Case Note & Summary
The dispute arose from a distributorship agreement dated March 31, 2015, between Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited (the petitioner) and various respondents, including M/s Ajay Sales & Suppliers. The agreement contained an arbitration clause (Clause 13) designating the Chairman of the petitioner as the sole arbitrator for resolving disputes. A dispute emerged, and the respondent approached the Chairman for arbitration in October 2019. During these proceedings, the respondent also filed an application under Section 11 of the Arbitration and Conciliation Act, 1996, before the High Court of Judicature for Rajasthan at Jaipur, seeking appointment of an arbitrator. The petitioner opposed this, arguing that since arbitration had already commenced with the Chairman, the High Court lacked jurisdiction to intervene, and that the amendment inserting Section 12(5) and the Seventh Schedule to the Act, which concerns arbitrator neutrality, did not apply as the agreement predated it. The High Court allowed the application and appointed a former District and Sessions Judge as arbitrator, prompting the petitioner to file special leave petitions before the Supreme Court. The core legal issues involved the applicability of Section 12(5) and the Seventh Schedule to pre-amendment agreements, the eligibility of the Chairman as arbitrator, and the High Court's authority under Section 11. The petitioner contended that the amendment was not retrospective, the Chairman was not disqualified under the Seventh Schedule, and that Section 58 of the Rajasthan Cooperative Societies Act, 2001, with its non obstante clause, ousted the court's jurisdiction. The Supreme Court, after hearing arguments, focused on the neutrality of arbitrators as a fundamental principle. It referenced precedents such as Trf Ltd vs Energo Engineering Projects Ltd and Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Limited, which established that Section 12(5) applies irrespective of prior agreements to ensure arbitrator independence and impartiality. The Court emphasized that the non obstante clause in Section 12(5) overrides conflicting arbitration clauses, rendering any person falling under the Seventh Schedule ineligible. It held that the High Court was justified in appointing a neutral arbitrator under Section 11, as the Chairman's potential bias disqualified him, thereby upholding the impugned order.
Headnote
A) Arbitration Law - Arbitrator Appointment - Section 11 Arbitration and Conciliation Act, 1996 - The High Court appointed an arbitrator under Section 11 despite a clause naming the Chairman as sole arbitrator, which the petitioners challenged. The Supreme Court upheld the appointment, emphasizing the court's power under Section 11 when the agreed arbitrator is ineligible under Section 12(5) and the Seventh Schedule. Held that the High Court acted correctly in appointing a neutral arbitrator. (Paras 1-6) B) Arbitration Law - Arbitrator Neutrality - Section 12(5) and Seventh Schedule Arbitration and Conciliation Act, 1996 - The petitioners argued Section 12(5) did not apply as the agreement predated the amendment. The Court rejected this, citing precedents that Section 12(5) applies notwithstanding prior agreements to ensure arbitrator neutrality and independence. Held that the non obstante clause in Section 12(5) overrides the arbitration clause, making the Chairman ineligible if falling under the Seventh Schedule. (Paras 6-11) C) Arbitration Law - Arbitrator Eligibility - Seventh Schedule Arbitration and Conciliation Act, 1996 - The petitioners contended the Chairman, as an elected member, was not disqualified under the Seventh Schedule. The Court referenced precedents establishing that any relationship falling under the Seventh Schedule renders a person ineligible, emphasizing the need for impartiality. Held that the High Court's appointment was permissible to ensure a neutral arbitrator. (Paras 6-11) D) Cooperative Societies Law - Jurisdiction - Section 58 Rajasthan Cooperative Societies Act, 2001 - The petitioners argued Section 58's non obstante clause superseded Section 12(5) of the Arbitration Act, mandating dispute resolution by the Registrar. The Court did not explicitly address this in the provided text, but the issue was raised in submissions. Not mentioned in the Court's analysis in the provided excerpts. (Paras 7) E) Arbitration Law - Judicial Interference - S.B.P. & Co vs Patel Engineering Ltd & Anr - The petitioners cited this precedent to argue the High Court should not interfere once arbitration proceedings had commenced. The Court did not explicitly address this in the provided text, but the issue was raised in submissions. Not mentioned in the Court's analysis in the provided excerpts. (Paras 7-8)
Issue of Consideration
Whether the High Court was justified in appointing an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, despite a pre-existing arbitration clause naming the Chairman as sole arbitrator, considering the amendment inserting Section 12(5) and the Seventh Schedule.
Final Decision
Supreme Court upheld the High Court's order appointing an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, rejecting the petitioners' submissions.
Law Points
- Arbitration clause neutrality
- Section 12(5) applicability irrespective of agreement date
- arbitrator independence and impartiality
- non obstante clause effect
- ineligibility under Seventh Schedule
