Case: Dene l(Proprietary Limited) Vs. Bharat Electronics Ltd. and Another

1) The Petitioner has filed the present Arbitration Petition under sub-section (6) of Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act"). It is prayed in the petition to appoint a sole arbitrator to adjudicate the dispute between the parties2) The Petitioner is a company wholly owned by the Government of the Republic of South Africa, duly incorporated as per the laws of the Republic of South Africa, with its main business address at Denel Head Office, Nelmapius Drive, Irene, Pretoria, Republic of South Africa3) The Respondent is a Corporation duly registered under the Companies Act, 1956, having its registered office at Pune, Maharashtra. It is a Government of India Enterprise, Ministry of Defence, Government of India4) The Petitioner - company had several internal divisions, one of them being Denel Eloptro at the time when the contracts between Petitioner and Respondent were entered into. The name of the said division was changed from Delnel Eloptro to Denel Ptonics with effect from 1st April, 2004. The Optronics division was not a separate legal entity, but was only a business unit of the Petitioner5) The Respondent in the year 2004, placed certain purchase orders with Denel Eloptro for supply of various electronic equipments which are listed as under:1. PUR/PN/C1/621977 dated 28th July 20042. PUR/PN/CN/621973 dated 28th July 20043. PUR/PN/C1/622029 dated 11th December 20046) The `General Terms and Conditions of the Purchase Order (Foreign) contains an Arbitration Clause. Clause 10 of the Purchase Order, inter-alia, provides for arbitration in case of dispute arising from the interpretation or from any matter relating to the rights and obligations of the parties. It also refers to the appointment of the `Managing Director or his nominee of the respondent as the arbitrator. It is not in dispute that the said Clause in the Purchase Order is a valid arbitration agreement in terms of Section 2(b) read with Section 7 of the Act. The Petitioner before the delivery of the goods to the Respondent as per the orders placed by them entered into a credit insurance policy with one Credit Guarantee Insurance Corporation of Africa Ltd. (hereinafter referred to as "Corporation") in respect of the said Purchase Orders7) The petitioner states, that, it duly performed its obligations in terms of the purchase orders and delivered the goods as ordered and the invoices were issued. The said delivery of goods was also accepted by the respondent without raising any objection. It is further stated, that, as the goods were accepted and utilized, the respondent was liable to pay the value of the goods in a sum of GBP 34,894.75(Thirty Four Thousand Eight Hundred and Ninety Four and 75 Pence Pound Sterling)8) The petitioner raised a demand with respondent for the aforesaid amount. However, the respondent vide letter dated 4th May 2005, refused to pay the said amount, only on the ground that it is a "Government Company" under the Ministry of Defence, Government of India and in view of the direction issued by the Ministry to withhold payment of the said invoices, it is unable to settle the amounts due to the petitioner9) The Insurance Corporation also requested, vide its letter dated 29th May 2006, to pay the amount raised against them. The respondent by its reply letter dated 8th June 2006 addressed to the Corporation - insurer, inter alia contended, that, as per the guide- lines issued by the Ministry of Defence, Government of India, to discontinue dealings with M/s DENEL (PYT) LTD., and withhold payment due if any, it is unable to satisfy its liability to the petitioner10) Petitioner through its Advocate addressed a letter dated 29th November, 2006, inter-alia, requesting them to make payments towards three Purchase Orders - PUR/PN/CI/621977 dated 28.07.2004, PUR/PN/CN/621973 dated 28.07.2004 and PUR/PN/CI/622029 dated 11.12.200411) The respondent through its Advocates and Solicitors, vide their letter dated 18th December, 2006, though admitted their liability towards the aforesaid Purchase Orders, refuse to settle the amounts due only on the ground, that, they are prohibited from making any payments to the petitioner by the Ministry of Defence, Government of India vide its letter/communication dated 21st April, 200512) The petitioner was constrained to issue notice dated 30th May, 2009 to the respondent which was served on the respondent and its Managing Director through fax on 30th May 2009 and through speed post and courier on 2nd June 2009 and 6th June 2009, respectively. In the said notice, the petitioner cited Clause 10 of the General Terms and Conditions of the Purchase Orders which provides for reference of disputes to arbitration and accordingly requested the respondent, to refer the disputes for adjudication in accordance with Arbitration and Conciliation Act, 1996. It was also stated, that, since the arbitration clause provides only for the appointment of Managing Director or his nominee, instead of mutually agreed independent arbitrator, the said clause is invalid and accordingly requested the respondent for appointment of mutually agreed independent arbitrator to adjudicate the disputes which have arisen between the petitioner and respondent13) In response to the notice issued by the petitioner, the respondent by its letter dated 24th June 2009 for the first time disputed its liability for the payment of the amount demanded by the petitioner. It was also stated, that the names proposed by the petitioner for the appointment of the arbitrator was not acceptable, as Clause 10 of the General Terms and Conditions of the Purchase Order does not permit the same and, further they are not willing to refer the dispute to the arbitrator, since the direction issued by the Ministry of defence is in full force and effect, and they are protected under Section 56 of the Indian Contract Act, 187214) In the light of the aforesaid factual background, the petitioner has invoked the jurisdiction of this Court by filing the petition under Section 11(6) of the Arbitration and Conciliation Act 1996, to appoint an arbitrator to resolve the dispute between the parties

Court's reasoning:
n (6) of Section 11 of the Act provides, that, when the parties fail to reach to an agreement as regards the appointment of the arbitrator, can request the Chief Justice or any person or institution designated by him to come to the rescue of the parties. Therefore, petitioner in the present case has sought the appointment of the arbitrator by this Court so that the dispute between the parties can be resolved22) In the case of Datar Switchgears Ltd. v. Tata Finance Ltd. & Anr., [(2000) 8 SCC 151] , this Court while considering the powers of the Court to appoint arbitrator under Section 8 of the Arbitration Act, 1940, cited the decision of this Court in the case of Bhupinder Singh Bindra v. Union of India and Anr. [AIR1995 SC 2464]. It was held in that case that "It is settled law that court cannot interpose and interdict the appointment of an arbitrator, whom the parties have chosen under the terms of the contract unless legal misconduct of the arbitrator, fraud, disqualification etc. is pleaded and proved. It is not in the power of the party at his own will or pleasure to revoke the authority of the arbitrator appointed with his consent. There must be just and sufficient cause for revocation." The said principle has to abide by in the normal course. However, considering the peculiar conditions in the present case, whereby the arbitrator sought to be appointed under the arbitration clause, is the Managing Director of the company against whom the dispute is raised (the Respondents). In addition to that, the said Managing Director of Bharat Electronics Ltd which is a `Government Company, is also bound by the direction/instruction issued by his superior authorities. It is also the case of the respondent in the reply to the notice issued by the respondent, though it is liable to pay the amount due under the Purchase Orders, it is not in a position to settle the dues only because of the directions issued by Ministry of Defence, Government of India. It only shows that the Managing Director may not be in a position to independently decide the dispute between the parties23) The facts narrated by me would clearly demonstrate that there is a dispute between the parties in regard to payment of certain amounts towards Purchase Orders/Invoice. Since, there is a failure on the part of the respondent in making appointment of an arbitrator for resolving the dispute in accordance with the understanding of the parties which is reflected in the Purchase Order, the prayer of the petitioner requires to be granted24) Before parting with the case, in my considered opinion, the decision on which reliance is placed by Shri S.N. Bhat, learned counsel for the respondent, would not assist him to drive home his point.