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CASE NO.:

Arbitration Petition 18 of 2000

PETITIONER:

MALAYSIAN AIRLINES SYSTEMS BHD (II)

Vs.

RESPONDENT:

M/S. STIC TRAVELS (P) LTD. ..

DATE OF JUDGMENT: 30/11/2000

BENCH:

M.J.Rao

JUDGMENT:

L.....I.........T.......T.......T.......T.......T.......T..J

J U D G M E N T

M. JAGANNADHA RAO J.

This is an application under Section 11(5) of the

Arbitration and Conciliation Act, 1996 and relates to

a

dispute under an agreement between a foreign company

and

an Indian company. The application is filed by the

foreign company against the Indian company seeking

reference of the disputes to an arbitrator. The

learned

Chief Justice of India has nominated me to deal with

the

application.

The claim of the petitioner is that the respondent

company is liable to pay the petitioner a sum of

Rs.96,21,137/- with interest at 24% with quarterly

rests

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w.e.f. 1.5.99 besides other amounts.

The facts set out in the petition by the

petitioner as follows: The petitioner company has its

Principal place of business at Kaulalumpur, Malaysia.

It

has an office at New Delhi and it is carrying on

business of air-transportation, operation of air

flights

in and from India under a bilateral agreement between

Malaysia and India. It is stated that its Senior Vice

President, South Asian Region, Mr. Noor Amiruddin

holds

a general power of attorney to act for and on behalf

of

the petitioner and that the said person is the

Principal

Officer of the petitioner company in India. Original

power of attorney dated 15.12.97 has been produced and

by order dated 3.11.2000, it was impounded for

collection of stamp duty and penalty and, after

overruling objections by an order dated 21.11.2000,

the

original power of attorney was treated as evidence

under

Section 42(1) of the Indian Stamp Act. It is the case

of

the petitioner that the respondent has been appointed

as

General Sales Agent ( passenger) for various countries

and that under agreements dated 15.9.86 and 11.1.89,

the

respondent has been so appointed, the former agreement

relating to passengers and the latter relating to

cargo. The agreements were to be performed in India

and

the cause of action arose in India. The originals of

the

agreements are with the respondent. It is stated that

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the aforesaid agreements could be terminated by either

side by giving to the other, written notice 60 days in

advance as per Article 3 of the agreements. It is

stated

that the petitioner established its office for North

India w.e.f. 1.5.99.

It is further stated that the petitioner

terminated the aforesaid agreements by notice dated

1.3.99 ( delivered to respondent on the same date).

This

was done on the ground that the respondent failed to

remit and pay to the petitioner, all the sums and

monies

received by it in the course of agency on account of

sale of passenger tickets and airway bills. At

present,

it is said, the respondent has to pay a sum of

Rs.96,21,137/- besides such further sums as may be

ascertained after rendition of accounts by respondent.

Interest at 24% is also claimed with quarterly rests

w.e.f. 1.5.99 till payment. According to the

petitioner,

the respondent had, in its letter dated 15.6.99

admitted

liability upto Rs.83,54,655.79 and failed to pay the

same and had fraudulently attempted to "arbitrarily

and

illegally" adjust the same against false claims with a

view to defraud petitioner. All the amounts

unilaterally

adjusted by respondent were false claims. The

petitioner, it was said, had enforced Bank guarantee

for

13 lakhs of rupees one day before the expiry of the

guarantees. But the American Express Bank, it is

said,

did not immediately honour the same and contacted the

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respondent allowing adequate time to the respondent to

file a suit ( No. 1710/99) for injunction against the

Bank. The petitioner filed an application under

Section

8 in that suit but has not taken any other step in the

said proceedings. The respondent, it is said, is

further

declining illegally to refund clams of passengers and

directing them to the appellants. This was not

tenable.

The respondent is also not restoring the commissions

received. Petitioner gave registered notice on

25.8.99

to respondent to concur in the appointment of a

retired

Judge of the Supreme Court of India or any other

person

of equivalent status. Respondent, in his reply dated

16.9.99, refused to concur. It is in these

circumstances

that petitioner is seeking appointment of a retired

Judge of the Supreme Court as an arbitrator. These

are

the broad contentions of the petitioner.

Respondent filed a counter contending that the

agreements dated 15.9.86 and 11.1.89 ceased to exist

w.e.f. 1.5.99 and hence there is no arbitration

clause.

The notice dated 25.8.99 of the petitioner is bad in

law. The petitioner has not produced the original

agreements. They are not with the respondent. The

petitioner cannot file attested copies of the two

agreements. It is denied that Mr. Noor Amiruddin is

authorised to file this suit on behalf of petitioner.

The petitioner is put to strict proof. The original

of

power of attorney is not placed on record ( The

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original

has since been produced, impounded and stamp duty

collected and returned after substitution of a copy).

Mr. Subhash Goyal is not the Managing Director of the

respondent Company but is its Chairman. Mrs.

Gursharan

Goyal is its Managing Director. The cause of action

has

not arisen in India if Malaysian laws were applicable

as

per clause 28. The petitioner does not have an

established office in North India w.e.f. 1.5.99 as

alleged. The termination of agreements is bad. No

sums

are due to the petitioner much less Rs.96,21,137/-.

Nothing has been admitted in letter dated 15.6.99.

There

is no liability to account for any money collected and

no interest is payable. The respondent is not liable

to

refund any amounts to passengers nor is it responsible

to pay any commissions. There are no disputes or

differences which can be referred to arbitration.

A rejoinder was filed by the petitioner refuting

the various allegations made in the counter. It is

pointed out that the respondent, could not have denied

that the original agreements were with him. Nor could

respondent deny the existence of the arbitration

agreements. It is said that, in fact, respondent had

admitted its existence and also the various clauses.

There are disputes and differences which are to be

referred to arbitration.

A point was also raised whether in the case of an

international arbitration it is incumbent on the Chief

Justice of India or his nominee to appoint an

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arbitrator

not belonging to Indian nationality?

The learned counsel for the petitioner and for the

respondent have made their respective submissions

reflecting the above contentions.

The following points arise for consideration:

(1) Whether the preliminary issues raised by the

respondent can be decided at this stage or be referred

to the arbitrator?

(2) Whether, in the case of an international

arbitration agreement, where one of the parties is an

Indian national, it is not permissible to appoint an

arbitrator of Indian nationality in view of the

observations in Dolphin International Ltd Vs. Ronak

Enterprises Inc. 1998(5) SCC 724?

Point 1:

On 5.9.2000, learned counsel for the petitioner

took time for filing an application directing the

respondent to produce the original agreements which,

according to him, were with the respondent. Inasmuch

as

the petitioner has contended that the respondent is in

possession of the original agreements and the

respondent

has contended that the originals are with the

petitioner, question arises whether, as required by

Section 8 of the Act, the petitioner has complied with

the requirement of the said section or whether

secondary

evidence could be permitted to be adduced. Question

also

arises whether Mr. Noor Amiruddin could have signed

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the

petitioner and as to whether he was duly authorised to

do so. Yet another question raised is that after

termination of the agency, there is no agreement in

existence and hence arbitration clause cannot be

invoked.

The question arises whether such issues raised at

the stage of Section 11 application or at the stage of

Section 8 proceedings ( corresponding to Section 34 of

the Old Act, 1940) could be decided by the Court.

This

Court in some cases felt that they could be decided to

cut short litigation and waste of time, where the

documents are clear enough. But, subsequently the

three

Judge Bench in Konkan Railway Corporation Ltd. Vs.

Mehul

Construction Co. (JT 2000(9) SC 362) has taken the

view

that the Chief Justice or his nominee is performing an

administrative duty and cannot decide the preliminary

issues at this stage and it is for the arbitrator

alone

to decide the same. ( No doubt, the question has now

been referred for fresh consideration in M/s Konkan

Construction Corporation Ltd. Vs. M/s Rani

Construction

Pvt. Ltd. ( JT 2000 ( Supple.2) SC 150). In view of

the

said three Judge judgment, I decline deciding these

preliminary issues and direct that the matter be

straightaway referred to an arbitrator. Point 1 is

decided accordingly.

Point 2:

This question has arisen because of some

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observations in Dolphin International Ltd. Vs. Ronak

Enterprises Inc. ( 1998(5) SCC 724).

Here the petitioner is a foreign company while

the respondent is an Indian national. Learned counsel

for the petitioner foreign company, in fact, requested

that an arbitrator of Indian nationality is acceptable

to the petitioner. The question is whether when a

foreign company has a dispute with an Indian national

and approaches an Indian Court, it is mandatory for

the

Court under Section 11(9) of the Indian Arbitration &

Conciliation Act, 1996, to appoint an arbitrator who

does not belong to the respondent's ( i.e. Indian)

nationality, even where the foreign company has no

objection to have an Indian Judge as an arbitrator.

Sub-clause (9) of Section 11 of the Act reads as

follows:

"Section 11(9): In the case of appointment of a sole

or third arbitrator in an international commercial

arbitration, the Chief Justice of India or the person or

institution designated by him may appoint an arbitrator of a

nationality other than the nationalities of the parties

where the parties belong to different nationalities."

Majmudar, J. in Dolphin International Ltd. Vs.

Ronak Enterprises Inc. (1998(5) SCC 724) observed

that

at an earlier point of time in the said case when it

was

listed before Justice Punchhi ( as he then was ), it

appears a view was 'orally' expressed that section

11(9)

was mandatory. Therefore Majmudar, J. did not go

into

the meaning of the word 'may' in section 11(9) and

thought that if one of the parties belonged to Indian

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nationality, it was not permissible to appoint an

arbitrator who was an Indian national. Further, it

does

not appear that, in that case, the foreign company

made

any statement that an Indian arbitrator was acceptable

to it. I am, therefore, of the view that in Dolphin

International case, this Court did not have to examine

in detail the legal position under the UNCITRAL law on

which the Indian Act of 1996 is modelled.

I may initially point out that under Article 11(5)

of the Model Law, all that was required was for the

Court to "take into account, as well, the advisability

of appointing an arbitrator of a nationality other

than

those of the parties". Thus, the Court has to keep

this

aspect in mind and is not compelled to appoint an

arbitrator not belonging to the nationality of either

parties. In fact, in several countries which have

adopted the UNCITRAL MODEL, 1985, it is clear that the

point relating to nationality is only a factor to be

kept in mind.

I shall refer to the position in some other

countries where the UNCITRAL model is adopted, in so

far

as appointment of arbitrators of a nationality other

than that of one of the parties.

Article 6(4) of the UNCITRAL Arbitration Rules,

1976 stated that the appointing authority shall take

into account the advisability of appointing an

arbitrator of a nationality other than the nationality

of the parties.

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The London Court of International Arbitration

Rules (LCIA), 1998 say in Article 6 that the "sole

Arbitrator or Chairman of the Arbitral Tribunal shall

not have the same nationality as any party unless the

parties who are not of the same nationality as the

proposed appointee all agree in writing otherwise."

The Rules of Arbitration of the International

Chamber of Commerce, 1998 say in Article 9(1) that the

Court shall 'have regard to' to the prospective

arbitrator's nationality. Article 9(5) says that the

sole arbitrator or the Chairman of the Arbitral

Tribunal

shall be of a nationality other than that of the

party,

but, in suitable circumstances and "provided neither

party objects within the time limit fixed by the

Court,

the arbitrator or the Chairman of the Arbitral

Tribunal

may be chosen from the country of which any of the

parties is a national."

The American Arbitration Association International

Arbitration Rules as amended in 1997 say in Article

6(4)

that the 'administrator, after inviting consultation

with the parties, shall endeavour to select suitable

arbitrators. "At the request of any party or on its

own

initiative, the administrator may appoint nationals of

a

country other than that of the parties."

In the Rules of the ICADR, New Delhi

(International Centre for Alternative Dispute

Resolution, New Delhi), it is stated in Rule

5(5)(c)(iii), that the ICADR will have 'regard to' the

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"advisability of appointing a person of a nationality

other than the nationalities of the parties."

In Fouchard Gaillard Goldman on 'International

Commercial Arbitration' (1999) it is stated ( see para

1037 and 764) (page 570) that though normally, the

independence of arbitrators and likewise their

neutrality, can be enhanced by their nationality

still,

'several institutional arbitration rules containing it

also allow the institution to disregard this principle

in certain circumstances ( The authors refer to ICC

Rules, LCIA Rules, ICADR Rules, and those applicable

in

France and Algeria) ( 1986 Rev.Arb.311). The Paris

Tribunal of First Instance has held in one case (

T.G.I.

Paris, ref.May 22 and June 23, 1987) ( 1988

Rev.Arb.699)

as follows:

"Although the practice is adopted in a number of

arbitration rules, it does not necessarily oblige the

President of the Tribunal of First Instance to reject the

choice of an arbitrator who is of the same nationality as

one of the parties .................... The arbitrator, who

is a Judge and not a party's representative, cannot be

suspected of bias solely on the basis of his nationality,

and the requirement of impartiality which determines the

choice of the individual .........is sufficient to guarantee

that the hearings will be conducted fairly".

(Transportacion Maritima Mexicana S.A. Vs. Alsthom)

The Court, in that case, considered itself justified

in

appointing a French Chairman where one of the parties

was French, although its opponent, a Mexican

Corporation, had asked for the appointment of a

'neutral' individual. (I am however dealing with a

case

where the foreign company has no objection to an

Indian

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Judge being appointed as arbitrator). The authors

(Fouchard etc.) say that "the Court cannot be

reproached

in law for considering that an arbitrator's

nationality

cannot constitute an element of partiality in itself.

However, it should have taken such nationality into

account as a factual matter, the appearance of

neutrality being as important in international

arbitration as neutrality itself."

In "Law and Practice of International Commercial

Arbitration" by Alan Redfern and Martin Hunter ( 3rd

Ed)(1999), it is pointed out ( at p.215, para 4.55)

that

though the practice in international arbitration is

normally to appoint an arbitrator of a nationality

other

than that of the parties, sometimes difficult problems

can arise if a mandatory principle is applied. The

following example is given: 'Consider, for instance,

a

dispute between a Swiss company and a French company,

where the law applicable to the dispute is the law of

Switzerland. It seems sensible that the person chosen

as

the sole or presiding arbitrator should be a Swiss

lawyer, particularly if the seat of the arbitration is

Switzerland. Yet the insistence on a so-called

"neutral"

nationality ensures that the one person who cannot be

chosen ( unless the parties agree otherwise) is a

Swiss

lawyer." ( See also 'On the Neutrality of the

Arbitrator

and the place of Arbitration by Lalive) ( Swiss Essays

on International Arbitration) ( 1984)(PP.23, 25)

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It is, therefore, clear that in several countries

where the UNCITRAL model is adopted, it has been held

that it is not impermissible to appoint an arbitrator

of a nationality of one of the parties to arbitration.

In the light of the above rules in various

countries and rulings of Court and also in view of the

fact that the 1996 Act is based on UNCITRAL Model law

which in Article 6(4) only speaks of "taking into

account" the nationality as one of factors, I am of

the

view that the word 'may' in section 11(9) of the Act

is

not intended to be read as 'must' or 'shall'.

I am therefore of the view that while nationality

of the Arbitration is a matter to be kept in view, it

does not follow from section 11(9) that the proposed

arbitrator is necessarily disqualified because he

belongs to the nationality of one of the parties. The

word 'may' is not used in the sense of 'shall'. The

provision is not mandatory. In case the party who

belongs to a nationality other than that of the

proposed

arbitrator, has no objection, the Chief Justice of

India

( or his nominee) can appoint an arbitrator belonging

to

a nationality of one of the parties. In case, there

is

objection by one party to the appointment of an

arbitrator belonging to the nationality of the

opposite

party, the Chief Justice of India ( or his nominee )

can

certainly consider the objection and see if an

arbitrator not belonging to the nationality of either

parties can be appointed. While taking that decision,

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the Chief Justice of India ( or his nominee ) can also

keep in mind, in cases where the parties have agreed

that the law applicable to the case is the law of a

country to which one of the parties belongs, whether

there will be an overriding advantage to both parties

if

an arbitrator having knowledge of the applicable law

is

appointed.

In the result, I am of the view that under section

11(9) of the Act it is not mandatory for the Court to

appoint an arbitrator not belonging to the nationality

of either of the parties to the dispute.

In the circumstances of the case and after hearing

the counsel on both sides and inasmuch as the

petitioner

has no obligation for appointment of an arbitrator of

Indian nationality, I appoint Sri Justice D.P.

Wadhwa,

retired Judge of this Court as the sole arbitrator in

the case. The remuneration payable for the case and

other costs payable may be fixed by the arbitrator

after

hearing the parties on both sides.

The petition is disposed of accordingly.