M/S Anant Rice Industries vs. State Of Chhattisgarh

Facts

The applicant, M/s Anant Rice Industries, a rice milling firm, entered into multiple Custom Milling Agreements with the respondents for milling paddy under a government procurement scheme. The agreements stipulated a two-tier dispute resolution mechanism: first before the Collector, and then through arbitration. The applicant alleges non-payment of over Rs. 34,96,488/- due to unlawful deductions for GST and porterage, and claims accrued commercial interest. The applicant contends that despite fulfilling contractual obligations and making repeated representations and requests for settlement under Clause 15.1, and subsequently submitting an arbitration request under Clause 16.1, the respondents failed to take effective action. Earlier arbitration applications filed by the applicant were withdrawn based on assurances of settlement proceedings before the Collector, which have remained inconclusive for years, despite court directions to conclude them within 30 days. The applicant argues that the pre-arbitral settlement process has failed due to the respondents' default, making the arbitration clause enforceable.

Held

The Court held that the parties had agreed to a two-tier dispute resolution mechanism, first through settlement before the Collector and then through arbitration. While the respondents initially argued that the arbitration request was premature and that the settlement process was ongoing, they ultimately conceded to the appointment of an arbitrator. The Court noted that both parties agreed to the appointment of a retired Judge of the High Court as the Sole Arbitrator. Specifically, they jointly proposed Hon’ble Mr. Justice Deepak Kumar Tiwari, a retired Judge of the High Court. The Court found this consensus acceptable and proceeded to appoint him as the Sole Arbitrator. The Court did not explicitly rule on the failure of the settlement process or the legality of the deductions, but rather facilitated the arbitration process based on the parties' mutual agreement to resolve their disputes through an arbitrator. The Court directed the Registry to communicate the order to the appointed arbitrator and stated that the remuneration would be settled by mutual consent of the parties. The arbitration request petition was allowed.

Key Issues

1. Whether the pre-arbitral settlement process under Clause 15 of the Custom Milling Agreements has failed due to the respondents' default, thereby making the arbitration clause under Clause 16.1 enforceable? (Question of law) 2. Whether the applicant is entitled to the appointment of a Sole Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, given the alleged failure of the settlement mechanism and the respondents' inaction? (Question of law) Contentions: Petitioner/Applicant: Argued that the settlement proceedings before the Collector have remained inconclusive for years, despite court orders. They contended that the respondents' administrative inaction has frustrated the contractual dispute resolution mechanism, thus making the arbitration clause fully enforceable. The applicant relied on Supreme Court judgments in *Central Organisation of Railway Electrification vs. ECI-SPIC-SMO-MCML* and *Ameet Lalchand Shah vs. Rishabh Enterprises* to support the appointment of an independent Sole Arbitrator by the High Court for fairness and neutrality. The applicant also argued that the respondents unlawfully deducted GST and porterage, leading to significant non-payment. Respondents: Respondent No. 2 argued that the petition is not maintainable as it clubs disputes from eleven different agreements, each with its own arbitration clause, and there is no provision for consolidated arbitration. They also contended that the petitioner cannot bypass the mandatory pre-arbitral settlement process under Clause 15. Respondent No. 2 stated that disputes regarding KMY 2018-19 are pending before the State Government, and no dispute has been raised for KMY 2017-18, making the petition premature. Respondents No. 1 and 3 formally opposed the applicant's submissions but had no objection to the High Court appointing a retired Judge as an arbitrator.