union of india (uoi) vs p.m. paul and anr. on 29 march, 1985

8/2/2019 Union of India (Uoi) vs P.M. Paul and Anr. on 29 March, 1985

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Kerala High Court

Kerala High Court

Union Of India (Uoi) vs P.M. Paul And Anr. on 29 March, 1985

Equivalent citations: AIR 1985 Ker 206

Author: V S Nair

Bench: V S Nair

ORDER

V. Sivaraman Nair, J.

1. The first respondent had entered into a works contract with the petitioner, represented by the Chief

Engineer, Cochin Zone of the Military Engineering Service on 7-4-1979. Clause 70 of the Contract provided

for Arbitration, and was in the following terms :

"Arbitration -- All disputes, between the parties to the contract (other than those for which the decision of the

CWE or any other person is by the Contract expressed to be final and binding) shall, after written notice by

either party to the Contract to the other of them, be referred to the sole arbitration of an Engineer Officer to be

appointed by the authority mentioned in the tender documents.

Unless both parties agree in writing such reference shall not take place until after the completion or alleged

completion of the Works or termination or determination of the contract under Condition Nos. 55, 56 and 57

hereof.

Provided that in the event of abandonment of the Works or cancellation of the Contract under Condition Nos.

52, 53 or 54 hereof, such reference shall not take place until alternative arrangements have been finalised by

the Government to get the works completed by or through any other Contractor or Contractors or Agency or

Agencies.

If the Arbitrator so appointed resigns his appointment or vacates his office or is unable or unwilling to act due

to any reason whatsoever, the authority appointing him may appoint a new Arbitrator to act in his place.

Provided always that commencement or continuance of any arbitration proceedings hereunder or otherwise

shall not in any manner militate against the Government's right of recovery from the contractor as provided in

Condition 67 hereof.

The Arbitrator shall be deemed to have entered on the reference on the date he issues notice to both the

parties, asking them to submit to him their statement of the case and pleadings in defence.

The Arbitrator may, from time to time with the consent of the parties, enlarge the time up to but not exceeding

one year from the date of his entering on the reference, for making and publishing the award.

The Arbitrator may proceed with the arbitration ex parte, if either party, in spite of notice from the Arbitrator

fails to take part in the proceedings.

The Arbitrator shall give his award within a period of six months from the date pf his entering on the

reference or within the extended time as the case may be on all matters referred to him and shall indicate his

findings, along with sums awarded, separately on each individual item of dispute.

The venue of Arbitration shall be such place or places as may be fixed by the Arbitrator in his sole discretion.

The award of the Arbitrator shall be final and binding on both parties to the contract".


Indian Kanoon - http://indiankanoon.org/doc/1907174/ 1


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2. Differences arose between the parl ies relat ing to the working of the contract . The f irs t

respondent-Contractor by his letter dated 13-9-1980 called upon the Engineer in Chief, Military Engineering

Services, New Delhi, who was the designated appointing authority, to appoint an Engineer Officer as sole

arbitrator, to adjudicate upon the dispute between the parties. No action appears to have taken on that letter.

But the differences continued. Shri K.C.S. Rao, Additional Chief Engineer who was the Officiating Chief

Engineer, South West Zone, Cochin, by letter dated 12-12-1981, terminated the agreement, allegedly in

exercise of the powers vested in him under condition 54 of the General Conditions of the Contract. In letter

dated 4-10-1982, the first respondent again called upon the Engineer-in-Chief to appoint an Engineer Officeras sole arbitrator to settle the dispute arising out of the non-settlement of his claims. This was reiterated in

letter dated 28-1-1983. Ultimately, in letter dated 9-6-1983, the Engineer-in-Chief of the first respondent

appointed Shri K.C.S. Rao, Chief Engineer, Pune Zone, as sole arbitrator for adjudication of the disputes. Shri

K.C.S. Rao entered upon the reference by requiring the parties to submit their statements in his

communication dated 4-7-1983. It is admitted that in that letter, Shri K.C.S. Rao referred to the fact that he

was the person who terminated the contract by letter dated 12-12-1981 while officiating as Chief Engineer,

South-West Zone.

3. On 11-7-1983, the first respondent filed Ext. P1 petition, which was numbered as O.P. (Arbitration) No. 18

of 1983 in the Sub-Court, Cochin. LA. No. 1003 of 1983 was filed by the first respondent, praying for an

injunction restraining the respondents therein, viz. the present petitioner and Shri K.C.S. Rao, from taking anysteps pursuant to the appointment of Shri K.C.S. Rao as the sole arbitrator. Petitioner, thereafter, entered

appearance, and filed LA. No. 1114 of 1983 for an order of stay of the proceedings under Section 34 of the

Arbitration Act. That application w as dismissed by order dated 26-9-1983. Petitioner filed his

counter-affidavit, Ext. P3, dated 18-11-1983. It was stated in paragraph 7 thereof, that Shri K.C.S. Rao, who

had terminated the contract by letter dated 12-12-1981 while he was officiating for a brief spell as Chief

Engineer, South-West Zone, and who was appointed as sole Arbitrator by letter dated 9-6-1983 had resigned

as the sole arbitrator by letter dated 16-11-1983, apparently because of the delicacy occasioned by his dual

capacity. It was therefore contended by the petitioner, that the appointed arbitrator having been disabled and

unwilling to proceed with the reference, the Engineer-in-Chief was entitled and obliged to appoint another

Engineer Officer as the sole arbitrator in terms of the provisions contained in Clause 70 of the agreement. In a

rejoinder filed on 5th December, 1983, the first respondent for the first time, contended that he was notagreeable to the appointment of an "Engineer Officer" belonging to the same Department as the sole arbitrator

in the reference.

4. The reliefs sought in Ext. P1 filed under Sections 5 and 12 of the Arbitration Act were :

"(i) Grant leave to revoke the authority of the 2nd respondent as Arbitrator in the dispute between the

pe t i t ione r and the 1s t r e s ponden t a r i s i ng ou t o f the con t r ac t under Agreemen t N o . CE

SWZ/COCHIN/36/78-79 dated 7th April, 1979.

(ii) Appoint an impartial person of repute to act as sole arbitrator in the place of the 2nd respondent upon

granting leave to revoke the authority of the 2nd respondent as Arbitrator.

(iii) Grant costs of the petitioner in this petition.

(iv) Grant such other reliefs as this Honourable Court deems fit and proper in the facts and circumstances of

the case."

5. During the course of the hearing, petitioner naturally raised a contention that the appointed arbitrator having

resigned, the relief of revocation of his authority could not and should not be granted, and that in terms of

condition 70 of the General Conditions of the Contract, the Engineer-in-Chief was entitled to appoint another

Engineer Officer as the substitute for the appointed arbitrator who was unable and unwilling to proceed with

the reference. It was therefore submitted that neither the relief of revocation of the authority of the appointed




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arbitrator, viz., Shri K.C.S. Rao, nor the relief of appointment of another person as sole arbitrator could be

granted by the Court.

6. The Court raised the following issues for decision :

"1. Whether this Court should grant leave to the petitioner to revoke the authority of the 2nd respondent as

Arbitrator in the dispute between himself and the 1st respondent?

2. In view of the subsequent events, should this Court remove the 2nd respondent, the Arbitrator?

3. Whether a new Arbitrator should be appointed? If so, who would-be the new Arbitrator and who is

competent to appoint him?"

7. The contentions of the first respondent who was the petitioner in (Arb.) O.P. No. 18 of 1983, as can be

gleaned from Ext. P.1, was that the appointed arbitrator, Shri K.C.S. Rao, having issued notice of termination

of the agreement dated 12-12-1981, on the basis of his conclusions in relation to the same dispute, was

disqualified to be the sole arbitrator, due to possible bias in favour of the petitioner and against the first

respondent-contractor. No point is seen raised in the petition, that the Engineer-in-chief, who was designated

as appointing authority was in any manner disabled to exercise the power which he had under condition 70 ofthe agreement to appoint a substitute. As a matter of fact, the ground taken was, that -

"There is no term in the Agreement between the parties which provides for the Engineer-in-Chief of the first

respondent filling up the vacancy of a post of Arbitrator in case leave is granted by this Honourable Court to

revoke the authority of the Arbitrator appointed by the Engineer-in-Chief. Hence the only course of action for

the petitioner is to seek remedy under Section 12 of the Arbitration Act if the petitioner's prayer for leave to

revoke the authority of the appointed Arbitrator under Section 5 of the Arbitration Act is granted by this

Hon'ble Court as this Hon'ble Court alone has jurisdiction to fill up such vacancy."

8. By Ext. P6 order, the second respondent held, that the first respondent's apprehension that the appointed

arbitrator Shri K.C.S. Rao was likely to be biased was a reasonable ground for removing him from theassignment as arbitrator, To arrive at this conclusion, the second respondent also found that the resignation of

the appointed arbitrator subsequent to the filing of the petition under Sections 5 and 12 of the Arbitration Act

had to be completely ignored. Having thus granted the relief under Section 5, the Court found, that "both the

parties do not want supersession of the reference. In these circumstances, the only course open to me is to

appoint a new arbitrator. At the time of arguments, the learned counsel for the petitioner requested that a

retired Judge of the High Court of Kerala be appointed as the new arbitrator". The second respondent thought

it better to give an opportunity to both the parties on the choice of the new arbitrator with a view to find out

whether there was any agreed name. The case was therefore adjourned to 31-1-1984 for the selection of the

arbitrator. It was at this stage, that this Original Petition was filed by the petitioner.

9. The petitioner submits that the reliefs sought in Ext. P1 application under Sections 5 and 12 of the Act were

incapable of being granted by the second respondent, since the revocation of the authority of the appointed

arbitrator was both unnecessary and impossible, in view of his resignation dated 16-11-1983, and the

designated appointing authority, viz., the Engineer-in-Chief had necessary power to appoint a new arbitrator

in case the appointed arbitrator was unable or unwilling to proceed with the reference, and therefore the relief

under Section 12 of the Act also could not be granted. It is submitted, that the only ground for revocation of

appointment of Shri K.C.S. Rao being that he was likely to be biased, once he was removed on his own

volition, there was no justification for grant of the relief sought under Section 5 of the Act. Appointment of a

new arbitrator in the place of the appointed arbitrator under Section 12 of the Act was essentially connected

with the relief under Section 5 of the Act, It is submitted that relief under Section 5 could not be granted, and

there being nothing in the pleadings indicating that the designated appointing authority was disabled to act

under condition 70 of the Agreement, the Court should not have proceeded with the application at all.




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10. Counsel for the petitioner contended, that the first respondent, having entered into an agreement with open

eyes with the petitioner, reserving the power of appointing an Engineer Officer of the choice of the

Engineer-in-Chief as the Arbitrator, had no justification to file the petition under Sections 5 and 12 of the

Arbitration Act for revocation of the authority of the arbitrator, or to seek appointment of another arbitrator,

he submitted that, assuming that such power is granted in cases in proved or reasonable likelihood of

prejudice or bias in the arbitrator, he could only seek to remove that arbitrator and cannot seek and obtain an

order repudiating the agreement whereunder the designated appointing authority was competent to choose

another arbitrator. He further submitted that even assuming that Ext. PI petition was properly filed, and at thetime of entertaining the same the 2nd respondent-Court had jurisdiction, the Court should have taken into

consideration the subsequent events which took place during the pendency of the application, for moulding

the reliefs to be granted. According to him, it was not as if the fact of resignation of the arbitrator, against

whom objections were raised by the first respondent in the petition filed under Sections 5 and 12 of the

Arbitration Act, could be completely ignored, because it took place subsequent to the filing of Ext. P1

petition. He submitted that the second respondent-Court was not justified in interfering with the power of the

Engineer-in-Chief to appoint another arbitrator in place of the appointed arbitrator, since the power was

subject to the terms of a consensual contract and such power was not liable to be lightly interfered with. He

lay particular emphasis on the specific finding contained in Ext. P6 order, that "both the parties do not want

supersession of the reference". The only course open for the Court, even assuming it had power under

Sections 5 and 12 of the Arbitration Act, to revoke the authority of the appointed arbitrator and appointanother arbitrator, was to direct appointment of another Engineer Officer of the choice of the designated

appointing authority as the arbitrator, without proceeding to arrogate to itself the power to appoint another

arbitrator. In reply to the point relating to jurisdiction, it was submitted that this Court was entitled, and in

fact, obliged to reach out at any illegality and injustice whenever any such was committed, and no technical

plea would stand in the way of exercise of jurisdiction of this Court in appropriate cases.

11. The, first respondent resisted the petition on various grounds. It was submitted that a caveat was filed by

the first respondent on 25-1-1984 to ensure that the first respondent was heard in any M.F.A. or C.R.P, which

was likely to be filed by the petitioner. The first respondent contends that the Original Petition was filed,

obviously, to circumvent the caveat and obtain an order of stay without notice to him. According to the first

respondent, a revision petition could have been filed against Ext. P6 order dated 23-1-1984; and an effectivealternative remedy being available, the Original Petition should not have been entertained. It was submitted

that an order passed by the Court under Section 5 of the Arbitration Act was meant to be final in view of the

provisions contained in Section 39 of the Act, and that such statutory finality is not liable to be avoided by

invoking the discretion of this Court under Articles 226 and 227 of the Constitution of India. It is submitted

that, in any case, this Court cannot reappreciate the evidence and sit in appeal over the judgment of the second

respondent, when a right of appeal has not been conferred on the petitioner. It is further submitted that there

being no provision in the agreement enabling appointment of any new arbitrator, in a case where the authority

of the appointed arbitrator is revoked under Section 5 of the Act, the provisions in condition 70 of the

agreement cannot clothe the Engineer-in-Chief with the authority to appoint a substitute. The first respondent

contends that the resignation of the appointed arbitrator was manipulated by the petitioner; and that being a

subsequent development, could not be determinative of the jurisdiction of the second respondent to deal with

and dispose of Ext. P1 application. It is also submitted that a reasonable apprehension of likelihood of bias of

an arbitrator is sufficient to attract Section 5 of the Arbitration Act.

12. The propositions which emerge for consideration in this case are the following :

"(i) Is the Original Petition filed against Ext. P6 not maintainable in view of the provisions contained in

Section 39 of the Arbitration Act, which by implication, exclude an appeal against orders passed under

Sections 5 and 12 of the Act?

(ii) Is it open to this Court in exercise of the power under Articles 226 and 227 of the Constitution of India to

interfere with an order in the nature of Ext. P6 which has statutory finality and grant enforcement of a right




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emanating from a contract?

(iii) Does the second respondent-Court have power under Section 5 of the Arbitration Act to grant leave for

revocation of the authority of the Arbitrator, if the Arbitrator concerned resigns office or indicates his inability

or unwillingness to proceed with the reference during the course of the proceedings? or in other words, does

the filing of the petition under Section 5 of the Arbitration Act take away the contractual and consensual

power granted to one of the parties to the agreement to appoint a new Arbitrator?

(iv) Does the second respondent-Court have power to proceed under Section 12 of the Arbitration Act when

once the arbitrator, whose authority was sought to be revoked, resigns himself leaving it open to the authority

designated by the parties to the agreement to appoint another arbitrator?

and

(v) Is the second respondent-Court entitled or bound to take into consideration events subsequent to the filing

of the petition for the purpose of moulding reliefs to be granted? or are the subsequent events liable to be

excluded completely?"

13. The preliminary objections taken by the first respondent have to be considered first. The first objection isagainst the filing of an Original Petition challenging Ext P.6 order when the petitioner had been served with

notice of the caveat filed by the first respondent anticipating the petitioner to file a Civil Revision Petition or a

Miscellaneous First Appeal. If a petition under Articles 226 and 227 of the Constitution of India is

maintainable against Ext. P6 order, the fact that the petitioner, instead of filing a C.R.P. or a M.F. A., filed an

Original Petition allegedly to avoid the caveator is no reason to hold that the Original Petition is liable to be

dismissed on that ground.

14. The next objection is that Section 39 of the Arbitration Act deals with all cases in which an appeal can be

filed; and an order under Sections 5 and 12 of the Act is not one such. It is therefore submitted that statutory

finality is attached to such an order, at least by implication; and that such finality cannot be impaired by

exercise of the power of this Court under Article 226 of the Constitution of India.

15. This submission bears detailed examination. I will assume, without deciding, that there is finality attached

to an order in the nature of Ext. P6. Can it be successfully contended that such statutory finality disables

judicial review in exercise of the jurisdiction of this Court under Articles 226 and227 of the Constitution of

India? In other words, can a statutory provision, by implication, exclude judicial review altogether of orders

passed thereunder? The answer does not seem to be difficult to find. It shall only be an emphatic negative as

given by Denning L.J., in re Gilmore's Application, (1957) 1 All ER 796, in the following words :

".....and on looking again into the old books I find it very well settled that the remedy by certiorari is never to

be taken away by any statute except by the most clear and explicit words. The word "final" is not enough.

That only means "without appeal". It does not mean "without recourse to certiorarr. It makes the decision final

on the facts, but not final on the law. Notwithstanding that the decision is by a statute made "final", certiorari

can still issue for excess of jurisdiction or for error of law on the face of the record".

He concluded, after citing celebrated authorities of his eminent forebears beginning with Coke C. J. and

including Lord Mansfield, Lord Kenyon etc., that -

"In my opinion, therefore, notwithstanding the fact that the statute says that the decision of the medical appeal

tribunal is to be final, it is open to this court to issue a certiorari to quash it for error of law on the face of the

record".




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In dealing with a somewhat similar question, Lord Reid held, in Anisminic v. Foreign Compensation

Commission, (1969) 1 All ER 208 (H.L.) :

"It was argued that the whole matter of construing the order was something remitted to the commission for

their decision. I cannot accept that argument, I find nothing in the order to support it. The order requires the

commission to consider whether they are satisfied with regard to the prescribed matters. That is all they have

to do. It cannot be for the commission to determine the limits of their powers. Of course, if one party submits

to a tribunal that its powers are wider than in fact they are, then the tribunal must deal with that submission,but if they reach a wrong conclusion as to the width of their powers, the. Court must be able to correct that not

because the tribunal has made an error of law, but because as a result of making an error of law, they have

dealt with and based their decision on a matter with which, on a true construction of their powers, they had no

right to deal. If they base their decision on some matter which is not prescribed for their adjudication, they are

doing something which they have no right to do and, if the view which I expressed earlier is right, their

decision is a nullity".

In Pearlman v. Keepers and Governors of Harrow School, (1979) 1 All ER 365, Lord Denning again dealt

with the same question and observed :

"Those words 'final and conclusive' have been considered by the Courts a hundred times. It has beenuniformly held that they preclude any appeal to a higher court in the sense of an appeal proper where the

higher court reviews the decision of the lower tribunal and substitutes its own decision for that of the lower

tribunal: see Westminster Corpn. v. Hotels Gordon, (1907-1 KB 910) and Hall v. Arnold (1950-1 All ER

993). But those words do not preclude the High Court from correcting the errors of the lower tribunal by

means of certiorari, now called judicial review. Notwithstanding that a decision is by a statute made 'final and

conclusive', certiorari can still issue for excess of jurisdiction, or for error of law on the face of the record : see

Re Gilmore's Application; (1957-1 All ER 796) or a declaration can be made by the High Court to determine

the rights of the parties. It can declare the law by which they are bound, irrespective of what the lower tribunal

has done : see Pyx Granite Co. Ltd., v. Ministry of Housing and Local Government, (1959-3 All ER1). It can

even consider the point of law by means of a case stated: See Tehrani v. Rostron, (1971-3 All ER 790)."

and

"The High Court has, and should have, jurisdiction to control the proceedings of inferior courts and tribunals

by way of judicial review. When they go wrong in law, the High Court should have power to put them right.

Not only in the instant case to do justice to the complainant, but also so as to secure that all courts and

tribunals, when faced with the same point of law should decide it in the same way. It is intolerable that a

citizen's right in point of law should depend on which judge tries his case, or in what court it is heard. The

way to get things right is to hold thus : no court or tribunal has any jurisdiction to make an error of law on

which the decision of the case depends. If it makes such an error, it goes outside its jurisdiction and certiorari

will lie to correct it."

16. A consideration of these decided cases y ields only one answer to the preliminary point raised by the first

respondent. It is ordinarily difficult to assume exclusion of judicial review altogether of orders of Subordinate

Courts or Tribunals in the absence of clear and specific words to that effect. Even words like 'final' or 'final

and conclusive' do not permit an inference that such determinations are outside the supervisory and certiorari

jurisdiction of superior courts. In the present case, even those words are not used. It is far too far-fetched an

argument to suggest that because an appeal is not provided under Section 39 against an order passed under

Sections 5 and 12 of the Arbitration Act, it should be assumed that such orders are outside the purview of

Articles 226 and 227 of the Constitution. I have no hesitation to reject this submission.

17. Another preliminary objection is that a petition under Article 226 of the Constitution of India does not lie

to correct a determination by a civil court and the jurisdiction under Article 227 confines itself only to




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jurisdictional defects and not to errors of law apparent on the face of the record of the orders of the

Subordinate Courts/Tribunals. In Engineering Mazdoor Sabha, AIR 1963 SC 874, it was observed by

Gajendragadkar J., as he then was (at pp. 881 and 882).

"Article 226 under which a writ of certiorari can be issued in an appropriate case, is, in a sense, wider than

Article 136, because the power conferred on the High Courts to issue certain writs is not conditioned or

limited by the requirement that the said writs can be issued only against the orders of Courts or Tribunals.

Under Article 226(1), an appropriate writ can be issued to any person or authority, including in appropriatecases any Government, within the territories prescribed. Therefore even if the arbitrator appointed under

Section 10A is not a Tribunal under Article 136 in a proper case, a writ may lie against his award under

Article 226."

In State of Madhya Pradesh v. Babu Lal, AIR 1977 SC 1718 (at p. 1719) Ray, C.3. observed that :

"One of the principles on which certiorari is issued is where the Court acts illegally and there is error on the

face of record. If the Court usurps the jurisdiction, the record is corrected by certiorari. This case is a glaring

instance of such violation of law. The High Court was in error in not issuing Writ of Certiorari."

18. It is true that Courts exercising power under Article 226 of the Constitution of India have cautionedthemselves against over-enthusiastic invasions overstepping reasonable limits of certiorari and supervisory

jurisdictions. It is also true that the Supreme Court in the decisions reported in AIR 1958 SC 398, AIR 1964

SC 1419, AIR 1967 SC 1, and AIR 1975 SC 1297, have repeatedly reminded that the exercise of the power

under Articles 226 and 227 shall not be unbridled; and, as Krishna Iyer, J. observed in AIR 1976 SC 425 it

shall not authorise "its free exercise like a bull in a china shop". But in situations where a subordinate Tribunal

confers jurisdiction on itself by an incorrect, or wrong decision on law or on facts which are jurisdictional, it

seems to me that it is not only permissible, but it becomes obligatory that the Court exercises its certiorari or

supervisory jurisdiction under Article 226 or 227 of the Constitution of India. It seems to me necessary to

consider whether the second respondent could have had jurisdiction when it was told that the appointed

arbitrator had resigned and the agreement enabled appointment of a substitute by the designated appointing

authority himself. It appears to me that that question relates to jurisdiction and has to be considered by thisCourt. I would, therefore, hold, that even though there are limitations inherent and inbuilt, and most of them

self-imposed, in the matter of exercise of certiorari or supervisory jurisdictions, in a case where it is brought to

the notice of the Court, that the Subordinate Court, or Tribunal proceeded to confer jurisdiction on itself on an

erroneous understanding of the law, or wrong assumption of jurisdictional facts, the Court cannot be denied

jurisdiction to exercise its power of judicial review. I therefore, holder, that the invocation of jurisdiction of

this Court under Articles 226 and 227 of the Constitution of India, in the facts of this case, cannot be held to

be unjustified.

19. To answer the third and fourth questions, we have to refer to the relevant Clauses of the agreement and

Sections 5 and 12 of the Arbitration Act. The relevant provision of the agreement relating to appointment of

the arbitrator is Clause 70, which has been extracted earlier. Evidently, the above Clause itself provides as to

what shall happen in the case of resignation of the arbitrator or vacation of office, or his inability, or

unwillingness to act due to any reason whatsoever, and enables the designated appointing authority to appoint

a new arbitrator. Ordinarily, this power given to the designated authority by the contracting parties cannot be

taken away by the filing of an application under' Section 5 of the Arbitration Act. According to the Courts of

this country, an arbitration agreement providing for a summary determination of the disputes between the

parties is always treated as inviolable; and to the extent possible, not subject to interference by Courts. The

Courts had been leaving the parties to their bargains to the-extent possible and refusing to permit them to turn

to courts when the consequences of the bargains entered with open eyes happened to be to their disadvantage.

Resort to courts in matters covered by arbitration agreements is permitted only in very limited and exceptional

cases and on strict compliance with the enabling provisions of the Arbitration Act. If. therefore, there is a

power as per the agreement to appoint a substitute in the place of the appointed arbitrator on the happening of




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specified contingencies, the Courts shall not ordinarily interfere with the working out of the arbitration

Clauses in the agreement in exercise of the power under Section 5 or 12 of the Arbitration Act.

20. Counsel for the first respondent submitted that acceptance of such a position may encourage unilateral

attempts of one of the parties to the agreement to so act as to deprive the Court of its jurisdiction, after a

petition is filed under Sees. 5 and 12 of the Arbitration .Act, and may not therefore be accepted. Evidently, it

is assumed that resort to court under Sections 5 and 12 of the Act is a matter of right for any of the parties to

the agreement, an exercise of the power by the Court is a matter of course, once the power is invoked. 1 wouldrather hold that the invocation of the power under Section 5 of the Arbitration Act is not the Rule, but only the

exception and the exercise of that power is largely discretionary as indicated by the negative phraseology used

in the Section to confer power to revoke the authority of the appointed arbitrator. I am free to agree that the

exercise of the power to revoke the authority of an appointed arbitrator may be obligatory if the Arbitration

Clause in the agreement does not contain a provision for appointment of a substitute in a case where the

appointed arbitrator is disqualified by bias or other reasons or resigns or vacates office or is unable or

unwilling to proceed with the reference due to any reason whatever. Does the only fact that a petition has been

filed for revocation of the authority of the arbitrator and for appointment of a substitute without superseding

the reference, deprive the designated appointing authority of its power to appoint a substitute? or in other

words, is the Court entitled to assume that once an application is filed under Sees. 5 and 12 of the Act, the

designated appointing authority becomes incapable of acting and the Court alone has the power ofappointment? The basic tenet of all arbitral jurisdictions is that the parties shall be left to their bargains and

the arbitral tribunals which they have chosen.' If that be so, an assumption cannot easily be made that the

Court shall, as a matter of course, interpose itself between parties merely because an application under one or

the other provision of the Arbitration Act has been made. If the Court be, as it should be, an unwilling

adjudicator in matters covered by arbitration agreements, it cannot be held that the filing of an application

under Section 5 of the Arbitration Act results automatically in the deprivation of the power under the

agreement to appoint a substitute in a case where the appointed arbitrator resigns or vacates office, or is

unable or unwilling to proceed with the reference for any reason whatever. If it be otherwise, one can always

avoid the bargain and the arbitral tribunal chosen by him by filing a petition under Section 5 of the Act. If the

power of the Court to revoke the authority of an appointed arbitrator without superseding the reference be

discretionary and not obligatory, it is essential that the Court considers the effect of the provisions of theagreement for appointment of a substitute in the place of the appointed arbitrator.

21. In dealing with jurisdiction of the Court under Section 5 of the Arbitration Act to revoke the authority of

the appointed arbitrator, the Court has to bear in mind the words of caution contained in the judgment of the

Supreme Court reported in Amarchand v. Ambica Jute Mills, AIR 1966 SC 1036. (at p. 1042) as follows :

"Before the Court exercises its discretion to give leave to revoke an arbitrator's authority, it should be satisfied

that a substantial miscarriage of justice will take place in the event of its refusal. In considering the exercise

by the Court of the power of revocation it must not be forgotten that arbitration is a particular method for the

settlement of disputes. Parties not wishing the law's delays know, or ought to know, that in referring a dispute

to arbitration they take arbitrator for better or worse, and that his decision is final both as to fact and law. In

many cases, the parties prefer arbitration for these reasons. In exercising its discretion cautiously and

sparingly, the Court has no doubt these circumstances in view, and considers that the parties should not be

relieved from a tribunal they have chosen because they fear that the arbitrator's decision may go against

them."

In the present case, the arbitral Tribunal chosen by the parties is an Engineer Officer to be appointed by the

Engineer-in-Chief or a substitute to be chosen by him in the event of specific contingencies. Ordinarily,

therefore, one of the parties to the arbitration agreement will not be permitted to urge that he shall be relieved

from the Tribunal he has chosen because he fears that the arbitrator's decision may go against him. The

provisions of Clause 70 of the agreement, which enable the appointing authority to appoint a substitute,

cannot therefore be avoided by the first respondent, unless the reference itself is superseded or the agreement




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itself is revoked.

22. Can the Court exercise its power to appoint an arbitrator under Section 8 of the Arbitration Act. after the

arbitrators had become functus officio due to efflux of time? In the decision of the Supreme Court reported in

Hari Shanker Lal v. Shambhu, AIR 1962 SC 78. it was held, that after the expiry of the period of four months,

during which the award should have been made, the arbitrators become functus officio, unless the period is

extended by the Court under Section 28 of the Act; and therefore, the Court should not appoint a substitute

and the award of the arbitrators so appointed would be devoid of jurisdiction. We have a similar case here.Can the Court act under Section 5 of the Arbitration Act to revoke the authority of an appointed arbitrator

after he resigns office or otherwise disables himself from proceeding with the reference? Counsel for the first

respondent submits that the Court can and it shall, since it is bound to take into consideration the facts and

circumstances as they obtained on the date of institution of the proceedings and not those which intervened

thereafter.

23. The efficacy of a provision similar to Clause 70 of the agreement, with which we are concerned in this

case, for the appointment of another tribunal as arbitrator after the award made by the first arbitrator was set

aside was considered in the decision of the Supreme Court reported in Juggilal v. General Fibre Dealers, AIR

1962 SC 1123. The agreement provided that all disputes and differences shall be referred to the arbitration of

the Bengal Chamber of Commerce under the Arbitration Rules of the Chamber for the time being in force.The award passed by the Tribunal of the Bengal Chamber of Commerce was set aside. Thereafter, one of the

disputants requested the Chamber of Commerce for a second Tribunal to resolve the disputes. The challenge

against it having been repelled by a single Judge of the High Court of Calcutta, the latter went to the Supreme

Court on Special Leave. After a detailed discussion of the provisions of the Arbitration Act, it was observed

(at p. 1127) :

"The scheme of the Act therefore is whether the Arbitration is under Chap.II, Chap.III or Chap.IV, to give

discretion to the Court to decide whether to supersede the reference or not. Where it decides to supersede the

reference, it has to order that the arbitration agreement shall cease to have effect with respect to the difference

referred; but where it decides not to supersede the reference and the reference and arbitration agreement

subsist and if there is machinery provided in the arbitration agreement for making a further reference or forcontinuing the same reference, further arbitration can take place. The contention therefore urged on behalf of

the appellant that once the award is set aside the arbitrator becomes functus officio and consequently there can

be no further reference with respect to the dispute decided by the award which is set aside, must fail in.view of

the specific provisions of Section 19 of the Act."

It may be remembered that in this case, both the parties specifically agreed that the reference need not be

superseded. It was further observed in the decision, that "when it is said that the arbitrator is generally functus

officio after he has made the award, it only means that he cannot change that award in any matter of substance

himself. But that does not take away the court's power to remit the award for reconsideration under Section 16

or to refuse to supersede the reference even though the award is set aside leaving it to the parties to take such

further action under the arbitration agreement for further arbitration". It was further observed (at pp. 1127 and

1128) :

"We are therefore of opinion that whatever may be the position in the absence of a provision similar to

Section 19 of the Act, there can be no doubt that Section 19 gives power to the Court not to supersede the

reference and so leave the arbitration agreement effective even when it sets aside the award and thereupon it

will depend upon the terms of the arbitration agreement whether arbitration proceedings can go on with

respect to the same dispute or with respect to some other disputes arising under the arbitration agreement. This

was the view taken in the Baranagore Jute Factory case, 62 Cal WN 734 : (AIR 1958 Cal 490). Similar view

has been taken in Rallis India Ltd. v. B. V. Manickam Chetti and Co. AIR 1956 Mad 369 and in Firm Gulab

Rai Girdhari Lal v. Firm Bansi Lal Hansaraj, AIR !959 Punj 102. We think that this view is correct."




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Dealing with the terms of the contract, it was observed (at p. 1128) :

"Further, as the Chamber is constituted the arbitrator in this term of the contract and as the chamber consists

of a large number of members and has its own rules for constituting arbitral tribunals, it is in our opinion quite

possible on the terms of such an arbitration agreement to constitute another tribunal to decide the same dispute

where the reference remains pending and has not been set aside under Section 19, provided there is machinery

for appointing different persons as arbitrators under the rules of the Chamber."

24. In the light of the above observations, the question which we have to consider is whether the Court was

right in proceeding to appoint an arbitrator under Section 12 of the Arbitration Act, completely ignoring the

provisions of Clause 70 of the agreement, whereby another person could have been appointed as Arbitrator by

the designated appointing authority, viz., the Engineer-in-Chief. The answer to this question can only be in the

negative, since it was the specific case of both the parties before the Court that the reference need not be

superseded. Even assuming that the Court has jurisdiction under Section 5 of the Arbitration Act to revoke the

authority of the appointed arbitrator after his resignation, the reference not having been superseded, the parties

should have been held to the terms of the bargain, and should not have been permitted to avoid the Tribunal of

their choice.

25. Considerable, reliance was placed by the counsel for the first respondent on the decision reported inSteemen Ltd. v. State of Himachal Pradesh ILR (1976) Him Pra 218 : The facts obtaining in that case were

very similar to those available in the present case. During the pendency of an application under Section 5 of

the Arbitration Act, before the High Court of Himachal Pradesh for revoking the authority of the appointed

arbitrator, the latter resigned. Clause 29 of the agreement, inter alia, provided that "any question, claim, right,

matter or thing whatsoever arising out of the contract" was to be referred to the sole arbitration of a person to

be appointed by the Chief Engineer, H.P.P.W.D. in charge of the work at the time of dispute. If such arbitrator

was transferred or vacated office, or was unable to act for any reason, the Chief Engineer, H.P.P.W.D. was to

appoint another person to act as Arbitrator in accordance with the terms of the contract, and that no person,

other than the person appointed by such Chief Engineer, was to act as Arbitrator. On resignation of the

appointed arbitrator, another arbitrator was appointed, but he did not proceed with the arbitration with

promptitude. It was in evidence that the Second arbitrator was sought to be influenced by official superiors inmatters relating to the arbitration. That occasioned the application under Section 5 of the Arbitration Act, read

with Sections 11, 12 and 13 thereof, for leave to revoke the authority of the arbitrator appointed as substitute.

During the course of the proceedings in Court, that arbitrator himself resigned, and a third person was

appointed by one of the Chief Engineers as the Arbitrator. The respondents contended that the application had

become infructuous, and the Court had lost its jurisdiction as another arbitrator was appointed. Dealing with

this point, it was observed, as follows :

"I regret, I am unable to subscribe to this view of the learned counsel. The jurisdiction once conferred upon

the court under Section 5, cannot be set at naught because a party has chosen to defeat that jurisdiction by

calling upon the arbitrator to resign and by making a fresh appointment of arbitrator. In a case where the

contractor has some grievance against the State Government, because the arbitrator appointed by the latter is

finding it difficult to enter into reference, due to extraneous influence exercised upon him and thus seeks to

revoke his authority, so that recourse could be had under Section 12 for the Court to cancel the arbitration

agreement itself, can such a contractor be defeated to have that recourse to cancellation of arbitration

agreement under Section 12, for which he invoked jurisdiction of the Court under Section 5, by enabling the

State Government to ask for the resignation of the arbitrator and thereby rendering the application under

Section 5 nugatory so that the Court's jurisdiciton is lost and no order can be passed under Section 12 of the

Act? In my opinion such a situation cannot be permitted to exist. Therefore it would be a negation of justice if

the jurisdiction of the Court is held to be lost under Section 5 simply because one of the parties has chosen,

suo motu, to revoke the authority of the arbitrator by compelling him to resign."




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Unlike in the present case, where both the parties agreed that the reference need not be superseded, the

important fact emanating from the above extract is that the contractor had sought cancellation of the

arbitration agreement itself on the ground that the appointed arbitrator was misconducting himself and the

appointing authority himself was biased against the contractor. The additional factor, which was mentioned in

paragraph 7 of the above judgment was that the Chief Engineer, who appointed the third person as arbitrator,

was not designated appointing authority, since he was not the Chief Engineer "in charge of the work at the

time of the dispute". It was therefore held that the resignation of the second arbitrator and the appointment of

the third person, who was appointed by a person other than the designated appointing authority did not takeaway the jurisdiction of the Court to act under Section 12 of the Act. It was held :

"The appointment of Shri Sublok is manifestly incorrect and the said appointment cannot be upheld. The

Court can certainly exercise jurisdiction under Section 12 after revoking the authority of the arbitrator. It can

either appoint any other person to act as sole arbitrator or can hold that the arbitrator or can hold that the

arbitration agreement shall cease to have effect with respect to the differences referred."

The Court further held, that in view of the allegations and counter allegations between designated appointing

authority and the Director of the Contractor, and the fact that Chief Engineer who was the appointing

authority had submitted a report, which resulted in the filing of a criminal case against the Director of the

Contracting Company, "it will not be proper to ask the Chief Engineer to appoint an arbitrator, which theCourt can do under Section 12 of the Act, in compliance with Clause 29 of the agreement, and in the opinion

of the Court, it was a fit case to order that the arbitration agreement should cease to have effect with respect to

the differences referred." two notable differences between the present case and the case decided by the

Himachal High Court are that the appointing authority, who should have been requested to appoint another

arbitrator, was himself proved to be biased against the Director of the contracting company and a criminal

case was instituted against the latter and therefore, the power under Clause 29 of the agreement could not be

resorted to; and secondly, the contracting company had specifically requested for supersession of the

reference including Clause 29 thereof providing for appointment of a substitute. It is clear from a reading of

the judgment referred to above, that but for these two factors, the court would have required the designated

appointing authority to appoint another arbitrator. It is of course true, that the Court proceeded to grant leave

to revoke the authority of the arbitrator, who had resigned, and further held that the arbitration agreementshould cease to have effect with respect to the differences referred. The important distinction in our case is

that the availability of the power under Clause 70 of the agreement to the designated appointing authority to

appoint a substitute, even assuming that the authority of the appointed arbitrator could be revoked, was not

considered at all. It has been repeatedly held, that though the Court has got a discretion under Section 5 of the

Arbitration Act to revoke the authority of an appointed arbitrator, that power can be exercised only in limited

cases, and on a finding that if the power to grant leave for revocation of the authority of the appointed

arbitrator and the power to appoint a new arbitrator was not exercised, it will be result in manifest miscarriage

of justice. A finding to that effect seems to be jurisdictional; and in the absence of such a finding, the

consequential proceedings under Section 12 of the Arbitration Act can only be held to be devoid of

jurisdiction.

26. The only other proposition that bears examination is whether the Court should have decided the dispute

with reference to the matters as they stood on the date of institution of the petition or could the Court have

taken into consideration events which took place during the pendency of the proceedings in the matter of

moulding the reliefs? The ordinary rule which has been emphatically restated times without number is that the

Court shall determine the lis with reference to the facts as they obtained on the date of institution of the

proceedings.

27. Counsel for the first respondent referred me to the decisions reported in AIR 1951 Mudh Bha 63, AIR

1966 Pun & Har 374 (FB), (1971) 1 SCC 34, AIR 1976 SC 49, 1978 Ker LT 770, 1979 Ker LT 723 and

(1885) 16 QBD 178 in support of this proposition. In all these decisions, it has been emphasised that the

ordinary rule is that the suit or application shall be decided on the cause of action as it existed on the date of




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its commencement and that the exceptional doctrine is that the court may in suitable cases take notice of the

facts corning into existence after the filing of the suit or application and give relief on the basis thereof, if the

result of such a course would not be to give manifest advantage or cause serious prejudice to one or the other

of the parties. In AIR 1976 SC 49, it was held (at p. 52) :

"Where the nature of the relief, as originally sought, has become obsolete or unserviceable or a new form of

relief will be more efficacious on account of developments subsequent to the suit or even during the appellate

stage, it is but fair that the relief is moulded, varied or reshaped in the light of updated facts."

It was also stated, that (at p. 53) :

"Subsequent events in the course of the case cannot be constitutive of substantive rights enforceable in that

very litigation except in a narrow category (later spelt out) but may influence the equitable jurisdiction to

mould reliefs. Conversely, where rights have already vested in a party, they cannot be nullified or negated by

subsequent events save where there is a change in the law and it is made applicable at any stage."

It is, of course, true, that the courts have emphasised, that while taking cautious judicial cognisance of

'post-natal' events, even for the limited and exceptional purposes, no court will countenance a party altering,

by his own manipulation, a change in situation and plead for relief on the altered basis.

28. The same question had come up for consideration in two other decisions of the Supreme Court. In the

decision reported in AIR 1975 SC 1409, it was held by Krishna Iyer, J., that (at p. 1410) :

"It is basic to our processual jurisprudence that the right to relief must be judged to exist as on the date of a

suitor institutes the legal proceeding. Equally clear is the principle that procedure is the handmaid and not the

mistress of the judicial process. If a fact, arising after the lis has come to court and has a fundamental impact

on the right to relief or the manner of moulding it, is brought diligently to the notice of the tribunal it cannot

blink at it or be blind to events which stultify or render inept the decretal remedy. Equity justified bending the

rules of procedure, where no specific provision or fairplay is violated, with a view to promote substantial

justice -- subject, of course, to the absence of other disentitling factors or just circumstances."

Reference was made to the decision of the Federal Court in Lachmeswar Prasad Shukul v. Keshwar Lal

Chaudhuri, AIR 1941 FC 5, and Patterson v. State of Alabam, (1934) 294 US 600. A still later decision,

reported in Satish Chand Makhan v. Govardhan Das Byas, (1984) I SCC 369 : (AIR 1984 SC 143), reaffirms

this proposition. The other decisions cited by the counsel for the first respondent only deal with the

application of the above principles to different factual situations. What seems therefore to be necessary is to

examine as to how those principles are to be applied to the facts of the present case.

29. In the present case, the basic postulate on which I have to proceed is that the court ordinarily is out of

bounds in disputes, which, by consensus, have to be decided by arbitration; and that the court shall not

ordinarily be anxious to oust that jurisdiction and revoke the authority of the appointed arbitrator, or to

appoint a substitute in his place. That has to be done only as a last resort and only when manifest injustice

would otherwise result. The fact that the appointed arbitrator against whom allegations of bias was made had

removed himself from the field by his voluntary action seems to me to be an important subsequent event of

exceptional nature which should compel the court to take that fact into consideration in moulding the relief. It

shall not be as if the court shall be anxious to preserve a cause of action as on the date of institution so that it

may have jurisdiction to appoint an arbitrator under Section 12 of the Arbitration Act; and that could be done

only on the exercise of its power to revoke the authority of the appointed arbitrator under Section 5 of the Act.

No prejudice is caused to either party by taking that subsequent event into consideration, because both the

parties had agreed that in case of unwillingness or inability of an arbitrator to proceed with the reference or his

non-availability, the designated appointing authority shall appoint a substitute. The effect of holding that the

subsequent event shall be taken into consideration is only that the provisions in Clause 70 of the agreement




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would become operative, and the dispute should be decided in accordance with the provisions contained in the

arbitration agreement. According to me, it cannot be pleaded with any amount of success by the first

respondent that resort to the provisions in Clause 70 of the agreement is likely to cause prejudice to him. I

should reiterate that the ordinary rule is that the parties to the agreement shall be bound by the bargain and

cannot ordinarily wriggle out of the arbitral tribunal chosen by them. If that be the basic rule, no prejudice is

caused, or is likely to be caused to the first respondent by the court taking the subsequent event of resignation

of the appointed arbitrator into consideration. I am not here dwelling so much on the question of propriety. To

me it appears to be a question of jurisdiction of the court to act under Section 12 of the Arbitration Act. Hadthe court taken the relevant subsequent event into consideration, it would not have had jurisdiction to proceed

under Section 12 of the Arbitration Act at all. The refusal to take that into consideration has resulted in the

Court assuming jurisdiction which it otherwise would not have had.

30. Counsel for the 1st respondent has sought to justify the revocation of the authority of the appointed

arbitrator on the ground of likelihood of bias. A number of decisions are cited in support of the proposition

that only reasonable likelihood of bias is sufficient and proof of actual bias is not necessary to avoid a

particular arbitrator. This proposition cannot be doubted. But in this case, I need not examine these aspects in

detail, since the appointed arbitrator had removed himself from the scene on his own motion. The question is

therefore purely academic. I should however take notice of the submission of the petitioner that Sr. K. C. S.

Rao, the appointed arbitrator himself had referred to this aspect in his notice, notwithstanding which, the firstrespondent had not taken any objections to the appointed arbitrator proceeding with the reference either before

him or before the Engineer in Chief I have also to advert to the fact that the Engineer in Chief was not accused

of any bias, nor was he even a party in the proceedings. No attempt even to indicate that the designated

appointing authority was also biased having been made, nor the reference sought to be superseded, the 1st

respondent cannot justify Ext. P6 order on the submission that the appointed arbitrator was likely to be biased

and therefore the designated appointing authority should be robbed of his power to appoint a substitute. The

only submission now is one of likelihood of official bias in him and also in the Engineer Officer of the same

department, if one such is appointed as a substitute. I should state that the 1st respondent cannot avoid the

provisions of the agreement altogether. Nor as it his intention, as is clear from the statement in Ext. P6 order

that neither party wanted to supersede the reference. I should take note of the submission of the 1st respondent

that according to Clause 70 of the agreement, the substitute who may be appointed by the Engineer in Chiefneed not necessarily be an Engineer Officer, nor need he be of the same department. These are matters for the

mature consideration of the Engineer in Chief, who, like the 1st respondent, shall be equally anxious to have

the matter disposed of at the earliest without any further occasion for another bout of multi-tier litigation.

31. I have therefore to answer the five propositions raised in this original petition as follows :

i) The original petition is maintainable in spite of the assumed finality of orders passed under Sections 5 and

12 of the Arbitration Act because of the non-mention of such an order as one of the appealable order under

Section 39 of the Act.

ii) It is open for this Court to interfere with orders in the nature Ext. P6 in exercise of its certiorari and

supervisory jurisdictions in exceptional cases, where the lower court/tribunal arrogates jurisdiction by a wrong

decision on jurisdictional facts, or on a manifest error of law.

iii) The mere filing of an application does not automatically deprive the appointing authority designated under

the terms of the arbitration agreement to appoint a substitute when the appointed arbitrator resigns, or

expresses his unwillingness or inability or non-availability to proceed with the reference, except when it is

shown that such resort to the terms of the agreement would cause prejudice and manifest injustice to one of

the contracting parties.

iv) The court may not have power to proceed under Section 12 of the Arbitration Act in view of the provisions

of the arbitration agreement providing for the appointment of a substitute as long as the reference is not




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superseded.

v) The Court has to take into consideration the subsequent events in moulding the relief on the basis of the

updated facts so that the relief to be granted is realistic.

The original petition has therefore to be allowed quashing Ext. P6 order; I do so. There will be no order as to

costs.



union of india (uoi) vs p.m. paul and anr. on 29 march, 1985

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