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Delhi High CourtIndian Cases

Indian Oil Corporation Ltd. vs Atv Projects India Ltd. And Anr. on 9 July 2004

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Delhi High Court
Indian Oil Corporation Ltd. vs Atv Projects India Ltd. And Anr. on 9 July, 2004
Equivalent citations: 2004(2)ARBLR432(DELHI), [2005]124COMPCAS45(DELHI), 112(2004)DLT701, 2004(75)DRJ630
Author: Badar Durrez Ahmed
Bench: Badar Durrez Ahmed
JUDGMENT

Badar Durrez Ahmed, J.

1. This petition under Articles 226 and 227 of the Constitution of India is directed against an order dated 02.06.2003 passed by the respondent no.2 in his capacity as the sole arbitrator in Arbitration Case No.319/2002 entitled A.T.V. Project India Ltd v. Indian Oil Corporation Ltd. The petitioner (Indian Oil Corporation Ltd) (hereinafter referred to as ”IOCL”) and the respondent No.1 (ATV Project India Ltd) (hereinafter referred to as ‘ATV’) had entered into a contract on 03.01.1996 under which ATV has been awarded the turn-key project in respect of the Amine Regeneration Unit for the Panipat Refinery Project of IOCL. Certain disputes had arisen between the IOCL and ATV and the latter filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as ‘the said Act’) for appointment of an arbitrator for adjudicating the said disputes. On agreement of the parties, by an order dated 07.05.2002, the Civil Judge (Senior Division) Panipat, Haryana, appointed the respondent No.2 as the sole arbitrator.

2. The respondent No.2, on being informed of his appointment as the arbitrator, registered the reference as Arbitration Case No.319/2002 and issued a notice dated 02.07.2002 notifying the parties that the first hearing would take place on 01.08.2002 at New Delhi and directed the claimant (ATV) to file its statement of claim with supporting documents on or before the said date.

3. ATV did not file its statement of claim on or before 01.08.2002 and, instead, its counsel sought more time for filing of the statement of claim before the respondent No.2, who, by the order dated 01.08.2002, permitted ATV to file its claim on or before 21.08.2002. The next date of hearing was fixed for 13.09.2002. ATV did not file the statement of claim on or before 21.08.2002 and the counsel for ATV made an oral request to the respondent No.2 for a further period of four weeks to file the statement of claim and also made a request for an adjournment in the matter so that it may file its statement of claim. The respondent No.2 acceded to this oral request and the case was fixed for 16.12.2002 for further directions.

4. On 16.12.2002, when the parties appeared before the respondent No.2, the counsel for ATV again sought further time for filing the statement of claim. The respondent No.2 passed, inter alia, the following directions:-

”The statement of claim has not been filed by ATV despite sufficient time having been granted. Counsel for ATV seeks some more time for filing the statement of claim. Counsel for IOCL objects to grant of more time. However, in interest of justice, I grant now last opportunity for filing the statement of claim with supporting documents by ATV on or before 15th January, 2003 with copies to the opposite counsel. IOCL shall file statement of defense and counter statement of claims with supporting documents, if any, within four weeks of receipt of aforesaid copies and supply copies to the opposite party. In case ATV fails to file the statement of claim as mentioned above, IOCL can file its statement of claim along with supporting documents on or before 11th February, 2003 with copies to the opposite counsel.” The matter was adjourned to 12.03.2003.
5. Despite the clear and peremptory order passed by the respondent No.2 giving ATV a last opportunity for filing the statement of claim on or before 15.01.2003, ATV failed to do so. In fact, on 12.03.2003, nobody appeared on behalf of ATV before the respondent No.2. Faced with such a situation, the respondent No.2 passed the following order:-

”A last opportunity was given to ATV for filing statement of claim on or before 15th January, 2003. No such statement of claim has been filed. Today no one has even appeared on behalf of ATV. ATV has also not complied with the directions for deposit of the arbitration fee and expenses. In view of the above, I have now no option but to hold that the ATV has lost its right to file statement of claim. Counsel for the IOCL states that he has already prepared statement of claim along with supporting documents and would be filing the same on or before 31st March, 2003. I give final opportunity to IOCL for filing the statement of claim along with supporting documents on or before 31st March, 2003 with copies to the opposite party. IOCL shall now pay the fee of arbitration and expenses on its claim on or before 31st March 2003. ATV shall file statement of defense to the statement of claim of IOCL within three weeks of receipt of the copies by it and send copies to the opposite party. Rejoinder, if any, confined to additional facts coming out in the statement of defense shall be filed by IOCL within two weeks thereafter. Parties shall carry out admission and denial of documents of each other before the date fixed. In case no appearance is put in by ATV on the next date of hearing the matter shall be decided in accordance with law without any further notice to ATV. For framing of issues and for further directions, the hearing shall take place on 5th May, 2003 at 3.30 P.M.” (underlining added)
6. By this order, the respondent No.2 held that ATV had lost its right to file the statement of claim. It is also clear that the respondent No.2 gave a final opportunity to IOCL for filing its statement of claim Along with supporting documents on or before 31.03.2003. This order is of material significance for deciding the present writ petition. It is contended on behalf of the petitioner (IOCL) that, by this order, the arbitration proceedings insofar as the claim of ATV was concerned, stood terminated and in respect thereof the respondent No.2 had lost his mandate and had become functus officio. It is further contended that the mandate of respondent No.2 continued only in respect of the claim of IOCL and, it is to this limited extent that the arbitration proceedings were to continue. On the other hand, the respondent No.1 (ATV) contends that this order did not terminate the proceedings as alleged by the petitioner (IOCL). It merely indicated that ATV had lost its right to file its statement of claim. The entire arbitration proceedings were still alive. These rival contentions will be dealt with below after I complete the factual picture.

7. Proceeding further in the time-line of events, one finds that ATV filed an application before the respondent No.2 for recalling of the order dated 12.03.2003 essentially setting forth the reasons for delay in the filing of the statement of claim as well as the non-appearance of the counsel on 12.03.2003. Along with this application, which was dated 01.04.2003, the statement of claim of ATV was also filed and a request was made for the same to be taken on record. A reply was filed by IOCL to this application. The objections raised by it were that such an application was not maintainable and the order dated 12.03.2003 could not be recalled as it amounted to seeking a review thereof which was not permissible particularly when, according to it, the arbitration proceedings insofar as the claim of ATV was concerned, stood terminated.

8. The respondent No.2 heard arguments on the application and by the impugned order dated 02.06.2003 allowed the application filed by ATV. The delay in filing the statement of claim was condoned and the statement of claim filed by ATV Along with the application of 01.04.2003 was taken on record. The respondent No.2 found that there was sufficient cause shown by ATV for its inability to file the statement of claim on the date fixed in the proceedings. In this regard, the respondent No.2 held as under:-

”19. It is indeed settled principle of law that drastic orders of closing a case of any party, should not be made unless the defaulting party contumaciously fails to abide by the time limits set in the orders. Mere fact that a last opportunity was afforded for filing statement of claim does not mean that for sufficient grounds the arbitral tribunal cannot extend the time. The fact should not be lost sight that the ATV had approached the court for appointment of an arbitrator and it appeared in the proceedings and there could be no earthly reason for ATV to forgo its claims by not filing statement of claim. No doubt sufficient time was granted to ATV repeatedly for filing statement of claim but the facts averred in the application do show sufficient case of its inability to file statement of claim in the time fixed in the proceedings.”
9. This order of 02.06.2003 is impugned before me. It is necessary to point out that in this petition, the question of whether a case for ”sufficient cause” was made out does not require to be gone into. The questions which arise for the consideration of this Court are:-

1) Whether the writ petition is maintainable?
2) If the answer to question No.1 is in the affirmative, whether the respondent No.2 had the power to recall his order dated 12.03.2003?
10. Re: Question No.1:

The objection to the maintainability of the writ petition was taken at the threshold by the learned counsel for ATV. A short affidavit dated 29.08.2003 was filed to this effect on behalf of ATV. The grounds of objection qua maintainability are as under:-
a) that the writ petition has been filed on a wrong premise that the order dated 12.03.2003 passed by the respondent No.2 was an order under Section 25(a) of the said Act terminating the arbitration proceedings. It is urged that the proceedings had not been terminated and further time had been granted to IOCL to file their statement of claim and the case was fixed for 05.05.2003 for framing of issues and further directions;
b) that IOCL had raised objections as to the jurisdiction of the arbitrator (respondent No.2) to entertain the application of ATV for recall of the order dated 12.03.2003 and those objections were considered and decided by the respondent No.2 in exercise of powers conferred by Section 16 of the Arbitration Act which authorised the arbitral tribunal to rule on its own jurisdiction. Hence, having rejected the plea against jurisdiction, the only option available to the respondent No.2 was to continue arbitral proceedings and make the award in terms of Section 16(5). The objector, in terms of Section 16(6) would not be remediless, but would be entitled to challenge the award on the ground of his wrongful rejection of the plea against jurisdiction in accordance with Section 34 of the Act. That stage would, however, only arise after the award is made and as such the present writ petition is not maintainable;
c) that Section 5 of the said Act is a bar to judicial intervention in arbitral proceedings and, therefore, this writ petition, whereby an order passed by an arbitrator in an on-going arbitral proceeding is under challenge, would not be maintainable;
d) that by virtue of Section 37(2) of the said Act an appeal would lie to the Court from an order of the arbitral tribunal whereby the plea referred to in sub-Sections (2) and (3) of Section 16, both of which relate to the question of jurisdiction of an arbitral tribunal, is accepted. In other words, when an objection to jurisdiction of an arbitral tribunal is raised and it is accepted, then an appeal lies to the Court. However, the legislature cautiously omitted providing for an appeal in case the arbitral tribunal rejected the objection to its jurisdiction. Therefore, it is contended on behalf of ATV that if this writ petition is entertained, it would amount to conferring a right of appeal on the objector in case his plea of lack of jurisdiction is rejected by the arbitral tribunal. This would result in giving a right which was consciously omitted by the legislature.
11. I now take up these objections Along with counter-arguments on behalf of IOCL, one by one. As regards objection (a), the issue is with regard to the nature of the order dated 12.03.2003 passed by the respondent No.2. Section 25(a) stipulates that unless otherwise agreed by the parties, where, ”without showing sufficient cause”, the claimant fails to communicate his statement of claim in accordance with sub-section (1) of Section 23, the ”arbitral tribunal shall terminate the proceedings”. Sub-section (1) of Section 23 provides that within the period of time agreed upon by the parties or as determined by the arbitral tribunal, the claimant shall state the facts supporting his claim, the points at issue and the relief and remedy sought, and the respondent shall state his defense in respect of these particulars, unless the parties have otherwise agreed as to the required elements of those statements. Reading these two provisions (sections 23(1) and 25(a) of the said Act), it becomes clear that the claimant has to file a statement of claim and the respondent is required to file his defense. Moreover, the statement of claim has to be filed within the period of time agreed upon by the parties or as determined by the arbitral tribunal. In case the statement of claim is not filed within such time as mentioned in Section 23 of the said Act, the arbitral tribunal, by virtue of the provisions of section 25(a), is left with no option but to terminate the proceedings as the words used are ”the arbitral tribunal shall terminate the proceedings”. However, this is subject to the condition that the claimant fails to communicate his statement of claim without showing sufficient cause for any such default. In other words, if sufficient cause is shown for the default on the part of the claimant, then, the arbitral tribunal is not under any compulsion to terminate the proceedings. The question that arises is whether the order dated 12.03.2003 can be regarded as one passed under Section 25(a) of the Act? When the order dated 12.03.2003 was passed, nobody had entered appearance on behalf of ATV. It was, therefore, an ex-parte order. There was no question of ATV showing any sufficient cause for its failure to communicate its statement of claim in the time earlier granted. The order dated 12.03.2003 was passed by the respondent No.2 at a point of time when there was a default on the part of the claimant (ATV) and there were no facts and circumstances before the respondent No.2 to establish as to whether there was sufficient cause for such default. Therefore, when the respondent No.2 held — ”in view of the above, I have now no option but to hold that the ATV has lost its right to file statement of claim”– it clearly meant that ATV could no longer file its statement of claim. By the same order dated 12.03.2003, he granted IOCL time till 31.03.2003 to file its statement of claim and also permitted ATV to file a statement of defense in respect thereof. There is no doubt that insofar as the claim of IOCL was concerned, the arbitration proceedings continued and were not terminated. According to the learned counsel for ATV, the mere fact that the arbitral proceedings, even in respect of the claim of the IOCL, were alive meant that the arbitral proceedings in respect of ATV also had not terminated.

12. Now, termination of proceedings is provided for under Section 32 of the said Act and it reads as under:-

”32. Termination of proceedings.– (1) The arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2).
(2) The arbitral tribunal shall issue an order for the termination of the arbitral proceedings where-
(a) the claimant withdraws his claim, unless the respondent objects to the order ad the arbitral tribunal recognises a legitimate interest on his part in obtaining a final settlement of the dispute,
(b) the parties agree on the termination of the proceedings, or
(c) the arbitral tribunal finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.
(3) Subject to section 33 and sub-section (4) of section 34, the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings.” Sub-section (1) prescribes that the arbitral proceedings shall be terminated by the final arbitral award or by an order of the arbitral tribunal under sub-section (2). In the present case, there is no final arbitral award and, therefore, it would be necessary to refer to the provisions of sub-section (2) of Section 32. Clauses (a) and (b) of sub-section (2) of Section 32 are clearly not applicable and the order dated 12.03.2003 may only be construed as an order terminating the proceedings under the powers conferred by Sections 25(a) read with Section 32(2)(c) of the said Act. Sub-section (3) of Section 32 stipulates that subject to Section 33 and sub-section (4) of Section 34, the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings. Section 33 deals with correction and the interpretation of awards and additional awards. Section 34 pertains to an application for setting aside an arbitral award. None of these situations arise in the present case. Therefore, if the order dated 12.03.2003 is to be regarded as one terminating the arbitral proceedings, then clearly the mandate of the arbitral tribunal shall also terminate co-extensively. In other words, if the order dated 12.03.2003 is to be construed as a order terminating the proceedings, the arbitral tribunal will ipso facto have no jurisdiction in respect of such proceedings any further would have become functus officio.
13. It was contended on behalf of the respondent No.1 (ATV) that since the arbitral proceedings in respect of the claim of the petitioner (IOCL) was continued and alive, the proceedings qua the claim of the respondent No.1 (ATV) could not be considered to be terminated as it arose out of the same set of disputes under the same contract and the same reference. It was contended that claims of one party cannot be terminated while claims of the other party are kept alive. To counter this argument, a reference to Section 38 of the Act itself was made by the learned counsel for the petitioner to show that there can be termination of arbitral proceedings in respect of particular claims and counter-claims without the entire proceedings being terminated. Section 38 of the Act reads as under:-

”38. Deposits.– (1) The arbitral tribunal may fix the amount of the deposit or supplementary deposit, as the case may be, as an advance for the costs referred to in sub-section (8) of section 31, which it expects will be incurred in respect of the claim submitted to it:
Provided that where, apart from the claim, a counter-claim has been submitted to the arbitral tribunal, it may fix separate amount of deposit for the claim and counter-claim.
(2) The deposit referred to in sub-section (1) shall be payable in equal shares by the parties:
Provided that where one party fails to pay his share of the deposit, the other party may pay that share:
Provided further that where the other party also does not pay the aforesaid share in respect of the claim or the counter-claim, the arbitral tribunal may suspend or terminate the arbitral proceedings in respect of such claim or counter-claim, as the case may be.
(3) Upon termination of the arbitral proceedings, the arbitral tribunal shall render an accounting to the parties of the deposits received and shall return any unexpended balance to the party or parties, as the case may be.” (underlining added)
14. A reading of the said provision does make it clear that where the deposit in respect of a claim or counter-claim is not made, the arbitral tribunal may suspend or terminate the arbitral proceedings in respect of such claim or counter-claim, as the case may be. Therefore, the act itself countenances a situation where, for example, if no deposit deposit as stipulated under Section 38 is made in respect of a claim, the arbitral tribunal may terminate arbitral proceedings in respect of the claim but may continue the proceedings in respect of the counter-claim and vice-versa. The Act itself, therefore, contemplates termination of part of the arbitral proceedings. Therefore, it would not be possible for me to agree with the contention of the learned counsel for the respondent No.1 (ATV) that a continuation of the arbitral proceedings in respect of the claim of the petitioner (IOCL) would ipso facto mean that the arbitral proceedings in respect of ATV’s claim was also alive and continuing. It is permissible in law to terminate the proceedings in respect of one of the claimants or counter-claimants and to continue proceedings in respect of the other or others claimants or counter-claimants, as the case may be.

15. Therefore, the material question now is whether the order dated 12.03.2003 was, in fact, an order terminating the arbitral proceedings in respect of the claim of ATV? Looking at the order in the proper perspective, it is apparent that there was a default on the part of ATV in filing its statement of claim. There was no appearance on behalf of ATV on the date this order was passed. Therefore, there was no question of it being demonstrated that there was ”sufficient cause” for the non-filing of the statement of claim in time. As such, there being no explanation for the default available on the date on which the order was passed, i.e., on 12.03.2003, the arbitral tribunal, in view of the clear-cut default of non-filing of the statement of claim, could only have passed an order as contemplated under Section 25(a) of the Act as the words used there are mandatory. The arbitral tribunal had no option but to terminate the proceedings. As on 12.03.2003, in the absence of any reasons showing sufficient cause for the default, the only possible order that the arbitral tribunal could have passed was to terminate the proceedings. To my mind, that is the only legitimate interpretation of the order dated 12.03.2003 that can be given to it in the context of the statutory provisions. Thus, I hold that the order dated 12.03.2003 did, in fact, terminate the proceedings in respect of the claim of the respondent No.1 (ATV). This takes care of the objection (a).

16. As regards objection (b) raised by the learned counsel for ATV, the same is clearly untenable in view of the aforesaid discussions. Section 16 permits the arbitral tribunal to rule on its own jurisdiction. But this is not the case here. The impugned order dated 02.06.2003 cannot be construed to be an order passed under the provisions of Section 16 of the said Act. This is so because of Section 32(3) of the said Act which provides that the mandate of the arbitral tribunal shall terminate with the termination of the arbitral proceedings. The arbitral proceedings in respect of the claim of ATV, having terminated, the mandate of the arbitral tribunal in respect thereof had also terminated in view of the provisions of Section 32(3) of the said Act.

Therefore, there was no question of the arbitral tribunal ruling on its own jurisdiction under Section 16 of the said Act.

17. Insofar as objection (c) is concerned, it would be necessary to set out the provisions of Section 5 of the said Act which reads as under:-

”5. Extent of judicial intervention.–Notwithstanding anything contained in any other law for the time being in force, in matters governed by this Part, no judicial authority shall intervene except where so provided in this Part.” This provision makes it clear that no judicial authority shall intervene in matters governed by Part-I of the Act except where so provided in the Part itself. Part-I deals with arbitration. It is clear that in pending arbitral proceedings, there is a bar on interference by judicial authorities. But the key words are ”in matters governed by this Part” which clearly implies that there must be an arbitration proceeding and it must be alive. Surely, this provision does not constitute a bar in respect of matters where arbitral proceedings have terminated. It only applies to those situations where arbitration is alive and the proceedings are continuing. It stipulates ”a hands-off” policy, insofar as the courts are concerned, when arbitral proceedings are in progress. In the present case, the arbitral proceedings in respect of the claim of ATV had been terminated. Therefore, Section 5 would not come in the way of this Court in dealing with the impugned order dated 02.06.2003. This is quite apart from the question as to whether Section 5 of the said Act can at all be a bar on the exercise of powers of the High Court under Articles 226 and 227 of the Constitution of India. Thankfully, I need not go into this question and the decisions cited by the learnd counsel for the petitioner in the case of Anuptech Equipments v. Ganpati Cooperative Housing Society: and Subhash Chugh and Co. v. Girnal Fibre:2001 (1) Arb. L.R. 430 (PandH) need not be examined. Nor the decisions in the case of Punjab Agricultural University v. Associates Construction: 2003 (3) Arb L.R. 32 (PandH) and Assistant Collector of Central Excise, Chandan Nagar v. Dunlop India Ltd: AIR 330 SC which were cited by the learned counsel for ATV.
18. As regards the last objection (i.e., objection (d)), I find that the same is also untenable. It is untenable because the argument is based on the premise that the order dated 02.06.2003 which is impugned herein is one which has been passed under the provisions of Section 16(2) or 16(3) of the said Act. I have already held hereinabove that once the arbitral proceedings are terminated, the mandate of the tribunal also terminates. This is clear from the statutory provisions themselves and particularly in view of Section 32(3). As indicated above, an issue with regard to entertaining any application after the termination of proceedings does not fall within the scope of Section 16 of the said Act because clearly the arbitral tribunal would have nom andate to decide the same in view of its earlier termination of proceedings. Therefore, the argument with regard to the grant of a right of appeal when the statute itself had consciously omitted such right, would not lie in the facts and circumstance of the present case inasmuch as the impugned order dated 02.06.2003 cannot be regarded as an order passed under Section 16 of the said Act.

19. Accordingly, the answer to question No.1 must be that the writ petition is maintainable.

20. Re: Question No.2:

In view of the above discussion, this question actually does not arise at all although some arguments were addressed on whether the order dated 02.06.2003 was an order reviewing an earlier order dated 12.03.2003 and whether the arbitral tribunal had the power to review its own order? It appears that before the respondent No.2 also, some arguments were made with regard to the scope and power of review which Courts or tribunals possessed. The respondent No.2 dealt with the same in extenso in the impugned order dated 02.06.2003. I find that the question here is not so much of review but whether the respondent No.2 could have even looked into the matter. The arbitral proceedings had terminated qua the claim of ATV. The mandate of the respondent No.2 has accordingly terminated in respect thereof. The respondent No.2 had, for all intents and purposes, become functus officio in this regard. Therefore, there could be no further proceedings with respect to the claim of ATV. Without going into the question of whether it was a case of substantive review or a procedural review, it is quite clear that once the arbitral proceedings had terminated, the respondent No.2 could not have done anything in respect of ATV’s claim.
21. Therefore, it must be decided that the respondent No.2 could not recall the order dated 02.06.2003. Accordingly, the order dated 02.06.2003 passed by the respondent No. 2 to the extent that it recalls the order dated 12.03.2003 and permits the taking on record of the statement of claim of the respondent No.1 (ATV) is set aside. There shall be no orders as to costs.