DENEL (PROPRIETARY LIMITED)versusGOVT. OF INDIA, MINISTRY OF DEFENCE

                    [2012] 2 S.C.R. 897


             DENEL (PROPRIETARY LIMITED)                       A
                             v.
        GOVT. OF INDIA, MINISTRY OF DEFENCE
           (Arbitation Petition No. 11 of 2011)
                    JANUARY 09, 2012
                                                               B
             [SURINDER SINGH NIJJAR, J.]

      Arbitration and Conciliation Act, 1996 - s. 11(4), (5), (6)
and (8) -Application u/s. 11 (4) and (6) - Government contract
- Disputes between parties - Director General, Ordnance C
Factory (DGOF) appointed Additional General Manager of the
Factory as an arbitrator as per the Arbitration clause -
Petitioner apprehending bias, issued Notification that
mandate of arbitrator was terminated - However, the arbitrator
continued with the arbitration proceedings - Thereafter, on an D
application filed by the petitioner u/s. 14(2), mandate of
arbitrator terminated observing that the arbitrator had been
biased - Direction for appointment of DGOF as an arbitrator
and in the alternative option given to DGOF to appoint
Government servant as an arbitrator as per the Arbitration E
clause - Within 30 days, DGOF not commencing the
arbitration proceedings nor did he appoint any Government
Servant as arbitrator- Petition u/s. 11 (6) seeking appointment
of an independent arbitrator by the petitioner - Two weeks
later, appointment of 'S' as arbitrator by the F
respondents(Government) - Maintainability of petition uls.
 11 (6) - Held: Is maintainable - Right to appointment of an
arbitrator does not automatically get forfeited after expiry of
30 days as prescribed uls. 11 (4) and 11 (5) but an
appointment has to be made before the petitioner fifes G
application u/s. 11 seeking appointment of an arbitrator - On
facts, subsequent arbitrator was appointed after filing of the
petition u/s. 11 (6) - Thus, respondents clearly forfeited their
right to make the appointment of an arbitrator and
                            897                                H
    898      SUPREME COURT REPORTS              [2012] 2 S.C.R.


A appointment of 'S' as an arbitrator cannot be sustained -
  Furthermore, material placed by the petitioner indicate that it
  would not be unreasonable to entertain the belidf that the
  arbitrator appointed by the respondent would not be
  independent - Thus, appointment of 'S' cannot pass the test
B u/s. 11 (8) which is ensuring appointment of independent and :
  impartial arbitrator - Sole Arbitrator appointed to adjudicate ·
  disputes that have arisen between the parties - Appointment
  of Arbitrators by the Chief Justice of India Scheme, 1996 -
  Paragraph 2.
c        Datar Switchgears Ltd. Vs. Tata Finance Ltd. & Anr. 2000
    (8) SCC 151; Punj Lloyd Ltd. Vs. Petronet MHB Ltd. 2006
    (2) SCC 638; Indian Oil Corporation Limited & Ors. Vs. Raja
    Transport Private Limited (2009) 8 SCC 520: 2009 (13) SCR
    510 - relied on.
D
       Yashwith Constructions (P) Ltd. Vs. Simplex Concrete
  Piles India Ltd. & Anr. 2006 (6) SCC 204: 2006 (3) Suppl.
  SCR 96; Bharat Sanchar Nigam Limited & Anr. Vs. Motorola
  India Private Limited 2009 (2) SCC 337: 2008 (13) SCR 445;
E Dem~/ (Proprietary) Limited· Vs. Bharat Electronics Limited &
  Anr. 2010 (6) SCC 394: 2008 (13) SCR 445; Northern
  Railway Administration, Ministry of Railway, New Delhi Vs.
  Patel Engineering Company Limited 2008 (10) SCC 240:
  2008 (12) SCR 216; Ace Pipeline Contracts (P) Ltd. Vs.
F Bharat Petroleum Corpn. Ltd. 2007 (5) SCC 304: 2007 (4)
  SCR 777 - referred to.

                          Case Law Reference:
          2000 (8) sec 151             Relied on.    Para 7
G         ~006 (2)   sec 638           Relied on.    Para 7
          2006 (3) Suppl. SCR 96       Referred to. Para 7
          2009 (13 ) SCR 510           Relied on.    Para 8

H         2008 (13) SCR 445            Referred to. Para 11
  DENEL (PROPRIETARY LTD.) v. GOVT. OF INDIA,              899
              MIN. OF DEFENCE

    2008 (12 ) SCR 216               Referred to. Para 12         A
     2007 (4) SCR 777                Referred to. Para 12
    CIVIL ORIGINAL JURISDICTION : Arbitration Petition No.
11 of 2011.
     Under Section 11 (6) of the Arbitration and Conciliation     B
Act-1996.
    Shekhar Naphade, Vikas Goel, Abhishek Kumar, Momota
Devi Oinam for the Petitioner.
     H.P. Raval, ASG, Wasim A. Quadri, Sadhna Sandhu,             C
Harsh N. Parekh, Anirudh Sharma, Palash Kanwar, Anil
Katityar for the Respondent.
    The order of the Court was delivered by
                            ORDER                                 D
    SURINDER SINGH NIJJAR, J. 1. The petitioner has filed
the present application under Sections 11 (4) and (6) of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to
as the 'Act') read with paragraph 2 of the appointment of the
Arbitrators by the Chief Justice of India Scheme, 1996. It is E
stated that a contract was entered into between the parties for
the supply of Base Bleed Units. Initially the quantity to be
supplied was 42,000 units. Later on, the quantity was increased
to 52,000 units as per Clause 20 of the agreement. By 5th
January, 2005, the petitioner had supplied substantial quantity F
of the goods. However, some of the goods supplied by the
petitioner were rejected by the respondent. The petitioner,
thereafter, informed the respondent that two more lots were
ready for discharge on 17th March, 2005. However, Union of
India never responded to the letter, hence, loss and damage G
has been caused to the petitioner. In April, 2005, after various
discussions, the petitioner came to know that improper fuzes
were used by the Union of India which led to the problem that
occurred in the lots which were rejected. Thereafter, on 21st
April, 2005, Union of India put on hold all contracts. Further, on H
     900       SUPREME COURT REPORTS                  [2012] 2 S.C.R.


A    14th May, 2008, Union of India sent a notice see~ing refund of
     amount of US $ 23,20,240, failing which legal action was to
     issue.

          2. The disputes having arisen between the parties, efforts
     were made to resolve the same. The details of the efforts made
B    are narrated in the petition. Since the disputes could not be
     resolved through mutual discussions, the DGOF appointed one
     Mr. A:K. Jain, Additional General Manager, Ordnance Factory,
     Ambajhari, Nagpur as an arbitrator in terms of Clause 19(F)
     of the contract, which reads as under:-
c
           "All the disputes and difference arising out of or in any way
           touching or concerning the agreement (matters for which
           the decision of a specific authority as specified in the
           contract shall be final under this agreement, shall not be
()         subject to arbitration) shall be referred to the sole
           arbitration of the Director General, Ordnance Fys. Govt. of
           India for the time being or a Government servant appointed
           by him. The appointee shall not be a Govt. Servant who
           had dealt with the matters to which this agreement relates
           and that in the course of his duties as Govt. Servant has
E
           had not expressed views on all or any of the matter is in
           dispute or difference. In case the appointed Govt. Servant
           in place of the incumbents. n

       3. The petitioner objected to the appointment of the
F Arbitrator. The petitioner apprehended that the arbitrator would
  be favorably inclined towards the employer. Therefore, on 23rd
  January, 2009, the petitioner issued a notification under Section
  14 of the Arbitration Act stating that the mandate of the
  arbitrator had been terminated. Since inspite of the aforesaid
G notification, the arbitrator continued with the arbitration
  proceedings, the petitioner moved the Principal District Court,
  Chandrapur and filed Civil Misc. Application No. 45 of 2009
  under Section 14(2) of the Act. On 21st December, 2010, the
  Principal District Court, Chandrapur terminated the mandate of
H the Sole Arbitrator with the observation that the arbitrator has
   DENEL (PROPRIETARY LTD.) v. GOVT. OF INDIA, 901
   MIN. OF DEFENCE [SURINDER SINGH NIJJAR, J.) .

·been biased in favour of respondent No.1. A direction was also          A
 issued in the following terms:-

      "Director General, Ordnance Factory, Government of India,
      is appointed as an Arbitrator or he may appoint
      Government servant as an Arbitrator , as per Clause 19(F)
                                                                         8
      of February 2004 contract and 19(E) of November 2004
      contract, after following due procedure."

        4. It is an admitted fact that pursuant to the aforesaid
  directions, within 30 days, DGOF did not himself commence
  the arbitration proceedings; nor did he appoint any Government         C
  servant as an arbitrator. The petitioner has, therefore, moved
  the present petition under Section 11 (6) of the Act on 2nd of
  March, 2011 seeking appointment of an independent arbitrator.
  The petitioner claims that the directions issued by the District
  Court are without any authority or jurisdiction and as such void       D
  ab initio. According to the petitioner, the direction of the learned
  District Judge is based upon an incorrect interpretation of
  Section 15 of the Act, whereby the learned Judge assumed the
  authority to appoint an arbitrator, which is beyond her
  jurisdiction. The Act does not make provision for the                  E
  appointment of an arbitrator other than in accordance with the
  arbitration agreement and in the limited circumstances provided
  for in Section 11. The petitioner also claims that the DGOF
  would be disqualified to act as an arbitrator as the dispute is
  against the Government of India and particularly against the           F
  Ordnance Factory, Ministry of Defence. If the Director General,
  Ordnance Factory, Government of India (DGOF) or a
  Government servant is appointed as an arbitrator, he shall
  always be bound by the directions/instructions issued by his
  superior authorities and, therefore, such an arbitrator would not      G
  be in a position to independently decide the dispute between
  the parties. According to the petitioner, such an appointment
· would be contrary to the provisions of Section 12 of the Act.
  The petitioner further claims that the DGOF has already through
  his actions in the dispute between the parties demonstrated his        H
  lack of independence and impartiality. The learned District
    902     SUPREME COURT REPORTS                  [2012] 2 S.C.R.


A   Judge in her judgment alluded to the fact that the DGOF without
  · receiving any request for referral of the dispute between the\
    petitioner and the respondent colluded with the previous:
    arbitrator to appoint him as an arbitrator without any notice to
    the petitioner. The petitioner further claims that the DGOF has
B been directly involved in the dispute as would be evident from
    the correspondence between the petitioner and the respondent.
    The petitioner thereafter makes a reference to the letter dated
    30th June, 2008 wherein the DGOF took the view that the
    petitioner is liable to replace the rejected Base Bleed units, as
c alleged by the respondent, making specific reference to the
    correspondence in which respondent stated its claim against
    the petitioner and cancelled the contract with the petitioner. The
    petitioner further. claims that the DGOF has failed to appoint
    the arbitrator either as directed by the learned District Judge
    or in accordance with Section 15 of the Act within 30 days of
0
    the order dated 21st December, 2010. Therefore, the
    respondent has forfeited the right to make an appointment from .
    the date of the filing of the petition.

        5. The respondent has controverted the plea put forward
E by the petitioner by way of a detailed counter affidavit. It is
  claimed by the respondent that the petition under Section 11 (6)
  of the Act is not maintainable, as Mr.Satyanarayana has been
  appointed as a substitute arbitrator on 16th March, 2011. The
  petitioner was duly notified about the appointment of the
F arbitrator in its letter dated 26th March, 2011. The petitioner
  was requested to forward its claim within 10 days. The petitioner
  was informed that if such a claim does not reach by 8th April,
  2011, the arbitrator will presume that the petitioner did not have
  any further claim. Upon receipt of that letter, the petitioner
G objected to the appointment of a new arbitrator by its letter
  dated 15th April, 2011, as being contrary to clause 19(F). The
  petitioner has wrongly claimed that since the appointment of
  the arbitrator was not made prior to the filing of the petition
  under Section 11 (6), the respondent has forfeited the right to
H make the appointment.           ·
     DENEL (PROPRIETARY LTD.) v. GOVT. OF INDIA,                 903
     MIN. OF DEFENCE [SURINDER SINGH NIJJAR, J.)

          6. I have heard the learned counsel for the parties.           A

         7. On the basis of facts narrated above, Mr. Naphade
    submits that the petitioner has forfeited its right to appoint the
    arbitrator. In support of the submission, he relied on the
    judgments of this Court in the case of Datar Switchgears Ltd.
                                                                         B
     Vs. Tata Finance Ltd. & Anr. 1, Punj Lloyd Ltd. Vs. Petrone!

I   MHB Ltd. 2 and Yashwith Constructions (P) Ltd. Vs. Simplex
    Concrete Piles India Ltd. & Anr. 3

          8. On the other hand, Mr. Raval, appearing for the Union
    of India has submitted that the petitioner has failed to make out    c
    a case for not appearing before the arbitrator appointed
    pursuant to the order of the Principal District Court, Chandrapur
    on 21st December, 2010. He submits that the respondents
    have willingly accepted the appointment of the earlier arbitrator
    in accordance with the arbitration clause. Therefore, they can       D
    have no justification to challenge the appointment of the present
    arbitrator, who has only been appointed as the mandate of the
    earlier arbitrator had been terminated by the orders of the
    Court. The petitioner was duly informed about the appointment
    of the arbitrator on 16th March, 2011. The arbitrator had            E
    intimated both the parties about the appointment and had
    requested them to submit their respective claims within a
    period of 10 days. It was only at that stage that the petitioner
    wrote a letter dated 15th April, 2011 stating that the
    appointment of the arbitrator was in violation of arbitration        F
    clause. Mr. Raval further submitted that in the present
    circumstances, the matter is squarely covered against the
    petitioner by the judgment in the case of Indian Oil Corporation
    Limited & Ors. Vs. Raja Transport Private Limited4 • On the
    basis of the aforesaid judgment, the learned counsel submitted
                                                                         G
    that the present petition under Section 11 (6) is misconceived,
    1.   2000 (8) sec 151.
    2.   2006 (2) sec 638.
    3.   2006 (6) sec 204.
    4.   c2009) 8 sec 520.                                               H
    904       SUPREME COURT REPORTS                  [2012] 2 S.C.R.


A as the Sole Arbitrator has been appointed in terms of the ·
  agreed procedure contained in Clause 19 (F) and (E).

         9. I have considered the submissions made by the learned
    counsel. In my opinion, Mr. Naphade is correct in his submission
    that the matter is squarely covered by the judgment in Datar
8
    Switchgears Ltd. (supra), wherein this Court has observed as
    follows:-
                                                                          \
          "19. So far as cases falling under Section 11 (6) are
          concerned - such as the one before us - no time limit
c          has been prescribed under the Act, whereas a period of
          30 days has been prescribed under Section 11(4) and
           Section 11 (5) of the Act. In our view, therefore, so far as
          Section 11 (6) is concerned, if one party demands the
          opposite party to appoint an arbitrator and the opposite
D         party does not make an appointment within 30 days of the
          demand, the right to appointment does not get
          automatically forfeited after expiry of 30 days. If the
          opposite party makes an appointment even after 30 days
          of the demand, but before the first party has moved the
E         court under Section 11, that would be sufficient. In other
          words, in cases arising under Section 11 (6), if the
          opposite party has not made an appointment within 30
          days of demand, the right to make appointment is not
          forfeited but continues, but an appointment has to be made
F         before the former files application under Section 11
          seeking appointment of an arbitrator. Only then the right
          of the opposite party ceases. We do not, therefore, agree
          with the observation in the above judgments that if the
          appointment is not made within 30 days of demand, the
          right to appoint an arbitrator under Section 11 (6) is
G
          forfeited."

        The aforesaid ratio has been reiterated in Punj Lloyd Ltd.
    (supra).

H         10. In the facts and circumstances of this case, it would
   DENEL (PROPRIETARY LTD.) v. GOVT. OF INDIA, 905
   MIN. OF DEFENCE [SURINDER SINGH NIJJAR, J.]

  not be possible to accept the submission of Mr. Raval that the      A
  present petition filed by the petitioner under Section 11 (6) of
· the Act is not maintainable. On the admitted facts, it isevident
  that the mandate of the earlier arbitrator Mr. Arun Kumar Jain
  was terminated by the orders passed by the Principal District
  Court, Chandrapur in Civil Misc. Application No. 45 of 2009 by      B
  order dated 21st December, 2010. A perusal of the aforesaid
  order would show that the petitioner had challenged the validity
  of Clause 19(F). The aforesaid submission was rejected by the
  Court with the observation that the same cannot be the subject
  matter which could be resolved in a petition under Section 14(2)    c
  of the Act. The petitioner was given an opportunity to challenge
  the clauses in an appropriate forum. The District Judge,
  however, accepted the submission of the petitioner that there
  are justifiable reasons to indicate that the arbitrator has not
  acted fairly. Hence the mandate of Mr. A.K. Jain as the Sole        D
  Arbitrator was terminated. In accordance with Section 15(2) of
  the Act, DGOF was appointed as an arbitrator. He was also
  given an option to appoint Government servant as an arbitrator
  as per the arbitration clause. It is a matter of record that DGOF
  did not act himself as an arbitrator, pursuant to the aforesaid     E
  order of the Principal District Judge, Chandrapur dated 21st
   December, 2010. Mr. Satyanarayana, the subsequent
  arbitrator, had not been appointed till 16th March, 2011. The
   present petition was moved on 2nd March, 2011. Therefore,
  the respondents had clearly forfeited their right to make the
   appointment of an arbitrator. Consequently, the appointment of     F
   Mr. Satyanarayana, as an arbitrator, by letter dated 16th March,
   2011 cannot be sustained.

       11. Mr. Naphade then submits that in the peculiar facts and
 circumstances of this case, the respondent cannot now be G
 permitted to insist that the Court should appoint an arbitrator
 only in terms of the agreed procedure. In support of this
 submission, he emphasised that DGOF can not act as an
 arbitrator as the same will be against the principles of natural
 justice, as no one can be a judge in his own cause. He further H
    906       SUPREME COURT REPORTS                  [2012] 2 S.C.R.


A submitted that even if any government employee is appointed
  as an arbitrator, he will not be in a position to act against the
  Union of India as he will be obliged to follow the instructions of
  the superiors. He placed reliance on Bharat Sanchar Nigam
  Limited & Anr. Vs. Motorola India Private Limited5• It is not
B possible to accept the submissions of Mr. Naphade. This Court
  in the case of Indian Oil Corporation Limited (supra) has
  considered such a submission and observed that :-

          "Arbitration is a binding voluntary alternative dispute
          resolution process by a private forum chosen by the
c         parties. If a party, with open eyes and full knowledge and
          comprehension of the relevant provision enters into a
          contract with a Government/statutory corporation/public
          sector undertaking containing an arbitration agreement
          providing that one of its Secretaries/Directors shall be the
D         arbitrator, he cannot subsequently tum around and contend
          that he is agreeable for settlement of the disputes by
          arbitration, but not by the named arbitrator who is an
          employee of the other party.

E         It is now well settled by a series of decisions that
          arbitration agreements in government contracts providing
          that an employee of the Department (usually a high official
          unconnected With the work of the contract) will be the
          arbitrator, are neither void nor unenforceable. All the
F         decisions proceed on the basis that when senior officers
          of Government/statutory corporations/public sector
          undertakings are appointed as arbitrators, they will
          function independently and impartially, even though they
          are employees of such institutions/organizations."
G In my opinion, the aforesaid observations are a complete
  answer to the submission made by Mr. Naphade.
        12. Learned senior counsel then submitted that even if the
  arbitration clause is held to be valid, Mr. Satyanarayana still can
H s. 2009 (2) sec 337.
     DEN EL (PROPRIETARY LTD.) v. GOVT. OF INDIA, 907
     MIN. OF DEFENCE [SURINDER SINGH NIJJAR, J.]
not be permitted to continue with arbitration as the petitioner A
has a strong apprehension that he is biased in favour of the
respondents .. In support of the submission, the learned senior
counsel has relied on the various notices issued by the arbitrator ·
which were invariably received after the expiry of the time fixed
by the arbitrator. In support of his submission, he relied on a B
judgment of this Court in the case of Dene/ (Proprietary)
Limited Vs. Bharat Electronics Limited &, Anr. 6•
                                           ~




      13. Replying to the apprehension of bias pleaded by Mr.
Naphade, it is submitted by Mr. Raval that non-receipt of the
letters in time can not possibly give rise to an apprehension C
that Mr. Satyanarayana is in any manner biased against the
petitioner. He submits that the reliance of the petitioner on the
judgment in Dene/ (Proprietary) Limited (supra) is also
misconceived as the aforesaid judgment was confined to the
facts of that particular matter. He, therefore, submits that the D
Court ought to follow the agreed procedure and not to interfere
with the appointment of Mr. Satyanarayana as the arbitrator. In
the alternative, he submits that even if the appointment of Mr.
Satyanarayana is held to be invalid, the matter has to be left to
the DGOF to either act as an arbitrator himself or to appoint E
an officer appointed by him.

      14. It is true that in normal circumstances while exercising
jurisdiction under Section 11 (6), the Court would adhere to the
terms of the agreement as closely as possible. But if the            F
circumstances warrant, the Chief Justice or the nominee of the
Chief Justice is not debarred from appointing an independent
arbitrator other then the named arbitrator.

     15. A Three Judge Bench of this Court in the case of
Northern Railway Administration, Ministry of Railway, New G
Delhi Vs. Patel Engineering Company Limited7, considered
the scope and ambit of Section 11 (6) of the Act, as divergent
6.    2010 (6) sec 394.
1.    2ooa (10) sec 240.                                             H
    908      SUPREME COURT REPORTS                   [2012] 2 S.C.K


A    views were taken in two decisions of this Court in Ace Pipeline
     Contracts (P) Ltd. Vs. Bharat Petroleum Corpn. Ltd.8 and ..
     Union of India Vs. Bharat Battery Manufacturing Co. (P) Ltd.
     (supra). Upon consideration of the relevant provisions it was
     inter-alia observed as follows:-
B
          "A bare reading of the scheme of Section 11 shows that
          the emphasis is on the terms of the agreement being
          adhered to and/or given effect as closely as possible. In
          other words, the Court may ask to do what has not been
          done. The Court must first ensure that the remedies
c         provided for are exhausted. It is true as contended by Mr.
          Desai, that it is not mandatory for the Chief Justice or any
          person or institution designated by him to appoint the
          named arbitrator or arbitrators. But at the same time, due
          regard has to be given to the qualifications requi~ed by the
D         agreement and other considerations."

          16. Keeping in view the observations made above, I have
    examined the facts pleaded in this case. I am of the opinion
    that in the peculiar facts and circumstances of this case, it
. E would be necessary and advisable to appoint an independent
    arbitrator. In this case, the contract is with Ministry of Defence.
    The arbitrator Mr. Satyanarayana has been nominated by
    l)GOF, who is bound to accept the directions issued by the
    Union of India. Mr. Satyanarayana is an employee within the
  F same organization. The attitude of the respondents towards the
    proceeding is not indicative of an impartial approach. In fact,
    the mandate of the earlier arbitrator was terminated on the
    material produced before the Court, which indicated that the
    arbitrator was biased in favour of the Union of India. In the
  G present case also, Mr. Naphade has made a reference to
    various notices issued by the arbitrator, none of which were
    received by the petitioner within time. Therefore, the petitioner
    was effectively denied the opportunity to present his case before


H a.    2001 (5) sec 304.
 DENEL (PROPRIETARY LTD.) v. GOVT. OF INDIA,                 909
 MIN. OF DEFENCE [SURINDER SINGH NIJJAR, J.]
the Sole Arbitrator. Therefore, the apprehensions of the            A
petitioner can not be said to be without any basis.

     17. It must also be remembered that even while exercising
the jurisdiction under Section 11 (6), the Court is required to
have due regard to the provisions contained in Section 11 (8)       8
of the Act. The aforesaid section provides that apart from
ensuring that the arbitrator possesses the necessary
qualifications required of the arbitrator bythe agreement of the
parties, the Court shall have due regard to other considerations
as are likely to ensure the appointment of an independent and       C
impartial arbitrator. Keeping in view the aforesaid provision,
this Court in the case of Indian Oil Corporation Limited (supra),
whilst emphasizing that normally the Court shall make the
appointment in terms of the agreed procedure has observed
that the Chief Justice or his designate may deviate from the
same after recording reasons for the same. In paragraph 45          D
of the aforesaid judgment, it is observed as follows:-

    "45. If the arbitration agreement provides for arbitration by
    a named arbitrator, the courts should normally give effect
    to the provisions of the arbitration agreement. But as E
    clarified by Northern Railway Admn.10, where there is
    material to create a reasonable apprehension that the
    person mentioned in the arbitration agreement as the
    arbitrator is not likely to act independently or impartially,
    or if the named person is not available, then the Chief F
    Justice or his designate may, after recording reasons for
    not following the agreed procedure of referring the
    dispute to the named arbitrator, appoint an independent
    arbitrator in accordance with Section 11 (8) of the Act. In
    other words, referring the disputes to the named arbitrator G
    shall be the rule. The Chief Justice or his designate will
    have to merely reiterate the arbitration agreement by
    referring the parties to the named arbitrator or named
    Arbitral Tribunal. Ignoring the named arbitrator/Arbitral
    Tribunal and nominating an independent arbitrator shall be H
    · 910       SUPREME COURT REPORTS                   [2012] 2 S.C.R.


A           the exception to' the rule, to be resorted for valid reasons."

                                                   (emphasis supplied)

         18. The material placed before the Court by the petitioner
  · would indicate that it would not be unreasonable to entertain
B the belief that the arbitrator appointed by the respondent would
    not be independent. That being so, the appointment of Mr.
    Satyanarayana can not pass the test under Section 11 (8) of the
    Act.

c       19. Similarly, applying the test laid down in Indian Oil
  Corporation Ltd. (supra}, this Court in the case of Denet
  (Proprietary) Limited (supra) also observed that the Managing
  Director, Bharat Electronics Limited, which is a Government
  company is bound by the directions/instructions issued by his
D superior authority. The Court also observed that according to
  the pleaded case of the respondents, though it was liable to
  pay the amount due under the purchase order, it was not in a
  position to supply the dues only because of the direction issued
  by the Ministry of Defence, Government of India. Therefore, the
E Court concluded-that the Managing Director may not be in a
  position to independently decide the dispute between the
  parties. Consequently, the Court proceeded to appoint an
  independent arbitrator.

       20. In my opinion, the circumstances in the present case
F are similar and a similar course needs to be adopted. In view
  of the above, the petition is allowed.

       21. In exercise of my powers under Section 11 (4) and (6)
  of the Arbitration and Conciliation Act, 1996 read with
G Paragraph 2 of the Appointment of Arbitrator by the Chief
  Justice of India Scheme, 19!:l6,Jhereby appoint Hon.Mr.Justice
  Ashok C. Agarwal, Retd. ·Chief Justice of the Madras High
  Court, Rio No. 20. Usha Kiran, 2nd Pasta Lane, Colaba,
  Mumbai-400 005, ~ the Sole Arbitrator, to adjudicate the
H disputes that have arisen between the parties, on such terms
 DENEL (PROPRIETARY LTD.) v. GOVT. OF INDIA, 911
 MIN. OF DEFENCE [SURINDER SINGH NIJJAR, J.]
and conditions as the learned Sole Arbitrator deems fit and A
proper. Undoubtedly, the learned Sole Arbitrator shall decide
all the disputes arising between the parties without being
influenced by any prima facie opinion expressed in this order,
with regard to the respective claims of the parties.
                                                               B
     22. The registry is directed to communicate this order to
the Sole Arbitrator forthwith to enable him to enter upon the
reference and decide the matter as expeditiously as possible.

N.J.                            Arbitration Petition allowed.