1993 (1) TMI 253 - HC - VAT and Sales Tax

Enforcing arbitration clause: Key ruling on appointment, contractual obligations, and bias threshold.

The appellate court found the arbitration clause valid and binding, justifying the plaintiff's court action due to the defendant's failure to appoint an ... Arbitration clause binding parties - Court's power to appoint arbitrator under Section 20 of the Arbitration Act - Feasibility of party-appointed arbitrator - Doctrine of bias (nemo judex non causa sua) in arbitration - Enforcement of contractual arbitration procedureArbitration clause binding parties - Feasibility of party-appointed arbitrator - Enforcement of contractual arbitration procedure - Whether the arbitration clause in the contract requiring nomination of an engineer-officer by the Engineer-in-Chief should be given effect and the Court should require the defendant to obtain such nomination rather than appoint its own arbitrator. - HELD THAT: - The Court held that the arbitration clause (Clause 70 read with Clause 7(b) of the tender) was valid and ordinarily binding on the parties. While Section 20 empowers the Court to appoint an arbitrator, that power must be exercised with regard to the parties' agreed procedure; the Court should not bypass the contractual mechanism unless appointment according to the contract is infeasible. The respondent had not established that the contractual mode of appointment was infeasible. The appellant's delay or lack of promptness in acting on the plaintiff's demand did not justify the Court substituting its own appointment without first directing performance of the contractual mechanism. Applying the authorities relied upon, the Court directed the appellant to secure nomination by the Engineer-in-Chief within a specified short period and provided that failure to do so would result in the single Judge's appointee being deemed appointed.The arbitration clause is to be given effect; the appellant is directed to obtain nomination of an arbitrator by the Engineer-in-Chief within two weeks, failing which the arbitrator appointed by the learned single Judge shall be deemed appointed.Doctrine of bias (nemo judex non causa sua) in arbitration - Court's power to appoint arbitrator under Section 20 of the Arbitration Act - Whether there was a well-founded apprehension of bias such as to justify the Court appointing an arbitrator instead of following the contractual nomination procedure. - HELD THAT: - The Court examined the contention of apprehended bias and the authorities on nemo judex non causa sua. It observed that bias cannot be presumed and must be supported by clear and positive material showing a reasonable apprehension of unfairness by the nominated person. On the facts before it, and having regard to precedent, the Court found no sufficient basis to presume that an engineer nominated under the contract would necessarily be biased. Consequently, there was no justification for ignoring the contractual appointment mechanism on grounds of bias.No well-founded apprehension of bias was established; the contractual nomination procedure must be followed.Final Conclusion: Appeal allowed: the arbitration clause is enforceable and the appellant is directed to secure nomination of an arbitrator by the Engineer-in-Chief within two weeks, failing which the arbitrator appointed by the learned single Judge shall be deemed appointed; no order as to costs. Issues Involved:1. Validity and enforcement of the arbitration clause.2. Appointment of an arbitrator by the Court versus the authority named in the contract.3. Allegations of bias in the appointment of an arbitrator by the Engineer-in-Chief.Detailed Analysis:1. Validity and Enforcement of the Arbitration Clause:The core issue revolves around the arbitration clause (Clause 70) of the General Conditions of Contract, which mandates that all disputes between the parties be referred to the sole arbitration of an engineer-officer appointed by the Engineer-in-Chief. The plaintiff-respondent argued that the defendant-appellant failed to appoint an arbitrator as required, thus necessitating court intervention. The court found that the arbitration clause was valid and binding on both parties. The plaintiff's move to court was justified due to the defendant's inaction in appointing an arbitrator. The court emphasized that the parties should honor their contractual obligations, including the arbitration agreement.2. Appointment of an Arbitrator by the Court versus the Authority Named in the Contract:The learned single Judge initially appointed an arbitrator, citing precedents that suggested the court could appoint an arbitrator if there was a reasonable apprehension of bias or if the named authority failed to act. However, the appellate court disagreed with this approach, highlighting that the court should not appoint an arbitrator contrary to the terms of the arbitration agreement unless there is substantial evidence of bias or other compelling reasons. The appellate court referred to previous judgments, including Union of India v. Prafulla Kumar Sanyal and M/s Ama Corporation, Madras v. Food Corporation of India, to support its stance that the arbitration agreement should be enforced as written, and the parties should first seek the appointment of an arbitrator through the agreed-upon mechanism.3. Allegations of Bias in the Appointment of an Arbitrator by the Engineer-in-Chief:The plaintiff-respondent contended that the Engineer-in-Chief and any arbitrator appointed by him would be biased. The appellate court examined the doctrine of bias, particularly the principle of 'nemo judex in causa sua' (no person can be a judge in their own cause). The court noted that mere suspicion of bias is insufficient; there must be clear and positive evidence. The court found no such evidence in this case. It referenced the decision in M/s. Indian Oil Corporation Ltd. v. M/s. Poppat Jamal and Sons, which held that an arbitration clause referring disputes to an engineer of one party could not be disregarded merely on the ground of potential bias unless there was a reasonable probability of unfairness. The appellate court concluded that the plaintiff-respondent's apprehensions were speculative and did not justify bypassing the agreed arbitration mechanism.Conclusion:The appellate court allowed the appeal, directing the Engineer-in-Chief to appoint an arbitrator within two weeks. If the Engineer-in-Chief failed to do so, the arbitrator appointed by the learned single Judge would be deemed appointed. This decision underscores the importance of adhering to arbitration agreements and the high threshold required to prove bias sufficient to override such agreements. The court emphasized the principle that contractual obligations, including arbitration clauses, should be honored unless there is compelling evidence to the contrary.