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Supreme Court of India
THE HONOURABLE MR. JUSTICE R.V. RAVEENDRAN & THE HONOURABLE MR. JUSTICE D.K. JAIN
Indian Oil Corporation Ltd. & Others
Versus
M/s. Raja Transport (P) Ltd.
CIVIL APPEAL NO.5760 OF 2009 (Arising out of SLP [C] No.26906 of 2008)
Decided On : 24-08-2009
(1984) 3 SCC 627; 1894 (2) QB 667; 1988 (Supp) SCC 651; (1992) 3 SCC 608; (1996) 1 SCC 54; (2004) 10 SCC 504; (2007) 5 SCC 304 – Relied upon
(b) Arbitration and Conciliation Act, 1996 – Sections 11, 12, 18 – U/s 11(2) parties are free to agree upon a procedure for appointment of arbitrator/s – Nothing in sections 11, 12, 18 or other provisions suggests that naming the Arbitrator in an arbitration agreement will be invalid if such named arbitrator is an employee of one of the parties to the arbitration agreement – Named arbitrator being an employee of one of the parties ipso facto not a ground to raise a presumption of bias or partiality or lack of independence on his part – More so in Government department or State instrumentality – Position may be different in case of private company. (Para 13, 14, 15)
(c) Arbitration and Conciliation Act, 1996 – Section 11 – Appointment of arbitrator – Arbitration agreement naming the arbitrator – As a rule disputes should be referred to the named arbitrator – The Chief Justice should not deviate from the rule and refer the parties accordingly – Appointment of an independent arbitrator ignoring the named arbitrator – Can be resorted to for valid reasons. (Para 19, 21)
2008 (11) SCALE 500 – Relied upon
(2007) 5 SCC 304; (2007) 7 SCC 684 – Referred
(d) Arbitration and Conciliation Act, 1996 – Section 11(8) – Arbitration agreement naming Arbitrator by designation – Further stating that no person other than the Director, Marketing or a person nominating by Director, Marketing of the Corporation as aforesaid, shall act as Arbitrator – Interferes with powers of Chief Justice u/s 11(8) – However if the arbitrator is named by name, it is intricately linked with the arbitration agreement – Non-availability of the named person nullifies the agreement itself. (Para 20)
(e) Arbitration and Conciliation Act, 1996 – Section 11(6) – Arbitration agreement – On dispute arising, respondent not abiding by the arbitration agreement – Approaching civil court – Matter referred to arbitration at the instance of appellant – Court directing parties to approach arbitrator in terms of agreement – No order for appointment of independent arbitrator – Respondent ought to have referred the dispute to the named arbitrator – Respondent neither referring dispute to named arbitrator not asking appellant to do so – Instead writing to appellant for discussion on appointment of an independent arbitrator – Respondent cannot be said to have invoked the arbitration agreement – It was the respondent who did not perform his duty under the arbitration agreement and not the appellant – No justification for appointing an independent arbitrator u/s 11(6). (Para 23, 24)
Facts of the case:
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.
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 for a declaration that the order of termination of dealership was illegal and void and for a permanent injunction restraining the appellant from stopping supply of petroleum products to its retail outlet.
The Civil Judge 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.
The respondent also filed an application seeking an interim injunction against the appellant.
The District Judge dismissed both the appeals but allowed the application and restrained the appellant 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.
During pendency of the appeals, the respondent issued a notice to the appellant, requesting for appointment of an outside arbitrator. the appellant did not agree to the request as 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.
The respondent filed an Arbitration Application under section 11(6) of the Act 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.
The learned Chief Justice allowed the application by the impugned order dated 26.9.2008.
Finding of the Court:
Chief Justice was not justified in his assumption of bias.
Result:
Appeal allowed.
The concept of conflict in the context of arbitration, especially regarding the appointment of arbitrators, primarily revolves around the potential for bias, impartiality, and independence of the arbitrator. According to the legal principles outlined, a conflict may arise when an arbitrator has a direct interest or connection with one of the parties that could influence their impartiality. However, the law clarifies that being an employee or officer of a party, such as a government department or statutory body, does not automatically disqualify a person from serving as an arbitrator (!) (!) .
The key consideration is whether there are justifiable doubts about the arbitrator's independence or impartiality. This includes examining whether the arbitrator has a role in the execution of the contract or is a subordinate to the party involved in the dispute, which could create a reasonable apprehension of bias (!) (!) . Conversely, if the arbitrator is a senior officer with no direct involvement in the contract's execution, their impartiality is generally presumed to be intact, and no conflict is automatically presumed solely based on their employment status (!) (!) .
Furthermore, conditions in arbitration agreements that explicitly restrict the appointment of certain persons or require that only designated individuals act as arbitrators may interfere with the statutory powers of the appointing authority, such as the Chief Justice or his designate, and could be deemed contrary to the overarching legal framework (!) (!) .
In summary, a conflict in arbitration appointments is primarily centered on the potential for bias or lack of independence, which must be assessed based on the specific circumstances and roles of the arbitrator, rather than solely on their employment status. The law emphasizes that unless there are specific reasons to doubt an arbitrator's impartiality, their employment relationship with a party does not constitute an automatic conflict.
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, 1996 (Act for short), whereby he appointed a retired Judge as the sole arbitrator to adjudicate upon the disputes between the parties.
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, vacatin 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 clause."
(emphasis supplied)
.3. 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.
2.4. 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.
3.5. 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
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