R.GEORGE PEREIRA

Vs

ST.JOSEPH'S INTERNATIONAL ACADEMY

on 8 May, 2009

The following was in pursuance of an application under section 11(6) of the Arbitration and Conciliation Act, 1996 and the Scheme for Appointment of an Arbitrator by the Chief Justice of the Kerala High Court. The application seeks appointment of an independent and impartial arbitrator for adjudicating upon the various claims of the applicant against the respondent.

Facts of the case:

The applicant was a contractor of the respondent for the construction of a school building at Kumbalam in Kollam under the name and style "St. Joseph International Academy". It was alleged that disputes and differences arose between the parties on account of what is described as the obstinate attitude of the respondent to allow the applicant to complete the work, which had neared completion. It was claimed that the applicant had carried out works in seven part bills whereas the respondent had paid only two third. The balance amount was due under the bill. Since the balance amount remained unpaid, the windows, which had been supplied by the applicant to the respondent, had to be taken back and deducting the value of those windows, the balance amount was due to the applicant. According to the applicant, in order to avoid payment of the due amount the respondent sought to terminate the contract. The disputes and differences, which were thus arisen, are to be settled by resorting to arbitration proceedings.

If there are any dispute relating to any matter regarding the construction of the building or any matter related to this contract, the Manager, St.Joseph's International Academy, Kollam will be the sole Arbitrator for such purpose and his decision shall be final, and the second party will have no right to challenge this decision in the court of law". It was submitted that as per clause 17, the Manager of the respondent is to be the sole arbitrator. However, since disputes have arisen on account of the actions and inactions of the Manager himself, he is not entitled to function as arbitrator since the same will be against the fundamental principle of natural justice, nemo debet esse judex in propria causa (no one shall be a judge in his own cause).

It was under such circumstances that the applicant sent a letter indicating a panel of three names for selection of one among them as arbitrator by the respondent. The respondent's Advocate sent a reply without selecting any of the nominee arbitrators but suggesting for appointment of two Civil Engineers, one to be appointed by each party who could jointly verify the records and files and assess the quantity and quality of the work done in order to avoid litigation and to come to a fair settlement.

The applicant obliged and appointed his nominee. The respondent also appointed its Engineer. The applicant requested both the Engineers to take up the assignment and pave way for a settlement. However, the applicant called for nominee Engineer of the respondent, furnished all measurement books, and connected records and made necessary follow up, nothing materialized. Meanwhile, the applicant's nominee Engineer met with an accident and passed away. Hence, no useful purpose will be served by waiting further and that is the circumstances under which the applicant has filed this application under section 11(6) of the Arbitration and Conciliation Act, 1996 invoking the statutory appointment procedure of arbitrators.

The contentions of the respondent are as follows:

The arbitrator who was appointed by the court under the order (Sri. E.K. Muraleedharan, Retired District and Sessions Judge) was incapable of acting as arbitrator between the parties in the light of the legal bar under the provisions of the Arbitration and Conciliation Act, 1996. It was submitted that contrary to what has been projected the Manager envisaged under the arbitration clause who was to act, as the sole arbitrator in the event of disputes and the signatory to the agreement are the same person. In order to convince the court that the Manager of St.Joseph’s International Academy and the executants to the agreement are the same, the applicant has produced an agreement, but that does not contain the last page of the agreement. The last page will disclose that the Manager was not the executant of the agreement. On the contrary, the executant of the agreement was the General Manager. It was pointed out that it will be seen that there was a typing mistake where the first party was indicated and instead of General Manager, the word Manager was mistakenly used. Since the party noticed the mistake at the time of execution of the agreement, the first party to the agreement, the General Manager, St.Joseph's International Academy did not sign and instead he signed as the General Manager only where the first party was indicated. This was deliberately and intentionally done in order to avoid confusion as the Manager; St.Joseph's International Academy was appointed as the arbitrator under agreement. It was submitted that there was absolute consensus with regard to the arbitrator by both parties to the agreement. It was then contended that the General Manager and the Manager of St.Joseph's International Academy are two different persons. A certificate issued by Mr.Joseph J. who was the Manager of St.Joseph Academy during the period of five years was produced. The present Manager of St.Joseph Academy was one S.Sundaresan and a certificate issued by him was produced.

During which, the respondent was claiming a sum from the applicant on various counts and requested that if the claim was disputed the matter be referred to the Manager, St, Joseph's International Academy who was the sole arbitrator. In the reply affidavit filed by the respondent to the counter filed by the applicant, it was submitted that the respondent has never acted in a capacity as the Manager of St. Joseph's International Academy at any stage. This was because of the fact that at the time of construction of the school, the organization was at a very nascent stage and therefore the respondent was styled as General Manager and later as Managing Director/Director. Similarly the then Manager Joseph John was styled as Manager and subsequently he continued as Manager who was also styled as Administrator. He continued to be the Manager as well as Administrator. It was submitted that the respondent (applicant) was trying to take advantage of a typing mistake made in the agreement wherein the word Manager was used in the last page instead of General Manager.

The contentions of the applicants are as follows:

However, it was submitted that there is no scope for such confusion as in the last page; it was the General Manager who had signed at the portion where the first party is indicated. In the agreement, the first party is described as General Manager. Hence, there is no scope for confusion. Referring to the correspondence produced by the respondent it is submitted that the Manager Mr.Joseph John had signed on behalf of the General Manager and not in his capacity as the Manager of the school. It was reported that Joseph John has functioned only as Manager and that the respondent has never styled or functioned as Manager. It was further pointed out that the present Manager was not Joseph John but Mr. S. Sundareswaran and therefore there was no question of any prejudice being caused to the respondent.

The applicant counsel submitted that the non-production of the last page of Annexure was not fatal. The Arbitration Scheme and the Kerala Arbitration Rules required production of the arbitration agreement only along with the arbitration request and not the whole contract agreement. Reference was made to Section 7(2) of the Arbitration and Conciliation Act in this context. According to the applicant counsel, this was why the applicant produced only clause 17, which is the arbitration clause. It was submitted that on behalf of the applicant it has been made clear that it was Sri. George Fernandez who signed the agreement in the capacity of the Manager, first party and disputes have arisen on account of actions and inactions on the part of Sri. George Fernandez, the signatory which were denied.

Respondent maintained that the agreement was signed by the Managing Director and that the arbitrator was Manager. Mr. Varghese (applicant counsel) submitted that the witness Joseph.J. was only the Administrator and his full name Joseph John is indicated and highlighted that in the reply affidavit it is admitted that Joseph. J. alias Joseph John turned to be the administrator. The letter pad shows that he was only "administrator" and not "Manager". If so, his successor, the signatory also can be only an administrator and not the Manager, which means that there was no Manager to function as arbitrator. This according to Mr. Varghese is precisely the reason why the respondent said that the matter / all relevant papers would be placed before the arbitrator and the matter will be decided by him. He submitted that those documents are fabricated and cooked up. He pointed out that the title "to whom it may concern" (sic) is conspicuous. He submitted that the same mistake is repeated, though created and signed on different dates.

By issuing such certificates both the signatories to prove their allegiance to respondent, making themselves disqualified to be independent and impartial arbitrator which is required under section 11(8)(b) of the Act even assuming that any one of them can be considered as arbitrator. Mr. Varghese argued that actual bias is not necessary to be proved and that the knowledge at the time of appointment does not debar from applying on the ground that the arbitrator to be appointed in terms of the agreement may not be impartial. For this proposition, he relied on the Law of Practice of Commercial Arbitration by Mustill and Byod. He further relied on commentaries contained in Comparative International Commercial Arbitration by Julian D M Lew QC and others. He relied on the judgments of the Supreme Court in ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corp. Ltd. (2007), Bihar State Mineral Development Corp. and others. v. Encon Builders (I) (P) Ltd. (2003) and in Tata Cellular v. UOI (1994) in support of various propositions canvassed by him.

Sri. Madhu Radhakrishnan, learned counsel for the respondent relied on the judgment of the Calcutta High Court in Pragati Engineering (P) Ltd. v. T.N. Water Supply & Drainage Board, AIR 1992 Calcutta 139 to argue that where the parties entered into a contract with their eyes open and knew that the nominated arbitrator is an employee of one of the parties, none of the parties to the agreement should be allowed to allege that such nominated arbitrator being an officer of one of the parties to the contract, would be biased or is likely to be biased. Mr. Madhu Radhakrishnan relied on the judgment of the Supreme Court in International Airport Authority of India v. K.D. Bali, (1988) to argue that the apprehension of bias must be judged from a healthy, reasonable and average point of view and the request for removal of the appointed arbitrator is not to be granted lightly. Mr. Madhu Radhakrishnan placed reliance on the judgment of the Supreme Court in Jain Studios Ltd. v. Shin Satellite Public Co. Ltd., (2006) also. The provisions contained in sections 12 and 13 of the Arbitration and Conciliation Act incorporate grounds for challenge and the challenge procedure against and in respect of arbitrators will reveal that partiality and bias or circumstances giving rise to justifiable doubts regarding the impartiality and independence can be valid grounds for challenging the appointment given to a certain persons as arbitrator. At the same time, a party should not be allowed to wriggle easily out of agreements entered into by them with open eyes.

Judge Held:

The submissions from both sides were heard. In the instant case, it was seen that the applicant had agreed to the appointment of a person in the service of the opposite party as an arbitrator in the event of disputes. That being the position the Judge would have been ordinarily reluctant to accept the opposition of the applicant to the appointment of the nominated arbitrator on ground of bias and partiality. After all, it was a quasi-judicial function, which was being discharged by the arbitrator whose proceedings will be regulated by the provisions of the Arbitration and Conciliation Act. His award will be subjected to judicial scrutiny though on limited grounds and to a limited extent.

However, in the instant case the Judge was not inclined to dismiss the arbitration request and to appoint the nominated arbitrator as the arbitrator for resolving the disputes, which have admittedly arisen between the parties because it is seen that the respondent also became agreeable to the idea of the disputes between the parties being resolved by persons other than the arbitrator nominated under the agreement. The parties had nominated an Engineer each and were willing to have the disputes between them resolved by a joint perusal of the relevant records by these two Engineers. To that extent, the Judge opined the respondent has waived his right to insist that the arbitrator to be appointed has to be the arbitrator nominated under the agreement. Moreover, in his opinion no prejudice whatsoever will be occasioned to the respondent by appointing a Retired Judicial Officer known for his learning and integrity as the arbitrator for resolving the disputes, which admittedly subsist. Therefore, without deciding the issue whether appointment of the nominated arbitrator will be vitiated due to reasons of bias and partiality he allowed the arbitration request and appointed Sri.E.K.Muraleedharan, Retired District and Sessions Judge, presently at Ernakulum as arbitrator for settling all the claims and counter claims raised by the applicant and the respondent in the arbitration request. The arbitrator will enter on arbitration, make, and publish his award without undue delay.