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.  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. 
 on 19 02 1arbappeal 12 12.sxwdgmIN THE HIGH COURT OF JUDICATURE AT BOMBAYCIVIL APPELLATE JURISDICTIONARBITRATION APPEAL NO. 12 OF 2012Leslie David Isaac.... Appellant vsBahadur Bapuji Sanjana .... RespondentMr. H. Toor i by Mr. Nandu Pawar for the Appellant.Mr. D. D. Madon Senior Advocate along with Mr. S. Shamim i by Shamim & Co. for the respondent. CORAM: ANOOP V. MOHTA J. RESERVED ON : March 30 2012PRONOUNCED ON: April 09 2012JUDGMENT:The Appellant original Respondent has filed this Appeal under Section 37 of the Arbitration and Conciliation Act 1996and 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. The Appellant was absent when the impugned order was passed by the Tribunal. The operative part of the order is as follows : on 19 02 2arbappeal 12 12.sxw“ORDERI have considered the facts set out before and have gone through all the supporting documents presented before me and in the interest of preserving the assets and capital of the firm the Respondent is directed as follows:1)To redeposit the amounts of Rupees 12 00 000 ­ with interest in the account of Elektronik Lab held with Central Bank of India Byculla branch bearing account no.1029747736 and Rupees 32 00 000 ­ with interest in the account of Elektronik Lab held with ICICI bank bearing account no.032305001098 2)Respondent be restrained from interfering obstructing or causing any hindrance in the ordinary course of business of the firm and3)Restrained from withdrawing any amounts from any of the firm s bank accounts without due permission of the arbitral tribunal.”2The Appellant is now aware of the order which is appealable under Section 37 of the Arbitration Act. There exists arbitration clause in the Deed of Partnership dated 5.5.1976 entered into and on 19 02 3arbappeal 12 12.sxwsigned by the parties. All disputes and question whatever which shall either during the partnership or afterwards arise between any partner or partners and the representatives of any partner touching this deed or constructed or application thereof or any acts or things therein contained or any account valuation or division of assets or debts or liabilities to be made thereunder and to any act deed or commissions of any partners or as to any other matter in any way relating to the partnership business or the affairs thereof or the rights duties liabilities of any person under this deed shall be referred to a single arbitrator in case the parties agree upon otherwise to two arbitrators one to be appointed by each party to the difference in accordance with and subject to the provisions of the Indian Arbitration Act of 1940 or any statutory modification thereof for the time being in force. 3As there arose dispute 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 he would not participate in such arbitration proceedings. The on 19 02 4arbappeal 12 12.sxwRespondents 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. 4The 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 on 19 02 5arbappeal 12 12.sxwattended the arbitration proceedings in view of their objection from its inception. 5The 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. 6The 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. There was no procedure and or permission given to other side to appoint an Arbitrator unilaterally. The consent of both the parties was a must. 7Admittedly the Arbitrator was appointed unilaterally by the Respondent. The Arbitrator though the Appellant was absent on the on 19 02 6arbappeal 12 12.sxwbasis of letters issued by the Appellant decided that she has jurisdiction to proceed with the arbitration as contemplated under Section 16 of the Arbitration Act. The Arbitrator further has passed the impugned Award. At every stages admittedly the Appellant was absent. 8The learned senior counsel appearing for the Respondent has relied upon Section 16(6) of the Arbitration Act which is reproduced as under :“16Competence of arbitral tribunal to rule on its jurisdiction. ­of Arbitration Act include the interim award also. Section 34 permits and or contemplates the challenge to the interim Award also. But at present we are concerned with Section 37 Appeal 12006R.A.A. 517on 19 02 8arbappeal 12 12.sxwwhich is maintainable against the interim order measure on Section 17 application passed by the Arbitral Tribunal pending the arbitration proceedings. 10The 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 challenged 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. There is no such bar and or restriction created by the Arbitration Act that the Court being Appellate Court just cannot consider the submission so raised by the parties one who has objected since inception the unilateral appointment of the Arbitrator. Admittedly the clause so referred above provides that any single sole Arbitrator if to be appointed it should be by the consent of both the partners. The Appellant resisted the named Arbitrator since beginning and never accepted the said appointment by specific letters communication raised objection even by intimation in writing to the sole Arbitrator. The sole Arbitrator was fully aware of the objection so raised. on 19 02 9arbappeal 12 12.sxw11The Appellant referred and strongly relied upon clause 15 of the Partnership Deed and Section 11 of the Arbitration Act. The Respondent in such situation as the Appellant was not willing to accept the named Arbitrator ought to have been invoked Section 11 of the Arbitration Act to appoint the Arbitrator to settle their dispute. I am inclined to observe 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. 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. 12The learned Arbitrator though objected in writing without waiting for the Appellant passed the order even on jurisdiction in her own favour still in my view the Court under Section 37 of the on 19 02 10arbappeal 12 12.sxwArbitration Act is not prevented by any provision even Section 16(6) of the Arbitration Act read with Section 34 to consider the case of the Appellant on admitted position on record that exparte interim award so passed need not be executed and or need to be stayed pending the challenge even if any as available under Section 16(6) read with Section 34 of the Arbitration Act. The bar even if any so created under Section 16(6) and or Section 34 of Arbitration Act whereby the party against whom the issue of jurisdiction is decided by the Arbitrator against them is entitled to challenge the same along with other grounds under Section 34 of the Arbitration Act in no way sufficient to take away the rights of the Appellate Court under Section 17 to grant and consider in this background the merit and demerit of the appointment of the Arbitral Tribunal as it goes to the root of the matter. 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. To set aside the Award on this ground by the on 19 02 11arbappeal 12 12.sxwCourt under Section 34 of the Arbitration Act is another issue but the power of the Court under Section 37 of the Arbitration Act to stay the effect and operation of such interim award as the same has been passed by the Arbitrator without the consent of the other parties and thereby directions have been issued to deposit the amount and so also not to interfere with the business activities of the firm of which he is a partner certainly can be tested. 13Now the question is about the scope purpose and the power of the Appellate Court under Section 37 of the Arbitration Act. 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. If case is made out as present one the Appellate Court considering the objection with regard to the jurisdiction so raised and admittedly when the Arbitral Tribunal was constituted unilaterally by one party in breach of the arbitration clause itself but respecting the scope of Section 16(6) and Section 34 without disturbing the issue of self jurisdiction has decided by the Arbitrator but taking note of the said jurisdictional issue and as it goes to the root of the matter and in view on 19 02 12arbappeal 12 12.sxwof any bar I am inclined to take a view 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. However all these points need to be considered while passing the final award by the Arbitrator. 14In the result the following order :ORDER(a)The order dated 22 December 2011 is quashed and set aside.(b)The Tribunal to continue with the hearing of the main Arbitration Petition.( c) All points are kept open for challenge under Section 34 of the Arbitration Act.15The Arbitration Appeal is accordingly disposed of. There shall be no order as to costs. 