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JMC Metals Pvt. Ltd. v/s Kunvarji Commodities Brokers Pvt. Ltd.

    Commercial Arbitration Petition (Lodging) No. 5885 of 2021
    Decided On, 01 September 2021
    At, High Court of Judicature at Bombay
    For the Petitioner: Cyrus Ardeshir, Farzeen Pardiwalla, i/by Amir Arsiwala, Advocates. For the Respondent: Arif Doctor, Sushmita Gandhi, Prapti Kedia, Meryl Quadros, i/by Indus Law, Advocates.

Judgment Text
Oral Order:

1. This is a petition under Sections 14 and 15 of the Arbitration and Conciliation Act, 1996. The petitioner herein is the respondent in the arbitration proceedings. The petitioner-company is engaged by the respondent herein. The respondent provides financial services and brokerage services and is a member of the “MCX Exchange” (“Exchange”). It invoked the arbitration clause on or about June 2020 in respect of certain claims that respondent had against the petitioner. Both the parties are governed by the provision for arbitration, embodied in the Bye-Laws of the Multi-Commodity Exchange of India Ltd. (“Bye-Laws”), Bye-Law 3.1.2 provides for mandatory conciliation and arbitration in accordance with the Bye-Law and Business Rules of the Exchange.

2. Bye-Law 15.1.3 in the “Definitions” defines “Arbitral Tribunal” to mean “one or more arbitrators constituting a tribunal to adjudicate a reference to arbitration”. The terms “Arbitrator” and “Panel of Arbitrators” are also defined. The arbitration is subject to the provisions of the Arbitration and Conciliation Act, 1996. The controversy that has given rise to the present petition is the petitioner’s contention that arbitration proceedings had once commenced and having commenced, it remained inconclusive within time permitted by the rules. Time having expired, no tribunal could now be appointed.

3. Mr. Ardeshir, learned counsel appearing on behalf of the petitioner has relied upon the provisions of Bye-Law 15.32, which provides that the proceedings shall be concluded by issuing an award within four months from the date of appointment of the Arbitrator(s). He submitted that the period of four months commenced on 17th June 2020, when the tribunal was constituted. Procedural Order No.1 dated 28th July 2020, annexed at Exhibit-J to the petition, reveals that the tribunal was constituted on 17th June 2020 Dixit and that by 22nd July 2020, the Arbitrators had received a hard-copy of the Statement of Claim and inter-parties correspondence. The period of four months will therefore have to be reckoned from 17th June 2020 and would therefore expire on 16th October 2020. Unfortunately, the proceedings were not so concluded and from time to time, procedural orders were passed. The proceedings however did not conclude within the period of four months.

4. My attention is invited to a Notice of hearing issued via e-mail by the Exchange’s Investor Services Department, which was managing arbitration proceedings. The notice is dated 26th December 2020. It notifies date of hearing as December 30, 2020. The tribunal had directed the parties to remain present via video conference so as to hear the reference. The directions in the notice included the requirement of submitting all documents remaining to be submitted, if any, by 29th December 2020, as directed in the earlier procedural orders. Mr. Ardeshir submitted that this notice was issued beyond the period of four months and therefore the petitioner was not obliged to comply or participate in the arbitral proceedings. According to him, the tribunal had been rendered de jure. The tribunal had de-facto ceased to have the authority to act as arbitrators and the tribunal could not have proceeded with the case. These objections were raised in a letter dated 29th December 2020, to which my attention is drawn by Mr. Ardeshir, inter alia submitting that the proceedings be treated as terminated under Bye-Law 15.34 of the Exchange Bye-Laws.

5. Faced with this response, the Exchange vide its e-mail dated 30th December 2020, annexed at Exhibit-P to the petition, informed the petitioner’s Advocate and the petitioner of the fact that the Securities and Exchange Board of India (SEBI) had considered the circumstances (having impliedly referred to the pandemic) and had acceded to the request of the Exchange and extended time for arbitration to be completed by 31st December 2020 i.e. the date following the date of this e-mail. This was objected to by the petitioner on 30th December 2020 and the outer date of 31st December 2020 also went by without any conclusion. Thus, according to Mr. Ardeshir, even assuming that the extension of time granted by SEBI was binding upon the petitioner and the respondent, even by 31st December 2020, the reference had not resulted in an award and hence the proceedings stand terminated. The petitioner therefore, invoked the provisions of Section 14 and 15 of the Arbitration and Conciliation Act, 1996, contending that the tribunal was functus officio and the arbitration agreement had worked itself out.

6. In this background, the petitioner received a further communication dated 7th January 2021 from the Exchange recording the fact that the reference could not be concluded with issuance of an award within the extended timelines and the Exchange had received an application from the Presiding Arbitrator seeking extension of time in terms of bye-law 15.32 for two months, but that request was not acceded to by the relevant authority, as contemplated under the bye-laws, and that the mandate of the tribunal therefore stood terminated. This is an accepted position; however, what transpired thereafter is what led to the current controversy.

7. The Exchange offered to the petitioner an opportunity to be part of a “Combined Arbitration Proceedings”. In the alternative, the petitioner could choose to have an independent panel as per the normal process by formation of a separate arbitral tribunal. The Exchange solicited response of the petitioner by January 14, 2021 and failing a response, the Exchange would continue with Combined Arbitration Proceedings in the matters which were inconclusive.

8. The petitioner objected to the proceedings being continued and took up the contention that a tribunal could not now be constituted. In other words and as submitted by Mr. Ardeshir, the provisions of Bye-Law 15 would not be available now to the Exchange or its members including the present respondent and if respondent so desires to pursue its claim, it would have to file a suit or adopt such other appropriate remedy. The respondent would no longer avail of these provisions for arbitration embodied in the Bye-Laws and Business Rules.

9. In support of his contentions, Mr. Ardeshir has relied upon judgments of the Supreme Court in Jayesh H. Pandya and Anr. Vs. Subhtex India Ltd. and Ors. (2019 SCC OnLine SC 1101) and that of a Division Bench of this court in Bharat Oman Refineries Ltd. Vs. Mantech Consultants (2012 SCC OnLine Bom 669) in support of his contentions that under Sections 14 and 15 of the Arbitration and Conciliation Act, the tribunal should not proceed. The Exchange therefore had no authority to constitute a tribunal and the tribunal, if so constituted, had no authority to continue to hear the reference against the present petitioner. Mr. Ardeshir therefore submitted that the petition be allowed.

10. On behalf of the respondent, Mr. Doctor opposed the petition. He relied upon the contents of the affidavit-in-reply dated 17th March 2021 and submitted that the termination of the mandate of the tribunal initially constituted is not in doubt since the period of four months has expired. However, according to the respondent, the Exchange is always entitled to legitimately constitute a tribunal afresh for hearing the reference; especially since no progress has been made during the pandemic. He therefore submits that Bye-Law 15.14 provides for “Vacancy to the Office of the Arbitrator” and that where the arbitral tribunal is unavailable or the office of the arbitrator falls vacant, it would result in termination of the mandate and the vacancy would be filled in by the Managing Director or the relevant authority by following the same procedure as specified by the Exchange for appointment of an arbitrator. “Termination of Mandate of the Arbitrator” is provided for under Bye-Law 15.18 and following that procedure, Mr. Doctor therefore submitted that freshly constituted tribunal has jurisdiction, the right to proceed to conduct the reference and decide the reference. He therefore submitted that the petition deserves to be rejected.

11. Having considered the respective submissions and the provisions of the Bye-Laws and Business Rules of the Exchange, I am of the view that the termination of the mandate of the erstwhile tribunal is no ground for not participating in the reference; especially since the Bye-Laws and Business Rules are binding on both sides and the Exchange had constituted a fresh tribunal in the meantime. The fact that the Exchange had constituted the tribunal is not in dispute and it is in this background that the petitioner has approached this court seeking to quash and set aside the communications received from the Exchange. These communications are dated 7th January 2021 (Exhibit-Q), 14th January 2021 (Exhibit-R), 22nd January 2021 (Exhibit- T) and 25th January 2021 (Exhibit-V). By these communications, the Exchange had initially offered the reference to be made under “Combined Arbitration Proceedings” or at the option of the petitioner, to choose to have an independent panel as per the normal process by formation of a separate arbitral tribunal. Not having received any response, the petitioner was called upon to comply with the request by 14th January 2021. The petitioner responded on 18th January 2021 disputing the entitlement of the Exchange to constitute the tribunal. The Exchange thereafter pointed out on 22nd January 2021 the provisions of Bye-Law 15.14 that upon vacancy to the office of the arbitrator, the Exchange acting through the Managing Director of the company or the relevant authority to appoint a fresh tribunal. In this manner, the parties continued to urge their respective contentions. The petitioner replied to the e-mail on 23rd January 2021, once again reiterating its stand that period of four months having expired and the time for completing the reference not having been extended, as sought by the relevant authority, the proceedings were at its end and no arbitration could be invoked or be proceeded with.

12. By the e-mail of 25th January 2021, the Exchange informed the petitioner and the respondent of the constitution of a new tribunal by the automatic process of selection. It was a three-member arbitral tribunal. Thereafter, the freshly constituted tribunal held a meeting on 1st March 2021. The new tribunal issued a notice on 12th February 2021 confirming its appointment and fixed 1st March 2021 as the date for hearing. At the said hearing, the petitioner appeared through counsel and objected to the proceedings. The petitioner submitted that an application had been filed by the petitioner against constitution of the tribunal and requested the matter to be kept in abeyance, reference being made to the present petition. The minutes of the hearing held on 1st March 2021 are self-explanatory and the tribunal noticed that constitution was not challenged when it was constituted in the middle of February 2021, but it was challenged only on the date of hearing. This observation appears to be correct, since the petition was lodged only on 1st March 2021 though freshly constituted tribunal issued notice on 12th February, 2021. The tribunal indicated that since there was no stay of the proceedings from any court, the hearing would continue. Efforts were made to arrive at an amicable settlement and the matter came to be adjourned. It is in this background that I have heard the rival contentions of the parties.

13. I am also of the opinion that this petition is misconceived. Section 14 of the Arbitration and Conciliation Act, 1996 deals with failure or impossibility of the tribunal to act. It provides that the provisions governing the circumstances under which the arbitrator or tribunal are de jure or de facto unable to perform his functions without undue delay and if he withdraws from his office or if the parties agree to the termination of his mandate, it will be considered as a failure or impossibility to act and if the controversy giving rise to such grounds rendering the tribunal to perform its functions, the party may apply to court to decide on termination of the mandate.

14. Mr. Ardeshir in the course of submissions placed reliance on subsections (1) and (2) of Section 14 of the Act in support of his contention that, in the present case, the tribunal had become de jure and de facto unable to perform its functions, because Bye-Law 15.32 clearly provides for the scope of the arbitral tribunal to proceed but only within the four months period. A provision is also made for extension of time. An extension was sought of by the Presiding Arbitrator but was declined by the relevant authority. Thus, the extension was not automatic, it was applied for and not granted and hence the period of four months was final and binding upon the parties and the tribunal. It does not matter whether the circumstances which led to the tribunal’s inability to hear the reference and pass an award within specified time, were not within its control especially being a period during which a pandemic driven lock-down was enforced albeit in part and on some occasions completely. These circumstances are well known to both the parties. Despite this, the tribunal made an effort to complete the proceedings by holding meetings on video conference, but no progress was made. The parties were therefore not to be blamed for the inability of the tribunal, nor the tribunal be blamed under the circumstances in which they were operating. To that effect, I am unable to accept Mr. Ardeshir’s submissions that the petitioner is entitled to move this court under Section 14 of the Arbitration and Conciliation Act. Section 14 defines the confines within which an application can be moved and the court can interfere.

15. The constitution of the tribunal in the present case is not pursuant to an order of the court. It is not the case where the court has appointed a tribunal under Section 11 of the Act and would retain mere supervisory jurisdiction in the matter of substituting the arbitral tribunal. Both the parties were bound by the Bye-Laws and Business Rules of the MCX Exchange and even today they are bound by those Bye-Laws and Business Rules. The question is whether under Bye-Law 15.32 and under the automatic selection process, a new tribunal could have been appointed by the Exchange? This is not a matter that can be decided under Section 14. In the facts of the case, the tribunal had admittedly not concluded the reference and the court is not required to examine that aspect.

16. Section 15 is the other section under which this petition is filed since it concerns termination of the mandate and substitution of the arbitrator. Section 15 provides that in addition to the circumstances referred to in Sections 13 and 14, the mandate of an arbitrator shall terminate where he withdraws from office or if the termination is pursuant to agreement of the parties and in such event, upon termination of mandate, a substitute arbitrator can be appointed in accordance with “rules” that were applicable to the appointment of the arbitrator being replaced. In the instant case, those “rules” are the very Bye-Laws and Business Rules under which the first tribunal was appointed and a fresh tribunal has been appointed. Bye-Law 15.32 would therefore apply and continue to bind the parties by virtue of Bye-Law 3.1.2 (Conciliation and Arbitration) and Bye-Law 3.3 (Jurisdiction), read with Bye-Laws 15.14, 15.18 and 15.32.

17. The question in the instant case is whether the mandate of the first tribunal appointed on 17th June 2020 survives or it stood terminated? There is no dispute between the parties that the mandate of the first tribunal stood terminated upon expiry of timelines on 31st December 2020. Thereupon, given the facts of the case, the Bye-Laws would once again come into play and these Bye-Laws and Business Rules, it is not disputed, are binding on both parties. By virtue of these Bye-Laws, the Exchange was entitled to appoint a tribunal again. Section 14 or 15 therefore would not prevent in any manner, the Exchange from appointing a new tribunal, which it has done in the usual course. It must be noted that the Exchange was conscious of the fact that substantial time had been lost and had therefore offered “Combined Arbitration Proceedings”, to which the petitioner was not agreeable. The Exchange therefore constituted a tribunal once again.

18. It was open for the petitioner to seek a remedy under Section 12 of the Act. The petitioner can always challenge appointment of the tribunal, as provided under Section 12. Section 13 of the Act also provides for “Challenge Procedure”. Thus, failing any attempt at such challenge, this petition is misconceived. Bye-Law 15.2 sets out that, “Bye-Laws and regulations relating to arbitration shall be consistent with the provisions of the Arbitration and Conciliation Act. The provisions not included in these Bye-Laws but included in the Arbitration and Conciliation Act shall be applicable as if they were included in these Bye-Laws.” Thus, provisions of Sections 12 and 13 of the Act are always available even assuming these are not separately provided for in Bye-Law 15. Mr. Ardeshir suggested that the respondent is now required to file a suit. If that submission is accepted

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and if the respondent files an application under Section 8 of the Arbitration and Conciliation Act, prima facie, the court would be required to refer the dispute to arbitration, once again under these very Bye-Laws. Thus, the petitioner’s attempt to sidestep the arbitration proceedings cannot succeed. 19. The Arbitration and Conciliation Act will continue to govern the procedural parts of the reference and, in my view, the petition before this court seeking reliefs of declaring the tribunal constituted by the Exchange to be de jure and de facto unable to continue with the arbitral proceedings, is completely misconceived. The tribunal is ready and willing to proceed with the arbitration and has so indicated in the minutes of the hearing held on 1st March 2021. The decisions in Jayesh H. Pandya (Supra) and Bharat Oman Refineries Ltd. (Supra) do not come to the assistance of the petitioner in the facts of the present case. The tribunal is constituted legitimately under the provisions of the Bye-Laws of the Exchange and it is willing to act. 20. Thus, I am unable to accept the contention of the petitioner that the tribunal is unable to act being de jure is de facto unable to continue the proceedings. The provisions of Bye-Law 15.32 does not in any manner suggest that there is only one attempt at arbitration and that if that attempt fails, no tribunal could be constituted. The petitioner, in my view, is not entitled to declarations sought of and in these circumstances, the petition fails. 21. In view of the above, I pass the following order:- (i) Arbitration Petition is dismissed. As a result, the interim order restraining the progress of arbitral proceedings stands vacated. (ii) It is made clear that the period of four months to conclude arbitration proceedings and pass award shall commence on the date this order is first uploaded. (iii) No order as to costs.