Leslie David Isaac vs Bahadur Bapuji Sanjana

Such   unilateral   appointment   of   the Arbitrator by a party when resisted by the other side and as it is contrary to the arbitration clause itself is impermissible. It traduces the arbitration system.

Case name:Leslie David Isaac vs Bahadur Bapuji Sanjana 
Case number:ARBITRATION APPEAL NO. 12  OF 2012
Court:HIGH COURT OF JUDICATURE AT BOMBAY
Bench:ANOOP V. MOHTA, J
Decided on:9 April, 2012
Relevant Act/Sections:

BRIEF FACTS AND PROCEDURAL HISTORY:

  • The Appellant, original Respondent has filed this Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (for short, the Arbitration Act)  and thereby challenge is made to the interim order dated 22 December 2011 passed by the Arbitral Tribunal pending the arbitration proceeding between the parties under Section 17   of   the   Arbitration   Act.  
  • There exists arbitration clause in the Deed of Partnership dated 5.5.1976 entered into and signed by the parties. The dispute arose between the partners of the firm, the Respondents by letter dated 5.5.2011 invoked the arbitration clause and unilaterally appointed a single/sole Arbitrator and called upon the   Appellant   to   confirm   the   same. 
  • The   meeting   was   fixed   on 11.07.2011 by the Arbitrator.  The Appellant resisted the appointment by his Advocate’s letter dated 7.7.2011 and informed specifically that Respondents Advocate received the said letter on 9.7.2011.  As fixed, the Arbitrator on 11.07.2011 held the first meeting.  The Appellant was absent.     The Respondent did not disclose the receipt of the objection/letter   of   the   Appellant   dated   7.7.2011.     The   Arbitrator therefore noted that no reply from the Appellant. The Appellant thereafter by letter dated 2.08.2011 informed to the Arbitrator that the fact of their objection to the appointment was suppressed by the Respondent and further requested to desist and ceased from acting as an Arbitrator and also pointed out that such arbitration proceedings should not be binding on the Appellant.  
  • The   Arbitrator, however, proceeded   further   inspite   of   the objection and framed issue on 12.08.2011.  On 29.09.2011 also held that   she   had   jurisdiction   to   act   as   an   Arbitrator.     The   Appellant, through the Advocate’s letter dated 7.10.2011, reminded clause 12 of the Partnership Deed and also Section 11 of the Arbitration Act and thereby pointed out the disagreement over the appointment. 
  • The Respondent   responded   the   same   by   letter   dated   18.10.2011   and intimated that they would apply for exparte hearing.  The Arbitrator fixed the hearing on interim application on 18.11.2011.  The copy was received by the Appellant on 18.11.2011 itself.  The Appellant never attended the arbitration proceedings in view of their objection from its inception.  
  • The learned Arbitrator passed the exparte award on 22.12.2011 and   directed   to   redeposit   the   amount   with   interest   in   the   noted accounts of the Elektronik Lab and further restrained the Appellant from   interfering   with   the   course   of   business   of   the   firm   and withdrawing   any   amount   from   any   firm’s   account   without   due permission from the Arbitral Tribunal. 
  • The   Appellant   filed   the   Appeal   on   24.01.2012   and   thereby submitted to declare the whole arbitration proceedings being null and void   and   therefore  the  order  so   passed,  in  view   of   the   unilateral appointment of the Arbitral Tribunal by the Respondent itself was contrary   to   the   agreed   terms   and   conditions/clauses   between   the parties. 

ISSUE BEFORE THE COURT:

  • Scope, purpose and the power of the Appellate Court under Section 37 of the Arbitration Act

RATIO OF THE COURT

  • The court stated that the bar is created under Section 16(6) and/or Section 34, to say that the order of self jurisdiction  decided by the Arbitrator can only be challenge while   challenging   the   final   Award   passed   by   the Arbitrator.  This in no way takes away the right of Appellate Court to consider the merit and demerit of the interim order passed by the Tribunal even referring to the issue of jurisdiction as contemplated under Section 16 of the Arbitration Act.
  • The court observed that   that   such   unilateral   appointment   of   the Arbitrator by a party when resisted by the other side and as it is contrary to the arbitration clause itself is impermissible. It traduce the arbitration system. The objection of having arbitration clause itself is to appoint jointly selected Arbitrator to settle their dispute, through the agreed procedure.
  • It later added that Having once agreed for appointment of   Arbitrator  jointly   and   in   cases   where   there   was   resistance   and objection from the other side, the constitution of the Arbitral Tribunal and the continuation of the proceedings by the Tribunal, in my view, certain is in breach of the contractual agreed terms and conditions between the parties. 
  • The court observed that merely because the Appellate Court under Section 37 against the   order   passed   under   Section   17   of   the   Arbitration   Act   cannot disturb and/or set aside the order passed by the Arbitrator under Section 16 confirming its jurisdiction, that itself cannot be the reason and/or takes away the Appellate Court’s power to consider the case of the Appellant with regard to the jurisdiction at least for the time being till the Arbitral Tribunal decides all disputes and/or differences finally through the Award.
  • The court observed that Section 16 read with Section 34 cannot be equated with Section 17 read with Section 34 of the Arbitration Act.   Both are on different foundation and purpose to achieve.  Any order passed under Section 17 can be tested on its merit under Section 37 of the Arbitration Act.
  • It was stated by the court that the Appellate Court under Section 37 is empowered to stay and/or suspend such interim order passed by the Tribunal pending final decision of the matter.  The Tribunal, if can pass order under Section 17 of the Arbitration Act, the Appellate Court under Section 37 is entitled to accept and/or reverse the same.  That, in no way, halt and/or obstruct the main hearing of the arbitration proceedings by the Arbitral Tribunal.

DECISION HELD BY COURT:

  • The order dated 22 December 2011 was quashed and set aside.
  • The   Tribunal   to   continue   with   the   hearing   of   the   main Arbitration Petition.
  • All points are kept open for challenge under Section 34 of the Arbitration Act.
  • The Arbitration Appeal was accordingly disposed of with no order as to costs. 

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