Arbitration and Conciliation Act, 1996 -
IN
THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR.JUSTICE V.CHITAMBARESH & THE HONOURABLE MR.JUSTICE
R.NARAYANA PISHARADI
THURSDAY,
THE 10TH DAY OF JANUARY 2019/17TH POUSHA, 1940
ARB.A.No.
32 of 2018
AGAINST
THE ORDER DATED 03-03-2018 IN OP(ARB)NO.60/2016 OF THE DISTRICT
COURT,PATHANAMTHITTA
APPELLANTS:
KURIEN
GEORGE
BY
ADV. SRI.RAJIV ABRAHAM GEORGE
RESPONDENT:
RENJITH
T.MATHEW
BY
ADV. SRI. C.S.MANILAL.
J U D G M E N T
Chitambaresh, J.
1. Non Resident Indians yearn to build houses in their home
State. They become crestfallen when their venture does not shape well. The
mal-construction of a house is alleged in the instant case. The appellants are
the owners and the respondent is the architect.
2. The dispute between the appellants and the respondent in
regard to the construction of a house required to be resolved by arbitration by
virtue of the Consultancy Agreement executed amongst them. Clause 35 thereof is
extracted below:
“35.
Any disputes with regard to this agreement shall be decided by an arbitrator
fixed by the 1st party at that time. The legal
jurisdiction will be at Thiruvalla.”
The
appellants being the 1st party in the Consultancy Agreement appointed
Mr M.C.Mathew, Assistant Engineer (Retired) as the sole arbitrator which was
however objected to by the respondent. Mr M.C.Mathew who was appointed by
letter dated 4.10.2012 'relinquished the said arbitratorship for fairness' by
letter dated 12.8.2014 on account of the objection raised.
3. The parties are free to agree on a procedure for appointing
an arbitrator under Section 11(2) of the Arbitration and Conciliation Act, 1996
['the Act' for short] which is Clause 35 in the instant case. There is no case
that the appellants have failed to act as required under that procedure as per
Section 11(6) of the Act since they did appoint an arbitrator. Section 11(5) of
the Act also does not apply since the respondent has waived his right to object
to the choice of the arbitrator in view of Clause 35 of the Consultancy
Agreement. The mandate of Mr M.C.Mathew as an arbitrator has terminated since
he has 'withdrawn from his office' by letter dated 12.8.2014 almost two years
after his appointment. We cannot appreciate the contention of the respondent
that Mr M.C.Mathew has refused to accept the arbitratorship and hence no
withdrawal from office occurred.
4. The appellants were well within their right to appoint Mr
Justice B.M.Thulasidas (Retired) as a substitute arbitrator in accordance with
Clause 35 of the Consultancy Agreement under the circumstances. Section 15(2)
of the Act is as follows:
“(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.”
The
rule that was applicable to the appointment of the arbitrator being replaced is
Clause 35 of the Consultancy Agreement read with Section 11(2) of the Act which
was called in aid again. It is in accordance therewith was Mr Justice
B.M.Thulasidas (Retired) appointed as the substitute arbitrator by the
appellants without reference to the respondent. The appellants rely on a letter
addressed to Mr Justice B.M.Thulasidas (Retired) in August, 2015 with a copy
marked to the respondent about the appointment. The fact remains that the
respondent did appear before the substitute arbitrator - Mr Justice
B.M.Thulasidas (Retired) - in the initial stages of hearing. The respondent did
file an interlocutory application dated 17.2.2016 before the substitute
arbitrator questioning his jurisdiction under Section 16(2) of the Act. There is
no whisper in the said interlocutory application that the respondent did not
have notice of the appointment of the substitute arbitrator as is now urged in
the present proceedings. The objection as regards the jurisdiction was turned
down by the substitute arbitrator by interim order dated 15.3.2016 much before
the final award dated 15.6.2016. The respondent neither challenged the interim
order dated 15.3.2016 appropriately nor participated in the hearing before the
substitute arbitrator thereafter.
5. The court below in O.P.(Arb) No.60/2016 filed by the
respondent under Section 34(2) of the Act has set aside the award dated 15.6.2016
of the substitute arbitrator by the order impugned in this appeal. The reason
stated is that only this Court could have appointed an arbitrator under Section
11(5) of the Act when once the appellants have exhausted their power to
appoint. That Section 11(2) of the Act which is applicable to the appointment
of an arbitrator applies fortiori to the substitute arbitrator as well is
grossly overlooked. Even otherwise the power conferred under a Central Act may
be exercised from time to time as occasion arises unless a different intention
appears in the context. A reference in this connection to Section 14 of the
General Clauses Act, 1897 fortifies our conclusion that the appellants could
appoint a substitute arbitrator. This was precisely done by the appellants without
recourse to this Court under Section 11(5) of the Act which cannot be faulted
with as wrongly done by the court below.
6. In fact SBPP & Co.(2) v. Patel Engineering Limited and
another [(2009) 10 SCC 293] clarifies Yashwith Constructions (P) Ltd. v. Simplex
Concrete Piles India Ltd. [(2006) 6 SCC 204] and holds thus:
“30.
Section 15 specifies additional circumstances in which the mandate of an
arbitrator shall terminate and also provides for substitution of an arbitrator.
Sub-section (1) of this section lays down that in addition to the circumstances
referred to in sections 13 and 14, the mandate of an arbitrator shall terminate
where he withdraws from office for any reason or pursuant to agreement of the
parties. Subsection (2) of section 15 postulates appointment of a substitute
arbitrator in accordance with the rules that were applicable to the appointment
of the original arbitrator.
31. What is significant to be noticed in
the aforementioned provisions is that the legislature has repeatedly laid
emphasis on the necessity of adherence to the terms of agreement between the parties
in the matter of appointment of arbitrators and procedure to be followed for
such appointment. Even Section 15(2), which regulates appointment of a substitute
arbitrator, requires that such an appointment shall be made according to the
rules which were applicable to the appointment of an original arbitrator. The
term 'rules' used in this subsection is not confined to statutory rules or the
rules framed by the competent authority in exercise of the power of delegated
legislation but also includes the terms of agreement entered into between the
parties.” (emphasis supplied)
7. The relevant averments of the respondent in
O.P.(Arb)No.60/2016 filed under Section 34(2) of the Act have been extracted in
paragraph 6 of the impugned order which are reproduced below:
“For
a valid contract to be enforceable, consensus-ad
idem is essential. The appointment of
Arbitrator is one of the terms of the contract. Therefore before appointment of
Arbitrator the claimants ought to have sent notice of nomination as required
under Sec. 11 of the Arbitration and Conciliation Act, 1996 and to obtain the
consent of the respondent/petitioner. But in the case at hand the claimants
failed to comply Sec. 11 and no notice was issued to the respondent before appointing
the second Arbitrator (Arbitral Tribunal). Clause 35 of agreement is unilateral
and it will not be binding on the respondent/petitioner. For an arbitration
there should be consensus-ad
idem as to the appointment of an Arbitrator.
In the agreement there is no Arbitrator appointed by consent of both sides. In
such a situation claimants are having no right to appoint an Arbitrator
unilaterally. In the case at hand selection of Arbitrator is unilateral. Hence
the same is against public policy. Hence the impugned award is a nullity. The
agreement mentioned in this case is against the provisions of Sec. 23 of the
Indian Contract Act. It is also contended that the arbitration proceedings
initiated in this case is barred by limitation.”
The
focal point of attack on the validity of the award is the procedure adopted for
the appointment of a substitute arbitrator and there is neither pleading nor
finding as regards other vitiating factors. We have already found that the
appointment of Mr Justice B.M.Thulasidas (Retired) as substitute arbitrator is
in order as per the Consultancy Agreement and the Act. The court below has also
turned down the plea of the respondent about the bar of limitation in
initiating the arbitration proceedings which finding is unchallenged. We have
no other course except to set aside the impugned order and dismiss
O.P(Arb)No.60/2016 thereby upholding the award dated 15.6.2016 of the
substitute arbitrator. The arbitral award inter
alia directs the respondent to pay a sum of ₹81,35,358/-
with interest at 12% per annum from 30.11.2015 to the appellants. The same
includes the excess amount paid and the expenses incurred to rectify the
defects as well as the escalation cost for completing the construction by the
appellants. This is however in addition to the share of remuneration and expenses
to be met by the respondent for the conduct of the arbitration proceedings
culminating in the award.
8. We appreciate the arguments of Mr Rajiv A. George, Advocate
for the appellants as well as Mr C.S.Manilal, Advocate for the respondent which
were confined to the cardinal issues shorn of unnecessary details.
The
arbitration appeal is allowed. No costs.