M/S. DEEP TRADING COMPANYversusM/S. INDIAN OIL CORPORATION AND ORS.

                          [2013] 2 S.C.R. 470

A                 M/S. DEEP TRADING COMPANY
                                    v.
            M/S. INDIAN OIL CORPORATION AND ORS.
                  (Civil Appeal No. 2673 of 2013)
                           MARCH 22, 2013.
B
              [R.M. LODHA, J. CHELAMESWAR AND
                     MADAN B. LOKUR, JJ.]

         ARBITRATION AND CONCILIATION ACT, 1996:
c
         ss. 11 (6) and 11 (8) - Appointment of arbitrator - Forfeiture
    of right of Corporation to appoint arbitrator as provided in
  arbitration clause of agreement - Held: Corporation has
  forfeited its right to appoint arbitrator - Matter referred to Chief
D Justice of High Court for consideration of application of
  appellant-dealer u/ss 11(6) afresh.

       An agreement for kerosene/LOO dealership was
  entered into between respondent no. 1-Corporation and
  the appellant-dealer. There arose a dispute between the
E parties and by a notice dated 9.8.2004 the dealer made a ·
  demand to the Corporation to refer the dispute to the
  arbitrator. On 6.12.2004, the dealer filed an application u/
  s 11(6) of the Arbitration and Conciliation Act, 1996 for
  appointment of an arbitrator. On 28.12.2004, the
F Corporation appointed one of its senior Managers as the
  sole arbitrator. The Chief Justice of High Court by order
  dated 6.12.2007, dismissed the dealer's application u/s
  11 (6) of the Act holding that the arbitrator had already
  been appointed by the Corporation.
G       Allowing the appeal, the Court
      HELD: 1. Sub-s. (6) of s.11 of Arbitration and
  Conciliation Act, 1996 makes provision for making an
  application to the Chief Justice for appointment of an
H                           470
      DEEP TRADING COMPANY v. INDIAN OIL                 471
            CORPORATION AND ORS.
arbitrator in three circumstances, (a) a party fails to act     A
as required under the agreed procedure or (b) the parties
or the two appointed arbitrators fail to reach an
agreement expected of them under that procedure or (c)
a person, including an institution, fails to perform any
function entrusted to him or it under that procedure. If one    B
of the three circumstances is satisfied, the Chief Justice
may exercise the jurisdiction vested in him uls 11(6) and
appoint the arbitrator. In the instant case, the dealer
moved the Chief Justice of the High Court uls 11(6)(a) for
an appointment of the arbitrator as the Corporation failed      c
to act as required under Clause 29 of the agreement.
[para 12] [478-B-D]

    Datar Switchgears Ltd. v. Tata Finance Ltd. and Another:
(2000) 8 SCC 151; Punj Lloyd Ltd. v. Petronet MHB Ltd.:
(2006) 2 SCC 638 - relied on.                                   D

      1.2 Section 11 (8) provides that Chief Justice or the
designated person or institution, in appointing an
arbitrator, shall have due regard to two aspects, (a)
qualifications required of the arbitrator by the agreement E
of the parties; and (b) other considerations as are likely
to secure the appointment of an independent and
impartial arbitrator. Section 11 (8) does not help the
Corporation at all in the fact situation. Firstly, there is no
qualification for the arbitrator prescribed in the F
agreement. Secondly, to secure the appointment of an
independent and impartial arbitrator, it is rather necessary
that someone other than an officer of the Corporation is
appointed as arbitrator once the Corporation has forfeited
its right to appoint the arbitrator under Clause 29 of the G
agreement. [para 19 and 21] [480-D-E; 481-B-C]

    Northern Railway Administration, Ministry of Railway, New
Delhi v. Patel Engineering Company Limited: 2008 (12) SCR
    =
216 (2008) 10 sec 240 - referred to.
                                                                H
    472      SUPREME COURT REPORTS            [2013) 2 S.C.R.

A       1.3 In the instant case, the Corporation has failed to
  act as required under the procedure agreed upon by the
  parties in Clause 29 and despite the demand by the
  appellant-dealer to appoint the arbitrator, the Corporation
  did not make appointment until the application was made
B u/s 11(6). Thus, the Corporation has forfeited its right of
  appointment of an arbitrator. In this view of the matter,
  the Chief Justice ought to have exercised his jurisdiction
  u/s 11 (6) in the matter for appointment of an arbitrator
  appropriately. The appointment of the arbitrator by the
c Corporation during the pendency of proceedings u/s
  11 (6) was of no consequence, and has not disentitled the
  dealer to seek appointment of the arbitrator by the Chief
  Justice u/s 11(6). [para 20 and 23] [481-A-B; 482-F-H]

      Mis. Newton Engineering and Chem. Ltd. v. Indian Oil
D Corporation Ltd. & Ors. 2013 (4) SCC 44 - held inapplicable.

       1.4 Since the Corporation did not agree to any of the
  names proposed by the appellant for appointment as
  arbitrator, the matter is sent back to the Chief Justice of
E the High Court for an appropriate order on the application
  made by the appellant u/s 11(6). The impugned order is
  set aside. Arbitration Case No. 107 of 2004, is restored to
  the file of the High Court for fresh consideration by the
  Chief Justice or the designate Judge, as the case may be,
F in accordance with law and in light of the observations
  made in the judgment. [para 24-25] [483-8-D]
                       Case Law Reference:
          c2000) 8 sec 15      relied on            para 14
G         (2006) 2 sec 638     relied on            para 14
          2008 (12) SCR 216    referred to          para 15
       2013 (4) sec 44         held inapplicable   para 22

H
      DEEP TRADING COMPANY v. INDIAN OIL                      473
            CORPORATION AND ORS.

    CIVIL APPELLATE JURISDICTION : Civil Appeal No.                   A
2673 of 2013.

    From the Judgment & Order dated 06.12.2007 of the High
Court of Allahabad in Arbitration Case No. 107 of 2004.

     Amit Sharma for the Appellant.                                   B

    Abhinav Vashishta, Priya Puri, Sagar Singhal, Anuj
Malhotra for the Respondents.

     The Judgment of the Court was delivered by
                                                                      c
     R.M. LODHA, J. 1. Leave granted.
      2. The questions that arise for consideration in this appeal,
by special leave are, whether respondent No. 1 has forfeited
its right to appoint the arbitrator having not done so after the      o
demand was made and till the appellant had moved the court
under Section 11 (6) and, if the answer is in the affirmative,
whether the appointment of the arbitrator by respondent No. 1
in the course of the proceedings under Section 11 (6) is of any
legal consequence and the Chief Justice of the High Court             E
ought to have exercised the jurisdiction and appointed an
arbitrator?

      3. The above questions arise from these facts : On
01.11.1998, an agreement for kerosene/LOO dealership was
entered into between the first respondent - Indian Oil                F
Corporation (for short, "the Corporation") and the appellant -
Deep Trading Company (for short, "the dealer") for the retail
sales supply of kerosene and light diesel oil in the area
specified in the schedule. In the course of dealership agreement
allegedly some violations were committed by the dealer.               G
Following the show cause notice dated 04.03.2004, the
Corporation on 12.03.2004 suspended the sales and supplies
of all the products to the dealer with immediate effect.

    4. Aggrieved by the action of the Corporation, the dealer         H
    474      SUPREME COURT REPORTS                 [2013] 2 S.C.R.


A filed a petition under Section 9 of the Arbitration and
  Conciliation Act, 1996 (for short, "1996 Act") before the District
  Judge, Etawah seeking an order of injunction against the
  Corporation from stopping the supply of Kerosene/LOO. On
  25.03.2004, the District Judge, Etawah passed a restraint
B order against the Corporation.

       5. The Corporation challenged the order of the District
  Judge, Etawah dated 25.03.2004 before the Allahabad High
  Court and also prayed for an interim relief. On 12.07.2004, the
C Allahabad High Court refused to grant any interim relief to the
  Corporation.

       6. On 09.08.2004, the dealer made a demand to the
  Corporation by a written notice to refer the disputes between
  the parties to the arbitrator under the terms of the agreement.
D In the demand notice, it was also stated by the dealer that if
  the Corporation fails to appoint the arbitrator, the dealer may
  be constrained to approach the court under Section 11 of the
  1996 Act. .

E         7. It appears that the Corporation challenged the order of
    the Allahabad High Court in the special leave petition before
    this Court but that was dismissed on 06.12.2004 being an
    interlocutory order.

       8. On or about 06.12.2004, the dealer moved the Chief
F Justice of the Allahabad High Court under Section 11(6) for the
  appointment of an arbitrator as the Corporation had failed to
  act under the agreement. While the said proceedings were
  pending, on 28.12.2004, the Corporation appointed Shri B.
  Parihar, Senior Manager, (LPG Engineering) of its U.P. State
G Office as the sole arbitrator.
       9. When the above application came up for consideration,
  the Chief Justice found no reason to appoint the arbitrator, as
  sought by the dealer, since the arbitrator had already been
H appointed by the Corporation. The brief order dated
     DEEP TRADING COMPANY v. INDIAN OIL                      475
    CORPORATION AND ORS. [R.M. LODHA, J.]
06.12.2007, by which the dealer's application under Section         A
11 (6) was dismissed by the Chief Justice of the Allahabad
High Court, reads as under:

    "1. Heard Mr. Siddharth Singh, in support of this application
    and Mr. Prakash Padia, learned counsel appearing for the
                                                                    8
    respondents.

    2. The dispute in this matter is regarding suspension of
    the petitioner's agency as a kerosene dealer for sometime.
    The applicant applied for appointment of an arbitrator by
    writing a letter in March, 2004, but filed the present          C
    proceeding on 06.12.2004. An Arbitrator was appointed
    by the respondents on 28.12.2004. Earlier arbitrator has
    been replaced by another arbitrator.

    3. The contract of the applicant is continuing with the         D
    respondents in view of an injunction granted by the Civil
    Court.

    4. The submission of the applicant is that the respondents
    ought to have moved within thirty days from the date of a
    request being made. In any case arbitrator has been             E
    appointed within thirty days from the filing of the
    application. Mr. Siddharth Singh, says that the arbitrator
    conduct should have been appointed after filing of an
    application under Section 11 of the Arbitration and
    Conciliation Act.                                               F

    5. In my view, there is no reason to appoint any fresh
    arbitrator, as sought by the applicant.

    6. The application is dismissEj!d."
                                                                    G
     10. Clause 29 of the agreement dated 01.11 .1998
provides as under:

    "29. Any dispute or difference of any nature whatsoever
    or regarding any right, liability, act, omission on account     H
    476       SUPREME COURT REPORTS                     [2013] 2 S.C.R.

A         of any of the parties here to arising out or in relation to this
          Agreement shall be referred to the sole arbitration of the
          Director (Marketing) of the Corporation, or ofsome Officer
          of the Corporation who may be nominated by the Director
          (Marketing). It is known to the parties to the Agreement that
B         the arbitrator so appointed is a share holder and employee
          of the Corporation. 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 any reason,
          the Director (Marketing) as aforesaid at the time of such
c         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 Director (Marketing) or a person
D
          nominated by such Director (Marketing) 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
          provisions of the Arbitration and Conciliation Act, 1996 or
E         any statutory modification of or reenactment thereof and
          the rules made thereunder and for the time being in force
          shall apply to the arbitration proceeding under this clause.

          The award shall be made in writing within six months after
F         entering upon the reference or within such extended time
          not exceeding further four months as the sole arbitrator shall
          by a writing under his own hands appoint."
       11. Sub-sections (1), (2), (6) and (8) of Section 11 are
G relevant for consideration of the present matter which read as
  follows:
          "11. Appointment of arbitrators.-(1) A person of any
          nationality may be an arbitrator, unless otherwise agreed
          by the parties.
H
 DEEP TRADING COMPANY v. INDIAN OIL                             477
CORPORATION AND ORS. [R.M. LODHA, J.]
(2) Subject to sub-section (6), the parties are free to agree         A
on a procedure for appointing the arbitrator or arbitrators.
(3) to (5) xxx       xxx xxx
(6) Where, under an appointment procedure agreed upon
by the parties,-                                                      8

             (a) a party fails to act as required under that
             procedure; or
             (b) the parties, or the two appointed arbitrators, fail C
             to reach an agreement expected of them under that
             procedure; or
             (c) a person, including an institution, fails to perform
             any function entrusted to him or it under that
             procedure,                                               D
a party may request the Chief Justice or any person or
institution designated by him to take the necessary
measure, unless the agreement on the appointment
procedure provides other means for securing the                       E
appointment.
(7) )()()(                         )()()(           )()()(


(8) The Chief Justice or the person or institution designated
by him, in appointing an arbitrator, shall have due regard            F
to-
(a) any qualifications required of the arbitrator by the
agreement of the parties; and
(b) other considerations as are likely to secure the                  G
appointment of an independent and impartial arbitrator.
(9) to (12)                        )()()(           )()()( xx:i.'.

                                                                      H
    478        SUPREME COURT REPORTS                          [2013] 2 S.C.R.

A       12. Sub-sections (3), (4) and (5) of Section 11 have no
  application in the present case as the parties have agreed on
  a procedure for appointing the arbitrator in Clause 29. Sub-
  section (2) provides that subject to sub-section (6), the parties
  are free to agree on a procedure for appointing the arbitrator
8 or arbitrators. Sub-section (6) makes provision for making an
  application to the concerned Chief Justice for appointment of
  an arbitrator in three circumstances, (a) a party fails to act as
  required under the agreed procedure or (b) the parties or the
  two appointed arbitrators fail to reach an agreement expected
C of them under that procedure or (c) a person, including an
  institution, fails to perform any function entrusted to him or it
  under that procedure. If one of the three circumstances is
  satisfied, the Chief Justice may exercise the jurisdiction vested
  in him under Section 11 (6) and appoint the arbitrator. In the
  present case, the dealer moved the Chief Justice of the
D Allahabad High Court under Section 11 (6)(a) for an
  appointment of the arbitrator as the Corporation failed to act
  as required under Clause 29.

        13. The three basic facts are not in dispute, namely, (i) on
E 09.08.2004, the dealer called upon the Corporation by a written
  notice to appoint an arbitrator in accordance with the terms of
  Clause 29 of the agreement; (ii) the dealer made an application
  under Section 11 (6) for appointment of the arbitrator on
  06.12.2004; and (iii) the Corporation appointed the sole
F arbitrator on 28.12.2004 after the application under Section
  11 (6) was already made by the dealer.
       14. On behalf of the appellant, Mr. K.K. Venugopal, learned
  senior counsel, relied heavily upon decisions of this Court, (one)
  Datar Switchgears 1 and (two) Punj LloycP and submitted that
G the learned Chief Justice erred in holding that there was no
  reason to appoint any fresh arbitrator since the arbitrator has .
  been appointed by the Corporation.

    1.   Datar Switchgears Ltd. v. Tata Finance Ltd. and Another: (2000) 8 SCC 151.
H   2.   Punj Lloyd Ltd. v. Petrone! MHB Ltd.: [(2006) 2 SCC 638.
       DEEP TRADING COMPANY v. INDIAN OIL                               47~
      CORPORATION AND ORS. [R.M. LODHA, J.]
     15. Mr. Abhinav Vashishta, learned senior counsel for the                  A
respondents, on the other hand, relied upon a decision of this
Court in Northern Railway Administration 3 and submitted that
while considering application under Section 11 (6) for
appointment of arbitrator, the Court must keep in view twin
requirements of Section 11 (8) and, seen thus, the view of the                  B
learned Chief Justice in the impugned order does not call for
any interference.

      16. In Datar Switchgears1, a two-Judge Bench of this Court
considered the scheme of Section 11, noted the distinguishing C
features between Section 11 (5) and Section 11 (6) and theh
considered the question whether in a case falling under Section
11 (6), the opposite party cannot appoint an arbitrator after the
expiry of thirty days from the date of demand. This Court held
that in cases arising under Section 11 (6), if the opposite party
has not made an appointment within thirty days of the demand, D
the right to make appointment is not forfeited but continues, but
such an appointment has to be made before the first party
makes application under Section 11 seeking appointment of
an arbitrator. If no appointment has been made by the opposite
party till application under Section 11 (6) has been made, the E
right of the opposite party to make appointment ceases and is
forfeited.

      17. In Punj L/oycP, the agreement entered into between
the parties contained arbitration clause. The disputes and                      F
differences arose between the parties. Punj Lloyd (appellant)
served a notice on Petrone! (respondent) demanding
appointment of an arbitrator and reference of disputes to him.
Petronet failed to act. On expiry of thirty days, Punj Lloyd moved
the Chief Justice of the High Court for appointment of the                      G
arbitrator under Section 11 (6). Petro net had not made
appointment till the date of moving the application. The
designate Judge refused to appoint the arbitrator holding that

3.   Northern Railway Administration, Ministry of Railway, New Delhi v. Patel
     Engineering Company Limited: [(2008) 10 SCC 240].                          H
        480     SUPREME COURT REPORTS                  [2013] 2 S.C.R.

    A the remedy available to it was to move in accordance with the
      agreement. Aggrieved by the said order, a writ petition was
      filed which was dismissed and the matter reached this Court.
      A three-Judge Bench of this Court referred to Datar
      Switchgears1 and held that the matter was covered squarely by
    B that judgment and the view taken by the designate Judge in
      dealing with the application under Section 11 (6) and the
      Division Bench was not right. This Court restored the application
      under Section 11 (6) before the Chief Justice of the High Court
      for fresh consideration and appointment of the arbitrator in
    C accordance with Section 11 (6).
'
             18. We are in full agreement with the legal position stated
        by this Court in Datar Switchgears1 which has also been
        followed in Punj Uoy~.
    D      19. Section 11 (8) provides that Chief Justice or the
      designated person or institution, in appointing an arbitrator,
      shall have due regard to two aspects, (a) qualifications required
      of the arbitrator by the agreement of the parties; and (b) other
      considerations as are likely to secure the appointment of an
    E independent and impartial arbitrator. In Northern Railway
      Administration 3, a three-Judge Bench of this Court considered
      the scheme of Section 11. Insofar as Section 11 (8) is
      concerned, this Court stated that appointment of the arbitrator
      or arbitrators named in the arbitration agreement is not a must,
    F but while making the appointment the twin requirements
      mentioned therein have to be kept in view.
             20. If we apply the legal position exposited by this Court
      in Datar Switchgears1 to the admitted facts, it will be seen that
      the Corporation has forfeited its right to appoint the arbitrator.
    G It is so for the reason that on 09.08.2004, the dealer called upon
      the Corporation to appoint the arbitrator in accordance with
      terms of Clause 29 of the agreement but that was not done till
      the dealer had made application under Section 11 (6) to the
      Chief Justice of the Allahabad High Court for appointment of
    H the arbitrator. The appointment was made by the Corporation
        DEEP TRADING COMPANY v. INDIAN OIL                             481
       CORPORATION AND ORS. [R.M. LODHA, J.]
only during the pendency of the proceedings under Section A
11 (6). Such appointment by the Corporation after forfeiture of
its right is of no consequence and has not disentilled the dealer
to seek appointment of the arbitrator by the Chief Justice under
Section 11 (6). We answer the above questions accordingly.
                                                                          B
       21. Section 11 (8) does not help the Corporation al all in
the fact situation. Firstly, there is no qualification for the arbitrator
prescribed in the agreement. Secondly, to secure the
appointment of an independent and impartial arbitrator, ii is
rather necessary that someone other than an officer of the
Corporation is appointed as arbitrator once the Corporation C
has forfeited its right lo appoint the arbitrator under Clause 29
of the agreement.
      22. Learned senior counsel for the Corporation, however,
referred to an unreported order of this Court in Newton D
Engineering'. The arbitration clause in that case was similar
to the arbitration clause in the present case. The contractor had
written to the Corporation to appoint E.D. (NR) as sole
arbitrator as per the agreement. But the Corporation wrote back
to the contractor that office of E.D. (NR) has ceased to exist E
due to internal re-organisation. The Corporation offered to the
contractor to substitute E.D.(NR) with Director (Marketing) to
which contractor did not agree. The Corporation then appointed
Director (Marketing) as arbitrator. The contractor made an
application under Section 11 (6)(c) read with Sections 13 and F
15 of the 1996 Act for appointment of a retired Judge as a sole
arbitrator. The Single Judge dismissed the petition filed by the
contractor. Against that order, the special leave petition was
filed by the contractor. This Court in paragraph 9 of the order
stated as follows :                                               G
       "9. Having regard to the express, clear and unequivocal
       arbitration clause between the parties that the disputes
       between them shall be referred to the sole arbitration of
'4.   M/s. Newton Engineering and Chem, Ltd. v. Indian 011 Corporation Ltd. &   H
      Ors.: [Civil Appeal No. 7587 of 2012; Decided on 18.10.2012.
    482       SUPREME COURT REPORTS                   [2013] 2 S.C.R.

A         the ED(NR) of the Corporation and, if ED(NR) was unable
          or unwilling to act as the sole arbitrator, the matter shall
          be referred to the person designated by such ED(NR) in
          his place who was willing to act as sole arbitrator and, if
          none of them is able to act as an arbitrator, no other person
B         should act as arbitrator, the appointment of Director
          (Marketing) or his nominee as a sole arbitrator by the
          Corporation cannot be sustained. If the office of ED(NR)
          ceased to exist in the Corporation and the parties were
          unable to reach to any agreed solution, the arbitration
c         clause did not survive and has to be treated as having
          worked its course. According to the arbitration clause, sole
          arbitrator would be ED(NR) or his nominee and no one
          else. In the circumstances, it was not open to either of the
          parties to unilaterally appoint any arbitrator for resolution
          of the disputes. Sections 11(6)(c), 13 and 15 of the 1996
D
          Act have no application in light of the reasons indicated
          above."

         23. We are afraid that what has been stated above has
    no application to the present fact situation. In Newton
E Engineering4, this Court was not concerned with the question
   of forfeiture of right of the Corporation for appointment of an
   arbitrator. No such argument was raised in that case. The
   question raised in Newton Engineering4 was entirely different.
   In the present case, the Corporation has failed to act as
F required under the procedure agreed upon by the parties in
   Clause 29 and despite the demand by the dealer to appoint
   the arbitrator, the Corporation did not make appointment until
   the application was made under Section 11 (6). Thus, the
   Corporation has forfeited its right of appointment of an
G ·arbitrator. In this view of the matter, the Chief Justice ought to
   have exercised his jurisdiction under Section 11 (6) in the matter
   for appointment of an arbitrator appropriately. The appointment
   of the arbitrator by the Corporation during the pendency of
   proceedings under Section 11 (6) was of no consequence.
H
        DEEP TRADING COMPANY v. INDIAN OIL                   483
       CORPORATION AND ORS. [R.M. LODHA, J.]
       24. In the course of arguments before us, on behalf of the   A
appellant certain names of retired High Court Judges were
indicated to the senior counsel for the Corporation for
appointment as sole arbitrator but the Corporation did not agree
to any of the names proposed by the appellant. In the
circumstances, we are left with no choice but to send the matter    B
back to the Chief Justice of the Allahabad High Court for an
appropriate order on the application made by the dealer under
Section 11 (6).

      25. Civil Appeal is, accordingly, allowed. The impugned. C
order is set aside. Arbitration Case No. 107 of 2004, M/s. Deep
Trading Company v. M/s. Indian Oil Corporation and others, is
restored to the file of the High Court of Judicature at Allahabad
for fresh consideration by the Chief Justice or the designate
Judge, as the case may be, in accordance with law and in light
of the observations made above. No costs.                         D

R.P.                                            Appeal allowed.