V.S. Aggarwal, J.@mdashPetitioner, Unipack Industries, is a partnership firm and has filed the present petition u/s 12 of the Arbitration and Conciliation Act, 1996 (for short the Act). It has been prayed that respondent No. 2 (Jagan Nath) who has been appointed as the Arbitrator should be removed from holding the office of Arbitrator with respect to alleged claims of respondent No. 1 (Subhash Chand Jain).
2. It has been pleaded that petitioner and respondent No. 1 had business dealings. The petitioner alleges that he was making regular payment to respondent No. 1 on bill to bill basis and no dispute was raised with respect to full and final settlement of account. Respondent No. 1 through his advance sent a notice dated 5th July, 2001 calling upon the petitioner to pay a sum of Rs. 16,37,312.99 with interest. A reply was sent to the Counsel that no amount was outstanding. Thereafter respondent No. 2 acting as Arbitrator is alleged to have sent notice dated 9th August, 2001 to appear before him on 6th September, 2001. At the request of the petitioner, copy of the statement of claim was made available to the petitioner. It transpired that arbitration is being conducted by Paper Merchants Association.
3. The petitioner claims that respondent No. 2 is liable to be removed because by sending notice of 5th July, 2001 the respondent No. 1 has waived the arbitration by directing the petitioner to pay the alleged amount. Furthermore it is claimed that respondent No. 1 had failed to point out the arbitration clause between the parties because the arbitration clause of the Paper Merchants Association is applicable only to the members of the association. The petitioner is not a member of that association and Therefore there cannot be any arbitration qua the petitioner. Plea has also been raised that it is the duty of respondent No. 2 not to act as an Arbitrator. The petitioner does not expect any justice from him. There are reasonable doubts of his being under the influence of the member/respondent No. 1. On these facts above said prayer has been made.
4. At the threshold it was put to the learned Counsel for the petitioner as to how the present petition u/s 12 of the Act was available. According to the learned Counsel there is no arbitration clause qua the petitioner and in any case respondent No. 2 cannot be a fair Arbitrator and Therefore he should be removed.
5. On careful consideration of the pleas raised at the bar and the pleadings it is patent that the present petition is not maintainable.
6. Section 2(b) of the Act defines the arbitration agreement to be an agreement referred to in Section 7. Section 7 explains as to what would be an arbitration agreement and reads:
7. Arbitration agreement.
(1) In this part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in,--
(a) a document signed by the parties;
(b) an exchange of letter, telex, telegrams or other means of telecommunication which provides a record of the agreement; or
(c) an exchange of statements of claim and defense in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract.
7. In other words as per Section 7 read with Section 2(b) of the Act there has to be an agreement to refer the disputes or certain disputes with respect to defined legal relationship to arbitration. The arbitration agreement has to be in writing but as is apparent from Sub-section (4) Section 7 even if it is not signed under certain circumstances contemplated under Clauses (b) and (c) of Sub-section (4) to Section 7 still there can be an arbitration agreement.
8. The scheme of the Act clearly reveals that the Legislature in its wisdom though it appropriate that at the initial stage or while the arbitration proceedings commence there should be little interference by the Court. Section 12 prescribes the grounds to challenge the appointment of an Arbitrator and it reads as under:
12. Grounds for challenge.--(1) When a person is approached in connection with his possible appointment as an Arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.
(2) An Arbitrator, from the time of his appointment and throughout the arbitral proceedings shall without delay disclose to the parties in writing any circumstances referred to in Sub-section (1) unless they have already been informed of them by him.
(3) An Arbitrator may be challenged only if,--
(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality; or
(b) be does not possess the qualifications agreed to by the parties.
(4) A party may challenge an Arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.
9. In other words though an Arbitrator is under a duty to disclose in writing the circumstances likely to give grounds as to his independence or impartiality. In case doubts can arise still the Arbitrator can be challenged if it gives circumstances as to the doubts about his independence and impartiality or he does not possess the qualification agreed to between the parties. Section 13 provides the procedure in this regard and of course subject to what is agreed between the parties. Under Sub-section (1) t Section 13 if a party intend to challenge the Arbitrator then within 15 days of becoming aware of the constitution of the Tribunal he can send a written statement for reason challenging the arbitral Tribunal. The Tribunal is competent to go into the said controversy but Sub-section (4) to Section 13 clearly prescribes that the Tribunal shall continue with the proceedings. It is subsequently when the award is made the party can challenge the award and it can be the said ground which he had taken at the initial stage.
10. In additional to that Section 16 gives the power to the arbitral Tribunals to decide as to whether it has the jurisdiction or there is an arbitration clause which is valid between the parties. The relevant provision is being reproduced below for the sake of facility.
16. Competence of arbitral Tribunal to rule on its jurisdiction.--(1) The arbitral Tribunal may rule on its own jurisdiction, including rule on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose,--
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral Tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.
(2) A plea that the arbitral Tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defense; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of an Arbitrator.
(3) A plea that the arbitral Tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings.
(4) The arbitral Tribunal may, in either of the cases referred to in Sub-section (2) or Sub-section (3), admit a later plea if it considers the delay justified.
(5) The arbitral Tribunal shall decide on a plea referred to in Sub-section(2) or Sub-section (3) and, where the arbitral Tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award.
(6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with Section 34.
11. The reproduced portion of Section 16 Therefore clearly gives the Tribunal a right to rule on its own jurisdiction and also with respect to existence or validity of the arbitration agreement between the parties. Once it is so and Sub-section (6) to Section 16 a right is given by any aggrieved party to challenge the same subsequently in accordance with Section 34 it is patent that at the initial stage the petitioner ordinarily must approach the Tribunal and point out (a) whether there is valid arbitration agreement and (b) whether the Arbitrator is competent to act as such and there are doubts about his independence and impartiality. At the initial stage and in view of Section 5 Therefore this Court would restrain itself from going into the said controversy.
12. In all fairness to the learned Counsel for the petitioner he had drawn the attention to this Court towards the decision of the Bombay High Court in the case of
13. For these reasons the present petition must fail and is dismissed.
14. Petition dismissed.
