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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6960 OF 2011

Vinod Bhaiyalal Jain & Ors.                   .… Appellant(s)

Versus

Wadhwani Parmeshwari Cold                 …. Respondent(s) Storage Pvt. Ltd.Through its Director & Anr.

J U D G M E N T

A.S. BOPANNA, J.

1. The appellants herein are before this Court assailing

the order dated August 30 and 31, 2007 passed by the High

Court of Judicature at Bombay in First Appeal No. 187 of

2007.   The said appeal was  filed by the respondent No.1

herein invoking Sec. 37(1)(b) of the Arbitration and

Conciliation Act, 1996 (hereinafter referred as the ‘Act 1996’

for short). Through the said appeal the respondent  No.1

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herein had assailed the order dated 06.11.2006 passed by

the Principal District Judge, Nagpur in MCA No. 538/2006

in the proceedings under Sec. 34 of the Act, 1996.

2. The  brief facts  are that the respondent  No.1  herein

owns a cold storage at Nagpur.   Sri Suresh  Wadhwani

manages the same.  The appellants herein who are the sons

of Sri Bhaiyalal Jain are engaged in business as commission

agents for agricultural products.   In that regard they had

utilised the services of cold storage during the year 2004 for

keeping 50 bags of ‘Shingada’ which is an agricultural

product.  According to the appellants herein the respondent

No. 1 had failed to store the goods in an appropriate manner

which  had  caused  damage to the  same.  The  appellants

therefore got issued a notice dated 18.05.2006 seeking for

compensation.  The respondent No.  1 herein by  its  reply

dated 27.05.2006 not only denied the claim put forth by the

appellants herein but also  made counter claim.   Thus,

dispute arose between the parties.  According to respondent

No. 1 herein,   the parties were governed by an arbitration

clause and the parties had agreed to refer the dispute,  if

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any, to the Arbitrator, Sri S.T. Madnani, Advocate.  The said

arbitration clause is contained in the very receipt issued in

respect of the storage of goods.   The respondent  No.  1,

therefore through their claim dated 03.06.2006 submitted

the same before the learned Arbitrator 2nd  respondent Sri.

S.T. Madnani.

3. The father of the appellants herein in that background

got issued  a  notice  dated  08.06.2006  disputing the very

existence of the arbitration clause and more particularly the

appointment of Sri S.T. Madnani, Advocate as an Arbitrator

was disputed and it was contended that the said Advocate

being the counsel for the respondent No. 1 and its partners

in other cases cannot act as an Arbitrator in respect of the

disputes to which the respondent No. 1 is a party.  A copy of

the same  was also dispatched to the learned  Arbitrator.

Further, the appellants also addressed letters dated

29.07.2006 and 07.08.2006 which was taken note by the

learned Arbitrator in the order sheet of the proceedings as

also in the award passed.   Despite the same, unmindful of

such objection raised and terming it as inconsequential, the

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learned Arbitrator proceeded with the matter in the absence

of the appellants herein and passed the award dated

08.08.2006 directing the appellants herein to pay the claim

amount as ordered.   The learned Arbitrator also imposed a

cost of Rs.43,000/­ on the appellants.   It is in that light the

appellants claiming to be aggrieved filed the petition under

Sec. 34 of the Act, 1996 before the District Judge, Nagpur

raising objection to the award, more particularly with regard

to the conduct of the learned Arbitrator.   The learned

District Judge while appreciating the same was of the

opinion that the learned Arbitrator had in fact acted as a

counsel for Sri Suresh, a partner of respondent No. 1, which

fact was not disclosed in terms of Sec. 12 of the Act, 1996

and also on taking note of Sec. 13 of the Act,   found the

objection justified and set aside the award by order dated

06.11.2006.   

4. The respondent No. 1 who was aggrieved by the same

had filed the appeal under Sec. 37(1)(b) of the Act, 1996 to

the High Court.  The learned Judge of the High Court while

examining this aspect of the matter was of the opinion that

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the objection raised with regard to Sri S.T. Madnani,

Advocate   acting as the Arbitrator was raised by Sri

Bhaiyalalji Jain who is the father of the appellants herein

and not by the appellants themselves and as such the same

cannot be construed as an objection by a party to the

proceedings as contemplated under Sec. 13 of the Act.

Further it was held that merely because the learned

Arbitrator had appeared as a lawyer in one mesne profits

case for the respondent No. 1, it would not make a

reasonable man believe that the Arbitrator was biased and

there  was  a  possibility that the  Arbitrator  would rule in

favour of the respondent No. 1.  It was further observed that

a fair­minded person would  never  have thought that the

learned Arbitrator was biased merely because he had

appeared as a lawyer for the party to arbitration in another

case.  In that view by the impugned order the learned Judge

of the High Court set aside the order passed in the

proceedings under Sec. 34 of the Act, 1996 and restored the

award passed by the learned Arbitrator.   The appellant

herein is therefore before this Court in this petition.  

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5. Having  heard the learned  counsel for the  parties  at

length, it is noticed that issues arising herein for

consideration at the threshold is with regard to the

existence or otherwise of the Arbitration clause governing

the parties and more particularly with regard to the conduct

of the Arbitrator.   It is only if the said two hurdles placed at

the threshold is crossed, the  question of considering the

merits of the claim and the correctness or otherwise of the

award passed by the learned Arbitrator would arise for

consideration.

6. On the issue relating to the validity of arbitration

clause, the learned counsel for the appellants would

contend that the clause relied upon by the respondent No.1

to raise the claim before the Arbitrator is with reference to

Clause  No.9  printed  as the terms and conditions  on the

overleaf of the receipt for storage.   In that view, it is

contended that there is no consensus ad idem namely, there

is no meeting of minds between the parties regarding

reference of dispute to the Arbitrator and such term printed

in the receipt cannot be relied upon.   Though such

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contention is put forth the said issue need not detain this

Court for long.  This is for the reason that as rightly pointed

out by the learned counsel for the respondent No.1, it is the

very case of the appellants herein that the appellants not

being satisfied with the Arbitrator named in the Arbitration

Clause had filed the   Petition under Section 11 of the Act,

1996 in  M.C.A.No.61/2006 before the Designated Court

seeking the appointment of an independent Arbitrator.

Since that is the  undisputed position, the  appellants  are

estopped from raising the contrary contention at this stage.

Hence, the contention in that regard is rejected.

7. With regard to the contention that Sri S.T. Madnani,

Advocate ought not to have acted as the Arbitrator since he

was also  the counsel for the  respondent No.1  in another

case, the same requires consideration.   Not only from the

observations contained in the order of the High Court it is

noticed that the said learned Arbitrator had appeared as a

counsel for the respondent, it is also seen from the records

that as per the vakalatnama dated 29.03.2004 the learned

Arbitrator has filed the vakalat in Mesne Profit Case

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No.7/2004 to which Sri Prakash, one of the partners of the

respondent No.1 herein was a party.  Though it is sought to

be made out that the said Sri Prakash has nothing to do

with respondent No.1, as pointed out by the learned counsel

for the appellants, the supporting affidavit for making the

solemn affirmation in respect of the First Appeal No.180 of

2007 filed under Section 37(1)(b) of the Act, 1996 relating to

this very proceeding is made by the said Sri Prakash.  Thus,

it is clear that  Sri  S.T.  Madnani, learned  Arbitrator  had

acted as a counsel in another case for one of the parties to

the dispute in the instant case.   In that circumstance it is

also not a case where the learned Arbitrator had proceeded

in the matter by oversight or without having knowledge of

such conflict  of interest.    As noticed,  a  legal  notice had

been secured to be issued on behalf of the appellants herein

raising objection in that regard.   Though such notice was

issued on the instructions given by the father of the

appellants,   it is not by a rank outsider nor have the

appellants disowned it to be ignored.  In addition, one of the

appellants namely, Sri Jagdish had also addressed a

communication dated 07.08.2006 requesting the learned

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Arbitrator to  stop the  proceedings  since they  had  filed  a

petition  in the High Court for  appointing an  independent

Arbitrator which was also for the reason that present

Arbitrator could not have acted.   

8.  The learned Arbitrator had taken note of the letters at

Exhibits 68 and 70 as narrated in the very award passed by

the learned Arbitrator.   Despite the same, the learned

Arbitrator has proceeded with the matter instead of staying

his hands.   In that background, the observations as made

by the High Court to hold that the objection raised was not

sustainable  as  it  did not  comply with the  requirement  of

Section 13 of the Act,  1996  is not  justified.   In  fact, the

provision as contained in Section 12 of the Act, 1996 even

prior to the amendment effected on 23.10.2015 would cast

an obligation for disclosure.   The pre­amended sub­section

(1) to Section 12 of the Act, 1996 reads as follows:

“(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstance likely to give rise to justifiable doubts as to his independence or impartiality.”

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If the above provision is kept in view, though technically as

on 27.02.2004 when the storage receipt was drawn out and

the  Arbitration  Clause came into  existence there  was  no

circumstance for disclosure of the present nature, it is seen

that he has immediately thereafter, on 29.03.2004 filed the

vakalat for one of the parties.  Thus, as on 03.06.2006 when

the claim was lodged before the learned Arbitrator both the

events of, he being appointed as an Arbitrator and also as a

counsel in another case had existed, which was well within

the knowledge of Sri. S.T. Madnani and in that

circumstance, it was the appropriate stage when he ought to

have disclosed the same and refrained from entertaining the

claim.   If in that background, the decision in the case of

V.K. Dewan and Co. vs. Delhi Jal Board and Ors. (2010)

15 SCC 717 relied upon by the appellants is kept in view, it

was in the fairness of things that Sri S.T. Madnani should

not have acted as an Arbitrator.

9. In the ultimate analysis since we are not adverting to

the merits of the claim and in that regard since, we have not

adverted to the finding recorded by the learned Arbitrator on

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the merits of claim we would not venture to examine with

regard to the ultimate conclusion on the claim as to whether

it  is  justified or not.  However,  in the above background,

what is to be seen is that there has been a reasonable basis

for the appellants to  make a claim that in the present

circumstance the learned  Arbitrator  would  not  be fair to

them even if not biased.   It could no doubt be only a

perception of the  appellants  herein.  Be it so,  no   room

should be given for even such a  feeling more particularly

when in the matter of arbitration the very basis is that the

parties get the opportunity of nominating a judge of their

choice in whom they have trust and faith unlike in a normal

course of litigation where they do not have such choice.  

10.  That apart when one is required to judge the case of

another, justice should not only be done,  but it should also

seem to be done is the bottom line.   Hence in that

background, if the present circumstance is taken not, there

was reasonable basis for the appellants to put forth such

contention which resulted in the situation wherein they had

not participated  in the arbitration proceedings. If  nothing

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else, atleast propriety demanded that the learned Arbitrator

should have recused in the present facts; but he has failed

to do so.  In that view, such an award passed by the learned

Arbitrator was not sustainable and the learned District

Judge was justified in entertaining the petition under

Section 34 of the Act, 1996 to set aside the award.  In that

view, we are of the opinion that the learned Judge of the

High Court  of  Judicature at Bombay was not justified  in

allowing the appeal filed under Section 37(1)(b) of the Act,

1996.

11. In view of the above;     

(i) the judgment dated 30 and 31 of August, 2007

passed by the High Court of Judicature at

Bombay, Nagpur Bench in First Appeal No.187 of

2007 is set aside;  

(ii) consequently, the judgment dated 06.11.2006

passed by the Principal District Judge Nagpur in

MCA No.538/2006 setting aside the award dated

08.08.2006 is restored;

(iii) the parties are reserved the liberty of availing

their remedy of arbitration in accordance with law

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and all contentions on merits relating to the

claim/counter claim are left open.   (iv) The appeal is allowed with no order as to costs.

………………………,J.                                                        [R. BANUMATHI]

………………………,J.                                                      [A.S. BOPANNA]

New Delhi, July 24, 2019

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