K.R Foods Limited vs. Punjab State Cooperative Supply And Marketing Federation

Facts

The petitioner, K.R. Foods Limited, filed a petition under Section 11(5) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator. The petitioner had served a legal notice on the respondent, Punjab State Cooperative Supply and Marketing Federation, on September 22, 2020, demanding payment of an outstanding amount. A subsequent notice dated December 30, 2020, was sent for the appointment of an arbitrator. The contract agreement, per clause 24, included a dispute resolution mechanism requiring parties to attempt resolution in good faith. The dispute arose from the petitioner's claim for Rs. 21,01,390/- plus Rs. 9,67,852/- (inclusive of GST towards packing material), and compensation for loss of revenue due to breach of contract. The respondent failed to appoint an arbitrator within the prescribed time.

Held

The Court held that the Managing Director of the respondent is statutorily ineligible to nominate an arbitrator. This ineligibility arises from Section 12(5) of the amended Arbitration and Conciliation Act, 2015, as interpreted by the Supreme Court in the cited judgments (TRF Limited, Bharat Broadband Network Limited, Perkins Eastman Architects DPC, and Ellora Paper Mills Limited). The ratio decidendi is that an arbitrator nominated by a party who is otherwise eligible and respectable, but whose nomination power is derived from a position that creates an inherent conflict of interest or bias, is rendered ineligible. Consequently, the Court appointed Sh. B.M. Bedi, District & Sessions Judge (Retd.), as the sole Arbitrator to resolve the dispute. The appointment is subject to the arbitrator providing a declaration of independence and impartiality as required under Section 12 of the Act. The arbitrator is to complete proceedings within the time specified by Section 29-A and will be paid fees as per the 4th Schedule, borne equally by both parties. The petition was disposed of with these directions.

Key Issues

1. Whether the Managing Director of the respondent, being an authority empowered to nominate an arbitrator, is statutorily ineligible to do so in light of Section 12(5) of the amended Arbitration and Conciliation Act, 2015? Petitioner's contention: The petitioner argued that the Managing Director is statutorily ineligible to nominate an arbitrator due to the provisions of Section 12(5) of the amended Act. They relied on the Supreme Court judgments in TRF Limited vs. Energo Engineering Projects Limited, Bharat Broadband Network Limited vs. United Telecoms Limited, Perkins Eastman Architects DPC and another vs. HSCC (India) Limited, and Ellora Paper Mills Limited vs. State of Madhya Pradesh. Respondent's contention: The respondent did not record any specific arguments against the petitioner's contention regarding the ineligibility of the Managing Director to appoint an arbitrator.