2013 (3) TMI 870 - SC - Indian Laws

Forfeiture of right of the Corporation for appointment of an arbitrator - seeking an order of injunction against the Corporation from stopping the supply of Kerosene/LDO - whether the appointment of the arbitrator by Respondent No. 1 in the course of the proceedings u/s 11(6) is of any legal consequence and the Chief Justice of the High Court ought to have exercised the jurisdiction and appointed an arbitrator? - HELD THAT - In the present case, the Corporation has failed to act as required under the procedure agreed upon by the parties in Clause 29 and despite the demand by the dealer to appoint the arbitrator, the Corporation did not make appointment until the application was made u/s 11(6). Thus, the Corporation has forfeited its right of appointment of an arbitrator. In this view of the matter, the Chief Justice ought to have exercised his jurisdiction u/s 11(6) in the matter for appointment of an arbitrator appropriately. The appointment of the arbitrator by the Corporation during the pendency of proceedings u/s 11(6) was of no consequence. In the course of arguments before us, on behalf of the Appellant certain names of retired High Court Judges were indicated to the senior counsel for the Corporation for appointment as sole arbitrator but the Corporation did not agree to any of the names proposed by the Appellant. In the circumstances, we are left with no choice but to send the matter back to the Chief Justice of the Allahabad High Court for an appropriate order on the application made by the dealer u/s 11(6). Civil Appeal is, accordingly, allowed. The impugned order is set aside. Arbitration Case, Deep Trading Co. v. Indian Oil Corporation and Ors., is restored to the file of the High Court of Judicature at Allahabad for fresh consideration by the Chief Justice or the designate Judge, as the case may be, in accordance with law and in light of the observations made above.

Summary

Issues Involved:
1. Whether Respondent No. 1 forfeited its right to appoint the arbitrator after the Appellant moved the court under Section 11(6).
2. Whether the appointment of the arbitrator by Respondent No. 1 during the proceedings under Section 11(6) holds any legal consequence.
3. Whether the Chief Justice of the High Court should have exercised the jurisdiction to appoint an arbitrator.

Detailed Analysis:

Issue 1: Forfeiture of Right to Appoint Arbitrator
The core issue revolves around whether Respondent No. 1 forfeited its right to appoint an arbitrator after the Appellant moved the court under Section 11(6). The facts reveal that the Appellant demanded the appointment of an arbitrator on 09.08.2004, but Respondent No. 1 did not act until the Appellant filed an application under Section 11(6) on 06.12.2004. The arbitrator was appointed by Respondent No. 1 on 28.12.2004, after the application was already made. The Supreme Court, relying on the precedent set in "Datar Switchgears Ltd. v. Tata Finance Ltd. and Anr." and "Punj Lloyd Ltd. v. Petronet MHB Ltd.," held that the right to appoint an arbitrator is forfeited if not exercised before the application under Section 11(6) is made. Thus, Respondent No. 1 forfeited its right to appoint the arbitrator as it failed to act within the stipulated time.

Issue 2: Legal Consequence of Arbitrator Appointment During Proceedings
The second issue is whether the appointment of the arbitrator by Respondent No. 1 during the pendency of the proceedings under Section 11(6) holds any legal consequence. The Court concluded that any appointment made by Respondent No. 1 after the application under Section 11(6) was filed is of no consequence. The Court emphasized that once the right to appoint an arbitrator is forfeited, any subsequent appointment by the defaulting party does not disentitle the applicant from seeking the appointment of an arbitrator by the Chief Justice under Section 11(6).

Issue 3: Jurisdiction of Chief Justice to Appoint Arbitrator
The third issue is whether the Chief Justice of the High Court should have exercised jurisdiction to appoint an arbitrator. The Supreme Court noted that under Section 11(6), the Chief Justice is empowered to appoint an arbitrator if the conditions stipulated in the section are met. Given that Respondent No. 1 forfeited its right to appoint the arbitrator, the Chief Justice should have exercised jurisdiction to appoint an independent and impartial arbitrator. The Court referred to the legal position in "Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Limited," which underscores the necessity of appointing an independent and impartial arbitrator when the defaulting party fails to act as per the agreed procedure.

Conclusion:
The Supreme Court held that Respondent No. 1 forfeited its right to appoint an arbitrator by not acting within the stipulated time and that any subsequent appointment by Respondent No. 1 during the pendency of the proceedings under Section 11(6) is of no consequence. Consequently, the Chief Justice of the High Court should have exercised jurisdiction to appoint an independent and impartial arbitrator. The matter was remanded back to the Chief Justice of the Allahabad High Court for fresh consideration in light of these observations. The appeal was allowed, and the impugned order was set aside, with no costs awarded.