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RAJASTHAN HIGH COURT BENCH AT JAIPUR
Indrajit Mahanty, CJ.
Kirloskar Technologies Pvt. Ltd - Appellant
Versus
Rajasthan Medical Services Corporation Limited - Respondent
Arbitration Application No. 34/2019
Decided On : 29-01-2021
Arbitration - Appointment of Arbitrator - Arbitration and Conciliation Act, 1996 - Sections 11(6)(a), 12(5) - The court emphasized the ineligibility of a party with interest in the dispute to appoint an arbitrator, following the Supreme Court's interpretation of the Act.
Fact of the Case:
Disputes arose from an agreement for the repair and maintenance of bio-medical equipment, leading to a request for the appointment of an independent arbitrator under the Arbitration and Conciliation Act, 1996.
Finding of the Court:
The court found that the Managing Director's appointment of an arbitrator was invalid due to the amendments in the Arbitration and Conciliation Act, which disqualified individuals with interests in the dispute from acting as arbitrators.
Issues: Whether the Managing Director could appoint an arbitrator despite being ineligible due to the amendments in the Arbitration and Conciliation Act, 1996.
Ratio Decidendi: The court held that a party with an interest in the outcome of a dispute cannot appoint an arbitrator, as this would compromise the independence required for arbitration.
Result: The application for appointment of an independent arbitrator was allowed, appointing a retired judge.
ORDER
1. Heard learned counsel for the respective parties.
2. The present arbitration application has come to be filed under Section 11 (6) (a) of the Arbitration and Conciliation Act, 1996 (hereinafter to be referred as 'the Act of 1996') seeking appointment of an independent Arbitrator.
3. It appears that certain disputes have arisen between the parties, arising out of an agreement pursuant to the tender process initiated by the respondent company for repair and maintenance of bio-medical equipment of Rajasthan dated 26.11.2015. An agreement has entered between the parties allotting the work of repair and maintenance of bio-medical equipment in Rajasthan for a period of 18 months from September, 2016 to February, 2018. Disputes having been arisen between the parties, the applicant sought for appointment of an arbitrator.
4. In the agreement, the disputes settlement clause is recorded in Clause 7 which is being extracted as under:-
All disputes arising out of this agreement and all questions relating to the interpretation of this agreement shall be decided by the Managing Director, RMSC and the decision of the M.D. RMSC shall be final as per bid terms and conditions.
And it is hereby agreed and declared between the parties hereto that in case any question or disputes arises touching the construction or working of any of clause herein contained on the rights, duties, liabilities of the parties hereto or any other way, touching or arising out of the present, the decision of the Managing Director, Rajasthan Medical Services Corporation Ltd. in the matter shall be final and binding.
If any dispute arise out of the contract with regard to the interpretation, meaning and breach of the terms of the contract, the matter shall be referred to by the Parties to the M.D. Corporation who will appoint his senior most deputy [(ED, P)] as the Sole Arbitrator of the dispute who will not be related to this contract and whose decision shall be final. All legal proceedings, if necessary arise to institute may be any of the parties (Corporation or Contractor) shall have to be lodged in courts situated at Jaipur in Rajasthan and not elsewhere."
5. It appears that the Managing Director of the respondent company became aware of the amendment carried out to the Arbitration and Conciliation Act, 1996 and interpretation of The Seventh Schedule of sub-section 5 of Section 12 of the Act of 1996. Relevant clause 1 & 12 of the Seventh Schedule of Section 12(5) read as under:-
12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.
6. While Act No.3 of 2016 came into effect w.e.f. 23.10.2015, and the same read with Seventh Schedule to the Arbitration and Conciliation Act and Clause 1 and 12 thereto appointed one Mr. Mohan Lal Chhabra to arbitrate in the dispute.
7. Learned counsel for the respondent submits that the said Mohan Lal Chhabra was neither an employee nor in any manner connected with the respondent corporation and consequently, keeping in view the requirement of Section 12(5) read with the Seventh Schedule, his appointment is made so that he could act independently.
8. Learned counsel for the applicant, on the other hand, submitted that in terms of Clause 7 of the agreement, the Managing Director of respondent corporation was only entitled to appoint a person who was an ED of the said corporation (an Ex-employee) and he has no justification or right to appoint any other person apart from the said authority. Consequently prayer is made to set aside the appointment of Mr. Mohan Lal Chhabra and appoint independent arbitrator in his place.
9. Learned counsel appearing for the respondent corporation suggests that if this Court considers appointment of an arbitrator, the Court may appoint a person having technical knowledge since the matter involv
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