Dismissed

C.K.Sugathan v. M.Prakash

Kerala HC8 Aug 2018OP(C)/1717/2017

Case brief

AI extract

What is this about?

The High Court of Kerala dismissed a writ petition seeking amendment of a Section 34 arbitration petition. The court held that objections regarding the constitution of the arbitral tribunal must be raised under Section 16(2) of the Arbitration Act by the time of submitting the statement of defence. Relying on MSP Infrastructure, the court confirmed the District Judge's order disallowing the amendm

What did the court decide?

The order passed by the learned District Judge dismissing the application for amendment of the petition was confirmed.

C.K.Sugathan Vs M.Prakash — Arbitration | Kerala HC (2018)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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THE HONOURABLE MR. JUSTICE ASHOK MENON

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WEDNESDAY, THE 8TH DAY OF AUGUST 2018 / 17TH SRAVANA, 1940

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OP(C).No. 1717 of 2017

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(AGAINST ORDER IN IA NO.900/2016 IN OP NO.50/2016 ON THE FILE OF COURT OF III ADDL. DISTRICT JUDGE, KOZHIKODE DATED 12.4.2017)

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PETITIONER(S)/PETITIONER/PETITIONER

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C.K.SUGATHAN,

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S/O.CHATHU, AGED 59, PARTNER, TRIVENI AGENCIES, DOOR NO.XIX/373 J, BROTHERS BUILDING, NEAR NEW BUS STAND, VATAKARA-673101.

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BY ADV.SRI.SRINATH GIRISH

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RESPONDENT(S)/RESPONDENTS/RESPONDENTS:

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1. M.PRAKASH, S/O.KUNHIKRISHNAN NAMBIAR, AGED 61, MANAGING PARTNER, TRIVENI AGENCIES, DOOR NO.XIX/373 J, BROTHERS BUILDING, NEAR NEW BUS STAND, VATAKARA-673101

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2. K.ANANDAN,

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S/O.KANARAN, AGED ABOUT 68, PARTNER, TRIVENI AGENCIES, DOOR NO.XIX/373 J, BROTHERS BUILDING, NEAR NEW BUS STAND, VATAKARA-673101.

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R1 & 2 BY ADV. SRI.R.BINDU (SASTHAMANGALAM)

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THIS OP (CIVIL) HAVING BEEN FINALLY HEARD ON 22-6-2018, THE COURT ON 08-08-2018 DELIVERED THE FOLLOWING:

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OP(C).No. 1717 of 2017 (O)

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APPENDIX

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PETITIONER(S)' EXHIBITS

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EXHIBIT P1	TRUE COPY OF THE PETITION DATED 13.1.2016 IN O.P.50/2016 ON THE FILE OF THE DISTRICT JUDGE, KOZHIKODE-III ADDL.(ORIGINALLY FILED BEFORE THE DISTRICT COURT, THALASSERY)
EXHIBIT P2	TRUE COPY OF THE COUNTER STATEMENT FILED IN JULY 2016 BY THE RESPONDENTS IN O.P.50/2016 ON THE FILE OF THE DISTRICT JUDGE, KOZHIKODE-III ADDL.
EXHIBIT P3	TRUE COPY OF THE AFFIDAVIT AND PETITION DATED 22.11.2016 IN I.A.900/2016 IN O.P.50/2016 ON THE FILE OF THE DISTRICT JUDGE, KOZHIKODE-III ADDL.
EXHIBIT P4	TRUE COPY OF THE COUNTER STATEMENT DATED 22.12.2016 SUBMITTED BY THE RESPONDENTS IN I.A.900/2016 IN O.P.50/2016 ON THE FILE OF THE DISTRICT JUDGE, KOZHIKODE-III ADDL.
EXHIBIT P5	TRUE COPY OF THE ORDER DATED 12.4.2017 IN I.A.900/2016 IN O.P.50/2016 ON THE FILE OF THE DISTRICT JUDGE, KOZHIKODE-III ADDL.
EXHIBIT P6	TRUE COPY OF THE ARBITRATION AWARD DATED 4.12.2015 PASSED BY ADV.RAJESH V.NAIR & OTHERS
EXHIBIT P7	TRUE COPY OF THE PARTNERSHIP DEED DATED 1.10.2014 RELATING TO M/S TRIVENI AGENCIES, VATAKARA.
	//TRUE COPY//
jg-29/1	PS TO JUDGE.

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ASHOK MENON, J.

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-----------------------------------OP(C) No.1717 of 2017

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Dated this the 8^th day of August, 2018

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J U D G M E N T

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Aggrieved by the dismissal of IA No.900/2016, an application for amendment of the petition under OrderVI Rule 17 of the Code of Civil Procedure in OP No.50/2016 on the file of III Additional District Court, Kozhikode, the petitioner is before this Court. OP 50/2016,is filed under Section 34 of the Arbitration and Conciliation Act, 1996 ('Act' for short) to set aside Ext.P6 arbitration award dated 4.12.2015 .

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The factual matrix in short is thus:-

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The petitioner and the respondents in the original petition were partners in the firm named 'Triveni Agencies’, Vadakara. Ext.P7 partnership deed executed on 1.10.2014 provided for dispute resolution through arbitration by referring the dispute to two arbitrators, each selected by the disputing parties. The decision of the arbitrators, if they are concurring, would be accepted or else, it has to be referred to an umpire whose decision shall be final and conclusive.

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OP(C)1717/17

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Dispute arose between the petitioner and the other partners and it was referred to an arbitrator Sri.Kumara Bhat and later, the parties had agreed to appoint Sri.Thomas V.V. also, as Joint Arbitrator. After adjudication, Ext.P6 award was passed, which stands challenged before the District Court. The case of the petitioner is that the award passed by the Arbitral Tribunal is vitiated by fraud and bias, and is also beyond the terms of submission of the dispute in the arbitration. It is stated that he had never agreed to dissolution of the firm or for his removal from the partnership. The amount that is awarded to him by the Arbitral Tribunal was very meager. The petitioner had only consented to appoint a single arbitrator who had misused the trust reposed on him by appointing another arbitrator. It is also stated that the decision of the arbitrators to prevent the petitioner from entering the business premises is totally illegal. The award insofar as it restrains him from conducting the same business as hitherto conducted by the firm for a period of three years, is also against public policy.

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OP(C)1717/17

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The respondents had contested the petition filed under Section 34 of the Act by filing Ext.P2, a detailed counter statement. When the matter was posted for evidence, the petitioner realised that certain crucial aspects of the case regarding the very constitution of the Arbitral Tribunal was omitted to be pleaded and hence he filed IA No.900/2016, accompanied by Ext.P3 affidavit, seeking to incorporate the grounds stated therein also in the Original Petition.

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The points which were sought to be incorporated by means of amendment were, first, that the constitution of the Arbitral Tribunal was not in accordance with the arbitration clause in the partition deed and was also against the provisions of Section 10 of the Act. Secondly, that the reference to the umpire and his appointment is illegal and invalid as there was no divided opinion among the arbitrators; and thirdly, that one of the arbitrators, Sri.Kumara Bhat, had not made necessary written disclosures required to be made under Section 12 of the Act, as well as the 7^th Schedule thereto. Hence, his appointment is illegal and invalid.

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OP(C)1717/17

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Ext.P4 is the counter statement filed to the amendment petition. After hearing both sides, vide Ext.P5, the learned District Judge dismissed Ext.P3 application for amendment on the mistaken premise that the amendment sought to be incorporated with respect to the jurisdiction of the Arbitral Tribunal was an issue to be decided by the Tribunal itself. In fact, the amendment sought was with respect to the composition of the Arbitral Tribunal and the faulty arbitral procedure followed, which is undoubtedly a valid ground to be agitated under Section 34 of the Act. The petitioner has, therefore, approached this Court with this Original Petition challenging Ext.P5 impugned order and prays that the order may be set aside and Ext.P3 petition for amendment be allowed as prayed for.

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The impugned order at Ext.P5 observes that the amendment application is filed about one year after the passing of the award and is confined to the point regarding the appointment of the arbitrator. The learned Judge has found that there is a legal bar as per Section 16(2) of the Act to raise the plea that the Arbitral Tribunal does not have jurisdiction, after the

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OP(C)1717/17

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submission of the statement of defence. The learned Judge relies on the decision of the Honourable Supreme Court in M/s.MPS Infrastructure Ltd. v. M.P.Road Development Corporation Ltd. [AIR 2015 SC 710] , wherein referring to Section 16(2) of the Act, in para 14, the Hon'ble Supreme Court held as thus:-

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“14. Section 16(2) of the Arbitration Act, 1996 reads as follows: "Section 16(2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence; however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator."

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On a plain reading, this provision mandates that a plea that the Tribunal does not have jurisdiction shall not be raised later than the submission of the statement of defence. There is no doubt about either the meaning of the words used in the Section nor the intention. Simply put, there is a prohibition on the party from raising a plea that the Tribunal does not have jurisdiction after the party has submitted its statement of defence. The intention is very clear. So is the mischief that it seeks to prevent. This provision disables a party from petitioning an Tribunal to challenge its jurisdiction belatedly, having submitted to the jurisdiction of the Tribunal, filed the statement of defence, led evidence, made arguments and ultimately challenged the award under Section 34 of the Arbitration Act, 1996. This is exactly what has been done by

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OP(C)1717/17

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the Respondent Corporation. They did not raise the question of jurisdiction at any stage. They did not raise it in their statement of defence; they did not raise it at any time before the Tribunal; they suffered the award; they preferred a petition under Section 34 and after two years raised the question of jurisdiction of the Tribunal. In our view, the mandate of Section 34 clearly prohibits such a cause. A party is bound, by virtue of sub-section (2) of Section 16, to raise any objection it may have to the jurisdiction of the Tribunal before or at the time of submission of its statement of defence, and at any time thereafter it is expressly prohibited. Suddenly, it cannot raise the question after it has submitted to the jurisdiction of the Tribunal and invited an unfavourable award. It would be quite undesirable to allow arbitrations to proceed in the same manner as civil suits with all the well-known drawbacks of delay and endless objections even after the passing of a decree.”

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Relying on this judgment of the Apex Court, the learned District Judge observed that the pleadings sought to be incorporated by way of amendment is confined to the objection with regard to appointment of Arbitral Tribunal regarding which there is a legal bar under Section 16(2) of the Act and therefore, even if the amendment application is allowed, that would be of no consequence, and hence dismissed the petition.

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The learned counsel for the petitioner contends that as per the provisions of Section 34(5) as

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OP(C)1717/17

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well as under Section 10 of the Act, the number of arbitrators shall not be in even number; there shall be either one arbitrator or three arbitrators and therefore, the decision to appoint Sri. Kumara Bhat and Sri. Thomas V.V. as two arbitrators itself is opposed to the statute. He draws the attention of this Court to clause 15 of Ext.P7 in which it is stated as thus :-

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“(15) Any dispute or difference of opinion that may arise between the partners in relation to any matter concerning the partnership shall be referred to two arbitrators, one each selected by the two disputing parties. The decision of the arbitrators, if they are concurring or the decision of the umpire to whom the matter may be referred to in case of divided opinion between the two arbitrators shall be final and conclusive.”

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The reasoning for appointment of arbitrators in odd numbers is to avoid a split decision or divided opinion and therefore, what is stated that clause 15 is in violation of Section 10 which needs to have been considered by the Court. That apart, the learned counsel also points out to page 7 of Ext.P7 wherein Sri.A.Kumara Bhat is one of the witnesses to the partnership deed. As per Section 12(1)(a), the

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OP(C)1717/17

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arbitrator shall not be connected to the dispute. In the instant case, it is very clear that Sri.Kumara Bhat is actually the Chartered Accountant of the firm and also a witness to the partnership deed. Thus he is intrinsically attached to the firm. The learned counsel points out that the fact that Sri. Kumara Bhat was an arbitrator has been admitted in Ext.P6 award. In para 12, it is stated thus:-

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“It is pertinent to note that CA A.Kumara Bhat FCA has been an auditor (not accountant) of the firm Triveni Agencies (and also income tax consultant of Mr.Sugathan C.K. and Mr.Prakash M, since the year 1991) for some decades and all along the proceedings Mr.Sugathan C.K. has been orally announcing that he has utmost respect to and faith in CA A.Kumara Bhat.”

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In view of the submission that Sri.Kumara Bhat was connected with the firm, it is a clear violation of the statutory provisions. In para 13 of Ext.P6, the question regarding jurisdiction of the arbitrator is found to be baseless and not maintainable and the objection was overruled by the other two arbitrators. The learned counsel submits that it is not exactly the jurisdiction, which is challenged in the amendment, but the composition of the Arbitral Tribunal,and therefore,

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OP(C)1717/17

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the finding in M/s.MSP Infrastructure Ltd. (supra) has to be distinguished.

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The learned counsel for the petitioner relies on the decision reported in Reshmi Constructions [2017(3) KLT 474] in support of his argument that amendment of the Arbitration petition can be allowed. In para 7 thereof, it is held as thus:

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“No Court shall be prestige conscious to disallow an application for amendment of an application filed under S.30 of the old Act or S.34 of the new Act if there are justifiable grounds. An application of that nature is a single issue proceeding where the very fact that the application has been instituted under that particular provision declares the issue involved.”

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The learned counsel for the respondents would argue that having subjected himself to the proceedings, the petitioner cannot be heard to argue regarding the composition of the Arbitral Tribunal at this belated stage.

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In M/s.MSP Infrastructure Ltd. (supra), it was contended that Section 16 of the Act undoubtedly empowers the Tribunal to rule on its own jurisdiction and any objections to it must be raised not later than the submission of the statement of defence. However,

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OP(C)1717/17

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it was also contended that objections to the jurisdiction of a Tribunal may be of several kinds as is well-known, and Section 16 does not cover them all. It was further contended that where the objection was of such a nature that it would go to the competence of the Arbitral Tribunal to deal with the subject matter of arbitration itself and the consequence would be the nullity of the award, such objection may be raised even at the hearing of the petition under Section 34 of the Act.

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Composition of Arbitral Tribunal is another way of challenging the jurisdiction of the Tribunal because it amounts to challenge the authority of the Tribunal to resolve the dispute. The argument that the provisions in the arbitration clause pertaining to appointment of arbitrators is itself against the provisions of the statute, is also another way of challenging jurisdiction. Hence, these objections would definitely come within the purview of the embargo under Section 16 and hence, the petitioner cannot, at this belated stage by way of amendment, question the composition or jurisdiction of the Arbitral Tribunal before the

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OP(C)1717/17

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District Court challenging the arbitral award under the provisions of Section 34 of the Act. I find no illegality in the dismissal of the application by the learned District Judge and hence the impugned order is confirmed and the OP(C) dismissed. No order as to costs.

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Sd/ASHOK MENON JUDGE

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C.K.Sugathan v. M.Prakash

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C.K.Sugathan v. M.Prakash

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