SC: Chairman Of Company In Arbitration Ineligible To Be Arbitrator

Key Takeaways

• An appeal before the Supreme Court was filed in Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited vs. M/s Ajay Sales & Suppliers.
• The issue raised in the appeal was whether the Chairman could be considered 'ineligible' under Section 12 (5) read with the Act's Seventh Schedule or not.
• The Bench of Justice MR Shah and Justice Aniruddha Bose heard the appeal.
• The Court dismissed the appeal stating that the Chairman is ineligible to be an arbitrator.

Background of the Case

• The case title is Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited vs. M/s Ajay Sales & Suppliers (CA 13520/2021).
• In the concerned case, a distributorship agreement between various firms and Jaipur Zila Dugdh Utpadak Sahkari Sangh Limited included an arbitrator clause.
• The clause required all disputes and disagreements arising out of or in any way relating to the agreement to be referred to the sole Arbitrator, the Chairman of the said Sahkari Sangh.
• Following a disagreement between the firm and the Sangh, the Chairman initiated arbitration proceedings.
• During the arbitration proceedings, the firms applied to the High Court to appoint an arbitrator under section 11 of the Arbitration and Conciliation Act, 1996.
• The High Court granted the application and appointed an arbitrator who was a former District and Sessions Judge.

Issue and Contention before the Apex Court

• The Sangh filed an appeal before the Supreme Court of India. The issue was whether the Chairman, who is an elected member of the petitioner Sahkari Sangh, could be considered 'ineligible' under Section 12 (5) read with the Act's Seventh Schedule or not.
• The Sangh argued that because the term "chairman" is not mentioned in the Act's Seventh Schedule, only "manager," "director," or "part of the management" can be considered ineligible.
• Court's Observations
• The bench of Justice MR Shah and Justice Aniruddha Bose heard the appeal in the Supreme Court.
• While considering the object and purpose of insertion of subsection (5) of Section 12 read with the Act's Seventh Schedule, the Court noted that while the word "Chairman" is not explicitly mentioned in the Seventh Schedule, it would fall into the categories of Clause 1; Clause 2; Clause 5; Clause 12.
• The Court stated that the disqualification conditions outlined in Subsection (5) of Section 12 read with the Seventh Schedule to the Act must be read in its entirety, taking into account the object and purpose for which subsection (5) of Section 12 read with the Seventh Schedule to the Act were enacted.
• Referring to Section 12(5) proviso, the Court stated that the Arbitrator's ineligibility must be satisfied by an 'express agreement' in writing.

Conclusion of the Appeal

• While rejecting the claim, the Bench stated that the Chairman of the Sangh can undoubtedly be held 'ineligible' to continue as an arbitrator.
• The Supreme Court stated that an arbitrator's lack of independence and impartiality would render him ineligible to conduct the arbitration.

Questions

• Which Act is referred to regarding Sections 11 and 12?
• What is dealt with under Section 11?