"rules" In Section 15(2) Of The Arbitration And Conciliation Act Referred To The Provision For Appointment Contained In The Arbitration Agreement.

Case title:

Bharat Vanijya Eastern Private Limited Versus State of West Bengal

Date of Order:

17.03.2023

Bench:

The Hon’ble Justice Krishna Rao

Parties: 

Petitioner: Bharat Vanijya Eastern Private Limited 

Respondent: State of West Bengal

SUBJECT:

The petitioner has submitted the current application for the appointment of a new arbitrator to continue the arbitration proceeding from where the previous arbitrator left it and to make and publish an Award within six months. Alternatively, the petitioner has requested that the case be reviewed and transferred to the Commercial Division of this Court so that it can continue from where it was left at the time the order was passed.

IMPORTANT PROVISIONS:

The Arbitration and Conciliation Act, 1996 reads as follows:

“15. Termination of mandate and substitution of the arbitrator.—

(1) In addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate—

(a) where he withdraws from office for any reason; or

(b) by or pursuant to the agreement of the parties.

(2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.

(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal.

(4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal.”

OVERVIEW:

• The petitioner initially filed Civil Suit against the respondent, asking for the following reliefs: "a) Leave under Order 2 Rule 2 of the Code of Civil Procedure,1908; b) Decree for Rs. 20,72,36,568/- c) Alternatively, an inquiry into the plaintiff's damages and decree for the amount found on such inquiry d) Interest; e) Costs; f) Further and other reliefs;."
• On July 28, 2008, while the case was still pending, the learned attorney for the petitioner forwarded a letter and a draught application under Section 89 of the Code of Civil Procedure, 1908, to the learned attorney for the respondent in order to refer the dispute pertaining to the case before the learned arbitrator.
• In response to the aforementioned letter, the Chief Engineer (NH) sent approval for the appointment of an arbitrator to the respondent's learned counsel, who then conveyed it to the petitioner's learned counsel with a request to proceed the said application following notice to the respondent.
• The petitioner submitted an application after the proposal for the appointment of the arbitrator was approved. On September 11, 2008, this Court issued the following ruling.
• Order: "The Court: The parties agree that Judge Baboolal Jain (Retired) be appointed as Arbitrator and that the entire subject matter of the current litigation, including the questions as stated by this Court, be referred to arbitration.
• In an effort to have the Award, set aside, the respondent filed an application with this court in accordance with Section 34 of the Arbitration and Conciliation Act, 1996.  Further, this Court had partially granted the application made according to Section 34 of the Act of 1996 and set aside the Award with respect to claims. Court further stated that the contractor is free to pursue the claim again by restarting its suit, if that is practicable, or by any other measures that may be available to the contractor in line with the law. This is how the Hon'ble Division Bench had decided on the aforementioned appeals.
• The Arbitrator appointed by the Court had decided the claim on merit by passing award but this Court as well as the Appellate Court had set aside the award on the ground for which the petitioner is neither responsible nor at fault. Merits of the claim have not been decided by the Hon’ble Arbitration Court while setting aside the award.
• This application is further filed under Section 89 of the CPC, 1908 for re- appointing the arbitrator as court had earlier stated that the contractor is free to pursue the claim.

ISSUES RAISED:

Whether new Arbitrator can be appointed by the petitioner?

ARGUMENTS ADVANCED BY THE APPELLANT:

• Mr. Anindya Kumar Mitra (Counsel) argues that the petitioner has completed the work as per the contract but has not received payment, and therefore should not be denied a meritorious claim. The petitioner had agreed to the order under Section 89 of the Code of Civil Procedure in good faith, believing that the Alternative Dispute Redressal method prescribed under Section 89 would result in an enforceable adjudication of their claim, but this has not happened. 
• The petitioner's claim on merit needs to be adjudicated by appointing another arbitrator as the earlier arbitrator who passed the award has passed away.
• According to Mr. Anindya Kumar Mitra's argument, this Court has the authority to appoint a new arbitrator to hear the petitioner's claim in accordance with the ruling made by the Honorable Division Bench.
• Counsel further argues that the 1996 Arbitration and Conciliation Act provides for the limited supervisory role of courts in the review of arbitral awards to ensure fairness. Courts can intervene only in cases of fraud, bias, or violation of natural justice. 
• The court cannot correct arbitrators' errors and can only quash the award, leaving parties to begin arbitration again if desired. Parties opt for arbitration to exclude the court's jurisdiction and prefer its expediency and finality. Mr. Mitra relies on several judgments to support his argument, including (2021) 9 SCC 1 (Project Director, National Highway No. 45E and 220 National Highway Authority of India –vs- M. Hakeem & Anr.)

ARGUMENTS ADVANCED BY THE RESPONDENT:

• On the other hand, the respondent's learned senior advocate, Mr. Tilak Bose, contends that the petitioner's application is not legally admissible and is time-barred. According to him, the petitioner has not, as required by the Act of 1996, issued any notice of invocation for a second referral.
• According to Mr. Bose, the consent that was previously given under Section 89 of the CPC has expired because it was only given against the specific reference and the specific arbitrator, not the then-extended provisions. He claims that the State is no longer agreeing to submit the issue in question or any other problems pertaining to the subject contract, if any, to arbitration, whether it be before a particular arbitrator or not.
• Mr. Bose argues that Clause 25, which is typically found in standard 2911 (ii) agreement forms, was deleted 8 years prior. He contends that the State's policy is to resolve disputes and claims involving the State in civil court, not through arbitration. Additionally, he argues that the current application is not maintainable as it was made more than 12 years after Civil Suit No. 81 of 2022 was disposed of. Mr. Bose also maintains that a second reference on the same dispute would be without jurisdiction and that following the procedures outlined in the Arbitration and Conciliation Act, 1996 is necessary before making a new reference.
• He notes that the State of West Bengal is only an agent of the Central Government and is responsible solely for executing work on highways. Finally, he argues that in the event of an arbitration reference, the Ministry of Road, Transport and Highways, Government of India, must bear all costs related to the National Highway works
• According to Mr. Tilak Bose, who relied on the judgment in Afcon Infrastructure Limited & Anr. vs. Cherian Varkey Construction Company Private Limited (2010) 8 SCC 24, once such a contract has been signed by both parties, the matter may be referred to arbitration under Section 89 of the Code of Civil Procedure, 1908, and upon such referral, the provisions of the Arbitration and Conciliation Act will apply to the arbitration, and the case will exit the stream of court proceedings.

JUDGEMENT ANALYSIS:

• The arbitral award was completely overturned by the Hon. Division Bench of this Court in an order dated 27.11.2019, which concluded the appeals. The petitioner was given the freedom to pursue the claim once more by filing a new lawsuit, if that is possible, or by any other legal means that may be available to it. The petitioner has now requested the appointment of an arbitrator to continue the arbitration process or, in the alternative, that the lawsuit be revived and transferred to this Court's Commercial Division for resolution.
• In the case of S.B.P. & Company vs Patel Engineering Limited & Another, the Supreme Court held that the term "rules" in Section 15(2) of the Arbitration and Conciliation Act referred to the provision for appointment contained in the arbitration agreement or any rules of any institution under which the disputes were referred to arbitration. The appointment of a substitute arbitrator must be done according to the original agreement or provision applicable to the appointment of the arbitrator at the initial stage. The power of the Managing Director of the respondent is saved by Section 15(2) of the Act, and he has exercised that power on the terms of the arbitration agreement, and there is no infirmity in the decision of the learned Chief Justice or in that of the Division Bench.
• It is true that there was no contract between the parties in the current case, but during the litigation, the parties came to an agreement for the appointment of an arbitrator to resolve the suit's claims. An award made by an arbitrator this court had chosen was overturned by the Hon’ble Court’s division bench. 
• There is no resolution of the dispute between the parties because the award was invalidated by the Honorable Court. With the signed assent of both parties, the petitioner's lawsuit was adjudicated by an order appointing an arbitrator. So, this court believes that the parties' agreement still stands as long as their disagreement is unresolved.

CONCLUSION:

Regarding the appointment of the arbitrator, it can be seen from the record that the Hon'ble Division Bench had granted the petitioner freedom to re-pursue the claim by reviving its suit, if that is possible, or by any other means that may be available to the petitioner in accordance with the law, while setting aside the award. The petitioner had submitted this application along with the main request for the appointment of an arbitrator or, alternatively, for the resumption of the lawsuit. In accordance with the agreement they struck before the instant case was filed, the petitioner has not requested that the respondent appoint an arbitrator to settle the disagreement.

The Hon'ble Court ruled in the case of Shailesh Dhairyawan (supra) that once an agreement was made between the parties, even in an accompanying lawsuit, their intention is to resolve the matter through arbitration rather than returning to court to have the same dispute decided through the court's adjudicatory process. According to this theory, the suit is also non-revivable.

This order will not, however, prevent the petitioner from conducting the proper actions for the legal appointment of an arbitrator