Madras High Court
M/S.Castrol India Limited vs M/S.Apex Tooling Solutions on 3 January, 2014
Author: R.Subbiah
Bench: R.Subbiah
IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 03.01.2014 CORAM THE HONOURABLE MR. JUSTICE R.SUBBIAH ` Application No.5597 of 2013 in C.S.No.162 of 2013
1.M/s.Castrol India Limited, having its Registered Office at Technopolis Knolwedge Park, Mahakali Caves Road, Andheri (East), Mumbai, and
2.M/s.Castrol India Limited, represented by its Managing Director, Rayala Towers, 5th Floor, 781-785, Anna Salai, Chennai-2. ... Applicants vs.
1.M/s.Apex Tooling Solutions, a registered partnership Firm, represented by its Managing Partner, Mr.J.Suresh, 129A, II Main Road, VGP Selva Nagar, Velacherry, Chennai-42.
2.M/s.British Petroleum AMOCO PLC, Britannic House, 1 Finsbury Circus, London EC 2M 7 BA, United Kingdom, represented by its Agent, M/s.British Petroleum India Service Private Limited, represented by its Managing Director, 15th Floor, Dr.Gopal Das Bhavan, 28, Barakhamba Road, New Delhi.
3.M/s.Castrol India Limited, represented by its Area Director (India & Thailand), Mr.M.Hari Prakash, Rayala Towers, 5th Floor, 781-785, Anna Salai, Chennai-2.
4.M/s.Castrol India Limited, represented by its General Manager -
Marketing Indirect Sales, Mr.Soumyadeep Bhatacharya, Rayala Towers, 5th Floor, 781-785, Anna Salai, Chennai-2.
5.M/s.Castrol India Limited, represented by its Regional Distributor Manager Mr.Kartha Jaykrishnan, Rayala Towers, 5th Floor, 781-785, Anna Salai, Chennai-2.
6.Mr.Soumyadeep Bhatacharya, General Manager -
Marketing Indirect Sales, M/s.Castrol India Limited, Rayala Towers, 5th Floor, 781-785, Anna Salai, Chennai-2.
7.Mr.Kartha Jaykrishnan, Regional Distributor Manager, M/s.Castrol India Limited, Rayala Towers, 5th Floor, 781-785, Anna Salai, Chennai-2.
8.M/s.Raghavendra Chemicals, represented by its Proprietor Mr.R.Sathyaprakash, S 4, Orchid Plaza, No.85, Razack Garden Main Road, Arumbakkam, Chennai-106. ... Respondents The application has been filed under Order XIV Rule 8 of O.S. Rules and r/w Section 8 of the Arbitration and Conciliation Act, 1996 to direct the plaintiff and defendants 8 and 2 to go for arbitration before the Sole Arbitrator, viz., the Managing Director, M/s. Castrol India Limited, having its registered office at Technopolis Knowledge Park, Mahakali Caves Road, Andheri (East), Mumbai-400 093 and Southern Region Office at Rayala Towers, 5th Floor, 781-785 Anna Salai, Chennai-2.
For applicant : M/s.Udwadia Udeshi & Argus For Respondents : Mr.R.Selvakumar A.No.5597 of 2013 in C.S.No.162 of 2013 R.SUBBIAH, J
The present application has been filed by defendants 8 and 2 under Order 14 Rule 8 of O.S.Rules read with Section 8 of the Arbitration and Conciliation Act, 1996 to direct the plaintiff and defendants 8 and 2 to go for arbitration before the Sole Arbitrator, viz., the Managing Director, M/s. Castrol India Limited, having its registered office at Technopolis Knowledge Park, Mahakali Caves Road, Andheri (East), Mumbai-400 093 and Southern Region Office at Rayala Towers, 5th Floor, 781-785 Anna Salai, Chennai-2.
2. The applicants herein are defendants 8 and 2 in the suit. The first respondent is the plaintiff and the other respondents viz., respondents 2 to 8 are defendants 1, 3, 4, 5, 6, 7 and 9 respectively.
3. For the sake convenience, the parties will be referred to as per their ranking in the suit.
4. The plaintiff has filed the present suit as against all the defendants for recovery of a sum of Rs.57,15,401/- being compensation for the monetary loss suffered by the plaintiff due to breach of terms and conditions of distributorship pursuant to the distributorship agreement dated 26.12.2009 and also for other consequential reliefs.
5. On appearance, defendants 8 and 2 have filed the present application under Order 14 Rule 8 of O.S.Rules read with Section 8 of the Arbitration and Conciliation Act, 1996. The averments made in the affidavit in support of the application, in nutshell, are as follows:-
(a) An agreement dated 26.12.2009 was entered into between the 8th defendant and the plaintiff for distribution of the products of defendants 8 and 2 in the territory therein specified and on the terms and conditions contained therein. The said agreement was terminated by defendants 8 and 2 vide their letter dated 16.9.2013. Now, the plaintiff has filed the present suit to recover damages aggregating to Rs.57,15,401/- purporting to be the plaintiff's claim for compensation for the monetary loss alleged to have been suffered by the plaintiff due to the alleged breach of terms and conditions of distributorship pursuant to the distributorship agreement dated 26.12.2009 and also for permanent injunction and for other reliefs.
(b) The present suit was filed by the plaintiff against the defendants based on the alleged breach of contract between the plaintiff and defendants 8 and 2. Admittedly, the said agreement made a provision for the manner in which the disputes and differences arising between the plaintiff and defendants 8 and 2 are to be settled. Clause 23 of the said agreement provides the parties to refer any dispute which arises between them to an arbitrator. Now, the alleged disputes have arisen between the plaintiff and defendants 8 and 2 only in connection with the said agreement. An arbitration clause contained in the Distributorship agreement specifically enjoins upon the parties to have the disputes adjudicated in the manner contained therein, viz., either by approaching the Court of competent jurisdiction only in the city where the said agreement was entered into or by reference of such dispute and differences to the arbitration of the Managing Director of the Company. The said agreement specifically provides that defendants 8 and 2 alone shall have the right to exercise any of the said two options and hence, defendants 8 and 2 exercise the said option to refer the disputes to the arbitration to the Managing Director of the defendant company as specifically provided in the said agreement. The said agreement was entered into between defendants 8 and 2 and the plaintiff and the disputes that have arisen between the parties relate to the rights of the parties under the said agreement. Hence, the impleading of defendants 1, 3, 4, 5, 6, 7 herein as parties to the suit by the plaintiff is clearly intended to avoid reference of disputes to arbitration. Defendants 1, 3, 4, 5, 6, 7 are not necessary parties to the suit. Defendants 3 to 7 are all former employees of defendants 8 and 2. None of the said defendants can be held personally liable for the alleged breach of the provisions of the said agreement. The lis, if any, is only between defendants 8 and 2 and the plaintiff, which is covered by the arbitration clause contained in clause 23 of the said agreement and as such, the same ought to be referred by this Court only to arbitration. Hence, they seek a direction of this Court to refer the matter to Arbitration.
6. (A) Learned counsel appearing for defendants 2 and 8 submitted that the first applicant / 8th defendant is the Castrol India Limited and the second applicant / 2nd defendant is the Managing Director of the said Company. The other defendants viz., defendants 1, 3, 4, 5, 6, 7 and 9 are all former employees of the 8th defendant company and hence, they are not proper parties to the suit. He has further submitted that the plaintiff entered into a distributorship agreement with the second defendant on 26.12.2009. Now, the present suit has been filed on the allegation of breach of terms and conditions of the distributorship pursuant to the distributorship agreement dated 26.12.2009. The agreement itself contains an arbitration clause. The said arbitration clause is in consonance with Section 7 of the Arbitration and Conciliation Act (herein after referred to as the Act). When there is a valid arbitration clause, the plaintiff ought not to have filed the present suit. Clause 23 of the said agreement mandates for arbitration before the Managing Director of the company. Hence the plaintiff ought to have referred the dispute to the Managing Director of the defendant company for arbitration. It is the further submission of the learned counsel appearing for defendants 2 and 8 that since the arbitration clause mentioned the employee of the company as Arbitrator, even if there is any apprehension in the mind of the plaintiff that the employee of the company will not act as per law, the plaintiff ought to have filed an application under Section 11 (8) of the Act for appointment of an independent arbitrator before this Court. But, the plaintiff instead of doing so, filed the present suit. With regard to this contention, learned counsel appearing for defendants 2 and 8 has relied upon the judgment reported in (2009) 8 SCC 520 Indian Oil Corporation Ltd v. Raja Transport (P) Ltd, wherein it has been held that if 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, after recording 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.
(B) Further, the learned counsel appearing for defendants 2 and 8, by relying upon the judgment reported in (2008) 7 M.L.J. 1296 Kotak Mahindra Bank Ltd v. Sundaram Brake Linings Ltd & two others, submitted that if the plaintiff has any valid objections to the impartiality of the Managing Director, a challenge petition under Sections 12 and 13 of the Act can be filed by the plaintiff before the arbitrator or require the Hon'ble Chief Justice to appoint an independent Arbitrator under Section 11(8) of the Act.
7. (A) Per contra, learned counsel appearing for the plaintiff submitted that the arbitration clause found in the agreement will not constitute a valid arbitration agreement. The clause does not have an agreement between the parties to refer the disputes to arbitration and moreover, said clause is not in consonance with Section 7(1) of the Act. The said clause reserves a right for the company alone, that too, either to move a civil Court of competent jurisdiction or to refer the matter to arbitration, a choice amongst these two. Hence, the said clause cannot be said to be a valid arbitration clause. It is the further submission of the learned counsel appearing for defendants 2 and 8 / applicants that Section 8(1) of the Act mandates that any application for reference to arbitration has to be filed not later than his filing the first statement on the substance of the dispute. The words 'not later than' cannot be meant to be a period of infinity. The words 'not later than' cannot be beyond the time mandated in law. In the instant case, summons were served in the suit on the applicants on 7.5.2013 and on 26.4.2013 respectively. As per Order V Rule 1 of the Madras High Court Original Side Rules, a defendant intending to defence, shall file written statement within the time stipulated in the summons. As per Order IV Rule 5 of the Madras High Court Original Side Rules, unless otherwise ordered or exempted, every summons shall indicate that within six weeks time, the defendant shall file written statement. Admittedly, this application was filed on 30.10.2013, i.e., far beyond six weeks time mandated in law to file written statement. No order has been obtained by the defendants 2 and 8 from this Court granting leave to file written statement at a later stage. The 8th defendant has not been exempted under any other provision of law to file written statement beyond the maximum time fixed and communicated by way of Court summons. Therefore, the present application is liable to be rejected as there exists a legal embargo to file an application under Section 8 of the Act.
(B) Learned counsel appearing for the plaintiff by relying upon the judgment reported in (2000) 4 Supreme Court Cases 272 Wellington Associates Ltd. v. Kirit Mehta, submitted that if there had been a choice in the agreement, either to move a Court of law or to move an Arbitrator and if a party to the agreement intended to move for an Arbitrator instead of Court, then fresh consent is required from the other party. In the instant case, no such consent was given by the plaintiff.
(C) Learned counsel for the plaintiff has also relied upon the judgment reported in (2003) 7 Supreme Court Cases 418 Bihar State Mineral Development Corporation and another v. Encon Builders (I) (P) ltd., and submitted that the clause authorising the Managing Director of a party to be an Arbitrator, cannot be termed as an arbitration agreement or clause. Therefore, the arbitration clause in the present agreement cannot be construed as an arbitration clause. Further, learned counsel appearing for the plaintiff has also relied upon the judgment reported in (2013) 7 M.L.J.733 (SC) Vishnu (dead) by L.Rs. v. State of Maharashtra and others in support of his contention.
8. By way of reply, learned counsel appearing for defendants 2 and 8 submitted that an application under Section 8(1) of the Act for referring the matter to the arbitration should be filed prior to the filing of the first statement on the substance of the dispute. Section 8(1) of the Act does not say that the party must apply not later than the prescribed time limit for filing the first statement on the substance of the dispute and hence, the interpretation of the plaintiff in this regard is not correct. In support of this contention, learned counsel for defendants 2 and 8 has also produced the extracts from Justice RS Bachawat's Law of Arbitration & Conciliation, the leading commentary on the Arbitration Act. Here, in the instant case, defendants 2 and 8 have not filed written statement till date and they have filed the present application in October 2013, i.e., prior to the filing of the written statement. Therefore, it is not correct to state that there is a legal embargo to file an application under Section 8 of the Arbitration Act.
9. I have heard the submissions made on either side and perused the materials available on record.
10. The present suit has been filed by the plaintiff as against the defendants claiming a sum of Rs.57,15,401/- being the compensation for the monetary loss suffered by the plaintiff due to breach of terms and conditions of the distributorship pursuant to the distributorship agreement dated 26.12.2009 and for other consequential reliefs. Now, the present application has been filed by defendants 8 and 2 to refer the disputes to arbitration stating that there is a clause in the agreement for referring the disputes arises out of the agreement between the parties to the arbitrator. Whereas, according to the plaintiff, the relevant clause found in the agreement cannot be construed as an arbitration clause and it only reserves the right for the company either to move a civil Court of competent jurisdiction or to arbitration, a choice amongst these two.
11. In view of the said submission made on either side, now, it is necessary to extract the clause No.23 of the agreement and the same is extracted hereunder:-
"23. In case, any dispute or difference shall at any time arise between the Company and the Distributor as to the construction, meaning or effect of this Agreement or any clause or thing contained herein or the rights and liabilities of the parties hereto in relation to the premises hereunder, the Company alone shall have the right to exercise any of the following two options;
(i) to approach the Court of competent jurisdiction only in the city where this Agreement is entered into, to entertain and try such dispute or difference;
(ii) to refer such dispute or difference to the Arbitration of the Managing Director of the Company. The Arbitration proceedings will be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and the venue of the Arbitration will be Mumbai only."
On a reading of the said clause, I find that under the said clause, the company alone shall have the right to exercise any of the two options viz., either to approach the civil Court of competent jurisdiction in the City, where the agreement is entered into or to refer the disputes or differences to the Arbitration of the Managing Director of the Company. The said clause gives only an option to the applicants as to what the company has to do in case of disputes or differences arises between the parties to the agreement. The said agreement is silent as to what the distributor has to do in case of disputes or differences. The said clause reserves a right to the company alone, that too, first to move a civil Court of competent jurisdiction or alternatively to refer such disputes or differences to the Arbitration of the Managing Director of the company. But, it is the submission of the learned counsel appearing for defendants 2 and 8 that the arbitration agreement is in the form of an arbitration clause in the contract satisfying the requirements of Section 7(2) of the Act. Therefore, it is a valid agreement. Section 7 of the Act is usefully extracted hereunder:-
" 7. Arbitration agreement:-(1)In this part, "arbitration agreement" means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship, whether contractual or not.
(2) An arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement.
(3) An arbitration agreement shall be in writing.
(4) An arbitration agreement is in writing if it is contained in -
(a) a document signed by the parties;
(b) an exchange of letters, telex, telegrams or other means of telecommunication which provide a record of the agreement; or
(c) an exchange of statements of claim and defence in which the existence of the agreement is alleged by one party and not denied by the other.
(5) The reference in a contract to a document containing an arbitration clause constitutes an arbitration agreement if the contract is in writing and the reference is such as to make that arbitration clause part of the contract. "
From a close reading of Section 7 of the Act, it is clear that it requires an agreement between the parties to refer the dispute to arbitration. But, in my considered opinion, clause 23 does not have an agreement between the parties to refer the dispute to arbitration. The agreement is silent as to what the Distributor has to do in the event of any disputes or differences between the parties to the agreement and the said clause only gives the right to the defendants either to move a civil Court of competent jurisdiction or to arbitration. Therefore, I am of the opinion that the said clause does not satisfy the requirement of Section 7 of the Act, because it does not speak about the right of the distributor.
12. In this regard, a reference could be placed in the judgment reported in (2000) 4 Supreme Court Cases 272 Wellington Associates Ltd v. Kirit Mehta, wherein, in paras 23 and 24, the Hon'ble Supreme Court has held as follows:-
" 22. ... The question then is as to what is the intention of the parties. The parties, in my view, used the words 'may' not without reason. If one looks at the fact that clause 4 precedes clause 5, one can see that under clause 4 parties desired that in case of disputes, the civil courts at Bombay are to be approached by way of a suit. Then follows clause 5 with the words 'it is also agreed' that the dispute 'may' be referred to arbitration implying that parties need not necessarily go to the civil court by way of suit but can also go before an arbitrator. Thus, clause 5 is merely an enabling provision as contended by the respondents. I may also state that in cases where there is a sole arbitration clause couched in mandatory language, it is not preceded by a clause like clause 4 which discloses a general intention of the parties to go before a civil court by way of suit. Thus, reading clause 4 and clause 5 together, I am of the view that it is not the intention of the parties that arbitration is to be the sole remedy. It appears that the parties agree that they can 'also' go to arbitration in case the aggrieved party does not wish to go to a civil court by way of a suit. But, in that event, obviously, fresh consent to go to arbitration is necessary. Further, in the present case, the same clause 5, so far as the venue of arbitration is concerned, uses the word 'shall'. The parties, in my view, must be deemed to have used the words 'may' and 'shall' at different places, after due deliberation.
" 23. A somewhat similar situation arose in B.Gopal Das v. Kota Straw Board. In that case the clause read as follows:
"That in case of any dispute arising between us, the matter may be referred to arbitrator mutually agreed upon and acceptable by you and us."
It was held that fresh consent for arbitration was necessary. No doubt, the above clause was a little clearer there than in the case before me. In the above case too, the clause used the word "may" as in the present case. The above decision is therefore directly in point.
24. Before leaving the above case decided by the Rajasthan High Court, one other aspect has to be referred to. In the above case, the decision of the Calcutta High Court in Jyoti Bros. v. Shree Durga Mining Co. (AIR 1956 Cal 280: 60 CWN 420) has also been referred to. In the Calcutta case the clause used the words "can" be settled by arbitration and it was held that fresh consent of parties was necessary. Here one other class of cases was differentiated by the Calcutta High Court. It was pointed out that in some cases, the word 'may' was used in the context of giving choice to one of the parties to go to arbitration. But, at the same time, the clause would require that once the option was so exercised by the specific party, the matter was to be mandatorily referred to arbitration. Those cases were distinguished in the Calcutta case on the ground that such cases where option was given to one particular party, the mandatory part of the clause stated as to what should be done after one party exercised the option. Reference to arbitration was mandatory, once option was exercised. In England too such a view was expressed in Pittalis v. Sherefettin ((1986) 1 QB 868: (1986) 2 All.ER 227(CA)). In the present case, we are not concerned with a clause which used the word "may" while giving option to one party to go to arbitration. Therefore, I am not concerned with a situation where option is given to one party to seek arbitration. I am, therefore, not to be understood as deciding any principle in regard to such cases."
The factual aspect of the said case would show that the words employed in the agreement clause viz., "it is also agreed" that the dispute "may" be referred to arbitration implying that parties need not necessarily go to the civil Court by way of suit, but can also go before an arbitrator. Therefore, the Hon'ble Supreme Court has held that it is not the intention of the parties that arbitration is to be the sole remedy. In such circumstances, fresh consent to go to arbitration is necessary. Here, in this case, it is the submission of the learned counsel appearing for the plaintiff that no such consent was given by the plaintiff to the defendants to go for arbitration. But, it is the reply of the learned counsel appearing for defendants 2 and 8 that in the said judgment, the words used in the agreement are 'may refer to arbitration' and not 'shall be referred to arbitration'. Since the words used were not mandatory, the Hon'ble Supreme Court has held that further consent of both the parties is required for the arbitration. But, in the instant case, in clause 23, it has been mentioned that the Company alone shall have the right to exercise any of the following two option, viz., (i) to approach the Court of competent jurisdiction (ii) or to refer such dispute or difference to the Arbitration of the Managing Director of the Company. The arbitration proceedings shall be conducted in accordance with the provisions of the Arbitration and Conciliation Act, 1996. Hence, in the instant case, the arbitration clause does not use the words 'may refer to arbitration' or 'may be referred to arbitration'. The arbitration clause uses the words 'shall have the right'. Therefore, once defendants 8 and 2 exercise the option, the dispute shall be referred to arbitration and there is no need to obtain any further consent from the plaintiff for referring the disputes to arbitration.
13. But, I am not inclined to accept the said submission made by the learned counsel appearing for defendants 2 and 8 for the reason that though the arbitration clause uses the words 'shall have the right', I find that the said wordings is only optional in nature, either to go for competent civil Court or to refer the matter to the arbitration. Therefore, there is no definite intention to go for arbitration in the case of any dispute or differences arises between the parties unless there is a definite intention in the clause found in the agreement to refer the matter only to arbitration, it cannot be said that there is a valid clause of arbitration in the agreement. Therefore, I am not inclined to accept the submission of the learned counsel appearing for defendants 2 and 8 in this regard.
14. Yet another submission of the learned counsel appearing for the plaintiff is that the words 'not later than' cannot be meant to be a period of infinity and the same cannot be beyond the time mandated in law for entering defence / for filing written statement. In the instant case, defendants 8 and 2 have been served with summons on 7.5.2013 and 26.4.2013 respectively. As per Order V Rule 1 of the Madras High Court Original Side Rules, a defendant intending to defence, shall file written statement within the time stipulated in the summons. As per Order IV Rule 5 of the Madras High Court Original Side Rules, unless otherwise ordered or exempted, every summons shall indicate that within six weeks time the defendant shall file written statement. Under such circumstances, defendants 8 and 2 ought to have filed an application under Section 8 of the Act within six weeks from the date of receipt of summons or ought to have obtained leave of this Court to file written statement at a later stage. In this case, defendants 8 and 2 have not been exempted under any other provisions of law to file written statement beyond the maximum time fixed and communicated by way of Court summons. Therefore, according to the learned counsel appearing for the plaintiff, the present application is liable to be rejected as there exists a legal embargo to file an application under Section 8 of the Act. But, I am not inclined to accept the said submission of the learned counsel appearing for the plaintiff, since under Section 8 of the Act, the only restriction is that the defendant should file an application under Section 8 of the Act not later than the filing of the first statement on the substance of the dispute i.e., Section 8 application should be filed prior to the filing of the written statement. But, Section 8(1) does not say that the party must apply not later than the prescribed time limit for filing the first statement on the substance of the dispute. Therefore, I am not inclined to accept the submission of the learned counsel appearing for the plaintiff that there exists a legal embargo to file the application under Section 8 of the Act. In this regard, a reference could be placed from the extracts of Justice RS Bachawat's Law of Arbitration & Conciliation, the leading commentary on the Arbitration Act and the same is extracted hereunder:-
"71.No Period of Limitation No period of limitation is provided under the Act for filing an application under S.34, 1940 Act (now S.8 of the Arbitration and Conciliation Act). All that is necessary is to file the application before taking any steps in the proceedings. Under S.8 of the Arbitration and Conciliation Act, 1996, an application has to be made before filing the first statement on the substance of the dispute.
The court will allow an application under S.8 even after thirty days, being the period of time required to file the written statement under Or.8 Rule 1 of CPC, so long as it is filed before the first statement on the substance of the dispute.
As long as the application under S.8 is filed not later than while submitting the first statement on the substance of the dispute, it cannot be dismissed for the reason of delay. Where an earlier application was withdrawn for the reason of it having not been signed by the authorised signatory, it could not be considered as an application filed by the party. Even if an application under S.8 is made after 5 years from the service of summons, the mere fact that the party has earlier filed an application and withdrawn it on account of it not being signed by authorised signatories, there is no delay in its filing and it cannot be rejected on this ground. "
On a reading of the above extracted portion, I am of the opinion that the application under Section 8 of the Act has to be filed before filing the first statement on the substance of dispute and there is no period of limitation as provided under the Act for filing such application under Section 8 of the Act. Hence, Section 8 application cannot be dismissed for the reason of delay. Therefore, I am not inclined to accept the submission made by the learned counsel appearing for the plaintiff in this regard.
15. The next fold of submission made by the learned counsel appearing for the plaintiff is that the arbitration clause authorising the Managing Director of a party to be arbitrator, cannot be termed as an arbitration agreement or clause. In this regard, the learned counsel appearing for the plaintiff has relied upon the judgment reported in (2003) 7 Supreme Court Cases 418 Bihar State Mineral Development Corporation and another v. Encon Builders (I) (P) Ltd. The relevant portion is usefully extracted hereunder:-
" 17. There cannot be any doubt whatsoever that an arbitration agreement must contain the broad consensus between the parties that the disputes and differences should be referred to a domestic tribunal. The said domestic tribunal must be an impartial one. It is a well-settled principle of law that a person cannot be a judge of his own cause. It is further well settled that justice should not only be done but manifestly seen to be done.
18. Actual bias would lead to an automatic disqualification where the decision-maker is shown to have an interest in the outcome of the case. Actual bias denotes an arbitrator who allows a decision to be influenced by partiality or prejudice and thereby deprives the litigant of the fundamental right to a fair trial by an impartial tribunal. "
16. Yet another judgment which was relied upon by the learned counsel appearing for the plaintiff is reported in (2013) 7 M.L.J.733 (SC) Vishnu (dead) by L.Rs. v. State of Maharashtra and others, wherein the Hon'ble Supreme Court has held as follows:-
" 24. .......... In the present case, the Managing Director is more in the category of an expert who will decide claims, rights or matters in any way pertaining to the contract. The intention appears to be more to avoid disputes than to decide formulated disputes in a quasi-judicial manner. In para 18.067 of Vol.2 of Hudson on Building and Engineering Contracts. Illustration (8) deals with the case where, by the terms of a contract, it was provided that the engineer shall be the exclusive judge upon all matters relating to the construction, incidents, and the consequences of these presents, and of the tender, specifications, schedule and drawings of the contract, and in regard to the execution of the works or otherwise arising out of or in connection with the contract, and also as regards all matters of account, including the final balance payable to the contractor, and the certificate of the engineer for the time being, given under his hand, shall be binding and conclusive on both parties.
It was held that this clause was not an arbitration clause and that the duties of the Engineer were administrative and not judicial.
26. ........ There cannot be any doubt whatsoever that an arbitration agreement must contain the broad consensus between the parties that the disputes and differences should be referred to a domestic tribunal. The said domestic tribunal must be an impartial one. It is a well-settled principle of law that a person cannot be a judge of his own cause. It is further well settled that justice should not only be done but manifestly seen to be done. Actual bias would lead to an automatic disqualification where the decision-maker is shown to have an interest in the outcome of the case.
...........
It will bear repetition to state that the action of the second appellant itself was in question and, thus, indisputably, he could not have adjudicated thereupon in terms of the principle that nobody can be a judge of his own cause. "
A reading of the dictum laid down in the above said judgments would show that appointing an employee of a company as Arbitrator in the clause of the agreement cannot be termed as arbitration clause, since a person cannot be a judge of his own cause. Therefore, I am of the opinion that since the Managing Director of the defendant Company has been named as an Arbitrator in clause 23 of the agreement, the same cannot be termed as a valid arbitration clause. When there is no valid arbitration clause in the agreement, there is no need for this Court to refer the dispute to arbitration.
17. For the foregoing reasons, I am of the opinion that the present application filed by the applicants / defendants 8 and 2 is liable to be dismissed and accordingly, dismissed. No costs.
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