G H VINOD BHAIYALAL JAIN & ORS. versus WADHWANI PARMESHWARI COLD STORAGE PVT. LTD.THROUGH ITS DIRECTOR & ANR. on 24 July 2019

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SUPREME COURT REPORTS

[2019] 9 S.C.R.

VINOD BHAIYALAL JAIN & ORS.

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v.

WADHWANI PARMESHWARI COLD STORAGE PVT.LTD.THROUGH ITS DIRECTOR & ANR.

(Civil Appeal No.6960 of 2011)

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JULY 24, 2019

[R. BANUMATHI AND A.S. BOPANNA, JJ.]

Arbitration and Conciliation Act, 1996 – ss.34, 37(1)(b) –Appellant utilized the services of respondent No.1 for keeping anCagricultural product – According to appellants, the respondent no.1caused damage to the product – Appellant issued notice forcompensation, but in return respondent no.1 made a counter claim– Dispute arose between the parties – Respondent no.1 invoked thearbitration clause contained in the receipt of the storage of goodsD– Pursuant thereto, respondent no.1 referred the dispute to theArbitrator ‘STM’, an advocate – Appointment of Arbitrator wasobjected on the ground that the said advocate was the counsel forrespondent no.1 and its partners in other cases – However, Arbitratorproceeded with the matter and passed an award against theappellants – Aggrieved, appellant filed petition u/s.34 of the ActEbefore the District Court – District Court found the objectionsjustified and set aside the award – Respondent filed appealu/s.37(1)(b) before the High Court – High Court restored the awardpassed by the Arbitrator – On appeal, held: The provision containedin s.12 of the Act, 1996 cast an obligation on the person, who isFapproached for appointment as an arbitrator, to disclose anycircumstance likely to give rise to justifiable doubts as to hisindependence or impartiality – In the instant case, though technicallyas on 27.02.2004 when the storage receipt was drawn out and theArbitration clause came into existence there was no circumstancefor disclosure – However ‘STM’ had filed immediately thereafter,Gon 29.03.2004 vakalat for one of the parties (partner of respondentno.1) – Thus, as on 03.06.2006 when the claim was lodged beforethe Arbitrator both the events of, he being appointed as an Arbitratorand also as a counsel in another case had existed, which was wellwithin the knowledge of ‘STM’ and in that circumstance it was theH

appropriate stage when he ought to have disclosed the same andrefrained from entertaining the claim – In the background, there isa reasonable basis for the appellants to make a claim that in thepresent circumstance the Arbitrator would not be fair to them evenif not biased – In that view, an award passed by the arbitrator wasnot sustainable – District Court was justified in entertaining petitionu/s.34 of the Act, 1996 to set aside the award.

Allowing the appeal, the Court

Conclusion

HELD: 1. With regard to the contention that ‘STM’,Advocate ought not to have acted as the Arbitrator since he wasalso the counsel for the respondent No.1 in another case, thesame requires consideration. Not only from the observationscontained in the order of the High Court it is noticed that thesaid Arbitrator had appeared as a counsel for the respondent, itis also seen from the records that as per the vakalatnama dated29.03.2004 the Arbitrator has filed the vakalat in Mesne ProfitCase to which ‘P’, one of the partners of the respondent No.1herein was a party. Though it is sought to be made out that thesaid ‘P’ has nothing to do with respondent No.1, as pointed outby the counsel for the appellants, the supporting affidavit formaking the solemn affirmation in respect of the First AppealNo.180 of 2007 filed under Section 37(1)(b) of the Arbitrationand Conciliation Act, 1996 relating to this very proceeding ismade by the said ‘P’. Thus, it is clear that ‘STM’, Arbitrator hadacted as a counsel in another case for one of the parties to thedispute in the instant case. In that circumstance it is also not acase where the Arbitrator had proceeded in the matter byoversight or without having knowledge of such conflict of interest.As noticed, a legal notice had been secured to be issued on behalfof the appellants herein raising objection in that regard. Thoughsuch notice was issued on the instructions given by the father ofthe appellants, it is not by a rank outsider nor have the appellantsdisowned it to be ignored. In addition, one of the appellants hadalso addressed a communication dated 07.08.2006 requesting thelearned Arbitrator to stop the proceedings since they had filed apetition in the High Court for appointing an independentArbitrator which was also for the reason that present Arbitratorcould not have acted. [Para 7] [1085-F-H; 1086-A-D]

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A8. The Arbitrator had taken note of the letters at Exhibits68 and 70 as narrated in the very award passed by the Arbitrator.Despite the same, the Arbitrator has proceeded with the matterinstead of staying his hands. In that background, the observationsas made by the High Court to hold that the objection raised wasnot sustainable as it did not comply with the requirement of SectionB13 of the Act, 1996 is not justified. In fact, the provision ascontained in Section 12 of the Act, 1996 even prior to theamendment effected on 23.10.2015 would cast an obligation fordisclosure. If section 12 is kept in view, though technically as on27.02.2004 when the storage receipt was drawn out and theCArbitration Clause came into existence there was no circumstancefor disclosure of the present nature, it is seen that he hasimmediately thereafter, on 29.03.2004 filed the vakalat for one ofthe parties. Thus, as on 03.06.2006 when the claim was lodgedbefore the learned Arbitrator both the events of, he beingappointed as an Arbitrator and also as a counsel in another caseDhad existed, which was well within the knowledge of ‘STM’ andin that circumstance, it was the appropriate stage when he oughtto have disclosed the same and refrained from entertaining theclaim. If in that background, the decision in the case of V.K.Dewan and Co. vs. Delhi Jal Board and Ors. (2010) 15 SCC 717Erelied upon by the appellants is kept in view, it was in the fairnessof things that ‘STM’ should not have acted as an Arbitrator.[Para 8] [1086-E-H; 1087-A-C]

V.K. Dewan and Co. v. Delhi Jal Board and Ors. (2010)15 SCC 717 – relied on.F Case Law Reference

(2010) 15 SCC 717 relied onPara 8

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6960Gof 2011

From the Judgment and Order dated 30.08.2007 and 31.08.2007of the High Court of Judicature at Bombay, Nagpur Bench, Nagpur inFirst Appeal No. 187 of 2007

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Gagan Sanghi, Rameshwar Prasad Goyal, Advs. for the Appellants.

Ms. Shrishti Sen, Satyajit A. Desai, Ms. Anagha S. Desai, VasuKhera, Advs. for the Respondents.

The Judgment of the Court was delivered by

A. S. BOPANNA, J. 1. The appellants herein are before thisCourt assailing the order dated August 30 and 31, 2007 passed by theHigh Court of Judicature at Bombay in First Appeal No. 187 of 2007.The said appeal was filed by the respondent No.1 herein invoking Sec.37(1)(b) of the Arbitration and Conciliation Act, 1996 (hereinafter referredas the ‘Act 1996’ for short). Through the said appeal the respondentNo.1 herein had assailed the order dated 06.11.2006 passed by thePrincipal District Judge, Nagpur in MCA No. 538/2006 in the proceedingsunder Sec. 34 of the Act, 1996.

2. The brief facts are that the respondent No.1 herein owns acold storage at Nagpur. Sri Suresh Wadhwani manages the same. Theappellants herein who are the sons of Sri Bhaiyalal Jain are engaged inbusiness as commission agents for agricultural products. In that regardthey had utilised the services of cold storage during the year 2004 forkeeping 50 bags of ‘Shingada’ which is an agricultural product. Accordingto the appellants herein the respondent No. 1 had failed to store thegoods in an appropriate manner which had caused damage to the same.The appellants therefore got issued a notice dated 18.05.2006 seekingfor compensation. The respondent No. 1 herein by its reply dated27.05.2006 not only denied the claim put forth by the appellants hereinbut also made counter claim. Thus, dispute arose between the parties.According to respondent No. 1 herein, the parties were governed by anarbitration clause and the parties had agreed to refer the dispute, if any,to the Arbitrator, Sri S.T. Madnani, Advocate. The said arbitration clauseis contained in the very receipt issued in respect of the storage of goods.The respondent No. 1, therefore through their claim dated 03.06.2006submitted the same before the learned Arbitrator 2[nd] respondent Sri.S.T. Madnani.

3. The father of the appellants herein in that background got issueda notice dated 08.06.2006 disputing the very existence of the arbitrationclause and more particularly the appointment of Sri S.T. Madnani, A

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AAdvocate as an Arbitrator was disputed and it was contended that thesaid Advocate being the counsel for the respondent No. 1 and its partnersin other cases cannot act as an Arbitrator in respect of the disputes towhich the respondent No. 1 is a party. A copy of the same was alsodispatched to the learned Arbitrator. Further, the appellants alsoaddressed letters dated 29.07.2006 and 07.08.2006 which was takenBnote by the learned Arbitrator in the order sheet of the proceedings asalso in the award passed. Despite the same, unmindful of such objectionraised and terming it as inconsequential, the learned Arbitrator proceededwith the matter in the absence of the appellants herein and passed theaward dated 08.08.2006 directing the appellants herein to pay the claimCamount as ordered. The learned Arbitrator also imposed a cost ofRs.43,000/- on the appellants. It is in that light the appellants claimingto be aggrieved filed the petition under Sec. 34 of the Act, 1996 beforethe District Judge, Nagpur raising objection to the award, more particularlywith regard to the conduct of the learned Arbitrator. The learned DistrictJudge while appreciating the same was of the opinion that the learnedDArbitrator had in fact acted as a counsel for Sri Suresh, a partner ofrespondent No. 1, which fact was not disclosed in terms of Sec. 12 ofthe Act, 1996 and also on taking note of Sec. 13 of the Act, found theobjection justified and set aside the award by order dated 06.11.2006.

4. The respondent No. 1 who was aggrieved by the same hadEfiled the appeal under Sec.37(1)(b) of the Act, 1996 to the High Court.The learned Judge of the High Court while examining this aspect of thematter was of the opinion that the objection raised with regard to SriS.T. Madnani, Advocate acting as the Arbitrator was raised by SriBhaiyalalji Jain who is the father of the appellants herein and not by theFappellants themselves and as such the same cannot be construed as anobjection by a party to the proceedings as contemplated under Sec. 13of the Act. Further it was held that merely because the learned Arbitratorhad appeared as a lawyer in one mesne profits case for the respondentNo. 1, it would not make a reasonable man believe that the Arbitratorwas biased and there was a possibility that the Arbitrator would rule inGfavour of the respondent No. 1. It was further observed that a fair-minded person would never have thought that the learned Arbitratorwas biased merely because he had appeared as a lawyer for the partyto arbitration in another case. In that view by the impugned order thelearned Judge of the High Court set aside the order passed in theH

proceedings under Sec. 34 of the Act, 1996 and restored the awardpassed by the learned Arbitrator. The appellant herein is therefore beforethis Court in this petition.

5. Having heard the learned counsel for the parties at length, it isnoticed that issues arising herein for consideration at the threshold iswith regard to the existence or otherwise of the Arbitration clausegoverning the parties and more particularly with regard to the conductof the Arbitrator. It is only if the said two hurdles placed at the thresholdis crossed, the question of considering the merits of the claim and thecorrectness or otherwise of the award passed by the learned Arbitratorwould arise for consideration.

6. On the issue relating to the validity of arbitration clause, thelearned counsel for the appellants would contend that the clause reliedupon by the respondent No.1 to raise the claim before the Arbitrator iswith reference to Clause No.9 printed as the terms and conditions onthe overleaf of the receipt for storage. In that view, it is contended thatthere is no consensus ad idem namely, there is no meeting of mindsbetween the parties regarding reference of dispute to the Arbitrator andsuch term printed in the receipt cannot be relied upon. Though suchcontention is put forth the said issue need not detain this Court for long.This is for the reason that as rightly pointed out by the learned counselfor the respondent No.1, it is the very case of the appellants herein thatthe appellants not being satisfied with the Arbitrator named in theArbitration Clause had filed the Petition under Section 11 of the Act,1996 in M.C.A.No.61/2006 before the Designated Court seeking theappointment of an independent Arbitrator. Since that is the undisputedposition, the appellants are estopped from raising the contrary contentionat this stage. Hence, the contention in that regard is rejected.

7. With regard to the contention that Sri S.T. Madnani, Advocateought not to have acted as the Arbitrator since he was also the counselfor the respondent No.1 in another case, the same requires consideration.Not only from the observations contained in the order of the High Courtit is noticed that the said learned Arbitrator had appeared as a counselfor the respondent, it is also seen from the records that as per thevakalatnama dated 29.03.2004 the learned Arbitrator has filed the vakalatin Mesne Profit Case No.7/2004 to which Sri Prakash, one of the partnersof the respondent No.1 herein was a party. Though it is sought to be AB

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Amade out that the said Sri Prakash has nothing to do with respondentNo.1, as pointed out by the learned counsel for the appellants, thesupporting affidavit for making the solemn affirmation in respect of theFirst Appeal No.180 of 2007 filed under Section 37(1)(b) of the Act,1996 relating to this very proceeding is made by the said Sri Prakash.Thus, it is clear that Sri S.T. Madnani, learned Arbitrator had acted as aBcounsel in another case for one of the parties to the dispute in the instantcase. In that circumstance it is also not a case where the learnedArbitrator had proceeded in the matter by oversight or without havingknowledge of such conflict of interest. As noticed, a legal notice hadbeen secured to be issued on behalf of the appellants herein raisingCobjection in that regard. Though such notice was issued on the instructionsgiven by the father of the appellants, it is not by a rank outsider nor havethe appellants disowned it to be ignored. In addition, one of the appellantsnamely, Sri Jagdish had also addressed a communication dated 07.08.2006requesting the learned Arbitrator to stop the proceedings since they hadfiled a petition in the High Court for appointing an independent ArbitratorDwhich was also for the reason that present Arbitrator could not haveacted.

8. The learned Arbitrator had taken note of the letters at Exhibits68 and 70 as narrated in the very award passed by the learned Arbitrator.Despite the same, the learned Arbitrator has proceeded with the matterEinstead of staying his hands. In that background, the observations asmade by the High Court to hold that the objection raised was notsustainable as it did not comply with the requirement of Section 13 of theAct, 1996 is not justified. In fact, the provision as contained in Section12 of the Act, 1996 even prior to the amendment effected on 23.10.2015Fwould cast an obligation for disclosure. The pre-amended sub-section(1) to Section 12 of the Act, 1996 reads as follows:

“(1) When a person is approached in connection with his possibleappointment as an arbitrator, he shall disclose in writing anycircumstance likely to give rise to justifiable doubts as to hisGindependence or impartiality.”

If the above provision is kept in view, though technically ason27.02.2004 when the storage receipt was drawn out and the ArbitrationClause came into existence there was no circumstance for disclosure of the present nature, it is seen that he has immediately thereafter, on29.03.2004 filed the vakalat for one of the parties.Thus, as on 03.06.2006when the claim was lodged before the learned Arbitrator both the eventsof, he being appointed as an Arbitrator and also as a counsel in anothercase had existed, which was well within the knowledge of Sri. S.T.Madnani and in that circumstance, it was the appropriate stage when heought to have disclosed the same and refrained from entertaining theclaim. If in that background, the decision in the case of V.K. Dewanand Co. vs. Delhi Jal Board and Ors. (2010) 15 SCC 717 relied uponby the appellants is kept in view, it was in the fairness of things that SriS.T. Madnani should not have acted as an Arbitrator.

9. In the ultimate analysis since we are not adverting to the meritsof the claim and in that regard since, we have not adverted to the findingrecorded by the learned Arbitrator on the merits of claim we would notventure to examine with regard to the ultimate conclusion on the claimas to whether it is justified or not. However, in the above background,what is to be seen is that there has been a reasonable basis for theappellants to make a claim that in the present circumstance the learnedArbitrator would not be fair to them even if not biased. It could no doubtbe only a perception of the appellants herein. Be it so, no room shouldbe given for even such a feeling more particularly when in the matter ofarbitration the very basis is that the parties get the opportunity ofnominating a judge of their choice in whom they have trust and faithunlike in a normal course of litigation where they do not have such choice.

10. That apart when one is required to judge the case of another,justice should not only be done, but it should also seem to be done is thebottom line. Hence in that background, if the present circumstance istaken not, there was reasonable basis for the appellants to put forth suchcontention which resulted in the situation wherein they had not participatedin the arbitration proceedings. If nothing else, at least propriety demandedthat the learned Arbitrator should have recused in the present facts; buthe has failed to do so. In that view, such an award passed by the learnedArbitrator was not sustainable and the learned District Judge was justifiedin entertaining the petition under Section 34 of the Act, 1996 to set asidethe award. In that view, we are of the opinion that the learned Judge ofthe High Court of Judicature at Bombay was not justified in allowing theappeal filed under Section 37(1)(b) of the Act, 1996.

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A11. In view of the above;

(i) the judgment dated 30 and 31 of August, 2007 passed bythe High Court of Judicature at Bombay, Nagpur Bench inFirst Appeal No.187 of 2007 is set aside;

(ii) consequently, the judgment dated 06.11.2006 passed by theBPrincipal District Judge Nagpur in MCA No.538/2006setting aside the award dated 08.08.2006 is restored;

(iii) the parties are reserved the liberty of availing their remedyof arbitration in accordance with law and all contentions onmerits relating to the claim/counter claim are left open.C

(iv) The appeal is allowed with no order as to costs.

Ankit Gyan

Appeal allowed.

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