Chandra Chur Mukherjee Vs. Indian Oil Corporation Ltd - Court Judgment

ORDER SHEET

AP NO. 353 OF 2006

IN THE HIGH COURT AT CALCUTTA

Ordinary Original Civil Jurisdiction

CHANDRA CHUR MUKHERJEE

Versus

INDIAN OIL CORPORATION LTD.

BEFORE:

The Hon'ble JUSTICE SANJIB BANERJEE

Date : 8th February, 2012.

Appearance:

Mr. Reetabroto Mitra, Adv.

Mr. Prithwiraj Sinha, Adv.

Mr. Indranil Karfa, Adv.

Mr. Sakya Sen, Adv.

The Court : Though how a petition has been intituled is of no ultimate relevance, it must be noticed at the outset that the petitioner herein has only invoked Section 11 of the Arbitration and Conciliation Act, 1996 in carrying the present request to Court. The two principal prayers in the petition are as follows: 2

"(a) A fit and proper person be appointed as an arbitrator to adjudicate the disputes and differences as stated in the petition hereinbefore;

(b) The respondent and/or its men, servants, agents and/or assigns be restrained from giving any effect to and/or further affect to the letter dated 5th July, 2006 issued by Mr. Amit Kumar Basu as the alleged arbitrator or from taking any steps and/or further steps to commence and/or proceed with the reference."

There is no dispute that there is an arbitration agreement between the parties. The dispute is as to the manner in which the constitution of the arbitral tribunal is to be secured. The arbitration agreement is found in Clause 69 of the dealership agreement: "Any dispute or difference of any nature whatsoever or regarding any right, liability, act omission or account of any of the parties hereto arising out of or in relation to this Agreement shall be referred to the sole arbitration of the Managing Director of the Corporation, or of some Officer of the Corporation who may be nominated by the Managing Director. The Dealer will not be entitled to raise any objection to any such arbitrator on the ground that the arbitrator is an officer of the Corporation or that he has to deal with the matters to which the contract relates or that in the course of his duties as an Officer of the Corporation he had expressed views on all or any of the matters in dispute or difference. In the event of the arbitrator to whom 3

the matter is originally referred being transferred or vacating his office or being unable to act for any reason the Managing Director as aforesaid at the time of such transfer, vacation of office or inability to act, shall designate another person to act as arbitrator in accordance with the terms of the Agreement. Such person shall be entitled to proceed with the reference from the point at which it was left by his predecessor. It is also a term of this contract that no person other than the Managing Director or a person nominated by such Managing Director of the Corporation as aforesaid shall act as arbitrator hereunder. The award of the arbitrator so appointed shall be final, conclusive and binding on all parties to the Agreement, subject to the provision of the Arbitration Act, 1940, or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceedings under this clause."

Following disputes and differences having arisen between the parties, the respondent corporation issued a letter on March 31, 2006 to the Director (Marketing) of the corporation for the constitution of an arbitral tribunal under Clause 69 of the dealership agreement. A copy of the letter was marked to the petitioner herein. The Director (Marketing) appointed an arbitrator on June 9, 2006. The arbitrator issued a notice on July 5, 2006 to the parties. The 4

petitioner wrote to the arbitrator on July 14, 2006, the substance whereof is captured in the following paragraph: "I would like to inform you that your appointment as Arbitrator is invalid and not in terms of the Agreement dated 11th October, 1972 as Director (Marketing) of your Corporation has no power to appoint you as an Arbitrator. Therefore on behalf of my client I request you to cancel the meeting on 24th July, 2006 at 10:30 am."

It does not appear that the petitioner herein applied under any of the applicable provisions of the 1996 Act before the arbitrator. It is also not immediately comprehensible as to why the arbitrator did not treat the petitioner's letter of July 14, 2006 as an objection to the authority of the arbitrator to adjudicate upon the disputes covered by the arbitration agreement and make a pronouncement thereon after affording the petitioner an opportunity to amplify the challenge. By July 25, 2006 the petitioner carried the present request to the Chief Justice of this Court or his designate. There is a fundamental mistake made in the two disparate prayers forming part of the same petition, but in the circumstances obtaining in this Court this has not caused any prejudice to the petitioner. And it is in the petitioner's failure to recognise the distinction between the nature of the two prayers lies the misconception under which the petitioner 5

labours. Prayer (a) could have been carried to the Chief Justice or his designate but prayer (b) of the petition had to be carried to a court. The distinction between the authority of the Chief Justice or his designate and a court under the 1996 Act appears to be lost on the petitioner.

It is a matter of sheer coincidence that the designate Judge of the Hon'ble the Chief Justice in this court is also the Judge assigned arbitration matters. However, the brief of the designate Judge is only to assess the merits of a request under Section 11 of the 1996 Act; but in view of the business as allocated to the arbitration Judge of this court, the arbitration Judge as the designate Judge under Section 11 of the Act cannot name the arbitrator. The allocation of business by the Hon'ble the Chief Justice, as is relevant for the present purpose, is:

"Matters relating to Arbitration Act, 1940 and also Arbitration and; Conciliation Act, 1996 including connected applications relating thereto (except naming of arbitrator under Section 11 thereof)." It has now come to be an accepted practice in this court in accordance with the above allocation of business to the arbitration Judge, that all other aspects of a request under Section 11 of the 1996 Act are assessed by the arbitration Judge as the designate 6

Judge of the Hon'ble the Chief Justice under Section 11 of the Act; and, upon the assessment being in favour of the constitution of an arbitral tribunal, the matter is referred to the Hon'ble the Chief Justice for constitution of the tribunal. Under the allocation of business, the authority to name the arbitrator or constitute the arbitral tribunal has been assigned, at times, to Judges of this court other than the arbitration Judge or retained by the Hon'ble the Chief Justice. At present, the Hon'ble the Chief Justice has retained the authority of naming arbitrators and the allocation of business in such regard provides that the Hon'ble the Chief Justice "will sit singly and take matters relating to naming of arbitrator under Section 11(6) of the Arbitration and; Conciliation Act, 1996." In making the second prayer, the petitioner seeks to scuttle the reference initiated at the behest of the respondent by a sidewind. The reference initiated by the respondent and the present request of the petitioner must be divorced. If it is the petitioner's contention that the arbitrator appointed by the Director, Marketing, of the respondent did not have any authority to take up the reference since the Director, Marketing, was not the appointing authority under the agreement, the petitioner is required to take up such challenge in accordance with the applicable provisions of the 1996 Act and not 7

make it a part of a request under Section 11 thereof. It is possible that there may be several references under a particular arbitration agreement. It does not immediately appear to be the law of the land that the several references arising out of the same arbitration agreement have to be carried to the same arbitrator. The default mechanism for the constitution of an arbitral tribunal that is recognized in Section 11(6) of the 1996 Act has to be triggered off upon a default on the part of a party to an arbitration agreement or the parties' nominees or the appointing authority named thereunder. The petitioner here did not make any request for the initiation of any reference. The petitioner's first invocation of the arbitration agreement appears to be in course of the present request under Section 11 of the 1996 Act being carried to the Chief Justice or his designate. The opening words of Section 11(6) of the Act envisage the operation of that Sub-section upon a default occurring under any of the three limbs enumerated in the three clauses : a party to an arbitration agreement fails to act in accordance with the agreed procedure; or, the appointing authority disregards the matter of appointment of the arbitral tribunal; or, the parties or the two nominees of the parties fail in discharging their obligation under the agreed procedure. In other words, Section 11(6) of the Act cannot be 8

the mechanism of first option for the constitution of an arbitral tribunal; it is only a default mechanism.

In the present case, it is the petitioner's argument that in as much as there is no managing director in the respondent corporation any more, the agreed procedure for the appointment of the arbitral tribunal can no longer be applicable. If the petitioner is right, the situation would be governed by sub-section (2) of Section 11 which enjoins the parties to agree upon a procedure in the absence of there being an agreed procedure. Such provision can be interpreted to imply that if the agreed procedure is impossible to be followed, it would still be open to the parties to the arbitration agreement to agree upon a new procedure for securing the constitution of an arbitral tribunal. The petitioner in this case did not call upon the respondent to agree to a new procedure for the appointment of an arbitrator despite it being the petitioner's contention that the agreed procedure could no longer be followed since there was no post of managing director in the respondent's organization. The default on the part of a party or the appointing authority or the nominees of the parties, that is the sine qua non and the jurisdictional fact necesssary for the invocation of Section 11(6) of the Act, is absent in the present case in the petitioner directly 9

approaching the Chief Justice of this Court or his designate without calling upon the respondent to agree to a new procedure for securing the constitution of the arbitral tribunal upon the post of the managing director being abolished in the respondent corporation. The present request, in so far as it is under Section 11(6) of the Act, therefore, is found to be not maintainable and is not entertained. As far as the second prayer in the petition is concerned, the petitioner is not entitled to challenge the authority of an arbitral tribunal without exhausting the petitioner's remedies before the tribunal itself. Sections 12 and 13 of the 1996 Act enumerate certain grounds for challenging the authority of the arbitrator and the procedure therefor. Section 16 is the other provision for challenging the competence of the arbitral tribunal to take up the reference or any matter. The inclusive expression, "including ruling on any objections with respect to the existence or validity of the arbitration agreement" appearing in Section 16(1) of the 1996 Act would permit objections of any kind not specifically covered by any other provisions of the 1996 Act to be carried by a party to a reference before the arbitral tribunal under Section 16.

It is of significance that in case of the rejection of an objection under Section 12 of the 1996 Act or the rejection of an objection 10

under Section 16 thereof, the statute does not provide an immediate remedy to the party carrying the objection. Such party has to await the outcome of the reference before the objection on the ground of propriety or competence or jurisdiction can be renewed. Since the petitioner herein did not exhaust the remedy available to the petitioner to challenge the authority of the arbitral tribunal before the arbitral tribunal itself, Section 5 of the 1996 Act would be an impediment to the Court addressing the petitioner's challenge at this stage.

A.P. No. 353 of 2006 is dismissed. There will be no order as to costs.

Urgent certified photocopies of this order, if applied for, be supplied to the parties subject to compliance with all requisite formalities.

(SANJIB BANERJEE, J.)

kc/sg.