DIVISIONAL MANAGER FWB CHAMBA v. BRAHMA NAND

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ig h Co ur t o f H

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.

IN THE HIGH COURT OF HIMACHAL PRADESH AT SHIMLA

Ex. Pet. No.27 of 2020

Decided on: 12^thJuly, 2023

_________________________________________________________________ Divisional Manager, Forest Working Division, Himachal Pradesh State Forest Corporation Development Ltd. Chamba. ....Petitioner

Versus

Brahma Nand …Respondent

_________________________________________________________________ Coram

Hon'ble Ms. Justice Jyotsna Rewal Dua, Judge

1 Whether approved for reporting?

_________________________________________________________________ For the petitioner: Mr. Rajesh Verma, Advocate. For the respondent: Mr. Rakesh Kumar Dogra, Advocate. Jyotsna Rewal Dua, Judge

This petition under Order 21 Rule 11 of Code of Civil Procedure read with Section 36 of the Arbitration and Conciliation Act, 2015 (the Act in short) seeks execution of award dated 31.05.2019, passed by the Arbitrator-cum- Director (North) Himachal Pradesh State Forest Development Corporation Ltd.

1 Whether reporters of Local Papers may be allowed to see the judgment?

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2. Heard.

3. There was an agreement between the parties executed on 29.09.2008 for carriage of timber from Jhik- Jakain launch depot Sunderali Nala to road side depot at Helly. The petitioner-Divisional Manager Himachal Pradesh State Forest Development Corporation. Ltd. Chamba, submitted a case/dispute pertaining to launch of timber through river/khud and thereafter by manual carriage of timber by road side depot of Lot No.1/2006-07/Bharmour under Forest Working Division, Chamba. The dispute between the parties pertained to delayed as well as less supply of timber by the respondent to the petitioner. As per terms of the agreement, the matter was referred to the Managing Director of the petitioner-corporation, who in turn, appointed the Director (Admn.) of the petitioner-corporation as Arbitrator vide office order dated 15.10.2013. After transfer of the Director (Admn.), the Managing Director appointed Director (North) of the petitioner-corporation as Arbitrator vide office letter dated 12.03.2015. The Arbitrator- cum-Director(North) continued with the arbitration case and passed the award on 31.05.2019, whereby, petitioner-

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corporation's claim was allowed to the extent of recovery of outstanding amount of Rs. 1,33,43,569/- as against the claimed loss of Rs.1,59,25,198/-. The petitioner-corporation is seeking execution of the aforesaid award i.e. recovery of Rs.1,33,43,579/- from the respondent.

4. In his objections filed to the execution petition, the respondent has taken the plea that the award dated 31.05.2019 is not executable as the said award was passed by the Arbitrator in violation of Section 12(5) and 7^th Scheduled of the Arbitration and Conciliation Act, 2016.

5. Learned counsel for the respondent submitted that the point involved in the instant execution petition with respect to the validity and executabiliity of the arbitral award passed by the Director (North)-cum-official of the petitioner- corporation, has already been adjudicated against the petitioner in CMPMO Nos. 58 to 60 of 2023 (Divisional Manager, HP State Forest Development Corporation Ltd. Vs. Prem Lal and the connected matters).

Learned counsel for the petitioner does not

dispute this position. He has also submitted that the petitioner-corporation has accepted the aforesaid verdict and

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the same has attained finality. In view of the submissions of learned counsel for the parties, it will be appropriate to extract relevant paras from the decision dated 27.02.2023, rendered in CMPMO Nos.58 to 60 of 2023 :-

"4. Having heard learned counsel for the petitioner and ongoing through the case file, I am of the considered view that these petitions lack merit. This is for the following reasons: -

4(i) Section 12(5) of the Act was inserted by the Act No.3 of 2016. It came into force w.e.f. 23.10.2015 and reads as under: -

"12(5) Notwithstanding any prior agreement to be contrary, any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing."

A plain reading of Section 12(5) of the Act makes it apparent that any person whose relationship with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an Arbitrator. It is not in dispute that the Director (South) i.e. the person appointed as an Arbitrator in the instant matter falls in the category specified in the Seventh Schedule of the Act.

4(ii) Any person who becomes ineligible to act as an Arbitrator in terms of Section 12(5) read with Seventh Schedule of the Act cannot appoint/nominate another Arbitrator for determining the dispute. Any appointment of other person

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nominated by such person as an Arbitrator for determining the dispute arising under the arbitration agreement is void ab initio. The proceedings so conducted will be non est. The awards passed by such person, if any, are also void. [refer to (2017) 8 SCC 377, TRF Ltd. Vs. Energo Engineering Projects Ltd.; (2019) 5 SCC 755, Bharat Broadband Network Limited Vs. United Telecoms Limited.] 4(iii) In 2021 (17) SCC 248 Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited & Ors. vs. Ajay Sales & Suppliers, an argument was raised that Sub-section 5 of Section 12 read with Seventh Schedule to the Act shall not be applicable to the facts of the case, more particularly when the agreement between the parties therein was executed prior to the insertion of Sub-section 5 of Section 12 read with Seventh Schedule of the Act. This submission was not accepted by the Hon'ble Apex Court in view of the earlier decisions rendered in TRF Ltd. Vs. Energo Engineering Projects Ltd. (2017) 8 SCC 377, Bharat Broadband Network Limited Vs. United Telecoms Limited and (2019) 5 SCC 377 Voestalpine Schienen GMBH Vs. Delhi Metro Rail Corporation Limited (2017) 4 SCC 665. The Hon'ble Apex Court observed that in the above precedents, it has been observed that the main purpose for amending the provision was to provide for 'neutrality of arbitrators'. In order to achieve this, Sub-section 5 of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject-matter of the dispute falls sunder any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an Arbitrator. It was further observed that in such an eventuality i.e. when the arbitration clause finds foul with the amended provision i.e. Sub-section 5 of Section 12 read with Seventh Schedule of the Act, the appointment of an Arbitrator would be beyond

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pale of the arbitration agreement. Such would be the effect of non-obstante clause contained in Sub-section 5 of Section 12. The relevant paras from the judgment read as under: -

4.1 It is submitted that first of all Subsection (5) of Section 12 read with Seventh Schedule to the Act shall not be applicable to the facts of the case on hand more particularly when the agreement between the parties was prior to insertion of Sub section (5) of Section 12 read with Seventh Schedule to the Act. It is further submitted that even otherwise the 'Chairman' being an elected member shall not come within Seventh Schedule to the Act. It is submitted that 'Chairman' is not included within disqualified/ineligible person to be appointed in Seventh Schedule of the Act.

5 …………..

6. It is not in dispute that distributorship agreement between the parties was dated 31.03.2015 i.e. prior to the insertion of Subsection (5) of Section 12 and Seventh Schedule to the Act w.e.f. 23.10.2015. It also cannot be disputed that Clause 13 of the Agreement dated 31.03.2015 contained the arbitration clause and as per Clause 13, any dispute and differences arising out of or in any way touching or concerning distributorship agreement shall be resolved through arbitration. As per Clause 13 such a dispute shall be referred to the sole Arbitrator - the Chairman, Sahkari Sangh.

6.1 ……………..

6.2 ……………..

6.3 So far as the submission on behalf of the petitioners that the agreement was prior to the insertion of Sub- section (5) of Section 12 read with Seventh Schedule to the Act and therefore the disqualification under Sub- section (5) of Section 12 read with Seventh Schedule to the Act shall not be applicable and that once an arbitrator - Chairman started the arbitration proceedings thereafter the High Court is not justified in

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appointing an arbitrator are concerned the aforesaid has no substance and can to be accepted in view of the decision of this Court in Trf Ltd vs Energo Engineering Projects Ltd, (2017) 8 SCC 377; Bharat Broadband Network Limited vs United Telecoms Limited, (2019) 5 SCC 755; Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Limited, (2017) 4 SCC 665. In the aforesaid decisions this Court had an occasion to consider in detail the object and purpose of insertion of Sub section (5) of Section 12 read with Seventh Schedule to the Act. In the case of Voestalpine Schienen GMBH (Supra) it is observed and held by this Court that the main purpose for amending the provision was to provide for 'neutrality of arbitrators'. It is further observed that in order to achieve this, Subsection (5) of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject- matter of the dispute falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator. It is further observed that in such an eventuality i.e. when the arbitration clause finds foul with the amended provisions (Sub- section (5) of Section 12 read with Seventh Schedule) the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the court to appoint such arbitrator as may be permissible. It is further observed that, that would be the effect of non obstante clause contained in subsection (5) of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of the arbitration agreement."

The ratio of the above judgment squarely applies to the instant case. The Managing Director of the petitioner- corporation had initially appointed Director (Admn.) of the

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petitioner-corporation as Arbitrator vide office order dated 15.10.2013. Subsequently, the Director (North) of the petitioner-corporation was appointed as Arbitrator by the Managing Director on 12.03.2015. The arbitral award dated 31.05.2019, which is being sought to be enforced, was passed by the Director (North) of the petitioner-corporation. It is an admitted factual position that there is no pleading about any express agreement in writing, satisfying the mandate of Sub Section 5 of Section 12 inclusive of its proviso and 7^th Schedule of the Act having been executed by the respondent. The Director (North) continued to hold arbitral proceedings even after enforcement of Sub-Section 5 of Section 12 and 7^th Schedule of the Act and passed the award dated 31.05.2019. In view of the ratio of the judgment dated

27.02.2023 in CMPMO Nos. 58 to 60 of 2023 (Divisional Manager, HP State Forest Development Corporation Ltd. Vs. Prem Lal and the connected matters), it is amply clear that the arbitral proceedings conducted by the Arbitrator-cum- Director (North) were non-est and the award passed by the Arbitrator was void. It is not enforceable. Hence, the execution petition filed by the petitioner-corporation, seeking

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enforcement of the void award is dismissed. The pending miscellaneous application(s), if any, also stand disposed of.

Jyotsna Rewal Dua

Judge

July 12, 2023

R.Atal