Judgement Name: Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited & Ors. v. M/S Ajay Sales and Suppliers

Citation: Special Leave Petition (Civil) No. 13520 of 2021

Coram: M.R. Shah and Aniruddha Bose, JJ.

Date: 9th September 2021

Keywords: Ineligibility of Arbitrators, Section 12(5), Seventh Schedule, Arbitration and Conciliation Act.

Facts

The Petitioner and the Respondent entered into a Distributorship Agreement (“Agreement”) for the distribution of milk and buttermilk for a period of two years, in certain areas of Jaipur. Clause 13 of the Agreement contained the dispute resolution clause, and it provided that disputes pertaining to the Agreement were to be referred to a sole arbitrator, the Chairman of the Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited, and their decision would be final and binding. The Respondent and the Petitioner had a dispute with the Agreement, and the Respondent was directed to approach the Chairman of the Jaipur Zila Dugdh Utpadak Sahkari Sangh, to resolve the dispute. While the matter was pending before the sole arbitrator, the Respondents also approached the Rajasthan High Court to appoint an arbitrator in accordance with Section 11 of the Arbitration & Conciliation Act (“Act”). It was argued by the Petitioners, that once the sole arbitrator had been approached to resolve the dispute and the parties had participated in the proceedings, the Court could not be approached to appoint an arbitrator. However, the High Court allowed the application filed by the Respondent and appointed a former District and Sessions Judge to preside as the arbitrator.

Aggrieved by the High Court’s decision, the Petitioner approached the Supreme Court.

Issues

i) Was the Chairman of the Jaipur Zila Dugdh Utpadak Sahkari Sangh ineligible to be an arbitrator as under Section 12(5) of the Act read in conjunction with the Seventh Schedule?

ii) Could the High Court have been approached to make an appointment under Section 11 of the Act, since the Respondent had already been part of arbitration proceedings before the Chairman as the sole arbitrator?

Analysis

I. Ineligibility of the Chairman to be a sole arbitrator

The Petitioners argued that ‘Chairman’ did not fall in any of the ineligible categories under the Seventh Schedule, and thus could preside as the arbitrator. It was also argued that the Seventh Schedule and Section 12(5) would not be attracted in the instant case, as the agreement between the parties was prior to the 2015 Amendment that inserted these provisions into the Act.

The Court rejected the argument of a retrospective application of Section 12(5) read with the Seventh Schedule. Relying on Vostalpine Schienen GMBH v. Delhi Metro Rail Corporation, the Court noted that the purpose of inserting Section 12(5) and the Seventh Schedule has been to ensure impartiality and neutrality of arbitrators. These are hallmarks of arbitral proceedings and are in place to protect against bias creeping in, a core tenet of the principles of natural justice. Thus, despite the fact that a prior agreement was in place, persons mentioned in Section 12(5) read with the Seventh Schedule would render such persons ineligible to conduct proceedings. Applying this to the present facts, and considering the language of the text, the object, and the purpose of the insertion, the Chairman would be ineligible to preside as the arbitrator. While a ‘Chairman’ has not been explicitly mentioned in the Schedule, a reading of Clause 1, Clause 2, Clause 5, and Clause 12 encompass a figure such as a ‘Chairman. The Chairman who is an elected member/Director of the Sangh would certainly be ineligible to be an arbitrator as per a conjoined reading of Section 12(5) and the Seventh Schedule.

II. Approaching the High Court once the party had already been a part of proceedings before the sole arbitrator

The Petitioners argued that the Respondents had already participated in proceedings before the sole arbitrator, and thus were wrong in approaching the High Court to appoint an arbitrator under Section 11. The Court dismissed this argument, by paying reference to Bharat Broadband Network Limited v. United Telecoms. The Court held that the only way to go around the ineligibility of an arbitrator is to take refuge in the proviso of Section 12(5), which requires such ineligibility to be waived by an express written agreement. Since no waiver was provided in the current case and the Chairman was ineligible to arbitrate the dispute, the High Court had made no error in appointing an arbitrator under Section 11.

Conclusion

Answering both questions in the negative, the Court found no merits in the Petition, and affirmed the High Court’s decision in appointment of the arbitrator, thus dismissing the Petition.