Beg To Differ - The Judgement Of Bombay High Court In Haresh Chinnubhai Shah Vs. Rajesh Prabhakar Jhaveri And Anr.
1. In a recent judgement the Bombay High Court in Haresh Chinnubhai Shah Vs. Rajesh Prabhakar Jhaveri and Anr.
(decided on 04.11.2003) 2004 (1) Arb. LR 536 (Bombay): 2004(1) Mh LJ
1109 : (2004) 10 CLA-BL Supp (Snr.) 34 (Bom) held (in para 11) that
“wrong composition of the Arbitral Tribunal is a ground for setting
aside of an award. In the present case, it is shown that the
composition of the Arbitral Tribunal was not in accordance with law; not
in accordance with section 10 of the Act; not in accordance with the
directions and order under section 11 of the Act passed by the designate
of Hon’ble Chief Justice. The award is, therefore, liable to be set
aside and is accordingly, set aside.” It is respectfully submitted
that the point of law decided in the judgement does not appear to be
correct for the reasons detailed below.
1.1 The brief facts and background of the case
are given in para 9 of the judgement which reads thus : “There is
however a greater lapse on the part of the Arbitrators. Section 10 of
the Act lays down that the parties are free to determine the number of
Arbitrators provided that such number shall not be an even number.
Thus, Arbitral Tribunal cannot consist of an even number of
Arbitrators. The first order dated 10th August, 2001 passed
by the designate of the Chief Justice under Section 11 of the
Arbitration Act appointed two Arbitrators with a direction that they
shall be free to appoint a presiding Arbitrator. Implicit in the order
was that the two Arbitrators would appoint the third presiding
Arbitrator and would not act unless they appointed the presiding
Arbitrator. The second order dated 21st December, 2001 by
the designate of Chief Justice is more explicit and says that Mr. Mehta
and Mr. Dave shall choose the presiding Arbitrator and proceed with the
Arbitration. It clearly mandates that the two Arbitrators had to choose
the presiding Arbitrator before they chose to proceed further. This
direction was in consonance with Section 10 of the Act. It is nobodys
case that the two Arbitrators appointed a presiding Arbitrator.
Presiding Arbitrator was never appointed and the Arbitral Tribunal
consisted of only even number of members contrary to the provision of
Section 10 of the Act and contrary to the orders passed by the designate
of the Hon’ble Chief Justice under Section 11 of the Act. Two
Arbitrators, therefore, could not have proceeded with the Arbitration,
much less could have proceeded ex-parte.”
2. A three judge bench of Supreme Court in Bhatia International V. Bulk Trading S A and another 47 CLA-BL SUPP 63 (SC)
observed that the very object of the Arbitration and Conciliation Act
of 1996 (hereinafter `the Act’), was to establish a uniform legal
framework for the fair and efficient settlement of disputes arising in
international commercial arbitration. The following principles are
compiled from this judgement
Court has to choose that interpretation which represents true intention of legislature.
2.1 The conventional way of interpreting a
statute is to seek the intention of its makers. If a statutory
provision is open to more than one interpretation then the court has to
choose that interpretation which represents the true intention of the
Legislature. This task often is not an easy one and several difficulties
arise on account of a variety of reasons, but at the same time, it must
be borne in mind that it is impossible even for the most imaginative
Legislature to forestal exhaustively situations and circumstances that
may emerge after enacting a statute where its application may be called
for. It is in such a situation that the Courts’ duty to expound arises
with a caution that the court should not try to legislate.
Rules of interpretation of a Statute
2.2. If a language used is capable of bearing
more than one construction, in selecting the true meaning, regard must
be had to the consequences, resulting from adopting the alternative
constructions. A construction that results in hardship, serious
inconvenience, injustice, absurdity or anomaly or which leads to
inconsistency or uncertainty and friction in the system which the statue
purports to regulate has to be rejected and preference should be given
to that construction which avoids such results. (see Johnson v. Moreton  3 All ER 37 and Stock v. Frank Jones (Tripton) Ltd.  1 All ER 984).
In selection out of different interpretations the court will adopt that
which is just reasonable and sensible rather than that which is none of
those things, as it may be presumed that the Legislature should have
used the word in that interpretation which least offends our sense of
2.3 Even though the said Act is now an
integrated law on the subject of arbitration, it cannot and does not
provide for all contingencies. An arbitration being a creature of
agreement between the parties, it would be impossible for the
Legislature to cover all aspects.
2.4. The Supreme Court further observed (in para
35) “Lastly, it must be stated that the said Act does not appear to be a
well drafted legislation. Therefore, the High Courts of Orissa,
Bombay, Madras, Delhi and Calcutta cannot be faulted for interpreting it
in the manner indicated above”.
3. Now an humble attempt is made by me to discuss the principles declared by the Supreme Court in Narayan Prasad Lohia v. Nikunj Kumar Lohia and others  5 CLA-BL-Supp I (SC) : 2002 Arb. W.L.J. 425 (SC) (decided on 20th February, 2002)
A party can challenge the composition of arbitral tribunal before the arbitral tribunal itself
3.1 It has been held by a Constitution Bench of the Supreme Court, in the case of Konkan Rly. Corporation Ltd. v. Rani Construction (P) ltd.  2 SCC 388
that section 16 enables the arbitral tribunal to rule on its own
jurisdiction. It has been held that under section 16 the arbitral
tribunal can rule on any objection with respect to existence or validity
of the arbitration agreement. It is held that the arbitral tribunal’s
authority under section 16 is not confined to the width of its
jurisdiction but goes also to the root of its jurisdiction.
3.2 A three judge bench of Supreme Court in Narayan Prasad Lohia
case (supra) held that Section 16(2) makes it clear that a challenge to
the composition of arbitral tribunal can be taken even though the party
may have participated in the appointment of the arbitrator and/or may
have himself appointed the arbitrator. Needless to state a party would
be free, if it so chooses, not to raise such a challenge. Thus a
conjoint reading of sections 10 and 16 shows that an objection to the
composition of the arbitral tribunal is a matter which is derogable. It
is derogable because a party is free not to object within the time
prescribed in section 16(2). If a party chooses not to so object, there will be a deemed waiver under section 4 (italicized supplied).
Parties can determine even number of arbitrators
4. The Supreme Court in Narayan Prasad Lohia
case (supra) further held that even if parties provide for appointment
of only 2 arbitrators, that does not mean that the agreement becomes
invalid. Under section 11(3) the two arbitrators should then appoint a
third arbitrator who shall act as the presiding arbitrator. Such an
appointment should preferably be made at the beginning. However, we see
no reason, why the two arbitrators cannot appoint a third arbitrator at
a later stage, i.e., if and when they differ. This would ensure that on
a difference of opinion the arbitration proceedings are not frustrated.
But if the two arbitrators agree and give a common award there is no
frustration of the proceedings. In such a case their common opinion
would have prevailed, even if the third arbitrator, presuming there was
one, had differed. Thus, we do not see how there would be waste of time,
money and expense if a party, with open eyes, agrees to go to
arbitration of two persons and then participates in the proceedings.
5. Article 141 of Constitution of India : The law declared by the Supreme Court shall be binding on all courts within the territory of India.
5.1 Binding force of Supreme Court decisions :
All Courts in India are bound to follow the decision of the Supreme
Court even though they are contrary to decisions of the House of Lords
(I.T. Commr. V. Shrinibbai, A. 1965 Bom. 586; Punjabi v. Shamrao, A.
1955 Nag. 293) or the Privy Council (Dwarka Das v. Sholapur Spinning
Co., A. 1954 S.C. 119)
5.2 `Law declared’ : In case of conflict between
decisions of the Supreme Court itself, it is the latest pronouncement
which will be binding upon the inferior Courts, unless the earlier was
of a larger Bench. If the later decision is that of a larger Bench, the
previous decision will be deemed to have been overruled and completely
wiped out. This rule is followed by the Supreme Court itself.
5.3 The law declared by the Supreme Court in Narayan Prasad Lohia case (supra) is binding on the Bombay High Court and therefore, it is respectfully submitted that the point of law decided in Haresh Chinnubhai Shah Vs. Rajesh Prabhakar Jhaveri and Anr. (supra) does not appear to be correct. It seems that the judgement of Supreme Court in Narayan Prasad Lohia case (supra) was not taken into the notice of Hon’ble Bombay High Court.