“A person being an employee of one of the parties cannot per se be a bar to his acting as an Arbitrator.”
| Case name: | Indian Oil Corporation Ltd. & Ors. V. M/s Raja Transport (P) Ltd. |
| Case number: | CIVIL APPEAL NO. 5760 OF 2009 |
| Court: | THE SUPREME COURT OF INDIA |
| Bench: | R. V. Raveendran J, D. K. Jain J |
| Decided on: | August 24, 2009 |
| Relevant Act/Sections: |
- BRIEF FACTS AND PROCEDURAL HISTORY:
- Under an agreement dated 28.2.2005, the appellant appointed the respondent as its dealer for retail sale of petroleum products. Clause 69 of the said agreement provided for settlement of disputes by arbitration.
- By letter dated 6.8.2005, the appellant terminated the dealership of the respondent on the recommendation of its Vigilance Department. The respondent filed Suit No.43/2005 in the Court of Civil Judge, Junior Division, Rishikesh, Dehradun for a declaration that the order of termination of dealership dated 6.8.2005 was illegal and void and for a permanent injunction restraining the appellant from stopping supply of petroleum products to its retail outlet.
- The learned Civil Judge, by order dated 16.11.2005 directed the parties to refer the matter to arbitration within two months, with a further direction that appellant shall not stop supplies to the respondent for a period of two months.
- Both appellant and respondent challenged the order dated 16.11.2005. The learned District Judge dismissed both the appeals but allowed the application under section 9 of the Act and restrained the appellant herein from interrupting the supply of petroleum products to respondent for a period of two months, and directed the parties to refer the matter to arbitration as per the agreement within the said period of two months.
- The respondent issued a notice dated 4.1.2006 through its counsel alleging that it did not expect fair treatment or justice, if the Director (Marketing) or any other employee of the appellant was appointed as arbitrator, and that therefore any such appointment would be prejudicial to its interest.
- In this background, the respondent filed an application (Arbitration Application No.2/2006) under section 11(6) of the Act in March 2006 before the Chief Justice of Uttaranchal High Court praying for appointment of an independent arbitrator to decide the dispute relating to the validity of the termination of the dealership. The learned Chief Justice, after hearing the parties allowed the application by the impugned order dated 26.9.2008, and appointed a retired High Court Judge as sole arbitrator to decide the dispute.
- This appeal by special leave is filed against the order dated 26.9.2008 of the learned Chief Justice of the Uttaranchal High Court, in a petition filed by the respondent herein, under section 11(6) of the Arbitration & Conciliation Act, 1996 whereby he appointed a retired Judge as the sole arbitrator to adjudicate upon the disputes between the parties.
- ISSUE BEFORE THE COURT:
- Whether the learned Chief Justice was justified in assuming that when an employee of one of the parties to the dispute is appointed as an arbitrator, he will not act independently or impartially?
- In what circumstances, the Chief Justice or his designate can ignore the appointment procedure or the named arbitrator in the arbitration agreement, to appoint an arbitrator of his choice?
- Whether respondent herein had taken necessary steps for appointment of arbitrator in terms of the agreement, and the appellant had failed to act in terms of the agreed procedure, by not referring the dispute to its Director (Marketing) for arbitration?
- RATIO OF THE COURT
- The Court stated that no party can say he will be bound by only one part of the agreement and not the other part, unless such other part is impossible of performance or is void being contrary to the provisions of the Act, and such part is severable from the remaining part of the agreement. No party can say he will be bound by only one part of the agreement and not the other part, unless such other part is impossible of performance or is void being contrary to the provisions of the Act, and such part is severable from the remaining part of the agreement.
- The court observed that arbitration agreements in government contracts providing that an employee of the Department (usually a high official unconnected with the work or the contract) will be the Arbitrator, are neither void nor unenforceable and referred to the cases: Executive Engineer, Irrigation Division, Puri vs. Gangaram Chhapolia, Eckersley vs. Mersey Dock and Harbour Board, Secretary to Government, Transport Department, Madras v. Munuswamy Mudaliar, S.Rajan v. State of Kerala, M/s. Indian Drugs & Pharmaceuticals v. M/s. Indo-Swiss Synthetics Germ Manufacturing Co.Ltd, Union of India v. M.P.Gupta, M/s. Indian Drugs & Pharmaceuticals v. M/s. Indo-Swiss Synthetics Germ Manufacturing Co.Ltd, Ace Pipeline Contract Pvt. Ltd. v. Bharat Petroleum Corporation Ltd
- The court observed that nothing in sections 11, 12, 18 or other provisions of the Arbitration and Conciliation Act, 1996 suggests that any provision in an arbitration agreement, naming the Arbitrator will be invalid if such named arbitrator is an employee of one of the parties to the arbitration agreement.
- For the second issue, the court referred to the cases: Ace Pipeline Contract Pvt. Ltd. (supra), Union of India v. Bharat Battery Manufacturing Company Pvt. Ltd, Northern Railway Administration v. Patel Engineering Co. Ltd. and observed that referring the disputes to the named arbitrator shall be the rule. The Chief Justice or his designate will have to merely reiterate the arbitration agreement by referring the parties to the named arbitrator or named Arbitral Tribunal. Ignoring the named Arbitrator/Arbitral Tribunal and nominating an independent arbitrator shall be the exception to the rule, to be resorted for valid reasons.
- The court stated that it was the respondent who failed to act in terms of the agreed procedure and not the appellant. In fact, as the Arbitrator was already identified, there was no need for the respondent to ask the appellant to act in accordance with the agreed procedure. On the other hand, the respondent ought to have directly referred the disputes to the Director (Marketing) of the appellant corporation in terms of the arbitration agreement.
- The court observed that the learned Chief Justice erred in having proceeded on the basis that the respondent had performed its duty in terms of the arbitration agreement in seeking reference to arbitration and that the appellant had failed to act in the matter and therefore, there was justification for appointing an independent arbitrator.
- DECISION HELD BY COURT:
- The Court held that a person being an employee of one of the parties (which is the state or its instrumentality) cannot per se be a bar to his acting as an Arbitrator.
- The appeal was allowed
- The order dated 26.9.2008 of the High Court was set aside. The Director (Marketing) of the appellant Corporation was appointed as the sole arbitrator to decide the disputes between the parties.