JAIPUR ZILA DUGDH UTPADAK SAHKARI SANGH LIMITED & ORS. versus M/S AJAY SALES & SUPPLIERS

Citation: [2021] 7 S.C.R. 768 · Decided: 09-09-2021 · Supreme Court of India · Bench: M.R. SHAH, ANIRUDDHA BOSE · Disposal: Dismissed

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2021] 7 S.C.R.
JAIPUR ZILA DUGDH UTPADAK
SAHKARI SANGH LIMITED & ORS.
v.
M/S AJAY SALES & SUPPLIERS
(Special Leave Petition (Civil) No.13520 of 2021)
SEPTEMBER 09, 2021
[M. R. SHAH AND ANIRUDDHA BOSE, JJ.]
Arbitration and Conciliation Act, 1996 – s.11 and sub-section
(5) of s.12 r/w. Seventh Schedule – Appointment of an Arbitrator –
On 31.03.2015, the respondent and the petitioner-Sahkari Sangh
entered into a distributorship agreement for distribution of milk and
butter – Dispute arose between the parties – Clause 13 of the
distribution agreement contained an arbitration clause, which
provided that all disputes and differences arising out of or in any
way touching or concerning the agreement, shall be referred to the
sole Arbitrator, the Chairman of the petitioner Sangh – The
respondent approached the sole Arbitrator-Chairman as per clause
13 of the agreement – During the pendency of the Arbitration
proceedings, the respondent approached the High Court for
appointment of an Arbitrator u/s.11 of the Act – The High Court
appointed the former District and Sessions Judge to act as an
arbitrator – Before the Supreme Court, the petitioner submitted that
the High Court erred in appointing the arbitrator other than the
arbitrator mentioned in clause 13 of the agreement – Held: Sub-
section (5) of s.12 read with Seventh Schedule made it clear that if
the arbitrator falls in any one of the categories specified in the
Seventh Schedule, he becomes ‘ineligible’ to act as an arbitrator –
Applying the law laid down by the Supreme Court in its various
decisions and considering the object and purpose of insertion of
sub-section (5) of s.12 r/w. Seventh Schedule to the Act, the Chairman
of the petitioner Sangh can certainly be held ‘ineligible’ to continue
as an arbitrator – Though in the Seventh Schedule the word
‘Chairman’ is specifically not mentioned but at the same time it would
fall in the category of clause 1; clause 2; clause 5; clause 12 and
hence would become ‘ineligible’ – Once the sole arbitrator-Chairman
is ‘ineligible’ to act as an arbitrator, he loses mandate to continue
[2021] 7 S.C.R. 768
768
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as a sole arbitrator – Therefore, the High Court has not committed
any error in appointing the arbitrator other than the sole arbitrator.
Dismissing the Special Leave Petitions, the Court
HELD: 1. In   the   case   of  Bharat   Broadband   Network
Limited,  it is observed that Sub-section (5) of Section 12 read
with Seventh Schedule made it clear that if the arbitrator falls in
any one of the categories specified in the Seventh Schedule, he
becomes ‘ineligible’ to act as an arbitrator. It is further observed
that once he becomes ‘ineligible’, it is clear that he then become
dejure unable to perform his functions inasmuch as in law, he is
regarded as ‘ineligible’. It further is observed in the said decision
that where a person becomes ineligible to be appointed as an
arbitrator there is no question of challenge to such arbitrator
before such arbitrator in such a case i.e. a case which falls under
Section 14(1)(a) of the Act gets attracted inasmuch as the
arbitrator becomes, as a matter of law (i.e., de jure), unable to
perform his functions under Section12(5), being ineligible to be
appointed   as   an   arbitrator   and   this   being   so,  his   mandate
automatically terminates, and he shall then be substituted by
another arbitrator. [Para 7][780-D-G]
2. Now so far as the submission on behalf of the petitioners
that in view of Section 58 of the Rajasthan Cooperative Societies
Act, 2001, the dispute between the parties is to be resolved by
the Registrar only and as per Bye Laws 30 of Rajasthan
Cooperative Societies Act, 2001 shall be applicable and therefore
no court shall have jurisdiction and therefore the dispute referred
to the former District Judge is unsustainable has no substance.
It cannot be disputed that Arbitration Act is a special Act. Even
Sub-section (5) of Section 12 also states with non obstante clause.
In the distributorship agreement dated 31.03.2015, there is a
provision to resolve dispute through arbitration. Despite Section
58 of the Rajasthan Cooperative Societies Act, 2001, there is an
agreement between the parties to resolve the dispute through
arbitrator – Chairman. Parties are bound by the agreement and
the arbitration clause contained in the Agreement dated
31.03.2015. Therefore, neither Section 58 of the Rajasthan
Cooperative Societies Act

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