Unless Appointment Of Arbitrator Under Arbitration Clause Is Ex-Facie Valid, Jurisdiction Of Court U/S 11(6) Cannot Be Barred: Rajasthan HC

Brief Facts

Instant Arbitration Application has been filed under Section 11(5) and (6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "A&C Act") by the applicant for constitution of an Arbitral Tribunal to adjudicate/ resolve the dispute in respect of amendment made in the Constitution of 'Shri Maheshwari Samaj' in view of Clause 39 of the original constitution (Clause 50 of amended constitution) to settle such dispute through arbitration.

'Shri Mahehswari Samaj, Jaipur' is a registered body as society bearing Registration No. 60-1960-61 dated 02.11.1960 under the provisions of the Rajasthan Societies Act, 1958 and a written constitution is available to govern the activities and functionaries of 'Shri Mahehswari Samaj'. Applicant is one of the member of 'Shri Mahehswari Samaj'.

After the General Election of 'Shri Mahehswari Samaj', held in the year 2019, Members of Executive Committee were elected for a period of three years and the then Executive Committee carried out certain amendments in the existing and original constitution of 'Shri Mahehswari Samaj' by calling an extraordinary General Body Meeting on 23.02.2020 but such amendments were made arbitrarily and as per whims of the Executive Committee, without obtaining occurrence of all the members who attended and participated in the extraordinary General Body Meeting.

Dispute arose but the proceedings did not move ahead despite requesting the concerned authorities multiples times. Hence this application.

Contentions

The applicant/petitioner submitted that in the original constitution of 'Shri Mahehswari Samaj', Clause 39 provides a mechanism to resolve the dispute in respect of constitution of Samaj through Arbitration and a high level Committee comprising five members to be appointed by the Executive Committee of 'Shri Mahehswari Samaj' would decide the dispute, whose decision shall be final and binding upon all parties.

That the appointment of a high level Committee of five members to act as Dispute Resolution Committee in the present matter to settle the dispute in question, is against the spirit of the A&C Act, since such Committee of Mediation/ Arbitrators has been appointed unilaterally by the nonapplicant, who itself is one of the interested party in the dispute and there is no involvement of applicant in appointment of Arbitrators.

That in the situation, an independent, impartial and neutral Arbitration Tribunal is required to be constituted by the Court to adjudicate/ resolve the dispute related to the constitution of 'Shri Mahehswari Samaj'.

Reliance has been placed upon the judgments of Hon'ble Supreme Court delivered in case Perkins Eastman Architects DPC Vs. HSCC (India) Limited [(2020) and Central Organisation for Railway Electrification Vs. M/s ECI SPIC SMO MCML (JV) A Joint Venture Company (for short "C.O.R.E."),2024.

Per contra ,the respondents/non-applicants submitted that the application has already been submitted to the jurisdiction of such Arbitration Committee where the dispute is pending under consideration, therefore, the present application for appointment of a new Arbitration Tribunal is misconceived and not maintainable, hence, liable to be dismissed at threshold.

That if the applicant has any grudges against the members of the Arbitration Committee, the only remedy lies under Section 14/15 of the A&C Act, seeking termination of the mandate of Arbitration Tribunal for which the jurisdiction lies before the Commercial Court, hence, the present application is ex facie illegal and cannot be maintainable before the High Court.

Court's Analysis

The court, at the outset, reiterated the well settled law and observed that the legal proposition is no more res integra that a party or an official or an authority having interest in the dispute would be dis-entitled to make appointment of an Arbitrator. The rationale underlying to such proposition of law is well recognized that the person, who has interest in the outcome of decision of the dispute, must not have powers to appoint the Arbitrator.

The court noted that as far as considering the present nature of dispute, which itself has arisen against the Executive Committee of Shri Maheshwari Samaj, the Dispute Resolution Committee constituted by the Executive Committee of Shri Maheshwari Samaj cannot be held to be an independent and impartial Committee, though, same Committee may be held valid for resolution of other disputes of the Samaj.

The court came to the conclusion that in order to adjudicate/ resolution of the dispute in question, the Dispute Resolution Committee of five members headed by Convener Shri B.P. Munda, which has been constituted under the appointment of members by the Executive Committee, that without having any consensus or role of the applicant or other similarly situated members, is not liable to be affirmed by this Court as a valid Committee of Arbitration.

The next question before the court whether an application under section 11 of the Arbitration can be entertained if the tribunal has already been constituted.

The court noted that the Supreme Court has held in Perkins Eastman Architects DPC Vs. HSCC (India) Limited (2020) that unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law.

The court also noted that the Supreme Court has held in C.O.R.E.(supra) that a clause that allows one party to unilaterally appoint a sole arbitrator gives rise to justifiable doubts as to the independence and impartiality of the arbitrator. Further, such a unilateral clause is exclusive and hinders equal participation of the other party i the appointment process of arbitrators.

Based on the above, the court observed that as far as adjudication/ resolution of the present dispute by such Committee, which has been constituted by the non-applicant, who itself is one of the contesting and interesting party to the dispute, it is difficult to hold that such an appointment of the Arbitration Committee at least to resolve the present dispute is ex facie valid.

Rather, it can be held that for resolution of the present dispute, the appointed Resolution Committee of five members cannot be accepted as a fait accompli, to declare the present arbitration application as not maintainable and the High Court may exercise its jurisdiction under Section 11(6) of the A&C Act to appoint an independent, impartial and neutral Arbitration Tribunal, the court noted.

The court further noted that It is true that the Arbitration Act allows parties to agree on a procedure for appointment of Arbitrators and provides an autonomy to parties, to settle their disputes through arbitrators of their choice, however, in order to maintain a balance and equities between the parties as also the independence and impartiality of the Arbitration Tribunal and fairness of the arbitrary procedure, the intervention by the Judicial Court is permissible in law.

There is no embargo for consideration of an arbitration Tribunal of sole arbitrator, de hors to the procedure agreed upon by the parties to appoint a panel of five arbitrators here by virtue of Section 10(2) of the A&C Act, this Court may deviate from the appointment of number of Arbitrators, unilaterally decided by the non-applicants and in the opinion of this Court, looking to the nature of subject matter of dispute, the constitution of Arbitration Tribunal of sole Arbitrator would be suffice, the court noted.

Accordingly, the present application was allowed and an arbitrator was appointed.

Case Title: Surendra Sarda S/o Late Shri Kanhaiyalal Sharda Versus Shri Maheshwari Samaj and Ors.

Case Reference: S.B. Arbitration Application No. 145/2023

Judgment Date: 8/11/2024

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