1 The Petitioner have challenged impugned award dated 28 February 2007, under Section 34 of the Arbitration and Conciliation Act, 1996 (for short, the Arbitration Act), passed by the sole Arbitrator.
The basic events are as under:-
2 Petitioner No.1 who is the owner (the owner) and original opponent entered into a GENCON charter party/Fixture Note on 8 April 2005 (the charter party) with the Respondents (The Charterers) for the carriage of 6297 MTs of steel angles in bundles and bolts/nuts packed in boxes from load-port Mumbai to discharge port Tripoli, Libya. Petitioner No.2 was the agent of Petitioner No.1 (the agent).
3 It was agreed that the Respondents should load/discharge it's cargo within three days from the arrival at Mumbai port. The vessel arrived at Mumbai on 28 April 2005. The loading was completed on 7 May 2005 and sailed on next day from Mumbai. The vessel arrived at discharge port Tripoli on 6 June 2005. The vessel commenced discharge on 7 June 2005. There was delay of eleven days in discharge, therefore, claimed for detention charges/demurrage by the Petitioners. The Respondents made payment of load-port demurrage to the Petitioners of US$ 65,042. (`28,37,132/-) under protest on 9 July 2005 stated to be to secure the claimed demurrage in terms of fixture note, on the condition of submitting a bank guarantee maximum for two years by the Petitioners.
4 Both the parties have agreed by letter dated 11 July 2005 (the arbitration agreement) to refer the dispute under the fixture note to the mutually agreed and appointed sole arbitrator, within two months. Para 4 and 8 of the letter are as under:-
"4) Both your clients and my clients have agreed to refer the claim under the fixture note dated 8th April 2005 to a sole Arbitrator in Mumbai, to be mutually agreed and appointed within two (2) months. Although the arbitration proceedings would be governed by the Indian Arbitration and Conciliation Act, 1996, the substantive law applicable would be English law.
8) You are therefore requested to confirm in writing that the terms and conditions as stated in this letter are accepted and agreed by you/your clients and you/your clients shall abide by the aforesaid terms as stated in the said letter. This letter is addressed to you with full authority from my clients KEC International Ltd."
The advocate accepted the terms, on instructions, on behalf of the Petitioners. The parties thereby agreed that the Arbitration proceedings would be governed by the Arbitration Act but the substantive law applicable would be the English Law.
5 The Respondents had proposed five names of the Arbitrator on 13 August 2005. Both the parties appointed by consent Mr. Cooper as a sole arbitrator. The letter was also sent to the sole Arbitrator on 12 September 2005. The Petitioners furnished the above bank guarantee on 24 August 2005. On 26 August 2005, the Petitioners, through an e-mail consented and confirmed the appointment and requested to obtain the confirmation and the available dates, from the arbitrator.
6 The Respondents on 2 September 2005, through an advocate, had telephonically informed that both the parties consented for the Arbitrator which the Arbitrator had also accepted on telephone. By fax dated 12 September 2005, the Respondents requested the Arbitrator to proceed with the matter on merits. As alleged, on 10 September 2005 was second Saturday and the next day was Sunday, therefore 12 September 2005 was the first working day following the holidays.
7 The Petitioners also wrote to the Arbitrator for certain clarification about the date of receipt of back-dated letter. The confirmation/ appointment of the Arbitrator by the consent of the parties required to be made on or before 10 September 2005. The sole Arbitrator confirmed and consented to be a sole Arbitrator in writing by a letter dated 16 September 2005.
8 By letter/ application dated 16 September 2005, an objection to the jurisdiction of Arbitrator was raised and also requested to pass interim order/ award with regard to the return of bank guarantee and for mis-joinder of party (Petitioner No.2). Petitioner No. 2 was not party to the contract and never agreed for any Arbitration.
9 The Respondents replied to the preliminary objection on 20 October 2005. The Petitioners re-joined to it also.
10 On 12 September 2005, the Petitioners addressed a letter to the Arbitrator and requested to confirm the appointment to adjudicate the matter and invoked Arbitration also for the counter claim against the Respondents, though recorded that there was no contract or any Arbitration clause. On 4 November 2005 the Arbitrator rejected the objection of the Petitioners and proceeded with the matter.
11 The Respondents being an original Claimant filed a statement of claim dated 22 December 2005 for refund of demurrage for ` 28,37,132/- having been paid under protest to the Petitioners and also claimed `6,03,750/-. Petitioner No.1 replied and filed a counter claim on 14 February 2006 for further demurrage of US$14,000/- and also of US$154,000/- for delay and detention of vessel. The Respondents objected the same on 29 March 2006. The rejoinder was also filed by the Petitioners.
12 The Petitioners filed two affidavits in lieu of examination-in- chief; of Mr. Esam Elfallah and Mr. Prashanth Gajanan, in July, 2006. The Respondents cross-examined both these witnesses by the end of December 2006.
13 The Respondents also filed an affidavits in lieu of examination- in-chief of Mr. Subhash Gangji Gala, on 29 January 2007, who was cross-examined by the Petitioners also. In February, 2007, oral arguments were advanced by both the parties. On 28 February 2007, the impugned award has been passed by the sole Arbitrator. Appointment of the Arbitrator and his oral acceptance/confirmation.
14 There is no dispute about the Arbitration Agreement. The appointment of Arbitrator, therefore, based upon the subsequent agreement between the parties. After due deliberation, the parties have chosen and decided to appoint Mr. Cooper as the Arbitrator. There was no specific procedure agreed for the appointment of Arbitrator. Therefore, once the parties appoint an Arbitrator, the consent of the Arbitrator to the appointment is necessary. The law nowhere provides the specific mode and method of obtaining the consent from the Arbitrator. In a given case it may be, an oral or a written communication or by whatever available modes, like telephone, mobile, e-mail etc.
15 The confirmation from the Arbitrator is very essential. It is necessary because the parties had agreed to appoint within prescribed time to enable the Arbitrator to complete the proceedings at the earliest. The written communication/ acceptance of the Arbitrator is also important for both the parties to proceed with the Arbitration as the acceptance amounts to constitution of the Arbitral Tribunal for the purpose of settlement of their dispute arising out of the contract. It is essential even for the Arbitrator to communicate at an earliest opportunity, his acceptance and/or his objection to the appointment. It is also necessary for the arbitrator to disclose his interest and/or objection of any kind, as contemplated under Sections 12/13 of the Arbitration Act. In Tradax Export S.A. v. Volkswagenwerk A.G. ("La Loma") it is observed as under:-
"So we have to decide: what is necessary to constitute the appointment of an arbitrator? I think the answer is this: First, it is necessary to tell the other side. That is plain from Tew V. Harris (1847) 11 Q.B. 7. Second, it is necessary to tell the appointee himself. That is obvious because he often has to start acting at once. Third, it is necessary that he should be willing to act and have intimated his willingness to accept the appointment. In Russell on Arbitration, 17th ed. (1963), at p.160, it is said:
"Acceptance of the office by the arbitrator appears to be necessary to perfect his appointment." There is a passage in Ringland V. Lowndes (1863) 15 C.B.N.S.173, 196, which gives some support to that statement.
1 (1970) 2 W.L.R. 339
16 In The Law and Practice of Commercial Arbitration in England, Second Edition, Sir Michael J. Mustill while dealing with the Arbitrator's appointment and the communication, has observed as under:-
"1 The claimant must communicate with the intended arbitrator, authorising him to act in respect of the particular dispute.
2 The intended arbitrator must indicate to the claimant his willingness to act.
3 The fact of the appointment must be communicated to the defendant."
FOR COMPLETING A VALID APPOINTMENT OF THE ARBITRATOR. 17 It has been stated in Russell on Arbitration, Twenty-Third Edition in para 4030 as under:
" There are three requirements for the completion of a valid appointment.
(1) informing the other party;
(2) informing the nominee; and
(3) securing the nominee's agreement to act."
18 Having once obtained approval of acceptance of Arbitrator though orally before 10 September 2005, within two months as agreed period that itself in my view is sufficient to reject the contention of the Petitioners that the appointment of the Arbitrator was invalid. It is desirable that the acceptance of Arbitrator should be in writing, but, the oral acceptance by the Arbitrator after selection by the parties, cannot be stated to be invalid. The Arbitrator, may later on also communicate in writing to act as an Arbitrator as agreed by both the parties. The basic agreement requires, by consent, a selection of Arbitrator and his appointment. The submission now raised by the learned counsel appearing for the Petitioners that there was no such oral acceptance/communication made or received on phone for want of any contra material, is unacceptable.
19 In the present case, the learned Arbitrator was duly nominated and appointed on 26 August 2005, by consent of the parties. Subsequent meetings and/or further proceedings of the Arbitration, after two months, nowhere sufficient to declare that the appointment was bad and/or contrary to the agreement. Therefore, the finding given by the learned Arbitrator that the appointment was made on 26 August, 2005 which was well before 10 September 2005 and the fax dated 16 September 2005 was just a confirmation of that acceptance is correct and need no interference. In my view also, by consent of the parties, within stipulated period of two months, the Arbitrator was validly appointed. The Petitioners did not produce on record any contra material except the oral submission of the learned counsel. There is no force in the contention in the present facts and circumstances of the case based upon Section 7 (3) of the Arbitration Act that there was no agreement in writing and the acceptances of Arbitrator in writing within stipulated period itself invalidates the Arbitration proceedings and the award. The Arbitration agreement in the present case was in writing, that itself is sufficient for the parties to proceed by consent to nominate and to appoint the Arbitrator. The oral acceptance by the Arbitrator to act as an Arbitrator, as both the parties nominated and selected him, that itself in my view is sufficient to hold that the appointment of the Arbitrator was valid and binding to the parties. The Apex Court in Keshavsinh Dwarkadas Kapadia v. M/s. Indian Engineering Co. has observed by referring to Russell on Arbitration, 18th Edition in para 9 and 18 as under:-
"9. "Acceptance of Office:- Acceptance of the office by the arbitrator appears to be necessary to perfect his appointment. It has been so decided in the case of an umpire, and it would seem to be only reasonable that 2 AIR 1972 SC 1538 an appointment should not be considered effective until the person appointed has agreed either expressly or tacitly to exercise the functions of the office" Two decisions are cited in Russell in support of the view expressed by the author. These decisions are Ringland V. Lowndes, (1863) 15 C.B. (NS) 173 = 143 ER 749 and S.A. Tradax Export V. Volkswagenwerk A.G. (1969) 2 QB 599. The decision in Tradax Export case (supra) has been affirmed by the Court of Appeal as will appear in (1970) 1 All ER 420."
"18. When the umpire assumes his office he accepts the appointment. The acceptance may be express or implied. The acceptance need not be in writing. It may be evidenced by conduct."
20 The Apex Court decision in Keshavsinh (Supra) revolved around the old Arbitration Act, 1940, though correct, but on the principle as quoted above, needs to be respected in every Arbitration proceedings specially when there is no contra agreement on record. Therefore, the submission based upon M/s. Sundaram Finance Limited v. M/s. NEPC India Ltd. that the principle of old Arbitration Act, need not be extended to the proceedings under the Arbitration Act, is also of no assistance to interfere with the award. THE GOVERNING LAW IS ENGLISH BUT THE PROCEDURAL LAW IS INDIAN ARBITRATIION ACT.
21 As per the agreement, the governing or substantive law was 3 AIR 1999 SC 565 the English Law. However, they agreed for the Indian Arbitration Act for the proceedings in India. Therefore, both the parties acted before the Arbitrator as per the provisions of the Arbitration Act. Even under the English Law as referred above, there is no such procedure or provisions by which it is necessary that the Arbitrator must communicate its acceptance in writing. The English Law as recorded above, permits and accepts the tacit and implied acceptance of the Arbitrator. The Petitioners, in fact participated in the proceedings and even filed the counter claim and contested the matter accordingly by leading the evidence.
NO THIRD PERSON CAN BE COMPELLED TO JOIN/ADD AS A PARTY IN THE ARBITRATION BETWEEN THE CONCERNED PARTIES:
22 The arbitration agreement may be formal and/or informal, but must base upon the written agreement/communication by and between the parties. Subject to the provisions of the Arbitration Act, it is final and binding between the parties to the agreement. Third person/party therefore cannot be joined and/or made party to such arbitration proceeding unless agreed by all, including the third person to be joined to get binding award. The parties and even the Arbitrator cannot compel the third person or party to be joined in arbitration proceeding, once the arbitration proceedings commenced, based upon the agreement between the concerned parties. In a given case, if the third person or non-party also wants to intervene and the concerned parties agree/permit such person to be a party to such arbitration proceedings, there is no bar to permit such person/party to be part of the arbitration proceedings but not otherwise.
23 In the present case, the arbitration agreement was entered into only between Petitioner no.1 and the Respondents and not with Petitioner No.2. In S.N. Prasad v. Monnet Finance Limited4 the Supreme Court observed thus:
"8 Thus there can be reference to arbitration only if there is an arbitration agreement between the parties. The Act makes it clear that an arbitrator can be appointed under the Act at the instance of a party to an arbitration agreement only in respect of disputes with another party to the arbitration agreement. If there is a dispute between a party to an arbitration agreement, with other parties to the arbitration agreement as also non-parties to the arbitration agreement, reference to arbitration or appointment of arbitrator can be only with respect to the parties to the arbitration agreement and not the non- parties."
24 Petitioner No.1 was the owner/principal whereas Petitioner No.2 4 (2011) 1 SCC 320 was an agent of Petitioner no.2. Though preliminary objection was raised, it was not adjudicated at the interlocutory stage. By the impugned award, there is no liability created or award passed against Petitioner no.2. The learned counsel appearing for the Petitioner, during the course of the argument, on instructions, also submitted that they are not pressing any relief and/or award against Petitioner no.2. In view of this and as the award can be modified under Section 34 of the Arbitration Act, the award needs to be modified accordingly. The Supreme Court in J. G. Engineers Private Limited v. Union of India and another 5 observed thus:
"Once it is held that the issues relating to who committed breach and who was responsible for delay were arbitrable, the findings of the arbitrator that the contractor was not responsible for the delay and that the termination of contract is illegal are not open to challenge. Therefore, the rejection of the counterclaims of the respondents is unexceptionable and the High Court's finding that the arbitrator ought not to have rejected them becomes unsustainable. The award of the arbitrator rejecting the counterclaims is therefore, upheld'
THE AWARD IS WITHIN THE SCOPE OF SUBMISSION/REFERENCE:
25 Based upon the agreement between the parties, once the 5 (2011) 5 SCC 758 arbitration proceedings commenced, and as the parties participated by raising claim as well as, counter claim, the award based upon such claims cannot be stated to be beyond the scope of reference.
26 The arbitration agreement, sufficient to cover the dispute and differences arising out of the parties in view of the contract in question. The claim, as well as, the counter claim so filed were arising out of the contract between the parties. Therefore the submission that the Arbitrator had gone beyond the point of reference is unacceptable, in the present facts and circumstances of the case. The Apex Court in McDermott International Inc. vs/ Burn Standard Co. Ltd.6 , referring to Sections 16, 23 and 34 of the Arbitration Act observed as under :
"101 ......... It may also be of some interest to note that this Court even prior to the enactment of a provision like Section 16 of the 1996 Act in Waverly Jute Mills Co. Ltd. v. Raymon & Co. (India) (P) Ltd., AIR 1963 SC 90, Dharma Prathishthanam v. Madhok Construction (P) Ltd.,(2005) 9 SCC 686, clearly held that it is open to the parties to enlarge the scope of reference by inclusion of fresh disputes and they must be held to have done so when they filed their statements putting forward claims not covered by the original reference."
McDermott International Inc.'s principle has been followed by a 6 (2006) 11 SCC 181 Division Bench of this Court in Bi-water Penstocks Ltd. vs. Municipal Corporation of Gr. Bombay7 maintaining the award so passed on the basis of additional claims raised before the Arbitrator.
27 The parties in fact based upon the claim and counter claim led the evidence. Therefore, now as the counter claim so raised by the Petitioner was partly dismissed/rejected, the plea that the Arbitrator travelled beyond the scope of reference is impermissible. THE AWARD IS BASED UPON THE EVIDENCE AND THE MATERIAL PLACED ON THE RECORD.
28 The learned Arbitrator after considering the evidence led by the parties and the documents on record has passed the award of refund of the amount as recorded above. The basic Fixture Note dated 8 April 2005 provides the terms and conditions including quantum of freight. Both the parties decided to refer the disputes by referring to the terms and conditions also of GENCON charter (the charter). The charter provides the respective obligations of the owners, its agents as well as the charterers, covering loading and discharging, cost and risk, cargo handling gear, lay-time for loading and discharging. It also covers demurrage, lien clause cancelling clause, bill of lading, agency, 7 2011(1) Bom. C.R. 622 port of lading and law and arbitration clauses. As noted, a Fixture Note and charter party was entered into between the owner and the charterer for the carriage of cargo 6297 MT Steel Angles Packed in Bundles and Bolts/NUTS packed in boxes and construction equipment and tools, lashing, stowing, dunnage was to the account of the charters. There was no dispute about Bill of Lading and it's terms. Detention of US $ 14000 PDPR was payable in case of delays when the cause was attributable to the charterers. Admittedly, the delay caused in discharging the cargo, as per the Petitioners was due to the poor bundling, loading and stowage by the charters. As per the claimant/Respondent, the owner/Petitioner failed to perform their part of the agreement by not providing all the six hooks for discharging/loading of the cargo. Only two hooks were provided apart from other things that delayed the entire loading from instead of 2 May 2005 to 7 May 2005. Therefore instead of 3 days, it took 11 days.
29 As insisted, the Respondents had deposited to avoid further complication, the sum of Rs.28,37,132/- on condition of securing the amount by way of a bank guarantee by the Petitioners. It was done accordingly. As dispute arose, therefore, the matter was referred by agreement to the Arbitrator. The claimant/Respondent, in view of delay and default on the part of Petitioners, claimed for refund of the amount already deposited with 12% interest from 11 July 2005 till realisation and also claimed Rs. 6,03,750/- (amount earned dispatch equipment to Indian rupees) from 26 December 2005 till payment along with 12% interest per annum by providing the detailed statement. The Arbitrator has considered also the counter claim titling demurrage for US $ 79,042 raised by the Petitioners for the delay by deducting the amount of US $ 65042 and, therefore, the separate counter claim for poor stowage for demurrage as referred above with interest. The demurrage statement was also provided by the Petitioners.
30 The Arbitrator has given detailed reasons and after assessing the material on record, including the witnesses/evidence led by the parties and by giving the proper and commercial value to the agreement between the parties. The Arbitrator has considered the claim as well as counter claim of the parties and by the impugned Award granted the respective amount in favour of both the parties. The Arbitrator has also considered, without prejudice to the negotiation/discussion between the parties, though it was not settled.
The Arbitrator has observed as under :
"The Tribunal does not buy the argument of the Respondents that the statement about 4 hatches/ 6 cranes in the Fixture Note was merely a piece of information about the vessel's physical features. The Claimants were supposed to load the cargo and the three crucial terms of the contract were :
a. Rate of freight,
b. Time allowed for loading,
c. Rate of demurrage.
If the Claimants were to agree to the above terms without knowing how many hatches/cranes they would be offered for loading, the Claimants would be negotiating "blind". Details of the vessel's hatches and cargo gear were essential details and vital pieces of information for the Claimants during negotiations to make an intelligent business like appraisal. How can they possibly agree to load 6200 odd tons in three days without knowing how many hatches will be available? If the arguments of the Respondents were valid, then theoretically they would be within their rights in asking the Claimants to load the entire cargo in say half a hatch within three days. The stand of the Respondents that the Claimants had indeed impliedly agreed to such an onerous proposition when signing the Fixture Note is nothing short of an affront to the commonsense of the party with whom the Respondents were negotiating. Details of the cranes and hatches "as described" in the Fixture Note were not superfluous, innocuous pieces of information. These details went to the very heart of the contract.
The Tribunal therefore holds that the Claimants were fully entitled to rely on the statement about 4 hatches in the Fixture Note and to insist that they should have been available to them for loading."
31 The lay days are for the purpose of lading/discharging operations. The counting of lay time starts, as soon as the vessel is ready. In view of the Fixture Note, the unclear concept of "lay time", the calculations of lay time and the demurrage are reasonable and fair.
32 The Arbitrator, at the same stroke, has also granted equitable pro-rata adjustment in the time used by the charterers to load the cargo and awarded the damages to the Respondent of US $ 11,520 at the rate so claimed.
33 The Arbitrator has also considered the Petitioners counter claim after giving detailed reasons and by taking note of the material as well s evidence placed on record by the Petitioner. The Arbitrator has considered various discrepancies in the evidence of the Tripoli witnesses and ultimately concluded that the discharge of cargo of the claimant from the vessel at Tripoli was well and truly completed within time allowed of 5 days. The Arbitrator therefore has passed the award after taking into consideration, the long standing practice and custom of the shipping industry in the following terms. It is not the case of granting the award only on equity. :
i. Claimants to pay to the Respondents US$ 11520 for demurrage incurred by the vessel at Mumbai;
ii. Respondents to refund to the Claimants the sum of US$ 53522 (65042 minus 11520) being excess demurrage conditionally deposited by the Claimants earlier with the Respondents;
iii. Respondents to pay to the Claimants interest on US$ 53522 @ 12% per annum w.e.f. 11/7/2005;
iv. The claim of the Claimants for dispatch of US$ 13125 is hereby dismissed;
v. The claim of the Respondents for alleged detention of the vessel at Tripoli owing to delay in discharge is dismissed;
vi. Claimants to pay to the Respondents `3,00,000/- by way of costs in the claim of the Claimants for dispatch which is denied and the counter claim of the Respondent for demurrage which succeeds to the extent of US$ 11520/-;
vii. Respondents to pay to the Claimants ` 2,75,000/- by way of costs in respect of their unsuccessful claim for alleged detention of the vessel at Tripoli."
34 The learned Arbitrator, as the parties have referred the restricted point/dispute for Arbitration, therefore, has exercise the discretion based upon the commercial aspect of the dispute, as passed the impugned award by taking reasonable and possible view of the matter. There is no perversity in the order. It is well within the frame of law and public policy. Considering the scope of interference under Section 34 of the Arbitration Act, no case is made out to disturb the award so passed. I have already observed in Union of India v. Arctic India & as under-
Anr.8
"46. The interpretation, therefore, so given by the learned Arbitrator to the terms and conditions of the contract, cannot be stated to be perverse and/or contrary to law. The view so taken is plausible and possible view. There is no case made out to interfere with the same."
35 The Apex Court has reiterated in J.G. Engineers Private Limited v. Union of India & Anr.(supra) that the jurisdiction of the Court under Section 34 of the Act, is supervisory and not appellate. The Court can set aside the award, only if any of the grounds mentioned under Sections 34(2)(a)(i) to (v) or Sections 34(2)(b)(i) and (ii), or Section 28(1)(a) or 28(3) read with Section 34(2)(b)(ii) of the Act are made out. An award adjudicating claims which are "excepted matters" excluded from the scope of arbitration, would violate Sections 34(2)(a) (iv) and 34(2) (b) of the Act. Making an award allowing or granting a claim, contrary to any provisions of the contract, would violate Section 34(2)(b)(ii) read with Section 28(3) of the Act." 8 2011(3) Bom. C.R. 647
36 All these relevant elements are missing in the present case in favour of Petitioner No.1 but are in support of the Respondents and Petitioner No.2.
37 The Respondents/original claimant has not challenged the award. Counsel appearing on behalf of the Respondent also made statement that the Respondent are not pressing any relief against Petitioner no.2.
38 It is also made clear that the parties, based upon the award, have already paid the amount.
39 There was no serious challenge raised about the rate of interest so awarded. Even otherwise, it is fair, reasonable and not exorbitant. 40 Resultantly, the Petition is allowed partly. The award against Petitioner no.2 is modified and it is dismissed. The rest of the award is maintained. There shall be no order as to costs.