Sadhna Kumari wife of Shree Prakash Sharma Proprietor Vs Bihar State Food & Civil Supplies Corporation Limited (Patna High Court)
Summary: Patna High Court considered sixteen applications filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 arising from agreements entered into between rice millers and Bihar State Food and Civil Supplies Corporation Limited for milling paddy for the Kharif marketing season 2012-13. Clause 16 of the agreements provided that disputes would first be attempted to be settled by mutual discussion and, failing settlement, would be referred to arbitration by the District Collector of the concerned district. Disputes subsequently arose and certificate proceedings were initiated under the Bihar and Orissa Public Demands Recovery Act, 1914. The petitioners sought constitution of an independent Arbitral Tribunal.
The petitioners contended that although Clause 16 named the District Collector as arbitrator, the Collector could not act as arbitrator in view of Section 12(5) read with the Seventh Schedule of the Arbitration and Conciliation Act, 1996. The Collector was connected with the respondent organisation and interested in the dispute. Reliance was placed upon M/s. Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd., AIR 2017 SC 939, particularly the Supreme Court’s emphasis on independence, impartiality and neutrality of arbitrators after the 2015 amendments.
The respondents contended that certificate proceedings had already been undertaken under the Recovery Act, that the petitioners ought to challenge the recovery certificates through the statutory appellate mechanism and that an application under Section 11(6) was not maintainable. They further argued that Clause 16 did not constitute an arbitration agreement, relying upon P. Dasaratharama Reddy Complex v. Government of Karnataka & Anr., (2014) 2 SCC 201. The High Court rejected this contention, distinguishing that decision because the contractual provision considered there did not contain the words “Arbitrator” or “Arbitration”, whereas Clause 16 in the present agreements expressly provided for reference of disputes to an arbitrator.
The High Court further rejected the objection based on Section 8 of the Arbitration and Conciliation Act. It held that certificate proceedings were execution proceedings before a statutory authority and not proceedings before a judicial authority for purposes of Section 8. The issuance of recovery certificates therefore did not extinguish the petitioners’ contractual right to seek resolution of their disputes through arbitration. Questions concerning legality of the certificate proceedings, limitation and other objections could appropriately be considered by the arbitrator or the competent appellate authority under the Recovery Act and did not prevent constitution of the Arbitral Tribunal.
On the appointment of the named arbitrator, the High Court found that the Collector was an officer of the Board and had conducted the certificate proceedings. Consequently, the statutory disqualifications under Section 12(5) and the Seventh Schedule were attracted. Following the principles of neutrality, impartiality and independence explained in Voestalpine Schienen GMBH, the Court held that the named arbitrator could not be appointed. The applications were accordingly allowed and Justice (Retired) R.K. Datta was appointed as arbitrator, while all objections concerning maintainability, certificate proceedings, limitation and other issues were expressly left open for determination before the arbitrator.
Cases Discussed:
1. M/s. Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd., AIR 2017 SC 939 (Supreme Court) — Relied upon for the requirement of neutrality, impartiality and independence of arbitrators and the effect of Section 12(5) read with the Seventh Schedule where a named arbitrator is statutorily ineligible.
2. P. Dasaratharama Reddy Complex v. Government of Karnataka & Anr., (2014) 2 SCC 201 (Supreme Court) — Distinguished because the contractual clause considered in that case did not contain the words “Arbitrator” or “Arbitration”, whereas Clause 16 in the present case expressly provided for arbitration.
FULL TEXT OF THE JUDGMENT/ORDER OF PATNA HIGH COURT
These are sixteen applications fi led under Section 11(6) of the Arbitration and Conciliation Act, 1996 seeking constitution of an Arbitral Tribunal for adjudication of the dispute that has arisen between the parties in execution of an agreement and, as que stions of law and fact are similar in all the cases, they are being disposed of by this common order.
2. For the sake of convenience, the documents and pleadings in the record of Request Case No.8 of 2016 are being referred to in this order.
3. The applic ants herein and the Bihar State Food and Civil Supplies Corporation Limited, the respondents, entered into agreement for milling of paddy for Kharif marketing for the seasons 2012-2013. Annexure- 1 dated 14.2.2013 is the agreement available on record and Cl ause 15 and 16 of the agreement, which are identical in all the cases read as under:
“15. The second party agrees that in case, any amount found recoverable on account of default, loss, damage on the part of the second party, the said recoverable amount with Public Demands Recovery Act, 1914 by instituting Certificate case before the concerned District Certificate Officer.
16. In case of disputes both parties agree to settle the issue(s) on mut ual discussion. Failure to reach agreement the matter will be referred to arbitrator. It has been also agreed that the arbitrator will be District Collector of the concerned District whose decision shall be final, concerning the dispute referred to him.”
4. It seems that certain dispute arose and the Board issued show cause notices and initiated certificate proceedings under the Bihar and Orissa Public Demands Recovery Act, 1914 (for short, Recovery Act) under Clause 19.
5. Petitioners challenged these pro ceedings by filing writ petitions before this Court and the petitioners were granted liberty to raise objections before the Certificate Officer-cum – Subdivisional Officer under Section 9 of the Recovery Act. The petitioners raised the claim. Their objection s were rejected and when the certificates for recovery of the amount were issued, they filed these applications, inter alia seeking constitution of an Arbitral Tribunal in accordance to the requirement of Clause- 16 reproduced hereinabove.
6. It is the cas e of the petitioners that the recovery proceedings initiated without adjudication of the dispute is unsustainable and, as the recovery proceedings under the Certificate Act, proceedings is unsustainable, they are not liable to pay the amount. They want res Clause-16 of the agreement.
7. Learned counsel for the petitioners argued that Clause-16 is an arbitration agreement and even though in the arbitration agreement the District Collector is nominated as a named arbitrator, but in view of Section-12(5) of the Arbitration and Conciliation Act and the provisions of Schedule-7, Clause- 1 thereof, the Collector being an employee of the organization and a person having business relationship and interested in the dispute, cannot act as an arbitrator and, therefore, an independent arbitrator should be appointed. In support of the aforesaid contention, a reasoned judgment of the Supreme Court in the case of M/s. Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd., reported in AIR 2017 SC 939 is relied upon.
8. Learned senior Counsel for the petitioners took us through various aspects of the matter, the principle laid down by the Supreme Court, the recommendations made by the Law Commission, the amendment to the provisions of Section- 12 and argues that it is a fit case where the independent arbitrator should be appointed. Learned Counsel invites our attention to the views recorded by the Supreme Court at para-17, in the case of M/s. Voestalpine (supra) various judgments of the Supreme Court on the subject in question with regard to independent and impartial arbitrator being appointed discussed in 18 of the judgment argues that this is a fit case where independent arbitrator should be appointed. 9. Learned counsel for the respondents refuted the aforesaid contention, placed reliance on Section 8 of the Arbitration and Conciliation Act, 1996 and argues that as a judicial authority, namely, the Certificate Officer, has issued the cer tificate under the Bihar and Orissa Public Demands Recovery Act, 1914. N ow the only remedy available to the petitioners is to challenge the recovery certificate by filing an appeal under the aforesaid statutory provision and no application for arbitration is now maintainable after such a long period of time as the certificate proceedings were initiated in the year 2014. He further argues that Clause- 16 is not an arbitration agreement and, therefore, this application under Section- 11(6) is not maintainable a nd in support of the aforesaid contention, invites my attention to a judgment of the Supreme Court in the case of P. Dasaratharama Reddy Complex vs. Government of Karnataka & Anr., reported in (2014) 2 SCC 201.
10. Shri Y.V. Giri, appearing for one of the applicants in Request Case No.34 of 2016, invites my attention to an admission made by the respondents in a proceedings held before this Court in C.W.J.C. No.9113 of 2014, 12355 of 2014 and 12356 of 2014 on 25.2.2014 when certain admissions were made by counsel for the respondent Board, detailed in para-Division Bench of this Court on 22.7.2014, in that petition when a claim was made for quashing the demand notice issued, a plea of alternate remedy being available was made by arguing that an arbitration clause being available, the writ petition is not maintainable.
11. Heard learned counsel for the parties at length and perused the records. It is seen that after the certificate proceedings, the petitione rs approached this Court and when the matter was pending before this Court, as pointed out by Shri Giri, the respondents admitted that an alternate remedy of settlement of dispute through arbitration is available. Apart from the aforesaid admission of the petitioners, a perusal of Clause- 16 of the agreement in question clearly shows that it is an arbitration agreement. The judgment in the case of P. Dasaratharama Reddy Complex (supra), relied upon by the learned counsel for the respondents, is not applicable in the present case. There the arbitration clause considered and reproduced by the Hon‟ble Supreme Court in para – 10 is entirely different and in para 15 it is clearly indicated that the words „Arbitrator‟ or „Arbitration‟ are not available in that agreement and that was the reason why it was held that there is no arbitration agreement. In this case, the arbitration agreement is clear in its term and there is no iota of doubt that there is an arbitration agreement. As far as the contention of the respondents of the adjudication by the Certificate Officer and in view of Section -8, the arbitration cannot be resorted to is not correct. Section- 8 empowers the judicial authority before whom an application is brought to refer the matter for arbitration, subject to an arbitration agreement. The certificate proceeding is not before a judicial authority. It is only an execution proceeding before a statutory authority who is not a judicial authority and, therefore, the objection of the respondents is unsustainable. That apart, merely because the certificate proceedings have been held and some certificates for recovery have been issued, it does not mean that the right of the petitioners to seek resolution of the dispute by arbitration and seek relief in terms of the agreement is taken away. The certificate proceedings are independent execution proceedings and the question as to whether the certificate proceedings held is legal without there being adjudication of the dispute i s a question which would have to be considered by an appropriate authority, may be, the arbitrator or the appellate authority, under the Recovery Act.
12. For the present, in these proceedings, this Court is not required to go into all these aspects of the matter. These may be questions to be looked into either by the arbitrator or by the appellate authority, in case the petitioner takes recourse to the appellate proceedings under the Bihar and Orissa Public Demands Recovery Act, 1914. For the present, it is a dispute between the parties, on the matter of execution of the work in pursuance to the agreement in question which has to be adjudicated in terms of Clause-16, the arbitral agreement agreement and, therefore, an arbitrato r has to be appointed. However, as a named arbitrator is indicated in Clause-16, the further question would be as to whether in view of requirement of Section- 12(5) and the provisions of Schedule-7, Entry- 1, the Collector can be permitted to discharge the duties of an arbitrator.
13. Admittedly, the Collector is an officer of the 1 to the 7 Board. He is the person who conducted the certificate proceedings and, therefore, as contemplated in Entry-th Schedule, falls in the category of, may be, an employee, a consultant and advisor or That apart, many of the prohibitions contained in the 7 has any other past or present business relationship with the parties. th Schedule are attracted in the case of the named arbitrator i.e. the Collector.
14. While discussing the matter in the case of M/s. Voestalpine Schienen GMBH (supra), the Hon‟ble Supreme Court has stressed upon the requirement of neutrality, impartiality and independence of the arbitrator, the recommendations of the Law Commission and ha s stressed upon the need to have an impartial arbitration. The question of appointing an independent and impartial arbitrator has been discussed and the requirement for doing so in para-16 and 17 has been crystallized in the following manner:
“16. We may p ut a note of clarification here. Though, the Law Commission discussed the aforesaid aspect under the heading “Neutrality of Arbitrators”, the focus of discussion was on impartiality and independence of the arbitrators which has relation to or bias towards one of the parties. In the field of international arbitration, neutrality is generally related to the nationality of the arbitrator. In international sphere, the „appearance of neutrality‟ is considered equally important, which means that an arbitrator is neutral if his nationality is different from that of the parties. However, that is not the aspect which is being considered and the term „neutrality‟ used is relatable to impartiality and independence of the arbitrators, without any bias towards any of the parties. In fact, the term „neutrality of arbitrators‟ is commonly used in this context as well.
17. Keeping in mind the afore- quoted recommendation of the Law Commission, with which spirit, Section 12 has been amended by the Amendment Act, 2015, it is ma nifest that the main purpose for amending the provision was to provide for neutrality of arbitrators. In order to achieve this, sub- section (5) of Section 12 lays down that notwithstanding any prior agreement to the contrary, any person whose relationship with the parties or counsel or the subject- matter of the dispute falls under any of the categories specified in the Seventh Schedule, he shall be ineligible to be appointed as an arbitrator. In such an eventuality, i.e., when the arbitration clause finds f oul with the amended provisions extracted above, the appointment of an arbitrator would be beyond pale of the arbitration agreement, empowering the court to appoint such arbitrator(s) as may be permissible. That would be the effect of non-obstante clause contained in sub- section (5) of Section 12 and the other party cannot insist on appointment of the arbitrator in terms of arbitration agreement.”
15. It is a case where the named arbitrator as contemplated in Clause-16 cannot be appointed and an independent objections raised by the respondents, all these applications are allowed.
16. Justice (Retired) R.K. Datta is appointed as arbitrator to adjudicate the dispute. However, in these proceedings this Court has not gone into the merits of various objections raised with regard to maintainability of the dispute in view of the certificate proceedings held, the question of limitation and all other issues are left open to be canvassed by the parties before the arbitrator.
