Brief case: Ineligible person cannot name arbitrator

A weekly selection of key court orders

The Supreme Court last week struck a blow for independence and impartiality of arbitrators by ruling that once an arbitrator prescribed in a contract becomes ineligible to act as such, he cannot nominate another person in his place. It is a general practice in government contracts and even in some private contracts to prescribe its own managing director (MD) or a senior executive as the sole arbitrator. This has been challenged in several courts as giving undue advantage to the party which provides a works contract. 

There was an amendment to the Arbitration and Conciliation Act in 2015 to bar such persons from acting as arbitrator and it provided two schedules — one setting guidelines and another disqualifying certain persons to prevent suspicion of bias. The issue arose once again in a batch of appeals such as TRF Ltd vs Energo Engineering Projects Ltd, which was a dispute over encashment of bank guarantee. The MD was disqualified according to the schedule, but he nominated another in his place to hear the dispute. The Supreme Court stated it could not be permitted.

“It is inconceivable in law,” the judgment explained, “that the person who is statutorily ineligible can nominate a person. Once the infrastructure collapses, the superstructure is bound to collapse.” Allowing an ineligible arbitrator to nominate a person would tantamount to carrying on the arbitration himself. That which cannot be done directly may not be done indirectly, the court said.

Firm exists legally even if struck off rolls 

Once the name of a company, whose name was struck off, is restored on the Register of Companies, its position would be the same as if the name had not been struck off, the Delhi High Court said last week in an international arbitration case, Value Advisory Services (VAS) vs ZTE Corporation. VAS was primarily engaged in the business of providing consultancy services in the field of telecommunications in India. 

ZTE is engaged in the business of supplying telecom equipment for telecom projects. Disputes arose between them, and VAS moved the International Court of Arbitration and obtained an award in its favour. It moved the high court for its enforcement. One of the objections of the Chinese firm was that VAS was struck off from the Register of Companies at the time of the award, therefore it had ceased to exist and this fact was concealed from the arbitrators. The high court rejected this argument interpreting Section 560 of the Companies Act. It said that Section 560(7) makes a specific provision whereby the existence of the company, even during the period that it was struck off the register can be subsequently resuscitated and treated as if it never ceased to be in existence. 

“The company is a legal juristic entity and that clothes an association of persons with an independent and a separate identity. However, such entity is not a hollow entity; its resources, human as well as material, constitute the substratum of such legal entity. Thus, even though the legal form may disappear, the substratum continues to exist and its form can be resuscitated. Once such order restoring the company to its legal status is passed, such company would be deemed to have been always in existence.”

Swiss firm can execute award: HC  

The Delhi High Court last week allowed the enforcement of a foreign award in favour of Swiss firm Glencore International AG, rejecting the objection of Dalmia Cement (Bharat) Ltd that the London arbitral tribunal did not follow due process and it was against India’s public policy. The award was rendered by the London Court of International Arbitration and the Swiss company sought its enforcement by the high court. 

The dispute was over an agreement between the two companies whereby Glencore had agreed to supply and Dalmia had agreed to purchase coal of Indonesian origin, to be shipped in nine consignments. While Glencore alleged breach of contract by Dalmia by not accepting delivery of three shipments, Dalmia disputed the charge by stating the quality of the coal was not according to specifications. The London arbitrators gave the award in favour of Glencore.

Naval gun contract cleared 

The Delhi High Court last week dismissed the petition of the UK-based Emdigital Ltd against the choice of Israeli firm Elbit Systems for the supply of naval guns to India. The British firm alleged the Israeli firm was not authorised to sell the guns as it was manufactured by a US company and it required congressional sanction according to the law of that country. Elbit denied it and said it had obtained sanction. The high court stated that according to US law, the second stage of approval could be sought after obtaining the contract and there was nothing in the Arms Export Control Act which barred the Israeli firm from selling the guns to India.   

Insecticide inspector has large powers

The Insecticide Act bestowed ample power to the inspectors to take samples from dealers and send them for testing at the Central Insecticide Laboratory on their own. It is also the inspector’s duty to do so if the person from whom the sample is taken requests for test and analysis. The Supreme Court rejected the contention of Indofil Industries, a manufacturer of insecticides that the inspector cannot do so unless a formal complaint is filed before a magistrate, who orders an analysis. The court was hearing an appeal by the manufacturer who was being prosecuted for misbranding. The Punjab and Haryana High Court had rejected the manufacturer’s plea to quash prosecution. The Supreme Court dismissed the company’s appeal.

Insurer to pay for tractor trolley mishap 

The Supreme Court last week ruled that a tractor attached to a trolley carrying goods is a light motor vehicle (LMV), and if the driver has a LMV licence, he need not obtain a separate licence for driving the vehicle. In this case, Sant Lal vs Rajesh, a tractor with a trolley met with an accident. The motor accident claims tribunal held that the driver did not carry endorsement for driving the vehicle and therefore the insurance company was not liable to compensate the damage. The remedy for the victims was to sue the owner who allowed the driver to take the vehicle. However, on appeal, the Supreme Court ruled that no separate endorsement was necessary in this case. It held that the insurance company was liable to pay compensation. It further ruled that the liability was joint and several, distributed among the insurer, the owner and the driver.