2012 (7) TMI 383 - SC - Indian Laws

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

Bipromasz Bipron Trading SA Versus Bharat Electronics Limited (BEL)

The court held that the appointment of the arbitrator by the respondent was not validly communicated to the petitioner, rendering it ineffective. Due to ... Petition seeking reference of the disputes to an independent and impartial sole Arbitrator - provisions of arbitration contained in Clause 10 of the general conditions that once the parties have agreed upon a named arbitrator, the parties cannot resile therefrom - the Chairman-cum-Managing Director had duly acted and exercised his powers and had appointed General Manager (Kot) as the arbitrator - Held that:- It would appear that even though the order may have been made on 19th July, 2011, it was served for the first time on the counsel of the petitioner by e-mail on 26th July, 2011. Therefore, prima facie, it would not be possible to accept the submission of respondent 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. 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 would tend to indicate that the named arbitrator is not likely to be impartial - 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 arbitrator. Apprehending that the CMD, who had been dealing with the entire contract would not act impartially as an arbitrator - the petitioner thus made it explained that it may not get any justice in the hands of the Managing Director, since he cannot go against the directions issued by the Ministry of Defence, Government of India and, therefore, it would be appropriate to appoint independent sole arbitrator - in favour of petitioner 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.