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REPORTABLE

IN THE SUPREME COURT OF INDIA  CIVIL APPELLATE JURISDICTION

CIVIL  APPEAL NO.  2673     OF 2013 (Arising out of SLP(C) No. 24686 of 2007)

M/s. Deep Trading Company           ……  Appellant

   Vs.

M/s. Indian Oil Corporation and Ors.        ……Respondents

JUDGMENT

R.M. LODHA, J.  

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 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 ought to  

have exercised the jurisdiction and appointed an arbitrator?  

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3. The above questions arise from these facts : On 01.11.1998,  

an agreement for kerosene/LDO dealership was entered into between the  

first respondent – Indian Oil 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.  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 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/LDO.  On  25.03.2004,  the  District  Judge,  Etawah  passed  a  

restraint 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 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. In the demand notice, it was also stated  

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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.  

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 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 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 appointed by the Corporation. The  

brief  order  dated  06.12.2007,  by  which  the  dealer’s  application  under  

Section 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  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  

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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  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  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.  5. In my view, there is no reason to appoint any fresh  arbitrator, as sought by the applicant. 6. The application is dismissed.”

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 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 of some Officer of  the  Corporation  who  may  be  nominated  by  the  Director  (Marketing). It is known to the parties to the Agreement that  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  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 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  any  statutory  

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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  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 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.

(2) Subject to sub-section (6), the parties are free to agree  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,-

(a)  a  party  fails  to  act  as  required  under  that  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,

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  appointment.

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(7) xxx xxx xxx

(8) The Chief Justice or the person or institution designated  by him, in appointing an arbitrator, shall 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  and  impartial  arbitrator.

(9)  to (12) xxx xxx xxx”.

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 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 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 Allahabad High Court under Section 11(6)(a) for an  

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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  

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  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  

Switchgears1 and (two)  Punj Lloyd2 and submitted that 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.  

15. Mr.  Abhinav  Vashishta,  learned  senior  counsel  for  the  

respondents,  on the other hand, relied  upon a decision of  this  Court  in  

Northern  Railway  Administration3 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 learned Chief Justice in the impugned order does not call  for  

any interference. 1  Datar Switchgears Ltd. v. Tata Finance Ltd. and Another: [(2000) 8 SCC 151] 2  Punj Lloyd Ltd. v. Petronet MHB Ltd.: [(2006) 2 SCC 638] 3  Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company  

  Limited: [(2008) 10 SCC 240]

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16. In  Datar  Switchgears1,  a  two-Judge  Bench  of  this  Court  

considered the scheme of  Section 11,  noted the distinguishing features  

between Section 11(5) and Section 11(6) and then 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, 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 right of the opposite party to make appointment ceases  

and is forfeited.  

17. In Punj Lloyd2, the agreement entered into between the parties  

contained arbitration clause. The disputes and differences arose between  

the parties. Punj Lloyd (appellant) served a notice on Petronet (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 arbitrator under Section  

11(6).  Petronet  had  not  made  appointment  till  the  date  of  moving  the  

application.  The designate Judge refused to appoint the arbitrator holding  

that  the  remedy  available  to  it  was  to  move  in  accordance  with  the  

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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 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 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 Lloyd2.

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  independent  and  impartial  arbitrator.  In  Northern  

Railway Administration3, 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, 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  

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forfeited its right to appoint the arbitrator.  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 the arbitrator. The  

appointment was made by the Corporation only during the pendency of the  

proceedings under Section 11(6).  Such appointment by  the Corporation  

after forfeiture of its right is of no consequence and has not disentitled the  

dealer  to seek appointment of  the arbitrator  by the Chief  Justice under  

Section 11(6). We answer the above questions accordingly.

21. 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  

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  

agreement.  

22. Learned senior counsel for the Corporation, however, referred  

to an unreported order of this Court in Newton Engineering4. 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  

4  M/s. Newton Engineering and Chem. Ltd. v Indian Oil Corporation Ltd. & Ors.: [Civil Appeal No.  7587 of 2012; Decided on 18.10.2012]

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arbitrator as per the agreement.  But the Corporation wrote back to the  

contractor that office of E.D. (NR) has ceased to exist 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 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 :

“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 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 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 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 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 Engineering4, this Court  

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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  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 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.

24. In  the  course  of  arguments  before  us,  on  behalf  of  the  

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 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 order is  

set aside. Arbitration Case No. 107 of 2004, M/s. Deep Trading Company  

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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.

……………………….J.                         (R.M. Lodha)

   ..…..………………...J.          (J. Chelameswar)

                                     .……………………...J.  

       (Madan B. Lokur) NEW DELHI MARCH 22, 2013.

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