INDIAN OIL CORPORATION LTD. & ORS. versus M/S. RAJA TRANSPORT (P) LTD.

Citation: [2009] 13 S.C.R. 510 · Decided: 24-08-2009 · Supreme Court of India · Bench: R.V. RAVEENDRAN · Disposal: Appeal(s) allowed

Cited by 8 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

[2009] 13 (ADDL.) S.C.R. 510 
A 
INDIAN OIL CORPORATION LTD. & ORS. 
v. 
~. 
M/S. RAJA TRANSPORT (P) LTD. 
(Civil Appeal No. 5760 of 2009) 
B 
AUGUST 24, 2009 
[R.V. RAVEENDRAN AND D.K. JAIN, JJ.] 
Arbitration and Conciliation Act, 1996: 
~ 
c 
ss. 11 (6) and (8), 12 (1) and (3) and 18 -Agreement of 
dealership - Between State instrumentality (Corporation) and 
private company - Arbitration clause stating reference of 
dispute for sole arbitration who would be Director of the 
Corporation or any officer of Corporation nominated by the 
D 
Director - On dispute, dealer resorting to civil remedy - Civil 
Courts on application of Corporation, directing reference for 
arbitration as per agreement - Dealer thereafter intimating the 
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Corporation that it was not agreeable for the arbitrator as 
specified in the agreement and sought for appointment of 
E 
independent arbitrator - Not agreed by Corporation - Petition 
for appointment of arbitrator - Chief Justice of High Court 
appointing retired High Court Judge as sole arbitrator - On 
appeal, Held: Order of Chief Justice was not correct -
Arbitration agreements in Government contracts providing 
._ 
that a high official of the Department unconnected with the 
.,, 
F work or the contract will be the Arbitrator, are neither void nor 
unenforceable -
The rule is to refer the dispute to named 
arbitrator in arbitration agreement - Rule could be ignored 
only for valid reasons - On facts, dealer failed to act in terms 
of agreed procedure - Government Contract. 
G 
s. 11 - Appointment of arbitrator- Scope of~ Discussed. 
Appellant-Corporation entered into agreement with 
r- . 
respondent, appointing it as its dealer. As per the 
arbitration clause of the agreement, the dispute was to 
H 
510 
INDIAN OIL CORPORATION LTD. & ORS. v. RAJA 
511 
TRANSPORT (P) LTD. 
be referred to the sole Arbitration of the Director of the A 
~· -..( 
appellant-Corporation or some other officer of the 
Corporation, nominated by him. On termination of 
dealership, respondent filed a suit for declaration of the 
order of termination as illegal and void. Appellant filed an 
application seeking rejection of the suit and reference of B 
the dispute for arbitration in terms of the arbitration 
clause. The application was allowed, but the appellant 
was also directed not to stop supply of petroleum to the 
y 
respondent for two months. The order was challenged by 
both the parties. Appellate court directed.reference of the c 
dispute for arbitration in terms of the agreement. 
Thereafter, respondent issued a notice stating that it was 
not willing for appointment in terms of the agreement and 
called upon the appellant to agree for appointment of an 
independent arbitrator. As appellant did not agree, 
D 
respondent filed an. application u/s. 11 (6) of Arbitration 
$. 
and Conciliation Act, 1996 praying for appointment of 
independent arbitrator. Chief Justice of High Court 
appointed a retired Judge of High Court as sole arbitrator. 
The questions for consideration in the present appeal 
E 
were: (i) whether the Chief Justice· was justified in 
assuming that whenever an employee of one of the 
parties to the dispute is appointed as an arbitrator, he will 
•• 
not act independently or impartially; (ii) In what 
'¥ 
circumstances, the Chief Justice or his designate can 
F 
ignore the appointment procedure or the named 
arbitrator in the arbitration agreement, to appoint an 
arbitrator of his choice; (iii) whether respondent had 
taken necessary steps for appointment of arbitrator in 
terms of the agreement, and whether the appellant had 
G 
faile~ to act in terms of the agreed procedure, by_ not 
referring the dispute to its _Director for arbitration. 
- --,--
Allowing the appeal, the Court 
HELD: 1.1. If a party, with Open eyes and full 
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'
512 SUPREME COURT REPORTS [2009) 13· (ADDL.) S.C.R. 
A knowledge and comprehension enters into a contract 
with a Government/statutory Corporation/Public Sector 
).- ....... 
Undertaking containing an arbitration agreement 
providing that one of its Secretaries/Directors shall be the 
arbitrator, he can not subsequently turn around and 
B contend that he is agreeable for settlement of disputes 
by arbitration, but not by the named arbitrator who is an 
employee of the other party. No party can say he will be 
bound by only one part of the agreement and not the 
--y 
other part, unless such other part is impossible of 
c performance or is void being contrary to the 

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