Brief case: Choice of arbitrators must be wider

A weekly selection of key court orders

Choice of arbitrators must be wider 

The independence and impartiality of arbitrators have been a contentious issue between feuding parties for long. This is even more intense when the government or its entities make the opposite party sign agreements, in which the arbitrators would be their own officers. Two years ago, the Arbitration and Conciliation Act was amended to quell such preliminary disputes so that arbitration gets going. The Act now contains lists of persons who are ineligible to be arbitrators, like those who have conflict of interest.  This has not totally stopped litigation over choice of arbitrators, as shown by the long judgment of the Supreme Court in the case, Voestalpine Schienen GMBH Vs Delhi Metro Corporation. Disputes arose between them over payments for supplying rails. The agreement provided a panel of names chosen by the Metro, from which the Austrian counterpart was to choose. However, the foreign firm argued it had justifiable doubts about the neutrality of the persons, because they were mostly retired engineers and officers of the government or its corporations. The court ruled that merely because they had worked at one time for government entities, they could not be suspected of bias. If the court is convinced that there is likelihood of bias, it can name arbitrators. But, this was not such a case. However, the court found the Metro had offered a small list of five persons. So, it asked the Metro to make the panel broad-based, including experts from the private sector, as well as legal and accountancy personnel. 

Keeping the nature of contracts distinct

When work is sub-contracted to firms back to back, each agreement would stand alone. The benefits of the main contract flowing to the first sub-contract need not automatically reach the second one in the chain, the Supreme Court ruled in the judgment, Sharma Associates vs Progressive Constructions Ltd. In this case, National Hydro Electric Power Corpn floated a tender for a project in Nainital, in which Hindustan Steel Works Construction Ltd (HSCL) emerged successful.  HSCL sub-contracted the work to Progressive Construction (PCL), which further sub-contracted part of the work to Sharma Associates. Disputes arose over payment between the last two and the arbitrator gave an award in favour of Sharma Associates, ruling that the revision of rates by the power corporation must be given to the last sub-contractor. The high court (HC) set aside the award. On appeal, the Supreme Court upheld the HC view. It said the agreement to revise rates between the main parties cannot benefit the firm in the last chain. There was no agreement to pass on the revised rates to Sharma Associates. The arbitrator should have stuck to the terms of the contract and not order what he thinks is reasonable. 

Sick firm showed bankruptcy route 

The Supreme Court last week said when a company moved an application under the repealed Sick Industries Act, it cannot be rejected by the registrar, secretaries of other authorities under the Act, on the ground that the firm was not an “industrial company”. It is for the Board for Industrial and Financial Reconstruction to decide the issue, the court said in its judgment, Bank of New York Mellon vs Zenith Infotech Ltd. In this case, the Indian firm moved the board for declaring it a sick company but the board officials rejected the request maintaining that it was not an industrial company. Meanwhile, the Insolvency and Bankruptcy Code came into force in 2016, to deal with sick companies. Therefore, the court said the order of the officials was invalid and the issue could now be raised before the board set up under the Bankruptcy Code. 

CBI told to release seized CDs 

In a criminal complaint of violation of the Information Technology Act and the Copyright Act, the Supreme Court has directed the Central Bureau of Investigation (CBI) to release seized CDs to the accused person subject to certain conditions.  In this case, Tarun Tyagi vs CBI, an information technology company lodged a complaint of theft of its data recovery software by a former employee who started his own firm. His premises were searched and the CDs were recovered. During trial, he wanted the CDs back to defend himself. The CBI contended that he might tamper with the contents. The apex court said the CDs should be returned to ensure a fair trial. It ordered supply of CDs after making copies in the court in the presence of the parties.  

Contract termination set aside

The Delhi High Court last week set aside the debarment of a firm, as it was done without issuing showcause notice and providing an opportunity to put forward its case. In this case, CDM Smith India Ltd vs National Highways & Infrastructure Development Corporation, the firm argued that its contract was not only terminated but it was debarred from future contracts without giving reasons. The court asked the corporation to give the firm a chance to explain. 

Court refuses to be dragged into shampoo wars 

When two rival firms claim its product is better than that of the other, the Delhi High Court  is not to sit in judgment over the claims. It is neither equipped to decide which is better nor is the court’s role to give certificate to one product. It said that courts could not be converted into laboratories determining the comparative merits of rival products. The court’s remarks came while dismissing the complaint of Procter & Gamble Home Products against Hindustan Unilever (HUL), both manufacturers of shampoo sachets. P&G alleged that HUL was disparaging its product, Head & Shoulders, on television commercials and claiming that HUL’s Clinic Plus was several times more effective in fighting dandruff. HUL contended that it was comparative advertisement. Agreeing, the HC said advertisements were not defamatory. The judgment explained: “The right to protect own reputation, the genesis of the law of defamation, is not to be misunderstood as right to be not spoken against or right to be not criticised for own shortcomings.  A product in the market is like a public persona, who from the mere fact of being in the public glare opens himself to discussion and views and just like such a person cannot prevent members of public or other public figures, against whom his interest may be pitted, from expressing their views of him, so is the case of such a product in the market.”