2012 (1) TMI 105 - SC - Companies Law

Whether it would not be unreasonable to entertain the belief that the arbitrator appointed by the respondent would not be independent? Whether the appointment of Mr. Satyanarayana cannot pass the test under Section 11(8) of the Arbitration and Conciliation Act, 1996?

Issues Involved:
1. Validity of the appointment of the arbitrator by the respondent.
2. Jurisdiction and authority of the District Court in appointing an arbitrator.
3. Allegations of bias against the arbitrator appointed by the respondent.
4. The right of the petitioner to seek the appointment of an independent arbitrator.

Issue-wise Detailed Analysis:

1. Validity of the Appointment of the Arbitrator by the Respondent:
The petitioner challenged the appointment of Mr. A.K. Jain as the arbitrator, fearing bias due to his favorable inclination towards the employer. The Principal District Court, Chandrapur, terminated Mr. Jain's mandate, citing bias. The court directed the Director General, Ordnance Factory (DGOF) to appoint a new arbitrator. However, the DGOF failed to appoint an arbitrator within the stipulated 30 days, leading the petitioner to file a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking an independent arbitrator. The Supreme Court held that the respondent forfeited their right to appoint an arbitrator since they did not do so before the petitioner moved the court.

2. Jurisdiction and Authority of the District Court in Appointing an Arbitrator:
The petitioner argued that the District Court's direction to appoint an arbitrator was void ab initio, as it was beyond the court's jurisdiction. The Supreme Court noted that the District Court's order was based on an incorrect interpretation of Section 15 of the Act. The Act does not allow the court to appoint an arbitrator outside the agreed arbitration agreement, except in limited circumstances provided in Section 11. Therefore, the Supreme Court found the District Court's directions to be without authority.

3. Allegations of Bias Against the Arbitrator Appointed by the Respondent:
The petitioner expressed concerns about the impartiality of the arbitrator appointed by the DGOF, Mr. Satyanarayana, arguing that any government servant appointed would be biased due to their obligation to follow superior authorities' instructions. The Supreme Court acknowledged the apprehensions of bias, noting that the previous arbitrator had been terminated for similar reasons. The court emphasized that the arbitrator's independence and impartiality are crucial, and the material presented indicated a reasonable apprehension of bias.

4. The Right of the Petitioner to Seek the Appointment of an Independent Arbitrator:
The Supreme Court considered the petitioner's request for an independent arbitrator, given the circumstances and the apprehensions of bias. The court referred to previous judgments, including Datar Switchgears Ltd. v. Tata Finance Ltd., which established that if an arbitrator is not appointed within 30 days of the demand, the right to appoint does not automatically forfeit but must be done before the first party moves the court. Since the respondent failed to appoint an arbitrator before the petition was filed, the Supreme Court concluded that the respondent forfeited their right to appoint. The court appointed Hon. Mr. Justice Ashok C. Agarwal, Retd. Chief Justice of the Madras High Court, as the Sole Arbitrator to ensure an independent and impartial resolution of the disputes.

Conclusion:
The Supreme Court allowed the petition, appointing an independent arbitrator to adjudicate the disputes, emphasizing the necessity of impartiality and independence in arbitration proceedings. The registry was directed to communicate the order to the Sole Arbitrator to expedite the resolution process.

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