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SUPREME COURT OF INDIA
SURINDER SINGH NIJJAR, J.
DENEL (PROPRIETARY LIMITED) - Petitioner
VERSUS
GOVT. OF INDIA, MINISTRY OF DEFENCE - Respondent
Arbitration Petition No.11 of 2011-
Decided on 09-01-2012.
(2000) 8 SCC 151; (2006) 2 SCC 638 – Relied upon
(2006) 6 SCC 204 – Relied upon impliedly
(b) Arbitration and Conciliation Act, 1996 – Section 11 – Parties entering into agreement containing arbitration clause with open eyes – Arbitration clause mandating appointment of official arbitrator – Appellant cannot reprobate and contest the same – Late receipt of communication from arbitrator does not necessarily make him biased. (Para 11)
(2009) 8 SCC 520 – Relied upon
(2009) 2 SCC 337; (2010) 6 SCC 394 – Distinguished impliedly
(c) Arbitration and Conciliation Act, 1996 – Section 11(6) and (8) – Court would normally adhere to the terms of the agreement as closely as possible – But if the circumstances warrant, Court can appoint an independent arbitrator other than the named arbitrator – Instantly, respondent’s apprehension of the official arbitrator being biased towards the department cannot be ignored – Application for appointment of arbitrator allowed. (Para 14, 20)
(2008) 10 SCC 240; (2009) 8 SCC 520; (2010) 6 SCC 394 – Relied upon
(2007) 5 SCC 304 – Referred
Facts of the case:
This is an application under Sections 11(4) and (6) of the Arbitration and Conciliation Act, 1996 read with paragraph 2 of the appointment of the Arbitrators by the Chief Justice of India Scheme, 1996 for appointment of arbitrator.
Finding of the Court:
Court would normally adhere to the terms of the agreement as closely as possible. But if the circumstances warrant, Court can appoint an independent arbitrator other than the named arbitrator.
Result: Arbitrator appointed.
ORDER
Surinder Singh Nijjar, J.-The petitioner has filed the present application under Sections 11(4) and (6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the `Act') read with paragraph 2 of the appointment of the Arbitrators by the Chief Justice of India Scheme, 1996. It is stated that a contract was entered into between the parties for the supply of Base Bleed Units. Initially the quantity to be supplied was 42,000 units. Later on, the quantity was increased to 52,000 units as per Clause 20 of the agreement. By 5th January, 2005, the petitioner had supplied substantial quantity of the goods. However, some of the goods supplied by the petitioner were rejected by the respondent. The petitioner, thereafter, informed the respondent that two more lots were ready for discharge on 17th March, 2005. However, Union of India never responded to the letter, hence, loss and damage has been caused to the petitioner. In April, 2005, after various discussions, the petitioner came to know that improper fuzes were used by the Union of India which led to the problem that occurred in the lots which were rejected. Thereafter, on 21st April, 2005, Union of India put on hold all contracts. Further, on 14th May, 2008, Union of India sent a notice seeking refund of amount of US $ 23,20,240, failing which legal action was to issue.
2. The disputes having arisen between the parties, efforts were made to resolve the same. The details of the efforts made are narrated in the petition. Since the disputes could not be resolved through mutual discussions, the DGOF appointed one Mr. A.K. Jain, Additional General Manager, Ordnance Factory, Ambajhari, Nagpur as an arbitrator in terms of Clause 19(F) of the contract, which reads as under:-
"All the disputes and difference arising out of or in any way touching or concerning the agreement (matters for which the decision of a specific authority as specified in the contract shall be final under this agreement, shall not be subject to arbitration) shall be referred to the sole arbitration of the Director General, Ordnance Fys. Govt. of India for the time being or a Government servant appointed by him. The appointee shall not be a Govt. Servant who had dealt with the matters to which this agreement relates and that in the course of his duties as Govt. Servant has had not expressed views on all or any of the matter is in dispute or difference. In case the appointed Govt. Servant in place of the incumbents."
3. The petitioner objected to the appointment of the Arbitrator. The petitioner apprehended that the arbitrator would be favorably inclined towards the employer. Therefore, on 23rd January, 2009, the petitioner issued a notification under Section 14 of the Arbitration Act stating that the mandate of the arbitrator had been terminated. Since inspite of the aforesaid notification, the arbitrator continued with the arbitration proceedings, the petitioner moved the Principal District Court, Chandrapur and filed Civil Misc. Application No. 45 of 2009 under Section 14(2) of the Act. On 21st December, 2010, the Principal District Court, Chandrapur terminated the mandate of the Sole Arbitrator with the observation that the arbitrator has been biased in favour of respondent No.1. A direction was also issued in the following terms:-
"Director General, Ordnance Factory, Government of India, is appointed as an Arbitrator or he may appoint Government servant as an Arbitrator , as per Clause 19(F) of February 2004 contract and 19(E) of November 2004 contract, after following due procedure."
4. It is an admitted fact that pursuant to the aforesaid directions, within 30 days, DGOF did not himself commence the arbitration proceedings; nor did he appoint any Government servant as an arbitrator. The petitioner has, therefore, moved the present petition under Section 11(6) of the Act on 2nd of March, 2011 seeking appointment of an independent arbitrator. The petitioner claims that the directions issu
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