The Calcutta High Court has held that a dispute resolution clause which empowers the very individuals who signed the agreement to resolve disputes cannot be treated as a valid arbitration agreement. The decision came in the case titled Balasore Alloys Limited vs Flynt Mining LLP, in which the Court examined Clause 16 of their agreement and concluded that it lacked the essential elements of impartiality and independence required under the Arbitration and Conciliation Act, 1996.
The judgment, dated April 2, 2025, was delivered by Justice Shampa Sarkar, who dismissed the petition filed by Balasore Alloys Limited under Section 11 of the Arbitration Act seeking the appointment of a sole arbitrator.
The dispute stemmed from an agreement signed on February 19, 2019, under which Flynt Mining LLP had agreed to provide mining services, including chromite ore extraction, to Balasore Alloys. The petitioner alleged that Flynt Mining had failed to meet its obligations, leading to poor output, collapse of tunnel roofs and walls, and eventually abandoning the mining operations altogether. The use of unskilled labor and outdated techniques made the mining site unsafe.
On May 9, 2024, Balasore Alloys issued a notice invoking arbitration under Clause 16 of the agreement, nominating a retired Bombay High Court Judge as the sole arbitrator. However, Flynt Mining rejected both the initiation of arbitration and the nominated arbitrator. The matter then reached the High Court through a Section 11 application for appointment of an arbitrator.
The petitioner argued that Clause 16 was a valid arbitration clause since it included a mechanism to resolve disputes, defined governing laws, and provided for a forum. It was emphasized that the clause encouraged both parties to settle disputes amicably within 30 days, failing which the matter was to be jointly referred to the Managing Director of Balasore Alloys and the designated partner of Flynt Mining for resolution.
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Citing the Supreme Court judgment in Punjab State vs. Dina Nath (2007), the petitioner argued that the absence of the word "arbitration" in a clause does not invalidate it, provided the intention to refer disputes to arbitration is clear. They claimed that since the clause referred disputes to a decision-making process, it satisfied the requirements under the Arbitration Act.
Flynt Mining opposed the petition by arguing that Clause 16 did not meet the basic criteria of an arbitration agreement under the law. They maintained that allowing the very persons who signed the agreement and were directly involved in its execution to resolve disputes, compromises impartiality and fairness.
"The Court observed that Clause 16, although silent on the term 'arbitration', must still show a clear intention by both parties to submit disputes to an impartial and independent private tribunal whose decision would be binding."
Referring to the case of Jagdish Chander vs Ramesh Chander (2007), the Court explained that a valid arbitration agreement must provide equal opportunity to both parties to present their case before a neutral third party.
The Court further relied on Sections 10 and 12(5) of the Arbitration Act, as amended by the Arbitration Amendment Act, 2015, which bar individuals having a direct interest or involvement in the contract from acting as arbitrators.
"The clause reflects, at best, an internal dispute resolution mechanism but not a valid arbitration agreement under the Arbitration and Conciliation Act," the Court ruled."The appointment of individuals directly involved in the dispute, like the Managing Director of the petitioner and the designated partner of the respondent, does not reflect impartiality or independence,"
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Justice Sarkar also pointed out that Balasore Alloys had not previously insisted on arbitration, either in its reply to a notice under the Insolvency and Bankruptcy Code (IBC), or before the National Company Law Tribunal (NCLT), which further weakened their claim of having a genuine intention to arbitrate.
Considering all factors, the Court concluded that the clause did not constitute a valid arbitration agreement. As a result, the application filed under Section 11 of the Arbitration Act was dismissed.
Case Title: Balasore Alloys Limited vs. Flynt Mining LLP
Case Number: AP-COM/896/2024
Judgment Date: April 2, 2025
Judge: Justice Shampa Sarkar
For Petitioner: Mr. Ratnanko Banerjee (Senior Advocate), Mr. Sandeep Ladda, Ms. Tanvi Luhariwala, Mr. Aman Agarwal, Mr. Ashutosh Singh
For Respondent: Mr. Sourojit Dasgupta, Mr. Shourjya Mukherjee, Mr. Vishwarup Acharyya, Mr. Akash Dutta
