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Bipromasz Bipron Trading SA Vs Bharat Electronics Ltd

Judgement delivered on 8th may 2012

The Supreme Court of India in the above mentioned case deviated from the normal rule of appointment of named arbitrator and held that court shall have the power to nominate an independent arbitrator in case relevant facts upon examination indicate that the named arbitrator is not impartial. Thus, the court set a strong precedent and exception to the normal rule of appointment arbitrator in accordance to the arbitration agreement. The above mentioned case pertained to international arbitration between Poland based company of Bipromasz Bipron Trading SA and Indian company Bharat Electronics Ltd. which is Government Company. The Poland based company that is Petitioner filed application under section 11 (6) of the Arbitration and Conciliation Act to the Supreme Court of India for the appointment of arbitrator in international commercial arbitration.

In the above mentioned matter, the respondents had issued purchase orders to the Petitioner for the purchase of equipment namely Hydraulic Motor, Actuating Cylinder, EL Motor EDM, Converter and GYRO Unit and also issued a Annexure IV “General Terms and Conditions of Purchase Orders (Foreign)” that contained the arbitration clause that stated in case of disputes, the disputes shall be referred to Chairman and Managing Director of the BEL or nominee of the respondent. The respondents stopped taking supply from the Petitioner and rejected GYRO items and there after dispute arose between the Petitioner and the respondent in regard to the same.

The Petitioner filed petition under S. 11 (6) of the Arbitration and Conciliation Act 1996 seeking reference of dispute to an independent and an impartial sole Arbitrator while the respondent contended that the petition is not maintainable and the dispute has to be referred to only named arbitrator that is Chairman and the Managing Director or the nominee of the respondents. Thus the issue in the present case was that whether the petition was maintainable and the court can appoint independent arbitrator other than named arbitrator.

The above mentioned matter pertains to government contracts that are also known as standard contracts where the government enter contracts with private parties. In practice, arbitration proceeding are conducted by named arbitrator in case if dispute arises and theses named arbitrators are employees of the government company engaged in the respective government contract or employee of another government company.

The Petitioner relying on Supreme courts judgements of Indian Oil Corporation Limited v. Raja transport Private Ltd. And Denel (Proprietary) Limited Vs. Bharat Electronics Limited contended that reference of dispute should be made to an independent and impartial sole arbitrator and dispute should not be made to the named arbitrator as there is reasonable apprehension that the named arbitrator being employee of the respondent and controlling and supervising work of the respondent shall not act impartially and be favourably inclined towards the respondent in any dispute involving the respondents.

The respondents on the other hand contended that the Chairman was already appointed as an arbitrator and an order was served regarding the same upon the appellants through a fax. The respondent also contended that the appellants had agreed to the arbitration clause contained in the Annexure and now cannot contend to appoint another arbitrator and cannot go-by the same. The respondent also stressed on well settled principal of arbitration law that once arbitrator is named then the proceeding shall be carried out by the same. The court rejected the contention of the respondents and observed that:

The order was deemed to be received by the Petitioner on the day it was delivered by virtue of S. 3 (2) of the act. The court said that though the order was made by the arbitrator on 19 July 2011, it shall deem to be delivered on the day it was received. The court relying on court judgements observed that an order passed by an authority cannot be said to take effect unless the same is communicated to the party affected. The order passed by a competent authority or by an appropriate authority and kept with it, could be changed, modified, cancelled and thus denuding such an order of the characteristics of a final order. The court said that this order that is not communicated cannot be said to be creating any rights in favour of a party or take away rights of any affected party until it is communicated and thus held that if an order is passed but not communicated to the party concerned, it does not create any legal right which can be enforced through the court of law, as it does not become effective till it is communicated.

The court relying on Northern Railway Administration, Ministry of Railway, New Delhi Vs. Patel Engineering Company Limited and Indian Oil Corporation Limited Vs. Raja Transport Private Limited rejected the contention of the respondent and held that the court would have the power to appoint a person other than the named arbitrator, upon examination of the relevant facts, which if tend to indicate that the named arbitrator is not likely to be impartial.

The court further observed that in present matter, the petitioner had clearly pleaded that the named arbitrator is a direct subordinate of the CMD and employee of the respondent. CMD is the controlling authority of all the employees, who have been dealing with the subject matter in the present dispute and also controlling authority of the named arbitrator. The Petitioner apprehending that the CMD, who had been dealing with the entire contract, would not act impartially as an arbitrator issued a notice on 20th May, 2011. In this notice, it was pointed out that CMD was involved in the entire process involving the performance of the contract ranging from letter issued on 5th June 2009 to the petitioner stating that as per the company’s directives all pending supplies as on that date were “put on hold” to rejection of supply of GYRO units.

The court also observed that the present matter was a peculiar situation whereby the arbitrator that was to be appointed was Managing Director of the company against whom dispute was raised and the arbitrator being Managing Director of a government company was bound by the directions and instructions issued by superior authorities and the court observed that notice issued by the company where it was stated that the company was liable to pay dues but was not in a position to pay the dues on the directions of Ministry of Defence clearly indicated that the arbitrator was not in position to act independently and decide the said disputes. And hence, the court held in the favour of the petitioner and by virtue of the power in s. 11(4) and 11(6) appointed sole arbitrators to adjudicate the dispute between the parties independently.

Thus, in the above mentioned case the court held in favour of the Petitioner and held that in special cases where there is reasonable apprehension of arbitrator acting not impartially then the court is justified and has the power to appoint an arbitrator other than the named arbitrator mentioned in the arbitration agreement.