2012 (7) TMI 383 - SC - Indian Laws

Court Invalidates Arbitrator Appointment; Appoints Justice Agarwal. Impartiality Ensured. Timely Communication Vital.

The court held that the appointment of the arbitrator by the respondent was not validly communicated to the petitioner, rendering it ineffective. Due to ... Appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 - communication deemed to have been received - effect of official order upon communication to the person affected - reasonable apprehension of bias as ground to displace a contractually named arbitrator - power to depart from the agreed procedure for appointment of arbitratorCommunication deemed to have been received - effect of official order upon communication to the person affected - appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 - Maintainability of the petition in view of the respondent's assertion that the Chairman-cum-Managing Director had already appointed a sole arbitrator on 19th July, 2011. - HELD THAT: - The Court held that an alleged appointment made on 19th July, 2011 cannot be treated as effective against the petitioner unless it was proved to have been communicated to the petitioner. Section 3(2) of the Arbitration Act provides that a communication is deemed received on the day it is delivered. Consistent authorities establish that an official order affecting rights does not take effect for the person affected until communicated to that person; an uncommunicated order remains provisional and may be changed. Applying these principles, even if the appointment was signed on 19th July, 2011, the respondent has not satisfactorily proved delivery to the petitioner prior to filing of the petition; prima facie the first service on petitioner's counsel occurred by e-mail only on 26th July, 2011. Accordingly, the respondent's contention that the petition was rendered non-maintainable by a prior appointment could not be accepted without further evidence. [Paras 29, 30, 31, 32, 33]The petition was not rendered non maintainable by the respondent's claim of an earlier appointment because the appointment had not been shown to have been communicated to the petitioner before the petition was filed.Reasonable apprehension of bias as ground to displace a contractually named arbitrator - power to depart from the agreed procedure for appointment of arbitrator - appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 - Whether the Court could appoint an independent arbitrator instead of referring the dispute to the Chairman cum Managing Director or his nominee named in the contract. - HELD THAT: - While the normal rule is to give effect to the arbitration agreement and appoint the arbitrator named therein, the Court may depart from the agreed procedure in exceptional circumstances. Where material exists creating a reasonable apprehension that the named arbitrator is unlikely to act independently or impartially, the Chief Justice (or designate) may appoint an independent arbitrator after recording reasons. The petitioner had pleaded facts (including the CMD having issued directives and being under Ministry control and the proposed arbitrator being an employee and subordinate) which could reasonably give rise to apprehension of lack of impartiality. On those facts and by reference to established precedents, the Court found it not unreasonable for the petitioner to entertain such apprehension and exercised its powers under Sections 11(4) and 11(6) read with the Chief Justice's Scheme to appoint an independent sole arbitrator. [Paras 39, 40, 41, 42, 43]The Court exercised its discretion to appoint an independent sole arbitrator because the pleaded facts gave rise to a reasonable apprehension about the impartiality of the contractually named arbitrator.Final Conclusion: Petition allowed. Hon'ble Mr. Justice Ashok C. Agarwal, Retired Chief Justice of the Madras High Court, was appointed as sole arbitrator to adjudicate the disputes between the parties; the Registry was directed to communicate the order to enable the arbitrator to enter upon reference, and the arbitration petition was disposed of. Issues Involved:1. Appointment of an independent and impartial sole arbitrator.2. Validity of the appointment of the arbitrator by the respondent.3. Whether the disputes should be referred to the Chairman-cum-Managing Director or his nominee as per the arbitration clause.4. Timeliness and communication of the arbitrator's appointment.Issue-wise Detailed Analysis:1. Appointment of an independent and impartial sole arbitrator:The petitioner sought the appointment of an independent and impartial sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. The petitioner issued a notice to the respondent requesting the appointment of an independent arbitrator, which the respondent did not agree to. The petitioner argued that the Chairman-cum-Managing Director (CMD) or his nominee would not be impartial due to their control and supervision over the respondent's operations.2. Validity of the appointment of the arbitrator by the respondent:The respondent claimed that Mr. R. Chandra Kumar, General Manager, Bharat Electronics Limited, was appointed as the sole arbitrator on 19th July 2011, and communicated this by fax on the same date. The petitioner disputed the receipt of this communication, asserting that it was not received until after the filing of the present petition. The court examined whether the appointment was validly communicated to the petitioner.3. Whether the disputes should be referred to the Chairman-cum-Managing Director or his nominee as per the arbitration clause:The respondent argued that the disputes should be referred to the CMD or his nominee as per the arbitration clause in the General Terms and Conditions of Purchase Order (Foreign). The petitioner contended that the CMD or his nominee could not act impartially due to their involvement in the respondent's operations and previous directives issued by the Ministry of Defence.4. Timeliness and communication of the arbitrator's appointment:The court considered whether the appointment of the arbitrator by the respondent was communicated in a timely manner. Section 3(2) of the Arbitration Act states that a communication is deemed to have been received on the day it is delivered. The court found that the appointment was not communicated to the petitioner until 26th July 2011, after the filing of the petition, making the appointment ineffective.Judgment:The court held that the petition was maintainable as the appointment of the arbitrator by the respondent was not validly communicated to the petitioner. The court emphasized that an order takes effect only when it is served on the person affected. The court also noted that the petitioner had reasonable grounds to believe that the CMD or his nominee would not act impartially. Consequently, the court appointed Hon'ble Mr. Justice Ashok C. Agarwal, Retired Chief Justice of the Madras High Court, as the sole arbitrator to adjudicate the disputes between the parties. The court directed the Registry to communicate this order to the sole arbitrator for expeditious resolution of the disputes.Conclusion:The court concluded that the appointment of the arbitrator by the respondent was not effective due to the lack of timely communication. The court appointed an independent and impartial sole arbitrator, Hon'ble Mr. Justice Ashok C. Agarwal, to resolve the disputes, ensuring fairness and impartiality in the arbitration process.