BIPROMASZ BIPRON TRADING SA vs. BHARAT ELECTRONICS LIMITED(BEL)

1 REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION ARBITRATION PETITION NO.19 OF 2011 Bipromasz Bipron Trading SA ...Petitioner VERSUS Bharat Electronics Limited (BEL) …Respondent R D E R O SURINDER SINGH NIJJAR, J. 1. In this petition, under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Arbitration Act”) read with paragraphs 2 and 3 of the JUDGMENT appointment of the Arbitrators by the Chief Justice of India Scheme, 1996, the petitioner seeks reference of the disputes to an independent and impartial sole Arbitrator. In terms of the arbitration agreement, the petitioner has issued the necessary notice and the respondent has not agreed for such appointment of an independent arbitrator. Page 1 2 2. It appears that the respondent is not opposing the petition on the ground that the disputes cannot be referred to arbitration. The only objection raised by the

his nominee, in terms of the arbitration clause 10 of General Terms and Conditions of Purchase Order (Foreign). The aforesaid arbitration clause reads as under:- “Arbitration – All disputes regarding this order shall be referred to B E L Chairman & Managing Director or his nominee for arbitration who shall have all the powers conferred by the Indian Arbitration & Conciliation Bill 1996 or any statutory modification thereof in force.” JUDGMENT 3. In view of the above, reference need only be made to the skeletal facts necessary for adjudicating the issues raised by the parties. th 4. On 6 October, 2008, the respondent issued a Purchase Order (PO) to the petitioner through which it sought to purchase the materials/goods, namely, Hydraulic Motor, Page 2 3 Actuating Cylinder, EL Motor EDM, Converter and GYRO Unit.

Purchase Order (Foreign)”. As noticed above, the relevant arbitration clause is contained in the aforesaid general terms and conditions. The petitioner claims that fifth item, as stated above, was GYRO Unit EK.2.369.113.CE in 174 Nos. The entire agreed terms of sale by the petitioner was against 100% payment through Letter of Credit through the State Bank of India, Trade Finance CPC, 16, Whannels Road, Egmore, Chennai, India, to the petitioner and the said Letter of Credit was to be opened JUDGMENT immediately after getting confirmation regarding readiness of the stock with the petitioner. The GYRO Unit (174 in Nos.) were to be provided by the petitioner to the respondent as per the aforesaid agreement and the petitioner took immediate steps to supply the said units to the respondent. The petitioner made huge investments in that regard and procured Page 3 4 required materials. The specifications of GYRO Units, as per the specifications, did not stipulate, expressly or impliedly, the type of damping. While the entire process

respondent’s directives, all pending supplies as on that date, from the petitioner were to be “put on hold” and directed the petitioner not to dispatch any pending items including those for which Letter of Credit had been established until further communication from the respondent. After the aforesaid communication, the respondent did not issue any communication to the rd petitioner for supply of the said goods till 3 December, 2009. In response to the aforesaid communication, the JUDGMENT petitioner sent 10 units of GYRO Stabilizers along with the Certificate which was issued by the Russian Company (manufacturer) for a lot of 24 units. It appears that the respondent, on the basis of the inspection report dated th 17 November, 2009, rejected two GYRO Units (out of total 10) on the ground that the same were defective. The defects pointed out were that “Turret not moving in ‘Auto’ Page 4 5 mode” and “vibration in elevation observed in Turret”. The other 8 Units were accepted. The petitioner, therefore, called for payment of 8 accepted GYRO Units and assured

respondent claimed that the goods supplied by the petitioner were not of Russian Origin and, therefore, all the 10 GYRO Units supplied by the petitioner were rejected. The orders were to be cancelled and no more supply of GYRO Units were to be permitted with electrical damping. The petitioner claims that the action of the respondent firstly stopping all the supplies of the petitioner and secondly rejecting the 10 GYRO Units, subsequently supplied, is arbitrary, extra contractual, JUDGMENT illegal and without any basis whatsoever. 6. The petitioner claims that 10 GYRO Units were rejected on the baseless ground that certain corruption cases had come to light against certain other companies. The respondent, therefore, stopped receiving supply from various companies including the petitioner and directly Page 5 6 contacted the Russian manufacturer company and obtained the said units from them through another Russian Exporter company to frustrate the purchase

basis. 7. The petitioner also claims that the order dated th 5 June, 2009 putting on hold the supplies that were to be made by the petitioner was issued by the Ministry of Defence, under which the respondent is a Public Sector Undertaking. The aforesaid order was, however, set aside by the Delhi High Court in Writ Petition (Civil) No.821 of th 2010 by an order dated 11 February, JUDGMENT 2010. Thereafter, inspite of the efforts made by the petitioner, the respondent did not accept the plea that the purchase order did not contain any specific, express or implied condition for air damping. The petitioner also offered to supply 50 GYRO Units with Air damping to maintain good relations. The respondent, however, issued th a letter dated 18 August, 2010 showing interest to Page 6 7 accept 50 GYRO Units with Air Damping with condition that the payment will be made after the acceptance of the units by the respondent. According to the petitioner, this

the contract, started process of procuring GYRO with air damping but due to the short validity of the Letter of Credit, only 14 such units were supplied and the petitioner had to stop the procurement of the said unit due to the expiry of the Letter of Credit. Thereafter, the petitioner has sent a number of communications to the respondent to which there has been no response, hence, the petitioner claims that number of disputes which are mentioned in paragraph 14 (a) to (g) have arisen between JUDGMENT the parties. th 8. Vide notice dated 20 May, 2011, the petitioner requested the respondent to agree on a name of an independent and impartial sole arbitrator preferably a former Judge of this Court by mutual consent between the petitioner and the respondent. Page 7 8 9. The petitioner claims on the basis of the postal acknowledgement that the respondent received the

th th by a letter dated 8 June, 2011. On 29 June, 2011, the authorised representative of the petitioner has sworn the necessary affidavit in Poland for filing of the present petition after the expiry of 30 days of the statutory period and the same were dispatched to the counsel at New Delhi. 10. In the meantime, the respondent replied by a th communication dated 29 June, 2011 to the notice JUDGMENT th dated 20 May, 2011, stating that the Chairman-cum- Managing Director is a competent person as the petitioner has subscribed the contract which states the nominated arbitrator, and hence the correspondence between the parties has been placed before the Chairman-cum- Managing Director for appropriate action. The petitioner Page 8 9 st claims that the aforesaid reply was received on 1 July, 2011.

supply of GYRO Units. It, however, claims that the reference of the disputes has to be made to the Chairman-cum-Managing Director of the respondent or his nominee for arbitration. Therefore, the prayer made in the petition for appointment of a sole arbitrator to adjudicate the dispute is contrary to the express clause in the contract and thus not maintainable. It is also the case of the respondent that prior to the filing of the petition before this Court, the Chairman-cum-Managing Director, JUDGMENT as sole arbitrator, has duly acted and exercised the power in appointing Mr. R. Chandra Kumar, General Manager (Kot), Bharat Electronics Ltd., District Pauri Garhwal, Kotdwara-246149, as the arbitrator and communicated th by fax on 19 July, 2011 itself. It is denied that merely because the Chairman-cum-Managing Director is in control and supervision of the respondent Public Sector Page 9 10 Undertaking would render him ineligible to be appointed as the arbitrator. The respondent having accepted the arbitration clause with open eyes cannot be permitted to

issues raised by the respondent are without any basis. The petitioner relies on the facts enumerated in paragraph 4 of the rejoinder. It is claimed that the th arbitrator had not been appointed on 9 July, 2011 as claimed by the petitioner. The following facts have been highlighted as under: “20.05.2011 – Notice, through counsel was sent to the respondent seeking appointment of Arbitrator. 29.06.2011 – Petitioner sworn affidavit in Poland for filing of JUDGMENT the petition for appointment of Arbitrator. 29.06.2011 – Respondent’s sent reply to the advocate at New Delhi received on 1.7.2011 stating that the correspondence is being placed before the Chairman and Managing Director. Note: Due to the new communication received, the fresh affidavit was needed and hence petition was with held to await fresh affidavit from Poland. Page 10 11 08.07.2011 – Petitioner sent further Notice to the respondent stating that the action shall not be proper.

26.07.2011 – Respondent sent email to the counsel of the petitioner at new attaching the letter of the counsel dated 26.7.2011 along with the letter of respondent dated 19.7.2011 stating the arbitrator had been appointed. The hard copy of the said letter was received by the counsel for the petitioner at New Delhi on 28.7.2011.” 12. The petitioner further claims that no fax was ever sent by JUDGMENT th the respondent on 19 July, 2011, as no e-mail or postal communication was received by the petitioner in Poland in the whole month of July, 2011. It is further pointed out that neither the said fax nor email was sent to the th counsel for the petitioner before 26 July, 2011. The petitioner further pointed out that a perusal of the copy of th the letter dated 19 July, 2011 sent to the Page 11 12 counsel for the petitioner at New Delhi itself indicates th that the letter was faxed on 25 July, 2011 by MD’s Office of the respondent to the concerned person of

have any relevance as the same was not communicated to the petitioner till after the filing of the petition. 13. I have heard the learned counsel for the parties. 14. Mr. Viswanathan, learned senior counsel appearing for the petitioner submits that the disputes cannot be referred to CMD or his nominee as neither of them would be able to act impartially. In any event, the petitioner JUDGMENT would always be under a reasonable apprehension that CMD or his nominee would be favorably inclined towards the respondent. He points out that CMD has been in control and supervision of the works of the respondent and, therefore, cannot be expected to be impartial in any dispute between the petitioner and the respondent. Similarly, any employee of the respondent would suffer Page 12 13 from the same disability. In support of the submission, the learned counsel has relied on Indian Oil Corporation 1 Limited & Ors. Vs. Raja Transport Private Limited , Denel (Proprietary) Limited Vs. Bharat Electronics 2 Limited & Anr. , and Denel (Proprietary) Limited Vs. 3 Ministry of Defence . 15. Mr. Viswanathan then submitted that the plea taken by the respondent that one Mr. R. Chandra Kumar, the General Manager, Bharat Electronics Limited was th appointed as the sole arbitrator on 19 July, 2011 and communicated by fax on that date itself is without any basis. He submits that factually the aforesaid averment has not been proved. The affidavit filed by the respondent JUDGMENT is not supported by any document including purported th appointment letter dated 19 July, 2011. The said affidavit is completely silent as to whom the said communication was faxed, where it was faxed and what is the proof of same having been faxed. He further 1 (2009) 8 SCC 520 2 (2010) 6 SCC 394 3 (2012) 2 SCC 759 Page 13 14 submits that, in fact, the said communication was sent to th the advocate for the petitioner on e-mail on 26 July, 2011, attaching the letter of counsel which was also

by fax or otherwise stating that the arbitrator had been appointed. He emphasised that even the aforesaid th appointment letter purportedly signed on 19 July, 2011 shows that it was faxed from Bangalore Office only th on 25 July, 2011 to their Solicitor who in turn further communicated to the counsel for the petitioner on th 26 July, 2011. Therefore, according to Mr. Viswanathan, it is unbelievable that the communication released from Bangalore office (Head quarter where the Chairman sits) JUDGMENT th could have been conveyed to the petitioner on 19 July, 2011, though the communication states “CC” to the petitioner but it was never sent to the petitioner. The aforesaid communication was sent by the Solicitor of the th respondent to the petitioner’s counsel on e-mail on 26 July, 2011 and thereafter by way of postal communication. He, therefore, submits that even if it is Page 14 15 assumed that the aforesaid letter was signed on th 19 July, 2011, but it was certainly not communicated till after the filing of the present petition, therefore, the

16. In support of the submission, the petitioner relies on Section 3(2) of the Arbitration Act, 1996 which provides that “The communication is deemed to have been received on the day it is so delivered”. He submits that th without delivery of the communication dated 19 July, 2011, the same shall be of no effect. 17. Mr. Viswanathan further submits that apart from the Arbitration Act, as a general principle of law, it is settled JUDGMENT that an order takes effect only when it is served on the person affected. In support of this submission, learned counsel relied on in the case of Bachhittar Singh Vs. 4 State of Punjab & Anr. and BSNL & Ors. Vs. Subash 5 Chandra Kanchan & Anr. and State of Punjab Vs. 4 AIR 1963 SC 395 5 (2006) 8 SCC 279 Page 15 16 6 Amar Singh Harika . On the basis of the above, he submits that the petition deserves to be allowed and the matter be referred to an independent and impartial arbitrator. 18. On the other hand, Mr. Bhat, learned counsel appearing for the respondent has submitted that the petitioner having agreed to the provisions of arbitration contained in Clause 10 of the general conditions cannot now be permitted to turn around and contend that someone else has to be appointed as an arbitrator, thus giving a go-by to the arbitration agreement. He submits that it is well settled that once the parties have agreed upon a named arbitrator, the parties cannot resile therefrom. In support JUDGMENT of the submission, he relied on the judgment of this Court 7 in the cases of Union of India & Anr. Vs. M.P.Gupta , You One Engineering & Construction Co. Ltd. & Anr. 8 Vs. National Highways Authority of India (NHAI) , National Highways Authority of India & Anr. Vs. 6 AIR 1966 SC 1313 7 (2004) 10 SCC 504 8 (2006) 4 SCC 372 Page 16 17 9 Bumihiway DDB Ltd.(JV) & Ors , Northern Railway Administration, Ministry of Railway, New Delhi Vs. 10 Patel Engineering Company Limited and Indian Oil Corporation Limited & Ors. Vs. Raja Transport Private 11 Limited . 19. He further submits that the present petition is not maintainable as even prior to the filing of the petition, the Chairman-cum-Managing Director had duly acted and exercised his powers and had appointed Mr. R. Chandra Kumar, General Manager (Kot) as the arbitrator. It is his th claim that the appointment was made on 19 July, 2011 th and the same was duly communicated by fax on 19 July, 2011 itself to the petitioner. JUDGMENT 20. Mr. Bhat further submits that the order of the Managing Director came into force from the moment it was signed th on 19 July, 2011. In support of this submission, he relies on the judgment of this Court in the case of 9 (2006) 10 SCC 763 10 (2008) 10 SCC 240 11 (2009) 8 SCC 520 Page 17 18 Collector of Central Excise, Madras Vs. M/s M.M. 12 Rubber & Co., Tamil Nadu . According to the learned counsel, the aforesaid principle has been reiterated by this Court in Municipal Corporation of Delhi Vs. Qimat 13 Rai Gupta & Ors . On the issue of perceived partiality of the CMD or his nominee, Mr. Bhat submits that the petitioner cannot rely on the judgment of this Court in Denel (Proprietary) Limited (supra ). The facts in the aforesaid case were different from the facts in the present case inasmuch as in Denel case (supra) this Court has directed the appointment of an independent arbitrator only on the ground that there was certain directions issued by the Ministry of Defence, Government of India and as such the Managing Director of BEL may not be in JUDGMENT a position to independently decide the dispute between the parties. He further submits that in the event this Court accepts the submission of the petitioner then Chairman and Managing Director of any other Public Sector Undertaking, for example, Hindustan Aeronautics 12 1992 Supp.(1) SCC 471 13 (2007) 7 SCC 309 Page 18 19 Limited or Bharat Earth Movers Ltd. may be appointed to arbitrate the dispute.

22. The first issue which needs to be addressed is as to whether the present petition is maintainable in view of the claim made by the respondent that Mr. R. Chandra th Kumar had been appointed as the Sole Arbitrator on 19 July, 2011. 23. I am of the considered opinion that the aforesaid submission of Mr. Bhat can not be accepted in view of the JUDGMENT provision contained in Section 3(2) of the Arbitration Act. Section 3 of the Act provides for different modes in which any written communication is deemed to have been received. Section 3(2) specifically provides as under:- “The communication is deemed to have been received on the day it is so delivered.” Page 19 20 24. In view of the aforesaid provision even if the order appointing the Sole Arbitrator, Mr. R. Chandra Kumar, th was made on 19 July, 2011, it would be deemed to be

25. Apart from the aforesaid statutory provision, it is also settled that an official order takes effect only when it is served on the person affected. In the case of Bachhittar Singh Vs. State of Punjab & Anr. (supra) , this Court has clearly enunciated the Principle of Law in the following words:- “Thus it is of the essence that the order has to be communicated to the person who would be affected by that order before the State and that person can be bound by that order. For, until the order is communicated to the person affected by it, it would be open to the Council of Ministers to consider the matter over and over again and, therefore, till its communication the order cannot be regarded as anything more than provisional in character.” JUDGMENT 26. Similarly, in this case until the order was communicated to the petitioner, the Chairman-cum-Managing Director would have been at liberty to reconsider the matter and thus rendering the order only provisional in character. Page 20 21 Similar question arose before this Court in the case of BSNL & Ors. Vs. Subash Chandra Kanchan & Anr. (supra) wherein it has been clearly observed as under:-

27. In reaching the aforesaid conclusion, this Court relied on earlier judgment rendered in the case of State of Punjab Vs. Amar Singh Harika (supra) , wherein this Court has held as follows:- JUDGMENT “The first question which has been raised before us by Mr. Bishan Narain is that though the respondent came to know about the order of his dismissal for th the first time on the 28 May 1951, the said order rd must be deemed to have taken effect as from the 3 June 1949 when it was actually passed. The High Court has rejected this contention; but Mr. Bishan Narain contends that the view taken by the High Court is erroneous in law. We are not impressed by Mr. Bishan Narain’s argument. It is plain that the mere passing of an order of dismissal would not be effective unless it is published and communicated to the officer concerned. If the appointing authority Page 21 22 passed an order of dismissal, but does not communicate it to the officer concerned, theoretically it is possible that unlike in the case of a judicial order pronounced in Court, the authority may change its mind and decide to modify its order.”

passed by an authority can not be said to take effect unless the same is communicated to the party affected. The order passed by a competent authority or by an appropriate authority and kept with itself, could be changed, modified, cancelled and thus denuding such an order of the characteristics of a final order. Such an uncommunicated order can neither create any rights in favour of a party, nor take away the rights of any affected party, till it is communicated. The aforesaid proposition JUDGMENT has been reiterated in the case of Laxminarayan R. 14 Bhattad & Ors. Vs. State of Maharashtra & Anr. , wherein it has been held that “it is now well known that a right created under an order of a statutory authority must be communicated so as to confer an enforceable right.” Similar view has been reiterated in Greater 14 (2003) 5 SCC 413 Page 22 23 Mohali Area Development Authority & Ors. Vs. Manju 15 Jain & Ors. , wherein it is observed as follows:-

29. Mr. Bhat on the contrary relied on the judgment of this Court in the case of Collector of Central Excise, Madras Vs. M/s M.M. Rubber & Co., Tamil Nadu (supra) and submitted that the order of the Managing Director came th into force from the moment it was signed on 19 July, 2011. In Paragraph 12 of the aforesaid judgment, it is observed as follows:- JUDGMENT “ 12. It may be seen therefore, that, if an authority is authorised to exercise a power or do an act affecting the rights of parties, he shall exercise that power within the period of limitation prescribed therefor. The order or decision of such authority comes into force or becomes operative or becomes an effective order or decision on and from the date when it is signed by him. The date of such order or decision is the date on which the order or decision was passed or made : that is to say when he ceases to have any authority to tear it off and draft a different order and when he ceases to have any locus paetentiae. 15 (2010) 9 SCC 157 Page 23 24

30. In my opinion, the aforesaid observations do not deviate from the observations made by this Court in Bachhittar Singh’s case (supra) and reiterated consistently thereafter by this Court. The observations herein were made with regard to the exercise of power by the competent authority with regard to determination of the date from which the period of limitation was to be calculated to make an appeal. In that case, an order in favour of the respondent was passed by the Collector of JUDGMENT th Central Excise, as an adjudicating authority on 28 November, 1984. Its copy was supplied to the respondent st on 21 December, 1984. The Central Board of Excise and Customs, however, in exercise of its powers under th Section 35-e(1) directed the Collector on 11 December, 1985 to make an appeal to the Customs, Excise Board (Control) Appellate Tribunal against this order. The point Page 24 25 at issue was whether limitation under Section 35-e(3) of the Central Excise and Salt Act, 1944 for the order of the th Board under Section 35-e(1) commenced from 28

ground that it was beyond limitation period of one year th commencing from 28 November, 1984. The aforesaid decision of the Appellate Tribunal was upheld by this Court with the observations made in Paragraph 12 above (supra) . However, the aforesaid observation can not be read divorced from the observations made in Paragraph 13 and 18, which are as under:- “ 13. So far as the party who is affected by the order or decision for seeking his remedies against the same, he should be made aware of passing of such order. Therefore courts have uniformly laid down as a rule of law that for seeking the remedy the limitation starts from the date on which the order was communicated to him or the date on which it was pronounced or published under such circumstances that the parties affected by it have a reasonable opportunity of knowing of passing of the order and what it contains. The knowledge of the party affected by such a decision, either actual or constructive is thus an essential element which must be satisfied before the decision can be said to have been concluded and binding on him. Otherwise the party affected by it will have no means of obeying the order or acting in conformity with it or JUDGMENT Page 25 26

JUDGMENT 31. From the above, it becomes evident that the order dated th 19 July, 2011 would be binding on the Chairman-cum- Managing Director for the purposes of working out the limitation, but so far as the petitioner is concerned, the relevant date would be the date when the order is communicated to the petitioner. The order made by a Statutory Authority or an Officer exercising the powers of Page 26 27 that Authority comes into force so far as the Authority Officer is concerned, from the date it is made by the concerned Authority Officer. But, so far as the affected

In my opinion, Section 3(2) of the Arbitration and Conciliation Act, 1996, is a mere reiteration of the aforesaid general principle of law. 32. In view of the above, I am of the considered opinion that the reliance placed on the aforesaid judgment by Mr. Bhat is misplaced. In my opinion, the reliance placed by Mr. Bhat on the judgment in Municipal Corporation of Delhi (supra) is also misplaced as therein the Court has JUDGMENT reiterated the principle laid down in Collector of Central Excise, Madras (supra); by observing as follows:- “ 26. A distinction, thus, exists in the construction of the word “made” depending upon the question as to whether the power was required to be exercised within the period of limitation prescribed therefor or in order to provide the person aggrieved to avail remedies if he is aggrieved thereby or dissatisfied Page 27 28 therewith. Ordinarily, the words “given” and “made” carry the same meaning.

These observations, in my opinion, do not support the JUDGMENT submissions made by Mr. Bhat. 33. Keeping in view the aforesaid principle of law, the fact situation with regard to the making and the th communication of the order dated 19 July, 2011 can now be examined. Even though the respondent claims th that the order was sent by fax on 19 July, 2011, there is Page 28 29 clear denial of the same by the petitioner. Prima facie, it would appear that even though the order may have been th made on 19 July, 2011, it was served for the first time

accept the submission of Mr. Bhat that the petition would not be maintainable on the ground that the arbitrator had already been appointed at the time when the present petition was filed. The issue needs to be decided on the basis of the evidence produced by the parties, at the appropriate time. 34. I am also not much impressed by the submission made by Mr. Bhat that this Court is bound to appoint the JUDGMENT Chairman-cum-Managing Director or its nominee as the arbitrator in view of the arbitration clause. However, it is necessary to consider the judgments relied upon by Mr. Bhat. In the case of Union of India & Anr. Vs. M.P.Gupta (supra) , this Court observed that in view of the express provision contained in the arbitration clause that two Gazetted Railway Officers shall be appointed as Page 29 30 arbitrators; a Former Judge of the Delhi High Court can not be appointed as the Sole Arbitrator. It must be noticed here that in the aforesaid case, no facts have

arbitration clause. In You One Engineering & Construction Co. Ltd. & Anr. Vs. National Highways Authority of India (NHAI) (supra) , Justice B.N. Srikrishna, sitting as a Chamber Judge in a petition under Section 11(6) has observed as follows:- “ 10. In my view, the contention has no merit. The arbitration agreement clearly envisages the appointment of the presiding arbitrator by IRC. There is no qualification that the arbitrator has to be a different person depending on the nature of the dispute. If the parties have entered into such an agreement with open eyes, it is not open to ignore it and invoke exercise of powers in Section 11(6).” JUDGMENT 35. In this matter also, there was no plea that the Arbitral Tribunal constituted under the arbitration clause was likely to be favorably inclined towards the respondent. This Court has merely reiterated the legal position that in normal circumstances, arbitrator has to be appointed in Page 30 31 terms of the agreement of the parties contained in the arbitration clause. 36. In the case of National Highways Authority of India & Anr. Vs. Bumihiway DDB Ltd.(JV) & Ors. (supra) , the question which was before this Court was again as to whether a presiding arbitrator could be appointed beyond the scope of the arbitration clause, by the High Court in a petition under Section 11(6). It was submitted on behalf of the appellant that when the arbitration agreement clearly envisages the appointment of the presiding officer by the IRC and there is no specification that the arbitrator has to be different person depending on the nature of the dispute, it is not open to ignore it and JUDGMENT invoke the exercise of power under Section 11(6) of the Act. It was also submitted that the High Court was not justified in referring to the principle of hierarchy and ignoring the express contractual provision for appointment of the presiding arbitrator. Upon consideration of the rival submissions, this Court considered the questions of law which had arisen. The Page 31 32 relevant question for the purposes of this case is “Whether an arbitration clause, which is a sacrosanct clause, can be rewritten by appointment of a judicial

37. The answer to the aforesaid question was in the negative. It was held that the appointment made by the High Court was beyond the arbitration agreement which clearly envisages the appointment of the presiding arbitrator by IRC, there is no qualification that the arbitrator has to be a different person depending on the nature of the dispute. It was emphasised that “if the parties have entered into such an agreement with open eyes, it is not open to ignore it JUDGMENT and invoke exercise of the powers in Section 11(6).” The observations made by this Court in RITE Approach 16 Group Ltd. Vs. Rosoboronexport , were reiterated, wherein this Court has clearly held that :- “In view of the specific provision contained in the `agreement specifying the jurisdiction of the court to decide the matter, this Court cannot assume the jurisdiction, and hence, whenever there is a specific 16 (2006) 1 SCC 206 Page 32 33 clause conferring jurisdiction on a particular court to decide the matter, then it automatically ousts the jurisdiction of the other court.” 38. In Northern Railway Administration, Ministry of Railway, New Delhi Vs. Patel Engineering Company Limited (supra) , a three Judge bench of this Court reiterated the general principle as noticed in the judgments relied upon by Mr. Bhat. At the same time, it is emphasised that in exercise of its powers under Section 11(6) of the Act, the Court has to take into consideration the provision contained in Section 11(8) of the Act. The aforesaid provision requires that the Chief Justice or the person or an institution designated by him in appointing an arbitrator shall have due regard to any qualifications JUDGMENT required of the arbitrator by the agreement of the parties and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. It is also observed that a bare reading of the Scheme of Section 11 shows that the emphasis is on the term of the agreement being adhere to and /or give effect to as closely as possible. But it is not mandatory for the Chief Page 33 34 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

39. In Indian Oil Corporation Limited & Ors. Vs. Raja Transport Private Limited (supra) , this Court whilst emphasizing that normally the Court shall make the appointment in terms of the agreed procedure, has observed that the Chief Justice or his designate may deviate from the same after recording reasons for the same. In Paragraph 45 of the aforesaid judgment, it is observed as follows:- JUDGMENT “45. If the arbitration agreement provides for arbitration by a named arbitrator, the courts should normally give effect to the provisions of the arbitration agreement. But as clarified by Northern Railway Admn., where there is material to create a reasonable apprehension that the person mentioned in the arbitration agreement as the arbitrator is not likely to act independently or impartially, or if the named person is not available, then the Chief Justice or his designate may, after recording reasons for not following the agreed procedure of referring the dispute to the named arbitrator, Page 34 35

40. In view of the aforesaid observations, it would not be possible to reject the petition merely on the ground that this Court would have no power to make an appointment of an arbitrator other than the Chairman-cum-Managing Director or his designate. This Court would have the power to appoint a person other than the named arbitrator, upon examination of the relevant facts, which JUDGMENT would tend to indicate that the named arbitrator is not likely to be impartial. In this case, the petitioner had clearly pleaded that the named arbitrator is a direct subordinate of the CMD and employee of the respondent. CMD is the controlling authority of all the employees, who have been dealing with the subject matter in the present dispute and also controlling authority of the named Page 35 36 arbitrator. Apprehending that the CMD, who had been dealing with the entire contract would not act impartially th as an arbitrator, the petitioner had issued a notice on 20

th going on, the CMD had issued a letter on 5 June, 2009 to the petitioner stating that as per the company’s directives, all pending supplies as on that date were “put on hold”. After the aforesaid communication, no communication was issued to the petitioner for supply of rd the goods as per the Purchase Order dated 3 December, 2009. Even subsequently, there were difficulties when a further lot of 24 units were supplied. The detailed submissions made by the petitioner have been noticed in JUDGMENT the earlier part of the judgment. 41. Keeping in view the aforesaid facts, I am of the opinion that it would not be unreasonable for the petitioner to entertain the plea that the arbitrator appointed by the respondent would not be impartial. The CMD itself would not be able to act independently and impartially being Page 36 37 amenable to the directions issued by the Ministry of Defence. In similar circumstances, this Court in the case of Denel (Proprietary) Limited Vs. Bharat Electronics Limited & Anr. (supra) , this Court observed as follows:- “ 21. However, considering the peculiar conditions in the present case, whereby the arbitrator sought to be appointed under the arbitration clause, is the Managing Director of the Company against whom the dispute is raised (the respondents). In addition to that, the said Managing Director of Bharat Electronics Ltd. which is a “government company”, is also bound by the direction/instruction issued by his superior authorities. It is also the case of the respondent in the reply to the notice issued by the respondent, though it is liable to pay the amount due under the purchase orders, it is not in a position to settle the dues only because of the directions issued by the Ministry of Defence, Government of India. It only shows that the Managing Director may not be in a position to independently decide the dispute between the parties.” JUDGMENT 42. In my opinion, the facts in the present case are similar and, therefore, a similar course needs to be adopted. 43. In exercise of my powers under Sections 11(4) and 11(6) of the Arbitration and Conciliation Act, 1996 read with Para 2 of the Appointment of Arbitrators by the Chief Page 37 38 Justice of India Scheme, 1996, I hereby appoint Hon’ble Mr. Justice Ashok C. Agarwal, Retired Chief Justice of the Madras High Court, r/o No. 20, Usha Kiran, 2nd Pasta

parties, on such terms and conditions as the learned sole arbitrator deems fit and proper. Undoubtedly, the learned sole arbitrator shall decide all the disputes arising between the parties without being influenced by any prima facie opinion expressed in this order, with regard to the respective claims of the parties. 44. The Registry is directed to communicate this order to the sole arbitrator forthwith to enable him to enter upon the JUDGMENT reference and decide the matter as expeditiously as possible. 45. The Arbitration Petition is accordingly disposed of. Page 38 39 ……..…………………..J. [Surinder Singh Nijjar] New Delhi; May 08, 2012.

PARA NO.39, LAST LINE OF PARA, FOR (EMPHASIS SUPPLIED), READ (THE LINE STANDS DELETED) JUDGMENT Page 39