Dealer's Counter-Offer Not Consent: Allahabad HC Sets Aside HPCL Arbitrator Appointment

The Allahabad High Court has set aside an arbitral award after finding that Hindustan Petroleum Corporation Ltd. could not validly appoint its own officer as arbitrator without a clear written waiver from the dealer after the dispute had arisen.

"Hence, the appellant cannot be non-suited for not taking a precise ground in its petition under Section 34 of the Act of 1996 as the ground of illegibility could be raised at any stage and having done so and examined by this Court, it is found that the appointment of the Arbitrator was not valid nor the waiver as per Section 12(5) of the Act was express, thus rendering the appointment legally invalid and even the award made by such an Arbitrator is rendered invalid. Thus, the second issue is answered accordingly,” the court observed.

A Division Bench of Chief Justice Arun Bhansali and Justice Jaspreet Singh held that the law requires a clear and express written waiver before an otherwise ineligible arbitrator can be appointed, and such waiver was missing in the present case.

“The appellant by his reply dated 15.02.2018 appointed a Chartered Accountant as the Arbitrator and required the concurrence of the Corporation. This clearly was not an acceptance of the offer of the Corporation made in its letter dated 24.01.2018, rather this was a counter offer by the appellant” the bench added.

Laxmi Kant Pandey was running a petrol pump under a dealership agreement dated January 14, 2013 in Banda district.

On June 14, 2017, an inspection team found that the seal on one of the dispensing nozzles was broken, following which a show cause notice was issued on June 21, 2017.

Pandey, in his reply dated July 15, 2017, stated that the nozzle had been malfunctioning earlier and that complaints had already been raised, and also pointed out that no short delivery of fuel was found during inspection.

The corporation, however, terminated the dealership on July 24, 2017. Pandey's challenge before the High Court was disposed of with liberty to invoke arbitration in terms of the agreement.

In January 2018, the corporation sought Pandey's consent to appoint its own employee as sole arbitrator in light of the amended law.

Pandey responded by proposing a Chartered Accountant as arbitrator and sought the corporation's concurrence, which was rejected, with the corporation insisting that it would appoint the arbitrator upon receiving consent.

Pandey thereafter gave consent on March 7, 2018, while requesting that an arbitrator from a nearby place be appointed due to his disability, following which the corporation appointed Sanjay Verghese as the sole arbitrator on April 18, 2018.

The arbitrator, by an award dated April 26, 2019, dismissed Pandey's claims, a decision that was later upheld by the Commercial Court, Lucknow on April 19, 2023.

Before the High Court, Pandey contended that the very appointment of the arbitrator was flawed, arguing that his consent did not amount to a clear and express written waiver of ineligibility under Section 12(5) read with the Seventh Schedule.

The corporation, however, maintained that Pandey had knowingly given his consent after the dispute had arisen and, having participated in the arbitral proceedings without objection, could not turn around to challenge the appointment.

The court held that after the 2015 amendments, persons falling within the Seventh Schedule are ineligible to be appointed as arbitrators unless there is a clear and express written waiver after disputes arise, and found that no such waiver existed in the present case.

It further clarified that an objection to such ineligibility goes to the root of jurisdiction and can be raised at any stage, even for the first time in appeal.

Allowing the appeal, the court set aside the arbitral award as well as the Commercial Court's judgment, and left it open to the parties to take appropriate steps for the appointment of an arbitrator in accordance with law.

For Petitioner (Laxmi Kant Pandey): Advocates Gaurav Mehrotra, Anupam Mishra, Madhur Jhawar.

For Respondent (Hindustan Petroleum Corporation Ltd.): Advocates Aprajita Bansal, Anilesh Tewari, Gursimran Kaur, Shreya Pahwa.