Bombay High Court
Voltas Limited vs Rolta India Limited on 19 November, 2010
Bench: S.J. Vazifdar
1 ARBAP 89.06
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ARBITRATION APPLICATION NO. 89 OF 2006
WITH
ARBITRATION APPLICATION NO. 90 OF 2006
Voltas Limited, ]
a Public Limited Company, incorporated ]
under the provisions of the Indian ]
Companies Act, 1913 and having its ]
registered office at Voltas House "A" ]
Dr.Babasaheb Ambedkar Road,
]
Chinchpokli, Mumbai 400 033 ] ... Applicant
Versus
Rolta India Limited, ]
a Company incorporated under ]
provisions of the Companies Act, 1956 ]
and having its office at Rolta Bhavan, ]
Rolta Technology Park, MIDC-Marol, ]
Andheri (East), Mumbai 400 093 ] ... Respondent
........
Mr. D.J. Khambatta, Addl. Solicitor General of India, senior counsel
with Mr. G.R.Joshi, Mr. B.H. Antia, Mr. Avinash Joshi and Mr. Vipul
Bilve i/b M/s. Mulla & Mulla and Cragie Blunt & Caroe for the
Applicant.
Mr. Janak Dwarkadas, senior counsel with Mr. P.K.Samdani, senior
counsel, Mr. P.R. Diwan, Mr. Sharan Jagtiani, Ms. Gunjan Shah and
Mr. Arvind Rathod i/by M/s. Arvind Rathod & Company for the
Respondent.
CORAM : S.J. VAZIFDAR, J.
DATED : 19TH NOVEMBER , 2010.
2 ARBAP 89.06
ORAL JUDGMENT :
1. This is an application under section 11(6) of the Arbitration &
Conciliation Act, 1996 for the appointment of a sole arbitrator to
adjudicate the disputes and differences that have arisen between the
parties relating to an agreement dated 8th January 2003.
2. According to the Applicant, the Respondent had failed to act as
required and its Chairman and Managing Director (CMD) had failed
to perform the function entrusted to him, under the procedure agreed
upon between the parties. The failure was to appoint an arbitrator as
per the procedure prescribed by the arbitration agreement between the
parties. According to the Applicant, the Respondent and its CMD had
failed to appoint an arbitrator within 30 days of the Applicant's
requesting them to do so and prior to the above application being
filed. It was contended that the Respondent had, therefore, forfeited
its right to appoint an arbitrator.
On behalf of the Respondent, correspondence was relied upon
to establish that it had appointed one Dr. P.S. Chauhan, a retired
3 ARBAP 89.06
District and Sessions Judge, Bhopal, Madhya Pradesh as a sole
arbitrator, within 30 days of the receipt of the Applicant's letter and in
any event prior to the above application being filed. This
correspondence was disputed by the Applicant in every respect. The
Applicant also contended that even assuming that the correspondence
was proved, it did not constitute an appointment of an arbitrator.
As the correspondence was disputed, by an order dated 22nd
September, 2006, evidence was ordered to be recorded on
commission. The learned Commissioner after recording the evidence,
filed the report along with the notes of evidence, which was taken on
record by an order dated 5th October 2007.
I have come to the conclusion that the correspondence was not
proved by the Respondent.
FACTS :
3. For the purpose of this application, it is necessary only to refer
to the facts pertaining to the alleged appointment of the arbitrator by
the Respondent.
4. The parties had entered into an agreement dated 8th January
2003 whereby, the Applicant had agreed to supply, erect,
4 ARBAP 89.06
commission, test and handover air cooled screw chillers and BMS for
the Respondent's office. Article 17B thereof contains an arbitration
agreement which reads as under :
"Article 17B : Except where otherwise provided in the
contract all questions and disputes relating to the
meaning of the specifications, designs, drawings and
instructions herein before mentioned and as to the quality
of 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
design, drawings, specifications, estimates, instructions,
orders or these conditions or otherwise concerning the
works of the execution or failure to execute the same
whether existing during the progress of the work or after
the completion or abandonment thereof shall be referred
to the sole arbitration of the person appointed by the
CMD/Rolta India Ltd. (Respondent) incharge of the work
at the time of dispute. Subject to prevailing Indian
Arbitration Act." (emphasis supplied)
5. Disputes and differences arose between the parties. The
Applicant, by its various letters, demanded payment of the balance
consideration under the agreement. The Applicant ultimately by a
letter dated 29th March 2006 addressed to the Respondent and marked
to the attention of the Respondent's CMD invoked the arbitration
agreement and called upon the Respondent to appoint an arbitrator
within 30 days from the receipt of the notice. The Applicant stated
5 ARBAP 89.06
that if the Respondent failed to do so, it would make an application
under section 11 of the Arbitration and Conciliation Act, 1996.
6. The Respondent by its Advocate's letter dated 21st April 2006
stated that its CMD was out of India on a business tour and had
returned to India only on 19th April 2006. It was further stated that the
Respondent's CMD had been extremely busy. It is important to note
that the letter stated that the Respondent would appoint an arbitrator
within 30 days from the date of his return to India.
7. According to the Applicant, the Respondent/its CMD, however,
failed to appoint an arbitrator within 30 days of the receipt of the said
letter dated 29th March 2006. It also failed to appoint an arbitrator
prior to the filing of this application. The application was filed on 3 rd
May 2006.
The Respondent, however, contend that it had appointed the
said arbitrator prior to the filing of the above application. In this
regard, the Respondent relied upon the following correspondence
which is denied by the Applicant in every aspect:-
6 ARBAP 89.06
(A). The Respondent alleges having addressed a letter dated 24th
April 2006 to the said arbitrator. The letter refers to a telephonic
conversation between the Respondent's CMD and the arbitrator on
21st April 2006, the disputes between the parties, enclosed the
correspondence between the parties and stated that the Respondent
appointed the said arbitrator as a sole arbitrator in respect of the
disputes and differences between the parties and that the proceedings
would be held at Mumbai.
(B). The Respondent alleges having received a reply dated 2nd May
2006 from the arbitrator accepting his appointment and stipulating the
terms and conditions for his acting as the arbitrator.
(C). The Respondent's CMD alleges having addressed a letter dated
8th May 2006 to the arbitrator inter-alia referring to the above
application, stating that the Respondent would be filing an affidavit-
in-reply thereto and that the arbitrator would be informed the outcome
thereof.
(D). The Respondent alleges having received a letter dated 11th May
7 ARBAP 89.06
2006 from the arbitrator in response to the alleged letter dated 8th May
2006. The arbitrator requested the Respondent to inform him the
order passed in the above application in order to enable him to
proceed further in the matter.
8. The Respondent, by another Advocate's letter dated 17th May
2006, in reply to the Applicant's letter dated 9th May, 2006, for the
first time stated that Respondent had appointed an arbitrator. The
details, including as to the name of the arbitrator were not furnished.
It was stated that instructions were awaited from the Respondent for
filing an affidavit-in-reply.
9. The affidavit in reply was filed on 9th June 2006 in which for
the first time, the alleged correspondence was referred to and the
name of the arbitrator was furnished.
10. The Applicant examined its Chairman and Managing Director
one K.K. Singh. The Applicant also examined witnesses. However,
for the purpose of the present application, everything turns on the
disputed letters. Counsel accordingly also addressed me in respect of
8 ARBAP 89.06
the CMD's evidence regarding these letters which were tendered in
evidence on behalf of the Respondent. The Commissioner recorded
the Applicant's objections to the same being taken on record which I
will deal with in the course of this judgment.
11. Mr. Khambatta, the learned Additional Solicitor General of
India appearing on behalf of the Applicant submitted that the
Respondent had forfeited its rights under the arbitration agreement to
appoint an arbitrator on the following grounds :-
I. Even assuming that the disputed letters are proved, the
Respondent cannot be said to have appointed an arbitrator before the
application was filed.
II. The Respondent had failed to prove the letters. The Respondent
had, therefore, failed to act as required under the appointment
procedure prescribed by the arbitration agreement and the
Respondent's CMD had failed to perform the function entrusted to
him under the said procedure of appointing an arbitrator.
9 ARBAP 89.06
III. The Respondent and its CMD having failed to appoint an
arbitrator within thirty days from the receipt of the Petitioner's letter
dated 29th March 2006 invoking arbitration and before the above
application was filed, had forfeited its right to appoint an arbitrator.
Re. I :- Even assuming that the disputed letters
are proved, the Respondent cannot be said to have
appointed an arbitrator before the application was
filed.
12. Mr. Khambatta submitted that a valid appointment of an
arbitrator can be said to be made and completed only when the
following conditions are fulfilled :-
(i) The communication by the appointor (in this case the
Respondent) to the arbitrator authorizing him to act as a arbitrator;
(ii) Receipt by the appointor of the arbitrators acceptance of
the appointment;
(iii) Communication of the acceptance of the appointment by
the appointor to the other party.
10 ARBAP 89.06
I find the submission to be well founded only so far as the first
condition is concerned.
13. Mr. Khambatta submitted that the third condition was
admittedly complied with only in the affidavit in reply i.e. after the
application was filed. Therefore, according to him, the Respondent
had forfeited the right to appoint an arbitrator even assuming the
disputed letters are proved.
In support of this submission, Mr. Khambatta relied upon the
commentary in Russel on Arbitration, twenty-second edition, 4-056
and 4-057, and Mustill and Boyd, The Law and Practice of
Commercial Arbitration in England, Second Edition, page 184. He
also relied upon the judgments in the case of Tew Vs. Harris, (1848)
11 QB 7 and S.A. Tradax Exports Vs. A.V. Volkswagenwerk (1969) 2
QB 599.
14. It is not necessary for me to consider these commentaries and
judgments qua the second and third conditions in view of the
judgments relied upon by Mr. Dwarkadas of a learned Single Judge of
this Court in the case of Keshavsingh Dwarkadas Vs. Indian
11 ARBAP 89.06
Engineering Company, AIR 1969 Bombay 227, which was affirmed by
the Supreme Court in Keshavsingh Vs. Indian Engineering Company
(1971) 2 SCC 706, which conclusively answer the questions against
Mr. Khambatta.
15. In Keshavsingh Vs. Indian Engineering Company, AIR 1969
Bombay 227, a learned Single Judge of this court dealt with a petition
under section 33 of the Indian Arbitration Act, 1940 (for short 'the
1940 Act') for determining the existence and/or validity of the
arbitration agreement. The Petitioner sought a declaration that there
was no valid agreement to refer the disputes and that the decision of
the appointment of an umpire by the arbitrators was void.
To the facts narrated by the learned Judge, I will add a few facts
noted in the judgment of the Supreme Court while affirming the
judgment which indicate the circumstances in which the umpire
entered upon the reference. The disputes which arose between the
parties in respect of an agreement dated 26th April 1967 were referred
to the arbitration of two arbitrators. Clause 6 of the arbitration
agreement required the arbitrators, before proceeding with the
arbitration to appoint an umpire and in the event of any differences
12 ARBAP 89.06
arising between them, to refer the matter to the umpire for his
decision and award.
The arbitrators at the first meeting made the appointment of an
umpire. Neither of the judgments, however, mentions whether the
arbitrators, had while appointing the umpire initially, communicated
the same to the umpire. The time for making the award expired. The
Respondent called upon the Petitioner to seek an extension of time but
there was no reply. The Appellant did not comply with the
Respondent's request to obtain an extension of time for making the
award by the arbitrators and contended that one of the arbitrators
would be biased in favour of the Respondents. The Respondents,
therefore, called upon the arbitrators to refer the matter to the umpire
and by a separate letter called upon the umpire to enter on the
reference. Thereafter, the umpire held a meeting at which he gave
certain directions. The Petitioner objected to the umpire's right to
decide the dispute and filed the said petition.
It was contended, inter-alia, that the consent of the umpire not
having been obtained to his appointment as such before proceeding
with the arbitration, there was in effect no appointment of the umpire
at all. The learned Single Judge rejecting this contention held as
13 ARBAP 89.06
under :
"2. As far as the first ground mentioned above is
concerned, Mr. Shah has contended that Section 8(1)(b)
of the Arbitration Act, which provides the mode of filling
a vacancy in the appointment of arbitrators or umpire,
comes into play only if the arbitrator or umpire refuses to
act after having accepted the appointment, but that if
there is no acceptance by the arbitrator or the umpire as
such, then there is no appointment at all and no question
of resorting to the procedure under Section 8(1)(b) of the
said act arises at all. I see no reason whatsoever to restrict
the full import of the word "refuses" in the manner
suggested by Mr. Shah. Mr. Shah's contention that there is
no appointment unless there is acceptance of the
appointment is not founded on anything contained in the
Arbitration Act itself. That Act does not anywhere lay
down that requirement as being necessary to constitute a
valid appointment, either of an arbitrator or of an umpire.
Mr. Shah's contention in that behalf is founded only on
what, he submits, should be read into the connotation of
the word 'appoint'. As far as that is concerned, it may,
however, be mentioned that the plain meaning of the
word 'appoint', in the sense in which it is being
considered for the purpose of the present case, is , "to
ordain or nominate to an office" (Murray's Oxford
English Dictionary 1961). There is, therefore, no reason
to import the idea of consent into the plain meaning of the
word 'appoint'. It is not unusual to find a man refusing an
appointment to a post or office which has already been
made in his favour. Mr. Shah has placed reliance on a
decision of the Allahabad High Court in the case of
Fayazuddin v. Aminuddin, (1909) 1 Ind cas 354 (All) and
on the statement that is to be found in Russel on
Arbitration (17th edn.) pp. 160 and 214--215. It is stated
in Russel that acceptance of the office by an arbitrator
appears to be necessary to perfect his appointment, and
the decision in the old English case of Ringland v.
Lowndes (1863) 15 CB (NS) 173 is cited in support of
that proposition. The same position is stated in Russel in
14 ARBAP 89.06
regard to an umpire also, in support of which another
English case is cited therein. I am, however, bound by the
view expressed by the Privy Council in another case,
which happily coincides with the view which I have
taken, apart from authority, on this point, and that is the
case of Mirza Sadik Hussain v. Musammat Kaniz Zohra
Begum (1889) 13 Bom LR 826 at p. 832-833 (PC). The
facts of that case were that one Mizra Hasan Khan died
leaving him surviving, as heirs, his widow the 1st
respondent, his daughter the 2nd respondent and his son
the appellant. Disputes having arisen between the
appellant and the two respondents as to their shares, the
respondents filed a suit in the Court of the Subordinate
Judge in Lucknow claiming administration of the estate
of the deceased, but after the written statement was filed
in that suit, the parties arrived at a compromise which
provided inter alia for a reference to the arbitrators named
therein. One of those arbitrator, however, refused to
accept office as such, or to act. The District Judge made
order of reference to arbitration, whereupon the
respondents applied to the court to withdraw the order of
reference and to deal with the matter itself or to appoint a
commissioner for the purpose. The appellant objected to
that course and insisted that the respondents should
nominate a new arbitrator. The respondent having
declined to appoint another arbitrator the District Judge
made an order that he would scrutinise the matter himself
and, on his having done so he passed an Order allotting
certain properties to the respondents. On appeal from that
order to the Court of the Judicial Commissioner of Oudh,
the decision of the District Judge was affirmed. The
appellant thereupon appealed to the Privy Council.
Reference was made in the judgment of the Privy Council
to Section 510 of the Code of Civil Procedure 1882,
which dealt with the same situation as Section 8 of the
present Arbitration Act 1940 and also used the expression
"refuses or neglects" in regard to the same. It was stated
that courts in India had construed the said section as
meaning that it could only apply to an arbitrator who
refused, after having accepted office before refusing. It
15 ARBAP 89.06
was observed in the judgment of the Privy Council that
what had actually happened in the said case was that,
after the arbitrator had been appointed, he refused to
accept office as such, or to act. The Privy Council took
the view that the construction that had been placed upon
Section 510 by the courts in India till then was not a
proper construction of that Section, and that
"when an arbitrator is nominated by parties, his refusal to
act is signified as clearly by his refusal to accept
nomination as by any other course he could pursue. His
refusal to act necessarily follows, for he had performed
the first action of all, viz. to take up the office by
signifying his assent to his appointment."
[Note: The word "had" underlined by me is an obvious
typographical error in the judgment in AIR 1969 Bom.
227. The report in (1889) 13 BLR 826 at pg. 833 has in
its place the words "has not".]
The Privy Council, therefore, adopted the view that the
course adopted by the lower court was erroneous and the
appeal was, therefore, allowed. It is clear from the
decision of the Privy Council in the case which I am now
considering, that this very question arose before them,
though in another context, and that the Privy Council has
taken the view that there is no distinction between
"refusal to act" and "refusal to accept" his nomination for
the purpose of Section 8 of the Arbitration Act. In fact,
the observations of the Privy Council clearly show that
the view taken in that judgment was that there was
appointment, and that the subsequent refusal of the
arbitrator to accept office was nothing else but a refusal to
act after having been nominated and it is only on that
basis that the Privy Council held that Section 510 of the
Code of Civil Procedure, 1882 was applicable. I
respectfully agree with the view taken by the Privy
Council in the said case and I, therefore, hold that there
has been a valid and proper appointment of Mr. Mehta as
Umpire in the present case, notwithstanding the fact that
his consent had not been obtained prior to his
appointment as such." (emphasis supplied)
16 ARBAP 89.06
16. Mr. Dwarkadas then relied upon the judgment the Supreme
Court upholding the judgment in appeal. The decision is reported in
(1971) 2 SCC 706. The Supreme Court inter alia referred to the
judgments of the English Court relied upon by Mr.Khambatta and
noted the commentary in Russel on Arbitration, 17th Edition.
Mr.Khambatta of course relied upon the 22nd edition. The Supreme
Court specifically referred to and dealt with the cases of Tew Vs.
Harris (1847) 11 QB 7 and S.A. Tradax Exports Vs. A.V.
Volkswagenwerk, 1969-2 QB 599. The Supreme Court noted in
paragraph 8 that the judgment in Tradax Exports had been affirmed by
the Court of Appeal as reported in (1970) I All E R 420 = (1970) 1 QB
537.
The same contention was raised before the Supreme Court
namely that the arbitrators before proceeding with the reference, did
not obtained the consent of the umpire to his appointment and there
was, therefore, no appointment of the umpire. Rejecting the
contention, the Supreme Court held :-
"10. It is important to notice the distinction between ap-
pointment and acceptance of office. The present appeals
concern the appointment of an umpire. The questions of ef-
fectiveness or perfection of appointment are by the nature of
things subsequent to appointment unless the agreement or
17 ARBAP 89.06
the statute provides otherwise. Arbitrators and umpire too
are often appointed by the parties. Sometimes an umpire is
appointed by arbitrators. The constitution of the arbitral
body and the manner in which the appointments are made
are primarily dealt with in the arbitration agreement or else
the Arbitration Act will apply. In some cases, the appoint-
ment of arbitrator may require special consideration. If, for
instance, two arbitrators are required to be appointed one by
each party an appointment of arbitrator by a party is not
complete without communication thereof to the other party.
The reason in the words of Lord Denman is this: "Neither
party can be said to have chosen an arbitrator until he lets
the other party know the object of his choice" (See Thomas
v. Fredricks). Where each party was to appoint a valuer by
May 31, 1847 and one of the parties nominated a referee late
on May 31 and sent by that night's post a notice thereof to
the defendant who received it on June 1, it was held that the
plaintiff had not nominated a referee by May 31. (See Taw v.
Harris)."
In paragraph 15, the Supreme Court observed that if an umpire
declines the offer, the appointment is ineffectual which indicates again
the difference between an appointment and the acceptance thereof.
The doubt, if any, in this regard is removed by the observations in
paragraphs 16 and 21 of the judgment, which read as under:
"16. It is, therefore, apparent that appointment of umpire is
something different from the acceptance of office by the um-
pire. The arbitrator or umpire assumes his office when he ac-
cepts the appointment. There is no authority for the proposi-
tion that consent of the appointee is required before an umpire
is appointed by the arbitrators. The observations in Russell on
Arbitration, 18th Edn. at p. 212 do not support that submis-
sion. The decision in Ringland v. Lowndes which is referred to
in Russell had very special features. Under the Public Health
Act, 1848, a disputed claim to compensation was to be settled
by arbitration. Arbitrators were required to make an award
within twenty-one days after the appointment or within ex-
tended time, if any. If arbitrators neglected or refused to ap-
18 ARBAP 89.06
point an umpire for seven days after being requested so to do
by any party the Court of quarter sessions would on the appli-
cation of such party appoint an umpire. In that case arbitrators
were appointed in January 1861. The arbitrators refused to ap-
point an umpire. The plaintiff applied at the Easter to sessions
to appoint an umpire but failed in consequence of want of a
notice of his intention to make such application. The plaintiff
thereafter gave the required notice and the second application
was made at the Midsummer sessions. One Johnson was
named as umpire. But as his consent had not been obtained no
formal appointment was made. A third application was made
at the Michaelmas sessions and Johnson was on October 14
appointed umpire and accepted the appointment. The question
for consideration was whether the appointment of the umpire
was at the Midsummer sessions or at the Michaelmas ses-
sions. Under the statute the award was to be made within three
months from the umpire's appointment. The umpire made an
award on December 30, 1861. If the appointment was in the
Midsummer sessions the award would be bad.
21. The question of acceptance of appointment of umpire aris-
es with reference to the stage when he is called upon to act.
The Arbitration Act, 1940 does not say that appointment of
umpire by arbitrators is to be made only after obtaining con-
sent of the appointee. The arbitrators here appointed an um-
pire before entering on the reference. The appointment was
not conditional upon the acceptance of appointment by the
umpire. The scheme of arbitration proceedings indicates that
the appointment of umpire and the acceptance of office are
two separate matters arising at different stages in the proceed-
ings. When the umpire is called upon to proceed in terms of
the appointment he will either assent expressly or by conduct
to act or he will decline to act." (emphasis supplied)
17. The judgments are not based only on the provisions of the 1940
Act. They also dealt with the ambit of the term appointment, which
appeared in the arbitration agreement between the parties. The ratio
of the judgments negates the submission that there cannot be said to
be an appointment of an arbitrator unless it has been accepted by the
19 ARBAP 89.06
arbitrator. It follows therefore that for an appointment to be said to
have been made it is not necessary that the appointor received the
acceptance thereof from the arbitrator or that the appointor
communicates the acceptance to the other side.
18. In SBP & Co. vs. Patel Engineering Ltd. & Anr. (2009) 10 SCC
293, the Supreme Court held :
"45. Insofar as this case is concerned, we find that the
arbitrator appointed by Respondent 1, namely, Shri S.N.
Huddar declined to accept the appointment/arbitrate in
the matter on the ground that in his capacity as
Superintending Engineer and Chief Engineer, he was
associated with Koyna Hydel Project implying thereby
that he may not be able to objectively examine the claims
of the parties or the other party may question his
impartiality. To put it differently, Shri S.N. Huddar did
not enter upon the arbitration. Therefore, there was no
question of his withdrawing from the office of arbitrator
so as to enable Respondent 1 to appoint a substitute
arbitrator. In any case, in the absence of a clear
stipulation to that effect in the agreements, Respondent 1
could not have appointed a substitute arbitrator and the
learned Designated Judge gravely erred in appointing the
third arbitrator by presuming that the appointment of Shri
S.L. Jain was in accordance with law."
Although the Supreme Court did not specifically deal with the
point, it is important to note that it drew a distinction between the
20 ARBAP 89.06
appointment of an arbitrator and the acceptance of the appointment by
him.
19. Section 11(6) does not require the acceptance of the
appointment by the arbitrator. Section 11(6)(a) refers to a situation
where a party fails to act as required under an appointment procedure.
Once a party appoints or nominates the arbitrator, it cannot be said
that the party failed to act as required under the appointment
procedure merely because the arbitrator takes time to respond to the
appointment by accepting or refusing the same. Once a party, person
or institution has appointed the arbitrator, the time taken by or the
failure of the arbitrator to respond to the appointment cannot
constitute a failure on their part, as regards the appointment of the
arbitrator. Whether the appointment has been made as per the
procedure prescribed in the agreement and in accordance with law is a
question of fact or a mixed question of law and of fact to be
determined in each case depending, inter-alia, on the nature of the
arbitration agreement.
20. In the present case too, there is nothing either in the provisions
21 ARBAP 89.06
of the 1996 Act or the arbitration agreement between the parties which
required the arbitrator to accept the appointment before it could be
said that the Respondent had appointed an arbitrator. Nor do I find
anything to suggest that the term 'appointment' in the present case
required the appointment to have been received by the arbitrator or the
same to have been communicated by the Respondent to the Petitioner.
Mr. Khambatta's submissions based on the second and third
contentions are, therefore, rejected.
21. The judgments of the learned Single Judge of this Court and of
the Supreme Court in Keshavsingh's case are authority for the
proposition that for a valid and proper appointment of an arbitrator,
the acceptance of the appointment by the arbitrator is not necessary.
There remains, therefore, for consideration the first condition viz.
whether for an appointment to be said to have been made, it is
necessary that the appointor communicates the appointment to the
other party and/or the appointee i.e. the arbitrator and/or any other
concerned party. This, in turn, requires for consideration as to when
an appointment of an arbitrator can be said to have been made.
22 ARBAP 89.06
22. Absent anything to the contrary in the appointment procedure,
an appointment can be said to be made only when the appointor
communicates the appointment to a concerned party such as the other
side or an institution where the arbitration agreement refers to one or
to the arbitrator. An appointment which remains only in the mind or
even on the records of the appointor is no appointment. Till such time
as the appointment is sought to be communicated, there is no
appointment at all. It is then but an intention to appoint the arbitrator
which intention can always be changed or revoked till it is
communicated. It is axiomatic, therefore, that a valid appointment
requires at least a transmission of the communication thereof to a
concerned party. The communication must name the arbitrator failing
which it would not constitute a communication of the appointment at
all. In others words it is not sufficient for a party to merely state that
it has appointed an arbitrator but will not disclose the name. The
purpose of the communication is then not served.
23. Moreover, the communication must be to all the concerned
parties such as the other side, the arbitrator or an institution where the
23 ARBAP 89.06
agreement requires for instance, the appointment to be made through
or by the institution or routed through it. An appointment of an
arbitrator concerns not merely the appointor, but others as well
especially the other side and the arbitrator or an institution where the
agreement so provides. An arbitration cannot commence if any of the
concerned parties is not informed of the appointment. The reason for
this is too obvious to state.
24.
I, however, do not consider it necessary that the communication
is addressed to all the concerned parties simultaneously. It is sufficient
if it is communicated in the first instance to any of them and thereafter
to the others. The purpose of such communication is only to establish
that the appointment was made finally. The purpose of the
communication being to make the appointment it is equally served by
the communication thereof to any concerned party in the first instance
and thereafter to the others if the circumstances so warrant. For
instance, the other side can always be informed after the arbitration
accepts the appointment. That all this must be done in a reasonable
time is another matter and must be determined on the facts of the case.
24 ARBAP 89.06
25. A view to the contrary would enable a party to indefinitely
delay the appointment of an arbitrator which militates against the
purpose of the 1996 Act.
26. The term communicate, however, does not necessarily require
the subject thereof to come to the knowledge of the person to whom it
is made. The fact that the communication is not complete or
ineffective qua the other until it comes to the knowledge of the person
to whom it is made is another matter. Once it is transmitted, it is a
communication of the message nevertheless. That this is so is also
clear from section 4 of the Indian Contract Act, 1872, which provides
that the communication of the acceptance is complete as against the
proposer when it is put in a course of transmission to him so as to be
out of the power of the acceptor. There is thus a distinction between
the communication and the receipt thereof by the person to whom it is
made. Section 4 of the Indian Contract Act reads as under :
"4. Communication when complete.- The
communication of a proposal is complete when it comes
to the knowledge of the person to whom it is made.
The communication of an acceptance is complete, -
25 ARBAP 89.06
as against the proposer, when it is put in a
course of transmission to him so as to be out
of the power of the acceptor;
as against the acceptor, when it comes to the
knowledge of the proposer.
The communication of a revocation is complete, -
as against the person who makes it, when it
is put into a course of transmission to the
person to whom it is made, so as to be out of
the power of the person who makes it;
as against the person to whom it is made,
when it comes to his knowledge."
There is thus a difference between a communication and the
receipt thereof by the person to whom it is made. For an appointment
to be said to have been made, it is not necessary that the
communication thereof reaches the appointee or the other side or any
other concerned person. It is sufficient if it is put in a course of
transmission to them.
27. In this view of the matter, it is not necessary to consider the
judgment of the learned Acting Judicial Commissioner in the case of
A. Ramjibhai & Co. vs. Yusifali & Bros. AIR 1925 Sind 12. A different
aspect was considered in that judgment and it is in that context that
26 ARBAP 89.06
the observations relied upon by Mr. Khambatta were made to the
effect that when one of the parties has communicated his nomination
or appointment in clear and unequivocal language in writing to the
other or when the third person has communicated it to the parties in
the manner intended by the parties to the agreement, the nomination
or appointment is completed. In that case, the nomination was made
"without prejudice" which was held not to be valid.
28.
Mr. Khambatta then relied upon the judgment of a learned
single Judge of the Delhi High Court in the case of M/s. R.S. Avatar
Singh & Co. vs. Indian Tourism Development Corporation Limited,
AIR 2003 Delhi 249. The judgment was delivered considering facts
which are entirely different from those before me. This was also a
petition under section 11 of the said Act. On 20th August, 2001, the
Petitioner issued a notice invoking the arbitration agreement. The
Respondent initiated action for appointment of an arbitrator only
internally. The Respondent's Chairman approved the appointment on
30th August, 2001. However, the letter appointing the arbitrator was
issued only on 5th October, 2001. In the meanwhile, on 22nd
September, 2001, the petition under section 11 had already been filed.
27 ARBAP 89.06
The learned Judge, relying upon the judgment of the Supreme Court
in Bachhittar Singh vs. State of Punjab, AIR 1963 SC 395 = 1962
Supp.(3) SCR 713 held as under :-
"7. Learned counsel for the petitioner, Mr. Arvind
Nigam relies on Bachhittar Singh v. State of Punjab, AIR
1963 SC 395 where the Constitution Bench of the
Supreme Court while considering the requirement of
communication of an order for it to become legally
effective observed as under at page 398:-
"thus it is of essence that the order had to be
communicated to the person who would be
affected by that order before the State and
that person can be bound by that order. For
until the order is communicated to the
person affected by it, it would be open to the
Council of Ministers to consider the matter
over and over again and, therefore, till its
communication the order cannot be regarded
as anything more than provisional in
character".
In view of the aforesaid dictum, as laid down by the
Constitution Bench of the Supreme Court, it is clear that
the order of appointment of the Arbitrator would be taken
to have been made when communicated and received by
the Arbitrator and the concerned party i.e. by the order
dated 5th October, 2001."
29. I have already held that so long as the appointment is not even
sought to be communicated/put in a course of transmission to the
28 ARBAP 89.06
concerned parties, it cannot be said to have been made. I would
therefore have come to the same conclusion viz. that the appointment
was not made before the petition was filed in view of the fact that the
communication of the appointment was not even sought to be
made/put in a course of transmission.
I am, however, with respect, unable to agree that an
appointment would be taken to have been made only when the
communication is received by the arbitrator and the concerned party.
The judgment of the Supreme Court was in an entirely different
context. It is necessary to read the entire judgment of the Supreme
Court and not merely the portion extracted. In that case, the Revenue
Secretary of Pepsu Government, after an enquiry, dismissed the
Appellant from service. In appeal, the Revenue Minister of Pepsu
held the charges to have been proved and noted that they were serious.
The Revenue Minister, however, opined that as the Appellant was a
refugee and had a large family to support, his dismissal from service
would be hard and that instead he ought to be reverted to his original
post. It was found as a question of fact that the remarks of the
Revenue Minister were never officially communicated to the
Appellant. After the merger of Pepsu with the State of Punjab, the
29 ARBAP 89.06
Appellant's file was considered finally by the Chief Minister who
ordered the Appellant's dismissal. One of the contentions of the
Appellant was that the order of the Revenue Minister of Pepsu was
not open to review. It is in this context that the Supreme Court
observed that merely writing something on the file does not amount to
an order and that before something amounts to an order, it has to be
expressed in the name of the Governor under Article 166(1) and then
it has to be communicated. On the finding that the order of the
Revenue Minister of Pepsu was never communicated and remained
only on the files, the Supreme Court held that the State Government
was not bound by the same for the reason that as long as the matter
rested with the Revenue Minister without the same being considered,
he could well have scored out his remarks or minutes on the file and
written fresh ones. The Supreme Court also referred to the rules of
business and held that the same had not been followed and as a result
thereof, the action of the Revenue Minister of Pepsu could not be
considered to be an act of the State.
It is of vital importance, however, to note that in that case, the
order was never even put in a course of transmission with a view to
communicate the same to the Appellant. It was therefore, held that the
30 ARBAP 89.06
decision was not communicated to the officer. The Supreme Court,
therefore, did not deal with the question whether a decision can be
said to have been communicated once it is despatched. It was
therefore, held that the Chief Minister of the State of Punjab was not
precluded from taking a decision as regards the dismissal of the
officer.
30. The judgment was approved by a Division Bench of the Delhi
High Court in the case of Delhi Development Authority vs. Bhagat
Construction Company (P) and Anr. (2004) 3 Arbitration Law
Reports, 548 (Delhi).
31. For the reasons stated above I am, with respect, unable to agree
with this judgment either, on the point that an appointment of an
arbitrator would be taken to have been made when the communication
thereof is received by the arbitrator and the concerned party.
32. The judgment of the Supreme Court in BSNL vs. Subash
Chandra Kanchan, AIR 2006 SC 3335 = (2006) 8 SCC 279 is of no
assistance to the Petitioner's submission either. In that case, the notice
31 ARBAP 89.06
invoking the arbitration clause was issued on 7th January, 2002. The
letter appointing the arbitrator was alleged to have been drafted on 4th
February, 2002. Admittedly, however, it was despatched only on 7th
February, 2002. On the same day, the application under section 11
was also filed. The Supreme Court held as under :-
"11. Evidently, the Managing Director of the Appellant
was served with a notice on 7th January, 2002. The letter
appointing the arbitrator was communicated to
Respondent on 7th February, 2002. By that time, 30 days
period contemplated under the Act lapsed. The
Managing Director of the Appellant was required to
communicate his decision in terms of Clause 25 of the
contract. (emphasis supplied)
12. What would be the meaning of the term
`communicate' came up for consideration before this
Court in State of Punjab v. Amar Singh Harika [AIR
1966 SC 1313], wherein it was held:
"It is plain that the mere passing of an order of dismissal
would not be effective unless it is published and
communicated to the officer concerned. If the appointing
authority passed an order of dismissal, but does not
communicate it to the officer concerned, theoretically it
is possible that unlike in the case of a judicial order
pronounced in Court, the authority may change its mind
and decide to modify its order."
The judgment in State of Punjab vs. Amar Singh must also be
read as a whole. The observations are quoted from paragraph 11 of
32 ARBAP 89.06
the report. It was contended on behalf of the Appellant that though
the Respondent came to know about the order of his dismissal on 28th
May, 1951, it must be deemed to have taken effect from 3rd June,
1949, when it was actually passed. The judgment refers to the detailed
procedure that was adopted for enquiring into the Respondent's
conduct. Ultimately, on 2nd/3rd May, 1949, the Respondent received a
communication from the Government of Pepsu, Home Department,
suggesting that in view of the finding of the Enquiry Committee
holding him guilty of the charges levelled against him he may
exercise the option to resign. It was clarified that it should not be
taken to imply any commitment on the part of the Government to
accept the same. The Respondent tendered his resignation on 6th May,
1949. Notwithstanding the same, the Appellant passed an order of
dismissal against him on 3rd June, 1949. It is important to note that
the Supreme Court, in paragraph 8, noted that though a copy of the
order was forwarded to certain other persons, no copy of the same was
sent to the Respondent himself. The observations of the Supreme
Court quoted above were in this context viz. that the order was never
communicated to the Respondent who was the concerned person. The
Supreme Court did not consider whether if the order had been put in a
33 ARBAP 89.06
course of transmission with a view to communicate the same to the
Respondent, it would not constitute a communication of the order till
it reached the addressee i.e. the Respondent. Indeed, it was not
necessary for the Supreme Court to deal with that question.
Cases such as those in State of Punjab vs. Amar Singh and
Bachhittar Singh vs. State of Punjab also stand on a different footing
altogether. The communication of orders in disciplinary proceedings
raise a question as to the effectiveness of the order and not whether
they are deemed to have been communicated once they are put in a
course of transmission.
33. The judgment if anything is authority for the proposition that
for a matter to be said to have been communicated, it is not
necessary that it should reach the addressee. The letter dated 7th
February 2002 was despatched on that day and the Supreme Court
held in paragraph 7 : "The letter appointing the arbitrator was
communicated to Respondent on 7th February, 2002." Thus the letter
having been despatched, it was sufficient to say that it was
communicated.
34 ARBAP 89.06
34. In the present case, the arbitration agreement does not specify
the mode of appointment, including as to the communication thereof.
Although admittedly the alleged appointment of the arbitrator was not
communicated to the Applicant, it was alleged to have been
communicated to the appointee i.e. arbitrator. Had the communication
namely the letter dated 24th April 2006 been proved, the Respondent
would have discharged its obligation of appointing an arbitrator as per
the arbitration agreement for it subsequently albeit in the affidavit-in-
reply communicate the appointment to the Petitioner. However, as the
letter has not been proved, I must come to the conclusion that the
Respondent had failed to appoint an arbitrator at all.
II. The Respondent had failed to prove the letters.
The Respondent had, therefore, failed to act as
required under the appointment procedure
prescribed by the arbitration agreement and the
Respondent's CMD had failed to perform the
function entrusted to him under the said procedure of
appointing an arbitrator.
35 ARBAP 89.06
35. The question then is whether the Respondent in fact addressed
the alleged letter dated 24th April 2006 to the arbitrator.
36. I must at this stage consider whether the alleged letters have
been proved by the Respondent. I have come to the conclusion that
they have not been proved.
37. The alleged letters were sought to be proved by the evidence of
the Respondent's CMD, who filed an affidavit-in-lieu of examination-
in-chief dated 3rd May 2007. The witness produced the alleged letters
dated 24th April 2006, 2nd May 2006, 8th May 2006 and 11th May 2006.
The Applicant's counsel objected to the letters being taken on record
on the ground that the original letters dated 24th April 2006 and 8th
May 2006 had not been produced, no grounds for leading secondary
evidence had been made out and notice to produce them had not been
issued to the persons in whose custody the original letters would be
and that there was also no proof of delivery of the letters dated 24 th
April 2006 and 8th May 2006.
The copies of the alleged letters were admittedly not forwarded
to the Applicant.
36 ARBAP 89.06
As stated earlier, the above application was filed on 3rd May
2006.
On behalf of the Respondent, it was submitted that the original
letters dated 24th April 2006 and 8th May 2006 would be in the custody
of the addressee i.e. the arbitrator and the witness could therefore only
produce copies thereof; the witness had deposed to the fact that he had
addressed the letters dated 24th April 2006 and 8th May 2006 to the
arbitrator and the question, therefore, of his producing the original
letters cannot and does not arise. It was further submitted that there
was no question of leading secondary evidence since the witness was
producing all the letters addressed to the arbitrator. It was also
submitted that the letters constituted a chain of correspondence
commencing with the letter dated 24th April 2006.
The learned Commissioner recorded the objections and the
submissions in response thereto and marked the documents X1 to X4
for identification.
38. It is important to note at the outset that there was a serious
objection including as to the genuineness of the alleged letters.
Serious allegations have been made against the Respondent in respect
37 ARBAP 89.06
of these letters. It was necessary, therefore, for the Respondent to
have proved the same.
39. Only a copy of the letter dated 24th April 2006 was produced by
the witness. There was not even an attempt to produce the original.
Merely because the original letter was in the custody of the addressee
thereof, the Respondent was not precluded from having the same
produced. Nothing prevented the Respondent from taking out an
appropriate application for having the original letter produced by the
arbitrator. It was not the Respondent's contention that it was not
possible for it to have the original letter produced.
Moreover, the witness has not even proved that the letter had
been despatched by the Respondent. The witness has very fairly not
even contended that he had any role to play in the letter being
despatched.
40. The letter dated 24th April 2006 is, therefore, not proved. Nor
has the Respondent proved that it was despatched to the addressee
thereof. The objection is, therefore, upheld. The document, therefore,
must remain marked as X1 only for identification.
38 ARBAP 89.06
41. The letter dated 2nd May 2006 was objected to on the ground
that the witness had not identified or proved the signatures of the
addressor i.e. arbitrator, proved the contents thereof or the receipt of
the letter. The only response to this was that the letters had been
received in the ordinary course and formed a chain of correspondence.
42. This objection too, must be sustained. The witness has
admittedly not proved the signature of the person who allegedly
addressed the letter. The witness does not even claim to be familiar
with his signature. The witness has not proved the receipt of the letter
by the Respondent or the circumstance in which the same was
delivered to him.
43. The letter cannot be proved on the basis of a chain of
correspondence in view of a fact that I have held earlier that the letter
dated 24th April 2006 has itself not been proved.
44. The letter, therefore, must remain marked X3 only for
identification.
39 ARBAP 89.06
45. For the same reasons, the objections to the letters dated 8th May
2006 and 11th May 2006 are upheld. The letters must remain marked
X2 & X4 respectively for identification only.
46. Mr. Dwarkadas submitted that even if the contents of the letter
had not been proved, the letters must be at least taken on record. I do
not agree. Once it is held that the documents have not been proved,
there is no question of taking them on record subject to the proof of
the contents and the truth of the contents.
47. There is no other evidence to indicate that the Respondent or its
CMD had appointed the said arbitrator. In the circumstances, it must
be held that the Respondent had failed to comply with its obligations
under the arbitration agreement of appointing an arbitrator in
accordance with the arbitration agreement contained in clause 17B of
the said agreement dated 8th January 2006.
48. However, as both the learned counsel without prejudice to their
rights and contentions addressed me on the evidence as regards the
40 ARBAP 89.06
probability of the letters having been addressed and received, I will
deal with the same.
49. To put the Applicant's case at its lowest, the Respondent has
failed to prove the alleged letters and the cross-examination of the
Respondent's witness establishes a high degree of probability that the
letters were never in fact addressed or received by the Respondent as
the case may be. I find it necessary to advert to only a few aspects of
the oral evidence in this regard.
50. In his affidavit, by way of examination-in-chief, the
Respondent's witness stated that he was out of India between 25th
March 2006 and 19th April 2006. On 19th April 2006, itself, the
Respondent's Senior Executive Director one T.V.Holay invited the
witness's attention to the Applicant's advocate's letter dated 29th
March 2006, invoking the arbitration agreement and calling upon the
Respondent to appoint an arbitrator within 30 days. The letter dated
29th March 2006 was admittedly received on the same day. He stated
that as there were several pressing matters for him to attend to and as
the arbitration agreement did not mentioned a time limit of 30 days,
41 ARBAP 89.06
he asked the said T.V.Holay to instruct the Respondent's advocate to
write to the Applicant's advocate that he would appoint an arbitrator
within 30 days of his return.
Obviously, instructions to the above effect were furnished to the
Respondent's advocate. This is clear from the fact that the
Respondent's advocate addressed the letter dated 21st April 2006
informing the Applicant's advocate that the Respondent's CMD was
extremely busy having returned to India on 19th April 2006 and would
therefore, appoint an arbitrator within 30 days from the date his return
to India.
51. Absent anything else this evidence would indicate that nothing
else or to the contrary transpired between 19th April 2006 and 21st
April 2006.
The Respondent has, however, come up with an entirely
different case to establish the said correspondence, the improbability
of which stand virtually established from the cross-examination.
52. The Respondent's witness stated in the said affidavit that the
said T.V. Holay alongwith the Executive Vice President and Company
42 ARBAP 89.06
Secretary of the Respondent one Harjinder Singh met him on 20th
April 2006 and informed him that they had given the necessary
instructions to the Respondent's advocate, as instructed by the witness
on 19th April 2006. However, he add\s in the affidavit that at the
meeting on 20th April 2006, the said Harjinder Singh, who is a
qualified lawyer, informed him that although clause 17(B) which
contains the arbitration agreement does not provide a time limit of 30
days for appointing an arbitrator, since the letter dated 29th March
2006 stated that the Petitioner would approach the Bombay High
Court with an application under section 11 of the Arbitration and
Conciliation Act, 1996 if the appointment was not made within 30
days, he should appoint an arbitrator within that period. The affidavit
then states that on the same day i.e. 20th April 2006, he contacted
several persons including his family, friends, and acquaintances in
order to ascertain the name of a suitable person like a retire Judge
whom he could nominate as an arbitrator. I will not refer to the
details of these attempts. Suffice it to state that the name of the said
arbitrator was recommended by his sister's husband, who carries on
business in Indore and Bhopal. It is important to note that the witness
stated that on 21st April, 2006, he contacted the said arbitrator over the
43 ARBAP 89.06
phone; that the arbitrator agreed in principle to act as an arbitrator and
asked the witness to send him a letter and necessary information. The
contention that the telephonic conversation with the arbitrator took
place on 21st April 2006 is of crucial importance for it belies the
Respondent's entire case in this regard.
53. As noted above, the decision on 19th April 2006 was to instruct
the Respondent's advocate to address a letter to the Applicant's
advocate stating that the Respondent would appoint an arbitrator
within 30 days of the return of the Respondent's witness to India. On
20th April 2006, the Respondent's Executive informed the witness that
instructions to that effect were given to the advocates. The alleged
decision on the same day i.e. 20th April 2006 to appoint an arbitrator
immediately was contrary to the decision of 19th April 2006 and the
instructions furnished to the Respondent's advocate.
54. To a question in cross-examination as to why the Respondent
did not instruct its advocate not to write a letter as per the previous
instructions and/or to write a letter confirming that the Respondent
would be appointing an arbitrator by 20th April 2006, the only answer
44 ARBAP 89.06
was that if the Respondent was able to appoint an arbitrator within the
time framed stipulated in the Applicant's letter, the Respondent
wanted to instruct its advocate about the outcome as soon as it
happened and that there was no need to change the earlier instructions
unless the new action could be executed. (Answer to Question 51).
55. This explanation is contrary to the normal course of conduct
and contrary to the Respondent's actual conduct.
The advocate's letter was written only on 21st April 2006, i.e.
after the revised decision of 20th April 2006. The normal course of
conduct would have been for the Respondent to inform its advocate to
address a letter in accordance with the final decision and not as per the
earlier decision which was abandoned.
Moreover, the above explanation is also not convincing for even
according to the witness the arbitrator agreed to the appointment on
21st April, 2006. The Respondent, however, did not communicate the
same till 9th June, 2006 and that too in the affidavit-in-reply.
56. The above explanation is in fact contrary in a material aspect to
the witness's answers to questions 196 and 197. The cross-
45 ARBAP 89.06
examination from Questions 196 to 201 is important in this regard.
Mr. K.R. Modi referred to is a senior partner of the Respondent's
Solicitor firm, M/s. Kanga & Co.
"Q.196 : Please see your answers to question Nos. 49
to 52 on pages 61, 62 and 64 of the Notes of Evidence.
In answer to question No.52, you have stated that you
took a decision to appoint an arbitrator immediately
after your conversation with Mr. Harjinder Singh. In
answer to the previous question, you are now stating
that the decision to appoint an arbitrator was taken
after your conversation with Mr. K.R.Mode. Which
answer is correct ?
A.: Both the answers are correct. Immediately after
my conversation with Mr. Harjinder Singh, I made the
call to Mr. K.R.Modi, I discussed various issues with
him in general consultation and apprised him of my
decision to appoint the arbitrator and also sought
advise from him for any particular name if he had for
the possible arbitrator. Since this call was made
immediately after my above referred conversation
with Mr. Harjinder Singh, it will not be wrong to say
that my decision to appoint the arbitrator immediately,
stemmed out of this conversation with Mr. K.R.Modi
also.
Q.197 : According to you, Mr. K.R.Modi was
therefore, aware on 20th April 2006, that you were
proceeding to appoint an arbitrator within a period of
30 days from the date of receipt of the notice from the
Applicants ?
A. : I am sure that Mr. K.R.Modi was aware, that I
was making due efforts in this regard.
Q.198 : Please see the letter dated 21st April 2006
46 ARBAP 89.06
addressed by M/s. Kanga & Co., to M/s. Mulla &
Mulla & Cragie Blunt & Caroe (Serial No.5 of
Common Compilation of Documents). Who has
signed this letter ?
A. : Mr. K.R.Modi.
Q.199 : As you suggesting that despite Mr. K.R.Modi
being aware on 20th April 2006 of your alleged
decision to appoint an arbitrator within 30 days of the
date of receipt of the notice from the Applicants, Mr.
K.R.Modi chose not to inform the Applicants'
Advocates of the aforesaid decision and chose to state
that you would appoint an arbitrator within 30 days of
your return to India ?
A.: Although I have already answered to this
question, let me again repeat and clarify that on 19th
April 2006, we gave instructions to our Solicitors,
M/s. Kanga & Co., to inform the other party that I
would exercise my right to appoint the arbitrator
within 30 days of my return to India. Mr. Modi
conveyed these instructions recording them in the
letter of 21st April 2006 addressed to M/s. Mulla &
Mulla & Cragie Blunt & Caroe. My conversation with
him on 20th April 2006, only informed him of my
efforts to appoint the arbitrator at an early date and I
did tell Mr. K.R.Modi that I would revert back to him
if I am able to appoint the arbitrator and then
necessary intimation can be sent to the other party.
Therefore, I see nothing wrong in Kanga & Co.,
writing the letter of 21st April 2006 as those were the
instructions standing at that time. Mr. Modi was
informally informed about the appointment only on
24th April 2006, as I have referred to in my answer to
question No.59.
Q.200 : Please tell me clearly whether on 20th
April 2006, you had informed Mr. Modi of your
decision to appoint an arbitrator within 30 days from
47 ARBAP 89.06
the receipt of the notice from the Applicants ? Please
answer in "yes" or "no".
At this stage, the witness was asked to leave the
room.
Mr. Diwan objects to the question on the ground
that the decision to appoint an arbitrator was made,
that it was to be made within 30 days was not the
decision, but that the efforts would be made to make
such an appointment within 30 days. This is what has
been stated till now by the witness and not that the
decision was made to appoint the arbitrator within 30
days.
Mr. Joshi states that he fails to see the
objections to the questions. The question does not
state that the witness has taken any particular decision.
What is sought, is the witness's statement on whether,
such a decision was taken. Furthermore, the question
is necessary, as the witness has not given clear
answers. In any event, it is not for the Respondents'
Counsel to state what the witness has stated earlier or
to interpret the witness's answers. The answers are
already on record and if the witness wants to say what
the Respondents' Counsel is suggesting, it is for the
witness to say so.
Mr. Diwan in response to the submission of Mr.
Joshi, states that the submission is contrary to the
question.
A.: I had not specified the period of 30 days or
anything to Mr. Modi. I had just informed him that I
am making all my best efforts to appoint an arbitrator
as early as possible.
Q.201 : Are you aware of whether Mr. T.V. Holay
had contacted either Mr. K.R.Modi or M/s. Kanga &
Co., between 19th April 2006 and 21st April 2006 ?
48 ARBAP 89.06
A.: I am not aware."
57. It is now admitted, therefore, that the witness personally
informed the Respondent's advocates, the said K.R. Modi about the
revised decision on 20th April 2006. There is no explanation why then
the Respondent's advocate addressed the letter dated 21st April 2006
itself as per the instructions based on the earlier decision of 19th April
2006. The said K.R. Modi is a partner of M/s. Kanga and Co., which
is one of the oldest and one of the most reputable and renowned firm
of Solicitors in the city. It is impossible to believe that one of its
senior partners who was informed of the decisions of 19th April 2006
and 20th April 2006 would on the next day address a letter not as per
the final decision but as per the earlier decision which was admittedly
abandoned.
58. The further clarification regarding the explanation given to the
Respondent's advocate has not been confirmed in any other manner.
59. The answer to Question 199 is important as it belies the same.
The witness stated that if he was able to make the appointment within
49 ARBAP 89.06
30 days, he would revert to his advocate and then "necessary
intimation can be sent to the other party." He admits having reverted
to the advocate of 24th April, 2006 about the alleged appointment. It is
of vital importance to note that the advocate never sent "the necessary
intimation" to the Petitioner. There is no explanation for this.
60. Most important is the fact that the Respondent has chosen not to
examine its solicitor. His evidence would have been extremely
important in this regard. It is not the Respondent's case that it was
unable to examine its solicitor's partner attending to the matter. I am
inclined, therefore, to draw an adverse inference against the
Respondents to the effect that it refused to examine its solicitor for the
reason that had he been examined his evidence would have militated
against the Respondent's case in this regard.
61. I am also inclined to draw an adverse inference against the
Respondent for having failed to call upon the said arbitrator to
produce the originals of the alleged letters dated 24th April 2006 and
8th May 2006 as the Respondent was aware that it had not addressed
the said letters to the said arbitrator. The failure to do so was despite
50 ARBAP 89.06
the fact that the letters were of crucial importance to the Respondent's
case.
62. The doubt if any in this regard is removed by what transpired
even thereafter.
In answer to questions 59 and 118, the witness stated that on
24th April 2006, he orally informed his advocates about having
appointed the said arbitrator. In answer to Question 114 and 115, he
admitted that this information was furnished by the Respondent to its
advocate in writing only in the first week of May 2006. Significantly,
despite the same, the Respondent's advocate addressed no further
communication to the Applicant's advocate. Nor is there any
explanation as to why the Respondent's advocate did not write a
further letter to the Applicants or its advocate stating the same.
Here again the evidence of the Respondent's advocate would
have been of considerable importance. The witness has not given a
convincing explanation regarding the instructions to its advocate
about writing a further letter referring to the alleged appointment of
the arbitrator. His answers to question 121 to 125 are as follows:
"Q.121 : Did you tell Mr. Modi to inform the
Applicants about the alleged appointment of an
51 ARBAP 89.06
arbitrator by you ?
A.: As I have mentioned earlier, all the actions
which are required after an act which has been made
by me as the Chairman of the Company, is taken by
our various executives and legal departments. So, I do
not have to personally write to, inform anybody.
Verbally, of course, I did mention to Mr. Modi on that
day as mentioned earlier.
Q.122 : I repeat my earlier question. Did you tell
Mr. Modi to inform the Applicants about the alleged
appointment of an arbitrator by you ?
A.: I would not be able to further clarify the exact
verbatim discussions which I do not remember.
However, in practice it is not required that I have to
personally discuss on any of these issues.
Q.123. So, according to you, you do not
remember whether you told Mr. K.R.Modi to inform
the Applicants regarding your alleged appointment of
an arbitrator ?
A.: The point is that I do not have to instruct Mr.
Modi. It was expected to be done by our people and
in my conversation with him, I had conveyed to him
about the appointment. Any action further than that,
was expected to happen in the normal course. So, I
do not have to give specific instructions. The question
of remembering this conversation does not arise.
Q.124 : So, would I be correct in saying that you
did not give instructions to Mr. Modi on 24th April
2006 to inform the Applicants regarding the alleged
appointment of an arbitrator by you ?
A. : I have already answered that in my earlier reply.
I have clearly told you what I feel on that issue.
52 ARBAP 89.06
Q.125 : I am unable to understand your answer.
Please tell me in "yes" or "no", whether you told Mr.
Modi to inform Mr. Modi to inform the Applicant
about he alleged appointment of an arbitrator by you ?
A. : The point is that my discussion and informing
Mr. Modi, I thought, was adequate. As I have said
earlier, I have no remembrance of that conversation."
63. It is clear, therefore, that according to the witness he informed
the Respondent's Solicitors of having appointed the arbitrator. The
Solicitors evidence yet again would have been of crucial importance,
as to why he did not address a letter informing the Petitioner of the
appointment. The witness has also not offered any explanation why
he did not take the matter up with his Solicitor for not having
addressed such a letter.
64. The witness alleges having instructed another firm of advocates
M/s. Arvind Rathod and Company to inform the Applicant of the
appointment of the said arbitrator after the receipt of the alleged letter
dated 2nd May 2006. This letter was received by the Respondent only
on 6th May 2006 as admitted in the answer to question 210. I will
ignore the discrepancy in his evidence in his answer to question nos. 2
& 3 that he made efforts around 5th to 8th May 2006 to contact M/s.
53 ARBAP 89.06
Arvind Rathod and Company. This is a minor discrepancy. It does
not effect the Respondent's case at all. Nor does the fact that M/s.
Arvind Rathod & Company in the letter dated 17th May 2006, did not
mentioned the name of the arbitrator affect the Respondent's case.
The letter states that the arbitrator had been appointed. Merely
because the name was not mentioned, it would make no difference.
However, the letter not having named the arbitrator cannot be
considered to be a communication of the appointment of the arbitrator.
65. In the result, even if the disputed letters dated 24th April 2006
and 8th May 2006 addressed by the CMD to the arbitrator are
admitted in evidence for the limited purpose suggested by
Mr.Dwarkadas viz. that they were written it would not assist the
Respondent for it has not been established that they were forwarded to
the arbitrator.
66. The Respondent has therefore, failed to prove that it appointed
the arbitrator at any stage upto date. I must clarify, however, that
although I have held that the Respondent has not proved the disputed
letters and that the evidence does not support the Respondent's case
54 ARBAP 89.06
on facts, I have not accepted the submission that the letters were
fabricated. A finding of fabrication and perjury must meet a much
higher test.
III. The Respondent and its CMD having failed to
appoint an arbitrator within thirty days from the
receipt of the Petitioner's letter dated 29th March 2006
invoking arbitration and before the above application
was filed, had forfeited its right to appoint an
arbitrator.
67. Mr. Khambatta submitted that if an appointment is not made
within thirty days of the appointor being called upon to do so and
before the other side files an application under section 11, which it is
entitled to after the said period of thirty days, the right to appoint an
arbitrator conferred by an arbitration agreement is forfeited and in that
case, only the Chief Justice or his designate can make the
appointment. In other words, according to him, upon the expiry of the
said period of thirty days, the other party is entitled to file an
application under section 11 and once that is done, the party entitled to
55 ARBAP 89.06
appoint the arbitrator forfeits its right to do so. If, however, the
appointment is made after the expiry of thirty days from the date of
the appointor being called upon to appoint the arbitrator but before
the other side files an application under section 11, the right to appoint
an arbitrator conferred by the arbitrator agreement is not forfeited.
68. Mr. Khambatta submitted that the appointment not having been
made by the Respondent within thirty days of the Appellant's letter
dated 29th March, 2006, invoking the arbitration agreement and before
the filing of this application, the Applicant has forfeited its right under
clause 17(B) of the agreement to appoint an arbitrator and that now
only the Chief Justice or his designate is entitled to appoint an
arbitrator in this application.
69. The first question, therefore, is whether the said period of thirty
days is mandatory and whether if the appointment is not made within
thirty days, the Chief Justice or his designate is bound to presume that
the party has failed to act as required under the procedure for the
appointment of the arbitrator or a person, including an institution, has
failed to perform the function entrusted to him or it under that
56 ARBAP 89.06
procedure for the appointment of an arbitrator. I have answered the
question in the negative.
70. This submission was based on the contention that the Supreme
Court had, in a series of judgments, commencing with the judgment in
the case of Datar Switchgears Limited vs. Tata Finance Limited
(2000) 8 SCC 151, held that a party has only thirty days to appoint an
arbitrator after being called upon to do so. He submitted that although
section 11(6) does not stipulate any such period for the appointment of
an arbitrator, the Supreme Court had, by these judgments, determined
the same to be thirty days.
71. The submission is based on a misconstruction of the judgments
relied upon by Mr. Khambatta. The error in this submission is a
consequence of reading stray sentences and parts of sentences instead
of reading the judgment as a whole. The judgments, read as a whole,
do not support this submission at all. In fact, the judgments of the
Supreme Court in Ace Pipeline Contracts (P) Ltd. vs. Bharat
Petroleum Corporation Limited (2007) 5 SCC 304, Indian Oil
Corporation vs. Raja Transport Pvt. Ltd. (2009) 8 SCC 520, as also
57 ARBAP 89.06
the observation in certain other cases conclusively negate the
submission.
72. I will, first construe the provisions of section 11 myself and
refer to the judgments which support the view I have taken and
thereafter deal with the judgments relied upon by Mr. Khambatta.
73. Section 11 reads :-
"11. Appointment of arbitrators.-(1) A person of any
nationality may be an arbitrator, unless otherwise agreed
by the parties.
(2) Subject to sub-section (6), the parties are free to agree
on a procedure for appointing the arbitrator or arbitrators.
(3) 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.
(4) 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 request of a party,
58 ARBAP 89.06
by the Chief Justice or any person or institution
designated by him.
(5) Failing any agreement referred to in sub-section (2),
in an arbitration with a sole arbitrator, if the parties fail to
agree on the arbitrator within thirty days from receipt of
a request by one party from the other party to so agree
the appointment shall be made, upon request of a party,
by the Chief Justice or any person or institution
designated by him.
(6) 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 Chief Justice or any person or
institution designated by him to take the necessary
measure, unless the agreement on the appointment
procedure provides other means for securing the
appointment.
(7) A decision on a matter entrusted by sub-section (4) or
sub-section (5) or sub-section (6) to the Chief Justice or
the person or institution designated by him is final.
(8) The Chief Justice or the person or institution
designated by him, in appointing an arbitrator, shall have
due regard to -
(a) any qualifications required of the arbitrator by the
agreement of the parties; and
(b) other considerations as are likely to secure the
appointment of an independent and impartial arbitrator.
59 ARBAP 89.06
(9) In the case of appointment of sole or third arbitrator
in an international commercial arbitration, the Chief
Justice of India or the person or institution designated by
him may appoint an arbitrator of a nationality other than
the nationalities of the parties where the parties belong to
different nationalities.
(10) The Chief Justice may make such scheme as he may
deem appropriate for dealing with matters entrusted by
sub-section (4) or sub-section (5) or sub-section (6) to
him.
(11) Where more than one request has been made under
sub-section (4) or sub-section (5) or sub-section (6) to
the Chief Justices of different High Courts or their
designates, the Chief Justice or his designate to whom
the request has been first made under the relevant sub-
section shall alone be competent to decide on the request.
(12) (a) Where the matters referred to in sub-sections
(4), (5), (6), (7), (8) and (10) arise in an international
commercial arbitration, the reference to "Chief Justice"
in those sub-sections shall be construed as a reference to
the "Chief Justice of India."
(b) Where the matters referred to in sub-sections
(4), (5), (6), (7), (8) and (10) arise in any other
arbitration, the reference to "Chief Justice" in those sub-
sections shall be construed as a reference to the Chief
Justice of the High Court within whose local limits the
principal civil Court referred to in clause (e) of sub-
section (1) of section 2 is situate and, where the High
Court itself is the Court referred to in that clause, to the
Chief Justice of that High Court."
The parties have proceeded on the basis that the present case
falls under section 11(6)(a) and (c). I have proceeded accordingly.
60 ARBAP 89.06
74. As far as precedent is concerned, I will deal with the question
as to whether the Supreme Court has in any of its judgments
stipulated a period of thirty days later. I have found the submission to
be not well founded on precedent. On principle too, the submission is
not well founded.
75. The clearest aspect that establishes the fallacy in Mr.
Khambatta's submission is the contrast between sub-sections (4) and
(5) on the one hand and sub-section (6) ,which applies in this case, on
the other. If the Legislature intended fixing a limit of thirty days to
determine whether or not there has been a failure on the part of a
party, person or institution as contemplated in sub-section (6), it
would have stipulated the same. This is established by the fact that
whereas the Legislature fixed the period of thirty days in sub-sections
(4) and (5), it did not do so in sub-section (6). This establishes that
the Legislature intended the Chief Justice or his designate to
determine whether there was a failure on the part of a party, person or
institution to act as required or to perform any function entrusted
under the procedure agreed upon by the parties, as the case may be,
61 ARBAP 89.06
depending upon the facts of each case.
I find nothing in section 11 that warrants reading into sub-
section (6), a period of thirty days or any other fixed period. Nor do I
find any reason to compel fixing a particular period in sub-section (6).
76. Mr. Khambatta submitted that there are two competing
considerations in a case such as this - the right of a party to appoint an
arbitrator and the need for expedition in arbitration proceedings.
These competing interests, he submitted, were balanced by the
Supreme Court by fixing a period of thirty days in sub-section (6). He
submitted that otherwise the Chief Justice or his designate would in
each case have to enter upon a detailed enquiry requiring evidence as
to whether there was a failure on the part of the party, person or
institution as provided in sub-section (6).
77. If the Legislature has placed the burden of deciding this ground
on the Chief Justice or his designate, they must do so. If this involves
a detailed enquiry, they must still do so.
78. In any event, I do not share Mr. Khambatta's apprehension. An
62 ARBAP 89.06
enquiry of this aspect is normally not a complicated one involving a
trial of the issue. It can be dealt with summarily if the Chief Justice or
his designate thinks it fit to do so.
79. This brings me to the judgments cited by the learned counsel.
80. Mr. Dwarkadas's reliance upon the judgment of the Supreme
Court in Ace Pipeline Contracts (P) Ltd. vs. Bharat Petroleum
Corporation Limited (2007) 5 SCC 304, is well founded. In that case,
the arbitration agreement provided that the disputes would be referred
to the sole arbitration of the Director (Marketing) of the Respondent
or some officer of the Respondent nominated by him. Disputes and
differences having arisen between the parties, the Appellant, by a
letter dated 21st July, 2005, invoked the arbitration agreement. On
22nd August, 2005, the Appellant filed an application under section 11.
The Respondent, on that day, appointed an arbitrator. The arbitrator
received the letter of appointment on 26th August, 2005. It was
contended that the appointment having been made after the filing of
the petition, the Respondent's Director ceased to have any right to
appoint the arbitrator after the expiry of thirty days. The Respondent
63 ARBAP 89.06
alleged having sent a communication of the appointment of the
arbitrator on 22nd August, 2005. The Respondent also offered an
explanation as to why the appointment was made only on 22nd August,
2005. It was on account of certain holidays that intervened during the
period prior thereto and on account of the Respondent's Director
seeking certain information about the appointment procedure. The
single Judge of the High Court came to the conclusion that it could
not be said that the appointing authority did not act with due despatch.
After referring to the provisions of section 11 in paragraph 10, the
Supreme Court held :-
"10. ................................................................................
Therefore, so far as the period of thirty days is
concerned, it is not mentioned in sub-section (6). The
period of limitation is only provided under sub-sections
(4) and (5) of Section 11. As such, as per the statute, the
period of limitation of thirty days cannot be invoked
under sub-section (6) of Section 11 of the Act. In this
context, their Lordships in Datar Switchgears Ltd. did
not permit to count 30 days as such in sub-section (6).
We cannot do any better than to reproduce paras 19, 20
and 21 of the judgment in that case: (SCC p.158)
"19. So far as cases falling under Section
11(6) are concerned -- such as the one be-
fore us -- no time-limit has been prescribed
under the Act, whereas a period of 30 days
has been prescribed under Section 11(4) and
Section 11(5) of the Act. In our view, there-
fore, so far as Section 11(6) is concerned, if
64 ARBAP 89.06
one party demands the opposite party to ap-
point 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 ex-
piry of 30 days. If the opposite party makes
an appointment even after 30 days of the de-
mand, but before the first party has moved
the court under Section 11, that would be
sufficient. In other words, in cases arising
under Section 11(6), if the opposite party has
not made an appointment within 30 days of
demand, the right to make appointment is
not forfeited but continues, but an appoint-
ment has to be made before the former files
application under Section 11 seeking ap-
pointment of an arbitrator. Only then the
right of the opposite party ceases. We do not,
therefore, agree with the observation in the
above judgments that if the appointment is
not made within 30 days of demand, the
right to appoint an arbitrator under Section
11(6) is forfeited.
20. In the present case the respondent made
the appointment before the appellant filed
the application under Section 11(6) though it
was beyond 30 days from the date of de-
mand. In our view, the appointment of the
arbitrator by the respondent is valid and it
cannot be said that the right was forfeited af-
ter expiry of 30 days from the date of de-
mand.
21. We need not decide whether for purposes
of sub-sections (4) and (5) of Section 11,
which expressly prescribe 30 days, the peri-
od of 30 days is mandatory or not."
(emphasis in original)
65 ARBAP 89.06
11. The observations made by their Lordships are very
clear and their Lordships negatived the contention that 30
days should not (sic) be read in sub-section (6) of Section
11 of the Act; if the opposite party has not made an ap-
pointment within 30 days of demand, the right to make
appointment is not forfeited but continues. Their Lord-
ships in para 20 have also very categorically held that in
the present case the respondent made the appointment be-
fore the appellant filed the application under Section
11(6), though it was beyond 30 days from the date of de-
mand, the appointment of the arbitrator by the respondent
was valid and it cannot be said that the right was forfeit-
ed after expiry of 30 days from the date of demand. Their
Lordships were also very clear in their mind in para 21
and observed: (Datar Switchgears Ltd. case, SCC p.158)
"21. We need not decide whether for purpos-
es of sub-sections (4) and (5) of Section 11,
which expressly prescribe 30 days, the peri-
od of 30 days is mandatory or not."
We are only concerned with reading of 30 days within
sub-section (6) of Section 11. So far as the period of 30
days with regard to Section 11(6) is concerned, there is
no manner of doubt that their Lordships had not invoked
30 days as mandatory period under Section 11(6) and be-
yond that it cannot be invoked by the appointing authori-
ty. Therefore, it is totally a misnomer to read 30 days in
Section 11(6) of the Act, though Shri Sorabjee, learned
Senior Counsel appearing for the appellant tried to em-
phasise that the decision in Datar has been affirmed by a
three-Judge Bench and therefore, that 30 days should be
read in Section 11(6) of the Act is also not correct.
12. In Punj Lloyd Ltd. their Lordships only quoted
para 19 in part and not in full. Full para 19 of the judg-
ment in Datar has been reproduced above. In fact subse-
quent observation (at SCC p.158, para 19) of their Lord-
66 ARBAP 89.06
ships,
"[w]e do not, therefore, agree with the observation in the
above judgments that if the appointment is not made
within 30 days of demand, the right to appoint an arbitra-
tor under Section 11(6) is forfeited",
this portion of order was not reproduced. Therefore, it is
not a case that the decision given by two-Judge Bench in
Datar has been reaffirmed and this is binding on us. We
regret to say this is not correct. In Punj Llyod Ltd. their
Lordships only set aside the order and remitted the mat-
ter back to the High Court for appointment of arbitrator
by the Chief Justice. But the ratio laid down in Datar
holds good and it is not negatived, the period of 30 days
cannot be read in Section 11(6) of the Act. The relevant
portion of Punj Lloyd case reads as under: (SCC p.640,
para 5)
"5. Having heard the learned counsel for the parties, we
are satisfied that the appeal deserves to be allowed. The
learned counsel for the appellant has placed reliance on
the law laid down by this Court in Datar Switchgears
Ltd. v. Tata Finance Ltd. (SCC p.158, para 19) wherein
this Court has held as under:
'[S]o far as Section 11(6) is concerned, if one party de-
mands 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 op-
posite party makes an appointment even after 30 days of
the demand, but before the first party has moved the
court under Section 11, that would be sufficient. In other
words, in cases arising under Section 11(6), if the oppo-
site party has not made an appointment within 30 days of
demand, the right to make appointment is not forfeited
but continues, but an appointment has to be made before
the former files application under Section 11 seeking ap-
pointment of an arbitrator. Only then the right of the op-
posite party ceases.' " (emphasis in original)
The aforesaid quotation would clearly reveal that the cru-
67 ARBAP 89.06
cial words in para 5 were not quoted in the aforesaid case
which has been reproduced above."
.................................................................
20. It may also not be out of place to mention that we are
aware of the departmental lethargy in making
appointment of arbitrators in terms of the arbitration
clause. Therefore, mandamus can be issued by the courts
in exercise of powers under Section 11(6) of the Act but
the demand should be in the event of failure by the
authorities to appoint arbitrators within the reasonable
time. Courts are not powerless to issue mandamus to the
authorities to appoint arbitrators as far as possible as per
the arbitration clause. But in large number of cases if it is
found that it would not be conducive in the interest of
parties or for any other reasons to be recorded in writing,
choice can go beyond the designated persons or
institutions in appropriate cases. But it should normally
be adhered to the terms of arbitration clause and appoint
the arbitrator/arbitrators named therein except in
exceptional cases for reasons to be recorded or where
both parties agree for common name." (emphasis
supplied.)
81. In Indian Oil Corporation vs. Raja Transport Pvt. Ltd. (2009) 8
SCC 520, the arbitration agreement required the disputes and
differences between the parties to be referred to the sole arbitration of
the Appellant's Director or of some officer of the Appellant nominated
by the Director. The Supreme Court considered the circumstances in
which the Chief Justice or his designate could ignore the appointment
procedure or the named arbitrator in the arbitration agreement and
appoint an arbitrator of his choice. The Supreme Court held:-
68 ARBAP 89.06
"48. In the light of the above discussion, the scope of
Section 11 of the Act containing the scheme of
appointment of arbitrators may be summarised thus:
(i) Where the agreement provides for arbitration with
three arbitrators (each party to appoint one arbitrator and
the two appointed arbitrators to appoint a third
arbitrator), in the event of a party failing to appoint an ar-
bitrator within 30 days from the receipt of a request from
the other party (or the two nominated arbitrators failing
to agree on the third arbitrator within 30 days from the
date of the appointment), the Chief Justice or his desig-
nate will exercise power under sub-section (4) of Section
11 of the Act.
(ii) Where the agreement provides for arbitration by a
sole arbitrator and the parties have not agreed upon any
appointment procedure, the Chief Justice or his designate
will exercise power under sub-section (5) of Section 11,
if the parties fail to agree on the arbitration within thirty
days from the receipt of a request by a party from the
other party.
(iii) Where the arbitration agreement specifies the ap-
pointment procedure, then irrespective of whether the ar-
bitration is by a sole arbitrator or by a three-member Tri-
bunal, the Chief Justice or his designate will exercise
power under sub-section (6) of Section 11, if a party fails
to act as required under the agreed procedure (or the par-
ties or the two appointed arbitrators fail to reach an
agreement expected of them under the agreed procedure
or any person/institution fails to perform any function en-
trusted to him/it under that procedure).
(iv) While failure of the other party to act within 30 days
will furnish a cause of action to the party seeking arbitra-
tion to approach the Chief Justice or his designate in cas-
es falling under sub-sections (4) and (5), such a time-
bound requirement is not found in sub-section (6) of Sec-
tion 11. The failure to act as per the agreed procedure
within the time-limit prescribed by the arbitration agree-
ment, or in the absence of any prescribed time-limit,
within a reasonable time, will enable the aggrieved party
to file a petition under Section 11(6) of the Act.
(v) Where the appointment procedure has been agreed
between the parties, but the cause of action for invoking
the jurisdiction of the Chief Justice or his designate under
clauses (a), (b) or (c) of sub-section (6) has not arisen,
69 ARBAP 89.06
then the question of the Chief Justice or his designate ex-
ercising power under sub-section (6) does not arise. The
condition precedent for approaching the Chief Justice or
his designate for taking necessary measures under sub-
section (6) is that
(i) a party failing to act as required under the agreed ap-
pointment procedure; or
(ii) the parties (or the two appointed arbitrators) failing to
reach an agreement expected of them under the agreed
appointment procedure; or
(iii) a person/institution who has been entrusted with any
function under the agreed appointment procedure, failing
to perform such function.
(vi) The Chief Justice or his designate while exercising
power under sub-section (6) of Section 11 shall endeav-
our to give effect to the appointment procedure pre-
scribed in the arbitration clause.
(vii) If circumstances exist, giving rise to justifiable
doubts as to the independence and impartiality of the per-
son nominated, or if other circumstances warrant ap-
pointment of an independent arbitrator by ignoring the
procedure prescribed, the Chief Justice or his designate
may, for reasons to be recorded ignore the designated ar-
bitrator and appoint someone else."
82. These judgments support Mr. Dwarkadas's submissions. The
ratio of the judgments is that there is no fixed time within which a
party entitled to appoint an arbitrator under the arbitration agreement
is to make the appointment. It must be done within a reasonable time,
which must depend on the facts of each case. It is only if the
appointment is not made within a reasonable time that the other party
is entitled to seek the appointment of an arbitrator by the Chief Justice
or his designate under section 11(6). Section 11(6) does not stipulate
70 ARBAP 89.06
any period from the date of the invocation of the arbitration agreement
by the other side within which the party is bound to exercise its right
to appoint an arbitrator. It is only when the appointment is not made
within a reasonable time of the letter of invocation, that the other
party is entitled to call upon the Chief Justice or his designate to
appoint an arbitrator under section 11(6).
The fact that in a given case a period of thirty days may be
deemed to be reasonable is another matter altogether. What is a
reasonable period must depend on the facts of each case.
83. The judgments also interpret the judgments of the Supreme
Court in Datar Switchgears Ltd. and Punj Lloyd Ltd. on the above
basis. Mr. Khambatta's interpretation of the judgments in Datar
Switchgears Ltd. and Punj Lloyd Ltd. is therefore rejected on
principle and on precedent.
84. A view to the contrary would negate the contractual provision.
Take for instance a case where the appointor is unable to make the
appointment within thirty days of being called upon to do so on
account of illness or injury. It can hardly be suggested that if he made
71 ARBAP 89.06
the appointment as soon as possible after a quick recovery albeit after
thirty days of the letter of invocation, he must be deemed to have
failed to act as required under the procedure for the appointment of an
arbitrator within the ambit of that expression in sub-section (6) of
section 11.
85. The only question is whether the above judgments are per
incuriam or contrary to the other judgments of the Supreme Court. I
think not. I will now deal with the judgments relied upon by Mr.
Khambatta in support of his submission.
86(A). In Datar Switchgears Limited vs. TATA Finance Ltd
(2008) 8 SCC 151, a notice of demand for payment of the outstanding
amount was served by the first Respondent on 5th August, 1999. The
notice stated that it should be treated as one issued under the
arbitration clause. The first Respondent did not appoint an arbitrator
even after a lapse of thirty days, but filed an application under section
9 for interim reliefs on 26th October, 1999. The first Respondent
appointed the sole arbitrator only on 25th November, 1999. Thereafter,
the Appellant filed an application under section 11 for the
72 ARBAP 89.06
appointment of an arbitrator.
It was contended that though section 11(6) does not
prescribe a period of thirty days, it must be implied that thirty days is
a reasonable time for the purpose of section 11(6) and thereafter, the
right to appoint is forfeited. It is important to note that in paragraph
12 of the report, the Supreme Court noted : "It is also contended that
under section 11(6), no period of time is prescribed and hence the
opposite party can make an appointment even after 30 days, provided
it is made before the application is filed under Section 11." It was,
therefore, not even argued on behalf of the Respondent that the period
of thirty days which was fixed must be deemed to be the period
beyond which the other side is entitled to file an application under
section 11 for the appointment of an arbitrator. In other words, the
Respondent proceeded on the basis that in the facts of that case, a
thirty-day period for the appointment may be considered to be
reasonable. Mr. Khambatta relied upon paragraphs 19, 20 and 21 of
the judgment which were the very paragraphs quoted and construed in
Ace Pipeline. They are set out earlier by me while referring to the
judgment in Ace Pipeline.
73 ARBAP 89.06
(B). Mr. Khambatta's entire submission is based on the following
two sentences in paragraph 19 in Datar Switchgears Ltd.:-
"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, that would be
sufficient. In other words, in cases arising under Section
11(6), if the opposite party has not made an appointment
within 30 days of demand, the right to make appointment
is not forfeited but continues, but an appointment has to
be made before the former files application under Section
11 seeking appointment of an arbitrator. Only then the
right of the opposite party ceases."
I am not inclined to read the judgment as suggested by him.
The judgment must be read as a whole. So read, it is clear that the
Supreme Court did not even consider whether in every case it must be
presumed that a party who does not make an appointment within
thirty days of being called upon by the other side to do so, is deemed
to have failed to comply with its obligation under section 11(6)
entitling the other side to file an application under section 11. It so
happened that the counsel for the Petitioners in that case submitted
that the period of thirty days stipulated in sub-sections (4) and (5)
ought to be read into sub-section (6) and the counsel for the
Respondent proceeded on the basis that even if that were so, the right
to appoint is not forfeited so long as the appointment is made before
74 ARBAP 89.06
the application under section 11 is filed although it was made beyond
the period of thirty days. The ratio of the judgment, therefore, is not
that a party is entitled to file an application under section 11(6) on the
expiry of thirty days, but that even if there is a failure on the party of
the party entitled to appoint the arbitrator, in appointing one within
reasonable time the right to make the appointment would stand
forfeited only if the appointment is not made before an application
under section 11 is filed.
This is clear from the fact that even where the period of
thirty days is stipulated in sub-sections (4) and (5), the Supreme Court
kept the question as to whether it is mandatory or not, open. It can
hardly be suggested that despite the same, when it comes to sub-
section (6), though there is no such period fixed, the Supreme Court
held a period of thirty days to be mandatory.
(C) The Supreme Court in Ace Pipeline expressly construed the
judgment in Datar Switchgears Ltd. to this effect and that the
appointment must be made within a reasonable time. The judgment in
Ace Pipeline cannot be held to be per incuriam as it specifically refers
to the judgment in Datar Switchgears Ltd. and Punj Lloyd Ltd.
75 ARBAP 89.06
87. The judgment in Punj Lloyd Ltd. vs. Petronet MHB Ltd. (2006)
2 SCC 638 was delivered by a bench of three learned Judges.
Paragraph 5 of the judgment quotes the relevant part of the judgment
in Datar Switchgears and it was observed that the case was covered
by that judgment. In that case, the Appellant had served a thirty days
notice on the Respondent demanding appointment of an arbitrator and
reference of the disputes to him. The Respondent failed to appoint an
arbitrator. Upon the expiry of thirty days, the Appellant filed an
application under section 11(6). Even till then, the Respondent had
not appointed an arbitrator. It is in these circumstances that the
Supreme Court held that the case was covered by the judgment in
Datar Switchgears.
I do not read the judgment as holding as an absolute
proposition, that a period of thirty days is fixed for the appointment of
an arbitrator from the date of his being called upon to do so, failing
which, the other side has a right to file an application under section 11
and thereupon a party's right to appoint an arbitrator stands forfeited if
the appointment is not made by then. It was not even contended on
behalf of the Respondent that it had appointed an arbitrator within
76 ARBAP 89.06
reasonable time. Here again it cannot be said that the judgment in Ace
Pipeline is per incuriam.
88. The position thus far is clear. A party is bound to make an
appointment within a reasonable time. If it fails to do so, the other
side is entitled to make an application under section 11. While
considering an application under section 11, the Chief Justice or his
designate must consider whether there was a failure on the part of the
party, person or institution to make the appointment in accordance
with the procedure prescribed under the arbitration agreement within a
reasonable time. If the question is answered in the negative, the Chief
Justice or his designate is entitled to appoint the arbitrator. If not, the
right of the party does not stand forfeited merely because the
application is filed. The right of the other party to seek an
appointment under section 11(6) arises only where there is a failure of
a party to make the appointment within a reasonable time.
89. Mr. Khambatta, however, submitted that the judgments that
followed construed the judgment in Datar Switchgears as contended
by him.
77 ARBAP 89.06
90. I do not agree. In fact the Supreme Court in Ace Pipeline and
Indian Oil Corporation militate against his submission. The other
judgments relied upon by him, which I will now refer to, do not do so
either. Properly construed, there is no conflict between the various
judgments either.
91. I must preface a reference to these judgments with these
observations. Firstly, a judgment is only an authority for what it
decides and not what is logically deducible therefrom. Secondly,
when a judgment proceeds on a concession or on a presumption, the
concession or presumption does not constitute the ratio of the
judgment.
92. The judgment of a learned single Judge of this court in the case
of Jesmajo Industrial Fabrications Pvt. Ltd. vs. Indian Oil
Corporation Ltd. (2003) 5 BCR 676 = 2003 9 LJSOFT 110, does not
carry the matter further. In paragraph 6 of the judgment relied upon
by Mr. Khambatta, the learned Judge has referred to the case in Datar
Switchgears. Paragraph 6 reads as under:-
78 ARBAP 89.06
"6. With that let us consider some of the judgments
referred to by the learned Counsel to find out whether the
controversy can be resolved based on decided authority.
In (Datar Switchgears Ltd. v. Tata Finance Ltd.)3,
2001(1) Bom.C.R. (S.C.)778 : 2000(8) S.C.C. 151, the
issue was as to when the Chief Justice or designate could
invoke the power under section 11 to appoint an
arbitrator. It was contended that once notice is given for
appointment and once arbitral clause is invoked, and the
party or person named fails to make appointment, then
appointment could be made under section 11. While
considering this aspect of the matter, the Apex Court
noted that for cases falling under section 11(6) no time
limit has been prescribed under the Act, whereas a period
of 30 days has been prescribed under section 11(4) and
section 11(5) of the Act. For invocation of section 11(6),
if one party demands of 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, that
would be sufficient. The Court observed that in the cases
arising under section 11(6), if the opposite party has not
made appointment within 30 days of the demand, right to
make appointment is not forfeited but continues but an
appointment has to be made before the former files an
application under section 11 seeking appointment of an
arbitrator. Only then does the right of the opposite party
cease. Therefore, what is clear from that judgment is that
the Chief Justice or his designate can step in if the party
who has to nominate does not do so before the
application is made. Once the application is made the
power to nominate is of the Chief Justice or his
designate. Whether in exercise of that power the Chief
Justice or his designate could nominate an outsider was
not directly in issue. What was in issue was when the
79 ARBAP 89.06
Chief Justice or his designate could step in to constitute
of the Arbitral Tribunal on failure by the parties. The
issue before us therefore, was not really in issue in Datar
Switchgears (supra). Learned Counsel seeks to point out
that this would indicate that the right of the party to
nominate would cease and right to appoint arbitrator
under section 11 would be that of the Chief Justice or
designate."
In this case also, the question whether the period of thirty
days is mandatory or not was not even considered. In other words, the
learned Judge did not hold that the period of thirty days having
expired, the other side had a right ipso facto to file an application
under section 11 thereby forfeiting the right of the party to appoint an
arbitrator conferred upon him by the arbitration agreement.
Mr. Khambatta relied only upon the three sentences from
paragraph 6 I have emphasized. This is to read the sentences out of
context. Immediately before these three sentences, the learned Judge
has noted that in Datar Switchgears, the Supreme Court held that in
cases falling under section 11(6), no time limit has been prescribed.
The mere reference to 30 days is, therefore, not conclusive of the
matter.
93. In Union of India vs. V.S. Engineering (P) Ltd. (2006) 13 SCC
80 ARBAP 89.06
240, the Supreme Court held :-
"4. Earlier also in Datar Switchgears Ltd. v. Tata
Finance Ltd. their Lordships have observed that
the arbitrator should be appointed within thirty
days on demand being made by the other party and
the appointment could still be made but before the
other party moves the court under Section 11 of the
Act. It was observed that once the other party
moves the court the right to make the appointment
ceases to exist. In the present case as it appears that
the General Manager, Railways has already
appointed the arbitrator but despite this, the learned
Single Judge has overruled the objection of the
Union of India and appointed the learned Judge of
the High Court as arbitrator.
......................................................
6. However, before parting with this case we may
also observe that Railways and public institutions
are very slow in reacting to the request made by a
contractor for appointment of the arbitrator.
Therefore, in case appointment is not made in time
on the request made by the contracting party, then
in that case the power of the High Court to appoint
arbitrator under Section 11 of the Act will not be
denuded. We cannot allow administrative
authorities to sleep over the matter and leave the
citizens without any remedy. Authorities shall be
vigilant and their failure shall certainly give rise to
cause to the affected party. In case the General
Manager, Railways does not appoint the Arbitral
Tribunal after expiry of the notice of 30 days or
before the party approaches the High Court, in that
case, the High Court will be fully justified in
appointing arbitrator under Section 11 of the Act. It
is the discretion of the High Court that they can
appoint any railway officer or they can appoint any
81 ARBAP 89.06
High Court Judge according to the given
situation."
There is nothing in this judgment that supports Mr. Khambatta's
submission about the thirty day period being mandatory or fixed. The
question was neither raised, nor considered nor decided. The parties
did not contend that 30 days was not the reasonable period. The
judgment accordingly proceeded on the basis that in that case 30 days
would be a reasonable period.
94. I have already dealt with the judgment of the Supreme Court in
BSNL vs. Subash Chandra Kanchan (2006) 8 SCC 279. In that case,
the Supreme Court observed that the Managing Director of the
Appellant was required to communicate his decision in terms of
clause 25 of the contract. The Supreme Court held :
"12. Evidently, the Managing Director of the appellant
was served with a notice on 7-1-2002. The letter
appointing the arbitrator was communicated to the
respondent on 7-2-2002. By that time, 30 days' period
contemplated under the Act lapsed. The Managing
Director of the appellant was required to communicate
his decision in terms of clause 25 of the contract."
This judgment is also of no assistance to the Petitioner's case
82 ARBAP 89.06
for the same reasons I have furnished in respect of Union of India v.
V.S.Engineering (P) Ltd. I do not find well founded, the reliance upon
the solitary sentence : "By that time, 30 days period contemplated
under the Act had expired." The question presently under
consideration was neither raised before the Supreme Court nor
decided by it. The Act does not specify a thirty day period. The
parties in this case too proceeded on the basis that thirty days was a
reasonable period. It is in that context that the sentence must be read.
95. I have earlier dealt with the judgment of the Supreme Court in
Ace Pipeline Contracts Pvt. Ltd. vs. Bharat Petroleum Corporation
Limited. The case of Union of India vs. Bharat Battery Manufacturing
Co. Pvt. Ltd. (2007) 7 SCC 684, was considered by the Supreme
Court to be inconsistent with the judgment in Ace Pipelines. The
matter was, therefore, referred to a larger bench of three learned
Judges. In the case of Northern Railway Administration, Ministry of
Railway vs. Patel Engg. Co. Ltd. (2008) 10 SCC 240, the question that
was decided was whether the provisions of sub-section (8) of section
11 would apply even if an appointment is to be made under sub-
section 11(6). The Supreme Court answered the question in the
83 ARBAP 89.06
affirmative, but the question that presently falls for consideration was
not decided in Northern Railway Administration.
The observations in Union of India vs. Bharat Battery
Manufacturing Co. P. Ltd. must also be read in the proper perspective.
In that case also, the Appellant had failed to appoint an arbitrator
within thirty days from the date of receipt of the request to do so and
before the Respondent filed an application under section 11(6). It was
contended on behalf of the Appellant that the High Court had not
followed the procedure under section 11(8). The Supreme Court
held :
"12. A bare reading of the scheme of Section 11 shows
that the emphasis is on the terms of the agreement being
adhered to and/or given effect as closely as possible. In
other words, the Court may ask to do what has not been
done. The Court must first ensure that the remedies
provided for are exhausted. It is true as contended by Mr
Desai, that it is not mandatory for the Chief Justice or
any person or institution designated by him to appoint
the named arbitrator or arbitrators. But at the same time,
due regard has to be given to the qualifications required
by the agreement and other considerations."
It was not even contended before the Supreme Court that a
period of thirty days cannot be considered to be the reasonable period.
The parties proceeded on the basis that a thirty day period, in the facts
84 ARBAP 89.06
of the case, was reasonable. The question raised by Mr. Khambatta
was neither raised before nor considered by the Supreme Court.
96. Mr. Khambatta then relied upon the judgment of the Supreme
Court in BSNL vs. Dhanurdhar Champatiray, (2010) 1 SCC 673. In
paragraph 25, it was observed that the Appellant having failed to
respond to the letters of the Respondent requiring them to appoint an
arbitrator and to an appoint arbitrator in response to such letters within
the stipulated period in accordance with clause 25 of the respective
agreements, the Respondent was constrained to file a petition under
section 11(6) of the Act for appointment of an arbitrator. Clause 25 is
not set out. It appears from the judgment the period was stipulated in
clause 25. Paragraphs 4 and 7 of the judgment read as under :
"4. The respondent by letters, requested the Chief
Engineer (Civil) for appointment of an arbitrator to
adjudicate the disputes between the parties in
terms of Clause 25 of the respective agreements.
According to the respondent, letters were received
by the Chief Engineer of Appellant 1 on different
dates. The appellants having failed to respond to
the letters of the respondent requiring them to
appoint an arbitrator and to appoint an arbitrator in
response to such letters within the stipulated period
in accordance with Clause 25 of the respective
agreements, the respondent was constrained to file
petitions under Section 11(6) of the Act for
appointment of an arbitrator. However, according
to the case made out by the appellants, on
85 ARBAP 89.06
9-3-2005, Chief Engineer (Civil), BSNL had
already appointed Shri Gurbaux Singh, Principal
Chief Engineer (Arbitration), BSNL vide its Office
Letter No. 69-41(05)/CE(c)/BBSR/205.
...............................................
7. A plain reading of Section 11(5) of the Act
would show that if one party demands appointment
of an arbitrator and the other party does not
appoint any arbitrator within thirty days of such
demand, the right to appointment at the instance of
one of the parties does not get automatically
forfeited. If the appellant makes an appointment
even after thirty days of demand but the first party
has not moved the Court under Section 11, that
action on the part of the appellant would be
sufficient. In other words, in cases arising under
Section 11(6), if the respondent has not made an
appointment within thirty days of demand, right to
make an appointment of an arbitrator is not
forfeited but continues, but such appointment shall
be made before the other party files the application
under Section 11 seeking appointment of an
arbitrator before the High Court. It is only then the
right of the respondent ceases."
Thereafter, the Supreme Court referred to the judgments of the
Supreme Court in Datar Switchgears, Punj Lloyd, Ace Pipeline and
Northern Railway Administration. Paragraph 7 relied upon by Mr.
Khambatta does not state that if the Respondent has not made an
appointment within thirty days of demand, the right to make an
appointment is forfeited once the other party files an application under
section 11. The Supreme Court neither considered nor held that a
party would be deemed to have failed to discharge its obligation as
contemplated under section 11(6) merely upon expiry of a period of
86 ARBAP 89.06
thirty days. The question was neither raised nor considered. It was
presumed that in that case, a thirty day period was reasonable. Either
that or as is indicated in paragraph 4, the period was stipulated in
clause 25 itself.
97. Nor do I find the judgment of a learned single Judge of this
court in the case of Khurana Constructions vs. IOT Infrastructure &
Energy Services Ltd. & Anr., Manu/MH/1009/2010, of any assistance
to the Petitioner. The question whether section 11(6) stipulates or was
deemed to have stipulated thirty days as the reasonable time for a
party to discharge its obligations under the procedure for the
appointment of an arbitrator was neither raised nor decided. The
Petitioner, by a letter dated 18th February, 2009, invoked the
arbitration agreement. The Respondent not having responded, the
Petitioner filed the application under section 11 on 16th July, 2009. IT
is apparent from paragraph 10 of the judgment that the appointment
was not made within a reasonable time. Paragraph 10 reads as under :-
"10. Now in the present case, the facts to which a
reference has been made earlier would show that after the
Petitioner raised a dispute on 1 September 2008.
Sufficient opportunities were granted to the Respondents
87 ARBAP 89.06
to follow the procedure prescribed in the contract. The
First Respondent was called upon to negotiate with a
view to resolving the dispute amicably by the Petitioner's
letter dated 12 November 2008 and it was after the
expiry of ninety days that the Petitioner invoked
arbitration by its letter dated 18 February 2009. The First
Respondent chose to remain completely silent save and
except for a formal letter of 1 October 2008 baldly
refuting all claims and contentions. It was after the
Petition was instituted on 16 July 2009 that the First
Respondent by a letter dated 17 August, 2009 purported
to inform the Petitioner of the appointment of an
arbitrator. However, upon the institution of the Petition
under Section 11(6) the right of the First Respondent to
nominate an arbitrator stood forfeited in view of the
judgments of the Supreme Court in Datar Switchgears
and Punj Lloyd. In terms of the law laid down by the
Supreme Court in Northern Railway Administration, this
Court, undoubtedly has to have due regard to the
requirements under sub Section (8) of Section 11 insofar
as they relate to the qualifications required of the
arbitrator by the agreement and other considerations as
are likely to secure the appointment of an independent
and impartial arbitrator. Insofar as the issue of
qualifications is concerned, it may be noted that in sub
Clause (c) of Clause 83 of the contract, the arbitrator is at
liberty to appoint, if necessary an accountant, engineer or
technical person to assist him in the case. This would
take due account of any technical issues that may arise in
the course of the proceedings. Insofar as the issues of
impartiality and independence are concerned, there can
be no gainsaying fact that as opposed to an officer of the
First Respondent who was purported to be nominated by
the Managing Director after the institution of the Section
11(6) proceedings, the interests of justice would be better
sub served by the appointment of an independent and
impartial arbitrator by this Court under Section 11(6).
Above all, this Court must be guided by the circumstance
that the First Respondent, despite ample opportunities
prior to the institution of the proceedings, failed to take
88 ARBAP 89.06
steps under the agreement. The First Respondent refused
even to negotiate in good faith and thereafter failed to
appoint an arbitrator until the date of the institution of the
petition."
98. The judgments, therefore, do not take a different view from
those taken in Ace Pipeline and Indian Oil Corporation.
99. The question, therefore, is whether there was any failure on the
part of the Respondent or its CMD which would deprive them of the
right to appoint an arbitrator under the arbitration agreement.
100. The Petitioner invoked the arbitration agreement by the said
letter dated 29th March, 2006. There is nothing in the nature of the
agreement which indicates urgency of the nature such as in a
Centrocon arbitration agreement referred to in the Tradax judgment.
Considering the facts of this case, I would not fix a period of thirty
days from the date of the invocation of the arbitration agreement to be
the reasonable period within which the Respondents ought to have
appointed an arbitrator.
101. The Respondent's CMD was admittedly abroad when the letter
89 ARBAP 89.06
of invocation was received. He returned to India on 19th April, 2006.
The Respondent invited his attention promptly to the letter of
invocation. Within two days of the return of the CMD, he instructed
his advocates to write the said letter dated 21st April, 2006. I do not
find it at all unreasonable that the Respondents had decided to make
the appointment within thirty days of the return of the CMD. There is
nothing to indicate that the progress of the arbitration would be
prejudiced in any manner thereby. There is nothing to indicate that
the rights of the Petitioner would be prejudiced or affected in any
manner had the appointment been made within thirty days of the
CMD returning to India. Thus, had the appointment, in fact, been
made within thirty days of the return of the CMD i.e. by 21st May,
2006, the Respondent would not have forfeited its right to make the
appointment even though the Petitioners had filed the application
under section 11 by them.
102. However, the Respondent did not, in fact, ever appoint an
arbitrator. The Respondent quite possibly, on the advise on the bias of
the Petitioner's submissions, which I have rejected, thought it
advisable to stick to the case that the appointment was made by the
90 ARBAP 89.06
alleged disputed letters. Neither in its advocate's letter dated 17th
May, 2006, nor in the affidavit-in-reply dated 9th June, 2006, did the
Respondent contend anything, but that it had made the appointment in
accordance with the said letter. In other words, the Respondent did
not state that even assuming that the appointment was not made
earlier, it was now making the appointment. Had that been so, it
could well have been a different matter altogether. The mere filing of
the application on 3rd May, 2006, then would not have deprived the
Respondent of the right to appoint an arbitrator. The Respondent has
failed to establish its case that it had appointed the arbitrator by the
alleged letters.
103. It would not be correct on my part, even in these circumstances,
to make out a case on behalf of the Respondent which they have not
pleaded viz. a case in the alternative that even assuming that the
appointment had not been made by the alleged letters, it had been
made in the affidavit in reply itself.
104. Mr. Dwarkadas submitted that the cause of action for filing an
application does not arise till after the expiry of what the court
91 ARBAP 89.06
determines to be a reasonable period for the purpose of section 11(6).
I would not accept the submission in absolute terms.
105. There is nothing that prevents the other party from filing an
application under section 11(6) upon the expiry of what it perceives to
be a reasonable period for the appointment of an arbitrator from the
date on which it invokes the arbitration agreement. Even if the court
comes to the conclusion that a reasonable period had not expired, it
would not affect the maintainability of the application. However, if
the court comes to the conclusion that a reasonable period had not
expired before the application was filed and before the appointment
was made by the Respondent even after the filing of the application, it
would not lead to a forfeiture of the Respondent's right to make the
appointment, resulting in the Chief Justice or his designate making the
appointment.
106. Thus, although I have come to the conclusion that a reasonable
period had not expired when the application was filed i.e on 3rd May,
2006, the petition cannot be dismissed as not being maintainable. Had
the Respondent made an appointment even thereafter, it would have
92 ARBAP 89.06
required a decision as to whether the appointment so made was within
a reasonable time to avoid a forfeiture of the right.
107. It is however, now almost five years since the Petitioner
invoked the arbitration agreement by the letter dated 29th March,
2006. The Respondent has not made an appointment except as
alleged. Having come to the conclusion that the Respondent has not
established the appointment of the arbitrator as alleged and the
Respondent not having made any other appointment, it must be held
that it has now, after a lapse of almost five years, forfeited its right to
make an appointment.
108. Despite my finding that the Respondent has forfeited its right to
appoint an arbitrator, considering the facts of this case, I asked Mr.
Dwarkadas to suggest the name of any arbitrator that the Respondent
would like to have appointed. I even made it clear that this would be
without prejudice to the rights of the parties. For some inexplicable
reason, the Respondent refused to suggest a name. I have made the
appointment consistent with sub-section (8) of section 11. The
Respondent's CMD had allegedly appointed a former Judge for his
93 ARBAP 89.06
knowledge of the law. I have, accordingly, appointed a former Judge
of the Supreme Court of India.
109. A serious allegation has been made by the Applicant of bias and
impropriety against the said arbitrator and the Respondent. It was in
respect of the Respondent's witness having admitted in cross-
examination that the said arbitrator had visited his witness's office
after the alleged appointment without informing the Applicant.
110. I do not suggest that the grievance is unfounded. However, an
allegation of bias cannot be raised in an application under section 11
of the Arbitration and Conciliation Act, 1996. If the appointment is
held to be valid, a party must challenge the arbitrator on the ground of
bias under sections 12 and 13 of the Arbitration and Conciliation Act,
1996.
111. In the circumstances, the application is allowed. Mr. Justice
B.N. Srikrishna, a former Judge of the Supreme Court of India, is
appointed as the sole arbitrator. This order is stayed upto and
including 31st January, 2010, to enable the Respondent to challenge
the same.
