Narain Industries vs Diamond Cements and Another

Shantanu Kemkar, J.

This is an application filed u/s 11(6) of the Arbitration and Conciliation Act, 1996 (for short ''the Act'') seeking appointment of the arbitrator.

The applicant, a proprietory concern entered into an agreement with non-applicant No. 1 on 11-10-1999. As per the said agreement, applicant was to work as representative of the non-applicant No. 1 for clearing/storing and forwarding of their product cement. The applicant deposited Rs. 30,00,000/-by way of demand draft as cash security and started carrying on the business.

On 15-5-2000 the applicant received a letter sent by the non-applicant No. 1 terminating the agreement dated 11-10-99 alleging losses incurred by it after the agency has been given to the applicant and also alleging lapses on the part of the applicant. The applicant by letter dated 26-5-2000, objected the said premature termination of the agreement and requested the non-applicant No. 1 to recall its letter dated 15-5-2000. The aforesaid request of the applicant was rejected by the non-applicant No. 1. Since the applicant was not getting any positive response in respect of its further correspondence, the applicant by notice dated 19-10-2000 requested the non-applicants to appoint an arbitrator to settle the claim and dispute between the parties as per Clause 32 of the aforesaid agreement dated 11-10-1999. The said notice was received by the non-applicants on 21-10-2000. As the non-applicants failed to appoint the arbitrator, the applicant filed an application u/s 11(6) of the Act in the High Court of Judicature at Patna seeking appointment of arbitrator. The said application was rejected by the Hon''ble High Court of Patna by order dated 28-6-2004 on the ground of territorial jurisdiction. It held that vide Clause 33 of the agreement dated 11-10-1999 the parties had specifically agreed "that the Courts having jurisdiction over Damoh (M.P.) shall, to the exclusion of all other Courts, will have the exclusive jurisdiction in proceedings arising out of or relating to this agreement", in the circumstances the Patna High Court will have no jurisdiction. Accordingly, the applicant filed the present application stating therein that the agreement was executed at Damoh, the subject-matter involves dispute exceeding Rs. 25 lakhs and also in view of the Clause 33 of the agreement, the matter is within the jurisdiction of this Court.

The non-applicants in their reply have pointed out the reasons for the termination of the agreement as also the reasons for termination of applicant''s appointment as their agent. The non-applicants relying Clause 32 of the agreement contend that if an arbitrator is to be appointed, no person other than an Advocate appointed by the Managing Director of Mysore Cements Ltd. or any person authorised by him can be appointed. The non- applicants referred Clause 32 of the agreement which is extracted below :-

Any dispute or differences whatsoever arising between the parties out of or relating to the construction, meaning and operation or effect of this agreement or breach of any terms thereof shall in the first instance be referred to the arbitration of an Advocate as may be appointed by the Managing Director, Mysore Cements Ltd., or any person authorised by him. It is also a term of this appointment/contract that no person other than a person as aforesaid shall act as arbitrator. In all cases where the amount of the claim or dispute is Rs. 5,000/- (Rupees five thousand only) and above, the arbitrator shall give reasons for the award.

The applicant placing reliance on the judgment of the Supreme Court passed in the case of Datar Switchgears Ltd. Vs. Tata Finance Ltd. and Another, , contends that the non-applicants having failed to appoint the arbitrator within 30 days of the demand or even before the applicants had approached the High Court at Patna or before this Hon''ble Court seeking appointment of arbitrator u/s 11(6) of the Act, the right of non-applicants to appoint the arbitrator under Clause 32 of the agreement is forfeited. The applicant also placing reliance on the judgment of the Supreme Court in the case of State of Orissa and Others Vs. Gokulananda Jena, , contends that the contention of the non-applicants that no person other than a person referred to in Clause 32 of the agreement shall act as arbitrator can be raised before the arbitrator appointed by this Court and the said arbitrator can decide this contention. Replying this contention of the applicant, the non-applicants submit that after appointment of arbitrator by this Court, the said arbitrator would not be in a position to hold that he could not have been appointed.

Having considered the rival contentions, I am of the view that the non-applicants can not insist upon making appointment of arbitrator in terms of Clause 32 of the agreement. u/s 11(8) of the Act while making appointment of an arbitrator, this Court is not bound by such clause restricting the appointment to any person or class of persons named in the agreement. This Court has only to give due regard to any qualifications required of the arbitrator by the agreement of the parties and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. In my considered view Clause 32 of the agreement will not come in the way of this Court in appointing a retired High Court Judge as arbitrator keeping in view provisions of Section 11(8) of the Act. Thus having regard to the nature of dispute in my view it would be appropriate to appoint a retired Judge of the High Court as arbitrator.

Accordingly, I appoint Shri Justice Gulab Gupta as arbitrator in this case.

Copy of this order with letter of request be sent to Shri Justice Gulab Gupta by the Registrar (Judicial).