ADR Research Doc

Case analysis: Rajasthan Small Industries Corporation Limited v. Ganesh Containers

Movers Syndicate, (2019)

1. Nishith Desai Associates

2. The case arose out of an agreement between the parties dated 21 January
2000 (“Agreement”), which provided for an arbitration clause. Clause
4.20.1, Schedule 4 of the Agreement provided that all disputes arising out
of the contract were to be referred for arbitration to the Managing Director
or his/her nominee. When disputes arose, the matters were referred to
arbitration in 2005. However, due to the unsatisfactory conduct of the
arbitrator, he was removed and replaced twice by the parties. Eventually,
the Chairman-cum-Managing Director was appointed as the sole arbitrator
in 2009. Due to inordinate delay, Ganesh Containers Movers Syndicate,
the respondents, in 2015 filed an application for the appointment of a
substitute arbitrator before the Rajasthan High Court under sections 11
and 15 of the Act. While the petition was pending, the arbitrator hastily
fixed a hearing date and passed an ex-parte award on 21 January 2016,
without providing an adequate hearing to Ganesh Containers. Three
months later, the High Court allowed the petition and appointed an
independent arbitrator to settle the disputes. Rajasthan Small Industries
Corporation Limited, the appellant, accordingly approached the Supreme
Court to set aside the High Court decision.
On the first issue, the Court found that section 12 was inapplicable in the instant
case as section 26 of the Act proscribed the application of the Amendment Act to
proceedings initiated after its commencement, unless agreed otherwise. It also
distinguished the case of TRF Limited v. Energo Engineering Projects
Limited relied upon by Ganesh Containers, where the notice invoking arbitration
was issued on 28 December 2015, after the Amendment Act came into force with
effect from 23 October 2015.
On the second issue, the Court held that ‘mere neglect of an arbitrator to act or
delay in passing the award by itself cannot be the ground to appoint another
arbitrator in deviation from the terms agreed to by the parties.’ In this case,
since delay was caused by a variety of factors such as non-availability of
important documents, the High Court decision terminating his appointment was
reversed.
HC KINDA DIDN’T UPHELD THE MINIMUM INTERVENTION

Interestingly, while upholding the appointment of the Chairman-cum Managing

Director as the arbitrator, the Court set aside the award passed by him.
Exercising its powers to do complete justice under Article 142 of the Constitution,
the Court directed the arbitrator to pass the final award within four months after
affording a fair hearing to both the parties.

The court noted that the Contractor has not placed on record any material to show that the arbitrator has not
acted independently or impartially or is likely to not act independently or impartially. Accordingly, having
participated in the arbitral proceedings, the Contractor was estopped from challenging the competence of the
arbitrator.

Thus, even appointment of substitute arbitrator has to be done in accordance with the original agreement. In
view of the above, the Supreme Court held that High Court was not right in appointing an independent arbitrator
without giving due regard to the terms of the Contract.

Exercise of power under Article 142

Interestingly, the Supreme Court remarked that the arbitral tribunal should not have passed the Award when the
High Court was seized of the matter. The proceedings were pending for a long time. The arbitrator hastily passed
the Award after the proceedings in High Court were commenced. The record of arbitration had to be
reconstructed and it is not clear whether it was done before the Award. The Contractor was also not given an
opportunity to substantiate its claims. Hence, in order to do complete justice, the Supreme Court set aside the
Award in exercise of its powers under Article 142 of the Constitution. The court held that it would also save
parties much time if they were to challenge the Award by way of fresh proceedings under Section 34 of
Arbitration Act.

Interestingly, exercise of powers under Article 142 to set aside the Award also raises certain questions. The
power was exercised only to save parties the trouble of filing fresh proceedings to challenge the Award under
Arbitration Act. The court should therefore, have considered the thresholds provided under Section 34 to set
aside the award. The question whether the Award was liable to be set aside because Contractor was actually
unable to present its case, does not appear to have been dealt with. Accordingly, it is only but hoped that the
present case is a one off exercise of power, given the peculiarity of the facts and will not be widely used as a
precedent.

Ideally 34 should have been used

Both hc and sc had a implicit understanding that the award was not just, moreover he was the employee

The respondent has not placed any material to show that it

has reason to believe that the arbitrator had not acted independently
or impartially. The respondent has not brought on record any
material to entertain an apprehension that the Managing Director of
the appellant-Corporation is not likely to act independently or
impartially. On the other hand, as noted earlier, as per the
proceeding of the arbitral tribunal dated 21.10.2010, the respondent
had expressed its full faith in the sole arbitrator and had also given a
letter dated 21.10.2010 to that effect. The fact that the sole arbitrator
is the Managing Director of the appellant-Corporation is not a
ground to raise a presumption of bias or lack of independence on
his part
So the court did agree that he was not impartial but we can see through order that it believed
something fishy was going on. Was article 142 as backdoor entry.

Dekh phle to court ne khud hi bola ki aapne raise nahi kia the issue of impartiality and expediation.
Lekin judgemengt me the court could also see this is not complete justice because of the way the
proceedings were carried out (ekdum se hurriedly)

Assuming tha the arbitrator was biased, the contractor didn’t raise it, it kept asking for ajournments,
displayed contradictorcy opions on the arbitrator, is this a back door entry to bypass the arbitration
agreement? SC didn’t allow it, but felt that something aboutg the arbitration process didn’t sikt well
hence the award was set aside and fresh proceedings were to be conducted

The High Court was of the view that no useful purpose would be served by again reconstituting a
three Member Arbitral Tribunal in accordance with Clause 64. It was found that the matter was
pending from 1999 and the cumbersome process of constituting an Arbitral Tribunal in terms of the
Arbitration agreement and the delays on the part of Railways in complying with the provisions of the
arbitration agreement, led to the arbitration becoming virtually a non-starter. Therefore, the High
Court allowed the application on 27.03.2006 and appointed retired Judge of the Delhi High Court as
the arbitrator.

Ganesh Containers Movers Syndicate vs. Rajasthan Small Industries Corporation Limited (22.04.2016
- RAJHC) : MANU/RH/0227/2016

But where the independence and impartiality of the Arbitrator/s appointed/nominated in terms of
the arbitration agreement is in doubt, or where the Arbitral Tribunal appointed in the manner
provided in the arbitration agreement has not functioned and it becomes necessary to make fresh
appointment, the Chief Justice or his designate is not powerless to make appropriate alternative
arrangements to give effect to the provisions for arbitration. It was held that the Chief Justice or any
person or institution designated by him to take necessary measures in appointing an arbitrator, in
view of provisions contained in Section 11(8) of the Act, shall have "due regard" to the two
cumulative conditions relating to qualifications and other considerations as are likely to secure the
appointment of an independent and impartial arbitrator

Ganesh Containers Movers Syndicate vs. Rajasthan Small Industries Corporation Limited (22.04.2016
- RAJHC) : MANU/RH/0227/2016

This Court does not appreciate the manner in which the sole arbitrator has acted in the present
matter. Despite receipt of the notice of present application, sole arbitrator has hurried up to
conclude the proceedings and remained unaffected by request for deferment. He without paying
any heed to repeated requests of the applicant to keep the proceedings in abeyance and await the
order of this Court, passed the ex-parte award.

Clauses 5 of both Schedule Fifth and Seventh also provide that for a similar consequence, if any
arbitrator happens to be manager, director or part of the management, or has a similar controlling
influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in
dispute in the arbitration. Sub-section (5) of Section 12 of the Act has been given overriding effect
over any prior agreement to the contrary. Therefore, independence and impartiality of arbitrator as
mandated by Amending Act of 2015 has now been made paramount consideration for appointment
of arbitrator. In view of the peculiar facts of this case, the Chairman & Managing Director, had by his
dillydally and lackadaisical approach in conducting arbitral proceedings, lost the mandate to
continue to act as arbitrator. The application filed by the applicant to terminate his mandate and
appoint fresh arbitrator was pending before this Court. In spite of being informed of this fact and
request for deferment, he deliberately passed the ex-parte award only with a view to frustrate this
application. He thus having lost the mandate, the ex-parte award passed by him would have no legal
sanctity and is liable to be ignored.

17. In view of above discussion, this Court is inclined to allow this application and the same is
accordingly allowed. Mr. J.P. Bansal, retired District Judge, 34-A, Hari Kishan Somani Marg, Hathroi
Fort Scheme, Jaipur (Phone 0141-2363484) is hereby appointed as an independent sole arbitrator to
resolve the disputes between the parties. The cost of arbitration proceedings and the arbitration
fees shall be as per the Manual of Procedure for Alternative Dispute Resolution, 2009, of this Court,
as amended from time to time.

Ganesh Containers Movers Syndicate vs. Rajasthan Small Industries Corporation Limited (22.04.2016
- RAJHC) : MANU/RH/0227/2016

Mere neglect of an arbitrator to act or delay in passing award by itself could not be ground to
appoint another arbitrator in deviation from terms agreed to by parties

Rajasthan Small Industries Corporation Limited vs. Ganesh Containers Movers Syndicate (23.01.2019
- SC) : MANU/SC/0064/

Dekh, galti to dono ki thi arbitrator ki bhi or respondent ki bhi cuz legal avenues claim nahi, court
found a middle ground.

IDEAS

While the Madras High Court has tried to honour the

timelines established under the Act, such strict
interpretation of the provision would certainly lead to
speculation about India’s willingness to evolve and become
an arbitration hub, since awards rendered after incurring
huge expense would become liable to be set aside solely
on account of delay
Consequences of failure to make arbitral award within time (barandbench.com)
Grounds for termination of the mandate under Section 14:
The grounds on which the mandate of an arbitrator can be terminated under section 14
are:
- The arbitrator becomes de jure or de facto unable to perform his function:
De Jure refers to an arbitrator’s legal incapacity to perform his functions under the law
and relates to circumstances under which the arbitrator by law is barred from continuing
in office.
For example: if an arbitrator becomes bankrupt or convicted for a criminal offence, then
he becomes de jure unable to adjudicate the case.
De Facto refers to factual inability. It relates to a factual happening during the process of
arbitration.
For example: if the arbitrator falls seriously ill or has some physical incapacity, then he
becomes de facto unable to perform his function.
- For some other reasons fails to act without undue delay:
In situations where the arbitrator is taking too long to adjudicate the dispute, this
provision shall apply. Especially when it comes to the 2015 Amendments, where strict
timelines are provided for rendering the award, it is essential for the tribunal to
pronounce the award in a timely manner. However, if the arbitrator takes too long to
even conduct the first hearing, let alone adjudication of the case; the parties can resort
to this provision to terminate the mandate of the arbitrator.

A dangerous precedent bc now delay cannot be ground from removing him, but through the
backdoor entry, parties get justice, no light through on use of 34.

While the case uphold the ‘minimum intervention thingy’ by laying down the raitio of mere delay-
on facts it takes a back door entry and provides relief to the parties by wau\y of article 142. Th ecase
becomes fact specifc and to be used a precedent to not remove mediator on delay and fails to
provide clarity of use of article 142.

How it is used a precendents- used actively to deny the changing,

Precedents :

se. Lastly, reliance is placed on a recent judgment of Supreme Court in Rajasthan Small Industries
Corporation Limited vs. Ganesh Containers Movers Syndicate, MANU/SC/0064/2019 : (2019) 3 SCC
282 decided on 23-1-2019. On the strength of this judgment, it is submitted that in a case of this
nature where arbitration proceedings commenced before recent amendment in the Arbitration Act,
section 12(5) and Schedule mentioned therein cannot be made applicable. Since applicant has lost
the battle almost on same grounds previously and present Arbitrator has acted with quite
promptitude and matter is at the stage of final hearing before him, no interference may be made.

Manoj Kumar Agrawal vs. Nepa Limited (01.05.2019 - MPHC) : MANU/MP/1206/2019

Learned counsel for the Railways has come up citing the judgments in the cases of Rajasthan Small
Industries Corporation Limited Vs. Ganesh Containers Movers Syndicate, reported in
MANU/SC/0064/2019 : (2019) 3 SCC 282, Government of Haryana P.W.D. Haryana (B And R) Branch
Vs. G.F. Toll Road Private Limited & Ors. Reported in MANU/SC/0003/2019 : (2019) 3 SCC 505 and
the judgment in the case of Union of India Vs. Parmar Construction Company, reported in
MANU/SC/0445/2019 : 2019 (5) SCALE 453 to contend that in the instant case the dispute had arisen
prior to the Amendment Act of 2015 and its enforcement. The amended Act, namely the Arbitration
And Conciliation (Amendment) Act, 2015 came into effect from 23rd October, 2015 and, therefore,
in the present case, the dispute will continue to be governed by the provisions prior to amendment.
Accordingly, as reflected in the aforesaid judgments cited on behalf of the respondents, even the
appointment of a substitute arbitrator has to be on the same terms as in the agreement for which
there is a provision. The respondents have, accordingly, made that offer and, therefore, the ground
of delay being taken by the petitioner, which is neither correct on facts or in law, can be invoked for
the purpose of getting relief from this Court for the appointment of an independent arbitrator. It is
further submitted that there has been no deliberate or intentional prolonging of the proceedings as
projected by the petitioner and, consequently, the relief prayed for does not deserve to be granted.

Trishul Construction vs. Union of India and Ors. (19.07.2019 - PATNAHC) : MANU/BH/1327/2019

It is, thus, evident that deliberate delay or default on the part of the opposite parties does not
appear to be exactly made out which is the main plank of the argument of the learned counsel for
the applicant petitioner. In the absence of any deliberate default, the only question that now
remains is that there was some inaction on the part of the respondents for the past almost one year.
If the officers had been transferred who were members of the Tribunal, then it was the duty of the
respondents to have taken appropriate steps. It is in this background that the petitioner was
compelled to file this request application and it is after six months of the filing of the application that
the respondents have now come up with a request on 27th June, 2019 to the petitioner to choose
two names of the arbitrators who would be substituted in place of the other arbitrators for
proceeding further.

21. In my considered opinion, there does not appear to be a case of heavy delay totally attributable
to the opposite parties so as to construe any mala fide against the opposite parties or a bias in this
regard. It is correct that the proceedings ought to be concluded when twice observations had been
made to conclude the proceedings within three months.

22. I am, therefore, not inclined to invoke the powers for the appointment of an independent
arbitrator at this stage with liberty to the applicant to choose from the names as offered by the
respondents for appointment of substitute arbitrator and to conclude the arbitration proceedings as
directed by the Court earlier keeping in view the ratio of the judgments cited on behalf of the
respondents.

23. With the aforesaid observations, the application stands disposed off.

Trishul Construction vs. Union of India and Ors. (19.07.2019 - PATNAHC) : MANU/BH/1327/2019

The Apex Court recognised and gave impetus to the 'rules' agreed by the parties in respect of the
appointment of an arbitrator expressing deference towards the principle of party autonomy. "Mere
neglect of an arbitrator to act or delay in passing the award by itself cannot be the ground to appoint
another arbitrator in deviation from the terms agreed to by the parties." 38 Moreover, "whenever
the agreement provides for the appointment of named arbitrator, the appointment of arbitrator
should be in terms of the contract.

1. Original contract
2.

Question – the contractual agreements stops the party from substituting

In case of Union of India Vs. Singh Builders Syndicate (supra), it was observed in paragraph 14 & 15,
which reads as under:-

"14. It was further held in Northern Railway Case that the Chief Justice or his designate should first
ensure that the remedies provided under the arbitration agreement are exhausted, but at the same
time also ensure that the twin requirements of sub-section (8) of Section 11 of the Act are kept in
view. This would mean that invariably the Court should first appoint the arbitrators in the manner
provided for in the arbitration agreement. But where the independence and impartiality of the
arbitrator(s) appointed/nominated in terms of the arbitration agreement is in doubt, or where the
Arbitral Tribunal appointed in the manner provided in the arbitration agreement has not functioned
and it becomes necessary to make fresh appointment, the Chief Justice or his designate is not
powerless to make appropriate alternative arrangements to give effect to the provision for
arbitration.
15. The object of the alternative dispute resolution process of arbitration is to have expeditious and
effective disposal of the disputes through a private forum of the parties' choice. If the Arbitral
Tribunal consists of serving officers of one of the parties to the dispute, as members in terms of the
arbitration agreement, and such tribunal is made non-functional on account of the action or inaction
or delay of such party, either by frequent transfers of such members of the Arbitral Tribunal or by
failing to take steps expeditiously to replace the arbitrators in terms of the arbitration agreement,
the Chief Justice or his designate, required to exercise power under Section 11 of the Act, can step in
and pass appropriate orders."

Mehrotra Buildicon (P) Ltd. vs. Deputy Chief Engineer (Con.), South East Central Railway, Raipur and
Ors. (26.06.2019 - CGHC) : MANU/CG/0424/2019

Since the Award has not passed there is an inordinate delay of more than three years, this Court is of
the view that the Tribunal has not acted fairly in delivering the Award. In such a view of the matter
the mandate of the Arbitral Tribunal consisting of Respondents 4 to 6 is hereby terminated and the
first Respondent is directed to substitute the Arbitral Tribunal by way of re-constitution within one
month from the date of receipt of copy of this orde

EFFECT OF DELAY ON FAIRNESS

Progressive-Aliens (JV) vs. The General Manager, Southern Railway and Ors. (11.03.2020 - MADHC) :
MANU/TN/2359/2020

In the process there would occur an inordinate delay in setting in motion the Arbitral proceedings
before the Tribunal and consequently rendering the very object of the Act aimed at providing speedy
remedy, otiose

Tamilnadu Road Sector Project II, Highways Department vs. IRCON International Ltd. and Ors.
(19.01.2021 - MADHC) : MANU/TN/0135/2021

The possible solutions to avoid delay in conclusion of arbitration proceeding is to

firstly, set stringent timelines within the arbitration agreement. Further, parties
may opt for sole arbitrator, which will eliminate the necessity for the tribunal to
coordinate amongst each other and will result into a faster publication of award
https://www.mondaq.com/india/arbitration--dispute-resolution/1214400/analysis-
of-unexplained-delay-in-rendering-the-arbitral-award-as-ground-for-challenge-
under-section-34-of-the-arbitration-and-conciliation-act