TITLE OF THE PROJECT

Society Pepper Grenoble S.A.R.L. v. Union of India Case analysis

NAME OF THE SUBJECT

ADR

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ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my professor who gave me the
golden opportunity to do this wonderful project on the case “Society Pepper Grenoble
S.A.R.L. v. Union of India”, which also helped me in doing lot of research and I came to
know about so many new things.

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 ABSTRACT

Case Name: Society Pepper Grenoble S.A.R.L. v. Union of India

Bench: MANMOHAN SARIN, J.

Sections Involved:

Section- 16 of Arbitration and conciliation Act: Competence of arbitral tribunal to rule on its
jurisdiction

Case Summary

The petitioner by this writ petition seeks quashing of order dated 1st March, 2003 by Mr.
Justice P. K. Bahri (Retd.) and a declaration that the Arbitration Clause in the contract is void
u/s. 23 of the Indian Contract Act. The petitioner as a consequence seeks stay of the
proceedings before the Arbitral Tribunal. By order dated 1st March, 2003, the Arbitrator
Justice P. K. Bahri (Retd.) rejected the objections filed u/s. 16 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as the Act) challenging the jurisdiction of the
Arbitral Tribunal to adjudicate upon the disputes between the parties. Petitioner filed a review
petition and an application for reconsideration of the order dated 1st March, 2003. The said
application for reconsideration and review was also rejected vide orders dated 12.03.2003,
holding that there was no power of review conferred on the Arbitral Tribunal under the Act.

The Supreme Court had upheld the appointment by the Chief Engineer, who had appointed
the Superintending Engineer (Irrigation), as an Arbitrator. The Court noticed that the term
"State Public Works Department" would include within its ambit several departments
including Department of Irrigation.  This did not mean that the Superintending Engineer
(Irrigation) was not competent to adjudicate upon the disputes. All that was required was that
he should not be connected with the actual work in question.  Even the appointment of first
Arbitrator had nothing to do with the actual supply under the purchase contract. The
challenge to the said nomination has also been negated by the Supreme Court.

Y. Nagendra,

2017124.

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 SYNOPSIS
INTRODUCTION:
Settling a dispute by referring it to a third person was well known in ancient and medieval
India. If any of the parties to the dispute was not satisfied with the decision. He could go on
an appeal to the Court of law and ultimately to the King itself. The modem law of arbitration
evolved in the form of Regulations framed by the East India Company whereby the courts
were empowered to refer the suits to arbitration.

The first Indian Arbitration Act of 1899 was based on the English Arbitration Act of 1889.
Then came the Indian Arbitration Act, 1940, and finally the Arbitration and Conciliation Act,
1996 (the “Act”) was enacted by Parliament based on the UNCITRAL Model Law on
International Commercial Arbitration, 1985

Prior to the enactment of the 1996 Act, Section 30 of the Indian Arbitration Act, 1940,
contained rather broad grounds for setting aside an arbitral award. There was no provision
under the Arbitration Act of 1940 which allowed the Arbitral Tribunal to make a decision on
its own jurisdiction and it was the job of the court to decide on the jurisdiction of the arbitral
tribunal. But under Section 16 of the Arbitration and Conciliation Act, 1996 the Arbitral
Tribunal has been granted the power to make a ruling on its own jurisdiction. Section 16 (1)
of the Arbitration and Conciliation Act states that the Arbitral Tribunal may rule on its own
jurisdiction, including ruling on any objection with respect to the existence or validity of the
arbitration agreement.

OBJECTIVE OF THE STUDY:

The object of this study is to critically analyze the provision under Section 16 of the
Arbitration and Conciliation Act, 1996 and provisions relating to Indian Contract Act
which provides for alternate dispute resolution for the parties in the case of Society Pepper
Grenoble S.A.R.L. v. Union of India

SCOPE OF THE STUDY:

The scope of this study extends to analysing Civil Procedure Code 1908 and the Arbitration
and Conciliation Act, 1996 and Indian Contracts Act, along with the necessary amendments
made to the same.

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RESEARCH QUESTION:

1. Whether the Arbitration clause was lawful and thus not void according to section 23
of the Indian contract Act 1872.
2. Whether the Arbitrator could be appointed by only one party alone, without the
consent of the other, whether such clause in an agreement is valid according to the
Arbitration and Conciliation Act 1996.

RESEARCH METHODOLOGY:

This is doctrinal research where the researcher would be using Analytical, Critical, Historical
and Explanatory methods of study.

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TABLE OF CONTENTS

1. ABSTRACT_____________________________________3
2. SYNOPSIS-------------------------------------------------------
3. CASE FACTS____________________________________5
4. ISSUES__________________________________________6
5. LAWS INVOLVED________________________________6
6. ARGUMENTS
6.1 PETITIONER CONTENTIONS__________________8
6.2 RESPONDENT CONTENTIONS________________9
7. JUDGEMENT____________________________________9
8. CASE CITED____________________________________10
9. CONCLUSION___________________________________17
10. BIBLIOGRAPHY_________________________________17

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CASE NAME: Society Pepper Grenoble S.A.R.L. v. Union of India

BENCH: MANMOHAN SARIN, J.

CITATIONS: AIR 2004 Delhi 376, 2004 (2) ARBLR 198 Delhi, 112 (2004) DLT 29, 2004
(75) DRJ 154.

YEAR: 2004

LEGISLATIONS CITED: Arbitration and Conciliation Act, 1996

Indian Contracts Act, 1872

Indian Contracts Act, 1872 section 16

Indian Contracts Act, 1872 section 23

FACTS

1. A tender of floated internationally by the Defendant, and parties were free to compete in
the same. The Petitioner had won and accepted the tender.

2. Petitioner had entered into a contract for supply of 8,588 sleeping bags at a unit rate of FF
1381 on FOB basis, for delivery within 90 days.

3. The respondent-Union of India, through the Ministry of Defence placed Contract Purchase
Order bearing No. 21(28)92-D-(0-1), for the supply of said bags. Performance Bond and
Warranty Bond were also provided by the petitioner.

4. The Contract Purchase Order was subject to the standard terms and conditions of contract.
Clause 17(b) contained the following arbitration clause:-

“All the rights and liabilities embodied in the contract except those stipulated hereinafter shall
be determined by referring to arbitration of the Nominee of the Secretary of Ministry of
Defence of the Government of India under the laws of India.”

5. Respondent, in pursuance to the above arbitration clause, appointed Mr. T.C. Joshi,
Financial Adviser, Border Security Force, as the Sole Arbitrator to decide the disputes that
had arisen between the parties and claims of the respondent. Respondent filed its statement of
claim of the dispute that had arisen.

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6. The petitioner on 9.11.1998, filed preliminary objections to the maintainability of the
arbitration and claimed that the Arbitral Tribunal lacked jurisdiction on the ground of “being
a judge in its own cause”.

7. The Secretary, Ministry of Defence vide taking note of the objections and concern of the
petitioner that the arbitration agreement did not provide for arbitration by a Government
employee and for the selection of a new arbitrator, who should not be employed by the either
party, appointed Justice P.K. Bahri (Retd.) as the Sole Arbitrator in place of Shri T.C. Joshi to
adjudicate upon the disputes and differences between the parties.

ISSUES

3. Whether the Arbitration clause was lawful and thus not void according to section 23
of the Indian contract Act 1872.
4. Whether the Arbitrator could be appointed by only one party alone, without the
consent of the other, whether such clause in an agreement is valid according to the
Arbitration and Conciliation Act 1996.

LAWS INVOLVED

Section 16 of Arbitration and Conciliation Act 1996: Competence of arbitral

tribunal to rule on its jurisdiction

There was no provision under the Arbitration Act of 1940 which allowed the Arbitral
Tribunal to make a decision on its own jurisdiction and it was the job of the court to
decide on the jurisdiction of the arbitral tribunal. But under Section 16 of the Arbitration
and Conciliation Act, 1996 the Arbitral Tribunal has been granted the power to make a
ruling on its own jurisdiction. Section 16 (1) of the Arbitration and Conciliation Act states
that the Arbitral Tribunal may rule on its own jurisdiction, including ruling on any
objection with respect to the existence or validity of the arbitration agreement.

Section 16 of the Arbitration and Conciliation Act incorporates the principle of

competence-competence. It has two aspects: first, that the tribunal may decide on its
jurisdiction without support from the courts and secondly, that the courts are prevented
from determining this issue before the tribunal has made a determination on this issue. 1
But does this determination by the Arbitral Tribunal have a binding effect? Can it not be
challenged in courts?

1
Waverly Jute Mills Co. Ltd. vs. Raymon and Co. (India) Ltd. AIR 1962 SC 1810

8
 In the case of Union of India vs. M/s. East Coast Boat Builders & Engineers Ltd. 2 it was
stated:

“From the scheme of the Act it is apparent that the legislature did not provide appeal
against the order under section 16(5) where the arbitral tribunal takes a decision rejecting
the plea that the arbitral tribunal has no jurisdiction. The intention appears to be that in
such case, the arbitral tribunal shall continue with the arbitral proceedings and make an
award without delay and without being interfered in the arbitral process at that stage by
any court in their supervisory role.”

In the case of Nav Sansad Vihar Coop. Group Housing Society Ltd. (Regd.) vs. Ram
Sharma and Associates, it was stated that if a plea is rejected by the Arbitral Tribunal
under section 16(5) of the Arbitration and Conciliation Act the arbitral proceedings shall
continue, an award shall be given and the aggrieved party shall have to wait till the giving
out of the award and there is no separate remedy against such order.

But under section 37(2) of the Arbitration and Conciliation Act a decision of the tribunal
accepting the plea that it does not have jurisdiction or is exceeding its scope of authority is
appealable. In the case of Pharmaceutical Products of India Ltd. vs. Tata Finance Ltd. 3 it
was stated:

“Where the Arbitral Tribunal decides to reject the plea regarding its jurisdiction, sub-
section (5) clearly empowers the Tribunal to continue with the arbitral proceedings and
make an arbitral award. Sub-section (5) provides for the manner in which such an arbitral
award may be challenged. It provides that such an award can only be challenged in
accordance with section 34. On the other hand, if the Arbitral Tribunal decides to accept
the plea that it has no jurisdiction, then such an order is appealable under section 37(2) of
the Act.”

Thus we see that when the Arbitral Tribunal decides to reject a plea regarding its
jurisdiction then the order made regarding its jurisdiction is not appealable but when the
Arbitral tribunal decides to accept the plea that it has no jurisdiction then such an order is
appealable under section 37(2) of the Arbitration and Conciliation Act.

Section 23 of The Indian Contract Act, 1872

2
76 (1998) DLT 958, 1998 (47) DRJ 333, ILR 1998 Delhi 797
3
2002 (6) BomCR 168, (2002) 4 BOMLR 344, 2003 41 SCL 259 Bom.

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“23. What considerations and objects are lawful and what not.-

The consideration or object of an agreement is lawful, unless-

-it is forbidden by law; or

-is of such nature that, if permitted, it would defeat the provisions of any law; or

-is fraudulent; or

-involves or implies injury to the person or property of another or;

-the Court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said to be unlawful.

Every

agreement of which the object or consideration is unlawful is void.

ARGUMENTS

PETITIONER CONTENTIONS

In this case, the petitioner challenged that the Arbitration Clause is void on the basis of
Section 23 of The Indian Contract Act 1872, which states that a contract would be void if the
consideration or object of an agreement is unlawful.

The petitioner has argued that the arbitration clause in the agreement is void, as it states that
the secretary of Minisitry of Defense of the Government of India shall appoint a Nominee as
the Arbitrator in case of any disputes. “one can’t be a judge in his own cause”; one if the
Principles of Natural Laws was the ground for the Petitioner for filing a writ in the Court of
Law.

The Petitioner was questioning the legality of the agreement and it’s arbitration clause by
applying clause(2) of section23 of the Indian Contract Act 1872, which states that any if
object or consideration is against any law or provision of any statue; or immoral; then such an
agreement would be void. So according to the petitioner, the appointment of an arbitrator by
the defendant himself questions the independency and provisions of the arbitration act, which
in turn make the arbitration clause invalid.

RESPONDENT CONTENTIONS

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Respondents have raised preliminary objection as to the maintainability of the petition. It is
urged that as per the Scheme of the Act the Arbitral Tribunal is competent to rule on its own
jurisdiction and the orders of the Tribunal can be challenged only on the limited ground as set
out in Section 37 of the Act. It is for the petitioner to challenge the Award, if he so chooses on
ground of lack of jurisdiction also under Section 34 after the final Award had been made. The
arbitral proceedings are required to continue once the challenge or objections to the lack of
jurisdiction are decided by the arbitral tribunal and the remedy of the parties only is after the
Award has been made.

JUDGEMENT

In view of the foregoing discussion, the challenge to the arbitration clause must fail. It is
also to be noted that the present case is one where international tenders were floated
and parties were free to compete. The petitioner having accepted the terms and conditions of
the contract now wishes to resile from the same. It is also significant that in the entire
petition there is not an iota of suggestion of any bias or un-fairness in the conduct of
proceedings by the learned Arbitrator. The Arbitrator appointed by the respondents in this
case is a Retired Judge of the High Court of Delhi who has held a Constitutional position and
there is no basis of nurturing or entertaining any misgivings of apprehension regarding the
petitioner not getting a fair judgment or treatment. The petitioner by raising objection to the
appointment of first arbitrator and secondly to the appointment of Justice P.K Bahri (Retd.)
has managed to delay the arbitral process which is intended for expeditious resolution of
commercial disputes.

The validity of the arbitral clause and the foregoing discussion, was found to have no merit in
the petition. The same is accordingly dismissed with costs of Rs. 10,000/-.

CASES CITED

1. Sh.Bhupinder Singh Bindra v Union Of India And Anr4

The only question in this case is whether the Civil Court, while exercising the power under ss.
5, 8, 11 and 29 of the Arbitration Act, 1940 (for short,'the Act') would be justified in revoking
the appointment of an arbitrator appointed in terms of clause 25-a of the contract.

The contract clearly indicates that the Superintending Engineer, Planning Circle, Chandigarh
or any one acting as such at the time of reference within 180 days, i.e. six months from the

4
1995 AIR 2464, 1995 SCC (5) 329

11
date of making final payment of the contractor is the designated officer chosen voluntarily by
the parties. It was impugned in the o.p. filed in the court of the Senior judge that the officer
had delayed for considerable period in making the award and that, therefore, it necessitated
the appellant to invoke the jurisdiction of the civil court under the Act.

The High Court of Punjab and Haryana in the impugned order in Civil Rev. No.516/91 has
pointed out that the contractor had consented for adjournments and that there was no
allegation of misconduct of the arbitrator in adjudicating the dispute. On the other hand the
High Court recorded that:

“the Arbitrator was proceeding with the task of an arbitration in right earnest, inspite
of the fact that the Contractor was not cooperating in this behalf. On the transfer of Shri R.K.
Aggarwal, Superintending Engineer, the work of arbitration had been taken up by his
successor Shri Puran Jeet Singh, Superintending Engineer.”

Thus it was held that the Arbitrator was willing to proceed with and that the appellant was not
cooperating in conducting the proceedings. Therefore having consented for adjournments and
dragged on the case for a considerable time, it is no longer open to contend that the arbitrator
neglected to make the award. Under those circumstances, it cannot be said that there are any
laches on the part of the arbitrator in giving the award. When the parties, under the clauses of
the contract, have specifically chosen a named authority and not any other arbitrator, without
the consent of the parties, court has no jurisdiction to interpose into the contract and appoint
an arbitrator under s.8 or any other provision under the Act. The High Court, therefore, was
clearly right in setting aside the order of the Senior Judge appointing an independent
arbitrator to adjudicate the dispute.

Since the matters are pending for a long time, the arbitrator is directed to adjudicate upon the
dispute and give his award within six months from the date of the receipt of this order. It is
needless to mention that in case the appellant does not cooperate in the disposal of the
application, the time limit prescribed by us would not deter the arbitrator to decide the dispute
according to law. The appeal is accordingly dismissed. No costs.

2. S. Rajan vs State Of Kerala And Another5

Bench : Jeevan Reddy, B.P. (J)

5
1992 AIR 1918, 1992 SCR (3) 649

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An agreement was entered into between the appellant and the State of Kerala on 19.2.1966
whereunder the appellant undertook to carry out certain work within a period of ten months.
He did not complete the work within the period prescribed whereupon the contract was
terminated on 19.12.1968 and the work retendered. It was completed by another contractor.
State of Kerala took proceedings under the provisions of the Revenue Recovery Act for
recovering the loss suffered by the State on account of the appellant's failure to carry out the
work in accordance with the contract. A notice of demand was served upon him on 30.5.1974.
The appellant challenged the said notice by way of a writ petition in the High Court of Kerala
which was dismissed on 25.11.1978. in the year 1983, he applied to the Government of
Kerala to refer the disputes and differences between them to an arbitrator. This was refused in
the year 1984, whereupon the appellant filed the application under Section 20 of the
Arbitration Act before the learned Subordinate Judge. He prayed for the appointment of an
arbitrator to decide the disputes arising between him and the State of Kerala. In their written
statement the State raised several objections including limitation and resjudicata. An
objection was also raised as to the maintainability of the said application. It was submitted
that according to clause (3) of the contract the Superintending Engineer, (B&R) South Circle,
Trivandrum is the named arbitrator. In that view of the matter, it was submitted, the
appellant's request for appointing an arbitrator by the court is inadmissible and liable to be
rejected.

The learned Subordinate Judge concluded that here is a case where certain claims were put
forward by the plaintiff which were denied by the defendants. Since there is a clause in the
agreement providing for arbitration, the disputes and differences arising between the parties
ought to be referred. He rejected the various objections raised by the State. The operative
paragraph of the judgment reads:

“In the result the disputes and differences mentioned in para 10 of the plaint are
hereby ordered to be referred to an arbitrator for arbitration. Both parties are directed to
submit their panels of Arbitrator to be appointed within 10 days from the date.”

For the reasons given above, the appeal fails and is dismissed with costs.

3. SECRETARY TO THE GOVERNMENT, TRANSPORT DEPTT. MADRAS vs.

MUNUSWAMY MUDALIAR & ORS.6

6
1988 AIR 2232, 1988 SCR Supl. (2) 673

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This appeal arises out of an order of the High Court of Madras, dated 21st September, 1984.
The appellant is the Secretary to the Government, Transport Deptt. , Madras, and the
respondent No. 1 is the managing partner of M/s. National Company, which was the
successful tenderer of the work of construction of a bridge across the river Coovum at
Koyambedu within the corporation limit of the city of Madras and accordingly the necessary
contract was executed between the respondent No. 2-the Superintending Engineer
(Highways) World Bank Project Circle, Madras, and the said Company on 28th April, 1979.

During the pendency of the claim before the said arbitrator, the respondent filed another
application seeking to change the arbitrator on the ground that the arbitrator being an
employee of the State Government, an Engineer from any sector other than the sector of
Tamil Nadu or a retired Engineer of the State Government might be appointeded arbitrator.

This is a case of removal of a named arbitrator under Section 5 of the Act which gives
jurisdiction to the Court to revoke the authority of the arbitrator. When the parties entered into
the contract, the parties knew the terms of the contract including arbitration clause. The
parties knew the scheme and the fact that the Chief Engineer is superior and the
Superintending Engineer is subordinate to the Chief Engineer of the particular Circle. ln spite
of that the parties agreed and entered into arbitration and indeed submitted to the jurisdiction
of the Superintending Engineer at that time to begin with, who, however, could not complete
the arbitration because he was transferred and succeeded by a successor. In those
circumstances on the facts stated no bias can reasonably be apprehended and made a ground
for removal of a named arbitrator. ln our opinion this cannot be, at all, a good or valid legal
ground. Unless there IS allegation against the named arbitrator either against his honesty or
capacity or mala fide or interest in the subject matter or reasonable apprehension of the bias, a
name and agreed arbitrator cannot and should not be removed in exercise of a discretion
vested in the Court under section 5 of the Act.

In that view of the matter, the order made by the learned Judge. City Civil Court, and the
decision of the High Court cannot be sustained and they are set aside. The appeal is allowed.
We remand the case back to the learned Judge, City Civil Court, to ask the Government to
appoint the Superintending Engineer. Trichy, to be an arbitrator in accordance with the
arbitration agreement. The arbitrator will proceed according to the evidence of the parties and
after considering all the relevant facts according to the agreement and make an award in
accordance with law. There will be no order as to costs.

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 4. International Airport Authority of India v KD Bali7

The court held that for the independence and impartiality of an arbitrator can be impugned
only where there is a real likelihood of bias. A mere suspicion of bias will not suffice. Where
a real likelihood of bias as opposed to a mere suspicion is found, the proceedings before the
arbitrator may be quashed and the arbitrator disqualifies on the grounds of his interest in the
proceedings. There must also be an element reasonableness and not just any suspicion of a
litigating party which will lead to the conclusion of bias. Consequently, the apprehension has
to be judges from “reasonable, healthy and average point of view and not on a mere
appearance of any whimsical person”. The test to be applied by the court has to be the
“reasonableness and the apprehension of an average honest man”.

Bias

The primary ground on which the appointment of an arbitrator may be challenged is where
one of the parties has reasonable grounds to believe that the arbitrator may be biased.
Importantly, a party challenging the appointment of an arbitrator need not prove that actual
bias exists, he must only show that there are “justifiable doubts” concerning the arbitrator’s
impartiality. Some circumstances that may raise such justifiable doubts are

Arbitrator is related to one of the parties to the dispute

Arbitrator has some personal or commercial interests in the subject-matter of the dispute

Arbitrator has a past history with one pf the parties (eg., he may have been the
employer/employee or business partner or even legal representative of one of the parties).

5. Central Inland Water Transport Corporation v. Brojonath Ganguly8

Facts: Plaintiffs worked in a company which was dissolved by Court’s order and they were
then inducted into defendant Corporation upon latter’s T&C. After years of serving
Corporation, plaintiffs were arbitrarily kicked out of the Corporation by virtue of Rule 9(i) of
said T&C which provided for termination of employees’ services on three months’ notice on
either side upon which three months’ salary to be paid by Corporation. Plaintiffs requested
Court to quash Rule 9(i) on grounds of unconscionability.

7
(1998) 2 SCC 360: AIR 1988 SC 1099.
8
1986 AIR 1571, 1986 SCR (2) 278

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Issue: Whether an unconscionable term can be held to be void/ voidable under Indian
Contract Act (ICA)?

Held: When the bargain is harsh or unconscionable, equity, grounded upon ‘distributive
justice’ curtails the freedom of contract so as to protect the interests of party who entered into
such bargain under distress. Freedom of contract is of little value when parties don’t stand on
equal footing; party with weaker bargaining power enjoys no realistic opportunity to bargain
and party has no alternative between accepting a set of terms proposed by other or doing
without the goods or services offered. These agreements are called as ‘Adhesion Contracts’,
however not every such contract is unconscionable: only when there is gross inequality of
bargaining power compounded with terms unreasonably favourable to stronger party can the
indication that weaker party had no meaningful choice except to consent to the unfair and
unreasonable terms, hold ground.

Therefore Courts will strike down any unfair or unreasonable clause/ agreement entered into
by parties when there is gross inequality in their bargaining power, and the victimized party
had no meaningful choice but to give his assent to the contract, however unreasonable, unfair
and unconscionable a clause in that contract may be.

Rule 9(i) was unreasonable and unfair to the extent of being unconscionable for it gave
arbitrary and absolute power to the Corporation to dismiss its employees without providing
any guidelines to that effect. The rule was also violation of principle of natural justice-audi
alteram partem-for it neither provided for any inquiry to take place nor did it provide for any
opportunity to accused employee to be heard.

Therefore it was unconscionable and opposed to public policy for it adversely affected the
rights and interests of the employees and created a sense of insecurity and subservience to
unfair and unreasonable terms of corporation. Hence, it was void according to S.23 of ICA.

6. Executive Engineer, Irrigation Division, Puri v Gangaram Chhapolia9

The respondent herein is a contractor and had entered into an agreement being Agreement
No. 1 F-2 of 1970-71 with the State Government of Orissa relating to the Excavation of
Satankha Distributory with its minor and sub-minor from O.M. to Tail. The respondent raised
a dispute and served a notice on the Chief Engineer for the appointment of an arbitrator 15
under Clause 23 of the Agreement. Subsequent to the said notice he filed an application under

9
AIR 1984 SC 234, 1983 (2) SCALE 606, (1984) 3 SCC 627.

16
Section 8 read with Section 20 of the Act before the Subordinate Judge, Cuttack praying for
the appointment of an arbitrator by the Court alleging that the Chief Engineer had not
appointed an arbitrator under Clause 23 within the stipulated period of 15 days and therefore
lost his power to appoint an arbitrator. The appellant enter ed appearance in the proceedings
and raised an objection against the maintainability of the application under Section 8 read
with Section 20 of the Act on the ground that the Chief Engineer had already appointed D
Sahu, Superintending Engineer, Irrigation to be the Arbitrator fact of which was intimated to
the respondent on November 20, 1978 and as such there was no occasion for the Court to
appoint an arbitrator On December 19, 1979, the respondent filed another application
contending that the appointment of D. Sahu, Superintending Engineer Irrigation as Arbitrator
was illegal and improper and hence liable to be set asidbe. It was asserted by the respondent
that as per Clause 23 of the Agreement of the Agreement, the Chief Engineer could appoint a
Superintending Engineer belonging to the State Public Works Department, and none else.

This appeal by special leave is directed against an order of the Orissa High Court dated
November 6, 1980 summarily dismissing a revision filed by the appellant and upholding the
order of the Subordinate Judge, Cuttack dated March 26, 1980 allowing an application made
by the respondent under Section 8 read with Section 20 of the Arbitration Act, 1940, by
which the learned Subordinate Judge has set aside the appointment of the Superintending
Engineer, Irrigation by the Chief Engineer to be the Arbitrator and instead appointed a retired
District & Sessions Judge of Cuttack as the Arbitrator.

In the result, the appeal succeeds and is allowed. The impugned order passed by the Orissa
High Court dated November 6, 1980 as also the order passed by the Subordinate Judge,
Cuttack dated March 26, 1980 are set aside and the dispute is referred to the Arbitration
Tribunal constituted under Sub-section (2) of Section 41A of the Arbitration Act, 1940 as
amended by the Arbitration (Orissa Amendment) Act, 1982 as enjoined by Sub-section (7) of
Section 41A of the Act. There shall be no order as to costs.

7. Yachiyo India Private Limited and another v K. T. Holidays Private Limited and
another10

Petitioner, a Pvt. Ltd. company, is incorporated in India but controlled by the parent company
in Japan. The respondent No.1 is a company duly incorporated under the Indian Companies
Act, 1956. The Managing Director of the petitioner's company entered into an agreement with

10

17
the respondents company dated 16th October 2008 for hiring (i) a chauffeur driven Honda
Accord car for monthly rental of Rs.68,000/- plus service tax and VAT w.e.f 1st December
2008 to 30th November 2011 (ii) a chauffeur driven Toyota Innova at monthly rental of
Rs.40,000/- plus service tax and VAT w.e.f 1st November 2008 to 31st October 2011.
Petitioner had even deposited vide cheques of Rs.2,54,714/- and Rs.1,49,832/- as security
money for hiring of Honda Accord and Toyota Innova cars respectively.

The petitioner filed application under Section 11, 12 and 13 of the Arbitration and
Conciliation Act, 1996, wherein it was stated that this tribunal had no jurisdiction to entertain
the reference of arbitration as petitioner company is controlled by company based in Japan
and Mr. Kobayashi is of Japanese nationality. The copy of the application was duly served on
respondents. The response to the application was filed and the application was set down for
arguments. In the mean while the respondents filed statement of claim and it was agreed by
the counsel for the parties that since no oral evidence was necessary, the whole matter could
be decided together.

Before dealing with the objections raised by the petitioner, it is necessary to refer the
arbitration clause in the matter. The same reads as under: “Arbitration: All disputes arising
out of this agreement shall be referred to an Arbitrator, a retired judge of the Delhi High
Court, appointed by the owner and the award of the Arbitrator shall be final and binding. This
agreement shall be subject to Delhi jurisdiction only. The proper law of the agreement will be
Indian law and the courts at Delhi alone shall have exclusive jurisdiction. The venue for the
settlement of disputes shall be Delhi. The parties shall bear their own costs.”

Under the circumstances of the present case and specific findings arrived at by the learned
Arbitrator with regard to the objection raised by the petitioner about his appointment, the
award cannot be treated as invalid. The objections filed by the petitioner are without any
substance. There is not even an iota of evidence that the arbitrator was partial or not
independent. None of the objections raised by the petitioner comes within the purview of the
Act. As far as the objection of the petitioner that the petitioner's application under Sections
11, 12 and 13 of the Act is not decided is concerned, the same is totally misconceived. In case
the award is read as a whole, the said objection is already recorded in the award and has been
duly decided by the learned Arbitrator. Both the petitions are accordingly dismissed.

CONCLUSION

18
The court dismissed the case with costs of Rs10,000, because:

1)The petitioner’s argument about the invalidity of the arbitration clause had no grounds
especially because there was no complaint of malpractices or partiality by the appointed
arbitrator.

2)The petitioner had accepted all the clauses when it had entered into the agreement by the
defendant; they had not raised any questions regarding the said clause then.

3)The court held that the petitioner has dragged this case to try and delay the process of the
court and delivering justice.

BIBLIOGRAPHY

 Mulla: The Indian contract Act by Sir Dinshaw Fardunji Mulla 14th edition
 The ssconline portal
 The westlaw india
 The bare Acts of the Indian contract Act 1872 and The arbitration and
Conciliation Act 1996.

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