Indian Oil Corporation Limited v Raja Transport Pvt Ltd

Indian Oil Corporation Limited v Raja Transport Pvt Ltd
Case No: Civil Appeal No. 5760 of 2009 (SLP (C) No. 26906 of 2008)
Court: Supreme Court of India
Decided on: 24.08.2009
Decided by: R.V. Raveendran and D.K. Jain, JJ.
Provision of Law: Arbitration and Conciliation Act, 1996 (Act) - Section 11, 12 etc..
Prayer: appeal against the order of the Uttaranchal High Court appointing a sole arbitrator under S 11(6) of the Act

Arbitration Clause:

"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, 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, 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."

Issue
One of the questions that arose was whether appointing IOC’s Director as arbitrator would make the take away independence and impartiality of the arbitral tribunal. On this point, the Court held as below:

1. It is now well settled by a series of decisions of this Court that arbitration agreements in government contracts providing that an employee of the Department (usually a high official unconnected with the work or the contract) will be the Arbitrator, are neither void nor unenforceable

2. 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 can not 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 of the other party. No party can say he will be bound by only one part of the agreement and not the other part, unless such other part is impossible of performance or is void being contrary to the provisions of the Act, and such part is severable from the remaining part of the agreement. The arbitration clause is a package which may provide for what disputes are arbitrable, at what stage the disputes are arbitrable, who should be the arbitrator, what should be the venue, what law would govern the parties etc. A party to the contract cannot claim the benefit of arbitration under the arbitration clause, but ignore the appointment procedure relating to the named Arbitrator contained in the arbitration clause.

3. There can however be a justifiable apprehension about the independence or impartiality of an Employee-Arbitrator, if such person was the controlling or dealing authority in regard to the subject contract or if he is a direct subordinate (as contrasted from an officer of an inferior rank in some other department) to the officer whose decision is the subject matter of the dispute. Where however the named arbitrator though a senior officer of the government/statutory body/government company, had nothing to do with execution of the subject contract, there can be no justification for anyone doubting his independence or impartiality, in the absence of any specific evidence. Therefore, senior officer/s (usually heads of department or equivalent) of a government/statutory corporation/ public sector undertaking, not associated with the contract, are considered to be independent and impartial and are not barred from functioning as Arbitrators merely because their employer is a party to the contract

4. The position may be different where the person named as the Arbitrator is an employee of a company or body or individual other than the state and its instrumentalities.

Comment:
The Court also recommended that the public sector undertaking/ state and central authorities to change their practice of nominating its employee as the arbitrator in view of the avowed objectives of independence and impartiality of the arbitral process. But the court does not seem to be clear in treating government departments/ PSUs differently from private entities in the appointment of its own employees as arbitrators.

National Highways Authority of India Vs. Sheladia Associates, Inc.

Court: HIGH COURT OF DELHI
Case No.: OMP No. 176/2009
Date of Judgement: 21.08.2009

Judge: Rajiv Sahai Endlaw, J.
Provision of Law: Petition under S 20 r/w Section 2(6) of the Indian Arbitration and Conciliation Act, 1996

S 20 (1) The parties are free to agree on the place of arbitration.

(2) Failing any agreement referred to in sub-section (1), the place of arbitration shall be determined by the arbitral tribunal having regard to the circumstances of the case, including the convenience of the parties.

(3) Notwithstanding sub-section (1) or sub-section (2), the arbitral tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, goods or other property.

S 2(6) Where this Part, except section 28, leaves the parties free to determine a certain issue, that freedom shall include the right of the parties to authorize any person including an institution, to determine that issue.

The Contract:

• Contract between NHAI and Sheladia is for the Sheladia to provide the construction supervision services to the petitioner for development of certain portions of the Golden Quadrilateral Project.
• Failure of the parties to agree upon the arbitral tribunal would mean that the sole arbitrator or, in case of a three arbitrator tribunal, the third arbitrator would be appointed by the Secretary, Indian Council of Arbitration, New Delhi (ICA).
• Venue of arbitration was to be New Delhi

Post-dispute facts:

• Certain disputes arose and Sheladia appointed an arbitrator but NHAI did not. Hence Sheladia approached ICA for the appointment of an arbitrator. The ICA appointed Mr. B.C. Tripathi, retired Chief Engineer-cum-Member (Technical) based at Bhubaneshwar on 10th September, 2008
• The arbitrator issued notice dated 18th October, 2008 for holding the first sitting at Bhubaneswar on 4th November, 2008. In spite of the notice being given, the petitioners did not turn up for the sitting, prompting the arbitrator to adjourn the proceedings. The arbitrator in his order also stated: "till further decision, the place of arbitration will continue to remain at the Conference Hall of Radhika Tower, Tankapani Road, Bhubaneswar".
• In the next sitting NHAI brought to the notice of the arbitrator that the contracted venue of arbitration was New Delhi and the arbitrator was requested to hold the arbitration proceedings at New Delhi, which the arbitrator failed to consider
• NHAI failed to attend subsequent proceedings before the arbitrator.
• NHAI approached the Delhi High Court asking for the change of venue

Judgement:

“It is thus found that the Arbitral Tribunal by refusing to hold the arbitration proceedings at Delhi, in spite of attention having been invited to the agreement providing so, has become de facto unable to perform his functions and/or has failed to act without undue delay. The mandate of the arbitrator thus has to be declared to have stood terminated.”

Observations by the Delhi High Court:

Apart from deciding in favour of NHAI, the Single Judge made certain comments on the way in which arbitration is conducted in India. The said comments are indicative of the corruption involved in arbitration and why developments in Indian arbitartion such as ONGC v SAW Pipes were not anti-arbitration. Relevant portions of the comments are reproduced herebelow:

"48. Before parting with the case, I must record that the chain of events as happened herein is what brings bad name to arbitration. In spite of the arbitrator having been appointed nearly one year ago, nothing has been achieved till date and now the mandate of the arbitrator has to be held to have terminated. I find the Indian Council of Arbitration, the arbitrator as well as the respondent to be blamed for the same. The Indian Council for Arbitration being the appointing authority, in spite of clause in the agreement for the place of arbitration to be at Delhi, appointed the arbitrator based at Bhubaneswar. The arbitrator so appointed also in contravention of the agreement insisted upon holding the arbitration proceedings at Bhubaneswar and the respondent in contravention of its agreement in writing supported such stand of the Arbitrator… When the respondent is aware of the agreement of the place of arbitration being Delhi and further when Section 34 (2) (a) (v) permits the award to be set aside on this ground, such action is not understandable. In the face of the written agreement as to the place of the arbitration and the same being supreme under Section 20 (1), it can reasonably be said that even in the event of the petitioner losing in the arbitration, notice of a petition under Section 34 on this ground alone is likely to be issued and the arbitral award even, if any, in favour of respondent would remain in abeyance. It was with this motive only that on one of the earlier dates it was suggested to the counsel for the respondent to, for the sake of expediency agree to the arbitration proceedings at Delhi in accordance with the agreement. However, the counsel has expressed inability and the matter was fully argued. It is in these circumstances that finding that the case can be said to be covered under Section 14 of the Act, I was loath to allow the respondent and the Arbitral Tribunal to continue proceedings in contravention of the agreement and to allow the proceedings to be multiplied in such manner.

49. Arbitration as a mode of settlement of disputes was evolved to lessen the load on the court and to provide for expeditious resolution of disputes. However, stand of the parties such as has emerged in these proceedings is not allowing the same to happen. Though, undoubtedly the jurisdiction of the courts is limited but wherever permissible and wherever needed to be exercised for achieving the said purposes, the courts ought not to fail from exercising their jurisdiction to serve the said objectives."

PS: The Single Judge also imposed costs to the tune of Rs 50,000 on Sheladia.

Law Commission on Judicial Reforms

The law Commission of India in its 230th report has called for judicial reforms. See the report here.

Law Commission on the need for division of the Supreme Court into a Constitution Bench at Delhi and Cassation Benches in four regions at Delhi, Chennai/Hyderabad, Kolkata and Mumbai. See the report here.

Law Commission's recommendation for law on surrogacy. See the report here.

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