Arbitrator Cannot Be Familiar To The Parties Of The Arbitration: The Supreme Court

CASE TITLE:
Vinod Bhaiyalal Jain & Ors Vs. Wadhwani Parmeshwari Cold Storage Pvt. Ltd.

DATE OF ORDER:
24 July 2019.

JUDGE(S):
Justice Mr.A.S. Bopanna.

PARTIES:
Petitioner: Vinod Bhaiyalal Jain &Ors.
Respondent: Wadhwani Parmeshwari Cold Storage Pvt. Ltd.

SUBJECT

In the present case, the Court is dealing with the matter of an Arbitrator who was familiar to one of the parties in the arbitration proceedings and thereby acted bias with the other party.

IMPORTANT PROVISIONS

The Arbitration and Conciliation Act, 1996

• Section 12- Grounds for challenge.
• Section 13- Challenge procedure.

BRIEF FACTS

• In the present case, the respondent owns a cold storage at Nagpur which is managed by Sri Suresh Wadhwani. On the other hand, the appellants are engaged in a business for agricultural products as commission agents.
• The appellants are the sons of Sri Bhaiyalal Jain. Due to their business, they utilised the services of the cold storage for keeping 50 bags of ‘Shingada’ which is an agricultural product during the year 2004.
• The appellants herein submitted that the respondent No.1 failed to store the goods in an appropriate manner which thereby caused damaged to their product. Hence, the issued a notice on 18 May 2006 seeking for compensation.
• The alleged respondent No.1 denied and put forward a counter claim on 27 May 2006 as a reply to the notice which was issued by the appellant.
• Therefore, dispute arose between both the parties.
• Respondent No.1 submitted that after the dispute, the parties were governed by an arbitration clause and the parties had agreed to refer the dispute to Sri S.T. Madnani, an advocate who was the Arbitrator in this present issue. This arbitration clause was mentioned in the receipt issued with respect of the storage of goods. The respondent submitted the same through a claim before the learned Arbitrator who is the 2nd respondent in this case.
• The father of the appellants issued a notice on 8 June 2006 and raise a dispute regarding the very existence of the arbitration clause and the appointment of Sri S.T. Madnani as an Arbitrator as he belonged to the respondent counsel wherein Respondent No. 1 was a party. A copy of this incident was dispatched by the learned Arbitrator.
• The learned Arbitrator also took note of the letters which were addressed by the appellants on 29 July 2006 and 7 August 2006 in the order sheet of the proceedings.
• Despite of this objection, the learned Arbitrator termed it as inconsequential and proceeded with the matter in the absence of the appellants. He also passed the award directing the appellants to pay the claim amount as ordered on 8 August 2006. Thereafter, he also imposed a cost of Rs. 43000 on the appellants.
• Feelings aggrieved by the impugned award, the appellants filed a petition before the District Judge, Nagpur under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter “The Act, 1996). They raised objection to the award and the conduct of the Arbitrator.
• The learned District Judge agreed that the learned Arbitrator acted as a counsel for Sri Suresh, i.e partner of respondent No.1. This fact was not disclosed in the provisions of Section 12 of the Act, 1996. The learned Judge also declared the objection to be justified by taking note of Section 13 of the Act and thereby, set aside the award by an order on 6 November 2006.
• The respondent No.1 was aggrieved by the above decision of the learned District Court and thereby, filed an appeal under Section 37 (1) (b) of the Act, 1996 in the High Court.
• The learned High Court listed out two main points while examining this matter-

1. The objection with regard to Sri S.T. Madnani, Advocate acting as the Arbitrator was raised by the father of the appellants and not by the appellants themselves. Hence, this cannot be said to be an objected raised by the party to the proceedings as stated under Section 13 of the Act, 1996.
2. It would not make a reasonable man believe that the Arbitrator was biased just on the ground that he had appeared as a lawyer in one mesne profits case for the respondent No. 1.

• Therefore, the impugned order of the learned District Judge was set aside and the award passed by the learned Arbitrator was restored.

QUESTIONS RAISED

• Whether the Arbitration clause governing the parties and the conduct of the Arbitrator were appropriate in the eyes of law?
• Whether there is any merit in the claim and the award passed by the learned Arbitrator?

ARGUMENTS ADVANCED BY THE APPELLANT

• The appellant contended that the claim which was raised before the Arbitrator was with reference to Clause No. 9 which was printed as the terms and conditions on the overleaf of the receipt for storage. Therefore, there was no consensus ad idemas well as no meeting of minds between the parties regarding reference of dispute to the Arbitrator. The Court cannot relyt upon the term printed in the receipt.

ARGUMENTS ADVANCED BY THE RESPONDENT

• The respondent counsel criticised the appellant counsel and stated that they were the ones who were dissatisfied with the Arbitrator named in the Arbitration Clause. Therefore, since that was the undisputed position, the appellants were estopped from raising the contrary contention at this stage.

ANALYSIS OF THE COURT

• It was observed from the records that the learned Arbitrator has indeed filed a vakalat in Mesne Profit Case to which the respondent No.1 was a party.
• The notice which was issued by the father of the appellants was neither rank outsider nor was disowned by the appellants.
• The learned Arbitrator was also addressed by one of the appellants to stop the proceedings as they filed a petition in the High Court for appointing an independent arbitrator. Hence, the present arbitrator could not have acted.
• The observations made by the High Court was declared unsustainable as it did not comply with the requirement of Section 13 of the Act, 1996. While stating this, the Court relied upon V.K. Dewan and Co. v. Delhi Jal Board and Ors(15 SCC 717).
• The Court set aside the impugned order of the High Court and allowed the appeal by proceeding with the judgement given by the learned District Court Magistrate.

CONCLUSION

The Court rightly understood the biasness of the Arbitrator as well as the learned High Court Judge and condemned the same in its judgement. Therefore, it is very evident from a legal outlook that the learned arbitrator cannot be familiar to the parties of the arbitration proceedings.

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