ELLORA PAPER MILLS LTD. VS. STATE OF MADHYA PRADESH [JANUARY 04,2022]

FACTS OF THE CASE

In the case discussed, State of Madhya Pradesh( respondent) publishes a tender for the supply of cream wove paper and duplicating paper for the year 1993-1994. Ellora Paper Mills Ltd.( Ellora/appellant) bid and competed for the contract and was finally awarded with the tender on 22.09.1993. The conflict arises when the respondent did not honour the payment of 90% of the order delivered by Ellora and also rejected certain consignments without any justification. 

Later on, the respondent sent a letter dated 15.11.1993 informing the appellant that the paper did not meet the required standards. In response to that, the appellant filed a civil suit in Bhopal’s civil court asking for a permanent injunction prohibiting the respondent from giving the tender to any other third party business. Therefore, the case became infructuous . The appellant filed another claim before Bhopal’s civil court to recover Rs. 95,32,103/- (Rupees Ninety Three Lakhs Thirty Two Thousand One Hundred and Three Only).

The respondent then filed an application under the section 8 of the Act , seeking stay of the court proceedings , which was denied by the court. A revision petition was filed by the respondent before the Hon’ble High Court of Madhya Pradesh and the petition was granted this time and referred to the parties to arbitrate before the Stationary Purchase Committee. It comprised the officers of the State. 

The appellant filed an application before the High Court of Madhya Pradesh under Section 14 of the Act read along with Section 11 and Section 15 . It argued that a new Arbitral Tribunal should be appointed as all the existing members of the tribunal were ineligible pursuant to the Section 12(5) of the 2015 Amendment of the Act . Ellora asserted that the ineligible arbitrators could appoint any of their replacement arbitrator as they were hit by Entry 1 of the seventh schedule of the Act.

The Appellant’s application was rejected by the High Court. It emphasized on the Apex Court’s decision in  BCCI v. Kochi Cricket (P) Ltd. and Union of India v. Parmar Construction Co. and Union of India v. Parmar Construction Co.  , where it was the court’s decision that provisions of the 2015 Amendment of the Act will not apply to any arbitral proceedings prior to the 2015 Amendments, unless the parties agreed . 

In this case , the Hon’ble  High Court ruled that preventing a party from appointing its own employees to an Arbitral Tribunal did not apply on this case of Arbitration and the it was commenced way before the 2015 amendment. 

ISSUES

• Whether the Arbitral Tribunal should be terminated as it was constituted before the 2015 Amendment if it violates mandate under section 12(5) read with seventh schedule of the Act.
• Whether a fresh arbitrator should be appointed . 

ARGUMENTS

Appellants Arguments : Ellora Paper Mills Ltd. , the appellant argued that if the same Arbitral Tribunal continued to be composed of officers that were employees of the State , it would defeat the purpose of a the neutrality of the Amendment Act,2015 . It was asserted that in Jaipur Zila Dugdh Utpadak Sahkari Limited(supra), the Supreme Court ruled that once a party engages in an arbitration procedure, the party cannot invoke section 12(5)  and claim to appoint a new Arbitral Tribunal . The argument held that Tribunal was established in 2001 but no progress was made until 2017. 

Respondent’s Arguments : The State argued that as the Tribunal was established in 2001 , therefore the section 12(5) read with the seventh schedule of the Act will not apply. It asserted that the 2015 amendment could not have retrospective action. The Jaipur Zila case was different from this case, as in former case the Arbitral Tribunal was appointed after the 2015 Amendment Act came into effect. 

JUDGEMENT

The Supreme Court observed that since the Arbitral Tribunal was established , no actual progress was made in the arbitral proceedings due to a stay in the proceedings which was granted by the High Court of Madhya Pradesh from 04.05.2001 to 24.01.2017 because of  the various litigations initiated by the appellant . The court said that technically the arbitration proceedings had not been commenced as no further steps had been taken in the meanwhile. 

The Apex Court ruled that the Arbitral Tribunal which was appointed will lose its mandate and will be terminated as it violates the neutrality clause under section 12(5) read with seventh schedule of the 2015 Amendment Act. 

The Hon’ble Supreme Court appointed Justice Abhay Manohar Sapre , retired Supreme Court Justice as the fresh Arbitrator to resolve the dispute pending for over two decades.

REFERENCES

https://www.scconline.com/blog/post/2022/02/28/the-indian-supreme-court-in-ellora-paper-mills-hindsight-is-20-15/

https://indiankanoon.org/doc/103858884/

https://lawfaculty.in/ellora-paper-mills-ltd-vs-state-of-madhya-pradesh/

This article is written by Khushraj Singh Suri of Lloyd School of Law, Intern at Legal Vidhiya. 

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