Supreme Court of India
M/S Deep Trading Company vs. M/S Indian Oil Corporation & Ors
Bench: R.M. Lodha, J. Chelameswar, Madan B. Lokur
Facts of the Case
- The parties entered into an agreement on 01.11.1998, for the retail sales supply of kerosene and light diesel oil in the area specified in the schedule. In the course of the dealership agreement, allegedly some violations were committed by the dealer. The Corporation on 12.03.2004 suspended the sales and supplies of all the products to the dealer on which the dealer filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 before the District Judge, Etawah seeking an order of injunction against the Corporation from stopping the supply of Kerosene/LDO.
- On 25.03.2004, the District Judge, Etawah passed a restraint order against the Corporation. On 09.08.2004, the dealer made a demand to the Corporation by a written notice to refer the disputes between the parties to the arbitrator under the terms of the agreement. In the demand notice, it was also stated by the dealer that if the Corporation fails to appoint the arbitrator, the dealer may be constrained to approach the court under Section 11 of the 1996 Act. On or about 06.12.2004, the dealer moved the Chief Justice of the Allahabad High Court under Section 11(6) for the appointment of an arbitrator as the Corporation had failed to act under the agreement. While the said proceedings were pending, on 28.12.2004, the Corporation appointed Shri B. Parihar, Senior Manager, (LPG Engineering) of its U.P. State Office as the sole arbitrator. Thus, the Chief Justice dismissed the application of the dealer on the appointment of the Arbitrator.
Whether respondent No. 1 has forfeited its right to appoint the arbitrator having not done so after the demand was made and till the appellant had moved the court under Section 11(6)?
Whether the appointment of the arbitrator by respondent No. 1 in the course of the proceedings under Section 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?
Contentions of the Parties
On behalf of the appellant, Mr. K.K. Venugopal, learned senior counsel, relied heavily upon decisions of this Court, Datar Switchgears Ltd. v. Tata Finance Ltd. and Another: [(2000) 8 SCC 151] and Punj Lloyd Ltd. v. Petronet MHB Ltd.: [(2006) 2 SCC 638] and submitted that the learned Chief Justice erred in holding that there was no reason to appoint any fresh arbitrator since the arbitrator has been appointed by the Corporation.
In Datar Switchgears, a two-Judge Bench of this Court held that in cases arising under Section 11(6), if the opposite party has not made an appointment within thirty days of the demand, the right to make appointment is not forfeited but continues, but such an appointment has to be made before the first party makes application under Section 11 seeking appointment of an arbitrator. If no appointment has been made by the opposite party till application under Section 11(6) has been made, the right of the opposite party to make appointment ceases and is forfeited.
Similarly in Punj Lloyd, the respondent did not make the appointment of the arbitrator till the date of moving the application. Punj Lloyd moved the Chief Justice of the High Court for appointment of the arbitrator under Section 11(6) but the designate Judge refused to appoint the arbitrator. On which This Court restored the application under Section 11(6) before the Chief Justice of the High Court for fresh consideration and appointment of the arbitrator in accordance with Section 11(6).
On behalf of Respondent, Mr. Abhinav Vashishta, learned senior counsel, relied upon a decision of this Court in Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Limited: [(2008) 10 SCC 240] and submitted that while considering application under Section 11(6) for appointment of arbitrator, the Court must keep in view twin requirements of Section 11(8).
In Newton Engineering, this Court was not concerned with the question of forfeiture of the right of the Corporation for the appointment of an arbitrator. No such argument was raised in that case. The question raised in Newton Engineering4 was entirely different. Thus, what has been stated above has no application to the present fact situation.
Order of the Court
Honorable Court was in full agreement with the legal position stated by this Court in Datar Switchgears which has also been followed in Punj Lloyd.
"20. If we apply the legal position exposited by this Court in Datar Switchgears1 to the admitted facts, it will be seen that the Corporation has forfeited its right to appoint the arbitrator. It is so for the reason that on 09.08.2004, the dealer called upon the Corporation to appoint the arbitrator in accordance with terms of Clause 29 of the agreement but that was not done till the dealer had made application under Section 11(6) to the Chief Justice of the Allahabad High Court for appointment of the arbitrator. The appointment was made by the Corporation only during the pendency of the proceedings under Section 11(6). Such appointment by the Corporation after forfeiture of its right is of no consequence and has not disentitled the dealer to seek appointment of the arbitrator by the Chief Justice under Section 11(6). "
"23. ………….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 under Section 11(6) in the matter for appointment of an arbitrator appropriately. The appointment of the arbitrator by the Corporation during the pendency of proceedings under Section 11(6) was of no consequence. "
Therefore, the Honorable Court allowed the Civil Appeal and set aside the impugned order, and restored the matter 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 here, in this case.
Thus, from the above judgment this can be concluded that if parties to a Contract have entered in an agreement to refer their disputes to Arbitrator in case of any dispute then when any such dispute arises and one party gives notice to another party to appoint an arbitrator then the other party must make such appointment within 30 days of such notice. If the same is not done then the right of the latter party to appoint the arbitrator shall not be forfeited but that party must exercise it before the former party approaches Court for the appointment of the arbitrator under section 11(6) otherwise once such petition is made then the right of the opposite party to make the appointment of the Arbitrator ceases and is forfeited. And any such appointment of the Arbitrator during the pendency of proceedings under Section 11(6) will be of no consequence.