Dispute Involving Interpretation Of Policy Guidelines Can Also Be Referred To Arbitrator: Gujarat High Court

The Single Bench of Chief Justice Aravind Kumar held that whether there is an arbitrable dispute or not and whether the Arbitral Tribunal has jurisdiction to decide the dispute is an issue which can be decided by the arbitrator himself under Section 16 of the Arbitration and Conciliation Act, 1996.

The petitioner M/S Bharmal Indane Service was allotted dealership by respondent Indian Oil Corporation Limited for dealing in Liquefied Petroleum Gas (LPG) and a dealership agreement was entered into between the parties. During the year 2020, an inspection team had conducted inspection and communicated to the petitioner several irregularities committed by it. Thereafter, a letter was addressed to the petitioner imposing penalty on it. The petitioner filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Allahabad High Court for appointment of an arbitrator and reference of the dispute to arbitration.

The Counsel for Indian Oil Corporation submitted before the High Court that the dispute raised by the petitioner related to the interpretation of a policy decision which could not be resolved through arbitration. He contended that the validity of the guidelines on the basis of which penalty was imposed on the petitioner could not be questioned before the arbitrator, therefore there was no need for appointment of an arbitrator. It was also averred that if any arbitrator was to be appointed, only the person specified in the arbitration agreement should be nominated.

The High Court held that undisputedly the parties had agreed for resolution of dispute through arbitration. The Court ruled that whether there was an arbitrable dispute or not and whether the Arbitral Tribunal has jurisdiction to decide the dispute is an issue which can be decided by the arbitrator himself by ruling on its jurisdiction under Section 16 of the A&C Act.

The Court held that petition for referring the matter to arbitration cannot be denied on the ground that the dispute involved interpretation of policy guidelines.

The Court added that the contention of the respondent Indian Oil Corporation that only the person named in the arbitration agreement alone should be nominated cannot stand the test of law. The Court noted that the arbitration clause provided for reference of the dispute to a sole arbitrator who is an officer of the Corporation. The Court ruled that in light of Section 12 (5) of the A&C Act read with the Seventh Schedule to the Act, officials or persons interested in the outcome of the dispute cannot be held as persons competent to arbitrate.

The High Court thus allowed the petition and nominated a Sole Arbitrator. The Court added that the arbitrator would be at liberty to decide the issue with regard to jurisdiction and arbitrability of the dispute.

Case Title: M/S Bharmal Indane Service versus Indian Oil Corporation Limited

Dated: 25.02.2022 (Ahmedabad High Court)

Counsel for the Petitioner: Mr JF Mehta

Counsel for the Respondent: Mr Akshay A Vakil

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