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1991 Supreme(Raj) 425
RAJASTHAN HIGH COURT
B.R. Arora, J.
VIJAY SINGH AMAR SINGH & CO. - APPELLANT
v.
HINDUSTAN ZINC LTD. AND OTHERS - RESPONDENTS.
Civil Misc. Appeal No. 51 of 1991
Decided on : December 11, 1991.
Advocate Appeared:
A. K. Shende and A. K. Chhangani, for the Appellant.
H. M. Pareek and B. R. Bhandari, for the Respondents.
An arbitration clause in a contract is not unconscionable or void merely because it provides for the appointment of an employee of a party as an arbitrator, as long as there is no evidence of bias or prejudice on the part of the arbitrator.
Headnote:
ARBITRATION - APPOINTMENT OF ARBITRATOR - EMPLOYEE OF PARTY - VALIDITY - UNCONSCIONABLE CLAUSE - ESTOPPEL - ARBITRATION ACT, 1940 - SECTION 20 - INDIAN CONTRACT ACT, 1872 - SECTION 23.
Fact of the Case:
Plaintiff, a contractor, entered into a contract with Defendant, a government undertaking, for the construction of a dam. The contract contained an arbitration clause providing for the appointment of a sole arbitrator by the Managing Director of the Defendant, who could be an employee of the Defendant. A dispute arose, and the Plaintiff filed an application under Section 20 of the Arbitration Act, 1940, seeking the appointment of an arbitrator. The Defendant appointed Mr. S. K. Shreemali, a Project Manager of the Defendant, as the sole arbitrator. The Plaintiff challenged the appointment of Mr. Shreemali as arbitrator, arguing that the arbitration clause was unconscionable and void, and that an employee of a party could not be appointed as an arbitrator.
Finding of the Court:
The court held that the arbitration clause was not unconscionable or void, as it was not illegal, immoral, or opposed to public policy. The court further held that the appointment of an employee of a party as an arbitrator was not illegal, as long as there was no evidence of bias or prejudice on the part of the arbitrator. The court also held that the Plaintiff was estopped from challenging the appointment of Mr. Shreemali as arbitrator, as the Plaintiff had agreed to the arbitration clause at the time of entering into the contract.
Issues: 1. Whether the arbitration clause in the contract was unconscionable or void. 2. Whether an employee of a party could be appointed as an arbitrator. 3. Whether the Plaintiff was estopped from challenging the appointment of Mr. Shreemali as arbitrator.
Ratio Decidendi: 1. The court held that the arbitration clause was not unconscionable or void, as it was not illegal, immoral, or opposed to public policy. The court noted that the Plaintiff had agreed to the arbitration clause at the time of entering into the contract, and that the Plaintiff had not presented any evidence to show that the arbitration clause was unconscionable or void. 2. The court held that the appointment of an employee of a party as an arbitrator was not illegal, as long as there was no evidence of bias or prejudice on the part of the arbitrator. The court noted that the Plaintiff had not presented any evidence to show that Mr. Shreemali was biased or prejudiced against the Plaintiff. 3. The court held that the Plaintiff was estopped from challenging the appointment of Mr. Shreemali as arbitrator, as the Plaintiff had agreed to the arbitration clause at the time of entering into the contract. The court noted that the Plaintiff had not presented any evidence to show that the Plaintiff was coerced or misled into agreeing to the arbitration clause.
Final Decision: The court dismissed the Plaintiff's appeal and upheld the appointment of Mr. Shreemali as the sole arbitrator.
B. R. Arora, J. - This appeal is directed against the order dated November 9, 1990, passed by the District Judge, Udaipur, by which the learned District Judge disposed of the application under Section 20 of the Arbitration Act, filed by the plaintiff.
2. Plaintiff M/s. Vijay Singh Amar Singh & Co. - Engineers and "AA-Class Contractors" - filed an application under Section 20 of the Indian Arbitration Act, 1940 (hereinafter referred as 'the Act') in the Court of the District Judge, Udaipur. It was averred in the application that the plaintiff was carrying on the business of engineers and contractor and it entered into a contract with the defendant M/s. Hindustan Zinc Limited (a Government of India Undertaking) on December 15, 1986, for the construction of Gosunda Dam on river Behdach (district Chittorgarh). After entering into the contract, the firm started the construction work as per the terms and conditions of the contract. According to the plaintiff, the contract created reciprocal contractual obligation, but the defendant M/s. Hindustan Zinc Limited failed to perform their part of the contract and committed several fundamental breaches of the contract hence the work could not progress according to the programme finalised, which increased the plaintiff's cost of executing the work. The plaintiff, also, suffered heavy losses on account of non-utilization of their resources, tools, plants machinery etc. and therefore they withdraw from the work. The defendant also, terminated the contract of the plaintiff for the balance work, allotted the contract to another agency, assessed the damages to the tune of Rs. 25,00,000 and issued a Demand for the same on November 2, 1989. The case of the plaintiff is that though the demand of Rs. 25,00,000 has been made by the defendant, but actually the plaintiff is entitled to recover Rs. 1,37,54,262.50 paise from the defendant on various counts mentioned in the application. The plaintiff further stated in the application that there is a Clause No. 9 in the agreement relating to the arbitration and, therefore, in order to resolve the dispute, which arises out of the contract, the Managing Director of the defendant company may be directed to nominate sole arbitrator to resolve the dispute or, in the alternative, the court may appoint any other person as arbitrator which the court deems fit and proper. After filing of the application under Section 20 of the Act, reply was filed by the defendants on October 27, 1990, stating therein that in pursuance to the agreement dated August 25, 1987, arrived at between the parties, defendant No. 2 appointed Mr. S. K. Shreemali, Senior Manager (Project), Chanderliya, as the sole arbitrator to resolve the dispute between the parties, who will give his award after giving an opportunity of hearing to the parties. It was prayed that in view of the appointment of Mr. S. K. Shreemali as the sole arbitrator, this application does not survive as the relief prayed for has already been granted. The learned District Judge, by his order dated November 9, 1990, disposed of the application by observing that as the sole arbitrator has already been appointed in terms of the agreement, no further enquiry remains to be conducted and the parties may appear before the sole arbitrator and get the dispute resolved. He, therefore, consigned the file to the record. It is against this order dated November 9, 1990, disposing of the plaintiff's application under Section 20 of the Act that the plaintiff-appellant has preferred this appeal.
3. Heard learned counsel for the appellant and the learned counsel for the respondents.
4. Learned counsel for the appellant, in this appeal, has challenged Clause 9 of the agreement. The first limb of his argument in this respect is that clause 9 of the agreement, which relates to the arbitration clause is unconscionable and void and deserves to be quashed and set aside. The second limb of his argument is that an employee of the parties to
