M/s Doon Valley Distillers Alcohol Division vs M/s Permionics Membranes Pvt. Ltd

Manoj K. Tiwari, J.

This is an arbitration application for appointment of an Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. There is no

dispute that the supply order dated 10.12.2014 contained an arbitration clause, which reads as under:-

“In the event of any dispute between both the parties the matter shall be referred for Arbitration to the Arbitrator Shri Rameshwar Havelia S/o

Late Madho Lal Havelia, R/o Dehradun as per Arbitration and Conciliation Act, 1996.â€​

Respondent had supplied HPA Membrane System to the applicant in terms of the supply order dated 10.12.2014. Subsequently, the applicant raised

dispute regarding malfunctioning of the HPA Membrane System and invoked the arbitration clause by appointing an Arbitrator, named in the

arbitration clause. Respondent raised an objection before the Arbitrator that he being an interested party, as he was holding the office of Managing

Director in the applicant company, therefore, he is not fit for the purpose, under Section 12(5) read with Schedule 7 of the Arbitration and Conciliation

Act, 1996. As a result, the named Arbitrator resigned. Thereafter, applicant gave a notice to the respondent on 29.09.2017 for appointment of an

Arbitrator. However, the respondent refused to give consent for appointment of Arbitrator on the ground that the dispute is arising out of supply order.

Learned counsel for the applicant submits that the supply order contained a warranty clause, which reads as under:-

“The systems manufactured by Permionics are warranted for 12 months from the date of commissioning or 15 months from the date of dispatch

whichever is earlier.â€​

He further submits that the conditions, contained in the supply order, were accepted by the respondent as is apparent from the signatures affixed by

the authorized representative in the supply order.

Mr. Piyush Garg, learned counsel for the applicant refers to para (f) of the objection submitted by respondent before the named Arbitrator,

appointed by the applicant. The same is extracted below:-

“We reiterate that you being party related to the Claimant are ineligible to be appointed as Arbitrator and therefore if the Claimant has any dispute

that needs to be referred to arbitration, the Claimant only has an alternative of approaching the High Court under Section 11 of the Arbitration and

Conciliation Act, 1996 and that too, after serving notice upon us. Under no circumstances, you are competent to act as Arbitrator in view of the

provisions under the Arbitration & Conciliation Act, 1996.â€​

From the perusal of para (f) of the objection submitted by the respondent, it is apparent that respondent had conceded that Arbitrator can only be

appointed through court under Section 11 of the Arbitration and Conciliation Act, 1996.

Hon’ble Supreme Court in the case of IBI Consultancy India Pvt. Ltd. Vs DSC Ltd reported in 2018 SCC Online SC 381 has summarized the

legal position in para 7 to 9 of the said judgment, which are extracted below:-

“7. The first and the foremost thing is the existence of an arbitration agreement between the parties to the petition under Section 11 of the Act and

the existence of dispute(s) to be referred to Arbitrator is condition precedent for appointing an Arbitrator under Section 11 of the Act. It is also a well

settled law that while deciding the question of appointment of Arbitrator, court has not to touch the merits of the case as it may cause prejudice to the

case of the parties. The scope under Section 11(6) read with Section 11(9) is very limited to the extent of appointment of Arbitrator. This Court has to

see whether there exists an Arbitration Agreement between the parties and if the answer is affirmative then whether the petitioner has made out a

case for the appointment of Arbitrator.

It is worth mentioning that the position after the insertion of sub-Section 6(A) of Section 11 of the Act dated 23.10.2015 has been changed. The

extent of examination is now confined only to the existence of the Arbitration Agreement. At this juncture, it is pertinent to set out Article-1 as well as

Clause 3.14 of the Contract Agreement dated 30.08.2010 which are as under:-

“Article-1

Contract Documents

The following document shall constitute the Contract between the client and the contractor, and each shall be read and construed as an integral part of

the Contract;

(i) This Contract Agreement and Appendices hereto

(ii) Letter or indent ref no. No LSEL/Tolling/IBI/HO-2 dated 14th June 2010…..â€​

“Clause 3.14

Arbitration (as mentioned in ref. No LSEL/Tolling/IBI/HO-1 dated 14th June 2010)

In the event of any dispute or difference arising out or touching upon any of the terms and conditions of this contract and /or in relation to the

implementation or interpretation hereof, the same shall be resolved initially by mutual discussion and conciliation but in the event of failure thereof, the

same shall be referred to an independent arbitrator mutually agreed by the two parties. The decision of the arbitrator shall be final and binding upon

the parties. The arbitration shall be in Delhi and the arbitrator shall give his award in accordance with “The Arbitration and conciliation Act,

1996â€​.

In the event of arbitrator dying, neglected or refusing to act or resigning or being unable to act for any reason or his award being set aside by the

court for any reason the parties will mutually agree another to act as Arbitrator.

(Emphasis supplied by us)â€​

9) On a careful perusal of Article-1 as well as Clause 3.14 of the Contract dated 30.08.2010 along with the Letter of Indent dated 14.06.2010, it is

evident that the letter dated 14.06.2010 is a part of the Contract and it shall be read and construed as an integral part of the Contract. Therefore, the

contention of the respondent-Company that there does not exist any arbitration agreement between the parties is not sustainable in the eyes of law.

We are of the considered view that Arbitration clause exists in the Contract and we hold this point in favour of the petitioner-Company.â€​

From the aforesaid discussion, it is apparent that there is an arbitration clause and there exists a dispute arising out of the supply order, which fact

has been admitted by the respondent in his objection submitted before the named Arbitrator, appointed by the applicant.

On the last occasion, parties were directed to propose the name of the Arbitrator to be appointed.

Today, learned counsels for the parties have unanimously submitted that Justice M.M. Ghildiyal, a retired Judge of this Court, be appointed as

Arbitrator in the matter.

With the consent of the parties, Justice M.M. Ghildiyal, Judge (Retd.) is hereby appointed as sole Arbitrator in the matter to adjudicate the dispute

between the parties, subject to the learned Arbitrator’s disclosure under Section 11(8) read with Section 12 of the Arbitration and Conciliation Act,

1996. The learned Arbitrator shall give a disclosure under the aforesaid provisions before proceeding with the matter.

Considering that the matter has already been delayed, both the parties have expressed that a direction be made to the learned Arbitrator for

expeditious disposal of the matter. However, this cannot be done by this Court. Both the parties would be at liberty to make such a request before the

learned Arbitrator, which shall be duly considered in accordance with law.

Accordingly, arbitration petition stands disposed of.