Judgment:
D.Y. Chandrachud, J.
1. The relief which the petitioners seek in an Arbitration Petition invoking Section 14 of the Arbitration and Conciliation Act, 1996, is in the following terms:
that this Hon'ble Court be pleased to declare that Mr. S. N. Variava has become de jure unable to perform his functions and the mandate of Mr. S.N. Variava to act as an Arbitrator in the arbitral proceedings between the parties has terminated.
2. The petitioners and the second respondent are partners of a partnership firm by the name of Hetali Construction Company. The first respondent is a Company incorporated under the Companies' Act, 1956 and is the claimant in the arbitral proceedings before the Hon'ble Mr. Justice S.N. Variava, former Judge of the Supreme Court. The petitioners are party respondents to the arbitral proceedings. The third respondent to the present proceedings is the Court Receiver who has been appointed as Receiver of the properties and assets of the partnership.
3. Placing reliance on a document of 28th April, 2000 as constituting an arbitration agreement between the first respondent and the partnership, the first respondent invoked arbitration in April, 2003. The first respondent instituted an application under Section 11 of the Act. By an order dated 14th November, 2003, a learned Single Judge of this Court appointed Mr. Justice V.D. Tulzapurkar, former Judge of the Supreme Court as sole arbitrator, recording that without prejudice to their rights and contentions, learned Counsel for the parties had unanimously agreed to the appointment. While disposing of the application under Section 11, the learned Single Judge held that the second and third respondents before the Court in those proceedings would be entitled to challenge the jurisdiction of the Arbitrator and the validity and effect of the arbitration agreement. A Writ Petition under Article 226 of the Constitution filed by the petitioners to challenge the order of the learned Single Judge was dismissed by a judgment and order dated 20th January, 2004 of the Division Bench. The Division Bench observed that the petitioner had an adequate remedy under Section 16 of raising all contentious issues relating to the existence of the arbitration agreement and the constitution of the Arbitral Tribunal, before the Tribunal. The Division Bench consequently held that no fit case was made out for the invocation of the writ jurisdiction under Article 226 of the Constitution.
4. A Special Leave Petition was filed by the petitioner before the Supreme Court in order to challenge the order of the Division Bench dated 20th January, 2004. The Supreme Court issued notice on 8th March, 2004 and stayed proceedings before the learned Arbitrator until further orders. The learned sole arbitrator died in October, 2004. The Special Leave Petition thereafter came up before the Supreme Court on 24th April, 2007. The Supreme Court observed that in the facts and circumstances of the case, the Court was not inclined to exercise its jurisdiction under Article 136 of the Constitution and the petition would accordingly stand dismissed. The order of the Supreme Court records that the learned sole arbitrator having since passed away, Counsel for the parties were agreed that the Hon'ble Mr. Justice S.N. Variava, be appointed as sole arbitrator in place of Mr. Justice V.D. Tulzapurkar. The Supreme Court observed that all points including the existence, validity and enforceability of the contract, as indicated by the Division Bench of this Court in its judgment, shall be decided by the learned Arbitrator.
5. The first preliminary meeting was held before the learned Arbitrator on 4th May, 2007. The claimant was permitted to file a statement of claim and a compilation of documents on or before 1st June, 2007. The respondents to the arbitral proceedings including the petitioners herein, were to file their written statement and counter claims on or before 6th July, 2007. The claimant was to file its reply to the counter claim by 20th July, 2007. Discovery and inspection was to be completed by 27th July, 2007. Parties were directed to make their statements of admission and/or denials by 10th August, 2007, in respect of the documents disclosed. A preliminary meeting was to be held on 13th August, 2007. The petitioners claim to have received the statement of claim on 6th June, 2007. By a letter dated 11th June, 2007, the petitioners' Advocate sought an extension of time for a period of six weeks after receipt of a compilation of documents, in order to file a reply. The compilation of the documents is stated to have been received on 15th June, 2007. On 18th June, 2007, the learned Arbitrator, in a letter addressed to the petitioners' Advocate, observed that the stage of discovery and inspection would come after the parties filed their pleadings and there was no justification for the petitioners herein in not filing their written statement and counter claim on the pretext that the claimants had not filed their compilation of documents. Since, however, the claimants forwarded their compilation of documents albeit, with a delay of two weeks, the learned Arbitrator granted an extension of time until 20th July, 2007 for the filing of the written statement and counter claim, if any, and a compilation of the documents. Correspondingly, all other dates were to stand extended by two weeks. A preliminary meeting was fixed on 27th August, 2007.
6. By a letter dated 19th June, 2007, the Advocate for the petitioners stated that she had since had an opportunity to compare the statement of claim which was filed before the present sole arbitrator with the earlier statement of claim and that the petitioners objected to the new statement of claim being taken on record. On 20th June, 2007, the learned Arbitrator, in a letter addressed to the first respondent's Advocate recorded that the petitioner had objected to the new statement of claim being taken on record. Consequently, the learned Arbitrator observed that the fresh statement of claim could not be taken on record since it was objected to and that the claimant may, if it so desired, move an application for amendment which would be decided on merits after hearing the parties. On 18th July, 2007, the petitioners herein, filed their reply to the statement of claim and a compilation of the original documents.
7. On 27th July, 2007, the learned Arbitrator addressed a letter to the petitioners' Advocate stating that the claimants had filed an application for amendment of the statement of claim and allowed time of two weeks to the petitioners to file their reply. A hearing took place before the learned Arbitrator on 27th August, 2007. At that hearing, it was urged on behalf of the petitioners that even if the agreement dated 28th April, 2000 was to be taken as a genuine agreement, an arbitration had to be as provided for in Clauses 4, 5, 6 and 7 of the agreement. The contention of the petitioners was that the Arbitrator had to make his award within a period of four months from the date of service of a copy of the agreement and that time could be extended only with the consent of both the parties. Counsel for the petitioners stated that the petitioners had instructed him to refuse to consent to an extension of time; that as the Tribunal held its first meeting on 4th May, 2007 the arbitral proceedings could not be concluded within four months of that date; and there was no purpose in the Arbitral Tribunal proceeding further, even with the hearing of the applications which were filed by the parties. Before the learned Arbitrator, the petitioners' Counsel fairly conceded that this submission ought to have been urged on 4th May, 2007, but had not been urged because Counsel was not ready with his papers. The learned Arbitrator has recorded this in paragraph 7 of his order thus:
Mr. Jaisinghani fairly concedes that the contention now taken up by respondent Nos. 2 and 3 should have been urged on 4th May, 2007. He apologises that on that day he had not read the papers and had not taken proper instructions from his clients. He states that now he has been categorically instructed by his clients not to consent to any extension of time.
The learned Arbitrator observed that had this point been urged on 4th May, 2007, a shorter time frame could have been fixed and dates would have been allotted and proceedings completed within time. The learned Arbitrator recorded that it was not now possible to complete the proceedings and pass an award even if the date of the receipt of the agreement is taken as 4th June, 2007. The learned Arbitrator observed that it would be more appropriate if the claimants obtained an extension of time or a clarification from the Supreme Court that the time could be extended by the Tribunal even without the consent of respondent Nos. 2 and 3 to the arbitral proceedings. The next date of hearing was to be fixed after parties obtained an extension of time or a clarification from the Supreme Court.
8. The first respondent thereafter, by its Advocate's letter dated 1st October, 2007 recorded that no written application had been filed by the petitioners for deciding the issue as to whether the period as stated in the agreement has come to an end and, that as a result, the jurisdiction to continue with the proceedings came to an end. The first respondent recorded that the issue would need to be decided by the Arbitral Tribunal and that the first respondent was advised that there was no need to apply to the Supreme Court. The learned Arbitrator was requested to continue with the arbitral proceedings and it was submitted that if the issue was urged by the parties in writing, it could be decided at the appropriate time.
9. The learned Arbitrator thereupon fixed a meeting on 26th October, 2007 in pursuance of the communication dated 3rd October, 2007. The petitioners filed an application before the Arbitrator stating that even if the period of four months was to be computed from 4th June, 2007, time for making the award had already expired and the Arbitral Tribunal had no power to proceed with the arbitral proceedings. By an order dated 31st December, 2007, the Arbitrator rejected the contention of the petitioner that his mandate had expired as no award was made within the period of four months under the agreement of arbitration.
10. The order of the learned Arbitrator has been challenged in these proceedings.
11. The submission of the petitioners is that the earlier Arbitrator had become de jure unable to perform his functions and that his mandate had terminated. The document dated 28th April, 2000 contained a stipulation that the Arbitrator should make his award within four months from the date of the service of the copy of the agreement and that he has the power to extend time for making and publishing the award from time to time, with the consent of parties. The case of the petitioners is that the first respondent has stated that a copy of the agreement was served upon the Arbitrator on 4th June, 2007 and even if this date is taken as the starting point, the period of four months expired on 4th October, 2007. The learned Arbitrator, according to the petitioners, rejected their contention relating to his mandate having come to an end on the basis that the arbitral proceedings first commenced before Mr. Justice V.D. Tulzapurkar and the period of four months was to be computed from the date of the earlier Arbitrator's appointment. Since the petitioner agreed to the appointment of the present Arbitrator by the Supreme Court, the petitioners have been held to have waived, in effect, their objection relating to the mandate of the Arbitrator terminating on the expiry of the time stipulated in the arbitration agreement. According to the petitioners, the learned Arbitrator has failed to distinguish between the mandate of the Arbitrator having come to end and the arbitral proceedings being terminated. The contention of the petitioners is that the earlier Arbitrator expired on 1st October, 2004 upon which his mandate came to an end and a fresh period is, therefore, required to be computed from the date when a copy of the agreement was sent to the new Arbitrator. The petitioners claim that they have raised an objection before the expiry of the time stipulated in the arbitration agreement and in the absence of their consent, it is not open to the Arbitrator to proceed with the arbitral proceedings. In support of his case, Counsel appearing on behalf of the petitioners has relied upon the judgment of a learned Single Judge of the Delhi High Court in Shyam Telecom Ltd. v. ARM Ltd. 2004(3) R.A.J. 459 in which it has been held that the consequence of the Arbitrator not concluding the proceedings and rendering an Award within the period prescribed under the Arbitration Agreement would 'unclothe' the Arbitrator of his legal authority to continue with the proceedings unless the parties agree to extend the period of making the award or a party waives his right to such an objection. Reliance has also been placed on a judgment of a learned Single Judge of this Court in Kifayatullah Haji Gulam Rasool v. Bilkish Ismail Mehsania : AIR2000Bom424 . In that case it was held that a consent order dated 9th November, 1998 contained an agreement between the parties that the authority of the Arbitrator shall come to an end on 9th January, 1999. The learned Single Judge held that the mandate of the Arbitral Tribunal stood terminated on 9th January, 1999 by efflux of time and due to the failure on the part of the Arbitrators to act without undue delay.
12. Section 14 of the Act provides that the mandate of the Arbitrator shall terminate if (i) he becomes de jure unable to perform his functions; or (ii) for other reasons he fails to act without undue delay; or (iii) he withdraws from his office; or (iv) the parties agree to the termination of his mandate. Under Clause (b) of Sub-section (1) of Section 15, the mandate of an Arbitrator shall terminate by or pursuant to the agreement of parties. Sub-section (2) provides that where the mandate of an Arbitrator terminates, a substitute Arbitrator shall be appointed according to the rules that were applicable to the appointment of the Arbitrator being replaced. In considering the tenability of the submissions which have been urged on behalf of the petitioners, it needs emphasis that there is a distinction in law between the termination of arbitral proceedings and the termination of the mandate of an Arbitrator. Sub-section (1) of Section 14 provides for the circumstances in which the mandate of an Arbitrator shall terminate. Where a controversy remains concerning any of the grounds on whether the Arbitrator has become de jure or de facto unable to perform his functions or whether he has failed to act without undue delay, a party may, unless otherwise agreed, apply to the Court to decide on the termination of the mandate. Under Sub-section (1) of Section 15, the mandate of an Arbitrator shall, in addition, terminate (i) Where he withdraws from his office; or (ii) By or pursuant to the agreement of parties. The termination of the mandate of an Arbitrator does not result in the termination of the arbitral proceedings because where the mandate of the Arbitrator has terminated, a substitute arbitrator can be appointed under Sub-section (2) of Section 15, according to the rules that were applicable to the appointment of the Arbitrator being replaced. In such a case, the appointment of a substitute Arbitrator is law a continuation of the existing arbitral proceedings. Sub-section (3) of Section 15 provides that unless otherwise agreed by the parties, any hearings previously held may be repeated at the discretion of the Tribunal. Moreover, under Sub-section (4) unless otherwise agreed, an order or ruling of the Arbitral Tribunal made prior to the replacement of an Arbitrator shall not be invalid solely because there is a change in the composition of the Arbitral Tribunal. The termination of the mandate of an Arbitrator followed by the appointment of a substitute Arbitrator only results in a change in the composition of the Arbitral Tribunal. The arbitral proceedings are not terminated. The termination of the mandate of an Arbitrator must, therefore, clearly be distinguished from the termination of the arbitral proceedings.
13. In the present case, the appointment of Mr. Justice V.D. Tulzapurkar was by an order dated 14th November, 2003. The sole Arbitrator held a meeting on 23rd December, 2003. Ordinarily, the period of four months for the conclusion of the arbitral proceedings would have commenced from this date where the order of the High Court and the arbitration agreement dated 28th April, 2000 were brought to the notice of the learned Arbitrator. After the dismissal of the Writ Petition filed by the petitioner on 20th January, 2004, the petitioners moved a Special Leave Petition before the Supreme Court in which further proceedings were stayed on 8th March, 2004. But for the order of stay, the period of four months for Mr. Justice V.D. Tulazapurkar to conclude the proceedings would have expired on 23rd April, 2004. The Supreme Court dismissed the Special Leave Petition on 24th April, 2007. The contention of the petitioners is that the learned Arbitrator is in error in holding that the period of four months had already commenced to run and if the petitioners herein had any objection to the proceeding continuing beyond the period of four months, they ought to have apprised the Supreme Court of the fact that the appointment of an Arbitrator would serve no purpose as the period of four months was shortly to expire. The contention of the petitioners is that upon the appointment of Mr. Justice S. N. Variava, there was a fresh mandate and the period of four months would, therefore, have to be reckoned from the time when a copy of the agreement was sent to the new Arbitrator. But, even on the hypothesis which the petitioners seek to assert before the Court, it is impossible to accept their submission that the mandate of Mr. Justice S.N. Variava. expired upon the completion of four months from the date on which a copy of the agreement was served upon the new Arbitrator. The first meeting before the new Arbitrator was held on 4th May, 2007. At the first meeting before the learned Arbitrator the petitioners chose not to assert that they would seek strict compliance with the condition that the arbitral proceedings would have to be completed no later than within a period of four months from the date of the service of the agreement. On the contrary, the record of the proceedings indicates that on 4th May, 2007, parties stated before the Arbitrator that the statement of claim had been filed before the earlier Arbitrator, but since those papers were not available, the claimant was to file a statement of claim before 1st June, 2007. The respondents to the arbitral proceedings were granted time until 6th July, 2007 to file the written statement. On 22nd May, 2007, the petitioners' Advocate forwarded a copy of the statement of claim which had been filed before the earlier Arbitrator. On 4th June, 2007, the Advocate for the claimant forwarded a copy of the fresh statement of claim. On 6th June, 2007, the learned Arbitrator addressed a communication to the Advocate for the petitioners enquiring as to whether the petitioners had any objection to the fresh statement of claim being filed. The petitioners had objections. On 11th June, 2007, the petitioners sought an extension of time to file their reply. The learned Arbitrator correctly came to the conclusion in his communication dated 18th June, 2007 that there was no justification for not filing the written statement under the pretext that the claimants had not filed a compilation of documents. Be that as it may, the learned Arbitrator granted a further extension till 20th July, 2007 for filing the written statement since there was a delay on the part of the claimant. Right from 4th May, 2007, when the first meeting took place before Mr. Justice S.N. Variava, until 27th August, 2007, there was no indication on the part of the petitioners that they were going to punctiliously hold the parties to the proceedings down to the stipulation of four months contained in the arbitration agreement dated 28th April, 2000. On the contrary as the facts which have been disclosed before the Court would show that on 4th May, 2007 the petitioners were initially granted time until 6th July, 2007 to file their written statement since the claimant was to file the statement of claim on 20th June, 2007.
Parties to an arbitration agreement are entitled to stipulate the time within which an arbitral award is to be rendered. In the present case, the time which was prescribed was four months. In such a case, however, where a party intends to assert a rigid adherence to the time prescribed by the arbitration agreement, it must at the earliest opportunity make its intention known to ensure compliance with a rigid standard as to time. To hold otherwise would be to encourage a lack of candour on the part of parties in their dealings before the Arbitrator. Interpretation of law by the Court must be such as to promote honesty, fairness and transparency on the part of parties and not such as would defeat the salutary object in the enactment of the Arbitration and Conciliation Act, 1996. Section 4 of the Act deals with a waiver of the right to object and inter alia stipulates that a party who knows that any requirement under the agreement has not been complied with and yet proceeds with the arbitration without stating his objection to such non-compliance without undue delay, shall be deemed to have waived his right to object. Section 4 is indicative of the policy of the legislature. The petitioners stood by and allowed the Arbitrator to fix a time schedule for the filing of pleadings. If they had a serious intent of not allowing the proceedings to continue beyond the period of four months, it was the duty of the petitioners to inform the Arbitrator at the earliest when the time schedule was fixed by the Arbitral Tribunal. Counsel appearing on behalf of the petitioners, in fact, fairly stated before the learned Arbitrator on 27th August, 2007 that the contention which was sought to be taken up ought to have been urged on 4th May, 2007, but at that stage he had not read his papers. The petitioners' Advocate unfortunately sought to controvert the correctness of what was recorded by the learned Arbitrator in his order dated 27th August, 2007. The Arbitrator, as the record would show, was constrained to set the record straight by a communication dated 27th September, 2007. The learned Arbitrator is justified in coming to the conclusion that the petitioners have by their conduct waived their objection to enforce a punctilious observance of the time schedule of four months. To adopt any other construction would frustrate the object and purpose of arbitral proceedings and bring the whole machinery provided by the Act to facilitate an efficacious recourse to arbitration into grave peril. Speaking for myself, I would decline to accept a construction which would lead to that result.
14. The Court is duty bound to effectuate the object and intent of Parliament in enacting the law and the view which I have taken is one which will protect the object which Parliament had in view.
15. There is no merit in the petition. The petition shall accordingly stand dismissed.