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Calcutta High Court
Indian Oil Corporation Limited vs M/S Mousumi Indane Gramin Vitrak And Anr on 29 April, 2025
Author: Shampa Sarkar
Bench: Shampa Sarkar
OCD -23
ORDER SHEET
IN THE HIGH COURT AT CALCUTTA
COMMERCIAL DIVISION
ORIGINAL SIDE
AP-COM/336/2025
INDIAN OIL CORPORATION LIMITED
VS
M/S MOUSUMI INDANE GRAMIN VITRAK AND ANR
BEFORE:
The Hon'ble JUSTICE SHAMPA SARKAR
Date: 29thApril, 2025.
Appearance:
Ms. Pritha Bhaumik, Adv.
.... for the petitioner
The Court:-
1. Despite service, none appears on behalf of the respondents. No
accommodation is prayed for. The petitioner has prayed for appointment of a
learned arbitrator on the strength of clause 37(a) of the Distributorship
Agreement dated December 28, 2011.
2. According to the petitioner, the respondent no. 1 is a distributor
and respondent no. 2 is the proprietor of the distributorship concern. Disputes
arose with regard to the non-compliance of several terms and conditions of the
distributorship agreement. It is further submitted that guidelines of the
company which were to be followed by a distributor,had not been followed. The
2
distributorship was kept under suspension for a considerable period and was
thereafter terminated on May 26, 2022. It appears that there were disputes and
differences between the parties from the beginning, which culminated in
suspension, termination and imposition of penalty. The petitioner contends
that the penalty imposed had not been paid and there were other subsisting
disputes which are to be adjudicated.The penalty is also to be recovered.
3. It appears that the disputes have continued between the
parties.Non-payment of the penalty imposed sometime in 2021 and termination
of distributorship in 2022 indicate that the disputes cannot be treated to be
"deadwood". The notice invoking arbitration was issued on September 19,
2022. A further notice invoking arbitration was issued on August 13, 2024. The
respondent did not react to the said notices.
4. The existence of clause is not in dispute. The jurisdiction of the
Courtsat Kolkata,is available from the terms and conditions mentioned in the
said distributorship agreement. Clause 37(a) provides that all questions,
disputes and differences arising under or in relation to this agreement shall be
referred to the sole arbitration of the Director (Marketing) of the Corporation. If
such Director (Marketing) is unable or unwilling to act as the sole arbitrator,
the matter shall be referred to the sole arbitration of some other officer of the
Corporation to be appointed by such Director (Marketing).On transfer of the
3
said officer or the Director (Marketing) another incumbent would be designated
to continue the arbitration process.
5. Thus, this Court holds that the dispute should be referred to
arbitration. However, neither the Director (Marketing) nor the designate of the
Director (Marketing) can act as an arbitrator in view of the bar under Section
12(5) read with schedule 5 and 7 of the Arbitration and Conciliation Act, 1996.
Thus, although the parties agreed to a binding arbitration clause, the
mechanism provided has failed, as it is no longer permissible. Reference is
made to such effect on the decisions Perkins Eastman Architects DPC and
Another vs. HSCC (India) Ltd. reported in 2019 SCC OnLine SC 1517, and
Central Organisation for Railway Electrification vs. ECI SPIC SMO MCML
(JV) A joint Venture Company reported in 2024 SCC OnLine SC 3219.
6. The Hon'ble Apex Court in Central Organization for Railway
Electrification (supra), held thus:-
"73. The 2015 amendment has introduced concrete standards of
impartiality and independence of arbitrators. One of the facets of
impartiality is procedural impartiality. Procedural impartiality
implies that the rules constitutive of the decision-making process
must favour neither party to the dispute or favour or inhibit both
parties equally.137 Further, a procedurally impartial adjudication
entails equal participation of parties in all aspects of adjudication
for the process to approach legitimacy.138 Participation in the
adjudicatory process is meaningless for a party against whom the
4
arbitrator is already prejudiced.139 Equal participation of parties in
the process of appointment of arbitrators ensures that both sides
have an equal say in the establishment of a genuinely independent
and impartial arbitral process.
74. Under Sections 12(1) and 12(5), the Arbitration Act recognises
certain mandatory standards of independent and impartial
tribunals. The parties have to challenge the independence or
impartiality of the arbitrator or arbitrators in terms of Section 12(3)
before the same arbitral tribunal under Section 13.140 If the
tribunal rejects the challenge, it has to continue with the arbitral
proceedings and make an award. Such an award can always be
challenged under Section 34. However, considerable time and
expenses are incurred by the parties by the time the award is set
aside by the courts. Equal participation of parties at the stage of the
appointment of arbitrators can thus obviate later challenges to
arbitrators.
75. Independence and impartiality of arbitral proceedings and
equality of parties are concomitant principles. The independence
and impartiality of arbitral proceedings can be effectively enforced
only if the parties can participate equally at all stages of an arbitral
process. Therefore, the principle of equal treatment of parties
applies at all stages of arbitral proceedings, including the stage of
the appointment of arbitrators.
***
124. The doctrine of bias as evolved in English and Indian law
emphasizes independence and impartiality in the process of
adjudication to inspire the confidence of the public in the
adjudicatory processes. Although Section 12 deals with the quality
5
of independence and impartiality inherent in the arbitrators, the
provision’s emphasis is to ensure an independent and impartial
arbitral process.”
In Perkins Eastman (supra), the Hon’ble Apex Court held thus
:-
…”20. We thus have two categories of cases. The first, similar to the
one dealt with in TRF Ltd. [TRF Ltd. v. EnergoEngg. Projects Ltd.,
(2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] where the Managing
Director himself is named as an arbitrator with an additional power
to appoint any other person as an arbitrator. In the second category,
the Managing Director is not to act as an arbitrator himself but is
empowered or authorised to appoint any other person of his choice
or discretion as an arbitrator. If, in the first category of cases, the
Managing Director was found incompetent, it was because of the
interest that he would be said to be having in the outcome or result
of the dispute. The element of invalidity would thus be directly
relatable to and arise from the interest that he would be having in
such outcome or decision. If that be the test, similar invalidity would
always arise and spring even in the second category of cases. If the
interest that he has in the outcome of the dispute, is taken to be the
basis for the possibility of bias, it will always be present irrespective
of whether the matter stands under the first or second category of
cases. We are conscious that if such deduction is drawn from the
decision of this Court in TRF Ltd. [TRF Ltd. v. EnergoEngg. Projects
Ltd., (2017) 8 SCC 377 : (2017) 4 SCC (Civ) 72] , all cases having
clauses similar to that with which we are presently concerned, a
party to the agreement would be disentitled to make any
appointment of an arbitrator on its own and it would always be
available to argue that a party or an official or an authority having
interest in the dispute would be disentitled to make appointment of
an arbitrator.
21. But, in our view that has to be the logical deduction from TRF
Ltd. [TRF Ltd. v. EnergoEngg. Projects Ltd., (2017) 8 SCC 377 :
(2017) 4 SCC (Civ) 72] Para 50 of the decision shows that this Court
was concerned with the issue, “whether the Managing Director, after
becoming ineligible by operation of law, is he still eligible to
nominate an arbitrator” The ineligibility referred to therein, was as a
6result of operation of law, in that a person having an interest in the
dispute or in the outcome or decision thereof, must not only be
ineligible to act as an arbitrator but must also not be eligible to
appoint anyone else as an arbitrator and that such person cannot
and should not have any role in charting out any course to the
dispute resolution by having the power to appoint an arbitrator. The
next sentences in the paragraph, further show that cases where
both the parties could nominate respective arbitrators of their choice
were found to be completely a different situation. The reason is clear
that whatever advantage a party may derive by nominating an
arbitrator of its choice would get counter-balanced by equal power
with the other party.But, in a case where only one party has a right
to appoint a sole arbitrator, its choice will always have an element of
exclusivity in determining or charting the course for dispute
resolution. Naturally, the person who has an interest in the outcome
or decision of the dispute must not have the power to appoint a sole
arbitrator. That has to be taken as the essence of the amendments
brought in by the Arbitration and Conciliation (Amendment) Act,
2015 (3 of 2016) and recognised by the decision of this Court in TRF
Ltd. [TRF Ltd. v. EnergoEngg. Projects Ltd., (2017) 8 SCC 377 :
(2017) 4 SCC (Civ) 72]
…
24. In Voestalpine [VoestalpineSchienen GmbH v. DMRC, (2017) 4
SCC 665 : (2017) 2 SCC (Civ) 607] , this Court dealt with
independence and impartiality of the arbitrator as under : (SCC pp.
687-88 & 690-91, paras 20 to 22 & 30)
“20. Independence and impartiality of the arbitrator are the
hallmarks of any arbitration proceedings. Rule against bias is one of
the fundamental principles of natural justice which applied to all
judicial and quasi-judicial proceedings. It is for this reason that
notwithstanding the fact that relationship between the parties to the
arbitration and the arbitrators themselves are contractual in nature
and the source of an arbitrator’s appointment is deduced from the
agreement entered into between the parties, notwithstanding the
same non-independence and non-impartiality of such arbitrator
(though contractually agreed upon) would render him ineligible to
conduct the arbitration. The genesis behind this rational is that
even when an arbitrator is appointed in terms of contract and by the
parties to the contract, he is independent of the parties. Functions
and duties require him to rise above the partisan interest of the
parties and not to act in, or so as to further, the particular interest
7
of either parties. After all, the arbitrator has adjudicatory role to
perform and, therefore, he must be independent of parties as well as
impartial. The United Kingdom Supreme Court has beautifully
highlighted this aspect in Hashwani v. Jivraj [Hashwani v. Jivraj,
(2011) 1 WLR 1872 : 2011 UKSC 40] in the following words : (WLR
p. 1889, para 45)
’45. … the dominant purpose of appointing an arbitrator or
arbitrators is the impartial resolution of the dispute between the
parties in accordance with the terms of the agreement and, although
the contract between the parties and the arbitrators would be a
contract for the provision of personal services, they were not
personal services under the direction of the parties.’
21. Similarly, Cour de Cassation, France, in a judgment delivered in
1972 in Consorts Ury [Fouchard, Gaillard, Goldman on
International Commercial Arbitration, 562 [Emmanuel Gaillard &
John Savage (Eds.) 1999] {quoting Cour de cassation [Cass.]
[Supreme Court for judicial matters] Consorts Ury v. S.A. des
Galeries Lafayette, Cass.2e civ., 13-4-1972, JCP, Pt. II, No. 17189
(1972) (France)}.] , underlined that:
‘an independent mind is indispensable in the exercise of judicial
power, whatever the source of that power may be, and it is one of
the essential qualities of an arbitrator’.
22. Independence and impartiality are two different concepts. An
arbitrator may be independent and yet, lack impartiality, or vice
versa. Impartiality, as is well accepted, is a more subjective concept
as compared to independence. Independence, which is more an
objective concept, may, thus, be more straightforwardly ascertained
by the parties at the outset of the arbitration proceedings in light of
the circumstances disclosed by the arbitrator, while partiality will
more likely surface during the arbitration proceedings.
***
30. Time has come to send positive signals to the international
business community, in order to create healthy arbitration
environment and conducive arbitration culture in this country.
Further, as highlighted by the Law Commission also in its report,
duty becomes more onerous in government contracts, where one of
the parties to the dispute is the Government or public sector
undertaking itself and the authority to appoint the arbitrator rests
with it. In the instant case also, though choice is given by DMRC to
the opposite party but it is limited to choose an arbitrator from the
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panel prepared by DMRC. It, therefore, becomes imperative to have
a much broadbased panel, so that there is no misapprehension that
principle of impartiality and independence would be discarded at
any stage of the proceedings, specially at the stage of constitution of
the Arbitral Tribunal. We, therefore, direct that DMRC shall prepare
a broadbased panel on the aforesaid lines, within a period of two
months from today…”
7. The petitioner invoked arbitration and has approached this Court
for reference. The prayer for appointment of a learned arbitrator is allowed.
8. Mr. Rohit Banerjee, learned Advocate (Mobile No.9163891670)
is appointed as the sole arbitrator, to arbitrate upon the dispute between the
parties.
9.The learned Arbitrator shall comply with the provisions of Section
12 of the Arbitration and Conciliation Act, 1996. The learned Arbitrator shall
be at liberty to fix her remuneration as per the Schedule of Arbitration and
Conciliation Act, 1996.
(SHAMPA SARKAR, J.)
TR/
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