JUDGMENT 1. - The prayer of applicant company in the instant application filed under Section 11 of the Arbitration and Conciliation Act, 1996 (for short 'the Act') is as under (a) to declare that there is no concluded contract between the applicant (for short `VIP') and the respondent No. 1 (for sort 'Saboo') and there is no valid and binding arbitration agreement in existence. (b) if relief (a) is declined then to change the nominated arbitrator and appoint a sole arbitrator from the panel of retired Supreme Court/High Court Judges. (c) to restrain the respondent No. 2 (Mr. Ashok Sharma) from proceeding with the proposed arbitration. 2. The VIP averred in the application that the Saboo wrote a letter dated June 11, 2007 to VIP stating therein that Saboo was interested in buying 10,000 pieces of Maxima 53 AL suitcases from VIP. Along with the said letter a cheque for Rs. 1,00,000 drawn on HDFC bank was forwarded to the Branch Area Sales Executive of the VIP. It is further stated by VIP that inadvertently its Branch Area Sales Executive made endorsement "accepted" on the said letter. The said acceptance was to be made by VIP's Regional Office as it varied from earlier quotation. The VIP's office studied the feasibility of the proposal-put forth by Sabhoo's Purchase Officer. Since the price offered by Saboo was too low it was not commercially viable to accept the proposal. The VIP in these circumstances instructed its Sales Executive to communicate non acceptance of offer and further instructed as a good will gesture to supply 400 suitcases to Saboo. The VIP's Sales Executive promptly sent reply to Saboo vide its communication dated June 15, 2007 stating that VIP was not in a position to supply 10,000 suitcases at the price proposed by Saboo. The VIP further submitted that by no stretch of imagination can it be said that there was a "concluded" contract between the VIP and Saboo. The VIP was shocked to receive letter dated July 5, 2007 from Saboo pressurising VIP to deliver balance suitcases as mentioned in the proposal. The VIP sent legal notice demanding Rs. 4 crores as damages for alleged loss of business. The VIP replied that said legal notice vide letter dated July 25, 2007. The Saboo hastily invoked the arbitration clause and unilaterally nominated one Mr. Ashok Sharma as sole arbitrator vide letter dated July 25, 2007. The VIP sent legal notice demanding Rs. 4 crores as damages for alleged loss of business. The VIP replied that said legal notice vide letter dated July 25, 2007. The Saboo hastily invoked the arbitration clause and unilaterally nominated one Mr. Ashok Sharma as sole arbitrator vide letter dated July 25, 2007. The VIP responded to the above communication by its advocates letter dated August 9, 2007 and challenged the existence of concluded contract as well as the appointment of arbitrator. The VIP also separately wrote to the sole arbitrator that he being a friend of the Advocates of Saboo not acceptable as a sole arbitrator to them. But the sole arbitrator had gone ahead and fixed the hearing for arbitration on October 1, 2007. The VIP stated that the respondent has wrongly treated its proposal dated June 11, 2007 as a concluded contract between them. Instead of acing in good faith and adopting a fair approach in resolving the disputes the Saboo have gone ahead and appointed an arbitrator who is an associate of the Sabhoo's Advocate. The VIP in these circumstances stated that it has genuine apprehension about the impartiality of the Arbitrator nominated by the Saboo. The VIP stated that there is a real likelihood of bias and sufficient circumstances exist to raise reasonable doubts about the neutrality/impartiality of the Arbitrator. The VIP further stated that the address of Saboo's advocate Mr. D.R. Mudgal is the same as that of the nominated arbitrator Mr. Ashok Sharma. In these circumstances above stated prayer has been made. 3. In the reply to the application Saboo raised preliminary objections. The first objection was that arbitrator was appointed by Saboo as per terms of the contract. Pursuance to the terms of contract the right of appointment of arbitrator was exclusively reserved by Saboo. Pursuant to this right Saboo requested Ashok Sharma to be an Arbitrator vide letter dated July 25, 2007. According to sections 13 and 16 of the Act the question about independence and impartiality of the Arbitrator could be raised before the Arbitrator, who would decide the same and this Court has no jurisdiction to decide the question of impartiality of the Arbitrator. Saboo further averred in the reply that there is no provision in the Act which empowers the Court to change the Arbitrator. Saboo further averred in the reply that there is no provision in the Act which empowers the Court to change the Arbitrator. VIP has miserably failed to make out a case within the purview of the Act for appointment of Arbitrator. It is further averred that validity of contract is to be decided by the Arbitrator. On these objections Saboo made a prayer to dismiss the application as not maintainable and wholly misconceived. 4. I have heard the learned counsel for the parties and perused the case law cited before me. 5. The question that arises for consideration is "Whether this court is competent to decide about the validity of the contract?" 6. In SBP & Co. v. Patel Engineering Ltd., 2006 (1) WLC (SC) Civil 1 : (2005) 8 SCC 618 , Constitution Bench of Hon'ble the Supreme Court held that this Court has the right to decide about the existence of a valid arbitration agreement. It was indicated thus : (Para 47 (iv)) "(iv) The Chief Justice or the designated judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be, his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators." 7. Now it is to be seen whether there was valid and binding contract between the VIP and Saboo existed so as to make arbitration clause applicable to them? 8. As per section 2(h) of the Indian Contract Act, 1872 (for short 'the Act') an agreement which is enforceable by law is a contract. In order to be a contract, there should be an agreement which is a bilateral transaction. Section 10 of the Act provides that all agreements are contract if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object and are not expressly declared to be void. A contract is thus a consensual act of the parties who are free to settle any terms they please. Intention of the parts to the contract is a matter of inference from their conduct. A contract is thus a consensual act of the parties who are free to settle any terms they please. Intention of the parts to the contract is a matter of inference from their conduct. If a reasonable man would infer from the conduct that the party intended to contract in a particular way then he will be bound to make good his promise. 9. Full Bench of Allahabad High Court had occasion to consider the concept of offer and acceptance in Deep Chandra v. Ruknuddaula Shamsher Jang Nawab Mohammad Sajjad Ali Khan, AIR 1951 Allahabad 93 wherein it was observed that theory of offer and acceptance has received statutory recognition in India so that every transaction to be recognised as a contract, must, in its ultimate analysis, resolve itself into a proposal and its absolute and unqualified acceptance. 10. In Muhammad Sultan v. Clive Insurance Co. Ltd., AIR 1934 Allahabad 298 it was held that where by the absolute and unequivocal acceptance of an offer a binding contract has come into existence between the parties, the non execution of a formal document cannot absolve the parties of their engagement. 11. In India Meters Ltd. v. Punjab SEB, (1993) 1 SCC 230 pursuant to the NIT issued by Punjab State Electricity Board (PSEB) India Meters Ltd. (IML) offered to supply their standard meter and stipulated their own terms of payments and indicated that they would not furnish a bank guarantee as demanded in the NIT. The PSEB thereafter sent a purchase order without making reference to the terms and conditions of payment and inability to furnish bank guarantee by IML. In clause (20) of the purchase order it was however mentioned accepted subject to the furnishing of samples. IML in turn replied that samples had already been sent, and fresh samples could not be insisted upon. The PSEB was asked to sent their acceptance on the basis of the terms laid down by IML. In reply the PSEB stated that exemption from bank guarantee was not acceptable to them and allied upon IML to send the samples again but the IML declined to submit bank guarantee and the samples. Thereafter PSEB appointed Arbitrator before whom claim of Rs. 486/- , 458/- for the alleged breach of contract was made. In reply the PSEB stated that exemption from bank guarantee was not acceptable to them and allied upon IML to send the samples again but the IML declined to submit bank guarantee and the samples. Thereafter PSEB appointed Arbitrator before whom claim of Rs. 486/- , 458/- for the alleged breach of contract was made. Considering the above facts their Lordships of the Supreme Court held the offer made by IML was subject to their own term and conditions which were not accepted by PSEB. The terms and conditions for the supply of the meters as made by the PSEB were not accepted by IML at any time. There was no consensus ad idem and there was no completed contract and there was no arbitration agreement between the parties. Since there was no concluded contract, the PSEB was not entitled to enforce the arbitration clause. 12. In U.P. Rajkiya Nirman Nigam Ltd. v. Indure Pvt. Ltd., (1996) 2 SCC 667 , the UP State Electricity Board had floated tenders for construction, supply and erectipn of mechanical equipment and construction work including consultancy services. UP Rajkiya Nirman Nigam (Nigam) an undertaking of State of UP had purchased tender documents from UPSEB. The Indure Pvt. Ltd. (IPL) approached Nigam for their joint participation to submit the tenders to UPSEB. Negotiations set a foot and ultimately draft agreement for signature was sent to IPL. The IPL sent a counter proposal deleting clause (10) of the agreement suggested by Nigam. The tenders thereafter, were submitted but before negotiating with the UPSEB, Nigam had withdrawn the tenders. The IPL then sent a notice nominating an arbitrator on its part and called upon Nigam to nominate its arbitrator. The Nigam disputed the existence of arbitration agreement and also asserted that no concluded contract existed between the parties. In this back drop of the facts that the Apex Court indicated thus : (Para 16) "16. Since the tenders - the source of the contract between the parties - had not transformed into a contract, even if the proposal and counter proposal are assumed to be constituting an agreement, it is a contingent contract and by operation of Section 32 of the Contract Act, the counter proposal of the respondent cannot be enforced since the event of entering into the contract with the Board had not taken place." 13. Coming to the facts of the instant case I notice that Saboo made 1 proposal through letter dated June 11, 2007 to the VIP to purchase 10000 pieces of Maxima 53 AL Suitcases. Along with the proposal a cheque in the sum of Rs. 1 lac drawn on HDFC Bank was forwarded to VIP. The Branch Areas Sales Executive of VIP accepted the proposal. The binding contract thus came into existence so as to make arbitration clause applicable to VIP 1 and Saboo. 14. That takes me to the second question- whether this court can change the nominated arbitrator on the ground that one party has reasonable apprehension about the impartiality of the arbitrator? 15. In order to answer this question, it will be appropriate to consider relevant statutory provisions. Section 12 of the Act provides as under "12. Grounds for challenge (1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any 2 circumstances likely to give rise to justifiable doubts as to his independence or impartiality. (2) An Arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him. (3) An arbitrator may be challenged only if (a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or (b) he does not possess the qualifications agreed to by the parties. (4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made." 16. Section 13 which contains challenge procedure reads thus : "13.(1) Subject to sub-section (4), the parties are free to agree on a procedure for challenging an arbitrator. (2) Failing any agreement referred to in sub-section (1), a party who intends to challenge an arbitrator shall, within fifteen days after-becoming aware of the constitution of the arbitral tribunal or after becoming aware of any circumstances referred to in sub-section (3) of section 12, send a written statement of the reason for the challenge to the arbitral tribunal. (3) Unless the arbitrator challenged under sub-section (2) withdraw from his office or the other party agrees to the challenge the arbitral tribunal shall decide on the challenge. (3) Unless the arbitrator challenged under sub-section (2) withdraw from his office or the other party agrees to the challenge the arbitral tribunal shall decide on the challenge. (4) If a challenge under any procedure agreed upon by the parties or under the procedure under sub-section (2) is not successful, the arbitral tribunal shall continue the arbitral proceedings and make an arbitral award. (5) where an arbitral award is made under sub-section (4), the party challenging the arbitrator may make an application for setting aside such an arbitral award in accordance with section 34. (6) Where an arbitral award is set aside on an application made under sub-section (5), the court may decide as to whether the arbitrator who is challenged is entitled to any fees." 17. Section 16 relates to competence of arbitral tribunal to rule its jurisdiction and reads as under : "16. (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections, with respect to the existence or validity of the arbitration agreement, and for that purpose (a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the terms of the contract, and (b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause. (2) A plea that the arbitral tribunal does not have jurisdiction shall be raised not later than the submission of the statement of defence, however, a party shall not be precluded from raising such a plea merely because that he has appointed, or participated in the appointment of, an arbitrator. (3) A plea that the arbitral tribunal is exceeding the scope of its authority shall be raised as soon as the matter alleged to be beyond the scope of its authority is raised during the arbitral proceedings. (4) The arbitral tribunal may, in either of the cases referred to in sub-section (2) or sub-section (3), admit a later plea if it considers the delay justified. (5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award. (5) The arbitral tribunal shall decide on a plea referred to in sub-section (2) or sub-section (3) and, where the arbitral tribunal takes a decision rejecting the plea, continue with the arbitral proceedings and make an arbitral award. (6) A party aggrieved by such an arbitral award may make an application for setting aside such an arbitral award in accordance with section 34." 18. A conjoint reading of sub section 3 of section 12 and sections 13 and 16 of 1996 Act demonstrates that the question of imparitality of the arbitrator is to be raised before the arbitrator himself, who is competent to decide such question. The Division Bench of this Court also took the same view in Union of India v. M/s. Maheshwari Builders, 2006 (1) WLC (Raj.) 308 . 19. In the instant case question of impartiality of the arbitrator was raised before the Arbitrator by the VIP through its Advocate Ashwin Ankhad & Associates Advocates vide a letter dated August 13, 2007 (Ex.l) to Mr. Ashok Sharma, Arbitrator, which reads thus : "We are concerned for our clients VIP Industries Ltd. and under their instructions we have to address you as follows : Our abovenamed clients have received a letter dated 25th July, 2007 from M/s. Saboo Sodium Chloro Ltd. informing our clients about your appointment as a sole arbitrator in the above mentioned matter to resolve the disputes which have arisen between the parties. Our clients have already replied the said letter through our letter of 9th August, 2007 with a copy to you. As mentioned in the last para of the above reply dated 9th August, 2007 our clients strongly protest and object to your appointment as the sole arbitrator as they understand that you are a friend of Girdhar Saboo, the Director of Saboo Sodium Chloro Ltd. Our Clients, therefore have genuine apprehension about your impartiality in the above matter. Your unilateral and hasty appointment also gives rise to the circumstances which raise justifiable doubts about your independence. Please note that our clients do not accept you as sole arbitrator as you are an interested party. You are, therefore, requested to refrain from proceeding further in the matter in any manner whatsoever." (Emphasis Supplied) 20. The Arbitrator Mr. Your unilateral and hasty appointment also gives rise to the circumstances which raise justifiable doubts about your independence. Please note that our clients do not accept you as sole arbitrator as you are an interested party. You are, therefore, requested to refrain from proceeding further in the matter in any manner whatsoever." (Emphasis Supplied) 20. The Arbitrator Mr. Ashok Sharma was competent to decide the question of impartiality but instead to decide the question, proceeded with the arbitration and directed the parties to appear before him on October 1, 2007. 21. In Bihar State Mineral Development Corporation v. Encom Builders, 2003 (2) WLC (SC) Civil 576 : (2003) 7 SCC 418 , their Lordships of the Supreme court had occasion to consider the question as impartiality of arbitrator and it was indicated as under : "17. There can not be any doubt whatsoever that an arbitration agreement must contain the broad consensus between the parties that the dispute and differences should be referred to a domestic tribunal. The said domestic tribunal must be an impartial one. It is a well settled principle of law that a person cannot be a judge of his own cause. It is further well settled that justice should not only be done but manifestly seen to be done. 18. Actual bias would lead to an automatic disqualification where the decision maker is shown to have an interest in the outcome of the case. Actual bias denotes an arbitrator who allows a decision to be influenced by partiality or prejudice and thereby deprives the litigant or the fundamental right to a fair trial by an impartial tribunal." (Emphasis Supplied) 22. In Tarkar Construction Company v. U.P. State Warehousing Corporation Lucknow, 2001 (1) AWC 369 Division Bench of Allahabad High Court held as under : (Para 9) "The petitioner in his objection did not indicate the circumstances, which give rise to justifiable doubts as to his independence or impartiality. The mere fact that a person is employee of the Corporation is itself not a ground to hold that such person is prejudiced in favour of the corporation. The Managing Director himself is an employee of the Corporation. If a person is appointed as an arbitrator, he is to act impartially and fairly and is not to act as an employee of a party who got him appointed as an arbitrator. The Managing Director himself is an employee of the Corporation. If a person is appointed as an arbitrator, he is to act impartially and fairly and is not to act as an employee of a party who got him appointed as an arbitrator. The petitioner has not disclosed any other reason, which creates*a doubt about his independence or impartiality. We do not find any reason to interfere with the impugned orders." 23. In Pragati Engineering (P) Ltd. v. Tamil Nadu Water Supply and Drainage Board, AIR 1992 Calcutta 139 the Division Bench of Calcutta High Court held that mere fact that arbitrator was employee of one of the parties, is not sufficient to show that he was biased or likely to be biased. 24. In Uttar Pradesh Cooperative Federation Ltd. v. Sunder Bros. Delhi, AIR 1967 SC 249 the Apex Court observed as under : (Para 7) "It is obvious that a party may be released from the bargain if he can show that the selected arbitrator is likely to show bias or by sufficient reason suspect that he will act unfairly or that he has been guilty of continued unreasonable conduct. Consequently, an order of stay of suit under section 34 will not be granted if it can be shown that there is good ground for apprehending that the arbitrator will not act fairly in the matter or that it is for some reason improper that he should arbitrate in the dispute between the parties. Although it is the normal duty of the Court to hold the parties to the contract and to make them present their disputes to the forum of their choice, an order to stay legal proceedings if it is shown that there is good ground for apprehending that the arbitrator will not act fairly in the matter or that it is for some reason improper that he should arbitrate in the dispute." 25. It is well settled that the alleging bias against an arbitrator must show that the selected arbitrator is likely to be biased or has sufficient reason to suspect that the arbitrator will act-unfairly. In International Airport Authority v. K.D. Bali, AIR 1988 SC 1099 the Apex Court held that apprehension of bias must be judged from a healthy, reasonable and average point of view. In International Airport Authority v. K.D. Bali, AIR 1988 SC 1099 the Apex Court held that apprehension of bias must be judged from a healthy, reasonable and average point of view. It is not every suspicion felt by a party which must lead to the conclusion that the authority hearing the proceedings is biased, or would likely to be biased. It is also settled view of law that the party alleging bias against an arbitrator is likely to be biased or has sufficient reason to suspect that the arbitrator will act unfairly. 26. In Larsen & Tourbo Ltd. v. Fertilizer & Chemicals Travancore Ltd., (2008) 1 SCC 252 , the Supreme Court referred the observations made in Secretary to Government, Transport Deptt., Madras v. Munuswamy Mudliar and Anr., 1988 Suppl. SCC 651 thus : (Para 9) "12. Reasonable apprehension of bias in the mind of a reasonable man can be a ground for removal of the arbitrator. A predisposition to decide for or against one party, without proper regard to the true merits of the dispute is bias. There must be reasonable apprehension of that predisposition. The reasonable apprehension must be based on cogent materials. See the observations of Mustill and Boyd, Commercial Arbitration, 1982 edn., page 214, Halsbury's Laws of England, 4th edn., Volume 2, para 551, page 282 describe that the test for bias is whether a reasonable intelligent man, fully apprised of all the circumstances, would feel a serious apprehension of bias." 27. Having analysed the facts of this case from a healthy, reasonable and average point of view, I find that the VIP has sufficient reason to suspect that the arbitrator will act unfairly. There is material on record to show that the Arbitrator is a friend of Girdhar Saboo, the Director of Saboo, and sits in the Chamber of Mr. D.R. Mudgal, who is Advocate of Saboo. Question of impartiality was raised by the VIP before Arbitrator but instead of resolving the question of impartiality, the Arbitrator proceeded further and fixed October 1, 2007 as the next date. As I noticed above, the well settled principle of law that a person cannot be a Judge of his own cause and that i justice should only be done but manifestly seem to be done. As I noticed above, the well settled principle of law that a person cannot be a Judge of his own cause and that i justice should only be done but manifestly seem to be done. To allow a decision to be influenced by partiality deprives the litigant of the fundamental right to a fair trial and would lead to an automatic disqualification for the arbitrator. Reasonable apprehension of bias in the mind of a reasonable man 5 can be a ground for removal of the arbitrator. In the facts and circumstances of this case, the apprehension of bias in the mind of VIP is not without any foundation. Since actual bias would lead to an automatic disqualification for being an Arbitrator, this Court can exercise powers under Section 11(6) to appoint arbitrator. 28. For these reasons, I allow the application and hold that because of concluded contract between VIP and Saboo, valid and binding arbitration agreement is in existence. I further hold that because of reasonable apprehension in the mind of VIP, that named Arbitrator will not act fairly, I restrain Mr. Ashok Sharma, named Arbitrator, from proceeding further in the 1 matter and instead I appoint Hon'ble Justice Shri R.S. Verma (Retired) under section 11(6) of the Act, to resolve the dispute between the parties. The fees and other terms shall be settled by the Arbitrator himself. A copy of this order be sent to the Arbitrator.Application Allowed. *******