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TMI Blog2009 (8) TMI 1075X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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, subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng) 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 Director (Marketing) or 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. 7. In this background, the respondent filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cedure 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 Director (Marketing) for arbitration? Re : Questions No.(i) 9. 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 cannot 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 - 1894 (2) QB 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot 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 - 1992 (3) SCC 608, this Court held :- "Clause (3) of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tractor expressed an apprehension about the independence and impartiality of the named arbitrator and prayed for appointment of a retired Judge as Arbitrator in his application under section 11(6) 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 situation (by contending) that 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 or fact." 11. The learned counsel for the respondent attempted to disting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gard to "(a) any qualifications required of the arbitrator by the agreement of the parties; and (b) other 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 if (i) the circumstances give rise to justifiable doubts as to his independence or impartiality, or (ii) he does not possess the qualifications agreed to by the parties. Section 18 requires the Arbitrator to treat the parties with equality (that is to say without bias) and 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. Subsection (2) of section 11 provides that parties are free to agree upon a procedure for appointment of arbitrator/s. Sub-section (6) pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a person. 16. Subject to the said clarifications, we hold that a person being an employee of one of the parties (which is the state or its instrumentality) cannot 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme 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-section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contrasted from someone referred to by designation) 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 nonavailability of the named arbitrator may extinguish the very arbitration agreement. Be that as it may. 21. In the light of the above discussion, the scope of section 11 of the Act containing the scheme of appointment of arbitrators may be summarised thus: (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the agreed appointment procedure; or (iii) a 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 (6) of section 11 shall endeavour to give effect to the appointment procedure prescribed in the arbitration clause. (vii) 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 : Question (iii) 22. In this case, the respondent approached the Chief Justice of the High Court by alleging that it had acted in terms of the agreed procedure under the arbitration agreement, and that the appellant had failed to act as required under the appointment procedure. Therefore, the respondent invoked the power of the Chief Justice under sub-section (6) of section 11. In view of it, what falls for consideration is whether the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted to invoke arbitration in terms of the arbitration agreement, it ought to have referred the disputes to the Director (Marketing) 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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