Registrar Of The Jharkhand Cooperative Society, Who Also Is The Ex-Officio Director Of The Respondent, Jharkhand High Court Says Appointment As Arbitrator Not Barred As Parties Had Agreed Earlier

The Single Bench of Justice Sujit Narayan Prasad held that by merely raising apprehension regarding the independence and impartiality of the person specified to act as an Arbitrator in the arbitration clause, a party cannot file an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) for appointment of an Arbitrator.

The applicant National Club Cooperative Society Ltd entered into a lease deed with the respondent Jharkhand State Adivasi Cooperative Marketing Federation Ltd. After a dispute arose between the parties, the applicant gave a notice to the respondent invoking the arbitration clause in the lease deed. The applicant stated in the said notice that although the Registrar of the Jharkhand Cooperative Society had been named as an Arbitrator as per the lease deed, however, in view of the provisions of Section 12 (5) of the A&C Act inserted vide the Arbitration and Conciliation (Amendment) Act, 2015, the Registrar of the Jharkhand Cooperative Society could not act as an Arbitrator since he was an ex-officio Director of the respondent Cooperative Society. Thus, the applicant requested the respondent to give its consent for appointment of a specified retired Judge named in the notice to act as a sole Arbitrator.

After the respondent failed to reply to the said notice, the applicant filed an application under Section 11(6) of the A&C Act before the Jharkhand High Court for appointment of an independent and impartial Sole Arbitrator.

The applicant National Club Cooperative Society contended before the High Court that as per Section 12 (5) of the A&C Act any person whose relationship, with the parties or counsel or the subject matter of the dispute, falls under any of the categories specified in the Seventh Schedule of the A&C Act shall be ineligible to be appointed as an arbitrator, unless the parties waive the applicability of Section 12(5) by an express agreement in writing after the prevalence of the dispute.

The applicant added that since the Registrar of the Jharkhand Cooperative Society, who is the Ex-officio Director of the respondent Cooperative Society, had been named as a sole Arbitrator, therefore, there was no expectation that the said Registrar would act independently as an Arbitrator.

The applicant averred that since the Registrar was having a direct relationship with the respondent, the condition stipulated in the agreement naming the Registrar as a sole Arbitrator was absolutely incorrect, and hence an application had been filed by the applicant for appointing a retired Judge to resolve the disputes between the parties impartially.

The High Court noted that the arbitration clause in the lease deed provided that any dispute between the parties would be referred to the Registrar of the Jharkhand Cooperative Society for arbitration, whose decision shall be binding on the parties. The Court held that the applicant had willingly entered into the lease deed knowing fully well that in case of any dispute between the parties the same shall be referred to the Registrar of the Jharkhand Cooperative Society. The Court ruled that after accepting the said stipulation, the applicant was now questioning the impartiality of the said Registrar.

The Court observed that the agreement was entered into between the parties prior to the enactment of the provisions of Section 12(5) of the A&C Act inserted vide the Arbitration and Conciliation (Amendment) Act, 2015.

The Court noted that the issue regarding the retrospective effect of the Arbitration and Conciliation (Amendment) Act, 2015 was referred before the Larger Bench of the Supreme Court in view of the divergent views of two Coordinate Benches of the Supreme Court. Thus, the High Court refused to delve into the issue with respect to the retrospective effect of the Arbitration and Conciliation (Amendment) Act, 2015.

The High Court observed that the Supreme Court in the case of Indian Oil Corporation Limited and Others versus Raja Transport Private Limited (2009) had laid down that the mere fact that the arbitrator is an employee of one of the parties to the dispute is not ipso facto a ground to raise any presumption of bias or partiality.

The High Court noted that the Supreme Court in the case of Aravali Power Company Private Limited versus Era Infra Engineering Limited (2017), relying upon the decision rendered in Indian Oil Corporation Limited, had ruled that even if the nominated Arbitrator is an employee of a party to the dispute, but so long as there was no justifiable apprehension about his independence or impartiality, the appointment could not be rendered invalid and unenforceable.

The Court thus refuted the contention of the applicant that because the respondent Cooperative Society was registered under the Jharkhand State Cooperative Societies Act, 1935, under which the Registrar is the authority, no independent adjudication of the dispute was possible by the said Registrar as an Arbitrator. The Court held that this was not a justifiable reason for not appointing the Registrar of the Jharkhand Cooperative Society to act as an Arbitrator as per the arbitration clause contained in the lease deed.

The Court noted that the respondent- Jharkhand State Adivasi Co-operative Vegetable Marketing Federation was registered by the Jharkhand State Cooperative Society. The Court ruled that just because the registration was granted by the Jharkhand State Cooperative Society to the respondent, presumption against the independence and impartiality of the Registrar of the Jharkhand State Cooperative Society to act as an Arbitrator cannot arise.

The Court observed that as per the judgment of the Supreme Court in the case of Northern Railway Administration, Ministry of Railway, New Delhi versus Patel Engineering Company Limited (2008), the procedure agreed to between the parties in the arbitration agreement should be exhausted and must be adhered to, so far as it is possible. The Court noted that the Supreme Court had ruled that the agreement between the parties must be given effect and the Court must be the last resort.

The Court thus held that the applicant, by merely raising apprehension regarding the independence and impartiality of the person specified to act as an Arbitrator in the lease deed, could not file an application under Section 11(6) of the A&C Act for appointment of the Arbitrator. Therefore, the Court ruled that the application filed by the applicant under Section 11(6) of the A&C Act was not maintainable.

The Court noted that the applicant, on the ground of apprehension with respect to the independence and impartiality of the named Arbitrator, had not even followed the conditions stipulated in the lease deed for making a request for appointment of the Arbitrator.

The Court thus dismissed the application.

Case Title: National Club Cooperative Society Ltd versus The Managing Director, Jharkhand State Adivasi Cooperative Marketing Federation Ltd

Citation: 2022 LiveLaw (Jha) 57

Dated: 28.04.2022 (Jharkhand High Court)

Counsel for the Applicant: Mr. Mrinal Kanti Roy

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