issues were raised before the arbitral tribunal [FCI's case (supra)]

(d) Any objection to the applicability of the arbitration clause will have to be raised before the arbitral tribunal [Hindustan Petroleum's case (supra)]

(e) There is hardly any area of dispute which cannot be decided in arbitration by the arbitrator appointed under Section 11 [State of Orissa's case (supra)]

6. I will deal with the first plea raised by the respondent. The position of law laid down by the Hon'ble Supreme Court in the aforesaid judgments is clear and unambiguous and is to the effect that the functions of this Court under Section 11 are administrative and not adjudicatory and even the dispute regarding the existence of arbitration agreement cannot be adjudicated by this Court and ought to be adjudicated by the arbitrator. It has further been held that the Court should not adopt an adjudicatory role and even returned a verdict recording reasons as to the very existence or otherwise of the agreement as contended by the respondents. This Court cannot at this stage, therefore, determine this plea sought to be raised by the respondent.”

That there was lack of authority for starting the proceedings cannot in my view be questioned under Section 14 of the Act. I am of the view that de jure or de facto, the authority of the arbitrator cannot be questioned under Section 14. In my view Section 16 of the Act provides the procedure for contesting the jurisdiction of the Arbitrator or the Arbitral Tribunal and such a plea could also form the basis of a ground of challenge under Section 34(2)(a)(iii) & (v). If the course suggested by the learned counsel is petitioner is adopted, rather than minimizing the role of Court, it would be maximized and the intervenory role or exercise of jurisdiction of the Court during the arbitration proceedings would be contrary to the legislative mandate emphasized by the Statement of Objects and Reasons of the Act and settled by the decisions of the Supreme Court summarized in Prasar Bharati's case (supra).

7. However, I make it clear that this decision is not meant to reflect in any manner upon the legality and validity of arbitration proceedings before Justice Y.V Chandrachud. This decision only relates to the method and manner of questioning the mandate of the proceedings in arbitration before the arbitrator Justice Dhanuka. The petitioner is free to raise all the pleas raised in this petition and any other plea available in law before the learned Arbitrator, Justice Dhanuka or in other for a permissible in accordance with the legal position summarized above.

8. Accordingly, the preliminary objection, raised by Mr. Kapur, the learned Senior Counsel, appearing for the respondent succeeds. The petition is dismissed accordingly in view of the position of law set out in this judgment.