Case: Indian Oil Corp.Ltd Vs. M/S Raja Transport(P) Ltd

any prescribed time limit, within a reasonable time, will enable the aggrieved party to file a petition under Section 11(6) of the Act.(v) Where the appointment procedure has been agreed between the parties, but the cause of action for invoking the jurisdiction of the Chief Justice or his designate under clauses (a), (b) or (c) of sub-section (6) has not arisen, then the question of Chief Justice or his designate exercising power under sub-section (6) does not arise. The condition precedent for approaching the Chief Justice or his designate for taking necessary measures under sub-section (6) is that (i) a party failing to act as required under the agreed appointment procedure; or (ii) the parties (or the two appointed arbitrators), failing to reach an agreement expected of them under the agreed appointment procedure; or (iii) a person/institution who has been entrusted with any function under the agreed appointment procedure, failing to perform such function.(vi) The Chief Justice or his designate while exercising power under sub-section (6) of section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause.(vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else. Re : Question (iii) 22. In this case, the respondent approached the Chief Justice of the High Court by alleging that it had acted in terms of the agreed procedure under the arbitration agreement, and that the appellant had failed to act as required under the appointment procedure. Therefore, the respondent invoked the power of the Chief Justice under sub-section (6) of section 11. In view of it, what falls for consideration is whether the appellant had failed to act as required under the appointment procedure. This pre-supposes that the respondent had called upon the appellant to act as required under the agreed appointment procedure. Let us examine whether the respondent had in fact called upon the appellant to act in accordance with the agreed procedure. 23. When the dispute arose, the respondent did not seek arbitration, but went to civil court. It was the appellant who sought reference to arbitration in terms of the arbitration agreement. The order dated 16.11.2005 of the Civil Judge, Junior Division directing reference to arbitration within two months from 16.11.2005 was challenged by both the parties. The District Judge, Dehradun by its order dated 20.1.2006 directed the parties to refer the dispute to arbitrator as per agreement, within two months. Therefore, the order dated 16.11.2005 stood merged with the order of the District Judge dated 20.1.2006, which directed reference of the dispute to arbitration as per the agreement, within two months. But there was no direction by the court to appoint an independent arbitrator contrary to the terms of the arbitration agreement. In view of the order dated 20.1.2006, the respondent ought to have referred the dispute to the Director (Marketing) of the appellant within two months from 20.1.2006. It failed to do so. Therefore, 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. 24. We may now deal with the notice dated 4.1.2006 by which the respondent notified the appellant that it was not willing for appointment of arbitrator in terms of the agreement and that both should therefore hold discussions to decide upon an independent arbitrator. The letter dated 4.1.2006 cannot, be construed as a step taken by the respondent for invoking arbitration in terms of the arbitration agreement, as it is a demand in violation of the terms of arbitration agreement. It required the appellant to agree upon an arbitrator, contrary to the provisions of the arbitration agreement. If the respondent wanted to invoke arbitration in terms of the arbitration agreement, it ought to have referred the disputes to the Director (Marketing) in term of section 69 of the contract agreement for arbitration. Alternatively, the respondent ought to have at least called upon the appellant, to refer the dispute to the Director (Marketing) for arbitration. In the absence of any such a demand under clause 69, it cannot be said that the respondent invoked the arbitration clause or took necessary steps for invoking arbitration in terms of the arbitration agreement. If the respondent had called upon the appellant to act in a manner contrary to the appointment procedure mentioned in the arbitration agreement, it cannot be said that the appellant failed to respond and act as required under the agreed procedure. As the letter dated 4.1.2006 could not be construed as a valid demand for arbitration, the finding of the learned Chief Justice that non-compliance with such request would enable the respondent to appoint an independent arbitrator, is clearly illegal. What is significant is that even subsequent to the order dated 20.1.2006 passed by the District Court, the respondent did not refer the disputes to the Director (Marketing) of the appellant nor called upon the appellant to refer to the disputes in terms of the arbitration agreement, nor withdraw its earlier letter dated 4.1.2006 demanding appointment of an independent arbitrator contrary to the agreed procedure under the arbitration agreement. 25. In the circumstances, the third question is answered in the negative. Consequently, 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 (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]13. 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 Arbitrator. Section 11(8) of the Act requires the Chief Justice or his designate, in appointing an arbitrator, to 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 or impartial arbitrator". Section 12(1) requires an Arbitrator, when approached in connection with his possible appointment, to disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. Sub-section 12(3) enables the Arbitrator being challenged if (i) the circumstances give rise to justifiable doubts as to his independence or impartiality, or (ii) he does not possess the qualifications agreed to by the parties. Section 18 requires the Arbitrator to treat the parties with equality (that is to say without bias) and give each party full opportunity to present his case. 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 (2) of section 11 provides that parties are free to agree upon a procedure for appointment of arbitrator/s. Sub-section (6) provides that where a party fails to act, as required under the procedure prescribed, the Chief Justice or his designate can take necessary measures. 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. The fact that the named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality of lack of independence on his part.Before parting from this issue, we may however refer to a ground reality. Contractors in their anxiety to secure contracts from government/ statutory bodies/public sector undertakings, agree to arbitration clauses providing for employee-arbitrators. But when subsequently disputes arise, they balk at the idea of arbitration by such employee-arbitrators and tend to litigate to secure an "independent" arbitrator. The number of litigations seeking appointment of independent Arbitrator bears testimony to this vexed problem. It will be appropriate if governments/statutory authorities/public sector undertaking reconsider their policy providing for arbitration by employee-arbitrators in deference to the specific provisions of the new Act reiterating the need for independence and impartiality in Arbitrators. A general shift may in future be necessary for understanding the word "independent" as referring to someone not connected with either party. That may improve the credibility of Arbitration as an alternative dispute resolution process. Be that as it may.In the light of the above discussion, the scope of section 11 of the Act containing the scheme of appointment of arbitrators may be summarisedWhere the agreement provides for arbitration with three arbitrators (each party to appoint one arbitrator and the two appointed arbitrators to appoint a third arbitrator), in the event of a party failing to appoint an Arbitrator within 30 days from the receipt of a request from the other party (or the two nominated arbitrators failing to agree on the third arbitrator within 30 days from the date of the appointment), the Chief Justice or his designate will exercise power under sub-section (4) of section 11 of the Act.(ii) Where the agreement provides for arbitration by a sole arbitrator and the parties have not agreed upon any appointment procedure, the Chief Justice or his designate will exercise power under sub-section (5) of section 11, if the parties fail to agree on the arbitration within thirty days from the receipt of a request by a party from the other party.(iii) Where the arbitration agreement specifies the appointment procedure, then irrespective of whether the arbitration is by a sole arbitrator or by a three-member Tribunal, the Chief Justice or his designate will exercise power under sub-section (6) of section 11, if a party fails to act as required under the agreed procedure (or the parties or the two appointed arbitrators fail to reach an agreement expected of them under the agreed procedure or any person/institution fails to perform any function entrusted to him/it under that procedure).(iv) While failure of the other party to act within 30 days will furnish a cause of action to the party seeking arbitration to approach the Chief Justice or his designate in cases falling under sub-sections (4) & (5), such a time bound requirement is not found in sub-section (6) of section 11. The failure to act as per the agreed procedure within the time limit prescribed by the arbitration agreement, or in the absence of any prescribed time limit, within a reasonable time, will enable the aggrieved party to file a petition under Section 11(6) of the Act.(v) Where the appointment procedure has been agreed between the parties, but the cause of action for invoking the jurisdiction of the Chief Justice or his designate under clauses (a), (b) or (c) of sub-section (6) has not arisen, then the question of Chief Justice or his designate exercising power under sub-section (6) does not arise. The condition precedent for approaching the Chief Justice or his designate for taking necessary measures under sub-section (6) is that (i) a party failing to act as required under the agreed appointment procedure; or (ii) the parties (or the two appointed arbitrators), failing to reach an agreement expected of them under the agreed appointment procedure; or (iii) a person/institution who has been entrusted with any function under the agreed appointment procedure, failing to perform such function.(vi) The Chief Justice or his designate while exercising power under sub-section (6) of section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause.(vii) If circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the person nominated, or if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, the Chief Justice or his designate may, for reasons to be recorded ignore the designated arbitrator and appoint someone else.In the circumstances, the third question is answered in the negative. Consequently, 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.