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CASE NO.: Arbitration Petition 18 of  2000

PETITIONER: MALAYSIAN AIRLINES SYSTEMS BHD (II)

       Vs.

RESPONDENT: M/S.  STIC TRAVELS (P) LTD.  ..

DATE OF JUDGMENT:       30/11/2000

BENCH: M.J.Rao

JUDGMENT:

L.....I.........T.......T.......T.......T.......T.......T..J

     J U D G M E N T

     M.  JAGANNADHA RAO J.

     This is an application under Section 11(5) of the

     Arbitration  and Conciliation Act, 1996 and relates to a

     dispute  under an agreement between a foreign  company and

     an Indian company.  The application is filed by the

     foreign company against the Indian company seeking

     reference  of  the  disputes to  an  arbitrator.   The learned

     Chief  Justice of India has nominated me to deal  with the

     application.

     The claim of the petitioner is that the respondent

     company is liable to pay the petitioner a sum of

     Rs.96,21,137/-  with  interest at 24%  with  quarterly rests

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     w.e.f.  1.5.99 besides other amounts.

     The facts set out in the petition by the

     petitioner as follows:  The petitioner company has its

     Principal  place of business at Kaulalumpur, Malaysia. It

     has an office at New Delhi and it is carrying on

     business  of  air-transportation,   operation  of  air flights

     in and from India under a bilateral agreement between

     Malaysia and India.  It is stated that its Senior Vice

     President,  South  Asian Region, Mr.   Noor  Amiruddin holds

     a  general power of attorney to act for and on  behalf of

     the  petitioner  and  that  the  said  person  is  the Principal

     Officer of the petitioner company in India.  Original

     power of attorney dated 15.12.97 has been produced and

     by order dated 3.11.2000, it was impounded for

     collection of stamp duty and penalty and, after

     overruling  objections  by an order dated  21.11.2000, the

     original  power  of attorney was treated  as  evidence under

     Section 42(1) of the Indian Stamp Act.  It is the case of

     the  petitioner that the respondent has been appointed as

     General Sales Agent ( passenger) for various countries

     and  that under agreements dated 15.9.86 and  11.1.89, the

     respondent has been so appointed, the former agreement

     relating to passengers and the latter relating to

     cargo.   The agreements were to be performed in  India and

     the  cause of action arose in India.  The originals of the

     agreements are with the respondent.  It is stated that

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     the aforesaid agreements could be terminated by either

     side by giving to the other, written notice 60 days in

     advance  as  per Article 3 of the agreements.   It  is stated

     that the petitioner established its office for North

     India w.e.f.  1.5.99.

     It is further stated that the petitioner

     terminated the aforesaid agreements by notice dated

     1.3.99  (  delivered to respondent on the same  date). This

     was done on the ground that the respondent failed to

     remit  and  pay  to the petitioner, all the  sums  and monies

     received by it in the course of agency on account of

     sale  of  passenger  tickets  and  airway  bills.   At present,

     it is said, the respondent has to pay a sum of

     Rs.96,21,137/- besides such further sums as may be

     ascertained after rendition of accounts by respondent.

     Interest at 24% is also claimed with quarterly rests

     w.e.f.   1.5.99  till  payment.    According  to   the petitioner,

     the  respondent  had,  in  its  letter  dated  15.6.99 admitted

     liability upto Rs.83,54,655.79 and failed to pay the

     same  and  had fraudulently attempted to  "arbitrarily and

     illegally" adjust the same against false claims with a

     view   to  defraud  petitioner.    All   the   amounts unilaterally

     adjusted by respondent were false claims.  The

     petitioner,  it was said, had enforced Bank  guarantee for

     13 lakhs of rupees one day before the expiry of the

     guarantees.   But  the  American Express Bank,  it  is said,

     did not immediately honour the same and contacted the

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     respondent allowing adequate time to the respondent to

     file a suit ( No.  1710/99) for injunction against the

     Bank.   The  petitioner  filed  an  application  under Section

     8 in that suit but has not taken any other step in the

     said  proceedings.   The  respondent, it is  said,  is further

     declining illegally to refund clams of passengers and

     directing  them  to  the  appellants.   This  was  not tenable.

     The respondent is also not restoring the commissions

     received.    Petitioner  gave   registered  notice  on 25.8.99

     to  respondent  to  concur  in the  appointment  of  a retired

     Judge  of  the  Supreme Court of India  or  any  other person

     of equivalent status.  Respondent, in his reply dated

     16.9.99,   refused   to  concur.   It  is   in   these circumstances

     that petitioner is seeking appointment of a retired

     Judge  of  the Supreme Court as an arbitrator.   These are

     the broad contentions of the petitioner.

     Respondent filed a counter contending that the

     agreements dated 15.9.86 and 11.1.89 ceased to exist

     w.e.f.   1.5.99  and  hence there  is  no  arbitration clause.

     The notice dated 25.8.99 of the petitioner is bad in

     law.  The petitioner has not produced the original

     agreements.  They are not with the respondent.  The

     petitioner cannot file attested copies of the two

     agreements.  It is denied that Mr.  Noor Amiruddin is

     authorised to file this suit on behalf of petitioner.

     The  petitioner is put to strict proof.  The  original of

     power  of  attorney  is  not placed on  record  (  The

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original

     has since been produced, impounded and stamp duty

     collected and returned after substitution of a copy).

     Mr.  Subhash Goyal is not the Managing Director of the

     respondent   Company  but  is   its  Chairman.    Mrs. Gursharan

     Goyal  is its Managing Director.  The cause of  action has

     not  arisen in India if Malaysian laws were applicable as

     per clause 28.  The petitioner does not have an

     established office in North India w.e.f.  1.5.99 as

     alleged.   The  termination of agreements is bad.   No sums

     are due to the petitioner much less Rs.96,21,137/-.

     Nothing  has  been admitted in letter  dated  15.6.99. There

     is no liability to account for any money collected and

     no  interest is payable.  The respondent is not liable to

     refund any amounts to passengers nor is it responsible

     to pay any commissions.  There are no disputes or

     differences which can be referred to arbitration.

     A rejoinder was filed by the petitioner refuting

     the various allegations made in the counter.  It is

     pointed out that the respondent, could not have denied

     that the original agreements were with him.  Nor could

     respondent deny the existence of the arbitration

     agreements.  It is said that, in fact, respondent had

     admitted its existence and also the various clauses.

     There are disputes and differences which are to be

     referred to arbitration.

     A point was also raised whether in the case of an

     international arbitration it is incumbent on the Chief

     Justice  of  India  or  his   nominee  to  appoint  an

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arbitrator

     not belonging to Indian nationality?

     The learned counsel for the petitioner and for the

     respondent have made their respective submissions

     reflecting the above contentions.

     The following points arise for consideration:

     (1) Whether the preliminary issues raised by the

     respondent can be decided at this stage or be referred

     to the arbitrator?

     (2) Whether, in the case of an international

     arbitration agreement, where one of the parties is an

     Indian national, it is not permissible to appoint an

     arbitrator of Indian nationality in view of the

     observations in Dolphin International Ltd Vs.  Ronak

     Enterprises Inc.  1998(5) SCC 724?

     Point 1:

     On 5.9.2000, learned counsel for the petitioner

     took time for filing an application directing the

     respondent to produce the original agreements which,

     according  to him, were with the respondent.  Inasmuch as

     the petitioner has contended that the respondent is in

     possession   of  the  original   agreements  and   the respondent

     has contended that the originals are with the

     petitioner, question arises whether, as required by

     Section 8 of the Act, the petitioner has complied with

     the  requirement  of  the   said  section  or  whether secondary

     evidence  could be permitted to be adduced.   Question also

     arises  whether Mr.  Noor Amiruddin could have  signed

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the

     petitioner and as to whether he was duly authorised to

     do so.  Yet another question raised is that after

     termination of the agency, there is no agreement in

     existence and hence arbitration clause cannot be

     invoked.

     The question arises whether such issues raised at

     the stage of Section 11 application or at the stage of

     Section 8 proceedings ( corresponding to Section 34 of

     the  Old  Act,  1940) could be decided by  the  Court. This

     Court in some cases felt that they could be decided to

     cut short litigation and waste of time, where the

     documents  are  clear enough.  But,  subsequently  the three

     Judge  Bench  in Konkan Railway Corporation Ltd.   Vs. Mehul

     Construction  Co.   (JT 2000(9) SC 362) has taken  the view

     that the Chief Justice or his nominee is performing an

     administrative duty and cannot decide the preliminary

     issues  at  this  stage and it is for  the  arbitrator alone

     to decide the same.  ( No doubt, the question has now

     been referred for fresh consideration in M/s Konkan

     Construction   Corporation   Ltd.    Vs.    M/s   Rani Construction

     Pvt.  Ltd.  ( JT 2000 ( Supple.2) SC 150).  In view of the

     said three Judge judgment, I decline deciding these

     preliminary issues and direct that the matter be

     straightaway referred to an arbitrator.  Point 1 is

     decided accordingly.

     Point 2:

     This question has arisen because of some

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     observations in Dolphin International Ltd.  Vs.  Ronak

     Enterprises Inc.  ( 1998(5) SCC 724).

     Here the petitioner is a foreign company while

     the respondent is an Indian national.  Learned counsel

     for the petitioner foreign company, in fact, requested

     that an arbitrator of Indian nationality is acceptable

     to the petitioner.  The question is whether when a

     foreign company has a dispute with an Indian national

     and  approaches  an Indian Court, it is mandatory  for the

     Court under Section 11(9) of the Indian Arbitration &

     Conciliation Act, 1996, to appoint an arbitrator who

     does not belong to the respondent’s ( i.e.  Indian)

     nationality, even where the foreign company has no

     objection to have an Indian Judge as an arbitrator.

     Sub-clause (9) of Section 11 of the Act reads as

     follows:

     "Section  11(9):  In the case of appointment of a sole or   third  arbitrator  in   an   international   commercial arbitration,  the  Chief Justice of India or the  person  or institution designated by him may appoint an arbitrator of a nationality  other  than  the nationalities of  the  parties where the parties belong to different nationalities."

     Majmudar, J.  in Dolphin International Ltd.  Vs.

     Ronak  Enterprises  Inc.  (1998(5) SCC  724)  observed that

     at  an earlier point of time in the said case when  it was

     listed before Justice Punchhi ( as he then was ), it

     appears  a  view was ’orally’ expressed  that  section 11(9)

     was  mandatory.   Therefore Majmudar, J.  did  not  go into

     the meaning of the word ’may’ in section 11(9) and

     thought that if one of the parties belonged to Indian

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     nationality, it was not permissible to appoint an

     arbitrator  who  was an Indian national.  Further,  it does

     not  appear  that, in that case, the  foreign  company made

     any statement that an Indian arbitrator was acceptable

     to it.  I am, therefore, of the view that in Dolphin

     International case, this Court did not have to examine

     in detail the legal position under the UNCITRAL law on

     which the Indian Act of 1996 is modelled.

     I may initially point out that under Article 11(5)

     of the Model Law, all that was required was for the

     Court to "take into account, as well, the advisability

     of  appointing  an arbitrator of a  nationality  other than

     those  of  the parties".  Thus, the Court has to  keep this

     aspect in mind and is not compelled to appoint an

     arbitrator not belonging to the nationality of either

     parties.  In fact, in several countries which have

     adopted the UNCITRAL MODEL, 1985, it is clear that the

     point relating to nationality is only a factor to be

     kept in mind.

     I shall refer to the position in some other

     countries  where the UNCITRAL model is adopted, in  so far

     as appointment of arbitrators of a nationality other

     than that of one of the parties.

     Article 6(4) of the UNCITRAL Arbitration Rules,

     1976 stated that the appointing authority shall take

     into account the advisability of appointing an

     arbitrator of a nationality other than the nationality

     of the parties.

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     The London Court of International Arbitration

     Rules (LCIA), 1998 say in Article 6 that the "sole

     Arbitrator or Chairman of the Arbitral Tribunal shall

     not have the same nationality as any party unless the

     parties who are not of the same nationality as the

     proposed appointee all agree in writing otherwise."

     The Rules of Arbitration of the International

     Chamber of Commerce, 1998 say in Article 9(1) that the

     Court shall ’have regard to’ to the prospective

     arbitrator’s nationality.  Article 9(5) says that the

     sole  arbitrator  or  the  Chairman  of  the  Arbitral Tribunal

     shall  be  of  a nationality other than  that  of  the party,

     but, in suitable circumstances and "provided neither

     party  objects  within  the time limit  fixed  by  the Court,

     the  arbitrator  or  the   Chairman  of  the  Arbitral Tribunal

     may be chosen from the country of which any of the

     parties is a national."

     The American Arbitration Association International

     Arbitration  Rules  as amended in 1997 say in  Article 6(4)

     that the ’administrator, after inviting consultation

     with the parties, shall endeavour to select suitable

     arbitrators.   "At the request of any party or on  its own

     initiative, the administrator may appoint nationals of a

     country other than that of the parties."

     In the Rules of the ICADR, New Delhi

     (International Centre for Alternative Dispute

     Resolution, New Delhi), it is stated in Rule

     5(5)(c)(iii), that the ICADR will have ’regard to’ the

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     "advisability of appointing a person of a nationality

     other than the nationalities of the parties."

     In Fouchard Gaillard Goldman on ’International

     Commercial Arbitration’ (1999) it is stated ( see para

     1037 and 764) (page 570) that though normally, the

     independence of arbitrators and likewise their

     neutrality,  can  be  enhanced  by  their  nationality still,

     ’several institutional arbitration rules containing it

     also allow the institution to disregard this principle

     in certain circumstances ( The authors refer to ICC

     Rules,  LCIA Rules, ICADR Rules, and those  applicable in

     France and Algeria) ( 1986 Rev.Arb.311).  The Paris

     Tribunal  of  First  Instance has held in one  case  ( T.G.I.

     Paris,   ref.May  22  and  June   23,  1987)  (   1988 Rev.Arb.699)

     as follows:

     "Although  the  practice  is adopted in  a  number  of arbitration  rules,  it  does  not  necessarily  oblige  the President  of  the Tribunal of First Instance to reject  the choice  of  an arbitrator who is of the same nationality  as one of the parties ....................  The arbitrator, who is  a  Judge  and not a party’s  representative,  cannot  be suspected  of  bias solely on the basis of his  nationality, and  the  requirement of impartiality which  determines  the choice of the individual .........is sufficient to guarantee that    the   hearings    will    be   conducted    fairly". (Transportacion Maritima Mexicana S.A.  Vs.  Alsthom)

     The  Court, in that case, considered itself  justified in

     appointing a French Chairman where one of the parties

     was French, although its opponent, a Mexican

     Corporation, had asked for the appointment of a

     ’neutral’  individual.   (I am however dealing with  a case

     where  the  foreign  company has no  objection  to  an Indian

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     Judge being appointed as arbitrator).  The authors

     (Fouchard   etc.)  say  that   "the  Court  cannot  be reproached

     in   law   for  considering   that   an   arbitrator’s nationality

     cannot constitute an element of partiality in itself.

     However, it should have taken such nationality into

     account as a factual matter, the appearance of

     neutrality being as important in international

     arbitration as neutrality itself."

     In "Law and Practice of International Commercial

     Arbitration" by Alan Redfern and Martin Hunter ( 3rd

     Ed)(1999),  it  is pointed out ( at p.215, para  4.55) that

     though the practice in international arbitration is

     normally  to  appoint an arbitrator of  a  nationality other

     than that of the parties, sometimes difficult problems

     can arise if a mandatory principle is applied.  The

     following  example is given:  ’Consider, for instance, a

     dispute between a Swiss company and a French company,

     where the law applicable to the dispute is the law of

     Switzerland.  It seems sensible that the person chosen as

     the sole or presiding arbitrator should be a Swiss

     lawyer, particularly if the seat of the arbitration is

     Switzerland.   Yet  the  insistence   on  a  so-called "neutral"

     nationality ensures that the one person who cannot be

     chosen  (  unless  the parties agree otherwise)  is  a Swiss

     lawyer."  (  See  also  ’On   the  Neutrality  of  the Arbitrator

     and the place of Arbitration by Lalive) ( Swiss Essays

     on International Arbitration) ( 1984)(PP.23, 25)

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     It is, therefore, clear that in several countries

     where the UNCITRAL model is adopted, it has been held

     that it is not impermissible to appoint an arbitrator

     of a nationality of one of the parties to arbitration.

     In the light of the above rules in various

     countries and rulings of Court and also in view of the

     fact that the 1996 Act is based on UNCITRAL Model law

     which in Article 6(4) only speaks of "taking into

     account"  the  nationality as one of factors, I am  of the

     view  that the word ’may’ in section 11(9) of the  Act is

     not intended to be read as ’must’ or ’shall’.

     I am therefore of the view that while nationality

     of the Arbitration is a matter to be kept in view, it

     does not follow from section 11(9) that the proposed

     arbitrator is necessarily disqualified because he

     belongs to the nationality of one of the parties.  The

     word ’may’ is not used in the sense of ’shall’.  The

     provision is not mandatory.  In case the party who

     belongs  to  a  nationality  other than  that  of  the proposed

     arbitrator,  has  no objection, the Chief  Justice  of India

     (  or his nominee) can appoint an arbitrator belonging to

     a  nationality of one of the parties.  In case,  there is

     objection by one party to the appointment of an

     arbitrator  belonging  to  the   nationality  of   the opposite

     party,  the Chief Justice of India ( or his nominee  ) can

     certainly consider the objection and see if an

     arbitrator not belonging to the nationality of either

     parties can be appointed.  While taking that decision,

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     the Chief Justice of India ( or his nominee ) can also

     keep in mind, in cases where the parties have agreed

     that the law applicable to the case is the law of a

     country to which one of the parties belongs, whether

     there  will be an overriding advantage to both parties if

     an  arbitrator having knowledge of the applicable  law is

     appointed.

     In the result, I am of the view that under section

     11(9) of the Act it is not mandatory for the Court to

     appoint an arbitrator not belonging to the nationality

     of either of the parties to the dispute.

     In the circumstances of the case and after hearing

     the  counsel  on  both  sides   and  inasmuch  as  the petitioner

     has no obligation for appointment of an arbitrator of

     Indian  nationality,  I  appoint   Sri  Justice   D.P. Wadhwa,

     retired Judge of this Court as the sole arbitrator in

     the case.  The remuneration payable for the case and

     other  costs  payable may be fixed by  the  arbitrator after

     hearing the parties on both sides.

     The petition is disposed of accordingly.