M/s. Nav Durga Bamboo Craft Private Limited v. State of Maharashtra & Ors.

Judgment

1. Admit. This is an application under Section 11(6) read with Section 11(8) of the Arbitration and Conciliation Act, 1996 by the contractor against the department i.e. forest department. The existence of arbitration clause and dispute is not in dispute

I have heard Shri M.G. Bhangde, learned Senior Counsel with Shri V.V. Bhangde, learned counsel for the applicant and Shri S.R. Deshpande, learned counsel for the respondents.

3. Advocate Shri Bhangde, after pointing out arbitration clause, has invited attention to the nomination of the Principal Chief Conservator of Forest (hereinafter referred to as ‘PCCF’) as arbitrator in terms thereof on 6th September, 2007. He points out that on various grounds, the independent or impartiality of that officer was assailed and that officer on 3rd January, 2008 sought 3 guidance from other party to dispute namely the Government. The Government, thereafter, directed him to proceed further on 3rd March, 2008. He has thereafter pointed out that the matter could not progress and, therefore, said PCCF Shri Jawalaprasad could not complete the proceeding. Thereafter, one Shri C.S. Joshi, the next incumbent on the post of PCCF became arbitrator. This person has filed affidavit along with the State Government opposing the contentions of the applicant in the present matter. My attention has been invited to specific averments as contained in paragraph 2 of the joint reply filed by respondent nos.1 and 2 on 11.3.2010 to show that said PCCF has already colluded with respondent no.3 in the matter and, therefore, has incapacitated himself from functioning as arbitrator. Attention is also invited to the fact that on 29.7.2010, respondent no.1 proceeded to appoint one Shri A.K. Saxena, Chief Conservator of Forest (Wild Life) in the office of PCCF, Nagpur as arbitrator.

4. Learned Senior Advocate states that Chief Conservator of Forest is not a person agreed to between the parties. Attention is also thrown to paragraph 15 and 16 as added to application by 4 amendment to show how three officers namely Shri J.N. Saxena, Shri Jawalaprasad and Shri C.S. Joshi holding the office of PCCF have already dealt with the contract in administrative capacity and had voiced views against the present applicant. It is urged that thus office of PCCF is incapable in law to take independent and impartial decision and there is institutional bias. Reliance is being placed upon the judgment of the Hon’ble Apex Court in the case of Union of India .vrs. Singh Builders Syndicate, (2009) 4 SCC 523 and in the case of Denel (Proprietary) Limited .vrs. Bharat Electronics Limited and another, (2010) 6 SCC 394 to substantiate his grievance. It is contended that facts on record clearly show that office of PCCF has already formed a particular view in the matter and hence person holding that office cannot be appointed as arbitrator. It is urged that, that officer cannot be appointed and no other person can also be appointed. Hence, this court has to exercise its powers u/s 11(6) & (8) to appoint independent arbitrator for resolving the dispute between the parties.

5. Shri S.R. Deshpande, on the other hand, has contended that as applicant was raising objections about bias of officers 5 working as PCCF, ultimately a Chief Conservator of Forest (Wild Life) namely Shri A.K. Saxena came to be appointed as arbitrator. He contends that respondents are ready and willing to appoint PCCF as arbitrator, if terms and conditions of the agreement are to be adhere to. He has relied upon the judgment of the Apex Court reported in the case of Indian Oil Corporation Limited and others .vrs. Raja Transport Private Limited, (2009) 8 SCC 520, in the case of Saurabh Kalani .vrs. Tata Finance Limited and another, 2003 (4) Mh.L.J. 810 and in the case of Northern Railway Administration, Ministry of Railway, New Delhi .vrs. Patel Engineering Company Limited, (2008) 10 SCC 240 to urge that in such matters merely because person is holding the office of PCCF bias cannot be interfered and the applicant who with open eyes has accepted intervention of PCCF as arbitrator cannot turn around and raise such objections.

6. The perusal of judgment reported in the case of Union of India .vrs. Singh Builders Syndicate, (2009) 4 SCC 523 shows that where the Arbitral Tribunal appointed in the manner provided in the arbitration agreement has not functioned and independence 6 and impartiality of the arbitrator in terms of agreement is in dispute, the Chief Justice or his designate is not powerless to make appropriate alternative arrangements to give effect to the provision in the agreement for arbitration. The judgment reported in the case of Denel (Proprietary) Limited .vrs. Bharat Electronics Limited and another, (2010) 6 SCC 394 considers the question of bias and earlier judgment on which Advocate Shri S.R. Deshpande has also placed reliance i.e. Indian Oil Corporation Limited and others .vrs. Raja Transport Private Limited, (2009) 8 SCC 520 has been looked into in paragraph 13. This earlier judgment of Hon’ble Apex Court in paragraph 34 notice that status of named arbitrator who is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his part. It has been found, if such arbitrator was controlling or dealing authority in regard to the subject contract or if he happens to be a direct subordinate to the officer whose decision is the subject-matter of the dispute, such apprehension can be justifiably drawn. It is also noted that when named arbitrator though a senior officer of the Government had nothing to do with the execution of the subject contract, there can be no justification for 7 anyone doubting his independence or impartiality. It has been, therefore, observed that senior officer not associated with the contract, are considered to be independent and impartial and are not barred from functioning as arbitrators merely because their employer is a party to the contract. In paragraph 21 of this judgment, the Hon’ble Apex Court has then considered the position of Managing Director of the company i.e. the respondent before it against whom the dispute was raised. Hon’ble Apex Court has noted that said Managing Director was bound by the direction/instruction issued by his superior authorities and then stand in the reply to the legal notice as taken by the respondents has been taken into account. Because of all this material available on record, the Hon’ble Apex Court found that Managing Director may not be in a position to independently decide the dispute between the parties. The Hon’ble Apex Court, therefore, proceeded to appoint the Hon’ble (Retired) Judge of the Supreme Court as Arbitrator in that matter.

7. The judgment of Division Bench of this Court reported in the case of Saurabh Kalani .vrs. Tata Finance Limited and another 8 (supra) indicates the test to be applied to find out bias on the part of arbitrator under Section 12 of the Arbitration and Conciliation Act, 1996. However, in the light of later judgments of Hon’ble Apex Court referred to above, consideration in detail of that judgment is not necessary. Northern Railway Administration, Ministry of Railway, New Delhi .vrs. Patel Engineering Company Limited (supra) is the judgment of Hon’ble Apex Court to which reference is made in Indian Oil Corporation Limited and others .vrs. Raja Transport Private Limited (supra). Hence, it will be appropriate to refer to last judgment on which Advocate Shri S.R. Deshpande has placed reliance.

8. As already noted above, paragraph 34 to 37 in this judgment are considered by the Hon’ble Apex Court in its judgment in the case of Denel (Proprietary) Limited .vrs. Bharat Electronics Limited and another (supra). The perusal of judgment in the case of Indian Oil Corporation Limited and others .vrs. Raja Transport Private Limited (supra) reveals that in paragraph 12 the Hon’ble Apex Court has framed three questions which arose for determination before it. The first one is : Whether the Hon’ble 9 Chief Justice was justified in assuming that when an employee of one of the parties to the dispute is appointed as an arbitrator, he will not act independently or impartially.?

9. As Shri Deshpande has pointed out, the question is answered by taking support from various precedents and application of mind can be seen from paragraph 30 onwards. However, the ultimate conclusion reached is in paragraph 34 and that paragraph is already mentioned in the later judgment of the Hon’ble Apex Court. Question no.2 which considers circumstances in which the Chief Justice or his designate can ignore the appointment procedure or the named arbitrator in the arbitration agreement and to appoint an arbitrator of his choice is looked into in paragraph 40 onwards and the appointment of an independent arbitrator is held to be an exception to the rule which can be resorted to only for valid reasons.

10. When this law is looked into in the light of the material on record, it become apparent that the last appointment in the matter is of 29.7.2010 when one Shri A.K. Saxena, Chief 10 Conservator of Forest (Wild Life) in the office of PCCF came to be nominated as arbitrator. The arbitration clause expressly stipulates the appointment of the Principal Chief Conservator of Forest, Maharashtra State, Nagpur as sole arbitrator. It is, therefore, obvious that the respondents cannot appoint any other officer without consent of the present applicant in the matter.

11. The communication dated 3rd January, 2008 by then PCCF (Shri Jawalaprasad ) or then reply to him on 3rd March, 2008 by the State Government are on record. The communication shows that even in the matter which needed to be decided by arbitrator, said arbitrator thought it fit to refer the matter to the State Government. In paragraph 2 he has mentioned that his efforts to arbitrate in the matter may prove in vain and he, therefore, suggested that matter should be got examined through Law and Judiciary Department and a suitable Law Officer should be appointed as an arbitrator in consultation with the claimant. The matter was sent to the Law and Judiciary Department and as per its opinion/comment dated 3rd March, 2008 respondent no.1 has returned it to respondent no.2 pointing out that appointment was 11 as per Clause 49.

12. The next appointment is of Shri C.S. Joshi and in reply- affidavit as filed on his behalf and on behalf of respondent no.1 before this Court, he has submitted that the demand of Rs. 1,27,27,741/- was raised for the period October 2006 to May 2007. It is further asserted that the present applicant had no right to deny the said amount as it was due from him. It is asserted that present applicant has committed breach of agreement and has not performed the work of extracting Bamboo from the said area as per agreement. This affidavit dated 11.3.2010 is sworn by one Purshottam Rajaram Yeole, Conservator of Forests, South Chandrapur Forests Circle.

13. The communication dated 23.12.2005 relied upon by the applicant, is issued by the office of PCCF, Nagpur and it is a Show Cause Notice addressed to the applicant. He has been asked to show cause as to why in exercise of powers under Clause 52, the agreement should not be cancelled. The show cause notice is signed by Additional Principal Chief Conservator of Forest (Produce 12 and Management), Maharashtra State, Nagpur. It is not in dispute that neither first PCCF Shri Jawalaprasad nor the later PCCF Shri Joshi could deal with the arbitration matter and ultimately on

29.7.2010 one Shri A.K. Saxena, Chief Conservator of Forest (Wild Life) came to be appointed as arbitrator.

14. I have already found about that as per agreement between the parties, it is the Principal Chief Conservator of Forest, who is entitled to function as arbitrator.

15. The judgment to which reference has been made about particularly the judgment reported in the case of Indian Oil Corporation Limited and others .vrs. Raja Transport Private Limited (supra) clearly shows that when a party with open eyes and full knowledge and comprehension of the said provision enters into a contract with a Government, he cannot subsequently turn around and contend that he is agreeable for settlement of the disputes by arbitration, but not by the named arbitrator who is an employee of the other party. It is further noted that in arbitration agreements in government contracts providing that an employee of the 13 Department (usually a high official unconnected with the work or the contract) is appointed as arbitrator and the said condition in the agreement is neither void nor unenforceable.

16. In Indian Oil Corporation Limited and others .vrs. Raja Transport Private Limited (supra) in paragraph 44, Hon’ble Apex Court has also concluded that legislative intent is to see that parties abide by the terms of the arbitration agreement. In paragraph 45, it is observed that if agreement provides for arbitration by a named arbitrator, the court should normally give effect to the provisions of the arbitration agreement. It is mentioned at the end of that paragraph that ignoring the named arbitrator and nominating an independent arbitrator has to be the exception to the rule, which can be resorted for valid reasons. The argument of institutional bias is, therefore, misconceived.

17. It, therefore, follows that applicant cannot contend that confidential reports of PCCF are written by the State Government. It cannot control his decision making process, if he is independent and unconnected officer. In this situation, looking to the fact that 14 appointment of last Shri A.K. Saxena, Chief Conservator of Forest (Wild Life) as arbitrator is not in consonance with the arbitration clause between the parties, respondent no.1 is permitted to appoint its present Principal Chief Conservator of Forest as arbitrator, if at any point earlier, he was not associated with the contract leading to arbitration with the present applicant. Such appointment should be made within a period of six weeks from today. If such appointment is not made within the said period of six weeks, then Hon’ble Shri Justice C.L. Pangarkar (Retired) is appointed as Arbitrator to arbitrate in the dispute between the parties. If respondent no.1 fails to make appointment within the said period of six weeks, applicant to deposit processing fees of Rs.5,000/- (Rs. Five Thousand only) with the registry of this Court and arbitration shall proceed further thereafter as per law.

18. MCA stands disposed of accordingly. C.C. expedited. J UDGE