merely because he had failed to exercise his right, to appoint an arbitrator, earlier. = The respondent is entitled, in terms of Clause 22-A(iii) of the agreement, to appoint a substitute arbitrator even if they had failed to appoint an arbitrator earlier. On their exercising their right to appoint a substitute arbitrator, no other person can be appointed as an arbitrator, in substitution, by the High Court. It is only if they had failed to appoint a substitute arbitrator, despite being requested to do so by the applicant, would the applicant then have been entitled to invoke the jurisdiction of the High Court, under Section 11(6) of the Act, requesting it to take the necessary measure. As the respondent has appointed Justice C.V. Ramulu as their substitute arbitrator, even before they were called upon by the applicant to do so, the applicant is not entitled to invoke the jurisdiction of the High Court, under Section 11(6) of the Act, seeking appointment of a substitute arbitrator. The application, as filed, is therefore not maintainable.
THE HONBLE THE ACTING CHIEF JUSTICE RAMESH RANGANATHAN
Arbitration Application No.55 of 2015
27-12-2017
Gamesa Wind Turbines Pvt. Ltd, Chennai..Applicant
Mytrah Energy (India) Ltd.. Respondent
!Counsel for Applicant: Sri B.Chandrasen Reddy
Counsel for respondent: Sri Vedula Venkataramana, Learned
Senior Counsel for Sri Girish
Govardhan Deshmukh, Learned
Counsel.
<GIST:
>HEAD NOTE:
? Citations:
1. (1988) 4 SCC 534
2. (1992) 2 SCC 683
3. (2017) 7 SCC 729
4. AIR 1964 SC 1419
5. (2005) 6 SCC 138
6. (2000) 2 SCC 617
7. AIR 1987 SC 2235
8. AIR 1989 SC 1972
9. AIR 1999 SC 393
10. (1997) 1 SCC 134
11. (1985) 1 SCC 260
HONBLE THE ACTING CHIEF JUSTICE RAMESH RANGANATHAN
ARBITRATION APPLICATION NO.55 OF 2015
ORDER:
Arbitration Application No.819 of 2016 is filed, by the
applicant in Arbitration Application No.55 of 2015, to appoint a co-
Arbitrator in the place of late Sri Justice T.Ch. Surya Rao by
modifying the order dated 11.12.2015 in Application No.1451 of
2015.
Facts, to the limited extent necessary, are that the applicant
herein filed Arbitration Application No.55 of 2015 under Section
11(4) and (6) of the Arbitration and Conciliation Act, 1996
(hereinafter called the Act) requesting this Court to appoint an
Arbitrator, as the respondent had failed to appoint its nominee as
an Arbitrator in terms of the Arbitration Agreement dated
25.04.2013. Originally an order dated 20.11.2015 was passed
appointing Sri Justice M. Jagannadha Rao, retired Judge of the
Supreme Court, as the sole arbitrator. Thereafter Arbitration
Application No.1451 of 2015 was filed by the applicant bringing it
to the notice of this Court that, in terms of the Clause 22-A of the
Agreement dated 25.04.2013, the earlier order dated 20.11.2015
was required to be modified as the Arbitration Agreement required
each party to the agreement to appoint an arbitrator, and the two
appointed Arbitrators to appoint a third arbitrator to act as the
Presiding Arbitrator; the applicant had appointed Sri Justice R.
Balasubrahmanian, Retired Judge of the Madras High Court, as
their nominee, and this Court should appoint an arbitrator on
behalf of the respondent.
The earlier order dated 20.11.2015 was modified in
Application No.1451 of 2015 in Arbitration Application No.55 of
2015 dated 11.12.2015, and Sri Justice T.Ch.Surya Rao, a retired
Judge of this High Court, was appointed as an Arbitrator on behalf
of the respondent. Both the arbitrators were requested to appoint
a third arbitrator to act as the Presiding Arbitrator, and the then
Acting Chief Justice left it open to them to consider Sri Justice M.
Jagannadha Rao, retired Judge of the Supreme Court, as the third
arbitrator. Sri Justice T.Ch. Surya Rao passed away on
01.02.2016 before the first hearing scheduled to be held on
20.02.2016.
The Applicant submits that, in view of the demise of the
Co-Arbitrator, it has become necessary for them to approach this
Court for appointment of a Co-Arbitrator to be a member of the
Arbitral Tribunal; and this Court should appoint a co-arbitrator in
the place of late Sri Justice T.Ch. Surya Rao by modifying the
order dated 11.12.2015 passed in Application No.1451 of 2015 in
Arbitration Application No.55 of 2015. In the counter-affidavit,
filed on behalf of the respondent, it is stated that, on the demise of
late Sri Justice T.Ch. Surya Rao, the answering respondent had
the right to suggest/nominate its arbitrator to make up the
vacancy which had occurred due to his death; they had already
exercised such a right by communicating, to Justice M.
Jagannadha Rao, the Presiding Officer of the Tribunal through e-
mail dated 26.02.2016, that they had approached Sri Justice C.V.
Ramulu as their arbitrator; and, as the agreed procedure
prescribed under the contract had been followed, there was no
cause of action for maintaining the present application under
Section 11 of the Act.
Sri B. Chandrasen Reddy, Learned counsel for the applicant,
would submit that the present application, filed under Section
11(6) of the Act, is maintainable as the earlier appointment of Late
Sri Justice T.Ch. Surya Rao was made by this Court under
Section 11(6) of the Act; under Section 15(2) of the Act, once
the mandate of the arbitrator terminates, substitution of the
arbitrator shall be made according to the rules that were
applicable to the appointment of the arbitrator being replaced;
the rules, that are applicable to an arbitrator being replaced,
should be read as the rules that were applicable at the time of
appointment of the earlier arbitrator; the earlier arbitrator was
appointed by this Court under the Act, and the same rules
are applicable, the substitute Arbitrator should also be
appointed by this Court in the same manner; the intention of
the legislature, in using the expression, that the substitute Arbitrator
should be appointed according to the rules that were applicable for
appointment of the arbitrator being replaced, should be given due
regard; the legislature has not used the expression that the
substitute arbitrator shall be appointed "in accordance with the
procedure laid down in the arbitrator agreement" executed between
the parties; there is a clear distinction between the two
propositions; and only this Court has jurisdiction to appoint
the substitute Arbitrator.
On the other hand Sri Vedula Venkataramana, Learned
Senior counsel appearing on behalf of the respondent, would
submit that, since Arbitration Application No.55 of 2015 filed
under Section 11 (5) and (6) of the Act has already been disposed
of, the present petition, filed under Section 151 CPC, is not
maintainable; the power of the High Court to appoint an arbitrator
would arise only when there is a default by either of the parties to
appoint their respective arbitrators; this is evident from the
language of Section 11 (3) and (4) of the 1996 Act; except for
Section 11(6), this Court lacks jurisdiction to appoint or supply
a vacancy in the office of an arbitrator; there is no default on the
part of the respondent in suggesting/appointing its arbitrator; it
has already appointed Justice C.V. Ramulu, as its nominee,
after the death of Justice T. Ch. Surya Rao; Section 15 (2) of the
Act provides for the substitution of an arbitrator as per the
original rules; the Rules would mean the arbitral clause also; the
respondent would be disentitled to appoint an arbitrator on its
behalf, in terms of the arbitration clause of the agreement, only
during the lifetime of the arbitrator appointed by the court; when
once the arbitrator, appointed by the Court, ceases to hold office
either due to resignation or death, the situation reverts back to
the original stage enabling a party to the agreement to suggest/
appoint its arbitrator in accordance with the arbitration
agreement; failure to appoint an arbitrator at an earlier point of
time, cannot result in a permanent disqualification; Section 15 (2)
of the Act would revive the lost opportunity, and enable the
respondent to nominate/appoint its arbitrator on the demise of
the earlier arbitrators, appointed on its behalf, by this Court; any
other construction placed on Section 15(2) of the Act would result
in anomaly and injustice; it is only if the respondent had not
appointed its arbitrator, within 30 days from the date of the death
of late Sri Justice T.Ch. Surya Rao, would the Applicant be entitled
to seek appointment of a substitute arbitrator under Section 11 (6)
of the Act; and since there is no vacancy requiring the Court to
appoint an arbitrator, for the reason that the respondent has
already appointed Justice C.V. Ramulu as its arbitrator, this
petition, filed under Section 11(6) of the Act, is not maintainable in
law.
Before considering the rival submissions, it is useful to refer,
albeit briefly, to the Statement of Objects and Reasons, and the
relevant provisions of the Act. The Statement of Objects and
Reasons for enacting the Arbitration and Conciliation Act, 1996
(for short, the Act) lists the main objects of the Bill which, among
others, is to make provision for an arbitral procedure which is fair,
efficient and capable of meeting the needs of the specific
arbitration; and to minimise the supervisory role of Courts in the
arbitral process. Section 5 prescribes the extent of judicial
intervention and provides that, notwithstanding anything
contained in any other law for the time being in force, in matters
governed by Part I of the Act (Section 2 to 43), no judicial
authority shall intervene except where so provided in Part I of the
Act. Section 7(1) of the Act defines an arbitration agreement to
mean an agreement by the parties to submit to arbitration all or
certain disputes which have arisen, or which may arise between
them, in respect of a defined legal relationship, whether
contractual or not.
Chapter III of the Act relates to the composition of the
Arbitral Tribunal, and Section 10(1) gives the parties the freedom
to determine the number of arbitrators, provided that such
number shall not be an even number. Section 11 relates to the
appointment of arbitrators. Section 11(1) stipulates that a person
of any nationality may be an arbitrator, unless otherwise agreed by
the parties. Section 11(2) provides that, subject to sub-section (6),
the parties are free to agree on a procedure for appointing the
arbitrator or arbitrators. Section 11(3) stipulates that failing any
agreement referred to in sub-section (2), in an arbitration with
three arbitrators, each party shall appoint one arbitrator, and the
two appointed arbitrators shall appoint the third arbitrator who
shall act as the presiding arbitrator. Section 11(4) stipulates that,
if the appointment procedure in sub-section (3) applies, and (a) a
party fails to appoint an arbitrator within thirty days from the
receipt of a request to do so from the other party or (b) the two
appointed arbitrators fail to agree on the third arbitrator within
thirty days from the date of their appointment, the appointment
shall be made, upon the request of a party, by the High Court.
Section 11(6) stipulates that where, under an appointment
procedure agreed upon by the parties, (a) a party fails to act as
required under that procedure; or (b) the parties, or the two
appointed arbitrators, fail to reach an agreement expected of them
under that procedure; or (c) a person, including an institution, fails
to perform any function entrusted to him or it under that
procedure, a party may request the High Court to take necessary
measures, unless the agreement, or the appointment procedure,
provides other means for securing the appointment. Section
11(6A), as inserted by Act 3 of 2016 with effect from 23.10.2015,
stipulates that the High Court, while considering any application
under sub-sections (4) or (5) or (6), shall, notwithstanding any
judgment, decree or order of any Court, confine to the examination
of the existence of an arbitration agreement.
While Sub-section (5) of Section 11, as it stood prior to its
amendment by Act 3 of 2016 with effect from 23.10.2015, enabled
a party to the arbitration agreement to request the Chief Justice,
or his designate, to appoint an arbitrator, Sub-section (6) enabled
the party to request that "the necessary measure" be taken. The
distinction between the words "the necessary measure" in Sub-section
(6) of Section 11 of the Act, and the word "appointment" in Sub-
section (5), is significant. In the absence of an appointment
procedure being prescribed, in the arbitration agreement, a request
could be made to the Chief Justice or his designate (now the High
Court) to appoint an arbitrator. Where, however, a procedure to
secure the appointment of an arbitrator is prescribed in the
arbitration agreement, then the Chief Justice or his designate can
only be requested to "take the necessary measure". If the legislature
intended to confer power on the High Court to appoint an
arbitrator it would have used the same language in sub-section (6)
as it had employed in sub-section (5) of Section 11. The power of
the High Court under sub-section (6) is to take "the necessary
measure" for securing the appointment of an arbitrator and,
ordinarily, not to take upon itself the task of appointing an
arbitrator merely because one of the parties to the arbitration
agreement had requested it to do so. If the parties have agreed on a
procedure for appointing the arbitrator, as contemplated by
Section 11(2), then the appointment must be in accordance with
the said procedure and recourse to the High Court cannot be taken
straightaway. (The Iron and Steel Company Ltd. v. Tiwari Road
Lines ). Section 11(6) has application only when a party has failed
to act in terms of the arbitration agreement. (National Highways
Authority of India v. Bumihiway DDB Ltd ; Yashwitha
Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. rep
by its Managing Director ).
Section 14(1)(a) of the Act stipulates that the mandate of an
arbitrator shall terminate, and he shall be substituted by another
arbitrator if he becomes de jure or de facto unable to perform his
functions. Section 15 relates to the termination of mandate and
substitution of arbitrator. Section 15(1)(a) provides that, in
addition to the circumstances referred to in Section 13 or 14, the
mandate of an arbitrator shall terminate where he withdraws from
office for any reason. Section 15(2) stipulates that, where the
mandate of an arbitrator terminates, a substitute arbitrator shall
be appointed according to the rules that were applicable to the
appointment of the arbitrator being replaced. Section 15(3)
stipulates that unless otherwise agreed by the parties, where an
arbitrator was replaced under sub-section (2), any hearings
previously held may be repeated at the discretion of the arbitral
tribunal.
Clause 22A of the agreement dated 04.05.2011, entered into
between the applicant and the respondent, reads thus:
22A. ARBITRATION
(i) If any disagreement arises out of or in connection with the
validity, application or interpretation of this agreement (the
Dispute), the parties shall endeavour in good faith to resolve
the dispute through negotiation within 30 (thirty) days of a
written notice setting out the nature of such dispute.
(ii) In the event that any dispute is unable to be resolved between
the parties pursuant to Clause 22A(1) within 30 (thirty) days of
receipt of the notice under Clause 22A(1), then such dispute
shall be referred to arbitration.
(iii) The arbitration will be conducted as per the Arbitration and
Conciliation Act, 1996 under the rules of the Singapore
International Arbitration Centre. The arbitral tribunal shall
comprise of 3 (three) arbitrators. Each party shall appoint one
arbitrator, and the two arbitrators so appointed shall appoint
the third arbitrator. The place of arbitration for any disputes
shall be Bangalore. The language to be used in the arbitral
proceedings shall be English.
(iv) Responsibility of payment for all costs of arbitration, excepting
counsel fees, shall be as per the arbitration award.
(v) While any dispute under this agreement is pending and except
where this agreement has been terminated in accordance with
the terms of this agreement and/or any of the project
agreements, the parties shall continue to perform all of their
respective obligations under this agreement without prejudice
to the final determination in accordance with the provisions
under this Clause 22A.
In terms of sub-clause (iii) of Clause 22-A of the aforesaid
agreement, the arbitral tribunal is to comprise of three arbitrators,
each party to appoint one arbitrator, and the two arbitrators to
appoint the third arbitrator. As the respondent had earlier failed
to appoint an arbitrator on their behalf, the jurisdiction of the
Chief Justice was invoked by the applicant, under Section 11(4)
and (6) of the Act, complaining that, while they had appointed
Justice R. Balasubramannian, (Retd. Judge of the Madras High
Court), the respondent had failed to appoint an arbitrator on their
behalf. The then Acting Chief Justice had appointed Sri Justice
T.Ch. Surya Rao as an arbitrator on behalf of the respondent. On
the demise of Justice T.Ch. Surya Rao, a substitute arbitrator was
required to be appointed in his place. While the aforesaid
arbitration clause does not specifically provide for appointment of a
substitute arbitrator, Section 15(2) of the 1996 Act requires a
substitute arbitrator to be appointed in accordance with the rules
applicable to the appointment of the arbitrator being replaced.
The question which arises for consideration is what do the
words, rules that are applicable to the appointment of the arbitrator being
replaced, used in Section 15(2) of the Act, mean? A party, who has
entered into an arbitration agreement with another, should not be
permitted to resile therefrom. When the mandate of the arbitrator
stands terminated, appointment of an arbitrator should,
necessarily. be made in accordance with the arbitration clause of
the agreement. (National Highways Authority of India2;
Yashwitha Constructions (P) Ltd.3). Where the mandate of the
arbitrator stands terminated for any reason, it falls within the
purview of Section 15(1)(a) of the Act, and attracts Section 15(2) of
the Act. (National Highways Authority of India2).
Unless the arbitration agreement between the parties
categorically prohibits or debars resolution of a dispute or
difference between the parties by a substitute arbitrator, in the
case of death of the named arbitrator or non-availability of the said
arbitrator, the power to appoint a substitute arbitrator is given by
Section 15(2) of the Act which should be given liberal
interpretation so as to apply to all possible circumstances under
which the mandate of the earlier arbitrator may have been
terminated. (SBP and Co. v. Patel Engg. Ltd. ). Even if there is
no specific provision in the arbitration agreement authorizing
appointment of a substitute arbitrator on the termination of the
original appointment, or when the originally appointed arbitrator
withdraws from arbitration or is no more, this omission in the
arbitration agreement is made up by the specific provision
in Section 15(2) of the Act. (Yashwitha Constructions (P) Ltd.3).
Section 15(2), when it refers to the applicable rules, does not
confine appointment of a substitute arbitrator to a statutory rule,
or a rule framed under the Act, or under the scheme. It refers to
the provision for appointment contained in the arbitration
agreement, or any rules of any institution under which the
disputes are to be referred to arbitration. Section 15(2) requires a
substitute arbitrator to be appointed according to the original
agreement or provision applicable to the appointment of the
arbitrator at the initial stage. (Shailesh Dhairyawan v. Mohan
Balkrishna Lulla ; Yashwitha Constructions (P) Ltd.3).
As the rules referred to in Section 15(2) is the arbitration
agreement, the procedure prescribed, for appointment of
arbitrators, in the arbitration agreement are the rules which are
applicable to the appointment of a substitute arbitrator also. Since
the arbitration agreement (i.e., Clause 22-A(iii)) of the agreement
requires each party to nominate an arbitrator, the requirement of
the rules, referred to in Section 15(2) of the Act, is for the
respondent to nominate its arbitrator on the death of the previous
arbitrator appointed on their behalf. The procedure, to be followed
in the appointment of a substitute arbitrator, is the same as the
procedure relating to the initial appointment of the arbitrator, i.e.,
in terms of Clause 22-A(iii) of the agreement dated 04.05.2011.
Consequently it is only if the respondent had failed to adhere to
the procedure, prescribed in Clause 22-A(iii) of the agreement, in
appointing an arbitrator (be it the original or the substitute
arbitrator), could the applicant have invoked the jurisdiction of the
High Court under Section 11(6) of the Act requesting it to take the
necessary measure.
Primacy is given to the procedure agreed upon by the
parties, to appoint an arbitrator, failing which alone does the Act
permit judicial interference. In exercising its jurisdiction
under Section 11(6) to take "the necessary measure", the High Court
should, as far as possible, act in such a manner as to effectuate
the arbitration agreement entered into between the parties.
(Yashwitha Constructions (P) Ltd.3). When parties have entered
into a contract, and have settled on a procedure, due importance
should be given by the High Court to such a procedure. The
parties are, normally, bound by the arbitration clause, and are
obliged to comply with the procedure laid down therein. (Datar
Switchgears Ltd. v. Tata Finance Ltd. ). Since Section
15(2) requires a substitute arbitrator to be appointed in
accordance with the arbitration agreement, the High Court, while
taking "the necessary measure" under Section 11(6), cannot usurp the
powers conferred by the agreement on the respondent to appoint a
substitute arbitrator. On a harmonious construction of Sections
11(6) and 15(2) it must be held that on the mandate of an
arbitrator being terminated and only if the respondent, in
accordance with the arbitration agreement, fails to appoint a
substitute arbitrator, can the jurisdiction of the High Court be
invoked under Section 11(6) of the Act. (Yashwitha Constructions
(P) Ltd.3).
In the present case, soon after the demise of late Sri Justice
T.Ch. Surya Rao, and even before the applicant could make a
request, the respondent had appointed Sri Justice C.V. Ramulu as
an arbitrator on their behalf. The jurisdiction of the High Court,
under Section 11(6)(a) of the Act to take the necessary measure,
can be invoked by a party only where the other party fails to
appoint an arbitrator in terms of the appointment procedure
prescribed under the agreement. It is only if, on the termination of
the mandate of the earlier arbitrator, the respondent had failed to
appoint a substitute arbitrator in accordance with Clause 22A(iii)
of the agreement, despite a specific request in this regard by the
applicant, could the applicant have invoked the jurisdiction of the
High Court under Section 11(4(a) seeking appointment of an
arbitrator on behalf of the respondent, or for necessary measures
to be taken under Section 11(6)(a) of the Act. As the respondent
has acted in accordance with the appointment procedure
prescribed under Clause 22-A(iii) of the arbitration agreement, and
has appointed Sri Justice C.V. Ramulu as their arbitrator, Section
11(4)(a) and Section 11(6)(a) are not attracted. Neither Section
11(4)(a) nor Section 11(6)(a) of the Act confer jurisdiction on the
High Court to appoint a substitute arbitrator, when the respondent
has, in terms of the arbitration agreement, appointed a substitute
arbitrator in the place of the arbitrator whose mandate stood
terminated. Consequently, the applicant was not entitled to invoke
the jurisdiction of the High Court to take the necessary measure,
to appoint an arbitrator in the place of late Sri Justice T.Ch. Surya
Rao.
Is a different procedure required to be adopted in cases
where failure of one of the parties to the arbitration agreement to
nominate its arbitrator earlier, had resulted in an arbitrator being
appointed on its behalf by the High Court under Sections 11(4) and
(6) of the Act? The answer can only be in the negative. Firstly,
because Sections 11(4) and (6) are statutory provisions, and are
not the rules applicable to the appointment of the arbitrator being
replaced. It is the arbitration agreement which constitutes the
rules applicable to the appointment of the arbitrator being
replaced. Secondly, the very purpose of the Act, as is evident from
the Statement of Objects and Reasons, is to minimise the
supervisory role of Courts in the arbitral process, which would
mean from the commencement of arbitral proceedings under
Section 21 of the Act. The present application, whereby a request
is made for appointment of a substitute arbitrator, (in the place of
Sri Justice T.Ch. Surya Rao the earlier arbitrator), under Section
11(6) of the Act is on the erroneous premise that since the
respondent had failed to appoint an arbitrator on their behalf
earlier, which resulted in the then Acting Chief Justice appointing
an Arbitrator on their behalf, the respondent had forfeited their
right to appoint an arbitrator, on their behalf, for all times to come,
and a substitute arbitrator could, therefore, only be appointed by
the High Court under Section 11(6) of the Act. This premise is
flawed for the reasons that (i) the Act gives primacy to the intention
of the parties as is reflected in the arbitration clause of the
agreement; (ii) Section 5 of the Act prohibits judicial intervention
except where explicitly provided under the Act, and there is no
specific provision in the Act which requires the High Court to
appoint a substitute arbitrator if it had earlier appointed the
arbitrator whose mandate stood terminated; and (iii) the rules,
referred to in Section 15(2), is the arbitrator agreement, and not
the provisions of the Act or the rules made thereunder.
Further, parties to the arbitration agreement have been
statutorily conferred (by Section 11(2) of the Act) the freedom to
nominate an arbitrator of their choice. While a party, which had
failed to exercise its right earlier to appoint an arbitrator in terms
of the agreement, resulting in an arbitrator being appointed by the
High Court, under Section 11(4) and (6) of the Act, would not be
entitled to seek substitution of such an arbitrator except on
grounds specified in Sections 13, 14 and 15(1), and following the
procedure prescribed in Section 15(2) of the Act, termination of the
mandate of the arbitrator, appointed either by the parties to the
agreement or by the High Court, would result in the situation
reverting back to the original position, and thereafter the
procedure prescribed under the agreement, for appointment of the
original arbitrator, would apply in the appointment of the
substitute arbitrator. Consequently, it is only if, on a request
made by the other party, the party which is required to nominate
the substitute arbitrator fails to do so, would the party making the
request then be entitled to invoke the jurisdiction of the High
Court, under Section 11(4) and (6) of the Act, seeking appointment
of an arbitrator on behalf of the other. If, on the other hand, the
party to the agreement has exercised its right to appoint a
substitute arbitrator, and the vacancy caused, as a result of the
mandate of the earlier arbitrator being terminated, has been filled
up, the High Court cannot be called upon to fill up a non-existent
vacancy. The mere fact that they had failed to nominate an
arbitrator earlier, in terms of the arbitration agreement, would not
disable them, for all times to come, from exercising their right,
under the arbitration agreement, to nominate their arbitrator in
the place of the arbitrator whose mandate stood terminated under
Sections 13, 14 and 15 of the Act (in the present case on the death
of the earlier arbitrator).
It is only if the respondent had failed to exercise their right
to appoint a substitute arbitrator, could the High Court have
assumed jurisdiction under Section 11(6) of the Act. (National
Highways Authority of India2; Yashwitha Constructions (P)
Ltd.3). Section 11(6) of the Act has application only when a party,
or the person concerned, has failed to act in terms of the
arbitration agreement. (Shailesh Dhairyawan5; Yashwitha
Constructions (P) Ltd.3). In the present case, the agreement
specifically prescribes a procedure for appointment of an
arbitrator, which rules also apply for appointment of a substitute
arbitrator. (Yashwitha Constructions (P) Ltd.3).
In the light of the aforesaid observations, let us now examine
the judgments relied on by Learned Counsel on either side. In
Datar Switchgears Ltd.6, the respondent appointed an arbitrator
beyond 30 days of the request, but before the appellant had filed
the application under Section 11 of the Act. The question, which
arose for the consideration of the Supreme Court, was whether, in
a case falling under Section 11(6), the opposite party was disabled
from appointing an arbitrator after expiry of 30 days from the date
of demand. It is in this context that the Supreme Court held that
an application, under Section 11(6), can be filed when there is a
failure of the procedure for appointment of Arbitrator; this failure
of procedure can arise under different circumstances; it can be a
case where a party who is bound to appoint an Arbitrator refuses
to appoint the Arbitrator or where two appointed Arbitrators fail to
appoint the third Arbitrator; the aggrieved party can then approach
the Chief Justice for appointment of Arbitrator; no time limit has
been prescribed under Section 11(6) of the Act, whereas a period of
30 days has been prescribed under Sections 11(4) and (5) of the
Act; so far as Section 11(6) is concerned, if one party demands the
opposite party to appoint an arbitrator, and the opposite party
does not make an appointment within 30 days of the demand, the
right to appointment does not get automatically forfeited after
expiry of 30 days; if the opposite party makes an appointment even
after 30 days of the demand, but before the first party has moved
the Court under Section 11(6), that would be sufficient; but an
appointment has to be made before an application is filed
under Section 11(6) seeking appointment of an arbitrator; and
thereafter the right of the party, to appoint an arbitrator, ceases.
The law declared in Datar Switchgears Ltd.6 is that, failure
of one of the parties to the agreement to appoint an arbitrator on
being so requested by the other party, resulting in the latter
invoking the jurisdiction of the High Court under Section 11(6) of
the 1996 Act, would disable the party, who failed to appoint an
arbitrator, from doing so thereafter, and it is only the High Court
which can then appoint an arbitrator. In Datar Switchgears Ltd.6
neither was the scope of Section 15(2) examined, nor the question
whether, consequent upon the earlier arbitrator having been
appointed by the High Court under Section 11(6) of the Act, the
substitute arbitrator should also be appointed only by the High
Court, and not by the party on whom the right to appoint an
arbitrator is conferred by the arbitration agreement.
In M/s. Yashwith Constructions (P) Ltd. v. M/s. Simplex
Concrete Piles India Ltd. , on a dispute having arisen, the
Managing Director of the respondent company appointed an
arbitrator in terms of the arbitration clause; the arbitrator
resigned; thereupon the Managing Director of the respondent
company, in view of the mandate in the arbitration agreement,
promptly appointed another arbitrator; at that stage, the petitioner
approached the Chief Justice of the High Court under Section
11(6) read with Section 15(2) of the Act praying that the Chief
Justice may appoint a substitute arbitrator to resolve the disputes
between the parties; and the Chief Justice held that no occasion
arose for him to appoint an arbitrator under Section 11(6) of the
Act in the case.
It is in this context that the Supreme Court observed that
there was no specific provision in the arbitration agreement
authorizing the Managing Director to appoint a substitute
arbitrator if the original appointment terminated or if the originally
appointed arbitrator withdrew from arbitration; this so called
omission in the arbitration agreement was made up by the specific
provision contained in Section 15(2) of the Act; withdrawal of an
arbitrator from office for any reason was within the purview
of Section 15(1)(a) of the Act; therefore Section 15(2) would be
attracted, and a substitute arbitrator had to be appointed
according to the rules that were applicable for the appointment of
the arbitrator to be replaced; what Section 15(2) contemplated was
appointment of a substitute arbitrator, or the replacement of the
arbitrator by another, according to the rules that were applicable
to the appointment of the original arbitrator who was being
replaced; the term "rules", in Section 15(2), obviously referred to
the provision for appointment contained in the arbitration
agreement, or any Rules of any Institution under which the
disputes were referred to arbitration; when Section 15(2) said that
a substitute arbitrator can be appointed, according to the rules
that were applicable for the appointment of the arbitrator
originally, it was not confined to an appointment under any
statutory rule or rule framed under the Act or under the Scheme; it
only meant that appointment of a substitute arbitrator must be
done according to the original agreement, or provision applicable to
the appointment of the arbitrator at the initial stage; and they were
not in a position to agree with the contrary view taken by some of
the High Courts. The law declared in M/s. Yashwith
Constructions (P) Ltd.7 is that the rules governing appointment
of a substitute arbitrator, (as is referred to in Section 15(2) of the
Act), is not confined to any statutory rules or rules made under the
Act or under a Scheme framed under the Act, but only means that
a substitute arbitrator should be appointed in accordance with the
arbitration agreement.
In National Highways Authority of India2, after
appointment of the presiding arbitrator, the arbitrator, appointed
by the appellant, resigned; the new arbitrator, nominated by the
appellant, did not accept the appointment; thereafter on the
vacancy created by the resignation of the presiding arbitrator, the
process of appointment of the presiding arbitrator started afresh in
accordance with the agreed terms of the contract; the appellant
appointed its arbitrator, and the process of discussion, between
the two nominated arbitrators, was reinitiated as per the agreed
contractual terms, and in accordance with Section 15(2) of the Act;
the two arbitrators failed to arrive at a consensus and therefore,
after 30 days, the appellant referred the issue of appointment of
the presiding arbitrator to the IRC; however, the process which had
been reinitiated by the two nominated arbitrators was restrained
by the High Court.
It was contended, on behalf of the appellant, that Sections
15(1) and 15(2) were complete and wholesome, and contradistinct
to Section 11(6); the resignation of the presiding arbitrator brought
the matter back from the vestiges of Section 11(6), (though in the
first place in law there were none), and brought the matter
squarely within Section 15(2); any decision given under Section
11(6) would tantamount to putting the Act upside down; and the
scope of Section 15(2) was no longer res integra as per the dictum
in M/s. Yashwith Constructions (P) Ltd.7. On the other hand, it
was contended on behalf of the respondent, that there had been a
judicial determination by the High Court which was based on the
reasoning that, hierarchically, a judicial arbitrator must sit with
another Judge only.
It is in this context that the Supreme Court held that the
situation which existed prior to the resignation of the presiding
arbitrator, and those which came about subsequent thereto, only
affirmed that the vacancy created by the resignation of the
presiding arbitrator was accepted by the parties to be filled up in
accordance with the original rules of appointment, which was
wholly in consonance with Section 15(2) of the Act; the
appointment, made by the High Court, was against the express
provisions of the contract as held in You One Engg. &
Construction Co. Ltd. v. National Highways Authority of
India , reaffirming that, once the arbitration agreement clearly
envisages appointment of the presiding arbitrator by the IRC, there
was no qualification that the arbitrator had to be a different person
depending on the nature of the dispute; if the parties had entered
into such an agreement with open eyes, it was not open to ignore it
and invoke the powers under Section 11(6); in the present case, by
making a reference to the High Court under Section 11(6) and
alleging that one of the arbitrators was a retired judicial person,
the respondent has only admitted to rewrite the contract between
the parties, which is against the law of the land; the respondent
had wrongly invoked the jurisdiction of the High Court, without
first following the procedure agreed to between the parties; no
cause of action had arisen in the facts of the case to seek
appointment from the High Court under Section 11(6) of the Act,
and the said petition was premature; there did not exist any such
provision in law which required that, if one of the arbitrators was a
retired Judge, the presiding arbitrator also had to be a retired
Judge; the parties had entered into a contract after fully
understanding the import of the terms so agreed upon, from which
there could not be any deviation; and the parties were required to
comply with the procedure of appointment as agreed to.
In Magma Leasing Limited v. Tonganagaon Tea Co Pvt.
Ltd. the Calcutta High Court held that, under Section 15(2) of the
Act, where the mandate of the Arbitrator is terminated, a
substitute Arbitrator should be appointed according to the rules
that were applicable to the appointment of the Arbitrator being re-
placed; the named Arbitrator had refused to act and, on an
application under Section 11 of the Act, the Chief Justice had
appointed Mr. P.K. Banerjee, retired Chief Justice of the Rajasthan
High Court, as the learned Arbitrator; and when the mandate of
the learned Arbitrator had been terminated, the petitioner had
rightly approached the Court for appointment of the Arbitrator by
the Chief Justice in the place of the outgoing learned Arbitrator. In
Magma Leasing Limited9, while appointment of a substitute
arbitrator by the Chief Justice of the Calcutta High Court was held
valid, the said judgment does not indicate why, on the mandate of
the earlier arbitrator being terminated, the party, on whom the
arbitration agreement confers a right to appoint an arbitrator,
cannot do so.
In Ramjee Power Construction Ltd. v. Damodar Valley
Corporation , the question which arose for consideration in the
Arbitration Application was whether, upon the death, resignation
or termination of the mandate of an Arbitrator appointed by the
Chief Justice under Section 11(6) of the Act, a substitute Arbitrator
was required to be appointed only by the Chief Justice and/or his
designate, or whether such appointment should be made in
accordance with the arbitration agreement. The dispute had
arisen in connection with a contract which, inter alia, contained an
arbitration clause which read thus:-
"ARBITRATION: Except where otherwise provided in the contract
all question and disputes relating to the meaning of specifications,
designs, drawings and instructions herein contained and as to the
quality of the workmanship or materials used on the work or as to any
other question claim, right, matter or thing whatsoever in any way
arising out of or relating to the contract, designs, drawings,
specifications, estimates, instructions, orders or these conditions or
otherwise concerning the works or the execution or failure to execute the
same whether arising during the progress of the work or after the
completion or abandonment therefore shall be referred to the sole
arbitration of a person appointed by the DVC who may or may not be a
DVC Officer.
Such appointment shall not be objected on the ground that the
arbitrator so appointed is a DVC Official or that he had to deal with
matters to which the agreement rules and in the course of his duties as
DVC official he had expressed views on all or any of the matter in
disputes or difference. The award of the arbitrator so appointed shall be
final, conclusive and binding on all parties to the contract."
The Calcutta High Court held that the language and tenor
of Section 15(2) was significant; the Legislature had, in its wisdom,
carefully used the expression "the substitute arbitrator shall be appointed
according to the rules that were applicable to the appointment of the arbitrator
being replaced", instead of using the expression "the substitute
arbitrator shall be appointed in accordance with the procedure for appointment
laid down in the arbitration agreement executed between the parties; if the
legislative intent was that a substitute arbitrator should always be
appointed in accordance with the procedure agreed upon by the
parties, irrespective of whether the arbitrator being replaced was
appointed by the Chief Justice or his designate, the legislature
would perhaps have not used the expression in accordance with the
rules that were applicable to the appointment of the arbitrator being replaced;
in this case, the erstwhile arbitrator was appointed in accordance
with Section 11(6) of the Act, read with the Rules framed by the
Court, and the Rules that have evolved with practice; an arbitrator
must be appointed in accordance with the procedure agreed
between the parties; if however the party, required in terms of the
agreement to appoint or to agree to an arbitrator, fails to do so
within the time stipulated in the agreement and/or in Section 11 of
the Act, the other party may request the Chief Justice or his
designate to appoint an arbitrator under Section 11; once an
application under Section 11 is made, the right of the other party
to appoint an arbitrator, in accordance with the agreement, gets
extinguished; the right under the agreement, of a party, to appoint
an arbitrator, which stands extinguished once an application
under Section 11(6) is made, does not revive, if the arbitrator
appointed by the Chief Justice resigns and/or his mandate is
terminated; the expression "rules that were applicable to the appointment
of the arbitrator being replaced" in Section 15 have been chosen
carefully; if the arbitrator being replaced was appointed by the
Chief Justice and/ or his designate, in accordance with Section
11 of the Act read with the applicable rules, the substitute
arbitrator should also be appointed by the Chief Justice and/or his
designate in the same manner; it is immaterial that the respondent
has appointed an arbitrator in the meanwhile; and appointment of
the arbitrator by the respondent, after filing of this application, is
of no consequence.
The Calcutta High Court in Ramjee Power Construction
Ltd10, held that if the arbitrator being replaced was appointed by
the Chief Justice and/or his designate, in accordance with Section
11 of the Act read with the applicable rules, the substitute
arbitrator must also be appointed by the Chief Justice and/or his
designate in the same manner. The premise, on which this
conclusion is based, is that the words rules that are applicable to the
appointment of the arbitrator being replaced in Section 15(2) of the Act
refers to Section 11 of the Act and the applicable rules, for it is
only then can it be said that a party to the agreement loses his
right to appoint a substitute arbitrator, if he had failed to exercise
his right earlier to appoint the original arbitrator and his failure to
do so had resulted in the jurisdiction of the High Court, under
Section 11(6) of the Act, being invoked. As noted hereinabove, the
Supreme Court, in M/s. Yashwith Constructions Pvt Ltd7, has
held that the rules, referred to in Section 15(2), are the rules
applicable to the appointment of the original arbitrator (the
arbitration agreement), and not to any statutory rules or rules
made under the Act or a Scheme framed under the Act.
In Ignatius Tony Pereira v. Mr.Pifran Sanjivan
Fernandes , the Bombay High Court, following the judgment of
the Calcutta High Court in Ramjee Power Construction Ltd.10,
held that an arbitrator must be appointed in accordance with the
procedure agreed between the parties; if, however, the party
required, in terms of the agreement, to appoint or to agree to an
arbitrator failed to do so within the time stipulated in the
agreement, and/or in Section 11 of the Act, the other party may
request the Chief Justice or his designate to appoint an arbitrator
under Section 11; once an application under Section 11 is made,
the right of the other party to appoint an arbitrator, in accordance
with the agreement, gets extinguished; the right of a party to
appoint an arbitrator under the agreement, which stands
extinguished once an application under Section 11 (6) is made,
does not revive, if the arbitrator appointed by the Chief Justice
resigns and/or his mandate is terminated; the expression "rules
that were applicable to the appointment of the arbitrator being replaced" in
Section 15, have been carefully chosen; if the arbitrator being
replaced was appointed by the Chief Justice and/ or his designate,
in accordance with Section 11 of the Act read with the applicable
rules, the substitute arbitrator would also have to be appointed by
the Chief Justice and/or his designate in the same manner; it was
immaterial that the respondent had appointed an arbitrator in the
meanwhile; and appointment of the arbitrator by the respondent,
after filing of the application, was of no consequence.
I find it difficult to concur with the opinion of the Bombay
High Court in Ignatius Tony Pereira11, and the Calcutta High
Court in Ramjee Power Construction Ltd10, wherein it has been
held that, once an arbitrator is appointed by the Chief Justice of
the High Court under Section 11, the right of the other party to
appoint a substitute arbitrator, in accordance with the agreement,
gets extinguished forever. My inability to agree is, firstly, because
the rules referred to in Section 15(2), (as held by the Supreme
Court in M/s. Yashwith Constructions (P) Ltd7), is the arbitration
agreement; secondly, because Section 5 of the Act permits judicial
intervention only when specifically provided under Part-I of the
Act; and there is no specific provision in Part-I of the Act, much
less in Section 15 thereof, stipulating that, if the earlier arbitrator
is appointed by the High Court under Section 11(4) & (6) of the Act,
the substitute arbitrator must also be appointed only by the High
Court and not by the party to the agreement. Since the very object
of the Act is to minimise the supervisory role of Courts in the
arbitral process, and to give primacy to the agreement between the
parties, there is no justifiable reason why a party to the arbitration
agreement should, forever, be denied his right to appoint a
substitute arbitrator, on the mandate of the earlier arbitrator being
terminated, merely because he had failed to exercise his right, to
appoint an arbitrator, earlier.
The respondent is entitled, in terms of Clause 22-A(iii) of the
agreement, to appoint a substitute arbitrator even if they had failed
to appoint an arbitrator earlier. On their exercising their right to
appoint a substitute arbitrator, no other person can be appointed
as an arbitrator, in substitution, by the High Court. It is only if
they had failed to appoint a substitute arbitrator, despite being
requested to do so by the applicant, would the applicant then have
been entitled to invoke the jurisdiction of the High Court, under
Section 11(6) of the Act, requesting it to take the necessary measure.
As the respondent has appointed Justice C.V. Ramulu as their
substitute arbitrator, even before they were called upon by the
applicant to do so, the applicant is not entitled to invoke the
jurisdiction of the High Court, under Section 11(6) of the Act,
seeking appointment of a substitute arbitrator. The application, as
filed, is therefore not maintainable.
The arbitration application is, accordingly dismissed. The
miscellaneous petitions pending, if any, shall stand closed. No
costs.
________________________________
RAMESH RANGANATHAN, ACJ
Date:27.12.2017.
Arbitration Application No.55 of 2015
27-12-2017
Gamesa Wind Turbines Pvt. Ltd, Chennai..Applicant
Mytrah Energy (India) Ltd.. Respondent
!Counsel for Applicant: Sri B.Chandrasen Reddy
Counsel for respondent: Sri Vedula Venkataramana, Learned
Senior Counsel for Sri Girish
Govardhan Deshmukh, Learned
Counsel.
<GIST:
>HEAD NOTE:
? Citations:
1. (1988) 4 SCC 534
2. (1992) 2 SCC 683
3. (2017) 7 SCC 729
4. AIR 1964 SC 1419
5. (2005) 6 SCC 138
6. (2000) 2 SCC 617
7. AIR 1987 SC 2235
8. AIR 1989 SC 1972
9. AIR 1999 SC 393
10. (1997) 1 SCC 134
11. (1985) 1 SCC 260
HONBLE THE ACTING CHIEF JUSTICE RAMESH RANGANATHAN
ARBITRATION APPLICATION NO.55 OF 2015
ORDER:
Arbitration Application No.819 of 2016 is filed, by the
applicant in Arbitration Application No.55 of 2015, to appoint a co-
Arbitrator in the place of late Sri Justice T.Ch. Surya Rao by
modifying the order dated 11.12.2015 in Application No.1451 of
2015.
Facts, to the limited extent necessary, are that the applicant
herein filed Arbitration Application No.55 of 2015 under Section
11(4) and (6) of the Arbitration and Conciliation Act, 1996
(hereinafter called the Act) requesting this Court to appoint an
Arbitrator, as the respondent had failed to appoint its nominee as
an Arbitrator in terms of the Arbitration Agreement dated
25.04.2013. Originally an order dated 20.11.2015 was passed
appointing Sri Justice M. Jagannadha Rao, retired Judge of the
Supreme Court, as the sole arbitrator. Thereafter Arbitration
Application No.1451 of 2015 was filed by the applicant bringing it
to the notice of this Court that, in terms of the Clause 22-A of the
Agreement dated 25.04.2013, the earlier order dated 20.11.2015
was required to be modified as the Arbitration Agreement required
each party to the agreement to appoint an arbitrator, and the two
appointed Arbitrators to appoint a third arbitrator to act as the
Presiding Arbitrator; the applicant had appointed Sri Justice R.
Balasubrahmanian, Retired Judge of the Madras High Court, as
their nominee, and this Court should appoint an arbitrator on
behalf of the respondent.
The earlier order dated 20.11.2015 was modified in
Application No.1451 of 2015 in Arbitration Application No.55 of
2015 dated 11.12.2015, and Sri Justice T.Ch.Surya Rao, a retired
Judge of this High Court, was appointed as an Arbitrator on behalf
of the respondent. Both the arbitrators were requested to appoint
a third arbitrator to act as the Presiding Arbitrator, and the then
Acting Chief Justice left it open to them to consider Sri Justice M.
Jagannadha Rao, retired Judge of the Supreme Court, as the third
arbitrator. Sri Justice T.Ch. Surya Rao passed away on
01.02.2016 before the first hearing scheduled to be held on
20.02.2016.
The Applicant submits that, in view of the demise of the
Co-Arbitrator, it has become necessary for them to approach this
Court for appointment of a Co-Arbitrator to be a member of the
Arbitral Tribunal; and this Court should appoint a co-arbitrator in
the place of late Sri Justice T.Ch. Surya Rao by modifying the
order dated 11.12.2015 passed in Application No.1451 of 2015 in
Arbitration Application No.55 of 2015. In the counter-affidavit,
filed on behalf of the respondent, it is stated that, on the demise of
late Sri Justice T.Ch. Surya Rao, the answering respondent had
the right to suggest/nominate its arbitrator to make up the
vacancy which had occurred due to his death; they had already
exercised such a right by communicating, to Justice M.
Jagannadha Rao, the Presiding Officer of the Tribunal through e-
mail dated 26.02.2016, that they had approached Sri Justice C.V.
Ramulu as their arbitrator; and, as the agreed procedure
prescribed under the contract had been followed, there was no
cause of action for maintaining the present application under
Section 11 of the Act.
Sri B. Chandrasen Reddy, Learned counsel for the applicant,
would submit that the present application, filed under Section
11(6) of the Act, is maintainable as the earlier appointment of Late
Sri Justice T.Ch. Surya Rao was made by this Court under
Section 11(6) of the Act; under Section 15(2) of the Act, once
the mandate of the arbitrator terminates, substitution of the
arbitrator shall be made according to the rules that were
applicable to the appointment of the arbitrator being replaced;
the rules, that are applicable to an arbitrator being replaced,
should be read as the rules that were applicable at the time of
appointment of the earlier arbitrator; the earlier arbitrator was
appointed by this Court under the Act, and the same rules
are applicable, the substitute Arbitrator should also be
appointed by this Court in the same manner; the intention of
the legislature, in using the expression, that the substitute Arbitrator
should be appointed according to the rules that were applicable for
appointment of the arbitrator being replaced, should be given due
regard; the legislature has not used the expression that the
substitute arbitrator shall be appointed "in accordance with the
procedure laid down in the arbitrator agreement" executed between
the parties; there is a clear distinction between the two
propositions; and only this Court has jurisdiction to appoint
the substitute Arbitrator.
On the other hand Sri Vedula Venkataramana, Learned
Senior counsel appearing on behalf of the respondent, would
submit that, since Arbitration Application No.55 of 2015 filed
under Section 11 (5) and (6) of the Act has already been disposed
of, the present petition, filed under Section 151 CPC, is not
maintainable; the power of the High Court to appoint an arbitrator
would arise only when there is a default by either of the parties to
appoint their respective arbitrators; this is evident from the
language of Section 11 (3) and (4) of the 1996 Act; except for
Section 11(6), this Court lacks jurisdiction to appoint or supply
a vacancy in the office of an arbitrator; there is no default on the
part of the respondent in suggesting/appointing its arbitrator; it
has already appointed Justice C.V. Ramulu, as its nominee,
after the death of Justice T. Ch. Surya Rao; Section 15 (2) of the
Act provides for the substitution of an arbitrator as per the
original rules; the Rules would mean the arbitral clause also; the
respondent would be disentitled to appoint an arbitrator on its
behalf, in terms of the arbitration clause of the agreement, only
during the lifetime of the arbitrator appointed by the court; when
once the arbitrator, appointed by the Court, ceases to hold office
either due to resignation or death, the situation reverts back to
the original stage enabling a party to the agreement to suggest/
appoint its arbitrator in accordance with the arbitration
agreement; failure to appoint an arbitrator at an earlier point of
time, cannot result in a permanent disqualification; Section 15 (2)
of the Act would revive the lost opportunity, and enable the
respondent to nominate/appoint its arbitrator on the demise of
the earlier arbitrators, appointed on its behalf, by this Court; any
other construction placed on Section 15(2) of the Act would result
in anomaly and injustice; it is only if the respondent had not
appointed its arbitrator, within 30 days from the date of the death
of late Sri Justice T.Ch. Surya Rao, would the Applicant be entitled
to seek appointment of a substitute arbitrator under Section 11 (6)
of the Act; and since there is no vacancy requiring the Court to
appoint an arbitrator, for the reason that the respondent has
already appointed Justice C.V. Ramulu as its arbitrator, this
petition, filed under Section 11(6) of the Act, is not maintainable in
law.
Before considering the rival submissions, it is useful to refer,
albeit briefly, to the Statement of Objects and Reasons, and the
relevant provisions of the Act. The Statement of Objects and
Reasons for enacting the Arbitration and Conciliation Act, 1996
(for short, the Act) lists the main objects of the Bill which, among
others, is to make provision for an arbitral procedure which is fair,
efficient and capable of meeting the needs of the specific
arbitration; and to minimise the supervisory role of Courts in the
arbitral process. Section 5 prescribes the extent of judicial
intervention and provides that, notwithstanding anything
contained in any other law for the time being in force, in matters
governed by Part I of the Act (Section 2 to 43), no judicial
authority shall intervene except where so provided in Part I of the
Act. Section 7(1) of the Act defines an arbitration agreement to
mean an agreement by the parties to submit to arbitration all or
certain disputes which have arisen, or which may arise between
them, in respect of a defined legal relationship, whether
contractual or not.
Chapter III of the Act relates to the composition of the
Arbitral Tribunal, and Section 10(1) gives the parties the freedom
to determine the number of arbitrators, provided that such
number shall not be an even number. Section 11 relates to the
appointment of arbitrators. Section 11(1) stipulates that a person
of any nationality may be an arbitrator, unless otherwise agreed by
the parties. Section 11(2) provides that, subject to sub-section (6),
the parties are free to agree on a procedure for appointing the
arbitrator or arbitrators. Section 11(3) stipulates that failing any
agreement referred to in sub-section (2), in an arbitration with
three arbitrators, each party shall appoint one arbitrator, and the
two appointed arbitrators shall appoint the third arbitrator who
shall act as the presiding arbitrator. Section 11(4) stipulates that,
if the appointment procedure in sub-section (3) applies, and (a) a
party fails to appoint an arbitrator within thirty days from the
receipt of a request to do so from the other party or (b) the two
appointed arbitrators fail to agree on the third arbitrator within
thirty days from the date of their appointment, the appointment
shall be made, upon the request of a party, by the High Court.
Section 11(6) stipulates that where, under an appointment
procedure agreed upon by the parties, (a) a party fails to act as
required under that procedure; or (b) the parties, or the two
appointed arbitrators, fail to reach an agreement expected of them
under that procedure; or (c) a person, including an institution, fails
to perform any function entrusted to him or it under that
procedure, a party may request the High Court to take necessary
measures, unless the agreement, or the appointment procedure,
provides other means for securing the appointment. Section
11(6A), as inserted by Act 3 of 2016 with effect from 23.10.2015,
stipulates that the High Court, while considering any application
under sub-sections (4) or (5) or (6), shall, notwithstanding any
judgment, decree or order of any Court, confine to the examination
of the existence of an arbitration agreement.
While Sub-section (5) of Section 11, as it stood prior to its
amendment by Act 3 of 2016 with effect from 23.10.2015, enabled
a party to the arbitration agreement to request the Chief Justice,
or his designate, to appoint an arbitrator, Sub-section (6) enabled
the party to request that "the necessary measure" be taken. The
distinction between the words "the necessary measure" in Sub-section
(6) of Section 11 of the Act, and the word "appointment" in Sub-
section (5), is significant. In the absence of an appointment
procedure being prescribed, in the arbitration agreement, a request
could be made to the Chief Justice or his designate (now the High
Court) to appoint an arbitrator. Where, however, a procedure to
secure the appointment of an arbitrator is prescribed in the
arbitration agreement, then the Chief Justice or his designate can
only be requested to "take the necessary measure". If the legislature
intended to confer power on the High Court to appoint an
arbitrator it would have used the same language in sub-section (6)
as it had employed in sub-section (5) of Section 11. The power of
the High Court under sub-section (6) is to take "the necessary
measure" for securing the appointment of an arbitrator and,
ordinarily, not to take upon itself the task of appointing an
arbitrator merely because one of the parties to the arbitration
agreement had requested it to do so. If the parties have agreed on a
procedure for appointing the arbitrator, as contemplated by
Section 11(2), then the appointment must be in accordance with
the said procedure and recourse to the High Court cannot be taken
straightaway. (The Iron and Steel Company Ltd. v. Tiwari Road
Lines ). Section 11(6) has application only when a party has failed
to act in terms of the arbitration agreement. (National Highways
Authority of India v. Bumihiway DDB Ltd ; Yashwitha
Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. rep
by its Managing Director ).
Section 14(1)(a) of the Act stipulates that the mandate of an
arbitrator shall terminate, and he shall be substituted by another
arbitrator if he becomes de jure or de facto unable to perform his
functions. Section 15 relates to the termination of mandate and
substitution of arbitrator. Section 15(1)(a) provides that, in
addition to the circumstances referred to in Section 13 or 14, the
mandate of an arbitrator shall terminate where he withdraws from
office for any reason. Section 15(2) stipulates that, where the
mandate of an arbitrator terminates, a substitute arbitrator shall
be appointed according to the rules that were applicable to the
appointment of the arbitrator being replaced. Section 15(3)
stipulates that unless otherwise agreed by the parties, where an
arbitrator was replaced under sub-section (2), any hearings
previously held may be repeated at the discretion of the arbitral
tribunal.
Clause 22A of the agreement dated 04.05.2011, entered into
between the applicant and the respondent, reads thus:
22A. ARBITRATION
(i) If any disagreement arises out of or in connection with the
validity, application or interpretation of this agreement (the
Dispute), the parties shall endeavour in good faith to resolve
the dispute through negotiation within 30 (thirty) days of a
written notice setting out the nature of such dispute.
(ii) In the event that any dispute is unable to be resolved between
the parties pursuant to Clause 22A(1) within 30 (thirty) days of
receipt of the notice under Clause 22A(1), then such dispute
shall be referred to arbitration.
(iii) The arbitration will be conducted as per the Arbitration and
Conciliation Act, 1996 under the rules of the Singapore
International Arbitration Centre. The arbitral tribunal shall
comprise of 3 (three) arbitrators. Each party shall appoint one
arbitrator, and the two arbitrators so appointed shall appoint
the third arbitrator. The place of arbitration for any disputes
shall be Bangalore. The language to be used in the arbitral
proceedings shall be English.
(iv) Responsibility of payment for all costs of arbitration, excepting
counsel fees, shall be as per the arbitration award.
(v) While any dispute under this agreement is pending and except
where this agreement has been terminated in accordance with
the terms of this agreement and/or any of the project
agreements, the parties shall continue to perform all of their
respective obligations under this agreement without prejudice
to the final determination in accordance with the provisions
under this Clause 22A.
In terms of sub-clause (iii) of Clause 22-A of the aforesaid
agreement, the arbitral tribunal is to comprise of three arbitrators,
each party to appoint one arbitrator, and the two arbitrators to
appoint the third arbitrator. As the respondent had earlier failed
to appoint an arbitrator on their behalf, the jurisdiction of the
Chief Justice was invoked by the applicant, under Section 11(4)
and (6) of the Act, complaining that, while they had appointed
Justice R. Balasubramannian, (Retd. Judge of the Madras High
Court), the respondent had failed to appoint an arbitrator on their
behalf. The then Acting Chief Justice had appointed Sri Justice
T.Ch. Surya Rao as an arbitrator on behalf of the respondent. On
the demise of Justice T.Ch. Surya Rao, a substitute arbitrator was
required to be appointed in his place. While the aforesaid
arbitration clause does not specifically provide for appointment of a
substitute arbitrator, Section 15(2) of the 1996 Act requires a
substitute arbitrator to be appointed in accordance with the rules
applicable to the appointment of the arbitrator being replaced.
The question which arises for consideration is what do the
words, rules that are applicable to the appointment of the arbitrator being
replaced, used in Section 15(2) of the Act, mean? A party, who has
entered into an arbitration agreement with another, should not be
permitted to resile therefrom. When the mandate of the arbitrator
stands terminated, appointment of an arbitrator should,
necessarily. be made in accordance with the arbitration clause of
the agreement. (National Highways Authority of India2;
Yashwitha Constructions (P) Ltd.3). Where the mandate of the
arbitrator stands terminated for any reason, it falls within the
purview of Section 15(1)(a) of the Act, and attracts Section 15(2) of
the Act. (National Highways Authority of India2).
Unless the arbitration agreement between the parties
categorically prohibits or debars resolution of a dispute or
difference between the parties by a substitute arbitrator, in the
case of death of the named arbitrator or non-availability of the said
arbitrator, the power to appoint a substitute arbitrator is given by
Section 15(2) of the Act which should be given liberal
interpretation so as to apply to all possible circumstances under
which the mandate of the earlier arbitrator may have been
terminated. (SBP and Co. v. Patel Engg. Ltd. ). Even if there is
no specific provision in the arbitration agreement authorizing
appointment of a substitute arbitrator on the termination of the
original appointment, or when the originally appointed arbitrator
withdraws from arbitration or is no more, this omission in the
arbitration agreement is made up by the specific provision
in Section 15(2) of the Act. (Yashwitha Constructions (P) Ltd.3).
Section 15(2), when it refers to the applicable rules, does not
confine appointment of a substitute arbitrator to a statutory rule,
or a rule framed under the Act, or under the scheme. It refers to
the provision for appointment contained in the arbitration
agreement, or any rules of any institution under which the
disputes are to be referred to arbitration. Section 15(2) requires a
substitute arbitrator to be appointed according to the original
agreement or provision applicable to the appointment of the
arbitrator at the initial stage. (Shailesh Dhairyawan v. Mohan
Balkrishna Lulla ; Yashwitha Constructions (P) Ltd.3).
As the rules referred to in Section 15(2) is the arbitration
agreement, the procedure prescribed, for appointment of
arbitrators, in the arbitration agreement are the rules which are
applicable to the appointment of a substitute arbitrator also. Since
the arbitration agreement (i.e., Clause 22-A(iii)) of the agreement
requires each party to nominate an arbitrator, the requirement of
the rules, referred to in Section 15(2) of the Act, is for the
respondent to nominate its arbitrator on the death of the previous
arbitrator appointed on their behalf. The procedure, to be followed
in the appointment of a substitute arbitrator, is the same as the
procedure relating to the initial appointment of the arbitrator, i.e.,
in terms of Clause 22-A(iii) of the agreement dated 04.05.2011.
Consequently it is only if the respondent had failed to adhere to
the procedure, prescribed in Clause 22-A(iii) of the agreement, in
appointing an arbitrator (be it the original or the substitute
arbitrator), could the applicant have invoked the jurisdiction of the
High Court under Section 11(6) of the Act requesting it to take the
necessary measure.
Primacy is given to the procedure agreed upon by the
parties, to appoint an arbitrator, failing which alone does the Act
permit judicial interference. In exercising its jurisdiction
under Section 11(6) to take "the necessary measure", the High Court
should, as far as possible, act in such a manner as to effectuate
the arbitration agreement entered into between the parties.
(Yashwitha Constructions (P) Ltd.3). When parties have entered
into a contract, and have settled on a procedure, due importance
should be given by the High Court to such a procedure. The
parties are, normally, bound by the arbitration clause, and are
obliged to comply with the procedure laid down therein. (Datar
Switchgears Ltd. v. Tata Finance Ltd. ). Since Section
15(2) requires a substitute arbitrator to be appointed in
accordance with the arbitration agreement, the High Court, while
taking "the necessary measure" under Section 11(6), cannot usurp the
powers conferred by the agreement on the respondent to appoint a
substitute arbitrator. On a harmonious construction of Sections
11(6) and 15(2) it must be held that on the mandate of an
arbitrator being terminated and only if the respondent, in
accordance with the arbitration agreement, fails to appoint a
substitute arbitrator, can the jurisdiction of the High Court be
invoked under Section 11(6) of the Act. (Yashwitha Constructions
(P) Ltd.3).
In the present case, soon after the demise of late Sri Justice
T.Ch. Surya Rao, and even before the applicant could make a
request, the respondent had appointed Sri Justice C.V. Ramulu as
an arbitrator on their behalf. The jurisdiction of the High Court,
under Section 11(6)(a) of the Act to take the necessary measure,
can be invoked by a party only where the other party fails to
appoint an arbitrator in terms of the appointment procedure
prescribed under the agreement. It is only if, on the termination of
the mandate of the earlier arbitrator, the respondent had failed to
appoint a substitute arbitrator in accordance with Clause 22A(iii)
of the agreement, despite a specific request in this regard by the
applicant, could the applicant have invoked the jurisdiction of the
High Court under Section 11(4(a) seeking appointment of an
arbitrator on behalf of the respondent, or for necessary measures
to be taken under Section 11(6)(a) of the Act. As the respondent
has acted in accordance with the appointment procedure
prescribed under Clause 22-A(iii) of the arbitration agreement, and
has appointed Sri Justice C.V. Ramulu as their arbitrator, Section
11(4)(a) and Section 11(6)(a) are not attracted. Neither Section
11(4)(a) nor Section 11(6)(a) of the Act confer jurisdiction on the
High Court to appoint a substitute arbitrator, when the respondent
has, in terms of the arbitration agreement, appointed a substitute
arbitrator in the place of the arbitrator whose mandate stood
terminated. Consequently, the applicant was not entitled to invoke
the jurisdiction of the High Court to take the necessary measure,
to appoint an arbitrator in the place of late Sri Justice T.Ch. Surya
Rao.
Is a different procedure required to be adopted in cases
where failure of one of the parties to the arbitration agreement to
nominate its arbitrator earlier, had resulted in an arbitrator being
appointed on its behalf by the High Court under Sections 11(4) and
(6) of the Act? The answer can only be in the negative. Firstly,
because Sections 11(4) and (6) are statutory provisions, and are
not the rules applicable to the appointment of the arbitrator being
replaced. It is the arbitration agreement which constitutes the
rules applicable to the appointment of the arbitrator being
replaced. Secondly, the very purpose of the Act, as is evident from
the Statement of Objects and Reasons, is to minimise the
supervisory role of Courts in the arbitral process, which would
mean from the commencement of arbitral proceedings under
Section 21 of the Act. The present application, whereby a request
is made for appointment of a substitute arbitrator, (in the place of
Sri Justice T.Ch. Surya Rao the earlier arbitrator), under Section
11(6) of the Act is on the erroneous premise that since the
respondent had failed to appoint an arbitrator on their behalf
earlier, which resulted in the then Acting Chief Justice appointing
an Arbitrator on their behalf, the respondent had forfeited their
right to appoint an arbitrator, on their behalf, for all times to come,
and a substitute arbitrator could, therefore, only be appointed by
the High Court under Section 11(6) of the Act. This premise is
flawed for the reasons that (i) the Act gives primacy to the intention
of the parties as is reflected in the arbitration clause of the
agreement; (ii) Section 5 of the Act prohibits judicial intervention
except where explicitly provided under the Act, and there is no
specific provision in the Act which requires the High Court to
appoint a substitute arbitrator if it had earlier appointed the
arbitrator whose mandate stood terminated; and (iii) the rules,
referred to in Section 15(2), is the arbitrator agreement, and not
the provisions of the Act or the rules made thereunder.
Further, parties to the arbitration agreement have been
statutorily conferred (by Section 11(2) of the Act) the freedom to
nominate an arbitrator of their choice. While a party, which had
failed to exercise its right earlier to appoint an arbitrator in terms
of the agreement, resulting in an arbitrator being appointed by the
High Court, under Section 11(4) and (6) of the Act, would not be
entitled to seek substitution of such an arbitrator except on
grounds specified in Sections 13, 14 and 15(1), and following the
procedure prescribed in Section 15(2) of the Act, termination of the
mandate of the arbitrator, appointed either by the parties to the
agreement or by the High Court, would result in the situation
reverting back to the original position, and thereafter the
procedure prescribed under the agreement, for appointment of the
original arbitrator, would apply in the appointment of the
substitute arbitrator. Consequently, it is only if, on a request
made by the other party, the party which is required to nominate
the substitute arbitrator fails to do so, would the party making the
request then be entitled to invoke the jurisdiction of the High
Court, under Section 11(4) and (6) of the Act, seeking appointment
of an arbitrator on behalf of the other. If, on the other hand, the
party to the agreement has exercised its right to appoint a
substitute arbitrator, and the vacancy caused, as a result of the
mandate of the earlier arbitrator being terminated, has been filled
up, the High Court cannot be called upon to fill up a non-existent
vacancy. The mere fact that they had failed to nominate an
arbitrator earlier, in terms of the arbitration agreement, would not
disable them, for all times to come, from exercising their right,
under the arbitration agreement, to nominate their arbitrator in
the place of the arbitrator whose mandate stood terminated under
Sections 13, 14 and 15 of the Act (in the present case on the death
of the earlier arbitrator).
It is only if the respondent had failed to exercise their right
to appoint a substitute arbitrator, could the High Court have
assumed jurisdiction under Section 11(6) of the Act. (National
Highways Authority of India2; Yashwitha Constructions (P)
Ltd.3). Section 11(6) of the Act has application only when a party,
or the person concerned, has failed to act in terms of the
arbitration agreement. (Shailesh Dhairyawan5; Yashwitha
Constructions (P) Ltd.3). In the present case, the agreement
specifically prescribes a procedure for appointment of an
arbitrator, which rules also apply for appointment of a substitute
arbitrator. (Yashwitha Constructions (P) Ltd.3).
In the light of the aforesaid observations, let us now examine
the judgments relied on by Learned Counsel on either side. In
Datar Switchgears Ltd.6, the respondent appointed an arbitrator
beyond 30 days of the request, but before the appellant had filed
the application under Section 11 of the Act. The question, which
arose for the consideration of the Supreme Court, was whether, in
a case falling under Section 11(6), the opposite party was disabled
from appointing an arbitrator after expiry of 30 days from the date
of demand. It is in this context that the Supreme Court held that
an application, under Section 11(6), can be filed when there is a
failure of the procedure for appointment of Arbitrator; this failure
of procedure can arise under different circumstances; it can be a
case where a party who is bound to appoint an Arbitrator refuses
to appoint the Arbitrator or where two appointed Arbitrators fail to
appoint the third Arbitrator; the aggrieved party can then approach
the Chief Justice for appointment of Arbitrator; no time limit has
been prescribed under Section 11(6) of the Act, whereas a period of
30 days has been prescribed under Sections 11(4) and (5) of the
Act; so far as Section 11(6) is concerned, if one party demands the
opposite party to appoint an arbitrator, and the opposite party
does not make an appointment within 30 days of the demand, the
right to appointment does not get automatically forfeited after
expiry of 30 days; if the opposite party makes an appointment even
after 30 days of the demand, but before the first party has moved
the Court under Section 11(6), that would be sufficient; but an
appointment has to be made before an application is filed
under Section 11(6) seeking appointment of an arbitrator; and
thereafter the right of the party, to appoint an arbitrator, ceases.
The law declared in Datar Switchgears Ltd.6 is that, failure
of one of the parties to the agreement to appoint an arbitrator on
being so requested by the other party, resulting in the latter
invoking the jurisdiction of the High Court under Section 11(6) of
the 1996 Act, would disable the party, who failed to appoint an
arbitrator, from doing so thereafter, and it is only the High Court
which can then appoint an arbitrator. In Datar Switchgears Ltd.6
neither was the scope of Section 15(2) examined, nor the question
whether, consequent upon the earlier arbitrator having been
appointed by the High Court under Section 11(6) of the Act, the
substitute arbitrator should also be appointed only by the High
Court, and not by the party on whom the right to appoint an
arbitrator is conferred by the arbitration agreement.
In M/s. Yashwith Constructions (P) Ltd. v. M/s. Simplex
Concrete Piles India Ltd. , on a dispute having arisen, the
Managing Director of the respondent company appointed an
arbitrator in terms of the arbitration clause; the arbitrator
resigned; thereupon the Managing Director of the respondent
company, in view of the mandate in the arbitration agreement,
promptly appointed another arbitrator; at that stage, the petitioner
approached the Chief Justice of the High Court under Section
11(6) read with Section 15(2) of the Act praying that the Chief
Justice may appoint a substitute arbitrator to resolve the disputes
between the parties; and the Chief Justice held that no occasion
arose for him to appoint an arbitrator under Section 11(6) of the
Act in the case.
It is in this context that the Supreme Court observed that
there was no specific provision in the arbitration agreement
authorizing the Managing Director to appoint a substitute
arbitrator if the original appointment terminated or if the originally
appointed arbitrator withdrew from arbitration; this so called
omission in the arbitration agreement was made up by the specific
provision contained in Section 15(2) of the Act; withdrawal of an
arbitrator from office for any reason was within the purview
of Section 15(1)(a) of the Act; therefore Section 15(2) would be
attracted, and a substitute arbitrator had to be appointed
according to the rules that were applicable for the appointment of
the arbitrator to be replaced; what Section 15(2) contemplated was
appointment of a substitute arbitrator, or the replacement of the
arbitrator by another, according to the rules that were applicable
to the appointment of the original arbitrator who was being
replaced; the term "rules", in Section 15(2), obviously referred to
the provision for appointment contained in the arbitration
agreement, or any Rules of any Institution under which the
disputes were referred to arbitration; when Section 15(2) said that
a substitute arbitrator can be appointed, according to the rules
that were applicable for the appointment of the arbitrator
originally, it was not confined to an appointment under any
statutory rule or rule framed under the Act or under the Scheme; it
only meant that appointment of a substitute arbitrator must be
done according to the original agreement, or provision applicable to
the appointment of the arbitrator at the initial stage; and they were
not in a position to agree with the contrary view taken by some of
the High Courts. The law declared in M/s. Yashwith
Constructions (P) Ltd.7 is that the rules governing appointment
of a substitute arbitrator, (as is referred to in Section 15(2) of the
Act), is not confined to any statutory rules or rules made under the
Act or under a Scheme framed under the Act, but only means that
a substitute arbitrator should be appointed in accordance with the
arbitration agreement.
In National Highways Authority of India2, after
appointment of the presiding arbitrator, the arbitrator, appointed
by the appellant, resigned; the new arbitrator, nominated by the
appellant, did not accept the appointment; thereafter on the
vacancy created by the resignation of the presiding arbitrator, the
process of appointment of the presiding arbitrator started afresh in
accordance with the agreed terms of the contract; the appellant
appointed its arbitrator, and the process of discussion, between
the two nominated arbitrators, was reinitiated as per the agreed
contractual terms, and in accordance with Section 15(2) of the Act;
the two arbitrators failed to arrive at a consensus and therefore,
after 30 days, the appellant referred the issue of appointment of
the presiding arbitrator to the IRC; however, the process which had
been reinitiated by the two nominated arbitrators was restrained
by the High Court.
It was contended, on behalf of the appellant, that Sections
15(1) and 15(2) were complete and wholesome, and contradistinct
to Section 11(6); the resignation of the presiding arbitrator brought
the matter back from the vestiges of Section 11(6), (though in the
first place in law there were none), and brought the matter
squarely within Section 15(2); any decision given under Section
11(6) would tantamount to putting the Act upside down; and the
scope of Section 15(2) was no longer res integra as per the dictum
in M/s. Yashwith Constructions (P) Ltd.7. On the other hand, it
was contended on behalf of the respondent, that there had been a
judicial determination by the High Court which was based on the
reasoning that, hierarchically, a judicial arbitrator must sit with
another Judge only.
It is in this context that the Supreme Court held that the
situation which existed prior to the resignation of the presiding
arbitrator, and those which came about subsequent thereto, only
affirmed that the vacancy created by the resignation of the
presiding arbitrator was accepted by the parties to be filled up in
accordance with the original rules of appointment, which was
wholly in consonance with Section 15(2) of the Act; the
appointment, made by the High Court, was against the express
provisions of the contract as held in You One Engg. &
Construction Co. Ltd. v. National Highways Authority of
India , reaffirming that, once the arbitration agreement clearly
envisages appointment of the presiding arbitrator by the IRC, there
was no qualification that the arbitrator had to be a different person
depending on the nature of the dispute; if the parties had entered
into such an agreement with open eyes, it was not open to ignore it
and invoke the powers under Section 11(6); in the present case, by
making a reference to the High Court under Section 11(6) and
alleging that one of the arbitrators was a retired judicial person,
the respondent has only admitted to rewrite the contract between
the parties, which is against the law of the land; the respondent
had wrongly invoked the jurisdiction of the High Court, without
first following the procedure agreed to between the parties; no
cause of action had arisen in the facts of the case to seek
appointment from the High Court under Section 11(6) of the Act,
and the said petition was premature; there did not exist any such
provision in law which required that, if one of the arbitrators was a
retired Judge, the presiding arbitrator also had to be a retired
Judge; the parties had entered into a contract after fully
understanding the import of the terms so agreed upon, from which
there could not be any deviation; and the parties were required to
comply with the procedure of appointment as agreed to.
In Magma Leasing Limited v. Tonganagaon Tea Co Pvt.
Ltd. the Calcutta High Court held that, under Section 15(2) of the
Act, where the mandate of the Arbitrator is terminated, a
substitute Arbitrator should be appointed according to the rules
that were applicable to the appointment of the Arbitrator being re-
placed; the named Arbitrator had refused to act and, on an
application under Section 11 of the Act, the Chief Justice had
appointed Mr. P.K. Banerjee, retired Chief Justice of the Rajasthan
High Court, as the learned Arbitrator; and when the mandate of
the learned Arbitrator had been terminated, the petitioner had
rightly approached the Court for appointment of the Arbitrator by
the Chief Justice in the place of the outgoing learned Arbitrator. In
Magma Leasing Limited9, while appointment of a substitute
arbitrator by the Chief Justice of the Calcutta High Court was held
valid, the said judgment does not indicate why, on the mandate of
the earlier arbitrator being terminated, the party, on whom the
arbitration agreement confers a right to appoint an arbitrator,
cannot do so.
In Ramjee Power Construction Ltd. v. Damodar Valley
Corporation , the question which arose for consideration in the
Arbitration Application was whether, upon the death, resignation
or termination of the mandate of an Arbitrator appointed by the
Chief Justice under Section 11(6) of the Act, a substitute Arbitrator
was required to be appointed only by the Chief Justice and/or his
designate, or whether such appointment should be made in
accordance with the arbitration agreement. The dispute had
arisen in connection with a contract which, inter alia, contained an
arbitration clause which read thus:-
"ARBITRATION: Except where otherwise provided in the contract
all question and disputes relating to the meaning of specifications,
designs, drawings and instructions herein contained and as to the
quality of the workmanship or materials used on the work or as to any
other question claim, right, matter or thing whatsoever in any way
arising out of or relating to the contract, designs, drawings,
specifications, estimates, instructions, orders or these conditions or
otherwise concerning the works or the execution or failure to execute the
same whether arising during the progress of the work or after the
completion or abandonment therefore shall be referred to the sole
arbitration of a person appointed by the DVC who may or may not be a
DVC Officer.
Such appointment shall not be objected on the ground that the
arbitrator so appointed is a DVC Official or that he had to deal with
matters to which the agreement rules and in the course of his duties as
DVC official he had expressed views on all or any of the matter in
disputes or difference. The award of the arbitrator so appointed shall be
final, conclusive and binding on all parties to the contract."
The Calcutta High Court held that the language and tenor
of Section 15(2) was significant; the Legislature had, in its wisdom,
carefully used the expression "the substitute arbitrator shall be appointed
according to the rules that were applicable to the appointment of the arbitrator
being replaced", instead of using the expression "the substitute
arbitrator shall be appointed in accordance with the procedure for appointment
laid down in the arbitration agreement executed between the parties; if the
legislative intent was that a substitute arbitrator should always be
appointed in accordance with the procedure agreed upon by the
parties, irrespective of whether the arbitrator being replaced was
appointed by the Chief Justice or his designate, the legislature
would perhaps have not used the expression in accordance with the
rules that were applicable to the appointment of the arbitrator being replaced;
in this case, the erstwhile arbitrator was appointed in accordance
with Section 11(6) of the Act, read with the Rules framed by the
Court, and the Rules that have evolved with practice; an arbitrator
must be appointed in accordance with the procedure agreed
between the parties; if however the party, required in terms of the
agreement to appoint or to agree to an arbitrator, fails to do so
within the time stipulated in the agreement and/or in Section 11 of
the Act, the other party may request the Chief Justice or his
designate to appoint an arbitrator under Section 11; once an
application under Section 11 is made, the right of the other party
to appoint an arbitrator, in accordance with the agreement, gets
extinguished; the right under the agreement, of a party, to appoint
an arbitrator, which stands extinguished once an application
under Section 11(6) is made, does not revive, if the arbitrator
appointed by the Chief Justice resigns and/or his mandate is
terminated; the expression "rules that were applicable to the appointment
of the arbitrator being replaced" in Section 15 have been chosen
carefully; if the arbitrator being replaced was appointed by the
Chief Justice and/ or his designate, in accordance with Section
11 of the Act read with the applicable rules, the substitute
arbitrator should also be appointed by the Chief Justice and/or his
designate in the same manner; it is immaterial that the respondent
has appointed an arbitrator in the meanwhile; and appointment of
the arbitrator by the respondent, after filing of this application, is
of no consequence.
The Calcutta High Court in Ramjee Power Construction
Ltd10, held that if the arbitrator being replaced was appointed by
the Chief Justice and/or his designate, in accordance with Section
11 of the Act read with the applicable rules, the substitute
arbitrator must also be appointed by the Chief Justice and/or his
designate in the same manner. The premise, on which this
conclusion is based, is that the words rules that are applicable to the
appointment of the arbitrator being replaced in Section 15(2) of the Act
refers to Section 11 of the Act and the applicable rules, for it is
only then can it be said that a party to the agreement loses his
right to appoint a substitute arbitrator, if he had failed to exercise
his right earlier to appoint the original arbitrator and his failure to
do so had resulted in the jurisdiction of the High Court, under
Section 11(6) of the Act, being invoked. As noted hereinabove, the
Supreme Court, in M/s. Yashwith Constructions Pvt Ltd7, has
held that the rules, referred to in Section 15(2), are the rules
applicable to the appointment of the original arbitrator (the
arbitration agreement), and not to any statutory rules or rules
made under the Act or a Scheme framed under the Act.
In Ignatius Tony Pereira v. Mr.Pifran Sanjivan
Fernandes , the Bombay High Court, following the judgment of
the Calcutta High Court in Ramjee Power Construction Ltd.10,
held that an arbitrator must be appointed in accordance with the
procedure agreed between the parties; if, however, the party
required, in terms of the agreement, to appoint or to agree to an
arbitrator failed to do so within the time stipulated in the
agreement, and/or in Section 11 of the Act, the other party may
request the Chief Justice or his designate to appoint an arbitrator
under Section 11; once an application under Section 11 is made,
the right of the other party to appoint an arbitrator, in accordance
with the agreement, gets extinguished; the right of a party to
appoint an arbitrator under the agreement, which stands
extinguished once an application under Section 11 (6) is made,
does not revive, if the arbitrator appointed by the Chief Justice
resigns and/or his mandate is terminated; the expression "rules
that were applicable to the appointment of the arbitrator being replaced" in
Section 15, have been carefully chosen; if the arbitrator being
replaced was appointed by the Chief Justice and/ or his designate,
in accordance with Section 11 of the Act read with the applicable
rules, the substitute arbitrator would also have to be appointed by
the Chief Justice and/or his designate in the same manner; it was
immaterial that the respondent had appointed an arbitrator in the
meanwhile; and appointment of the arbitrator by the respondent,
after filing of the application, was of no consequence.
I find it difficult to concur with the opinion of the Bombay
High Court in Ignatius Tony Pereira11, and the Calcutta High
Court in Ramjee Power Construction Ltd10, wherein it has been
held that, once an arbitrator is appointed by the Chief Justice of
the High Court under Section 11, the right of the other party to
appoint a substitute arbitrator, in accordance with the agreement,
gets extinguished forever. My inability to agree is, firstly, because
the rules referred to in Section 15(2), (as held by the Supreme
Court in M/s. Yashwith Constructions (P) Ltd7), is the arbitration
agreement; secondly, because Section 5 of the Act permits judicial
intervention only when specifically provided under Part-I of the
Act; and there is no specific provision in Part-I of the Act, much
less in Section 15 thereof, stipulating that, if the earlier arbitrator
is appointed by the High Court under Section 11(4) & (6) of the Act,
the substitute arbitrator must also be appointed only by the High
Court and not by the party to the agreement. Since the very object
of the Act is to minimise the supervisory role of Courts in the
arbitral process, and to give primacy to the agreement between the
parties, there is no justifiable reason why a party to the arbitration
agreement should, forever, be denied his right to appoint a
substitute arbitrator, on the mandate of the earlier arbitrator being
terminated, merely because he had failed to exercise his right, to
appoint an arbitrator, earlier.
The respondent is entitled, in terms of Clause 22-A(iii) of the
agreement, to appoint a substitute arbitrator even if they had failed
to appoint an arbitrator earlier. On their exercising their right to
appoint a substitute arbitrator, no other person can be appointed
as an arbitrator, in substitution, by the High Court. It is only if
they had failed to appoint a substitute arbitrator, despite being
requested to do so by the applicant, would the applicant then have
been entitled to invoke the jurisdiction of the High Court, under
Section 11(6) of the Act, requesting it to take the necessary measure.
As the respondent has appointed Justice C.V. Ramulu as their
substitute arbitrator, even before they were called upon by the
applicant to do so, the applicant is not entitled to invoke the
jurisdiction of the High Court, under Section 11(6) of the Act,
seeking appointment of a substitute arbitrator. The application, as
filed, is therefore not maintainable.
The arbitration application is, accordingly dismissed. The
miscellaneous petitions pending, if any, shall stand closed. No
costs.
________________________________
RAMESH RANGANATHAN, ACJ
Date:27.12.2017.
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