Case Note & Summary
The applicant, DBM Geotechnics & Constructions Pvt Ltd (DBM), filed an application under Section 11 of the Arbitration and Conciliation Act, 1996, seeking appointment of an arbitrator in a dispute with Bharat Petroleum Corporation Ltd (BPCL) arising from a construction contract. BPCL had issued an e-tender on 6th August 2003, and after a Letter of Intent on 30th January 2014, the parties executed an agreement containing an arbitration clause. The clause provided that the Director (Marketing) of BPCL would either act as arbitrator or appoint a BPCL employee as arbitrator. On 3rd October 2015, BPCL terminated the agreement citing performance delays by DBM and invoked the arbitration clause on 20th June 2016. The Director (Marketing) asked DBM to waive the provisions of Section 12(5) of the Act, but DBM refused and proposed three names of counsel from the Bombay High Court. BPCL rejected those names and appointed Justice C.N. Ramachandran Nair, a retired judge of the Kerala High Court, as sole arbitrator on 21st September 2016. DBM objected to this appointment and filed the present application. The court examined the validity of the unilateral appointment clause in light of Section 12(5) read with the Seventh Schedule of the Act, which disqualifies persons who are employees or have a relationship with a party. The court held that the clause was invalid as it gave BPCL the sole authority to appoint an arbitrator, violating the requirement of impartiality. The court also held that the proviso to Section 12(5) requires an express agreement in writing after the dispute arises to waive disqualification, and no such waiver existed. Consequently, the court allowed the application, set aside the appointment of Justice Nair, and appointed Justice S.J. Vazifdar, a former judge of the Bombay High Court, as the sole arbitrator to adjudicate the disputes between the parties.
Headnote
A) Arbitration Law - Appointment of Arbitrator - Section 11(6) read with Section 12(5) and Seventh Schedule of Arbitration and Conciliation Act, 1996 - Unilateral Appointment - The arbitration clause in the agreement between DBM and BPCL provided that the Director (Marketing) of BPCL would either act as arbitrator or appoint a BPCL employee as arbitrator. The court held that such a clause is invalid as it violates Section 12(5) read with the Seventh Schedule, which disqualifies a person who is an employee or has a relationship with a party. The court further held that the waiver under the proviso to Section 12(5) must be by an express agreement in writing after the dispute has arisen, and mere consent to the appointment procedure is not sufficient. The court allowed the application under Section 11(6) and appointed a retired judge of the Bombay High Court as the sole arbitrator. (Paras 1-18) B) Arbitration Law - Waiver of Disqualification - Section 12(5) proviso of Arbitration and Conciliation Act, 1996 - Express Agreement - The court held that the proviso to Section 12(5) requires an express agreement in writing after the dispute has arisen to waive the disqualification. The court found that BPCL's request for waiver before the dispute arose and DBM's refusal did not constitute a valid waiver. The court emphasized that the legislative intent is to ensure impartiality and independence of arbitrators. (Paras 12-15) C) Arbitration Law - Court's Power to Appoint Arbitrator - Section 11(6) of Arbitration and Conciliation Act, 1996 - Failure of Appointment Procedure - The court held that when the agreed appointment procedure fails due to the invalidity of the clause, the court may appoint an arbitrator under Section 11(6). The court noted that BPCL's unilateral appointment of a retired judge was not in accordance with the agreement and was invalid. The court appointed Justice S.J. Vazifdar, a former judge of the Bombay High Court, as the sole arbitrator. (Paras 16-18)
Issue of Consideration
Whether the unilateral appointment of an arbitrator by the Director (Marketing) of BPCL, who was also the appointing authority under the arbitration clause, is valid under Section 12(5) read with the Seventh Schedule of the Arbitration and Conciliation Act, 1996, and whether the court should appoint an independent arbitrator under Section 11(6) of the Act.
Final Decision
The court allowed the application under Section 11 of the Arbitration and Conciliation Act, 1996, set aside the appointment of Justice C.N. Ramachandran Nair as arbitrator, and appointed Justice S.J. Vazifdar, a former judge of the Bombay High Court, as the sole arbitrator to adjudicate the disputes between the parties. The court directed that the arbitration be conducted in Mumbai and that the arbitrator's fees be fixed in accordance with the Fourth Schedule of the Act.
Law Points
- Section 11(6) of Arbitration and Conciliation Act
- 1996
- Section 12(5) of Arbitration and Conciliation Act
- Seventh Schedule of Arbitration and Conciliation Act
- Unilateral appointment of arbitrator invalid
- Waiver of Section 12(5) requires express agreement after dispute arises
