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Appellant: M/S CHOKHI DHANI THROUGH GULRAJ VASWANI THROUGH POWER OF ATTORNEY HARENDRA SINGH PROPRIETOR S-8 SHYAM NAGAR AJMER ROAD JAIPUR RAJASTHAN/G-5 RITURAJ COMPLEX OPPOSITE INDIRA GANDHI STATUE BENGALI CLUB AB ROAD INDORE (MADHYA PRADESH)

Respondent: M/S JS CONSTRUCTION THROUGH JITENDRA JOSHI PROPRIETOR 101 ROOPRAM NAGAR COLONY MANIK BAG ROAD INDORE (MADHYA PRADESH)

Thus the HIGH COURT OF MADHYA PRADESH held that if the agreement between the parties provides for certain qualifications of an arbitrator, then the appointment must be made in accordance with those qualifications only.

Case Overview

1. The appellant is a proprietorship concern and is running its business in the name and style of ‘Chokhi Dhani’.
2. In 2003, the appellant entered into an agreement with the respondent M/s J.S. Construction as the contractor for the construction of a water park.
3. Clause 46 of the agreement was the arbitration clause that provided the dispute to be referred to arbitrator who shall be (A) fellow of the institution of Engineers India or (B) fellow of the Indian Institute of Architects or (C) Member of the Institute of the Surveyors (India).
4. In connection with the said agreement, a dispute arose between the parties in respect of payment towards the work carried out by the contractor as it was alleged by the contractor that the appellant had withheld an amount of Rs. 14,95,960/- due to it.
5. For the appointment of an arbitrator, an application under Section 11 of the Act of 1996 was filed by the respondent before this Court which was registered as AC No.8/2007.
6. This Court, vide its order dated 28/04/2010, permitted the respondent to withdraw the petition with liberty to approach the named arbitrator under Clause 46.
7. After the withdrawal of the aforesaid application AC No.8/2007, the respondent designated the Architect as the sole arbitrator as according to the agreement between the parties, the Architect is defined as ‘Kalp Kartik Architects’.
8. The said Architect served a notice of arbitration to the appellant
9. The appellant immediately filed an application under Order 7 Rule 11 of CPC before him objecting his appointment as the arbitrator.
10. The aforesaid application was rejected by the arbitrator vide its order dated 03/12/2012, holding that all the issues had been settled by the order of the High Court dated 28/04/2010 passed in AC No.8/2007.
11. 03/12/2012: the arbitrator rejected the application filed by the appellant under Order 7 Rule 11 of CPC, a civil revision was also filed before this Court being CR No.8/2013.
12. On 12/12/2012, the arbitrator passed the order which reads as under:- “Shri Rupesh Kumar, Advocate for the respondents present. Request for new date for filing reply. New date shall be conveyed to respondents (the present appellant)’’.
13. However, an ex-parte award was passed on 10/05/2013.
14. The Appellant challenges the award under Section 34 of the Act of 1996, before the District Judge, Indore.
15. The District Judge dismisses the appeal on 05/07/2016.
16. The Appellant appeals before the Madhya Pradesh High Court under Section 37 of the Act.

Following are the two points of contest to be considered by the High Court and the consequent court’s ruling:

• whether the person passing the award was not competent to act as an arbitrator even as per the agreement between the parties, which is a ground under Section 34(2)(v) of Act of 8 1996;

The court ruled, ‘’in accordance with condition no.46 of the Arbitration Agreement, the arbitrator has not dealt with the aforesaid aspect of the matter in the light of the said qualification of the Arbitrator; in view of the same, the impugned order passed under s.34 as also the award passed by the arbitrator cannot be sustained in the eyes of law and are liable to be set aside’’.

• whether the arbitration proceedings were conducted after 12/12/2012 without notice to the appellant which would be also a ground covered under Section 34(2)(iii) of the Act of 1996

The court held that the appellant was given proper opportunity of hearing by the arbitrator

The Appellant’s points of contest:

1. The senior counsel for the appellant put forth, ‘’perusal of Clause 46 of the agreement clearly reveals that the Architect and Arbitrator are two different entities and could not be treated as the same and the so-called arbitrator appointed in this case was never appointed as an arbitrator either by the agreement between the parties or by the Court’’. Furthermore, the appellant's counsel probed that the Arbitrator so appointed was not qualified as provided in Clause 46 of the Agreement stating that,’’ the arbitrator himself was not competent and qualified as specifically provided in the arbitration agreement itself: the arbitration proceedings and the final award passed by him, stand vitiated’’.
2. Secondly, the appellant’s counsel argued in spite of the 12/12/2012 order-sheet which clearly mentions that the next date of hearing shall be communicated to the appellant, the then respondent, it was never communicated making the appeal liable to be allowed on two grounds namely; viz., the person passing the award was never appointed as an arbitrator according to the agreement which is a valid ground under Section 34(2)(iv) of Act of 1996 and secondly, the arbitration proceedings conducted after 12/12/2012, without notice to the appellant which would also be a ground covered under Section 34(2)(iii) of the Act of 1996, i.e., the appellant was not given proper opportunity to present its case.
3. The Appellant Counsel also requested Rs.30,50,925/- to be refunded to the appellant with appropriate interest that the appellant had deposited as 50% of the awarded amount on 17/11/2016 per the order passed by the lower court on 10/08/2016.

The Respondent’s points of contest:

1. Counsel for the respondent contested that the arbitrator’s competence to decide the dispute cannot be doubted as there was no case for interference as made out as none of the grounds as enumerated under Section 34 of the Act of 1996 were available in the present case. The counsel further submitted that in the order passed by this Court in AC No.8/2007, it was clearly directed to refer the dispute to the named arbitrator ‘Kalp Kartik’ as provided under the agreement.
2. The defence counsel further submitted that, ‘’the application filed by the appellant under Order 7 Rule 11 of CPC regarding jurisdiction of the arbitrator was dismissed by the arbitrator vide order dated 10/05/2013, against which, the civil revision No.8/2013 was also filed by the appellant, however, after the final award was passed by the arbitrator, the said civil revision was withdrawn vide order dated 30/08/2013 without informing the Court that the arbitrator has passed the final award and also without taking any liberty to raise the ground urged in civil revision pending in the arbitration application under Section 34 of the Act of 1996, thus, it is submitted that in such circumstances, at this stage, the appellant cannot be permitted to raise this objection regarding the jurisdiction of the arbitrator to decide the dispute specially when the Architect has been defined in the contract between the parties at clause 1.2, which prescribes that ‘Architects’ shall mean Kalp Kartik Architects and as per the contract, the parties had agreed to authorize Kalp Kartik architects as the arbitrator for settlement of disputes’’.
3. It was further submitted by the respondent’s counsel that the appellant was well aware of the dates fixed by the arbitrator and even in the application under Section 34, that as per the arbitral orders and record, the appellant was present before the tribunal on dates subsequent to the rejection of its application.

Order Passed by Justice Abhyankar

1. The court held that the arbitrator was not competent to hold the arbitral proceedings, the appeal stands allowed on this ground only, consequently, the impugned order dated 05/07/2016 passed by the XV Additional District Judge, Indore as also the award dated 10/05/2013 passed by the arbitrator is hereby set aside.
2. The respondent was ordered by the court to return Rs.30,50,925/- the amount received by them from the appellant within a period of three months from the date of this order, with interest at the prevailing 15 Bank rates till the date of payment. If the amount is not returned within the stipulated period, it would fetch interest @8% p.a. till its realization.
3. The court also observed that Respondents shall be free to proceed afresh in accordance with the provisions of condition no.46 of the agreement