Brief case: Court can replace arbitrator

A weekly selection of key court orders

Court can replace arbitrator 

The Supreme Court has ruled that even if an arbitrator has been specified in the contract, the court can appoint another in certain circumstances. If there is a reasonable apprehension in the mind of a party that he would not act independently or impartially or if he is not available, the aggrieved party can approach the chief justice of the high court and ask him/her to nominate a person different from the one named in the agreement, the Supreme Court said in the judgment, Union of India vs Besco Ltd. The judge must give reasons for departure from the agreement. This was an exceptional case in which the government did not nominate its arbitrator within the prescribed time. Therefore, the aggrieved company approached the Delhi chief justice for appointment of an arbitrator. It did so. The government challenged it in the Supreme Court. The appeal was dismissed. The agreement had specified that it will be governed by the General Conditions and Special Conditions of Contracts. According to these, there is no insistence that a railway officer should act as arbitrator; any qualified person can be named. The government forfeited its right to appoint arbitrator within the time limit and, therefore, the chief justice rightly named an arbitrator, the judgment said. 

Case of a sluggish arbitrator 

The Allahabad High Court appointed an arbitrator in place of the Central Public Works Department (CPWD) officer named in the contract because “nearly three years have expired and the officer-arbitrator has not even issued a letter acknowledging the claims raised before him. During the last nearly three years while this petition remained pending, the CPWD or the arbitrator named never showed any inclination to adjudicate claim of non-payment,” the court stated in its judgment, Argee Engineers Co vs Era Engineering Ltd. The court concluded that the arbitrator named by designation has failed to perform his function. This was especially so because after the amendment to the Arbitration and Conciliation Act, the proceedings should be completed within 12 months and the officer must be able to devote sufficient time to it.

SAIL pardoned for foul-up  

The Calcutta High Court observed that a public corporation could be given some latitude in litigation, “otherwise, considering the state of affairs, the state machinery will break down.” In this case, SAIL vs Amiya Steel Ltd, the public sector company moved the wrong court against an arbitration award. The suit lay there for two years before the PSU realised its mistake. It withdrew the suit there and moved the high court. The opposite firm objected to delayed petition, alleging that SAIL had not acted with due diligence and lacked good faith. But the high court pardoned it, stating that if the SAIL’s petition was dismissed on those grounds, the rival firm would get Rs 4 crore without contest from the PSU.

Man, wife not liable for other’s cheque  

The Gujarat High Court last week stated that only the person who signed the cheque which bounced is liable to be prosecuted under the Negotiable Instruments Act. A spouse cannot be prosecuted for issuing a bad cheque deeming him to be an associate; the law does not permit it. The high court was dealing with the appeal of the husband who was being prosecuted for the bounced cheque signed by his wife. The court quashed the prosecution in the case, Harshad vs State of Gujarat, stating that even if the couple had a joint bank account, the signatory alone would be responsible. The law regarding vicarious liability of a company, which is a juristic person, and the officials of the corporate entity would not be applicable in this case. The high court cited a few cases from Delhi and Haryana in which wives were prosecuted for bad cheque signed by their husbands, as they had joint accounts. Those high courts had stressed that only the signatory to the cheque is responsible, except in the case of directors and officials of companies who were in charge of the issuing cheques. 

Fincorp can choose speedy remedy 

A financial institution can withdraw a suit for recovery of loans and then invoke the faster remedies available under special laws, the Supreme Court stated in the judgment, Himachal Pradesh Financial Corporation vs Anil Garg. In this case, two loans were taken from the state corporation, but the borrower repaid only small amount. Therefore, the corporation filed a regular suit before a civil judge. Later, it was withdrawn unilaterally because the Himachal Pradesh Public Moneys (Recovery of Dues) Act provided a speedier remedy to recover loans. The borrower challenged this move in the high court, arguing that once the suit was withdrawn, the corporation can be presumed to have abandoned its claim. The high court allowed the petition and stopped the auction of the mortgaged vehicles. The financial corporation appealed to the Supreme Court contending that it had not abandoned the claim but the withdrawal was made to initiate fresh proceedings under the Act, as it provided for a more speedy and effective remedy, under a special law.  The Supreme Court allowed the auction stating that the withdrawal of suit did not bar a fresh petition under the Act.  “The loan was disbursed from public funds of the taxpayers’ money. The borrower was a trustee for the loan amount. It could not become a windfall for him,” the judgment said. 

Design row sent to commercial court 

The Bombay High Court has passed an order of injunction under the Designs Act in a dispute between two plastic water bottle manufacturers. Cello Household Products alleged that a rival, Modware India, is selling a product, Kudoz, with the same design as Cello’s Puro, which is an infringement of its design and additionally, passing off. Cello argued that its design has both novelty and originality. Agreeing with Cello and comparing the two products, the court stated that “everything points but in one direction that Modware was attempting to deceive consumers into believing that its products came from the house of Cello. This is, therefore, prima facie, an attempt calculated to deceive and the deception and misrepresentation is as to source or origin.” The court made two notable observations: The suit must now go to the commercial division according to the new Commercial Courts, Commercial Division & Commercial Appellate Division of High Courts Act 2015. The judgment also noted that now the losing party must pay costs to the winner. If the court deviates from the new rule, it must provide reasons. In this case, Modware was spared the fine because its counsel was “fair and argued the case with admirable economy of time”.