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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2673 OF 2013
(Arising out of SLP(C) No. 24686 of 2007)
M/s. Deep Trading Company …… Appellant
Vs.
M/s. Indian Oil Corporation and Ors. ……Respondents
JUDGMENT
R.M. LODHA, J.
Leave granted.
2. The questions that arise for consideration in this appeal, by
special leave are,
whether respondent No. 1 has forfeited its right to
appoint the arbitrator having not done so after the demand was made and
till the appellant had moved the court under Section 11(6) and, if the
answer is in the affirmative, whether the appointment of the arbitrator by
respondent No. 1 in the course of the proceedings under Section 11(6) is of
any legal consequence and the Chief Justice of the High Court ought to
have exercised the jurisdiction and appointed an arbitrator?
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3. The above questions arise from these facts : On 01.11.1998,
an agreement for kerosene/LDO dealership was entered into between the
first respondent – Indian Oil Corporation (for short, “the Corporation”) and
the appellant – Deep Trading Company (for short, “the dealer”) for the retail
sales supply of kerosene and light diesel oil in the area specified in the
schedule. In the course of dealership agreement allegedly some violations
were committed by the dealer. Following the show cause notice dated
04.03.2004, the Corporation on 12.03.2004 suspended the sales and
supplies of all the products to the dealer with immediate effect.
4. Aggrieved by the action of the Corporation, the dealer filed a
petition under Section 9 of the Arbitration and Conciliation Act, 1996 (for
short, “1996 Act”) before the District Judge, Etawah seeking an order of
injunction against the Corporation from stopping the supply of
Kerosene/LDO. On 25.03.2004, the District Judge, Etawah passed a
restraint order against the Corporation.
5. The Corporation challenged the order of the District Judge,
Etawah dated 25.03.2004 before the Allahabad High Court and also prayed
for an interim relief. On 12.07.2004, the Allahabad High Court refused to
grant any interim relief to the Corporation.
6. On 09.08.2004, the dealer made a demand to the Corporation
by a written notice to refer the disputes between the parties to the arbitrator
under the terms of the agreement. In the demand notice, it was also stated
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by the dealer that if the Corporation fails to appoint the arbitrator, the
dealer may be constrained to approach the court under Section 11 of the
1996 Act.
7. It appears that the Corporation challenged the order of the
Allahabad High Court in the special leave petition before this Court but
that was dismissed on 06.12.2004 being an interlocutory order.
8. On or about 06.12.2004, the dealer moved the Chief Justice of
the Allahabad High Court under Section 11(6) for the appointment of an
arbitrator as the Corporation had failed to act under the agreement. While
the said proceedings were pending, on 28.12.2004, the Corporation
appointed Shri B. Parihar, Senior Manager, (LPG Engineering) of its U.P.
State Office as the sole arbitrator.
9. When the above application came up for consideration, the Chief
Justice found no reason to appoint the arbitrator, as sought by the dealer,
since the arbitrator had already been appointed by the Corporation. The
brief order dated 06.12.2007, by which the dealer’s application under
Section 11(6) was dismissed by the Chief Justice of the Allahabad High
Court, reads as under:
“1. Heard Mr. Siddharth Singh, in support of this application
and Mr. Prakash Padia, learned counsel appearing for the
respondents.
2. The dispute in this matter is regarding suspension of
the petitioner’s agency as a kerosene dealer for sometime.
The applicant applied for appointment of an arbitrator by
writing a letter in March, 2004, but filed the present
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proceeding on 06.12.2004. An Arbitrator was appointed by
the respondents on 28.12.2004. Earlier arbitrator has been
replaced by another arbitrator.
3. The contract of the applicant is continuing with the
respondents in view of an injunction granted by the Civil
Court.
4. The submission of the applicant is that the
respondents ought to have moved within thirty days from the
date of a request being made. In any case arbitrator has
been appointed within thirty days from the filing of the
application. Mr. Siddharth Singh, says that the arbitrator
conduct should have been appointed after filing of an
application under Section 11 of the Arbitration and
Conciliation Act.
5. In my view, there is no reason to appoint any fresh
arbitrator, as sought by the applicant.
6. The application is dismissed.”
10. Clause 29 of the agreement dated 01.11.1998 provides as
under:
“29. Any dispute or difference of any nature whatsoever or
regarding any right, liability, act, omission on account of any
of the parties here to arising out or in relation to this
Agreement shall be referred to the sole arbitration of the
Director (Marketing) of the Corporation, or of some Officer of
the Corporation who may be nominated by the Director
(Marketing). It is known to the parties to the Agreement that
the arbitrator so appointed is a share holder and employee
of the Corporation. In the event of the arbitrator to whom the
matter is originally referred being transferred or vacating his
office or being unable to act for any reason, the Director
(Marketing) as aforesaid at the time of such transfer,
vacation of office or inability to act, shall designate another
person to act as arbitrator in accordance with the terms of
the Agreement. Such person shall be entitled to proceed
with the reference from the point at which it was left by his
predecessor. It is also a term of this contract that no person
other than the Director (Marketing) or a person nominated
by such Director (Marketing) of the Corporation as aforesaid
shall act as arbitrator hereunder. The award of the arbitrator
so appointed shall be final conclusive and binding on all
parties, to the Agreement, subject to the provisions of the
Arbitration and Conciliation Act, 1996 or any statutory
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modification of or reenactment thereof and the rules made
thereunder and for the time being in force shall apply to the
arbitration proceeding under this clause.
The award shall be made in writing within six months after
entering upon the reference or within such extended time
not exceeding further four months as the sole arbitrator shall
by a writing under his own hands appoint.”
11. Sub-sections (1), (2), (6) and (8) of Section 11 are relevant for
consideration of the present matter which read as follows :
“11. Appointment of arbitrators.—(1) A person of any
nationality may be an arbitrator, unless otherwise agreed by
the parties.
(2) Subject to sub-section (6), the parties are free to agree
on a procedure for appointing the arbitrator or arbitrators.
(3) to (5) xxx xxx xxx
(6) Where, under an appointment procedure agreed upon by
the parties,-
(a) a party fails to act as required under that
procedure; or
(b) the parties, or the two appointed arbitrators, fail to
reach an agreement expected of them under that
procedure; or
(c) a person, including an institution, fails to perform
any function entrusted to him or it under that
procedure,
a party may request the Chief Justice or any person or
institution designated by him to take the necessary
measure, unless the agreement on the appointment
procedure provides other means for securing the
appointment.
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(7) xxx xxx xxx
(8) The Chief Justice or the person or institution designated
by him, in appointing an arbitrator, shall have due regard to-
(a) any qualifications required of the arbitrator by the
agreement of the parties; and
(b) other considerations as are likely to secure the
appointment of an independent and impartial
arbitrator.
(9) to (12) xxx xxx xxx”.
12. Sub-sections (3), (4) and (5) of Section 11 have no application
in the present case as the parties have agreed on a procedure for
appointing the arbitrator in Clause 29. Sub-section (2) provides that
subject to sub-section (6), the parties are free to agree on a procedure for
appointing the arbitrator or arbitrators. Sub-section (6) makes provision for
making an application to the concerned Chief Justice for appointment of an
arbitrator in three circumstances, (a) a party fails to act as required under
the agreed procedure or (b) the parties or the two appointed arbitrators fail
to reach an agreement expected of them under that procedure or (c) a
person, including an institution, fails to perform any function entrusted to
him or it under that procedure. If one of the three circumstances is satisfied,
the Chief Justice may exercise the jurisdiction vested in him under Section
11(6) and appoint the arbitrator. In the present case, the dealer moved the
Chief Justice of the Allahabad High Court under Section 11(6)(a) for an
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appointment of the arbitrator as the Corporation failed to act as required
under Clause 29.
13. The three basic facts are not in dispute, namely, (i) on
09.08.2004, the dealer called upon the Corporation by a written notice to
appoint an arbitrator in accordance with the terms of Clause 29 of the
agreement; (ii) the dealer made an application under Section 11(6) for
appointment of the arbitrator on 06.12.2004; and (iii) the Corporation
appointed the sole arbitrator on 28.12.2004 after the application under
Section 11(6) was already made by the dealer.
14. On behalf of the appellant, Mr. K.K. Venugopal, learned senior
counsel, relied heavily upon decisions of this Court, (one) Datar
Switchgears1
and (two) Punj Lloyd2 and submitted that the learned Chief
Justice erred in holding that there was no reason to appoint any fresh
arbitrator since the arbitrator has been appointed by the Corporation.
15. Mr. Abhinav Vashishta, learned senior counsel for the
respondents, on the other hand, relied upon a decision of this Court in
Northern Railway Administration3 and submitted that while considering
application under Section 11(6) for appointment of arbitrator, the Court
must keep in view twin requirements of Section 11(8) and, seen thus, the
view of the learned Chief Justice in the impugned order does not call for
any interference.
1
Datar Switchgears Ltd. v. Tata Finance Ltd. and Another: [(2000) 8 SCC 151]
2
Punj Lloyd Ltd. v. Petronet MHB Ltd.: [(2006) 2 SCC 638]
3
Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company
Limited: [(2008) 10 SCC 240]
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16. In Datar Switchgears1
, a two-Judge Bench of this Court
considered the scheme of Section 11, noted the distinguishing features
between Section 11(5) and Section 11(6) and then considered the question
whether in a case falling under Section 11(6), the opposite party cannot
appoint an arbitrator after the expiry of thirty days from the date of demand.
This Court held that in cases arising under Section 11(6), if the opposite
party has not made an appointment within thirty days of the demand, the
right to make appointment is not forfeited but continues, but such an
appointment has to be made before the first party makes application under
Section 11 seeking appointment of an arbitrator. If no appointment has
been made by the opposite party till application under Section 11(6) has
been made, the right of the opposite party to make appointment ceases
and is forfeited.
17. In Punj Lloyd2
, the agreement entered into between the parties
contained arbitration clause. The disputes and differences arose between
the parties. Punj Lloyd (appellant) served a notice on Petronet (respondent)
demanding appointment of an arbitrator and reference of disputes to him.
Petronet failed to act. On expiry of thirty days, Punj Lloyd moved the Chief
Justice of the High Court for appointment of the arbitrator under Section
11(6). Petronet had not made appointment till the date of moving the
application. The designate Judge refused to appoint the arbitrator holding
that the remedy available to it was to move in accordance with the
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agreement. Aggrieved by the said order, a writ petition was filed which was
dismissed and the matter reached this Court. A three-Judge Bench of this
Court referred to Datar Switchgears1
and held that the matter was covered
squarely by that judgment and the view taken by the designate Judge in
dealing with the application under Section 11(6) and the Division Bench
was not right. This Court restored the application under Section 11(6)
before the Chief Justice of the High Court for fresh consideration and
appointment of the arbitrator in accordance with Section 11(6).
18. We are in full agreement with the legal position stated by this
Court in Datar Switchgears1 which has also been followed in Punj Lloyd2
.
19. Section 11(8) provides that Chief Justice or the designated
person or institution, in appointing an arbitrator, shall have due regard to
two aspects, (a) qualifications required of the arbitrator by the agreement
of the parties; and (b) other considerations as are likely to secure the
appointment of an independent and impartial arbitrator. In Northern
Railway Administration3
, a three-Judge Bench of this Court considered the
scheme of Section 11. Insofar as Section 11(8) is concerned, this Court
stated that appointment of the arbitrator or arbitrators named in the
arbitration agreement is not a must, but while making the appointment the
twin requirements mentioned therein have to be kept in view.
20. If we apply the legal position exposited by this Court in Datar
Switchgears1 to the admitted facts, it will be seen that the Corporation has
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forfeited its right to appoint the arbitrator. It is so for the reason that on
09.08.2004, the dealer called upon the Corporation to appoint the arbitrator
in accordance with terms of Clause 29 of the agreement but that was not
done till the dealer had made application under Section 11(6) to the Chief
Justice of the Allahabad High Court for appointment of the arbitrator. The
appointment was made by the Corporation only during the pendency of the
proceedings under Section 11(6). Such appointment by the Corporation
after forfeiture of its right is of no consequence and has not disentitled the
dealer to seek appointment of the arbitrator by the Chief Justice under
Section 11(6). We answer the above questions accordingly.
21. Section 11(8) does not help the Corporation at all in the fact
situation. Firstly, there is no qualification for the arbitrator prescribed in the
agreement. Secondly, to secure the appointment of an independent and
impartial arbitrator, it is rather necessary that someone other than an officer
of the Corporation is appointed as arbitrator once the Corporation has
forfeited its right to appoint the arbitrator under Clause 29 of the
agreement.
22. Learned senior counsel for the Corporation, however, referred
to an unreported order of this Court in Newton Engineering4
. The arbitration
clause in that case was similar to the arbitration clause in the present case.
The contractor had written to the Corporation to appoint E.D. (NR) as sole
4
M/s. Newton Engineering and Chem. Ltd. v Indian Oil Corporation Ltd. & Ors.: [Civil Appeal No.
7587 of 2012; Decided on 18.10.2012]
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arbitrator as per the agreement. But the Corporation wrote back to the
contractor that office of E.D. (NR) has ceased to exist due to internal reorganisation. The Corporation offered to the contractor to substitute E.D.
(NR) with Director (Marketing) to which contractor did not agree. The
Corporation then appointed Director (Marketing) as arbitrator. The
contractor made an application under Section 11(6)(c) read with Sections
13 and 15 of the 1996 Act for appointment of a retired Judge as a sole
arbitrator. The Single Judge dismissed the petition filed by the contractor.
Against that order, the special leave petition was filed by the contractor.
This Court in paragraph 9 of the order stated as follows :
“9. Having regard to the express, clear and unequivocal
arbitration clause between the parties that the disputes
between them shall be referred to the sole arbitration of the
ED(NR) of the Corporation and, if ED(NR) was unable or
unwilling to act as the sole arbitrator, the matter shall be
referred to the person designated by such ED(NR) in his
place who was willing to act as sole arbitrator and, if none of
them is able to act as an arbitrator, no other person should
act as arbitrator, the appointment of Director (Marketing) or
his nominee as a sole arbitrator by the Corporation cannot
be sustained. If the office of ED(NR) ceased to exist in the
Corporation and the parties were unable to reach to any
agreed solution, the arbitration clause did not survive and
has to be treated as having worked its course. According to
the arbitration clause, sole arbitrator would be ED(NR) or his
nominee and no one else. In the circumstances, it was not
open to either of the parties to unilaterally appoint any
arbitrator for resolution of the disputes. Sections 11(6)(c), 13
and 15 of the 1996 Act have no application in light of the
reasons indicated above.”
23. We are afraid that what has been stated above has no
application to the present fact situation. In Newton Engineering4
, this Court
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was not concerned with the question of forfeiture of right of the Corporation
for appointment of an arbitrator. No such argument was raised in that case.
The question raised in Newton Engineering4 was entirely different.
In the
present case, the Corporation has failed to act as required under the
procedure agreed upon by the parties in Clause 29 and despite the
demand by the dealer to appoint the arbitrator, the Corporation did not
make appointment until the application was made under Section 11(6).
Thus, the Corporation has forfeited its right of appointment of an arbitrator.
In this view of the matter, the Chief Justice ought to have exercised his
jurisdiction under Section 11(6) in the matter for appointment of an
arbitrator appropriately.
The appointment of the arbitrator by the
Corporation during the pendency of proceedings under Section 11(6) was
of no consequence.
24. In the course of arguments before us, on behalf of the
appellant certain names of retired High Court Judges were indicated to the
senior counsel for the Corporation for appointment as sole arbitrator but the
Corporation did not agree to any of the names proposed by the appellant.
In the circumstances, we are left with no choice but to send the matter back
to the Chief Justice of the Allahabad High Court for an appropriate order on
the application made by the dealer under Section 11(6).
25. Civil Appeal is, accordingly, allowed.
The impugned order is
set aside. Arbitration Case No. 107 of 2004, M/s. Deep Trading Company
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v. M/s. Indian Oil Corporation and others, is restored to the file of the High
Court of Judicature at Allahabad for fresh consideration by the Chief
Justice or the designate Judge, as the case may be, in accordance with law
and in light of the observations made above. No costs.
……………………….J.
(R.M. Lodha)
..…..………………...J.
(J. Chelameswar)
.……………………...J.
(Madan B. Lokur)
NEW DELHI
MARCH 22, 2013.
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