& Toubro Ltd Vs. Fertilizer & Chemicals Travancore Ltd  Insc 1127
(12 November 2007)
Arijit Pasayat & Lokeshwar Singh Panta
APPEAL NO. 5159 OF 2007 (Arising out of SLP (C) No. 4014 of 2006) [with C.A. No 5160 of 2007 (Arising out of S.L.P. (C) No. 4015
of 2006] Dr. ARIJIT PASAYAT, J.
Challenge in these appeals is to the order passed by the learned Single Judge
of the Kerala High Court disposing of arbitration request filed before him.
Background facts in a nutshell are as follows:- Appellant and the respondent
entered into a contract vide purchase order no.3020/02-2701/016/1018 dated
that in breach of the terms and conditions of the purchase order certain
amounts were withheld, the appellant invoked the arbitration agreement
purportedly in terms of new Article 26 of the Special Conditions and suggested
three names for appointment of an independent sole arbitrator and called upon
the respondent to name one out of the three names. The respondent took the
stand that it is only the Managing Director of the respondent who can be
appointed as a named arbitrator as per Article 26 of the Standard Conditions
and refused to appoint a sole independent arbitrator. The High Court of Kerala
was moved seeking appointment of an arbitrator by Arbitration Request 29/99.
Single Judge declined the arbitration request on the ground that terms and
conditions of the purchase order provides for arbitration by the Chairman and
Managing Director of the respondent. A writ petition was filed under Article
226 of the Constitution of India, 1950 (in short the 'Constitution'). During pendency
of the said writ petition this Court in CA Nos. 3777, 4168 and 4169 of 2003
held that the order passed under Section 11 of the Arbitration and Conciliation
Act, 1996 (in short the 'Act') is a judicial order and writ petition
challenging the said order under Article 226 of the Constitution is not
maintainable. Therefore, this appeal has been filed.
support of the appeals, learned counsel for the appellant submitted that the
provision contained in Article 26 of the Standard Conditions is not the actual
provision for arbitration. The same is contained in the special terms and
conditions attached to the purchase order and the work order respectively. The
purchase order and the work order contained special conditions, standard terms
and conditions. By Article 16 of the Special terms and Conditions of the
purchase, there is amendment to the article 25 of the standard conditions.
is similar amendment to article 26 of the standard terms so far as it related
to commissioning. The provisions contained in the standard conditions in both
the cases, it was submitted by learned counsel for the appellant, is not actual
provision for arbitration. The general condition stated that all disputes and
differences are required to be referred to the Chairman and Managing Director
of the respondent-company for his decision and it will be binding on the
parties. It was further contended that the provisions contained in the special
conditions by themselves do not have any provision for arbitration. It does not
have any clause that disputes and difference shall be settled by arbitration.
In both the cases, the special conditions specifically state that it is by way
of amendment of general condition only and not in supersession of that
provision. The Chairman and the Managing Director of the respondent- company
cannot be treated as independent person to be appointed as arbitrator. This was
essentially the stand which did not find acceptance. It is submitted by learned
counsel for the appellant that certain changes were suggested by the
Learned counsel for the respondent on the other hand submitted that the High
Court view is unexceptionable.
this juncture it would be necessary to take note of the few conditions :
16 of the Work Order reads as follows:- "16. Work Order Conditions:
order shall be governed by the above conditions as well as by the conditions
stipulated in Attachment I, II and III of this Work Order, except the
order shall be governed by the present special conditions of work (W.O.
Attachment III) as well as by the conditions stipulated in Attachment I, and II
of this Work Order, except the following:
No.3020/CS/04: Standard Terms and Conditions of Erection & Commissioning.
4.0.0 Taxes, Duties and Levies (comment) Taxes shall be as per Article 4.0.0.
However, at present conditions; tax on this Work Order is not applicable.
13.0.0 Termination (comment)
can terminate the Work Order without giving any reason provided that reasonable
cost for termination and actual out-of-pocket expenses will be reimbursed.
15.0.0 Changes (Amendment)
shall issue amendment orders which provide for changes in the scope of work
required by FACT under the Work Order, and for equitable adjustment in the
price and delivery/completion time, if any, hereunder.
21.0.0 Tests on Completion & Taking Over (New Article Added).
21.5.0 (New Article) The Primary Reformer Package under the scope of this Work
Order shall be deemed to be taken over by FACT immediately after satisfactory
pre- commissioning is over within 10 days of Contractor's notice to Owner for
commencement of commissioning after pre-commissioning, whichever is earlier. In
case taking over is delayed due to no fault of Contractor, after the notice
given by Contractor in this regard about the Completion, the entire Primary
Reformer Package is deemed to be taken over by FACT.
24.0.0 Indemnification Secondary liability such as indemnification for loss
caused by stoppage of plant of like will be excluded from Contractor's
liabilities under the Work Order.
26.0.0 Applicable Law and Settlement of Disputes (amendment) The provisions of
the Indian Arbitration Act, 1940 and the rules there under, any statutory,
modifications there for the time being in force will be applied.
venue for the arbitration shall be Cochin, and the language of the proceedings shall be the English language.
the arbitration proceedings, both parties shall continue to discharge their
obligations under the Work Order."
There was addition and not substitution of condition.
amendment there was arbitration clause and if there was no amendment the only
substitution, then that there was no arbitration clause. In the arbitration
request in the statement of facts it has been clearly stated that article 26 of
the standard terms and conditions of purchase form part of the work order. The
same read as follows:
26: Work Order shall be subject to and shall in all respects be governed by
dispute or difference connected with or arising out of WORK ORDER which cannot
be settled by mutual agreement of the parties shall be referred to the Chairman
& Managing Director of FACT, and his decision will be binding on the
parties. Any legal proceeding relating to this WORK ORDER shall be limited to
Courts of law under the jurisdiction of the Kerala High Court at Ernakulam
District, Kerala State, India."
stand of the learned counsel for the appellant that the special conditions of
the work order superseded the standard terms and conditions, is not correct.
The mere fact that the arbitrator was named does not render the arbitration
Secretary to Government, Transport Deptt., Madras v. Munuswamy Mudliar and Anr. (1988 Suppl. SCC 651) it was noted as
Pursuant to this the Superintending Engineer of that Circle, at the relevant
time, was previously appointed as arbitrator. There was succession to that
office by another incumbent and the succeeding Superintending Engineer wanted
to continue the arbitration proceedings but before that an application was made
under Section 5 of the Arbitration Act, 1940 (hereinafter called 'the Act') for
removal of the arbitrator, before the learned Judge of the City Civil Court,
Again in paras 11 to 13 it was noted as follows:
This is a case of removal of a named arbitrator under Section 5 of the Act
which gives jurisdiction to the court to revoke the authority of the
arbitrator. When the parties entered into the contract, the parties knew the
terms of the contract including arbitration clause. The parties knew the scheme
and the fact that the Chief Engineer is superior and the Superintending
Engineer is subordinate to the Chief Engineer of the particular Circle. In
spite of that the parties agreed and entered into arbitration and indeed
submitted to the jurisdiction of the Superintending Engineer at that time to
begin with, who, however, could not complete the arbitration because he was
transferred and succeeded by a successor. In those circumstances on the facts
stated no bias can reasonably be apprehended and made a ground for removal of a
named arbitrator. In our opinion this cannot be, at all, a good or valid legal
ground. Unless there is allegation against the named arbitrator either against
his honesty or capacity or mala fide or interest in the subject matter or
reasonable apprehension of the bias, a named and agreed arbitrator cannot and
shou1d not be removed in exercise of a discretion vested in the Court under
Section 5 of the Act.
Reasonable apprehension of bias in the mind of a reasonable man can be a ground
for removal of the arbitrator. A predisposition to decide for or against one
party, without proper regard to the true merits of the dispute is bias.
must be reasonable apprehension of that predisposition. The reasonable
apprehension must be based on cogent materials. See the observations of Mustill
and Boyd, Commercial Arbitration, 1982 edn., page 214. Halsbury's Laws of
England, 4th edn., Volume 2, para 551, page 282 describe that the test for bias
is whether a reasonable intelligent man, fully apprised of all the
circumstances, would feel a serious apprehension of bias.
This Court in International Authority of India v. K. D. Bali (1988 (2) SCC 360)
held that there must be reasonable evidence to satisfy that there was a real
likelihood of bias. Vague suspicions of whimsical, capricious and unreasonable
people should not be made the standard to regulate normal human conduct.
this country in numerous contracts with the government, clauses requiring the
Superintending Engineer or some official of the Government to be the arbitrator
are there. It cannot be said that the Superintending Engineer, as such cannot
be entrusted with the work of arbitration and that an apprehension, simpliciter
in the mind of the contractor without any tangible ground, would be a
justification for removal. No other ground for the alleged apprehension was
indicated in the pleadings before the learned Judge or the decision of the
learned Judge. There was, in our opinion, no ground for removal of the
arbitrator. Mere imagination of a ground cannot be an excuse for apprehending
bias in the mind of the chosen arbitrator."
The apprehension that named arbitrator may not act fairly is without any
foundation. The High Court has rightly held that by article 16 of the special
terms and conditions of purchase there was an amendment to article 25 which
reads as follows:- "The provisions of the Indian Arbitration Act, 1940,
and the rules thereunder, any statutory modifications thereof of the time being
in force will be applied. The venue of the arbitration shall be Cochin, and the language of the
proceedings shall be the English Language.
the arbitration proceedings, both parties shall continue to discharge their
obligations under the Purchase Order."
Similar was the amendment to Article 26 of the Standard terms and Conditions
for erection and commissioning in Article 16 of the Special Conditions of work
attached to the word order. The special conditions themselves show that
articles 25 and 26 contained provisions for arbitration. The amendments
incorporated by the Special conditions only provide that the provisions of the
relevant Arbitration Act and the rules made thereunder and any statutory
modifications thereof for the time being in force will be applicable and the
venue of arbitration and language of the proceedings.
The appeals are sans merit, deserve dismissal, which we direct.