PNP 1 ARP3-28.1.sxw IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION ARBITRATION PETITION NO.3 OF 2011 Solutions Advertising ..Petitioner. versus Thane Municipal Corporation and others ..Respondents. ..... Mr. S.K. Shinde with Mr. Prashant D. Jadhav and Mr. M.N. Sandhyanshiv for the Petitioner. Mr. R.S. Apte, Senior Advocate with Mr. Mandar Limaye for Respondents 1 and 3. ...... CORAM : DR.D.Y.CHANDRACHUD, J. 28 January 2011. ORAL JUDGMENT : 1. The Petitioner seeks the appointment of an arbitrator under Section 11(6) of the Arbitration and Conciliation Act 1996. Under an agreement entered into between the Petitioner with the First Respondent on 19 September 2008, the Petitioner agreed to construct 298 bus shelters and to maintain 172 bus shelters and to supply 9 transport buses to the Transport Undertaking of the Thane Municipal Corporation. As consideration for the services to be performed, the Petitioner was permitted to display advertisements for a stipulated period. The contract was terminated on 25 October 2010. The Petitioner thereupon moved an application under Section 9 of the Arbitration and Conciliation Act of 1996 before the Principal District Judge, Thane. By an interim order dated 21 December 2010, the PNP 2 ARP3-28.1.sxw learned trial judge restrained the Undertaking from preventing the Petitioner from putting advertisements on 470 bus stops pursuant to the agreement until the disputes / claims were taken before the arbitrator under clause 85 of the agreement. Clause 85 of the agreement stipulates that all differences and disputes between the parties shall be referred to the sole arbitration of the Commissioner of the Thane Municipal Corporation. The arbitration agreement was invoked by the Transport Undertaking on 24 December 2010. The Petitioner by its letter dated 13 January 2011 objected to the appointment of the Commissioner on the ground that he was a party to the agreement dated 19 September 2008. Thereupon the Petitioner instituted these proceedings for the exercise of the jurisdiction under Section 11(6). 2. Counsel appearing on behalf of the Petitioner submitted that the Commissioner of the Thane Municipal Corporation should not act as an arbitrator since the Petitioner has justifiable doubts about his impartiality. Learned counsel, during the course of the hearing, submitted that the objections which have been raised in the Petitioner s letter dated 13 January 2011 that the Commissioner was a ’ party to the agreement may not be strictly correct since the agreement has been entered into between the Transport Undertaking and the Petitioner. However, it was submitted that when the contract was awarded, Clause 5 states that the award of the contract has been approved by the Municipal Corporation and the approval forms a part of the agreement. The resolution of the Municipal Corporation for the award of the contract in turn refers to the approval of the transport committee dated 23 July 2008 and to the recommendation PNP 3 ARP3-28.1.sxw made by the Commissioner for the award of the contract. On these grounds, it has been submitted that this Court should appoint an independent arbitrator. 3. Counsel appearing on behalf of the Respondents submitted that as a matter of fact, the Transport Undertaking of the Municipal Corporation functions independently and is presided over by the Transport Manager. Besides, it has been submitted that though the resolution for the award of the contract to the Petitioner was recommended by the Commissioner, the Commissioner has had no role whatsoever to play in the actual execution of the contract or the supervision of the work to be performed. Moreover, it has been submitted that the Commissioner has already entered upon the proceedings. The next meeting is to be held on 31 January 2011. Learned counsel submitted that in the event that the Petitioner has any doubt about the impartiality of the arbitrator, the provisions of Sections 12 and 13 provide an adequate remedy and that therefore having regard to the fact that the Commissioner has already entered upon the arbitral proceedings, this Petition should not be entertained. 4. In Northern Railway Administration, Ministry of Railway v. Patel Engineering Company Limited1 a Bench of three Learned Judges of the Supreme Court observed that while taking a measure under Section 11(8), the Chief Justice or his designate must have due regard to the two conditions relating to qualifications and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. The Supreme Court held that 1 (2008) 10 SCC 240. PNP 4 ARP3-28.1.sxw the scheme of Section 11 shows that the emphasis is on the terms of the agreement being adhered to or given effect to as closely as possible. In a subsequent decision in Indian Oil Corporation Limited v. Raja Transport Private Limited2, the Supreme Court, while adverting to the decisions on the subject noted that it is common for entities of the State, including corporations to enter into contracts providing for the resolution of disputes by arbitration; the arbitrator being a senior officer of the undertaking. The Supreme Court observed that if a contracting party, despite knowledge and awareness of such a provision enters into a contract with the State or its instrumentalities, a contracting party cannot subsequently contend that while it is agreeable to a settlement of disputes by arbitration, this should not be through the modality of the named arbitrator who is an employee of the undertaking. The judgment of the Supreme Court emphasized that a party cannot claim the benefit of an arbitration while at the same time renouncing that part of the appointment procedure relating to a named arbitrator in the agreement. A provision that an employee of the department would be an arbitrator is neither void nor unenforceable. This provision which obtained under the Act of 1940 would govern the provisions of the Act of 1996 as well. In that context, the Supreme Court observed as follows : We find no bar under the new Act, for an arbitration “ agreement providing for an employee of a Government/ statutory corporation / public sector undertaking (which is a party to the contract), acting as an arbitrator. .... 2 (2009) 8 SCC 520. PNP 5 ARP3-28.1.sxw Nothing in Sections 11, 12, 18 or other provisions of the Act 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. .... Sub-section (8) gives the discretion to the Chief Justice / his designate to choose an arbitrator suited to meet the requirements of a particular case. The said power is in no way intended to nullify a specific term of arbitration agreement naming a particular person as arbitrator. The power under sub- section (8) is intended to be used keeping in view the terms of the arbitration agreement.” 5. The Supreme Court in its decision in Indian Oil Corporation (supra) held that while the fact that a named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his part, there may be a justifiable apprehension about the independence or impartiality of an employee arbitrator, if the person was the controlling or the dealing authority in regard to the subject contract or if he was a direct subordinate of the officer whose decision is the subject matter of the dispute. In such a case if any circumstance exists to create a reasonable apprehension about the impartiality or independence of the named arbitrator, the Court has a discretion not to appoint such a person. 6. In the present case on the record as it stands it is not possible to hold that there are justifiable doubts as regards the independence or impartiality of the Commissioner of the Thane Municipal PNP 6 ARP3-28.1.sxw Corporation. The contract in the present case has been entered into with the Transport Undertaking of the Corporation. Undoubtedly, the Transport Undertaking is an arm of the Municipal Corporation. Under Section 40 of the Bombay Provincial Municipal Corporations Act 1949 the Corporation has to appoint a fit person as the Transport Manager of the Transport Undertaking. Section 73 provides that for the making of contracts under or for any purpose of the Act, every contract shall be made on behalf of the Corporation by the Commissioner. Contracts of a certain value have to be previously approved by the Standing Committee. Section 75 provides that for the purpose of contracts relating to the Transport Undertaking, the provisions of Section 73 and those of Chapter V of the Schedule shall apply as if for the word Commissioner the words Transport “ ” “ Manager and for the words Standing Committee the words ” “ ” Transport Committee have been substituted. Under Section 346 the “ ” Transport Manager has to prepare and bring before the Transport Committee a statement setting forth the designations and grades of the officers and servants, who should be permanently maintained for the purpose of the Undertaking. The power of appointing Municipal officers and servants for the purpose of the Transport Undertaking vests in the Transport Manager if the minimum monthly salary is less than Rs.2,000/- and in the Transport Committee in all other cases. The manner in which the transport fund has to be dealt with by the Transport Manager is enunciated in several Sections including Sections 352. 353, 355 and 357 of the Bombay Provincial Municipal Corporations Act 1949. 7. The record before this Court in these proceedings under Section PNP 7 ARP3-28.1.sxw 11 does not indicate that the Commissioner of the Thane Municipal Corporation was either associated with the actual execution of the work under the contract or that he had taken any decision in respect of the matters which formed the subject matter of the dispute between the parties. The mere fact that the Commissioner, when the contract was initially awarded to the Petitioner, had appended his recommendation for the award of the contract when a resolution was passed by the Municipal Corporation is not a circumstance which by itself would give rise to doubts about his independence or impartiality. The Petitioner, having agreed to a named arbitrator, is not entitled to seek the benefit of arbitration while renouncing the procedure under which the Municipal Commissioner has been named in the contract as an arbitrator. 8. Since however this proceeding is one under Section 11, it would be necessary to clarify that these observations are tentative observations of the Court in aid of the conclusion that since parties have agreed to a named arbitrator viz. the Municipal Commissioner for the resolution of disputes in arbitration, such a provision is neither void nor unenforceable and there is no justifiable reason for this Court to dispense with the agreed procedure in relation to the appointment of the arbitrator. In the event that the Petitioner seeks to challenge the arbitrator on any of the grounds mentioned in Section 12, it would be open to the Petitioner to do so by following the procedure under Section 13. In that event, the observations contained in this order would not be construed as any final expression of opinion. PNP 8 ARP3-28.1.sxw 9. For the aforesaid reasons, no case for the appointment of an arbitrator in the exercise of the jurisdiction under Section 11 has been made out. The Commissioner of the Thane Municipal Corporation who is a named arbitrator under Clause 85 of the agreement has already assumed jurisdiction in the dispute between the parties. The Petition is dismissed. (Dr. D.Y. Chandrachud, J.)