2019 INSC 0595
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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.1CA No.6960 of 2011

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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,   ifCA No.6960 of 2011

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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   2 nd
  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, theCA No.6960 of 2011

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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 thatCA No.6960 of 2011

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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. CA No.6960 of 2011

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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   suchCA No.6960 of 2011

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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   CaseCA No.6960 of 2011

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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   learnedCA No.6960 of 2011

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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.”CA No.6960 of 2011

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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 onCA No.6960 of 2011

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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   nothingCA No.6960 of 2011

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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 lawCA No.6960 of 2011

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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, 2019CA No.6960 of 2011