Holding

Arbitration agreements naming a senior government employee as arbitrator are enforceable; the Chief Justice was not justified in appointing an independent arbitrator, and the respondent failed to act under the agreement, so the Director (Marketing) of the corporation is the sole arbitrator.

Summary

The dispute arose from a dealership agreement between Indian Oil Corporation Ltd. (the appellant) and M/s. Raja Transport (P) Ltd. (the respondent) which contained an arbitration clause mandating that any dispute be referred to the Director, Marketing of the corporation or a person nominated by him. After the corporation terminated the dealership, the respondent filed a civil suit. The corporation sought reference to arbitration; the civil courts directed the parties to arbitrate within two months. The respondent later refused to refer the matter to the Director, demanding an independent arbitrator, and applied under Section 11(6) of the Arbitration and Conciliation Act, 1996. The Chief Justice of the High Court appointed a retired judge as sole arbitrator. The Supreme Court held that arbitration agreements naming a senior government employee as arbitrator are valid and not per se biased, that the Chief Justice was not justified in bypassing the named arbitrator, and that the respondent, not the appellant, failed to follow the agreed procedure. Consequently, the Director (Marketing) was appointed as the sole arbitrator and the High Court order was set aside.

Issues considered

Whether an arbitration agreement that designates an employee of a party, specifically a senior government officer, as the arbitrator is void or creates a presumption of bias.
Under what circumstances may the Chief Justice or his designate disregard the appointment procedure or the named arbitrator in the agreement and appoint an independent arbitrator.
Whether the respondent complied with the arbitration procedure stipulated in the agreement and whether the appellant failed to act as required.

Legislation cited

Arbitration Act, 1940
Arbitration and Conciliation Act, 1996s. 11(6), s. 11(8), s. 12(1), s. 12(3), s. 18, s. 34(2)

Subjects

Arbitration agreementEmployee arbitratorIndependence and impartialityArbitration and Conciliation Act 1996Section 11Section 12Section 18Government contractsCivil suitAppointment of arbitrator

Judgment

[2009] 13 (ADDL.) S.C.R. 510

A INDIAN OIL CORPORATION LTD. & ORS.
~.
v.
M/S. RAJA TRANSPORT (P) LTD.
(Civil Appeal No. 5760 of 2009)
AUGUST 24, 2009
B
[R.V. RAVEENDRAN AND D.K. JAIN, JJ.]

Arbitration and Conciliation Act, 1996: ~

ss. 11 (6) and (8), 12 (1) and (3) and 18 -Agreement of
c dealership - Between State instrumentality (Corporation) and
private company - Arbitration clause stating reference of
dispute for sole arbitration who would be Director of the
Corporation or any officer of Corporation nominated by the
Director - On dispute, dealer resorting to civil remedy - Civil
D Courts on application of Corporation, directing reference for
arbitration as per agreement - Dealer thereafter intimating the ~

Corporation that it was not agreeable for the arbitrator as
specified in the agreement and sought for appointment of
independent arbitrator - Not agreed by Corporation - Petition
E for appointment of arbitrator - Chief Justice of High Court
appointing retired High Court Judge as sole arbitrator - On
appeal, Held: Order of Chief Justice was not correct -
Arbitration agreements in Government contracts providing ._
that a high official of the Department unconnected with the .,,
F work or the contract will be the Arbitrator, are neither void nor
unenforceable - The rule is to refer the dispute to named
arbitrator in arbitration agreement - Rule could be ignored
only for valid reasons - On facts, dealer failed to act in terms
of agreed procedure - Government Contract.
G s. 11 - Appointment of arbitrator- Scope of~ Discussed.
Appellant-Corporation entered into agreement with r- .
respondent, appointing it as its dealer. As per the
arbitration clause of the agreement, the dispute was to
H 510
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 511
TRANSPORT (P) LTD.
be referred to the sole Arbitration of the Director of the A
~· -..( appellant-Corporation or some other officer of the
Corporation, nominated by him. On termination of
dealership, respondent filed a suit for declaration of the
order of termination as illegal and void. Appellant filed an
application seeking rejection of the suit and reference of B
the dispute for arbitration in terms of the arbitration
clause. The application was allowed, but the appellant
was also directed not to stop supply of petroleum to the
y respondent for two months. The order was challenged by
both the parties. Appellate court directed.reference of the c
dispute for arbitration in terms of the agreement.
Thereafter, respondent issued a notice stating that it was
not willing for appointment in terms of the agreement and
called upon the appellant to agree for appointment of an
independent arbitrator. As appellant did not agree,
D
respondent filed an. application u/s. 11 (6) of Arbitration
$. and Conciliation Act, 1996 praying for appointment of
independent arbitrator. Chief Justice of High Court
appointed a retired Judge of High Court as sole arbitrator.
The questions for consideration in the present appeal E
were: (i) whether the Chief Justice· was justified in
assuming that whenever an employee of one of the
parties to the dispute is appointed as an arbitrator, he will
•• not act independently or impartially; (ii) In what
'¥ circumstances, the Chief Justice or his designate can F
ignore the appointment procedure or the named
arbitrator in the arbitration agreement, to appoint an
arbitrator of his choice; (iii) whether respondent had
taken necessary steps for appointment of arbitrator in
terms of the agreement, and whether the appellant had
G
faile~ to act in terms of the agreed procedure, by_ not
referring the dispute to its _Director for arbitration.
- --,--
Allowing the appeal, the Court
HELD: 1.1. If a party, with Open eyes and full
H
512 SUPREME COURT REPORTS [2009) 13· (ADDL.) S.C.R.

A knowledge and comprehension enters into a contract
with a Government/statutory Corporation/Public Sector ).- .......
Undertaking containing an arbitration agreement
providing that one of its Secretaries/Directors shall be the
arbitrator, he can not subsequently turn around and
B contend that he is agreeable for settlement of disputes
by arbitration, but not by the named arbitrator who is an
employee of the other party. No party can say he will be
bound by only one part of the agreement and not the
--y
other part, unless such other part is impossible of
c performance or is void being contrary to the provisions
of the Act, and is severable from the remaining part of the
.agreement [Para 9] [523-D-F]
1.2-. Arbitration agreements in Government contracts
providing that an employee of the Department (usually a
D high official unconnected with the work or the contract)
will be the Arbitrator, are neither void nor unenforceable. ~
[Para 10] [524-B]
1.3. There is no bar under Arbitration and Conciliation
Act, 1996, for an arbitration agreement providing for an
E employ~e of a Government/ statutory Corporation/Publi~
Sector Undertaking (which is a party to the contract),
acting as arbitrator. Nothing in Sections 11, 12, 18 or
other provisions of the Act suggests that any provision ~ '
in an arbitration agreement, naming the arbitrator will be )I
F invalid if such named arbitrator is an employee of one of
the parties to the arbitration agreement. [Para 13] [530-A-
G] '
1.4. The power u/s. 11(8) is intended to be used
keeping in view the terms of the arbitration agreement.
G
The fact that the named arbitrator is an employee of one
of the parties is not ipso facto a ground to raise a
r
presumption of bias or partiality of lack of independence
on his part. [Para 13] [530-G-H]
H
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 513
TRANSPORT (P) LTD.
1.5. There can, however, be a justifiable A
apprehension about the independence or impartiality of
an Employee-Arbitrator, if such person was the
controlling or dealing authority in regard to the subject
contract or if he is a direct subordinate (as contrasted
from an officer of an inferior rank in some other B
department) to the officer whose decision is the subject
matter of the dispute. If any circumstance exists to create
a reasonable apprehension about the impartiality or
independence of the agreed or named Arbitrator, then
the court has the discretion not to appoint such a person. c
[Paras 14 and 15] [531-A-B; 531-F]
1.6. Where, however, the named arbitrator is a senior
officer of the Government/statutory body/Government
company, who had nothing to do with execution of the
subject contract, there can be no justification for anyone D
doubting his independence or impartiality, in the absence
of any specific evidence. [Para 14] [531-B-C]
Executive Engineer, Irrigation Division, Puri vs.
Gangaram Chhapolia 1984 (3) SCC 627; Secretary to
Government, Transport Departmef?t, Madras v. Munuswamy E
Mudaliar 1988 (Supp) SCC 651; S.Rajan v. State of Kera/a
'( 1992 (3) SCC 608; Mis. Indian Drugs and Pharmaceuticals
v. Mis. lndo-Swiss Synthetics Germ Manufacturing Co. Ltd.
1996 (1) SCC 54; Union of India v. M.P.Gupta (2004) 10
SCC 504; Ace Pipeline Contract Pvt. Ltd. v. Bharat F
Petroleum Corporation Ltd. 2007 (5) SCC 304, relied on.
Eckersley vs. Mersey Dock and Harbour Board 1894 (2)
QB 667, referred to.
2.1. T:ie legislative intent is that the parties should G
abide by the terms of the arbitration agreement. If the
arbitration agreement provides for arbitration by a named
Arbitrator, the courts should normally give effect to the
provisions of the arbitration agreement. But where there
is material to create a reasonable apprehension that the H
514 SUPREME COURT REPORTS [2009) 13 (ADDL.) S.C.R.

A person mentioned in the arbitration agreement as the
arbitrator is not likely to act independently or impartially, ).- ......
or if the named person is not available, then the Chief
Justice or his designate may, after recording reasons for
not followin:;1 the agreed procedure of referring the
·a dispute to the named arbitrator, appoint an independent
arbitrator in accordance with Section 11 (8). Referring the
disputes to the named arbitrator shall be the rule. Ignoring
the named Arbitrator/Arbitral Tribunal and nominating an
independent arbitrator shall be the exception to the rule, y
c to be resorted for valid reasons. [Para 19] [534-E-H; 535-
A]
2.2. While considering the question whether the
al'.bitral procedure prescribed in the agreement for
reference to a named arbitrator, can be ignored, it is also
D necessary to keep in view clause (v) of sub-section (2)
of section 34 of the Act which provides that an arbitral
award may be set aside by the court if the composition
of the arbitral tribunal or the arbitral procedure was not
in accordance with the agreement of the· parties (unless
E such agreement was in conflict with any provision of
Part-I of the Act from which parties cannot derogate, or,
failing such agreement, was not in accordance with the
provisions of Part-I of the Act). [Para 19] [534-C-E]
2.3. In the instant case, the condition in the )'
F arbitration agreement that "it is also a term of this contract
that no person other than the Director, Marketing or a
person nominating by such Director, Marketing of the
Corporation as aforesaid shall act as Arbitrator",
interferes with the power of the Chief Justice and his
G designate under Section 11(8) of the Act to appoint a
suitable pers·on as arbitrator is appropriate cases.
Therefore, the said portion of the arbitration clause is ,,,_...
liable to be ignored as being contrary to the Act. But the
position will be different where the arbitration agreement ~
H names an ind,vidual (as contrasted from someone
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 515
TRANSPORT (P) LTD.
referred to by designation) as the Arbitrator. [Para 20] A
._, ~
[535-8-D]

',
2.4. The scope of Section 11 of the Act containing the
scheme of appointment of arbitrators may be summarised
thus: (I) Where the agreement provides for arbitration with
three arbitrators (each party to appoint one arbitrator and B
the two appointed arbitrators to appoint a third arbitrator),
in the event of a party failing to appoint an Arbitrator
'f within 30 days from the receipt of a request from the other
party (or the tWo· nominated arbitrators failing to agree on
the third arbitrator within 30 days from the date of the c
appointment), the Chief Justice or his designate will
·exercise power under sub-section (4) of Section 11 of the
Act (ii) Where the agreement provides for arbitration by
a sole arbitrator and the parties have not agreed upon
any appointment procedure, the Chief Justice or his D
j- designate will exercise power under sub-section (5) of
Section 11, if the parties fail to agree on the arbitration
within thirty days from the receipt of a request by a party
from the other party. (iii) Where the arbitration agreement
specifies the appointment procedure, then irrespective of E
whether the arbitration is by a sole arbitrator or by a

... three-member Tribunal, the Chief Justice or his designate
will exercise power under sub-section (6) of Section 11,
if a party fails to act as required under the agreed
"' procedure (or the parties or the two appointed arbitrators F
fail to reach an agreement expected of them under the
agreed procedure or any person/institution fails to
perform any function entrusted to him/it under that
procedure). (iv) While failure of the other party to act
within 30 days will furnish a cause of action to the party
G
seeking arbitration to approach the Chief Justice or his
designate in cases falling under sub-sections (4) and (5),
~
such a time bound requirement is not found in sub-
"" section (6) of Section 11. The faHure to act as per the
agreed procedure within the time limit prescribed by the
H
I-·
516 SUPREME COURT REPORTS (2009] 13 (ADDL.) S.C.R.

A arbitration agreement, or in the absence of any ~~ ...
prescribed time limit, within a reasonable time, will enable
the aggrieved party to file a petition under Section 11 (6)
of the Act. (V) Where the appointment procedure has -
been agreed between the parties, but the cause of action
B for invoking the jurisdiction of the Chief Justice or his
designate under clauses (a), (b) or (c) of sub-section (6)
has not arisen, then the question of Chief Justice or his
designate exercising power under sub-section (6) does y
not arise. The condition precedent for approaching the
c Chief Justice or his designate for taking necessary
measures under sub-section (6) is that (i) a party failing
to act as required under the agreed appointment
procedure; or (ii) the parties (or the two appointed
arbitrators), failing to reach an agreement expected of
them under the agreed appointment procedure; or (iii) a
D
person/institution whQ has been entrusted with any
--i
function under the agreed appointment procedure, failing
to perform such function. (vi) The Chief Justice or his
designate while exercising power under sub-section (6)
of Section 11 shall endeavour -to give effect to the
E appointment procedure prescribed in the arbitration
clause. (vii) If circumstances exist, giving rise to justifiable
doubts as to the independence and impartiality of the _
person nominated, or if other circumstances warrant
"'
,__

appointment of an independent arbitrator by ignoring the ¥
F procedure prescribed, the Chief Justice or his designate
may, for reasons to be recorded, ignore the designated
arbitrator and appoint someone else. [Para 21] (535-F-H;
536-A-H; 537-A-D]
Ace Pipeline Contract Pvt. Ltd. v. Bharat Petroleum
G
Corporation Ltd. 2007 (5) SCC 304; Northern Railway
Administration v. Patel Engineering Co. Ltd. 2008 (11) )>-·-

SCALE 500, relied on. ,,......,""""
Union of India v. Bharat Battery Manufacturing Company
H Pvt. Ltd. 2007 (7) SCC 684, referred to.
-~
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 517
TRANSPORT (P) LTD.

;-""' ~ 3.1. When the dispute arose, the respondent did not A
seek arbitration, but went to civil court. It was the
appellant who sought reference to arbitraUon in terms of
the arbitration agreement. Civil courts directed reference
of the dispute to arbitration as per the agreement, within
two months. But there was no direction by the court to B
appoint an independent arbitrator contrary to the terms
of the arbitration agreement. In view of the order, the
"f respondent ought to have referred the dispute to the
Director (Marketing) of the appellant within two months
from the date of the order. It failed to do so. Therefore, it c
was the respondent who failed to act in terms of the
agreed procedure and not the appellant. [Para 23] [537-
H; 538-A-D]
3.2. The notice by which the respondent notified the
appeliant that it was not willing for appointment of D
arbitrator in terms of the agreement and that both should
therefore hold discussions to decide upon an
independent arbitrator, cannot be construed as a step
taken by the respondent for invoking arbitration in terms
of the arbitration agreement, as it is a demand in violation E
of the terms of arbitration agreement. It required the

-- appellant to agree upon an arbitrator, contrary to the
provisions of the arbitration agreement. If the respondent
had called upon the appellant to act in a manner contrary
to the appointment procedure mentioned in the arbitration F
agreement, it cannot be said that the appellant failed to
respond and act as required under the agreed procedure.
[Para 24] [538-E-H; 539-A-B]
3.3. Even subsequent to the order passed by the
District Court, the respondent did not refer the disputes G
to the Director (Marketing) of the appellant-Corporation
-- nor called upon the appellant to refer the disputes in
terms of the arbitration agreement, nor did it withdraw its
earlier letter demanding appointment of an independent
arbitrator contrary to the agreed procedure under the H
518 SUPREME COURT REPORTS [2009) 13 (ADDL.) S.C.R.

~ -...~
A arbitration agreement. [Para 24] [539-C-E]
3.4. The Chief Justice erred in having proceeded on
the basjs that the respondent had performed its duty in
terms of the arbitration agreement in seeking reference
to arbitration and that the appellant had failed to act in
B the matter and therefore, there was justification for
appointing an independent arbitrator. (Para ·25] [539-E-F]
y
Case Law Reference:
(1984) 3 sec 627 Relied on. Para 10.1
c
1894 (2) QB 667 Referred to. Para 10.2
1988 (Supp) sec 651 Relied on. Para 10.3
(1992) 3 sec 608 Relied on. Para 10.4
D (1996) (1) sec 54 Relied on. Para 10.5 ~

(2004) 10 sec 504 Relied on. Para 10.6
(2001) 5 sec 304 Relied on. Para 10.7
and 18.1
E
(2007) 1 sec 684 Referred .to. Para 18.2
2008 (11) SCALE 500 Relied on. Para 18.3
¥ -
F CIVIL APPELLATE JURISDICTION : Civil Appeal No.
5760 of 2009.
From the Judgment & Order dated 26.9,2008 of the High
Court of Uttarakhand at Nainital in Arbitration Application No.
2 of 2006.
G
H.K. Puri, S.K. Puri, V.M. Chauhan, Priya Puri for the r-·
Appellants. ......

Sunil Kumar, Atul Kumar, Sweety Singh, Himanshu
Shekhar for the Respondent.
H
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 519
TRANSPORT (P) LTD.
' t ... ~
The Judgment of the Court was delivered by A
R. V. RAVEENDRAN, J. 1. Leave gran£ed. This appeal
by special leave is filed against the order dated 26.9.2008 of
the learned Chief Justice of the Uttaranchal High Court, in a
petition filed by the respondent herein, under section 11 (6) of
the Arbitration & Conciliation Act, 1996 ('Act' for short), B
whereby he appointed a retired Judge as the sole arbitrator to
adjudicate upon the disputes between the parties.
2. Under an agreement dated 28.2.2005, the appellant
appointed the respondent as its dealer for retail sale of c
petroleum products. Clause 69 of the said agreement provided
for settlement of disputes by arbitration. The said clause reads
thus:
"69. Any dispute or a difference of any nature whatsoever
~
}- or regarding any right, liability, act, omission or account of D
any of the parties hereto arising out of or in relation to this
Agreement shall be referred to the sole arbitration of the
Director, Marketing of the Corporation or of some officer
of the Corporation who may be nominated by the Director
Marketing. The dealer will not be entitled to raise any E
objection to any such arbitrator on the g·round that the
arbitrator is an officer of the contract relates or that in the
"...... 'i. course of his duties or differences. In the event of the
arbitrator to whom the matter is originally referred being
transferred or vacating his office or being unable to act for F
any reason the Director Marketing· 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 b~ 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
Director, Marketing or a person nominated by such
Director, Marketing of the Corporation as aforesaid shall
G

act as arbitrator hereunder. The award of the arbitrator so
H
520 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A appointed shall be final, conclusive and binding on all ~ -~.
'
parties to the Agreement, subject to the provisions of the )<

Arbitration Act, 1940 or any statutory modification of re-
enactment thereof and the rules made thereunder and for
the time being in force shall apply to the arbitration ..
B proceedings under this clause."
(emphasis supplied)
3. By letter dated 6.8.2005, the appellant terminated the
dealership of the respondent on the recommendation of its
c Vigilance Department. The respondent filed Suit No.43/2005
in the Court of Civil Judge, Junior Division, Rishikesh,
Dehradun for a declaration that the order of termination of
dealership dated 6.8.2005 was illegal and void and for a
permanent injunction restraining the appellant from stopping
supply of petroleum products to its retail outlet.
D ~
4. In the- said suit, the appellant filed an application UJlder
section 8 of the Act read with Order VII Rule 11 of Civil ''
Procedure Code, praying that the suit be rejected and the
matter be referred to arbitration in terms of Clause 69 of the
E agreement. The learned Civil Judge, by order dated 16.11.2005
allowed the said application filed by the appellant directing the
parties to refer the matter to arbitration within two months, with I
.....
a further direction that appellant shall not stop supplies to the
respondent for a period of two months.
)c'
\
F 5. Both appellant and respondent challenged the order
dated 16.11.2005. Respondent filed Civil Appeal No.96/2005
being aggrieved by the restriction of supply for only two months
from 16.11.2005. The appellant filed Civil Appeal No.214/2005,
being aggrieved by the direction to continue the supply for a
G period of two months from 16.11.2005. The respondent also
filed an application under Section 9 of the Act seeking an ,.. .•
interim injunction against the appellant. The two appeals and ...>-
the application under section 9 of the Act were disposed of by
a common order dated 20.1.2006 by the learned District Judge,
H ,.,
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 521
TRANS.PORT (P) LTD. [R.V. RAVEENDRAN, J.]
, ti ~ A
Dehradun. He dismissed both the appeals but allowed the
application under section 9 of the Act and restrained the
appellant herein from interrupting the supply of petroleum
products to respondent for a· period of two months, and directed
the parties to refer the matter to arbitration as per the
agreement within the said period of two months. B
6. When the said appeals were pending, the respondent
issued a notice dated 4.1.2006 through its counsel to the
appellant, referring to the appellant's insistence that only its
Director (Marketing) or an officer nominated by him could act
as the arbitrator, in pursuance of the order of the Civil Judge c
dated 16.11.2005. The respondent alleged that it did not
expect fair treatment or justice, if the Director (Marketing) or
any other employee of the appeliant was appointed as
arbitrator, and that therefore any such appointment would be
prejudicial to its interest. It contended that any provision enabling D
one of the parties or his employee to act as an arbitrator was
contrary to the fundamental principle of natural justice that no
person can be a judge in his own cause. The respondent
therefore called upon the appellant by the said notice dated
4.1.2006, to fix a meeting at Dehradun between the officers of E
the appellant and respondent within seven days so as -to
-~
mutually agree upon an independent arbitrator. The appellant
submits that the said request, apart from being contrary to the
" arbitration agreement, was also contrary to the subsequent
order dated 20.1.2006 which directed that the disputes should F
be referred to the arbitrator as per the agreement and
therefore, it did not agree to the said request for an outside
arbitrator.
7. In this background, the respondent filed an application
(Arbitration Application No.2/2006) under section 11 (6) of the G
~ "f
Act in March 2006 before the Chief Justice of Uttaranchal High
"). Court praying for appointment of an independent arbitrator to
decide the dispute relating to the validity of the termination of
the dealership, contending as follows :-
H
522 SUPREME COURT REPORTS [2009] 13 (AOOL.) S.C.R.

A "That a dispute between the parties has arisen and by ~ ..... \

notice dated 4.1.2006, the applicant served the
respondent a notice calling upon them to appoint an
f-
independent arbitrator, but in spite of expiry of reasonable
time, no independent arbitrator has been appointed."
B The said petition was resisted by the appellant by contending
that an arbitrator can be appointed only in terms or clause 69
of the agreement. The learned Chief Justice, after hearing the
parties allowed the application by the impugned order dated
26.9.2008, and appointed a retired High Court Judge as sole
c arbitrator to decide the dispute. The learned Chief Justice
assigned the following two reasons to appoint a retired Judge
as Arbitrator, instead of the person named in the Arbitration
Agreement :-
(i) The Director (Marketing) of the appellant, being its
D
empl_oyee, should be presumed not to act independenUy or ~
impartially.
(ii) The respondent had taken steps in accordance with the
agreed appointment procedure contained in the arbitration
E agreement and the directions of the civil court, by issuing a I
...
notice dated 4.1.2006 calling upon the appellant to appoint an i
arbitrator. After the receipt of the notice dated 4.1.2006, the
appellant had to refer matter for arbitration to its Director ~

Marketing, but it did not do so. Nor did it take any step for ....
F appointment of the Arbitrator. By not referring the matter to
arbitration to its own Director, despite receipt of the notice
dated 4.1.2006, the appellant had failed to act as required
under the agreed procedure.
8. The said order of the Chief Justice is challenged by the
G appellant. On the rival contentions urged by the parties, the
following questions arise for our consideration : y·
(i) Whether the learned Chief Justice was justified in ("
assuming that when an employee of one of the parties to the
dispute is appointed as an arbitrator, he will not act
H
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 523
TRANSPORT (P) LTD. [R.V. RAVEENDRAN, J.]
,..... ~ independently or impartially? A
(ii) In what circumstances, the Chief Justice or his
designate can ignore the appointment procedure or the named
arbitrator in the arbitration agreement, to appoint an arbitrator
of his choice?
B
(iii) Whether respondent herein had taken necessary steps
for appointment of arbitrator in terms of the agreement, and the
.... appellant had failed to act in terms of the agreed procedure,
by not referring the dispute to its Director (Marketing) for
arbitration? c
Re : Questions No.(i)
9. Arbitration is a binding voluntary alternative dispute
resolution process by a private forum chosen by the parties. It
is quite common for governments, statutory corporations and
D
~ public sector undertakings while entering into contracts, to
provide for settlement of disputes by arbitration, and further
provide that the Arbitrator will be one of its senior officers. If a
party, with open eyes and full knowledge and comprehension
of the said provision enters into a contract with a government/
E
~tatutory corporation/public sector undertaking cont~ining an
arbitration agreement providing that one of its Secretaries/
..
, Directors shall be the arbitrator, he can not subsequently turn
'J, around and contend that he is agreeable for settlement of
disputes by arbitration, but not by the named arbitrator who is
an employee of the other party. No party can say he will be F
bound by only one part of the agreement and not the other part,
unless such other part is impossible of performance or is void
being contrary to the provisions of the Act, and such part is
severable from the remaining part of the agreement. The
arbitration clause is a package which may provide for what G
--1 disputes are arbitrable, at what stage the disputes are
arbitrable, who should be the arbitrator, what should be the
venue, what law would govern the parties etc. A party to the
contract cannot claim the benefit of arbitration under the
H
524 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A arbitration clause, but ignore the appointment procedure ~ "'"'4

relating to the named Arbitrator contained in the arbitration
clause.
10. It is now well settled by a series of decisions of this
Court that arbitration agreements in government contracts
B providing that an employee of the Department (usually a high
official unconnected with the work or the contract) will be the
Arbitrator, are neither void nor unenforceable. We may refer to
t-
a few decisions on this aspect.

c (10.1.) In Executive Engineer, Irrigation Division, Puri vs.
Gangaram Chhapolia - 1984 (3) SCC 627, this Court was
considering the validity of appointment of the Arbitrator where
the arbitration required that the disputes shall be referred to the
sole arbitration of a Superintending Engineer of the Public
Works Department unconnected with the work at any stage
D
nominated by the concerned Chief Engineer. This .Court held : ...
"The use of the expression "Superintending Engineer,
State Public Works Department" in Clause 23 qualified by
the restrictive words "unconnected with the work" clearly
E manifests·an intention of the parties that all questions and
disputes arising out of a works contract shall be referred
to the sole arbitration of a Superintending Enginee~ of the
concerned department. From the very nature of things, a ...
)('
dispute arising out of a works contract relating to the
F Department of Irrigation has to be referred to a
Superintending Engineer, Irrigation as he is an expert on
the subject and it cannot obviously be referred to a
Superintending Engineer, Building & Roads. The only
limitation on the power of the Chief Engineer under Clause
23 was that he had to appoint a "Superintending Engineer
G
unconnected with the work" i.e. unconnected with the works
contract in relation to which the dispute has arisen. The r--
learned Subordinate Judge was obviously wrong in
assuming that since D. Sahu, Superintending Engineer,
Irrigation was subordinate to the Chief Engineer, he was
H
f
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 525
TRANSPORT (P) LTD. [R.V. RAVEENDRAN, J.]
not competent to act as an Arbitrator or since he was a A
Superintending Engineer, Irrigation, he could not
adjudicate upon the dispute between the parties. The
impugned ·order passed by the learned Subordinate Judge
is accordingly set aside."
8
(10.2.) In Eckersley vs. Mersey Dock and Harbour Board
- 1894 (2) QB 667, it was held :
"The rule which applies to a Judge or other person holding
judicial office, namely, that he ought not to hear cases in
which he might be suspected of a bias in favour of one of c
the parties, does not apply to an arbitrator, named in a
contract, to whom both the parties. have agreed to refer
disputes which may arise between them under it. In order
to justify the court in saying that such an arbitrator is
disqualified from acting, circumstances must be shown to D
exist which establish,_at least, a probability that he will, in
fact, be biased in favour of one of the parties in giving his
decision ..... Where, in a contract for the execution of works,
the arbitrator selected by the parties is the servant of one
of them, he is not disqualified by the mere fact that under E
the terms of the submission he may h?lve to decide
disputes involving the question whether he has himself
acted with due skill and competence in advising his
employer in respect of the carrying out of the contract."
(10.3.) In Secretary to Government, Transport F
Department, Madras v. Munuswamy Mudaliar- 1988 (Supp)
SCC 651, the contract between the. respondent and State
Government contained an arbitration clause providing that the
Superintending Engineer will be the arbitrator. Disputes arising
in respect of cancellation of the contract by the department were G
referred to the said Arbitrator. An application under section 5
-r of Arbitration Act, 1940 was filed by the contractor for removal
of the arbitrator on the ground of apprehended bias on the part
of the arbitrator as he was an employee of the State
Government and was subordinate of the chief Engineer who H
526 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A took the decision to cancel the contract. This Court negatived ~ ,...,.
the said contention and held :-
"When the parties entered into the contract, the parties
knew the terms of the contract including arbitration clause.
The parties knew the scheme and the fact that the Chief
B Engineer is superior and the Superintending Engineer is
subordinate to the Chief Engineer of the particular Circle.
In spite of that the parties agreed and entered into
arbitration ..... Unless there is allegation against the named
·t
arbitrator either against his honesty or mala fide or interest
c in the subject matter or reasonable apprehension of the
bias, a named and agreed arbitrator cannot and should
not be removed in exercise of a discretion vested in the
Court under Section 5 of the Act.
This Court in International Authority of India v. K.D.Bali
D _..
and Anr. [1988 (2) SCC 360) held th~t there must be
reasonable evidence to satisfy that there was a real
likelihood of bias'.·'Vague suspicions of whimsical,
capricious and unreasonable people should not be made
the standard to regulate normal human conduct. In this
E country. in numerous contracts with the Government,
clauses requiring the Superintending Engineer or some
official of the Govt. to be the arbitrator are there. It cannQt
be said that the Superintending Engineer, as such, cannot
be entrusted with the work of arbitration and that an
.. •
F apprehension simpliciter in the mind of the contractor
without any tangible ground, would be a justification for
removal."
(10.4.) In S.Rajan v. State of Kera/a - 1992 (3) SCC 608,
this Court held :-
G
"Clause (3) of the agreement says that "the arbitrator for
fulfilling the duties set forth in the arbitration clause of the
Standard Preliminary Specification shall be the
Superintending Engineer, Building and Roads Circle,
H Travandrum". Thus, this is a case where the agreement
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 527
TRANSPORT (P) LTD. [R.V. RAVEENDRAN, J.]
itself specifies and names the arbitrator. Jn such a A
',- -4
situation, it was obligatory upon the learned Subordinate
Judge, in case he was satisfied that the dispute ought to
be referred to the arbitrator, to refer the dispute to the
arbitrator specified in the agreement. It was not open to
him to ignore the said clause of the agreement and to B
appoint another person as an arbitrator. Only if the
arbitrator specified and named in the agreement refuses
or fails to act, does the court get the jurisdiction to appoint
another person or persons as the arbitrator. This is the
clear purport of Sub-section (4). It says that the reference c
shall be to the arbitrator appointed by the parties. Such
agreed appointment may be contained in the agreement
itself or may be expressed separately. To repeat, only in
cases where the agreement does not specify the arbitrator
and the parties cannot also agree upon an arbitrator, does
D
the court get th$ jurisdiction to appoint an arbitrator."
[emphasis supplied]
(10.5.) In Mis. Indian Drugs & Pharmaceuticals v. Mis.
lndo-Swiss Synthetics Germ Manufacturing Co.Ltd. - 1996 (1)
SCC 54, this Court held: E

.. ., "Shri Desai submits that respondent No.3 may not be
required to arbitrate inasmuch as he being an appointee
of the Chairman and Managing Director of the appellant
himself, respondents' case may not be fairly examined. He F
prays that any retired High Court Judge may be appointed
as an arbitrator by us. We have not felt inclined to accept
this submission, because arbitration clause states
categorically that the difference/dispute shall be referred
"to an arbitrator appointed by the Chairman and Managing
G
. Director of IPDL" (Indian Drugs & Pharmaceutical Limited)
who is the appellant. This provision in the arbitration clause
cannot be givei:i a go-bye merely at the askance of the
respondent unless he challenged its binding nature in an
appropriate proceeding which he did not do."
H
528 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A (10.6.) In Union of India v. M.P.Gupta (2004) 10 SCC
504, this Court was considering an arbitration agreement which ~~
provided for appointment of two Gazetted railway officers as
arbitrators. But a learned Single Judge of the High Court while
allowing an application under section 20 of the Arbitration Act,
B 1940, appointed ~retired Judge as the sole arbitrator and a
Division Bench affirmed the same. Reversing the said decision,
this Court held that having regard to the express provision in
the arbitration agreement that two Gazetted railways officers
shall be the Arbitrators, a retired Judge could not be appointed t
c as sole Arbitrator.
(10.7.) In Ace Pipeline Contract Pvt. Ltd. v. Bharat
Petroleum Corporation Ltd. [2007 (5) SCC 304), this Court
considered a somewhat similar clause of another petroleum
corporation which also provided that the arbitration will be by
D its Director (Marketing) or some other officer nominated by the
Director (Marketing). The contractor expressed an
apprehension about the independence and impartiality of the
named arbitrator and prayed for appointment of a retired Judge
as Arbitrator in his application under section 11 (6) of the Act.
E This Court held :
. .
"In the present case, in fact the appellant's demand was
to get some retired Judge of the Supreme Court to be
appointed as arbitrator on the ground that if any person ~

nominated in the arbitration clause is appointed, then it ~
F may suffer from bias or the arbitrator may not be impartial
or independent in taking decision. Once a party has
entered into an agreement with eyes wide open it cannot
wriggle out of the situation (by contending) that if any
person of the respondent BPCL is appointed as arbitrator
G he will not be impartial or objective. However, if the
appellant feels· that the arbitrator has not acted
independently or impartially, or he has suffered from any
bias, it will always be open. to the. party to make an
application under section 34 of the Act to set aside the
H award on the ground that arbitrator acted with bias or
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 529
TRANSPORT (P) LTD. [R.V. RAVEENDRAN, J.]

malice in law or fact." A
l'4 --f
11. The learned counsel for the respondent attempted to
distinguish the said decisions. He submitted that except the last
two decisions, all others were rendered with reference to the
provisions of the Arbitration Act, 1940, whose provisions were
B
different from the provisions of the Arbitration and Conciliation
Act, 1996. It was also submitted that the last two decisions
merely followed the legal position enunciated with reference to
• the old Act, without considering the provisions under the new
Act. It is contended that the provisions of the Arbitration and
Conciliation Act, 1996, in regard to appointment of arbitrators, c
are materially different from the provisions of the old Act. It was
submitted that several provisions of the new.Act lay stress upon
the independence and impartiality of the Arbitrator. Reference
was invited to sub-section (8) of section 11, sub-sections (1)
and (3) of section 12 and Section 18 of the Act. 'It is contended D
,._ by the respondent that in view of the emphasis on the
independence and impartiality of an arbitrator, in the new Act,
and having regard to the basic principle of natural justice that
no man should be judged in his own cause, any arbitration
agreement to the extent it nominates an officer of one of the E
parties as the arbitrator, would be invalid and unenforceable.
12. While the provisions relating to independence and
,' impartiality are more explicit in the new Act, it does not mean
J. that the old Act (Arbitration Act, 1940) enabled persons with
bias to act as Arbitrators. What was implicit under the old Act F
is made explicit in the new Act in regard to impartiality,
independence and freedom from bias. The decisions under the
old Act on this issue are therefore not irrelevant when
considering the provisions of the new Act. At all events, M. P.
Gupta and Ace Pipeline are cases under the new Act. All the G
decisions proceed on the basis that when senior officers of
·~ government/statutory corporations/public sector undertakings
are appointed as Arbitrators, they will function independently
and impartially, even though they are employees of such
-< Institutions/organisations. H

-
530 SUPREME COURT REPORTS [2009] 13 (ADDL.} S.C.R.

A 13. We find no bar under the new Act, for an'arbitration ~ ~
agreement providing for an employee of a government/ statutory
corporation/public sector undertaking (which is a party to the
contract), acting as Arbitrator. Section 11 (8) of the Act requires
the Chief Justice or his designate, in appointing an arbitrator,
B to have due regard to "(a) any qualifications required of the
arbitrator by the agreement of the parties; and (b) other
considerations as are likely to secure the appointment of an
independent or impartial arbitrator". Section 12(1) requires an +
Arbitrator, when approached in connection with his possible
c appointment, to disclose in writing any circumstances likely to
give rise to justifiable doubts as to his independence or
impartiality. Sub-section 12(3) enables the Arbitrator being
challenged if (i) the circumstances give rise to justifiable doubts
as to his independence or impartiality, or (ii) he does not
possess the qualifications agreed to by the parties. Section 18
D _...
requires the Arbitrator to treat th~ 'parties with equality (that is
to say without bias) and give each party full opportunity to
present his case. Nothing in sections 11, 12, 18 or other
provisions of the Act suggests that any provision in an
arbitration agreement, naming the Arbitrator will be invalid if
E sych named arbitrator is an employee of one of the p~rties to
the arbitration agreement. Sub-section (2) of _section 11
provides that parties are free to agree upon a procedure for
appointment of arbitrator/s. Sub-section (6) provides that where ,l
'
a party fails to act, as required under the procedure prescribed,
F the Chief Justice or his designate can take necessary
measures. Sub- section (8) gives the discretion to the Chief
Justice/his designate to choose an arbitrator suited to meet the
requirements of a particular case. The said power is in no way
int~nded to nullify a specific term of arbitration agreement
G naming a particular person as arbitrator. The power under sub-
section (8) is intended to be used keeping in view the terms of )<'"'
the arbitration agreement. The fact that the named arbitrator is
an employee of one of the parties is not ipso facto a ground to
raise a presumption of bias or partiality of lack of
H independence on his part.
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 531
TRANSPORT (P) LTD. [R.V. RAVEENDRAN, J.]

~ _,,, 14. There can however be a justifiable apprehension about A
the independence or impartiality of an Employee-Arbitrator, if
such person was the controlling or dealing authority in regard
to the subject contract or if he is a direct subordinate (as
contrasted from an officer of an inferior rank in some other
department) to the officer whose decision is the subject matter B
of the dispute. Where however the named arbitrator though a
senior officer of the governmenUstatutory body/government
company, had nothing to do with execution of the subject
contract, there can be no .justification for anyone doubting his
independence or impartiality, in the absence of any specific c
evidence. Therefore, senior officer/s (usually heads of
department or equivalent) of a government/statutory corporation/
public sector undertaking, not associated with the contract, are
considered to be independent and impartial and are not barred
from functioning as Arbitrators merely because their employer
D
,).. is a party to the contract.
15. The position may be different where the person named
as the Arbitrator is an employee of a company or body or
individual other than the state and its instrumentalities. For
example, if the Director of a private company (which is a party E
to the Arbitration agreement), is named as the Arbitrator, there
may be valid and reasonable apprehension of bias in view of
t#
his position and interest, and he may be unsuitable to act as
an Arbitrator in an arbitration involving his company. If any
"' circumstance exists to create a reasonable apprehension F
about the impartiality or independence of the agreed or named
Arbitrator, then the court has the discretion not to appoint such
a person.

16. Subject to the said clarifications, we hold that a person
being an employee of one of the_ parties (which is the state or G
'"l!( its instrumentality) cannot per se be a par to his acting as an
,.. . Arbitrator. Accordingly, the answer to the first question is that
the learned Chief Justice was not justified in his assumption of
bias.
H
532 SUPREME COURT REPORTS [2009) 13 (ADDL.) S.C.R.

A 17. Before parting from this issue, we may however refer t ........
to a ground reality. Contractors in their anxiety to secure
contracts from government/ statutory bodies/public sector
undertakings, agree to arbitration clauses providing for
employee-arbitrators. But when subsequently disputes arise,
B they balk at the idea of arbitration by such employee-arbitrators
and tend to litigate to secure an "independent" arbitrator. The
number of litigations seeking appointment of independent
Arbitrator bears testimony to this vexed problem. It will be
appropriate if governments/statutory authorities/public sector
+
c undertaking reconsider their policy providing for arbitration by
employee-arbitrators in deference to the specific provisions of
the new Act reiterating the need· for independence and
impartiality in Arbitrators. A general shift may in future be
necessary for understanding the word "independent" as
referring to someone not connected with either party. That may
D
improve the credibility of Arbitration as an alternative dispute ~
resolution process. Be that as it may.
Re : Question No. (ii)
18. Where the arbitration agreement names or designates
E the arbitrator, the question whether the Chief ~ustice or his
designate could appoint any other person as arbitrator, has
been considered by this Court in several decisions.
'
(18.1.) In Ace Pipeline Contract Pvt. Ltd. (supra), a two- .-4
F Judge Bench of this Court held that where the appointing
authority does not appoint an arbitrator after receipt of request
from the other party, a direction can be issued under section
11 (6) to the authority concerned to appoint an arbitrator as far
as possible as per the arbitration clause. It was held that
normally the court should adhere to the terms of the arbitration
G
agreement except in exceptional cases for reasons to be
recorded or where both parties agree for a common name. y·,.

....
(18.2.) In Union of India v. Bharat Battery Manufacturing
Company Pvt. Ltd. [2007 (7) SCC 684], another two-Judge
H Bench of this Court held that once the notice period provided
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 533
TRANSPORT (P) LTD. [R.V. RAVEENDRAN, J.]

"'"' -;
for under the arbitration clause for appointment of an arbitrator
elapses and the aggrieved party files an'applir,ation under
A

section 11 (6) of the Act, the right of the other party to appoint
an arbitrator in terms of the arbitration agreement stands
extinguished.
B
(18.3.) The divergent views expressed in Ace Pipeline
(supra) and Bharat Battery (supra) were sought to be
harmonised by a three-Judge Bench of this Court in Northern
R.ailway Administration v. Patel Engineenng Co. Ltd. [2008
(11) SCALE 500). After examining the scope of sub-sections
(6) and (8) of section 11, this Court held : c
"The crucial expression in sub-section (6) is "a party may
request the Chief Justice or any person or institution
designated by him to take the necessary measures". This
expression has to be read along with requirement in sub- D
" > section (8) that the Chief Justice or the person. or an
institution designated by him in appointing an arbitrator
shall have "due regard" to the two cumulative conditions
relating to qualifications and other considerations as are
likely to secure .the appointment of an independent and
E
impartial arbitration_.
A bare reading of the scheme of Section. 11 shows that
,#
the emphasis is on the terms of the agreement being
~
adhered to and/or given effect as closely as possible. In
other words, the Court may ask to do what has not been F
done. The Court must first ensure that the remedies
provided for are exhausted; It is true as contended by Mr.
Desai, that it is not mandatory for the Chief Justice or any
person or institution designated by him to appoint the
named arbitrator or arbitrators. But at the same time due G
.. )o(
regard has to be given to the qualifications required by
~'!-·
the agreement and other considerations.
The expression 'due regard' means that proper attention
to several circumstances have been focused. The
expression 'necessary' as a general rule can be broadly H
534 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.
~

I
A stated to be those things which are reasonably required
to be done or legally ancillary to the accomplishment of the
t
""'
...
intended act. Necessary measures can be stated to be the
reaso·nable step required to be taken ...

... It needs no reiteration that appointment of the arbitrator
B or arbitrators named in the arbitration agreement is not a
must, but while making the appointment, the twin
requirements of sub-section (8) of section 11 have to be
t
kept in view, considered and taken into account."

c (emphasis supplied)
19. While considering the question whether the arbitral
procedure prescribed in the agreement for reference to a
named arbitrator, can be ignored, it is also necessary to keep
in view clause (v) of sub-section (2) of section 34 of the Act
D which provides that an arbitral award may be set aside by the ~
court if the composition of the arbitral tribunal or the arbitral
procedure was not in accordance with the agreement of the
parties (unless such agreement was in conflict with any
provision of Part-I of the Act from which parties cannot
E derogate, or, failing such agreement, was not in accordance
with the provisions of Part-I of the Act). The legislative intent is
that the parties should abide by the terms of the arbitration
agreement. If the arbitration agreement provides for arbitration
by a named Arbitrator, the courts should normally give effect ~ "
F to the provisions of the arbitration agreement. But as clarified
by Northern Railway Administration, where there is material
to create a reasonable apprehension that the person
mentioned in the arbitration agreement as the Arbitrator is not
likely to act independently or impartially, or if the named person
is not available, then the Chief Justice or his designate may,
G
afterrecording reasons for not following the agreed procedure
)(" .,,
of referring the dispute to the named arbitrator, appoint an .,,.
independent Arbitrator in accordance with section 11 (8) of the
Act. In other words, referring the disputes to the named
arbitrator shall be the rule. The Chief Justice or his designate
H
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 535
TRANSPORT (P) LTD. [R.V. RAVEENDRAN, J.]
:4'~ 1 will have to merely reiterate the arbitration agreement by A
\

referring the parties to the named arbitrator or named Arbitral
Tribunal. Ignoring the named Arbitrator/Arbitral Tribunal and
nominating an independent arbitrator' shall be the exception to
the rule, to be resorted for valid reasons.
20. This takes us to the effect of the condition in the B
arbitration agreemeflt that "it is also a term of this contract that
..... no person other than the Director, Marketing or a person
nominating by such Director, Marketing of the Corporation as
aforesaid shall act as Arbitrator." Such a condition interferes
with the power of the Chief Justice and his designate under c
section 11 (8) of Act to appoint a suitable person as arbitrator
is appropriate cases. Therefore, the said portion of the
arbitration clause is liable to be ignored as being contrary to
the Act. But the position will be different where the arbitration
\. ),.. agreement names an individual (as contrasted from someone D
referred to by designation) as the Arbitrator. An example is an
arbitration clause in a partnership deed naming a person
enjoying the mutual confidence and respect of all parties, as
the Arbitrator. If such an arbitration agreement provides that
there shall be no arbitration if such person is no more or not E
available, the person named being inextricably linked to the very

. >-
provision for arbitration, the non-availability of the named
arbitrator may extinguish the very arbitration agreement. Be that
as it may.

21. In the light of the above discussion, the scope of section F
11 of the Act containing the scheme of appointment of
arbitrators may be summarised thus:

(i) Where the agreement provides for arbitration with three
arbitrators (each party to appoint one arbitrator and the two
G
appointed arbitrators to appoint a third arbitrator), in the
.. )r
event of a party failing to appoint an Arbitrator within 30
days from the receipt of a request from the other party (or
the two nominated arbitrators failing to agree on the third
arbitrator within 30 days from the date of the appointment),
H
536 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R.

A the Chief Justice or his designate will exercise power
under sub-section (4) of section 11 of the Act.
(ii) Where the agreement provides for arbitration by a sole
arbitrator and the parties have not agreed upon any
appointment procedure, the Chief Justice or his designate
B will exercise power under sub-section (5) of section 11, if
the parties fail to agree on the ar!Sitration within thirty days
from the receipt of a request by a party from the other party.
(iii) Where the arbitration agreement specifies the
c appointment procedure, then irrespective of whether the
arbitration is by a sole arbitrator or by a three-member
Tribunal, the Chief Justice or his designate will exercise
power under sub-section (6) of section 11, if a party fails
to act as required under the agreed procedure (or the
parties or the two appointed arbitrators fail to reach an
D
agreement expected of them under the agreed procedure
or any. person/institution fails to perform any function
entrusted to him/it under that procedure).
(iv) While failure of the other party to act within 30 days
E will furnish a cause of action to the party seeking arbitration
to approach the Chief Justice or his designate in cases
falling under sub-sections (4) & (5), such a time bound
requirement is not found in sub-section (6) of section 11.
The failure to act as per the agreed procedure within the
F time limit prescribed by the arbitration agreement, or in the
absence of any prescribed time limit, within a reasonable
time, will enable the aggrieved party to file a petition under
Section 11 (6) of the Act.
(v) Where the appointment procedure has been agreed
G between the parties, but the cause of action for invoking
the jurisdiction of the Chief Justice or his designate under
clauses (a), (b) or (c) of sub-section (6) has not arisen, then
the question of Chief Justice or his designate exercising
power under sub-section (6) does not arise. The condition
H precedent for approaching the Chief Justice or his
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 537
TRANSPORT (P) LTD. [R.V. RAVEENDRAN, J.]

~
-
,,. 1 , designate for taking necessary measures under sub-
section (6) is that (i) a party failing to act as required under
the agreed appointment procedure; or (ii) the parties (or
A

,,
the two appointed arbitrators), failing to reach an
agreement expected of them under the agreed
appointment procedure; or (iii) a person/institution who has B
been entrusted with any function under the agreed
appointment procedure, failing to perform such function.
(vi) The Chief Justice or his designate while exercising
power under sub-section (6) of section 11 shall endeavour
to give effect to the appointment procedure prescribed in c
the arbitration clause.
(vii) If circumstances exist, giving rise to justifiable doubts
--i
I as to the independence and impartiality of the person

,, > nominated, or if other circumstances warrant appointment
of an independent arbitrator by ignoring the procedure
prescribed, the Chief Justice or his designate may, for
D

reasons to be recorded ignore the designated arbitrator
and appoint someone else.
Re : Question (iii) E
22. In this case, the respondent approached the Chief
Justice of the High Court by alleging that it had acted in terms
>
of the agreed procedure under the arbitration agreement, and
~
that the appellant had failed to act as required under the
appointment procedure. Therefore, the respondent invoked the F
power of the Chief Justice under sub-section (6) of section 11.
In view of it, what falls for consideration is whether the appellant
had failed to act as required under the appointment procedure.
This pre-supposes that the respondent had called upon the
appellant to act as required under the agreed appointment G
~,.,
procedure. Let us examine whether the respondent had in fact
called upon the appellant to act in accordance with the agreed
..-
procedure.
23. When the dispute arose, the respondent did .not seek
H
'
-
538 SUPREME COURT REPORTS [2009] 13 (ADDL.) S.C.R

. i
A arbitration, but went to civil court. It was the appellant who t ,....,, ~.

sought reference to arbitration in terms of the arbitration
agreement. The order dated 16.11.2005 of the Civil Judge, I
l-
,Junior Division directing reference to arbitration within two
months from 16.11.2005 was challenged by both the parties.
B The District Judge, Dehradun by its order dated 20.1.2006
directed the parties to refer the dispute to arbitrator as per
agreement, within two months. Therefore, the order dated
16.11.2005 stood merged with the order of the District Judge .._
dated 20.1.2006, which directed reference of the dispute to
t
c arbitration as per the agreement, within two months. But there \
was no direction by the court to appoint an independent
arbitrator contrary to the terms of the arbitration agreement. In
I
view of the order dated 20.1.2006, the respondent ought to have ,_
referred the dispute to the Director (Marketing) of the appellant
D
within two months from 20.1.2006. It failed to do so. Therefore,
it was th~ respondent who failed to act in terms of the agreeo
procedure and not the appellant. In fact, as the Arbitrator was
~ ,. I

already identified, there was no need for the respondent to ask t
the appellant to act in accordance with the agreed procedure.
On the other hand, the respondent ought to have directly
E referred the disputes to the Di~ector (Marketing) of the appellant
corporation in terms of the arbitration agreement. "
I

24. We may now deal with the notice dated 4.1.2006 by
which the respondent notified the appellant that it was not willing ~ .
F for appointment of arbitrator in terms of the agreement and that
both should therefore hold discussions to decide upon an
independent arbitrator. The letter dated 4.1.2006 cannot, be
construed as a step taken by the respondent for invoking
arbitration in terms of the arbitration agreement, as it is a
demand in violation of the terms of arbitration agreement. It
G
required the appellant to agree upon an arbitrator, contrary to
the. provisions of the arbitration agreement. If the respondent 7( ...

wanted to invoke arbitration in terms of the arbitration -;

agreement, it ought to have referred the disputes to the Director
(Marketing) in term of section 69 of the contract agreement for
H ,..
'
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 539
TRANSPORT (P) LTD. [R.V. RAVEENDRAN, J.]
f
ll -; arbitration. Alternatively, the respondent ought to have at least A
called upon the appellant, to refer the dispute to the Director
(Marketing) for arbitration. In the absence of any such a demand
under clause 69, it cannot be said that the respondent invoked
the arbitration clause or took necessary steps for invoking
arbitration in terms of the arbitration agreement. If the B
respondent had called upon the appellant to act in a manner
contrary to the appointment procedure mentioned in the
arbitration agreement, it cannot be said that the appellant failed
to respond and act as required under the agreed procedure.
As the letter dated 4.1.2006 could not be construed as a valid c
demand for arbitration, the finding of the learned Chief Justice
that non-compliance with such request. would enable the
respondent to appoint an independent arbitrator, is clearly
illegal. What is significant is that even subsequent to the order
dated 20.1.2006 passed by the District Court, the respondent
D
did not refer the disputes to the Di~ector (Marketing) of the
appellant nor called upon the appellant to refer to the disputes
in terms of the arbitration agreement, nor withdraw its earlier
letter dated 4.1.2006 demanding appointment of an
independent arbitrator contrary to the agreed procedure under
the a~bitration agreement. E

25. In the circumstances, the third question is answered
in the negative. Consequently, the learned Chief Justice erred
in having proceeded on the basis that the respondent had
performed its duty in terms of the arbitration agreement in F
seeking reference to arbitration and that the appellant had
failed to act in the matter and therefore, there was justification
for appointing an independent arbitrator.
26. The appellant is therefore entitled to succeed on both
the points. The appeal is, therefore, allowed. The order dated G
.. )<
26.9.2008 of the High Court is set aside. The Director
(Marketing) of the appellant Corporation is appointed as the
sole· arbitrator to decide the disputes between the parties.
I

K.K.T. Appeal allowed.
H