Imc Limited vs Board Of Trustees Of Deendayal

IN THE CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 5760 OF 2009 Arising out of SLPNo.269008 Indian Oil Corporation Ltd. & Ors. M s Raja TransportLtd. JUDGMENT R. V. Raveendran J Leave granted. 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 1996whereby he appointed a retired Judge as the sole arbitrator to adjudicate upon the disputes between the parties 2. 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. The said clause reads thus “69. Any dispute or a difference of any nature whatsoever or regarding any right liability act omission or account of any of the parties hereto arising out of 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. The dealer will not be entitled to raise any objection to any such arbitrator on the ground that the arbitrator is an officer of the contract relates or that in the course of his duties or differences. 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 Act 1940 or any statutory modification of re enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceedings under this emphasis supplied) 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 In the said suit the appellant filed an application under section 8 of the Act read with Order VII Rule 11 of Civil Procedure Code praying that the suit be rejected and the matter be referred to arbitration in terms of Clause 69 of the agreement. The learned Civil Judge by order dated 16.11.2005 allowed the said application filed by the appellant directing 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. Respondent filed Civil Appeal No.96 2005 being aggrieved by the restriction of supply for only two months from 16.11.2005. The appellant filed Civil Appeal No.214 2005 being aggrieved by the direction to continue the supply for a period of two months from 16.11.2005. The respondent also filed an application under Section 9 of the Act seeking an interim injunction against the appellant. The two appeals and the application under section 9 of the Act were disposed of by a common order dated 20.1.2006 by the learned District Judge Dehradun. He 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 6. When the said appeals were pending the respondent issued a notice dated 4.1.2006 through its counsel to the appellant referring to the appellant’s insistence that only its Director or an officer nominated by him could act as the arbitrator in pursuance of the order of the Civil Judge dated 16.11.2005. The respondent alleged that it did not expect fair treatment or justice if the Directoror any other employee of the appellant was appointed as arbitrator and that therefore any such appointment would be prejudicial to its interest. It contended that any provision enabling one of the parties or his employee to act as an arbitrator was contrary to the fundamental principle of natural justice that no person can be a judge in his own cause. The respondent therefore called upon the appellant by the said notice dated 4.1.2006 to fix a meeting at Dehradun between the officers of the appellant and respondent within seven days so as to mutually agree upon an independent arbitrator. The appellant submits that the said request apart from being contrary to the arbitration agreement was also contrary to the subsequent order dated 20.1.2006 which directed that the disputes should be referred to the arbitrator as per the agreement and therefore it did not agree to the said request for an outside arbitrator. In this background the respondent filed an applicationunder 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 contending as follows : “That a dispute between the parties has arisen and by notice dated 4.1.2006 the applicant served the respondent a notice calling upon them to appoint an independent arbitrator but in spite of expiry of reasonable time no independent arbitrator has been The said petition was resisted by the appellant by contending that an arbitrator can be appointed only in terms or clause 69 of the agreement. 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. The learned Chief Justice assigned the following two reasons to appoint a retired Judge as Arbitrator instead of the person named in the Arbitration Agreement : The Director of the appellant being its employee should be presumed not to act independently or impartially. ii) The respondent had taken steps in accordance with the agreed appointment procedure contained in the arbitration agreement and the directions of the civil court by issuing a notice dated 4.1.2006 calling upon the appellant to appoint an arbitrator. After the receipt of the notice dated 4.1.2006 the appellant had to refer matter for arbitration to its Director Marketing but it did not do so. Nor did it take any step for appointment of the Arbitrator. By not referring the matter to arbitration to its own Director despite receipt of the notice dated 4.1.2006 the appellant had failed to act as required under the agreed procedure The said order of the Chief Justice is challenged by the appellant. On the rival contentions urged by the parties the following questions arise for our consideration i) 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 iii) 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 Directorfor arbitration Re : Questions No.(i) Arbitration is a binding voluntary alternative dispute resolution process by a private forum chosen by the parties. It is quite common for governments statutory corporations and public sector undertakings while entering into contracts to provide for settlement of disputes by arbitration and further provide that the Arbitrator will be one of its senior officers. If a party with open eyes and full knowledge and comprehension of the said provision enters into a contract with a government statutory corporation public sector undertaking containing an arbitration agreement providing that one of its Secretaries Directors shall be the arbitrator he can not subsequently turn around and contend that he is agreeable for settlement of disputes by arbitration but not by the named arbitrator who is an employee of the other party. 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 arbitration clause is a package which may provide for what disputes are arbitrable at what stage the disputes are arbitrable who should be the arbitrator what should be the venue what law would govern the parties etc. A party to the contract cannot claim the benefit of arbitration under the arbitration clause but ignore the appointment procedure relating to the named Arbitrator contained in the arbitration clause. It is now well settled by a series of decisions of this Court that arbitration agreements in government contracts providing that an employee of the Departmentwill be the Arbitrator are neither void nor unenforceable. We may refer to a few decisions on this aspect. 10.1) In Executive Engineer Irrigation Division Puri vs. Gangaram Chhapolia 1984SCC 627 this Court was considering the validity of appointment of the Arbitrator where the arbitration required that the disputes shall be referred to the sole arbitration of a Superintending Engineer of the Public Works Department unconnected with the work at any stage nominated by the concerned Chief Engineer. This Court held : “The use of the expression "Superintending Engineer State Public Works Department" in Clause 23 qualified by the restrictive words unconnected with the work" clearly manifests an intention of the parties that all questions and disputes arising out of a works contract shall be referred to the sole arbitration of a Superintending Engineer of the concerned department. From the very nature of things a dispute arising out of a works contract relating to the Department of Irrigation has to be referred to a Superintending Engineer Irrigation as he is an expert on the subject and it cannot obviously be referred to a Superintending Engineer Building & Roads. The only limitation on the power of the Chief Engineer under Clause 23 was that he had to appoint a "Superintending Engineer unconnected with the work" i.e. unconnected with the works contract in relation to which the dispute has arisen. The learned Subordinate Judge was obviously wrong in assuming that since D. Sahu Superintending Engineer Irrigation was subordinate to the Chief Engineer he was not competent to act as an Arbitrator or since he was a Superintending Engineer Irrigation he could not adjudicate upon the dispute between the parties. The impugned order passed by the learned Subordinate Judge is accordingly set aside.” 10.2) In Eckersley vs. Mersey Dock and Harbour Board 1894QB 667 it was held : “The rule which applies to a Judge or other person holding judicial office namely that he ought not to hear cases in which he might be suspected of a bias in favour of one of the parties does not apply to an arbitrator named in a contract to whom both the parties have agreed to refer disputes which may arise between them under it. In order to justify the court in saying that such an arbitrator is disqualified from acting circumstances must be shown to exist which establish at least a probability that he will in fact be biased in favour of one of the parties in giving his decision..... Where in a contract for the execution of works the arbitrator selected by the parties is the servant of one of them he is not disqualified by the mere fact that under the terms of the submission he may have to decide disputes involving the question whether he has himself acted with due skill and competence in advising his employer in respect of the carrying out of the contract.” 10.3) In Secretary to Government Transport Department Madras v. Munuswamy Mudaliar 1988SCC 651 the contract between the respondent and State Government contained an arbitration clause providing that the Superintending Engineer will be the arbitrator. Disputes arising in respect of cancellation of the contract by the department were referred to the said Arbitrator. An application under section 5 of Arbitration Act 1940 was filed by the contractor for removal of the arbitrator on the ground of apprehended bias on the part of the arbitrator as he was an employee of the State Government and was subordinate of the chief Engineer who took the decision to cancel the contract. This Court negatived the said contention and held : “When the parties entered into the contract the parties knew the terms of the contract including arbitration clause. The parties knew the scheme and the fact that the Chief Engineer is superior and the Superintending Engineer is subordinate to the Chief Engineer of the particular Circle. In spite of that the parties agreed and entered into arbitration. .... Unless there is allegation against the named arbitrator either against his honesty or mala fide or interest in the subject matter or reasonable apprehension of the bias a named and agreed arbitrator cannot and should not be removed in exercise of a discretion vested in the Court under Section 5 of the Act This Court in International Authority of India v. K.D.Bali and Anr. 1988 SCC 360] held that there must be reasonable evidence to satisfy that there was a real likelihood of bias. Vague suspicions of whimsical capricious and unreasonable people should not be made the standard to regulate normal human conduct. In this country in numerous contracts with the Government clauses requiring the Superintending Engineer or some official of the Govt. to be the arbitrator are there. It cannot be said that the Superintending Engineer as such cannot be entrusted with the work of arbitration and that an apprehension simpliciter in the mind of the contractor without any tangible ground would be a justification for removal.” 10.4) In S.Rajan v. State of Kerala 1992SCC 608 this Court held : “Clauseof the agreement says that “the arbitrator for fulfilling the duties set forth in the arbitration clause of the Standard Preliminary Specification shall be the Superintending Engineer Building and Roads Circle Travandrum”. Thus this is a case where the agreement itself specifies and names the arbitrator. In such a situation it was obligatory upon the learned Subordinate Judge in case he was satisfied that the dispute ought to be referred to the arbitrator to refer the dispute to the arbitrator specified in the agreement. It was not open to him to ignore the said clause of the agreement and to appoint another person as an arbitrator. Only if the arbitrator specified and named in the agreement refuses or fails to act does the court get the jurisdiction to appoint another person or persons as the arbitrator. This is the clear purport of Sub sectionIn M s. Indian Drugs & Pharmaceuticals v. M s. Indo Swiss Synthetics Germ Manufacturing Co.Ltd. 1996SCC 54 this Court “Shri Desai submits that respondent No.3 may not be required to arbitrate inasmuch as he being an appointee of the Chairman and Managing Director of the appellant himself respondents case may not be fairly examined. He prays that any retired High Court Judge may be appointed as an arbitrator by us. We have not felt inclined to accept this submission because arbitration clause states categorically that the difference dispute shall be referred “to an arbitrator appointed by the Chairman and Managing Director of IPDL” who is the appellant. This provision in the arbitration clause cannot be given a go bye merely at the askance of the respondent unless he challenged its binding nature in an appropriate proceeding which he did not do.” 10.6) In Union of India v. M.P.Gupta10 SCC 504 this Court was considering an arbitration agreement which provided for appointment of two Gazetted railway officers as arbitrators. But a learned Single Judge of the High Court while allowing an application under section 20 of the Arbitration Act 1940 appointed a retired Judge as the sole arbitrator and a Division Bench affirmed the same. Reversing the said decision this Court held that having regard to the express provision in the arbitration agreement that two Gazetted railways officers shall be the Arbitrators a retired Judge could not be appointed as sole Arbitrator 10.7) In Ace Pipeline Contract Pvt. Ltd. v. Bharat Petroleum Corporation Ltd.SCC 304] this Court considered a somewhat similar clause of another petroleum corporation which also provided that the arbitration will be by its Directoror some other officer nominated by the Director of the Act. This Court held “In the present case in fact the appellant s demand was to get some retired Judge of the Supreme Court to be appointed as arbitrator on the ground that if any person nominated in the arbitration clause is appointed then it may suffer from bias or the arbitrator may not be impartial or independent in taking decision. Once a party has entered into an agreement with eyes wide open it cannot wriggle out of the situationthat if any person of the respondent BPCL is appointed as arbitrator he will not be impartial or objective. However if the appellant feels that the arbitrator has not acted independently or impartially or he has suffered from any bias it will always be open to the party to make an application under section 34 of the Act to set aside the award on the ground that arbitrator acted with bias or malice in law 11. The learned counsel for the respondent attempted to distinguish the said decisions. He submitted that except the last two decisions all others were rendered with reference to the provisions of the Arbitration Act 1940 whose provisions were different from the provisions of the Arbitration and Conciliation Act 1996. It was also submitted that the last two decisions merely followed the legal position enunciated with reference to the old Act without considering the provisions under the new Act. It is contended that the provisions of the Arbitration and Conciliation Act 1996 in regard to appointment of arbitrators are materially different from the provisions of the old Act. It was submitted that several provisions of the new Act lay stress upon the independence and impartiality of the Arbitrator. Reference was invited to sub section 8) of section 11 sub sectionsandof section 12 and Section 18 of the Act. It is contended by the respondent that in view of the emphasis on the independence and impartiality of an arbitrator in the new Act and having regard to the basic principle of natural justice that no man should be judged in his own cause any arbitration agreement to the extent it nominates an officer of one of the parties as the arbitrator would be invalid and unenforceable. 12. While the provisions relating to independence and impartiality are more explicit in the new Act it does not mean that the old Act Arbitration Act 1940) enabled persons with bias to act as Arbitrators. What was implicit under the old Act is made explicit in the new Act in regard to impartiality independence and freedom from bias. The decisions under the old Act on this issue are therefore not irrelevant when considering the provisions of the new Act. At all events M. P. Gupta and Ace Pipeline are cases under the new Act. All the decisions proceed on the basis that when senior officers of government statutory corporations public sector undertakings are appointed as Arbitrators they will function independently and impartially even though they are employees of such Institutions organisations. 13. We find no bar under the new Act for an arbitration agreement providing for an employee of a government statutory corporation public sector undertakingacting 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 andother 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 ifthe circumstances give rise to justifiable doubts as to his independence or impartiality or he does not possess the qualifications agreed to by the parties. Section 18 requires the Arbitrator to treat the parties with equalityand 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 sectionof section 11 provides that parties are free to agree upon a procedure for appointment of arbitrator s. Sub sectionprovides 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 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 sectionis 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. 14. There can however be a justifiable apprehension about the independence or impartiality of an Employee Arbitrator if such person was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinateto the officer whose decision is the subject matter of the dispute. Where however the named arbitrator though a senior officer of the government statutory body government company had nothing to do with execution of the subject contract there can be no justification for anyone doubting his independence or impartiality in the absence of any specific evidence. Therefore senior officer s of a government statutory corporation public sector undertaking not associated with the contract are considered to be independent and impartial and are not barred from functioning as Arbitrators merely because their employer is a party to the The position may be different where the person named as the Arbitrator is an employee of a company or body or individual other than the state and its instrumentalities. For example if the Director of a private companyis named as the Arbitrator there may be valid and reasonable apprehension of bias in view of his position and interest and he may be unsuitable to act as an Arbitrator in an arbitration involving his company. If any circumstance exists to create a reasonable apprehension about the impartiality or independence of the agreed or named Arbitrator then the court has the discretion not to appoint such a person. Subject to the said clarifications we hold that a person being an employee of one of the partiescannot per se be a bar to his acting as an Arbitrator. Accordingly the answer to the first question is that the learned Chief Justice was not justified in his assumption of bias 17. 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 Re : Question No.18. Where the arbitration agreement names or designates the arbitrator the question whether the Chief Justice or his designate could appoint any other person as arbitrator has been considered by this Court in several 18.1) In Ace Pipeline Contract Pvt. Ltd.a two Judge Bench of this Court held that where the appointing authority does not appoint an arbitrator after receipt of request from the other party a direction can be issued under section 11(6) to the authority concerned to appoint an arbitrator as far as possible as per the arbitration clause. It was held that normally the court should adhere to the terms of the arbitration agreement except in exceptional cases for reasons to be recorded or where both parties agree for a common name 18.2) In Union of India v. Bharat Battery Manufacturing Company Pvt. Ltd.SCC 684] another two Judge Bench of this Court held that once the notice period provided for under the arbitration clause for appointment of an arbitrator elapses and the aggrieved party files an application under section 11(6) of the Act the right of the other party to appoint an arbitrator in terms of the arbitration agreement stands 18.3) The divergent views expressed in Ace Pipelineand Bharat Batterywere sought to be harmonised by a three Judge Bench of this Court in Northern Railway Administration v. Patel Engineering Co. Ltd.SCALE 500]. After examining the scope of sub sections 6) andof section 11 this Court held “The crucial expression in sub sectionis “a party may request the Chief Justice or any person or institution designated by him to take the necessary measures”. This expression has to be read along with requirement in sub sectionthat the Chief Justice or the person or an institution designated by him in appointing an arbitrator shall have “due regard” to the two cumulative conditions relating to qualifications and other considerations as are likely to secure the appointment of an independent and impartial arbitration A bare reading of the scheme of Section 11 shows that the emphasis is on the terms of the agreement being adhered to and or given effect as closely as possible. In other words the Court may ask to do what has not been done. The Court must first ensure that the remedies provided for are exhausted. It is true as contended by Mr. Desai that it is not mandatory for the Chief Justice or any person or institution designated by him to appoint the named arbitrator or arbitrators. But at the same time due regard has to be given to the qualifications required by the agreement and other considerations The expression due regard means that proper attention to several circumstances have been focused. The expression necessary as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. Necessary measures can be stated to be the reasonable step required to be taken It needs no reiteration that appointment of the arbitrator or arbitrators named in the arbitration agreement is not a must but while making the appointment the twin requirements of sub sectionof section 11 have to be kept in view considered and taken into account.” 19. While considering the question whether the arbitral procedure prescribed in the agreement for reference to a named arbitrator can be ignored it is also necessary to keep in view clauseof sub sectionof section 34 of the Act which provides that an arbitral award may be set aside by the court if the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the partiesof the Act. In other words 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. This takes us to the effect of the condition in the arbitration agreement that “it is also a term of this contract that no person other than the Director Marketing or a person nominating by such Director Marketing of the Corporation as aforesaid shall act as Arbitrator.” Such a condition interferes with the power of the Chief Justice and his designate under section 11(8) of Act to appoint a suitable person as arbitrator is appropriate cases. Therefore the said portion of the arbitration clause is liable to be ignored as being contrary to the Act. But the position will be different where the arbitration agreement names an individual as the Arbitrator. An example is an arbitration clause in a partnership deed naming a person enjoying the mutual confidence and respect of all parties as the Arbitrator. If such an arbitration agreement provides that there shall be no arbitration if such person is no more or not available the person named being inextricably linked to the very provision for arbitration the non availability of the named arbitrator may extinguish the very arbitration agreement. 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 i) Where 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 the Chief Justice or his designate will exercise power under sub section 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 sectionof 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 sectionof section 11 if a party fails to act as required under the agreed procedureWhile 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&such a time bound requirement is not found in sub sectionof 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(b) orof sub sectionhas not arisen then the question of Chief Justice or his designate exercising power under sub sectiondoes not arise. The condition precedent for approaching the Chief Justice or his designate for taking necessary measures under sub sectionis thata party failing to act as required under the agreed appointment procedure orthe partiesfailing to reach an agreement expected of them under the agreed appointment procedure ora 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 of section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause. 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 : Questionof 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 Directorof 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 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 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 Directorof 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. 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. The appellant is therefore entitled to succeed on both the points. The appeal is therefore allowed. The order dated 26.9.2008 of the High Court is set aside. The Directorof the appellant Corporation is appointed as the sole arbitrator to decide the disputes between the R. V. Raveendran] D. K. Jain New Delhi August 24 2009

Summary: “If a strong case is made out for impleadment, it is always open for the Courts and Tribunals to order impleadment and to give an opportunity before deciding the main claim” The 1st respondent Kandla Port Trust decided to develop Berth Nos. 13 to 16 by private participation on Build, Operate and Transfer (“BOT” basis). Acting on the Resolution, notice inviting tenders was published inviting bids from the prospective parties for the respective berths in two-stage process for selection.The appellant – M/s. IMC Limited submitted its bid for licence of Berth No. 15. The bid of the appellantCompany was accepted and a Letter of Intent for Award of Concession was issued to M/s. IMC Limited on 07.12.2010. Vide communication dated 27.01.2011, the appellant-Company was conveyed by the 1st respondent – DPT that it was required to form a Special Purpose Vehicle (“SPV”).The appellant – IMC constituted Special Purpose Vehicle (SPV) i.e. JRE Infra Private Limited – the 2nd respondent herein (hereinafter referred to as “JRE” or “SPV”) which has executed the Concession Agreement with the Concessioning Authority. The Concession Agreement has an arbitration clause, as a part of the dispute resolution mechanism. Disputes having arisen, the 1st respondent alleging breach of agreement, invoked arbitration clause and initiated arbitration proceedings.The 2nd respondent-JRE filed Statement of Defence in the arbitration proceedings and also preferred Counter Claim. On completion of pleadings, before recording evidence, the 1st respondent – DPT moved an application for impleadment of appellant – IMC as a party to the arbitration proceedings.The learned Arbitral Tribunal, by considering the respective pleas of the 1st respondent and 2nd respondent and by considering the clauses in the agreement, by prima-facie accepting the case of the 1st respondent, allowed the application for impleadment.The appellant-Company, which responded to Request for Qualification (“RFQ”) and Request for Proposal (“RFP”), has filed the Special Civil Application under Articles 226 and 227 of the Constitution of India with the prayer, inter alia, that an appropriate Writ, order or direction may be issued for quashing and setting aside the order dated 14.03.2018 (with the reasons as recorded on 26.03.2018) passed by the learned Arbitral Tribunal on various grounds. ISSUE BEFORE THE COURT:Whether any prejudice is caused to the party which has complained that it was ordered to be impleaded without notice?Whether the dispute raised by the respondent in the suit is incapable of settlement through arbitrationWhether Appellant entitled for relief on ground that single judge had committed error in dismissing petition filed by Appellant RATIO OF THE COURTOn the issue that whether any prejudice is caused to the party which has complained that it was ordered to be impleaded without notice, the court opined that no prejudice is caused to the appellant. Whether notice is required to be issued to a party before ordering impleadment, or not, is a matter which depends on facts and circumstances of each case. If a strong case is made out for impleadment, it is always open for the Courts and Tribunals to order impleadment and to give an opportunity before deciding the main claim. The order of the learned Arbitral Tribunal cannot be said to be not in conformity with law merely on the ground that appellant was not issued notice before passing the order of its impleadment. Even the learned Single Judge has also rightly rejected the plea of the appellant for quashing the order of the learned Arbitral Tribunal on the aforesaid ground.The court pointed out that the appellant, as an applicant, responded to the RFQ and as it was found to be qualified, RFP was furnished to it and in response to the same, bid documents were submitted by the appellant. Various clauses in the RFP make it clear that the appellant, as an applicant, has incorporated the Concessionaire, i.e. 2nd respondent as a Special Purpose Vehicle to implement the project and ‘applicant’ is defined even in the Concession Agreement, namely, “M/s. IMC Limited”, i.e. the appellant herein.It later observed that the very terms of the Concession Agreement itself clears that the obligations are created on the appellant – applicant by the 2nd respondent Concessionaire of which management and control is fully that of the appellant. In addition to the same, the appellant – Company has also addressed a letter dated 28.04.2011 accepting the terms and conditions of the Concession Agreement entered into between the first respondent – DPT and the 2nd respondent – Special Purpose Vehicle.The court observed that while interpreting a document, the document as a whole is to be considered, but by not referring to one single clause in such document and, further intention of the parties has to be culled out by looking at all the terms and conditions of the document. Hence, from a composite reading of all the terms and conditions of the Concession Agreement, the appellant cannot be termed as a third party and as such, cannot be impleaded in arbitral proceedings.It was stated by the court that there is nothing in law which prohibits an Arbitral Tribunal from lifting the corporate veil on the basis of doctrine of alter ego. The Arbitral Tribunal has a right to take up all disputes which a Court can undertake, except certain disputes generally treated as non-arbitrable, viz. (i) patent, trade marks and copyright, (ii) anti-trust/competition laws, (iii) insolvency/winding up, (iv) bribery/corruption, (v) fraud, (vi) criminal matters.It was later added that The Arbitration and Conciliation Act, 1996, does not make any provision excluding any category of disputes treating them as non-arbitratble but the Courts have held that certain kinds of disputes may not be capable of adjudication through means of arbitration. In the instant case, there is no dispute about the arbitration agreement inasmuch as there is a specific arbitration clause in the partnership deed.The court disagreed with the submission made by Shri S.N.Soparkar, learned Senior Counsel for the appellant, that the learned Arbitral Tribunal has no jurisdiction to examine the issue by lifting the corporate veil and opined that on facts, no case is also made out to examine the claim of alter ego by lifting the corporate veil. Whether a case is made out for impleading a third party by applying the doctrine of lifting of corporate veil, is a matter which is to be examined having regard to facts of each case and keeping in mind the concept of group Companies.The court observed that various clauses in the Concession Agreement also create rights and obligations not only against parties to the agreement but also against the appellant-Company, which is a holding Company of the 2nd respondent – SPV and it cannot be said that the appellant-Company is a third party, has nothing to do with the disputes which have arisen between the 1st and 2nd respondents and has no obligations to the contractIn view of the clauses in the Concession Agreement and further, having regard to plea of the 1st respondent – DPT that appellant is an alter ego of the 2nd respondent, the plea of the appellant that prelude to a contract cannot be confused with the contract itself, also would not render any support to accept the case of the appellant.The court disapproved of the stand adopted by some of the High Courts that any order passed by the arbitral tribunal is capable of being corrected by the High Court under Article 226 or 227 of the Constitution of India.The court referred to Lalitkumar V. Sanghavi And Another v. Dharamdas V. Sanghavi And Others and opined that the object of minimizing judicial intervention while the matter is in the process of being arbitrated upon, will certainly be defeated if the High Court could be approached under Article 227 of the Constitution of India or under Article 226 of the Constitution of India against every order made by the arbitral tribunal. it is necessary to indicate that once the arbitration has commenced in the arbitral tribunal, parties have to wait until the award is pronounced unless, of course, a right of appeal is available to them under Section 37 of the Act even at an earlier stage. DECISION HELD BY COURT:The Court held that the learned Single Judge has not committed any error in dismissing the petition filed by the appellant herein.. Appeal accordingly dismissed, with no order as to cost.