Asha Rajan v. Indian Oil Corporation Ltd.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** **THE HONOURABLE MR.JUSTICE V.CHITAMBARESH** **&** **THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI** **THURSDAY ,THE 17TH DAY OF JANUARY 2019 / 27TH POUSHA, 1940** ## **Arb.A.No. 18 of 2013** **AGAINST THE ORDER DATED 07-11-2012 IN OPARB 839/2009 of VI ADDL.DISTRICT COURT, ERNAKULAM** ## **APPELLANT/PETITIONER:** **ASHA RAJAN AGED 50 YEARS W/O.T.RAJAN, PROPRIETRESS, TRINITY INDANE SEVICES, L.P.G DISTRIBUTORS, VELLANGALLUR, TRICHUR DISTRICT.** **BY ADV. SRI.PHILIP MATHEW** ## **RESPONDENT/RESPONDENT** **M/S.INDIAN OIL CORPORATION LTD., KERALA STATE OFFICE, PANAMPILLY AVENUE, PANAMPILLY NAGAR, 682 036, REP.BY ITS DEPUTY GENERAL MANAGER** ADV.SRI.M.G.GOPIKRISHNAN NAMBIAR **THIS ARBITRATION APPEAL HAVING BEEN FINALLY HEARD ON 09.01.2019, THE COURT ON 17.01.2019 DELIVERED THE FOLLOWING:** Arb.Appeal No.18/2013 2 ## **V.CHITAMBARESH &** ## **R.NARAYANA PISHARADI, JJ.** ************************** Arb.Appeal No.18 of 2013 ---------------------------------------------Dated this the 17[th] day of January, 2019 ## **JUDGMENT** ## **R.Narayana Pisharadi, J** The legality of the award passed by an arbitrator regarding the eligibility of the appellant for appointment as a distributor of liquified petroleum gas by the Indian Oil Corporation is the core issue for consideration in this appeal. 2. The Indian Oil Corporation (hereinafter referred to as 'the Corporation') invited applications for appointment of distributors of liquified petroleum gas. One of the conditions as to eligibility for such appointment was that the gross family income of the applicant shall not be more than Rs.2,00,000/during the financial year 1999-2000. The appellant was selected as a distributor after enquiry. The appellant and the Corporation entered into an agreement on 19.03.2002 which contained the 3 Arb.Appeal No.18/2013 conditions regarding the appointment of the appellant as a distributor. 3. On the basis of a complaint made by an unsuccessful applicant that, the income of the appellant was more than Rs.2,00,000/- during the relevant period, an enquiry was conducted by a committee appointed by the Corporation. The committee found that the income of the appellant for the financial year 1999-2000 was more than Rs.2,00,000/-. Therefore, the distributorship granted to the appellant was cancelled by the Corporation. 4. The appellant challenged the report of the enquiry committee and the termination of the dealership by filing W.P.(C) No.35784 of 2005 before this Court. This Court disposed of the writ petition relegating the appellant to the remedy of arbitration as provided in the agreement executed by her with the Corporation. The appellant filed W.A.No.636 of 2006 against that judgment. This Court disposed of the writ appeal granting liberty to the appellant to challenge the report of the enquiry committee before the arbitrator. Arb.Appeal No.18/2013 4 5. A Senior Manager of the Corporation was appointed as arbitrator. On 08.05.2009, he passed an award. The arbitrator found that the appellant failed to prove that her income for the financial year 1999-2000 was below Rs.2,00,000/- and therefore, termination of her dealership is valid. 6. The appellant challenged the award passed by the arbitrator in the application filed under Section 34(1) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the Act') in the District Court, Ernakulam. The learned Additional District Judge dismissed the aforesaid application. The aforesaid order is challenged in this appeal. 7. We have heard learned counsel for the appellant and the respondent and perused the records. 8. The appellant had challenged the factual findings made by the arbitrator in the application filed by her under Section 34(1) of the Act. She had challenged the award also on the following grounds: (1) The arbitrator was not an independent person and he was biased. (2) The income of the 5 Arb.Appeal No.18/2013 appellant was not a subject matter of consideration by the arbitrator and it was beyond the scope of the dispute referred to the arbitrator. (3) The arbitrator did not consider the validity of the report of the enquiry committee. 9. We shall at first consider the allegation raised by the appellant that the award is vitiated by bias on the part of the arbitrator, he being an officer of the Corporation. 10. Clause 37(a) of the agreement executed between the appellant and the Corporation deals with appointment of arbitrator. Clause 37(a) of the agreement reads as follows: _“All questions, disputes and differences arising under or in relation to this Agreement shall be referred to the sole arbitration of the Director (Marketing) of the Corporation. If such Director (Marketing) is unable or unwilling to act as the sole arbitrator, the matter shall be referred to the sole arbitration or some other officer of the Corporation by such Director (Marketing) in his place, who is willing to act as such sole arbitrator. It is known to the parties herein that the Arbitrator appointed hereunder is an employee of the Corporation and may be Shareholder of the Corporation. The arbitrator to whom the matter is originally referred,_ Arb.Appeal No.18/2013 6 _whether the Director (Marketing) or Officer, as the case may be, on his being transferred or vacating his office or being unable to act, for any reason, the Director (Marketing) shall designate any other person to act as arbitrator in accordance with the terms of the Agreement and such person shall be entitled to proceed with the reference from the stage at which it was left by his predecessor. It is also the term of this Agreement that no person other than the Director (Marketing) or the person designated by the Director (Marketing) as aforesaid shall act as arbitrator. The award of the Arbitrator so appointed shall be final, conclusive and binding on all the parties to the Agreement and provisions of the Arbitration & Conciliation Act, 1996 or any statutory modification or re-enactment thereof and the Rules made thereunder and for the time being in force shall apply to the arbitration proceedings under this clause.”_ 11. The arbitration clause in the agreement clearly lays down that the sole arbitrator shall be an officer of the Corporation. No person, other than an officer of the Corporation named in the agreement, could have been appointed as the arbitrator. Arb.Appeal No.18/2013 7 12. The amended provisions of the Act have come into force on 23rd October, 2015. The arbitration proceedings in the case had come to an end long before that date. Therefore, the statutory provisions that would govern the present controversy are those which were in force before the amendment of the Act. The provisions of the Act hereinafter mentioned would be as they stood before the amendment. 13. Section 12(1) of the Act states that when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality. Section 12(2) provides that an arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him. Section 12(3) of the Act states that an arbitrator may be challenged only if - (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the 8 Arb.Appeal No.18/2013 qualifications agreed to by the parties. Section 12(4) of the Act provides that a party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made. Section 13 (2) of the Act mandates that a party who intends to challenge an arbitrator shall, within fifteen days after becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in subsection (3) of Section 12, send a written statement of the reasons for the challenge to the arbitral tribunal. 14. When the appellant entered into the distributorship agreement with the Corporation, she very well knew the terms of the contract including the arbitration clause. She was aware of the fact that the person who would be appointed as arbitrator would be an officer of the Corporation. She entered into the agreement fully knowing the role, authority and status of the person to be appointed as arbitrator in case of a dispute. She submitted to the jurisdiction of the arbitrator. She participated in the proceedings before the arbitrator without any demur or 9 Arb.Appeal No.18/2013 objection. She did not challenge the appointment of the arbitrator as provided under Section 13(2) of the Act by sending a written statement showing the reasons for the challenge to the arbitrator. In such circumstances, the appellant cannot contend that the arbitrator appointed was not an independent person. 15. The fact that the named arbitrator is an employee of one of the parties is not ipso facto a ground to raise a presumption of bias or partiality or lack of independence on his part. There can be a justifiable apprehension about the independence or impartiality of an employee arbitrator, if such person was the controlling or dealing authority in regard to the subject of contract or if he is a direct subordinate to the officer whose decision is the subject matter of the dispute (See **Aravali** ## **Power Company v. M/s Era Infra Engineering Limited : AIR** **2017 SC 4450** ). In the instant case, the appellant has no case that the arbitrator is an officer of the Corporation who holds such position. 16. It is quite common for governments, statutory corporations and public sector undertakings while entering into 10 Arb.Appeal No.18/2013 contracts, to provide for settlement of disputes by arbitration, and further provide that the arbitrator will be one of its senior officers. If a party, with open eyes and full knowledge and comprehension of the said provision enters into a contract with a statutory corporation or public sector undertaking, containing an arbitration agreement providing that one of its senior officers shall be the arbitrator, he cannot subsequently turn around and contend that he is agreeable for settlement of disputes by arbitration, but not by the named arbitrator who is an employee of the other party (See **Indian Oil Corporation v. M/s Raja Transport (P) Ltd : (2009) 8 SCC 520** ). 17. In **Ace Pipeline Contract Private Ltd. v. Bharat Petroleum Corporation Ltd : AIR 2007 SC 1764,** the agreement between the parties contained similar arbitration clause as in the present case. Dealing with bias of the arbitrator appointed pursuant to such agreement, the Apex Court held as follows: _“Once a party has entered into an agreement with eyes wide open it cannot wriggle out of the situation that if any_ Arb.Appeal No.18/2013 11 _person of the respondent - BPCL is appointed as arbitrator he will not be impartial or objective. However, if the appellant feels that the arbitrator has not acted independently or impartially, or he has suffered from any bias, it will always be open to the party to make an application under Section 34 of the Act to set aside the award on the ground that arbitrator acted with bias or malice in law or fact”._ 18. Bias means a predisposition to decide for or against one party, without proper regard to the true merits of the dispute. The authority empowered to decide a dispute must be one without bias towards one side or the other in the dispute. There can hardly be any doubt about this fundamental principle of natural justice. But, when bias of an adjudicator is alleged, it cannot be a fanciful apprehension. Mere suspicion of bias without any materials or substance is not a ground to set aside an award. Doubts on the imparitality of arbitrator shall be reasonable and justifiable. 19 **.** Apart from the fact that the arbitrator was an officer 12 Arb.Appeal No.18/2013 employed by the Corporation, there is no basis for the allegation that the arbitrator acted with bias. Merely for the reason that the arbitrator was an officer of the Corporation, bias on his part could not be presumed or inferred. The appellant could not substantiate that the award is vitiated on account of bias on the part of the arbitrator. 20. Section 34(2)(iv) of the Act provides that an award by the arbitrator may be set aside by the court on furnishing proof that the arbitral award deals with a dispute not contemplated by or not falling within the terms of submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration. The appellant has got a contention that dispute regarding her income during the period 1999-2000 was not a matter within the terms of submission to arbitration and that the arbitrator had no authority to deal with that dispute. 21. Clause 37(a) of the agreement executed between the appellant and the Corporation clearly states that all questions, disputes and differences arising under or in relation to the agreement shall be referred to arbitration. The dealership Arb.Appeal No.18/2013 13 granted to the appellant was on the basis of the agreement executed between her and the Corporation. One of the basic conditions regarding eligibility of appointment as distributor of liquified petroleum gas by the Corporation was that the applicant shall not have family income of more than Rs,2,00,000/- during the financial year 1999-2000. The real dispute in the case was whether the appellant had income of more than Rs.2,00,000/during the relevant period. Termination of the dealership granted to the appellant was based on this crucial consideration. In such circumstances, the question whether the appellant had income of more than Rs.2,00,000/- during the financial year 1999-2000 was a matter within the terms of submission to arbitration. 22. Moreover, Clause 27(b)(l) of the agreement states that if any information given by the distributor in his application for appointment as a distributor is found to be untrue or incorrect in any material particular, the Corporation has the discretion to terminate the agreement forthwith. The appellant was selected as a distributor on the basis of the information furnished by her in the application that she had income below Rs.2,00,000/- 14 Arb.Appeal No.18/2013 during the relevant period. Therefore, in any view of the matter, the question whether she had income of more than Rs.2,00,000/during the financial year 1999-2000 was a matter within the terms of submission to the arbitration. The arbitrator had the authority to take a decision on that dispute. 23. Another contention raised by the appellant is that the arbitrator did not consider the validity of the report of the enquiry committee. It is alleged that the arbitrator merely stepped into the shoes of the enquiry committee. There is no merit in this contention also. The award of the arbitrator shows that the statements and other particulars furnished by the appellant were meticulously considered by the arbitrator and he reached an independent finding that the appellant had income of more than Rs.2,00,000/- during the relevant period. The arbitrator has not merely adopted or endorsed the report of the enquiry committee. The award of the arbitrator is based on the documents and other materials produced before him by the appellant as well as the Corporation. May be, the arbitrator has not, in so many words, referred to the merits or validity of the report of the enquiry 15 Arb.Appeal No.18/2013 committee in the award. 24. The learned Additional District Judge has rightly observed that in an application filed under Section 34(1) of the Act, the court cannot go into the correctness of the finding of facts made by the arbitrator and sit in appeal over the findings of the arbitrator. Unreasonableness of an award is not a matter for the court to consider unless the award is per se preposterous or absurd (See **Pathrose v. State of Kerala : (2010) 12 SCC 100** ). Where reasons have been given by the arbitrator in making the award, the court cannot examine the reasonableness of the reasons. While considering the challenge to an award, the court cannot sit in appeal over the award. The court cannot reappreciate the evidence for the purpose of finding, whether on the facts and circumstances, the award in question could have been made (See **P.R.Shah,Shares and Stock Brocker Private Limited v. M/s B.H.H.Securities Private Limited : AIR 2012** **SC 1866** ). In the anxiety to render justice to the party to arbitration, the court cannot reappraise the evidence intrinsically with a close scrutiny and find that the conclusion drawn by the 16 Arb.Appeal No.18/2013 arbitrator on facts, according to the understanding of the court, is erroneous. Such exercise of power, which can be made by an appellate court with power to reverse findings of facts, is alien to the scope and ambit of challenge to an award under the Act. Only when errors of finding of facts having a bearing on the dispute are patent and is easily demonstrable without the necessity of carefully weighing the evidence, interference with the award is possible on the ground of patent illegality. Errors which do not appear on the face of the award cannot be a ground for the court to set aside the award. Award can be set aside on the ground that it is in conflict with the public policy only when the illegality goes to the root of the matter. 25. In our opinion, it is evident from the award made by the arbitrator that he has considered all the specific issues raised by the parties in the arbitration proceedings and came to his finding after giving cogent reasons. As noticed earlier, reasonableness of the reasons stated by the arbitrator cannot be gone into in an application filed under Section 34(1) of the Act. The learned Additional District Judge has rightly dismissed the application Arb.Appeal No.18/2013 17 filed by the appellant. Consequently, the appeal is dismissed. No costs. (sd/-) **V.CHITAMBARESH, JUDGE** (sd/-) **R.NARAYANA PISHARADI, JUDGE** jsr/16/01/2019 True Copy PS to Judge