M/S Arsi Traders vs. M/S Karnataka Soaps And Detergents LTD

Facts

M/s Arsi Traders (Petitioner) was the successful bidder for a tender by M/s Karnataka Soaps and Detergents Ltd. (Respondent) for supply of agarbathi sticks. A Purchase Order dated 05.10.2023 was issued. The Respondent rejected a consignment on 26.03.2024 due to quality issues, which the Petitioner attributed to weather conditions. The Respondent rejected the consignment again on 01.08.2024, cancelled the pending quantity, forfeited part of the security deposit and bank guarantee, imposed a penalty of Rs. 3,00,000/-, and initiated blacklisting proceedings. The Petitioner's review appeal was not considered. The Petitioner invoked the arbitration clause, issued a notice under Section 21 of the Arbitration and Conciliation Act, 1996, but the Respondent unilaterally appointed an arbitrator. The Petitioner filed this petition under Section 11(6) of the Act seeking appointment of a sole arbitrator and setting aside the unilateral appointment.

Held

The Court held that a sole arbitrator needed to be appointed for the adjudication of disputes between the parties. The Court found that the arbitration clause existed in the Purchase Order, and the Petitioner had duly invoked it by issuing a notice under Section 21 of the Arbitration and Conciliation Act, 1996. The Court noted the Respondent's unilateral appointment of an arbitrator, which was the subject of the Petitioner's grievance. Given the existence of the arbitration clause and the invocation by the Petitioner, the Court allowed the petition. The Court appointed Smt. K.A. Lalitha, retired District Judge, as the Sole Arbitrator. All claims and contentions of the parties were left open for the arbitrator to decide. The Court directed the registry to communicate the order to the Arbitration and Conciliation Centre and the appointed arbitrator, and to return original documents after obtaining copies. Parties were directed to appear before the Arbitration and Conciliation Centre on 29.10.2026.

Key Issues

1. Whether the Court has the power to appoint a sole arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, when a dispute has arisen between the parties and the arbitration clause in the Purchase Order has been invoked by the Petitioner? 2. Whether the unilateral appointment of an arbitrator by the Respondent, despite the Petitioner invoking the arbitration clause and seeking appointment of a sole arbitrator, is liable to be set aside? Petitioner's arguments: The Petitioner contended that a dispute had arisen concerning the rejection of goods, cancellation of the pending order, forfeiture of security, imposition of penalty, and blacklisting proceedings. They argued that they had duly invoked the arbitration clause by issuing a notice under Section 21 of the Act. The Petitioner further argued that the Respondent's unilateral appointment of an arbitrator was contrary to the spirit of arbitration and the provisions of the Act, as it did not involve mutual agreement. They relied on the existence of the arbitration clause in the Purchase Order. Respondent's arguments: The Respondent did not appear before the Court, and therefore, no arguments were recorded on their behalf.