Jharkhand High Court
M/S Central Coalfields Limited vs Eastern India Powertech Ltd. ... on 24 November, 2022
1
IN THE HIGH COURT OF JHARKHAND AT RANCHI
Arbitration Application No.14 of 2019
---------
M/s Central Coalfields Limited, a Company incorporated under
the Companies Act, having its registered Office at Darbhanga
House, PO-GPO, PS-Kotwali, District-Ranchi (Jharkhand), through
its Managing Director (Administration) Sri Bimlendu Kumar
.......... Applicant
Versus
Eastern India Powertech Ltd. (previously Known as DLF Power
Company Limited), having its office at DLF Galleria, 12th floor, DLF
City, Phase-IV, P.O. P.S. Gurgaon, Dist. Gurgaon, (Haryana)
......... Respondent
CORAM : HON'BLE MR. JUSTICE SUJIT NARAYAN PRASAD
---------
For the Applicant : Mr. Amit Kumar Das, Advocate
: Mr. Shivam Utkarsh Sahay, Advocate
For the Respondent : Mr. Rohitashya Roy, Advocate
: Mr. Hemant Jain, Advocate
: Mr. Akchansh Kishore, Advocate
: Mr. Divjot Singh Bhati, Advocate
---
20/24.11.2022 The instant application has been filed under Section 11(6) of
the Arbitration and Conciliation Act, 1996, (hereinafter referred
to as the Act, 1996) for appointment of an Arbitrator (substitute)
for redressal of dispute in relation to an agreement dated
08.02.1993 executed between the petitioner and the respondent.
2. The brief facts of the case, as per the pleading made in the
application, which required to be enumerated reads as under:-
The Board of Coal India Limited (hereinafter referred as
'CIL') has taken a decision for taking an attempt to meet shortage
of power through Captive Power Plants (CPP) using washery
rejects. These power plants were to be based on Fluidized Bed
Combustion (FBC) technology and through contracts
entrepreneurs and as such, the entrepreneurs were invited to
establish 5 CPPs.
In furtherance of such decision, an agreement was executed
on 08.02.1993 between Coal India Limited and the respondent
who at the relevant time was known as D.L.F. Power Company
Ltd. with respect to setting up of 10 MW Power Stations on a
'built own and operate principle at Rajrappa and Gidi in
Hazaribagh area of M/s Central Coalfields Limited'.
The agreement contains a provision as under Clause 2.6 of
the Power Agreement dated 8th February, 1993, which reads as
under:-
"2.6 In the event of any dispute arising out
of or in relation to this agreement the same
shall be referred to the sole arbitration of an
arbitrator mutually acceptable to the CIL
and DPCL as per the provisions of
Arbitration Act, 1940."
The dispute having been arose in between the parties but
having not been settled and as such, request for appointment of
Arbitrator has been made in view of Clause 2.6 of the Agreement
but the same having not been acted, an application was filed
before this Court under Section 11(6) of the Act, 1996 for
appointment of Arbitrator. The Arbitrator was appointed by this
Court vide order dated 07.04.2017 passed in Arbitration
Application No.05 of 2016 by appointing Hon'ble Mr. Justice S.B.
Sinha, (now deceased) a retired Judge of the Hon'ble Supreme
Court as an Arbitrator to resolve the dispute between the parties.
The arbitration proceeding commenced and was continued
where the parties had appeared and filed their respective
pleadings but due to death of Hon'ble Mr. Justice S.B. Sinha, an
occasion has arisen for appointment of a new Arbitrator
(substituted) for adjudicating the dispute between the parties.
Therefore, the instant application has been filed for a
direction to appoint an independent Arbitrator to resolve the
dispute arisen between the petitioner/applicant and the
respondent.
3. Mr. Amit Kumar Das, learned counsel appearing for the
petitioner/applicant has submitted that since the arbitrator
already appointed, namely, S.B. Sinha, has died in course of
pendency of the arbitration proceeding and as such, in view of
the provision as contained under Section 15(2) of the Act, 1996, a
substitute Arbitrator is required to be appointed so as to resolve
the dispute and therefore, the instant application has been filed.
Learned counsel for the petitioner/applicant in order to
buttress his argument has relied upon the following judgments,
i.e.,
(i) ACC Limited Vs. Global Cements Limited, [(2012) 7
SCC 71]
(ii) Global Cements Ltd. Vs. Associated Cement
Companies Ltd., [2012 SCC Online Bom. 712]
(iii) Ramjee Power Construction Ltd. Vs. Damodar Valley
Corporation, [2009 SCC Online Cal 321]
(iv) M/s. Tirath Ram Sumer Kumar Vs. Rakesh Kumar
Mishra and Another, [2017 0 Supreme (All) 15]
(v) Mohan Balkrishna Lulla Adult Vs. Shailesh
Dharyavan, [2015 SCC Online Bom. 5772]
(vi) Ignatius Tony Pereira Vs. Pifran Sanjivan Fernandes,
[2016 SCC Online Bom. 5470]
(vii) San-A Tradubg Co. Ltd. Vs. I.C. Textiles Ltd., [(2012)
7 SCC 192]
4. Plea inter-alia in the counter affidavit has been taken by
raising the issue of maintainability of the instant application on
the ground of being in contravention of Section 15(2) of the Act,
1996.
It has been stated therein that on the demise of sole
arbitrator on 19.03.2019, the mandate of sole arbitrator got
terminated under Section 14 of the Act, 1996, therefore, there
must be a substitution of the earlier arbitrator by appointing a
new arbitrator under Section 15(2) of the Act, 1996.
Under Section 15(2) of the Act, 1996 provides that when the
mandate of arbitrator gets terminated, a substitute arbitrator shall
be appointed according to the rules that were applicable to the
appointment of the arbitrator being replaced.
The petitioner/applicant ought to have taken endeavour to
appoint substitute arbitrator in terms of the Arbitration clause of
the Power Purchase Agreement (PPA) dated 8th February, 1993
which contains a clause as under Clause 2.6, wherein, it has been
stipulated that the sole Arbitrator shall be mutually acceptable to
the parties. The petitioner/applicant has not suggested any name
to the respondent for appointment of sole Arbitrator before
preferring the present application, as such, the instant application
is nothing but filed in contravention of the provision as contained
under Section 15(2) of the Act, 1996 and hence, premature and
not maintainable.
5. Mr. Rohitashya Roy, learned counsel appearing for the
respondent has submitted that although, the pleadings have been
made on merit but the same at this stage is now being referred,
since, this Court at the referral stage for appointment of
substitute Arbitrator and as such, the issue of maintainability is
being raised holding the instant application to be immature and
as such, it is fit to be dismissed.
Learned counsel for the respondent to buttress his
argument has relied upon the following judgments, i.e.,
(i) Shyam Telecom Ltd. Vs. ARM Ltd., 2004 SCC Online
Del. 754
(ii) Shailesh Dhairyawan Vs. Mohan Balkrishna Lulla,
(2016) 3 SCC 619
(iii) Yashwith Constructions (P) Ltd. Vs. Simplex
Concrete Piles India Ltd. & Anr., (2006) 6 SCC 204
(iv) SBP & Co. (2) Vs. Patel Engg. Ltd. & Anr., (2009) 10
SCC 293
(v) National Highways Authority of India & Anr. Vs.
Bumihiway DDB Ltd. (JV) & Ors., (2006) 10 SCC 763
(vi) Huawei Technologies Co. Ltd. Vs. Sterlite
Technologies Ltd., (2016) 1 SCC 721
(vii) Rajasthan Small Industries Corpn. Ltd. Vs. Ganesh
Containers Movers Syndicate, (2019) 3 SCC 282
6. Mr. Amit Kumar Das, learned counsel for the
petitioner/applicant has raised serious objection to the aforesaid
submission by taking the ground that once the Arbitrator has
been appointed by this Court in view of the provision of Section
11(6) of the Act, 1996 and if the mandate of arbitrator is being
terminated due to death of sole Arbitrator, in that circumstances,
there is no requirement to again follow the rules, as provided in
the Arbitration Clause, rather, the application is straightaway to
be filed before this Court invoking the jurisdiction conferred
under Section 11(6) of the Act, 1996 and as such, it is a fit case
where substitute Arbitrator may be appointed.
7. This Court has heard the learned counsel for the parties and
perused the documents available on record more particularly the
agreement which contains arbitration clause as under Clause 2.6
thereof.
8. This Court has gathered from the pleadings made on behalf
of the parties and arguments which have been advanced on
behalf of the learned counsel for the respective parties that the
claim of the petitioner/applicant for appointment of substitute
Arbitrator by filing instant application under Section 11(6) of the
Act, 1996 is being seriously disputed by raising the issue of
maintainability by the respondent on the ground that even at the
stage of appointment of substitute Arbitrator, the process which
was followed in course of appointment of first Arbitrator, is
required to be followed as provided in the Arbitrator Clause.
9. This Court, therefore, is required to answer the issue, i.e.,
"As to whether on the death of sole Arbitrator in course of
pendency of the arbitration proceeding, the subsequent
application under Section 11(6) of the Act, 1996 is straightaway
maintainable before this Court or not?"
"Or the petitioner/applicant is required to follow the
mandate of agreement which was followed at the time of
appointment of Arbitrator at the initial stage?"
10. This Court, in order to answer the aforesaid issue requires
to consider the statutory provision as conferred under Sections
11(6) and 15 of the Arbitration and Conciliation Act, 1996 along
with the judicial pronouncements of the Hon'ble Apex Court and
the other High Courts.
11. Section 11 of the Act, 1996 provides for appointment of
Arbitrator. Sub-section 4 thereof, provides that if the
appointment procedure in sub-section (3) applies and a party
fails to appoint an arbitrator within thirty days from the receipt
of a request to do so from the other party; or the two appointed
arbitrators fails to agree on the third arbitrator within thirty days
from the date of their appointment, the appointment shall be
made, on an application of the party, by the arbitral institution
designated by the Supreme Court in case of international
commercial arbitration, or by the High Court, in case of
arbitrations other than international commercial arbitration, as
the case may be.
Sub-section 5 thereof provides that 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 on an application of
the party in accordance with the provisions contained in sub-
section (4)].
Sub-section 6 thereof provides that where, under an
appointment procedure agreed upon by the parties, a party fails
to act as required under that procedure; or the parties, or the two
appointed arbitrators, fail to reach an agreement expected of
them under that procedure; or a person, including an institution,
fails to perform any function entrusted to him or it under that
procedure, the appointment shall be made, on an application of
the party, by the arbitral institution designated by the Supreme
Court, in case of international commercial arbitration, or by the
High Court, in case of arbitrations other than international
commercial arbitration, as the case may be to take the necessary
measure, unless the agreement on the appointment procedure
provides other means for securing the appointment.
It is, thus, evident that if the provision as contained under
Section 11 provides for appointment of arbitrators depending
upon different situation on the basis of the request to be made for
settlement of dispute before resorting to the mechanism for
appointment of Arbitrator as provided under Section 11(6), i.e., if
on being requested by the party concerned for amicable
settlement as per the mechanism available under the Arbitration
Clause and even if the dispute is not being resolved thereafter the
occasion left to the concerned party is to make request for
appointment of Arbitrator as per the provision as contained
under Section 21 of the Act, 1996 if the party fails to appoint
arbitrator within the statutory period then such party will have a
right to make an application under Section 11(6) before the High
Court for appointment of Arbitrator.
Section 15 of the Act, 1996 is also having bearing in the
instant case which provides to deal with the cases of termination
of mandate and substitution of arbitrator. The aforesaid provision
provides that in addition to the circumstances referred to in
section 13 or section 14, the mandate of an arbitrator shall
terminate where he withdraws from office for any reason; or by
or pursuant to agreement of the parties.
Sub-section (2) of Section 15 provides that where the
mandate of an arbitrator terminates, a substitute arbitrator shall
be appointed according to the rules that were applicable to the
appointment of the arbitrator being replaced.
Sub-section (3) of Section 15 provides that unless otherwise
agreed by the parties, where an arbitrator is replaced under sub-
section (2), any hearings previously held may be repeated at the
discretion of the arbitral tribunal.
Sub-section 4 of Section 15 provides that unless otherwise
agreed by the parties, an order or ruling of the arbitral tribunal
made prior to the replacement of an arbitrator under this section
shall not be invalid solely because there has been a change in the
composition of the arbitral tribunal.
The aforesaid provision, therefore, refers about termination
of mandate in a situation where the arbitrator withdraws from
office for any reason or by or pursuant to agreement of the
parties. But the aforesaid provision does not contain any
stipulation that what to be done in case of death of arbitrator in
course of pendency of arbitral proceedings, but, taking into
consideration the object and intent of Section 15 of the Act, 1996
which has been carved out to deal with a situation where the
mandate of arbitrator has been terminated. Even, such
eventualities had not been referred either under Section 13 or
Section 14 of the Act, 1996.
The purport and object of the provision of Section 15 which
contains a provision more particularly sub-section 2 that where
the mandate of an arbitrator terminates, a substitute arbitrator
shall be appointed according to the rules that were applicable to
the appointment of the arbitrator being replaced, meaning
thereby, the legislation has taken care of a situation as to what to
be done if the mandate of an arbitrator terminates, although, the
eventuality has been referred under Sections 13, 14 and even
under Section 15(1) of the Act, 1996. But the mandate of an
arbitrator if terminated on the death of sole arbitrator, even
though, is not provided under the Act, 1996, but even in that
circumstances, since the mandate of arbitrator will be said to be
terminated due to inconclusiveness of the adjudication which is
required to be done by the sole arbitrator appointed in terms of
the Arbitration Clause, therefore, according to the considered
view of this Court by taking into consideration of the judgment of
the Hon'ble Apex Court passed in ACC Limited Vs. Global
Cements Limited (supra), wherein, it has been held that the
arbitration clause will survive so long as dispute or difference
between the parties exists and as such, even in case of death,
provision as contained under Section 15(2) of the Act, 1996 will
also be attracted so as to substitute arbitrator may be appointed
for the purpose for which the mechanism has been carved out for
settlement of dispute in pursuant to arbitration clause contained
in the contract.
12. Herein in the instant case, the dispute in between the
parties has arisen which led the petitioner/applicant to invoke
the Arbitration Clause when the alternative mechanism of
resolution of dispute as provided under Clause 2.6 of the PPA
has not been arrived at and in that circumstances, an application
has been filed before this Court by taking recourse of the
provision of Section 11(6) for appointment of Arbitrator being
Arbitration Application No.05 of 2016.An appropriate order was
passed in the aforesaid Arbitration Application on 07.04.2017, by
which, Hon'ble Mr. Justice S.B. Sinha (now deceased), a retired
Judge of the Hon'ble Supreme Court, was appointed as sole
Arbitrator. The proceeding commenced. Parties had appeared
and filed their respective pleadings but unfortunately, the sole
Arbitrator died. As such, the arbitration proceeding which had
been initiated by appointment of Arbitrator by virtue of order
dated 07.04.2017 passed in Arbitration Application No.05 of 2016
remains inconclusive and in that view of the matter, the mandate
of an arbitrator has been terminated which has occasioned the
petitioner/applicant to file instant application for appointment of
an arbitrator in view of the provision as provided under Section
15(2) of the Act, 1996.
Section 15(2) of the Act provides that where the mandate of
an arbitrator terminates, a substitute arbitrator shall be appointed
according to the rules that were applicable to the appointment of
an arbitrator being replaced.
13. Mr. Rohitashya Roy, learned counsel appearing for the
respondent has raised serious objection by raising the issue of
maintainability by taking aid of the provision as contained under
Section 15(2) of the Act, 1996, where according to him, the
provision has been made that a substitute arbitrator shall be
appointed according to the rules that were applicable to the
appointment of arbitrator being replaced.
It has been submitted by him that as per the aforesaid
statutory provision even for appointment of substitute arbitrator,
the same is only to be appointed as per the rules which were
applicable to the appointment of arbitrator being replaced,
meaning thereby, as per the condition, stipulation under the
contract as provided under Clause 2.6 of the agreement, wherein,
it has been agreed between the parties that a request is to be
made first by the petitioner/applicant for appointment of
arbitrator before the respondent and only in case of failure on the
part of the respondent, then only second application under
Section 11(6) of the Act, 1996 is maintainable, but, the
petitioner/applicant since has not made any request for
appointment of substitute arbitrator, rather, straightaway filed
instant application under Section 11(6) of the Act, 1996, therefore,
it is not maintainable.
14. This Court, therefore, deems it fit and proper to consider
the judicial pronouncements in order to reach to the conclusion
by answering the contention/objection raised on behalf of the
parties.
15. This Court has considered the judgments rendered by the
Hon'ble Apex Court in Yashwith Constructions (P) Ltd. (supra)
and has found therefrom the factual aspects that on a dispute
having arisen, the Managing Director of the respondent
Company appointed an arbitrator in terms of the arbitration
clause. The arbitrator resigned. The Managing Director,
thereupon, in view of the mandate of the arbitration agreement
appointed another arbitrator. At that stage, the petitioner
approached the Chief Justice of the High Court under Section 11
sub-section (5) read with Section 15(2) of the Arbitration and
Conciliation Act, 1996, praying that the Chief Justice may appoint
substitute arbitrator to resolve the disputes between the parties.
The Chief Justice found that the appointment of the second
arbitrator by the Managing Director, after the resignation of the
first arbitrator, was valid in law since it was permissible under
the contract and the right to make such an appointment was
saved by Section 15(2) of the Act.
The argument which was advanced before the High Court
that under Section 15(2) of the Act referred to the statutory rules
providing for appointment of arbitrators and not to a contractual
provision for such appointment was rejected by the learned Chief
Justice of the High Court by holding no occasion to appoint an
arbitrator under Section 11(6) of the Act in the case. Thus, the
application was dismissed, leaving the parties to pursue their
claims before the arbitrator appointed by the Managing Director
in terms of the arbitration agreement between the parties.
The aforesaid decision was challenged by way of a writ
petition in the High Court. The Division Bench noticed the
decision of this Court in the case of SBP & Co. Vs. Patel Engg.
Ltd., (supra) by holding that the order passed by the Chief Justice
is a judicial order and no writ petition would lie in the High
Court challenging such an order and only an appeal could be
filed in the Hon'ble Supreme Court invoking Article 136 of the
Constitution of India. But the Division Bench thought that since
that decision saved appointments made on or before the date that
decision was rendered by this Court, the writ petition filed by the
petitioner would also be saved and the writ petition could be
decided on merits, thereby the issue decided on merit by holding
that the learned Chief Justice was right in rejecting the
application made by the petitioner and thus, the writ petition was
dismissed which was challenged before the Hon'ble Apex Court.
The Hon'ble Apex Court has came to the conclusive finding
by affirming the view taken by the learned Chief Justice and the
Division Bench by making an observation that when the
arbitrator originally appointed in terms of the arbitration
agreement withdrew for health reasons, the Managing Director,
as authorized originally by the arbitration agreement, promptly
appointed a substitute arbitrator.
It has further been observed that even in the arbitration
agreement, there is no specific provision authorizing the
Managing Director to appoint a substitute arbitrator if the
original appointment terminates or if the originally appointed
arbitrator withdraws from the arbitration. But, this so-called
omission in the arbitration agreement is made up by the specific
provision contained in Section 15(2) of the Act. The withdrawal
of an arbitrator from the office for any reason is within the
purview of Section 15(1)(a) of the Act. Obviously, therefore,
Section 15(2) would be attracted and a substitute arbitrator has to
be appointed according to the rules that are applicable for the
appointment of the arbitrator to be replaced. It has been held
therein that the term "rules" in Section 15(2) obviously referred to
the provision for appointment contained in the arbitration
agreement or any rules of any institution under which the
disputes were referred to arbitration.
Section 11(6) of the Act has application only when a party
or the person concerned had failed to act in terms of the
arbitration agreement. When Section 15(2) says that a substitute
arbitrator can be appointed according to the rules that were
applicable for the appointment of the arbitrator originally, it is
not confined to an appointment under any statutory rule or rule
framed under the Act or under the scheme. It only means that the
appointment of the substitute arbitrator must be done according
to the original agreement or provision applicable to the
appointment of the arbitrator at the initial stage and thereby the
Hon'ble Apex Court was not agreed with the contrary view taken
by some of the High Courts. Thereafter, it has been observed in
the order that since the power of the Managing Director of the
respondent is saved by Section 15(2) of the Act and he has
exercised the power in terms of the arbitration agreement, as
such, no infirmity either in the decision of the learned Chief
Justice or in that of the Division Bench has been found therein,
for ready reference, the relevant paragraphs, i.e., paragraph nos.
4 & 5 are required to be referred as under:-
"4. In our view, the learned Chief Justice and the
Division Bench have rightly understood the scope of
Section 15 of the Act. When the arbitrator originally
appointed in terms of the arbitration agreement
withdrew for health reasons, the Managing Director,
as authorised originally by the arbitration
agreement, promptly appointed a substitute
arbitrator. It is true that in the arbitration
agreement there is no specific provision authorising
the Managing Director to appoint a substitute
arbitrator if the original appointment terminates or
if the originally appointed arbitrator withdraws from
the arbitration. But, this so-called omission in the
arbitration agreement is made up by the specific
provision contained in Section 15(2) of the Act. The
withdrawal of an arbitrator from the office for any
reason is within the purview of Section 15(1)(a) of
the Act. Obviously, therefore, Section 15(2) would
be attracted and a substitute arbitrator has to be
appointed according to the rules that are applicable
for the appointment of the arbitrator to be replaced.
Therefore, what Section 15(2) contemplates is an
appointment of the substituted arbitrator or the
replacing of the arbitrator by another according to
the rules that were applicable to the appointment of
the original arbitrator who was being replaced. The
term "rules" in Section 15(2) obviously referred to
the provision for appointment contained in the
arbitration agreement or any rules of any institution
under which the disputes were referred to
arbitration. There was no failure on the part of the
party concerned as per the arbitration agreement, to
fulfil his obligation in terms of Section 11 of the Act
so as to attract the jurisdiction of the Chief Justice
under Section 11(6) of the Act for appointing a
substitute arbitrator. Obviously, Section 11(6) of the
Act has application only when a party or the person
concerned had failed to act in terms of the
arbitration agreement. When Section 15(2) says that
a substitute arbitrator can be appointed according to
the rules that were applicable for the appointment of
the arbitrator originally, it is not confined to an
appointment under any statutory rule or rule
framed under the Act or under the scheme. It only
means that the appointment of the substitute
arbitrator must be done according to the original
agreement or provision applicable to the
appointment of the arbitrator at the initial stage. We
are not in a position to agree with the contrary view
taken by some of the High Courts.
5. Since here, the power of the Managing Director of
the respondent is saved by Section 15(2) of the Act
and he has exercised that power on the terms of the
arbitration agreement, we see no infirmity either in
the decision of the learned Chief Justice or in that of
the Division Bench. We do not think it necessary in
this case to go into the question whether the writ
petition before the High Court was maintainable on
the basis that it challenged an order of the Chief
Justice rendered on 4-3-2005, prior to the date of the
decision in SBP & Co. v. Patel Engg. Ltd. [(2005) 8
SCC 618] rendered on 26-10-2005."
The aforesaid judgment, thus, reflects in the facts that in a
case where the Managing Director in terms of the Arbitration
agreement since has appointed an arbitrator at the initial stage
but due to mandate of the arbitrator having been terminated, the
Managing Director has promptly appointed another arbitrator
and it is only thereafter, application under Section 11(6) has been
filed for appointment of substitute arbitrator and the said
application has been dismissed by the Hon'ble Chief Justice of
the concerned High Court holding therein that the Managing
Director since has appointed an arbitrator, there is no occasion
for the High Court to again exercise the said power conferred
under Section 11(6) of the Act, 1996.
The Hon'ble Apex Court has further considered the
meaning of 'rule' as provided under Section 15(2) of the Act, 1996
as per the judgment which rules means terms and conditions of
the agreement under which the Arbitrator is to be appointed in
absence of any statutory rules.
The Hon'ble Apex Court in the case of National Highways
Authority of India (supra), wherein, the parties have been entered
into an agreement, which contained a mechanism for resolution
of dispute between the parties, as contained in sub clause 67.3. It
was provided therein that in case the parties' nominated
arbitrators failed to agree on a presiding arbitrator within 30
days, the same would be appointed by the President, IRC.
Disputes having arisen between the parties, respondent no.1
nominated its arbitrator as respondent 3. The appellants also
invoked the arbitration clause. Thereafter, the appellants
nominated Mr. D.P. Gupta, as their arbitrator.
In view of the disagreement between the two nominated
arbitrators to agree upon the presiding arbitrator, respondent 1
sought a clarification from Indian Roads Congress (IRC) by
asking respondent 2 for availability of any judicial arbitrator for
the purpose of nomination as presiding arbitrator. IRC informed
that there did not exist any judicial arbitrator in its panel and in
that pretext, an application was filed by the concerned
respondent being Arbitration Petition No.23 of 2005 before the
High Court requesting for appointment of the presiding
arbitrator.
The High Court vide its judgment dated 06.01.2006,
appointed Mr. Justice P. Chenna Keshava Reddy, former Chief
Justice of the Andhra Pradesh and the Gauhati High Courts as
the presiding arbitrator, which according to the appellants, was
in clear and express violation of the contract agreement entered
into between the parties.
The matter travelled to the Hon'ble Supreme Court,
wherein, the following issues have been considered, i.e.,
(a) What is the scope of jurisdiction of the Court on the
resignation of an arbitrator considering a specific
mandate and mechanism under Section 15(2) of the Act
and clause 67.3 of the conditions of the contract, the
operative part of which was to the effect that in case of
failure of the two arbitrators, appointed by the parties to
reach upon a consensus within a period of 30 days from
the appointment of the arbitrator appointed
subsequently, the presiding arbitrator would be
appointed by the President, Indian Roads Congress.
(b)Whether on resignation of one of the arbitrators, the
statutory provision that comes into play in Section 15(2)
or Section 11(6) of the Act?
(c) Whether an arbitration clause, which is a sacrosanct
clause, can be rewritten by appointment of a judicial
arbitrator when no qualification therefor is provided in
the agreement?
(d) Whether the consent given by one of the parties (if
treated to be so on assumption) is enough for the clause
to be rewritten?
The Hon'ble Supreme Court by taking into consideration
the factual aspect involved therein has been pleased to come to
conclusion that the High Court has failed to appreciate that in
accordance with Section 15(2) of the Act on the termination of the
mandate of the presiding arbitrator, the two nominated
arbitrators were first required to reach a consensus and on their
failure to arrive at a consensus only was IRC authorised to make
the appointment. Unless IRC failed to exercise its jurisdiction, the
High Court could not assume jurisdiction under Section 11(6) of
the Act and as such, the concerned respondent has wrongly
invoked the jurisdiction of the Court without first following the
procedure agreed to between the parties.
Thus, the factual aspects involved in the case of National
Highways Authority of India that application filed under Section
11(6) for appointment of substitute arbitrator has been held to be
premature in the background of the facts that in pursuant to
arbitration clause in a case of termination of mandate of
presiding arbitrator, the two nominated arbitrators were first
required to reach a consensus and on their failure to arrive at
consensus only IRC was authorised to make the appointment.
But the concerned respondent without approaching before the
IRC has straightaway filed application under Section 11(6) and in
that pretext, it has been held by the Hon'ble Apex Court that the
aforesaid application is premature, since the jurisdiction
conferred to IRC under the contract was not invoked.
The Hon'ble Apex Court in the case of Huawei
Technologies Co. Ltd. (supra), wherein, judgment has been
pronounced by the Hon'ble Apex Court in a given fact of the case
that when the dispute has arisen Mr. Justice S.K. Dubey, a former
Judge of the High Court of Madhya Pradesh was appointed as
sole arbitrator. The aforesaid appointment appointing Mr. Justice
S.K. Dubey, to be an arbitrator has been objected by the
respondent of the aforesaid case and in the aforesaid background,
learned sole arbitrator Mr. Justice S.K. Dubey, recused himself
from the proceedings. It is in the aforesaid circumstances that the
present application/arbitration petition has been filed under
Section 11(6) of the Act for appointment of a sole arbitrator.
The Hon'ble Apex Court in that pretext has been pleased to
hold by considering the mandate of Section 15(2) of the Act that it
was incumbent on the petitioner to give notice and explore the
possibility of naming an arbitrator by mutual consent and only
on failure thereof the present application under Section 11(6) of
the Act could/should have been filed.
The Hon'ble Apex Court in the case of ACC Limited Vrs.
Global Cements Limted (supra), has considered the fact in case of
death of named arbitrator where the issue was whether, on the
death of a named arbitrator, the arbitration agreement survives
or not?
The Hon'ble Apex Court has been pleased to hold as under
paragraph-28 of the said judgment that the arbitration clause
would have life so long as any question or dispute or difference
between the parties exists unless the language of the clause
clearly expresses an intention to the contrary.
The Hon'ble Apex Court has further been pleased to hold
as under paragraph-17 of the judgment that Section 15(2) of the
Act where a substitute arbitrator has to be appointed due to
termination of the mandate of the previous arbitrator, the
appointment must be made according to the rules that were
applicable to the appointment of the arbitrator being replaced.
No further application for appointment of an independent
arbitrator under Section 11 will lie where there has been
compliance with the procedure for appointment of a substitute
arbitrator. On appointment of the substitute arbitrator in the
same manner as the first, no application for appointment of
independent arbitrator under Section 11 could be filed. The
procedure agreed upon by the parties for the appointment of the
original arbitrator is equally applicable to the appointment of a
substitute arbitrator, even if the agreement does not specifically
say so.
The Hon'ble Apex Court while coming to such conclusion
has been pleased to refer the judgment rendered in the case of
Yashwith Constructions (P) Ltd.(supra).
The Hon'ble Apex Court in the case of Rajasthan Small
Industries Corporation Limited (supra), has come to the
conclusion by considering the judgment rendered in the case of
Yashwith Constructions (P) Ltd. (supra) that Section 11(6) of the
Act would come into play only when there was failure on the
part of the party concerned to appoint an arbitrator in terms of
the arbitration agreement. Such finding has been given the facts
leading to the said case, wherein, one application was filed for
appointment of independent arbitrator but the arbitrator on the
basis of the available materials hurriedly passed the award.
In a given situation where the parties have entered into an
agreement which contains arbitration clause to be done by the
Managing Director himself or his or her nominee for the sole
arbitration. The respondent Contractor has requested for
appointment of the arbitrator. The sole arbitrator was appointed.
But, since the progress of the arbitration proceeding before the
said arbitrator was not satisfactory as such, the arbitrator was
withdrawn. A request was made for appointment of Additional
Chief Secretary to be the sole arbitrator. However, subsequently
by the consent of both the parties, Chairman-cum-Managing
Director of the Corporation was appointed as the sole arbitrator.
But for one reason or the other, the arbitration proceeding could
not be concluded and in that pretext, the contactor has filed an
application under Section 11(6) and Section 15 of the Arbitration
and Conciliation Act, 1996 seeking for appointment of an
arbitrator for adjudication of dispute between the parties.
It is in the light of the aforesaid fact, the Hon'ble Apex
Court has came to finding by holding the view of the High Court
not to be correct in appointing an independent arbitrator without
keeping in view the terms of the agreement between the parties
which contains a condition for appointment of arbitrator and
accordingly, with the consent of the parties, the Chairman-cum-
Managing Director was appointed to arbitrate the dispute and
while the proceeding was pending before him, the respondent
Contractor have submitted relevant claims and mutually agreed
to settle the claim after deduction of some amount and that the
amount was finalized and settled for Rs.3,90,81,602/- and in spite
of the fact that settled amount was agreed between the parties, no
award was passed by the arbitrator.
The respondent sent another legal notice reiterating the
claim for Rs.3,90,81,602/- along with statutory interest. The
appellant Corporation has sent a detailed reply denying any
settlement and also denying that the amount was finalized for a
sum of Rs.3,90,81,602/- and in such a background, the
application was filed under Section 11 and Section 15 of the
Arbitration and Conciliation Act, 1996.
It is, thus, evident by taking into consideration the factual
aspect involved in the said case that the parties having agreed for
appointment of Chairman-cum-Managing Director to arbitrate
the dispute, wherein, some difference arose and in that pretext,
an application has been filed under Section 11(6) read with
Section 15(2) of the Arbitration and Conciliation Act, 1996 and
then in that circumstances, the Hon'ble Apex Court has came to
conclusion that the process as referred in the contract is required
to be followed before taking recourse of the provision of Section
11(6) of the Act, 1996.
The Hon'ble Apex Court in the case of Shailesh
Dhairyawan Vs. Mohan Balkrishna Lulla (supra), wherein, the
issue fell for consideration before the Hon'ble Apex Court in a
case where there was no arbitration clause in the agreement. As
such, the respondent has filed a suit for appointment of substitute
arbitrator. But the said suit was dismissed stating that an
appointment can only be made for a substitute arbitrator under
Section 11(5) of the Act, 1996 and not by a notice of motion in a
disposed of suit.
The concerned party moved to the Bombay High Court
under Section 11 by an application for appointment of a
substitute arbitrator. The Bombay High Court has appointed a
retired Judge of the said High Court, namely, Mrs. Justice Sujata
Manohar, as arbitrator. But on her resignation, the Bombay High
Court has appointed a retired Judge of the said High Court,
namely, Dr. Justice S. Radharkrishnan, as substitute arbitrator.
The said appointment fell for consideration before the Hon'ble
Apex Court in the said case.
The Hon'ble Apex Court has been pleased to hold that since
the sole arbitrator was appointed with the consent of the parties
to resolve the dispute and when the situation again arose to
appoint sole arbitrator, the said appointing authority has been
approached by the respondent for appointment of substitute
arbitrator which has been held according to the rules that were
applicable to the appointment of the arbitrator being replaced.
This Court has also considered the judgment rendered by
the Allahabad High Court in the case of M/s. Tirath Ram Sumer
Kumar Vs. Rakesh Kumar Mishra & Anr. (supra) wherein, as per
the arbitration clause, the named arbitrator is to be appointed,
accordingly, the named arbitrator was appointed. But the named
arbitrators failed to perform their functions entrusted to them
under the arbitration clause, accordingly, an application was filed
by the applicant herein under Section 11(6) of the Act, 1996.
The Allahabad High Court has appointed Justice A.N.
Gupta (Retired) as an arbitrator in the matter. But Justice A.N.
Gupta left for his heavenly abode while he was proceeding with
the arbitration. In these circumstances, the applicant has filed this
application for appointment of a substitute arbitrator in terms of
Section 15(2) of the Act, 1996.
The Allahabad High Court has considered the judgments
rendered by the Hon'ble Apex Court in the case of Yashwith
Constructions (supra), ACC Limited (supra), Huawei
Technologies Co. Ltd. (supra), San-A Tradubg Co. Ltd. (supra)
has came to conclusion that the earlier arbitrator having been
appointed by the High Court after notice to the respondents
under Section 11, an application for appointment of a substitute
arbitrator under Section 11(6) read with Section 15(2), is
maintainable and as the dispute arising out of the contract
subsists, therefore, the arbitrator was appointed.
The Bombay High Court in the case of Mohan Balkrishna
Lulla Adult. Vs. Shailesh Dhairyavan (supra) has taken the view
that since the parties had entered into an agreement, the vacancy
having arisen will have to be filled in and the arbitrator will have
to be substituted by appointing an arbitrator under section 15(2)
read with section 11 of the Arbitration and Conciliation Act by
relying upon the judgment rendered by the Hon'ble Apex Court
in the case of Yashwith Constructions (P) Ltd. (supra).
The Bombay High Court yet in another case, i.e., in the case
of Ignatius Tony Pereira Vs. Pifran Sanjivan Fernandes (supra)
has held the application filed under Section 11(6) of the Act, 1996
to be maintainable for appointment of substitute arbitrator by
making observation that the expression "rules" that were
applicable to the appointment of the arbitrator being replaced" in
Section 15, have carefully been chosen. If the arbitrator being
replaced was appointed by the Hon'ble Chief Justice and/or his
designate in accordance with Section 11 of the 1996 Act read with
applicable rules, the substitute arbitrator would also have to be
appointed by the Hon'ble Chief Justice and/or his designate in
the same manner. It is immaterial that the respondent has
appointed an arbitrator in the meanwhile. The appointment of
the arbitrator by the respondent, after filing of this application, is
of no consequence.
The Andhra Pradesh High Court in the case of Hemant B.
Prasad & Anr. Vs. M/s. Perfect Solutions, rep. by its Prop. Sri
Praful S. Shah, Hyderabad, 2018 SCC Online Hyd. 2099 has taken
the view that the application filed requesting for appointment of
substitute arbitrator in place of the deceased arbitrator will not be
maintainable unless under Section 11(5) read with Section 15(2)
of the Act, 1996 without requesting the respondent to agree to the
appointment of a substitute arbitrator in the place of the deceased
arbitrator. But while reaching to such conclusion, the fact fell for
consideration before the Andhra Pradesh High Court was that
the sole arbitrator was appointed, the parties appeared and filed
claimed statements before the sole arbitrator and the concerned
respondent had filed their objection/ counter thereto. But being
aggrieved with the order of the Andhra Pradesh High Court in
Arbitration Application No.20 of 2010 dated 23.08.2010,
appointing an arbitrator, the concerned respondent had
approached the Hon'ble Apex Court by filing S.L.P. (C) No.32581
of 2010, while stay of the order in Arbitration Application No.20
of 2010 dated 23.08.2010 was initially granted, the SLP was
subsequently dismissed on 16.02.2016 and the earlier interim
order was vacated. But in the meanwhile, the sole arbitrator
appointed by the Andhra Pradesh High Court passed away.
Accordingly, an application was filed under Section 15(2) of the
Act, 1996 seeking appointment of another arbitrator in place of,
and on the demise of the sole arbitrator.
The question which necessitates examination is whether the
applicants can straightaway invoke the jurisdiction of this Court,
under Section 15(2) read with Section 11(5) of the Act, 1996, or
whether they are required to comply with the procedural
requirements of issuing a notice afresh to the respondent seeking
their consent to the appointment of a substitute arbitrator, before
approaching this Court under Section 15(2) read with Section 11
of the 1996 Act. It has been held that no straightway application
be made under Section 11(6) of the Act, 1996.
The Calcutta High Court in the case of Ramjee Power
Construction Ltd. (supra), has considered the issue by
considering the judgment pronounced by the Hon'ble Apex
Court in the case of Yashwith Construction P. Ltd. (supra) and
has came to finding that once an application under Section 11 is
made, the right of the other party to appoint an arbitrator, in
accordance with the agreement, gets extinguished. The right
under the agreement, of a party, to appoint an arbitrator, which
stands extinguished once an application under Section 11(6) is
made, does not revive, if the arbitrator appointed by the Chief
Justice resigns and/or his mandate is terminated.
It has further been observed therein that the expression
"rules" that were applicable to the appointment of the arbitrator
being replaced" in Section 15, have carefully been chosen. If the
arbitrator being replaced was appointed by the Chief Justice
and/or his designate in accordance with Section 11 of the 1996
Act read with the applicable rules, the substitute arbitrator would
also have to be appointed by the Chief Justice and/or his
designate in the same manner. It is immaterial that the
respondent has appointed an arbitrator in the meanwhile.
16. Learned counsel for the respondent has given emphasis
upon the judgments rendered in the case of Yashwith
Construction (P) Ltd. (supra), National Highways Authority of
India (supra), ACC Limited (supra), Shailesh Dhairyawan
(supra), Huawei Technologies Co. Ltd. (supra), Rajasthan Small
Industries Corpn. Ltd. (supra) and the judgment of the Andhra
Pradesh High Court rendered in the case of Hemant B. Prasad &
Anr. (supra).
17. While, Mr. Amit Kumar Das, learned counsel appearing for
the petitioner/applicant has submitted that the judgment
rendered in the case of Yashwith Construction (P) Ltd. (supra),
National Highways Authority of India (supra), ACC Limited
(supra), Shailesh Dhairyawan (supra), Huawei Technologies Co.
Ltd. (supra), Rajasthan Small Industries Corpn. Ltd. (supra) and
the judgment of the Andhra Pradesh High Court rendered in the
case of Hemant B. Prasad & Anr. (supra) are not applicable in the
facts of the case, since, in Yashwith Construction (P) Ltd. (supra),
the factual aspect is quite different, wherein, the judicial
pronouncements of the Hon'ble Apex Court is based upon the
facts, wherein, at the initial stage, the Managing Director of the
respondent Company has appointed an arbitrator whose
mandate has been terminated and in that pretext and taking into
consideration the state of the termination of arbitral proceeding,
the Hon'ble Apex Court has took view that the concerned party is
required to approach before the Managing Director itself as per
the condition stipulated in the contract.
It has further been submitted that the judgment rendered in
the case of National Highways Authority of India (supra), is also
not applicable in the facts of the case since therein the parties
have entered into an agreement, which contained a mechanism
for resolution of dispute between the parties, as contained in sub
clause 67.3. It was provided therein that in case the parties'
nominated arbitrators failed to agree on a presiding arbitrator
within 30 days, the same would be appointed by the President,
IRC. Disputes having arisen between the parties, respondent no.1
nominated its arbitrator as respondent 3. The appellants also
invoked the arbitration clause. Thereafter, the appellants
nominated Mr. D.P. Gupta, as their arbitrator. In view of the
disagreement between the two nominated arbitrators to agree
upon the presiding arbitrator, respondent 1 sought a clarification
from Indian Roads Congress (IRC) by asking respondent 2 for
availability of any judicial arbitrator for the purpose of
nomination as presiding arbitrator. IRC informed that there did
not exist any judicial arbitrator in its panel and in that pretext, an
application was filed by the concerned respondent being
Arbitration Petition No.23 of 2005 before the High Court
requesting for appointment of the presiding arbitrator.
The High Court vide its judgment dated 06.01.2006,
appointed Mr. Justice P. Chenna Keshava Reddy, former Chief
Justice of the Andhra Pradesh and the Gauhati High Courts as
the presiding arbitrator, which according to the appellants, was
in clear and express violation of the contract agreement entered
into between the parties.
It has been submitted that judgment rendered in the case of
ACC Limited (supra), Shailesh Dhairyawan (supra), Huawei
Technologies Co. Ltd. (supra), Rajasthan Small Industries Corpn.
Ltd. (supra) is also not applicable in the facts of the given case.
It has been submitted that even the judgment passed by the
Andhra Pradesh High Court is also not applicable in the facts of
the given case, since, what has been laid down by the Hon'ble
Apex Court either in the case of Yashwith Constructions (P) Ltd.
(supra) or Shailesh Dhairyawan (supra), Andhra Pradesh High
Court has not taken into consideration the pretext upon which,
ratio has been laid down by the Hon'ble Apex Court in these
cases.
According to Mr. Das, the order passed by the Bombay
High Court in the case of Global Cements Ltd. (supra) and
Calcutta High Court in the case of Ramjee Power Construction
Ltd. (supra) is well applicable in the facts of the instant case.
18. The legal position is not in dispute that a judgment is to be
tested about its applicability depending upon the facts and
circumstances of each and every case, as has been laid down by
the Hon'ble Apex Court in the case of Dr. Subramanian Swamy
Vs. State of Tamil Nadu & Ors., (2014) 5 SCC 75, wherein, at
paragraph 47, it has been held as under:-
"47. It is a settled legal proposition that the ratio
of any decision must be understood in the
background of the facts of that case and the case is
only an authority for what it actually decides, and
not what logically follows from it. "The court
should not place reliance on decisions without
discussing as to how the factual situation fits in
with the fact situation of the decision on which
reliance is placed."
19. There is no dispute after the issue having been settled by
the Hon'ble Apex Court in the case of ACC Limited Vrs. Global
Cements Limited (supra) that the substitute arbitrator is to be
appointed even in case of death.
It has also been settled in the case of Yashwith
Constructions (P) Ltd. (supra) that interpretation of the term
'rule' referred in Section 15(2) of the Act, 1996.
20. There is no dispute about the fact that the application under
Section 11(6) is required to be filed only after exhausting the
arbitration mechanism, as has been held by the Hon'ble Apex
Court in the case of Datar Switchhears Ltd. Vs. Tata Finance Ltd.
& Anr., (2000) 8 SCC 151. Since, the Hon'ble Apex Court has
decided the term 'rule' as referred under Section 15(2) of the Act,
1996 which does mean that the terms and conditions stipulated in
the agreement.
Since, the Arbitration and Conciliation Act, 1996, so far as
appointment of Arbitrator is concerned, is strictly to be governed
in pursuant to the terms and conditions of the contract.
21. This Court, on consideration of the judgment rendered by
the Hon'ble Apex Court in the case of Yashwith Constructions
(P) Ltd. (supra), is of the view that the ratio has been laid down
therein to the extent that the appointment of substitute arbitrator
must be done according to the original agreement or provision
applicable for appointment of arbitrator at initial stage. Such ratio
has been laid down in the given facts of the case as was in the
case of Yashwith Construction, wherein, the Managing Director
of the respondent Company appointed an arbitrator in terms of
the arbitration clause. The arbitrator resigned. The Managing
Director, thereupon, in view of the mandate in the arbitration
agreement promptly appointed another arbitrator. At that stage,
the petitioner approached the Chief Justice of the High Court
under Section 11 sub-section (5) read with Section 15(2) of the
Arbitration and Conciliation Act, 1996, praying that the Chief
Justice may appoint a substitute arbitrator to resolve the disputes
between the parties. The Chief Justice found that the
appointment of the second arbitrator by the Managing Director,
after the resignation of the first arbitrator, was valid in law since
it was permissible under the contract and the right to make such
an appointment was saved by Section 15(2) of the Act.
Likewise, the observation made by the Hon'ble Apex Court
in the case of National Highways Authority of India (supra),
wherein, it has been observed as under paragraph-44 by holding
therein that the High Court failed to appreciate that in
accordance with Section 15(2) of the Act on the termination of the
mandate of the presiding arbitrator, the two nominated
arbitrators were first required to reach a consensus and on their
failure to arrive at a consensus only was respondent 2 authorised
to make the appointment. Unless respondent 2 failed to exercise
its jurisdiction, the High Court could not assume jurisdiction
under Section 11(6) of the Act.
Such finding has been arrived at on the basis of the
condition of contract, as under sub-clause 67.3, which provides
that the Arbitral Tribunal shall consist of three arbitrators, one
each to be appointed by the employer and the contractor. The
third arbitrator shall be chosen by the two arbitrators so
appointed by the parties and shall act as presiding arbitrator. In
case of failure of the two arbitrators, appointed by the parties to
reach upon a consensus within a period of 30 days from the
appointment of the arbitrator appointed subsequently, the
presiding arbitrator shall be appointed by the President, Indian
Roads Congress.
Thus, it is evident that in case of failure of appointment of
arbitrator, the presiding arbitrator is to be appointed by the
President, Indian Roads Congress and as such, an application
ought to have been filed before the President, Indian Roads
Congress and not before the High Court under Section 11(6) at its
inception and in that pretext, such ratio has been laid down.
In the case of Huawei Technologies Co. Ltd. (supra), the
Hon'ble Apex Court has been pleased to hold as under
paragraph-8 that the petitioner to give notice and explore the
possibility of naming an arbitrator by mutual consent and only
on failure thereof the present application under Section 11(6) of
the Act could/should have been filed.
Such finding has been arrived at in the background of the
fact that application under Section 11(6) of the Act, 1996 was
filed, in pursuant thereto, Shri Justice S.K. Dubey, a former Judge
of the High Court of Madhya Pradesh, was appointed as
Arbitrator but recused himself from proceeding and in that
pretext, an application under Section 11(6) of the Act, 1996 was
filed.
But the contract containing arbitration clause provides as
under clause 22.3 that the appointment of sole arbitrator is to be
done by the parties by mutual consent and in a situation where
the original arbitrator, i.e., Shri Justice S.K. Dubey, had recused
himself, the substitute or new arbitrator is required to be
appointed, according to the rules that were applicable to the
appointment of the original arbitrator, meaning thereby, in the
aforesaid case, since, Shri Justice S.K. Dubey, was appointed with
the mutual consent of the parties but he recused himself to act as
arbitrator, therefore, the requirement as per the condition of
contract was again to have a mutual consent for appointment of
arbitrator and only on its failure, an application under Section
11(6) could have been filed, but having not done so, as such, the
Hon'ble Apex Court has held in the judgment to explore the
possibility of naming an arbitrator by mutual consent.
In the case of Rajasthan Small Industries Corpn. Ltd.
(supra), wherein, the Hon'ble Apex Court has taken the contrary
view as was taken by the High Court, by which, the independent
arbitrator was appointed and according to the Hon'ble Apex
Court, the same was without keeping in view the terms of
agreement between the parties. The agreement between the
parties, as was in the aforesaid case that the Managing Director
himself or his or her nominee to act as sole arbitrator, as per the
terms of the clause 4.20.1. But for one reason or the other, the
arbitration proceeding could not be concluded and as such, the
Chairman-cum-Managing Director has taken up the arbitration to
resolve the dispute between the parties. But the Chairman-cum-
Managing Director since was transferred and as such, a notice
was given by the contractor showing concern that award could
not be passed and in that pretext, an application under Section
11(6) and Section 15 of the Act, 1996 was filed.
The Hon'ble Apex Court, in the aforesaid background, has
came to the conclusive finding that the steps for appointment of
arbitrator ought to have been taken in terms of the contract.
22. The fact of the given case herein is that the sole arbitrator
was appointed by a proceeding initiated under Section 11(6) of
the Act, 1996 in an Arbitration Application No.05 of 2016 vide
order dated 07.04.2017, by appointing Hon'ble Mr. Justice S.B.
Sinha, (now deceased) a retired Judge of the Hon'ble Supreme
Court, to act as sole arbitrator.
The parties had appeared and pleadings have been filed but
unfortunately, the sole arbitrator has died.
In this pretext, the applicability of the judgments rendered
by the Hon'ble Apex Court either in the case of Yashwith
Construction (P) Ltd. (supra), National Highways Authority of
India (supra), ACC Limited (supra), Shailesh Dhairyawan
(supra), Huawei Technologies Co. Ltd. (supra), Rajasthan Small
Industries Corpn. Ltd. (supra) or the judgment of the Andhra
Pradesh High Court rendered in the case of Hemant B. Prasad &
Anr. (supra) are applicable in the facts of the given case or not?
23. This Court has also discussed the factual aspects pertaining
to case of Yashwith Construction (P) Ltd. (supra), National
Highways Authority of India (supra), ACC Limited (supra),
Shailesh Dhairyawan (supra), Huawei Technologies Co. Ltd.
(supra), Rajasthan Small Industries Corpn. Ltd. (supra) and the
judgment of the Andhra Pradesh High Court rendered in the case
of Hemant B. Prasad & Anr. (supra) and in all the cases, the
Hon'ble Apex Court has came to the conclusive view that the
terms of the contract are required to be followed for appointment
of sole arbitrator by considering the application under Section
11(6) of the Act, 1996.
24. It cannot be a case herein that at the initial stage,
petitioner/applicant has not followed the terms and conditions of
the contract for resolution of dispute before making application
under Section 11(6) of the Act, otherwise, the initial application
filed under Section 11(6) would not have allowed and the sole
arbitrator would not have been appointed.
25. The petitioner/applicant was forced to file application
under Section 11(6) of the Act, 1996 after exhausting the remedy
available under the dispute redressal mechanism contained in the
contract. Therefore, the alternative mechanism available under
the contract before taking recourse of the application to be filed
under Section 11(6) of the Act, 1996, has already been taken
recourse thereof by the petitioner/applicant. But, now, due to
demise of the sole arbitrator, when this application has been filed,
the respondent is taking the plea to follow the same mechanism
which has already been exhausted by the petitioner/applicant
before filing Arbitration Application No.05 of 2016.
26. The objection which is being raised on behalf of the
respondent to that extent, according to the considered view of
this Court is not at all sustainable taking into consideration the
very object and intent of the redressal of commercial dispute and
as per the mandate, the same is to be adjudicated at an early date.
But the respondent has not cared for resorting to the settlement of
dispute, as per the alternative mechanism available under the
arbitration agreement which resulted into filing of Arbitration
Application No.05 of 2016. But, the plea is now being taken to
take recourse thereof, which has already been taken by the
petitioner/applicant, while taking objection about the
maintainability of the instant application.
27. This Court has now to consider on the given facts of the
case, since, the rules which have been laid by the Hon'ble Apex
Court in the judicial pronouncements rendered in the case of
Yashwith Construction (P) Ltd. (supra), National Highways
Authority of India (supra), ACC Limited (supra), Shailesh
Dhairyawan (supra), Huawei Technologies Co. Ltd. (supra),
Rajasthan Small Industries Corpn. Ltd. (supra), are not
applicable in the facts of the given case, as per the discussion
made hereinabove.
However, the High Courts have given their different
views. The Andhra Pradesh High Court, has come out with its
view putting reliance upon the judgments rendered by the
Hon'ble Apex Court in the case of Yashwith Constructions (P)
Ltd. (supra), ACC Limited (supra) & Shailesh Dhairyawan
(supra) by coming to conclusion that while requesting to appoint
substitute arbitrator in the place of deceased arbitrator, first
request is to be made for the same then only 11(6) application
should have been filed.
28. But, this Court is in respectful disagreement with the
finding arrived at by the Andhra Pradesh High Court due to the
reason that the judgment upon which the reliance has been
placed by the Andhra Pradesh High Court either in the case of
Yashwith Constructions (P) Ltd. (supra), ACC Limited (supra) &
Shailesh Dhairyawan (supra), ought to have been tested on the
given facts of the case and thereafter, the conclusion ought to
have been arrived at but by not doing so and applying the
judgment rendered by the Hon'ble Apex Court in the case of
Yashwith Constructions (P) Ltd. (supra), ACC Limited (supra) &
Shailesh Dhairyawan (supra) in the given facts of those cases,
cannot be accepted.
29. It is not in dispute that the judgments passed by the other
High Courts are having no binding precedence but the same has
got persuasive value. But, while taking different view, it is
incumbent upon the High Court to assign reason of taking
different view, as has been held by the Hon'ble Apex Court in the
case of Pradip J. Mehta Vs. Commissioner of Income Tax,
Ahmedabad, (2008) 14 SCC 283, wherein, at paragraph-23, it has
been held which reads as under:-
"23. Although, the judgments referred to above
were cited at the Bar in the High Court, which
were taken note of by the learned Judges of the
Bench of the High Court, but without either
recording its agreement or dissent, it answered
the two questions referred to it in favour of the
Revenue. Judicial decorum, propriety and
discipline required that the High Court should,
especially in the event of its contra view or
dissent, have discussed the aforesaid judgments of
the different High Courts and recorded its own
reasons for its contra view. We quite see the fact
that the judgments given by a High Court are not
binding on the other High Court(s), but all the
same, they have persuasive value. Another High
Court would be within its right to differ with the
view taken by the other High Courts but, in all
fairness, the High Court should record its dissent
with reasons therefor. The judgment of the other
High Courts, though not binding, have persuasive
value which should be taken note of and dissented
from by recording its own reasons."
30. This Court, therefore, on the basis of the aforesaid
reasoning, i.e., coming to the view to again take recourse of the
mechanism available under the contract by making request under
Section 21 of the Act, 1996 without considering the factual aspect
involved therein, is in respectful disagreement with the view
taken by the Andhra Pradesh High Court in the case of Hemant
B. Prasad and Anr. (supra).
31. This Court has considered the judgment rendered by the
Allahabad High Court in the case of M/s. Tirath Ram Sumer
Kumar (supra), wherein, the judgments rendered by the Hon'ble
Apex Court in the case of Yashwith Constructions (P) Ltd.
(supra), ACC Limited (supra), National Highways Authority of
India (supra), Huawei Technologies Co. Ltd. (supra) and San-A
Tradubg Co. Ltd. (supra) have been taken into consideration and
while, considering so, the factual aspect of the given case has also
been considered. Thereafter, a view has been taken as under
paragraph-23 that the earlier arbitrator since having been
appointed by the High Court after notice to the respondents
under Section 11(b), an application for appointment of a
substitute arbitrator under Section 11(6) read with Section 15(2),
is maintainable.
This Court has also considered the judgment rendered in
the case of Ignatius Tony Pereira (supra), wherein, it has been
observed that expression "rules" that were applicable to the
appointment of the arbitrator being replaced" in Section 15, have
carefully be chosen. If the arbitrator being replaced was
appointed by the Hon'ble Chief Justice and/or his designate in
accordance with Section 11 of the 1996 Act read with applicable
rules, the substitute arbitrator would also have to be appointed
by the Hon'ble Chief Justice and/or his designate in the same
manner. It is immaterial that the respondent has appointed an
arbitrator in the meanwhile. The appointment of the arbitrator by
the respondent, after filing of this application, is of no
consequence.
The Calcutta High Court in the case of Ramjee Power
Construction Ltd. (supra) has considered the fact and has arrived
at finding that the expression "rules" that were applicable to the
appointment of the arbitrator being replaced" in Section 15, is to
be read out by taking into consideration the legal position that if
the arbitrator being replaced was appointed by the Chief Justice
and/or his designate in accordance with Section 11 of the 1996
Act read with the applicable rules, the substitute arbitrator would
also have to be appointed by the Chief Justice and/or his
designate in the same manner.
32. This Court, after taking into consideration the view
expressed by the Hon'ble Apex Court in the case of Ignatius
Tony Pereira (supra) and Ramjee Power Construction Ltd.
(supra), is of the view that what has been laid down by the
Hon'ble Apex Court in the case of Yashwith Constructions (P)
Ltd. (supra) about the interpretation of the term 'rules' in Section
15(2) which referred to the provision for appointment contained
in the arbitration agreement or any rules of any institution under
which the disputes were referred to arbitration and since, such
rules have already been resorted to, as provided in such rules in
terms of the condition stipulated in the contract since has been
followed at the initial stage, as such, there is no reason again to
ask the party to request the respondent making request under
Section 21 of the Act, 1996 for appointment of an arbitrator.
It is in this context, Section 21 is also required to be
considered by which the commencement of arbitral proceeding
will be said to have commenced, unless otherwise aggrieved by
the parties, the arbitral proceeding in respect of a particular
dispute commenced on the date on which, a request for that
dispute to be referred to arbitration is received by the
respondent.
Thus, the mandate of Section 21 of the Act, 1996 warrants
that in case of no agreement in between the parties for resolving
the dispute, if the request is being made for appointment of an
arbitrator, the arbitral proceeding will be said to have
commenced.
33. The law is well settled that so long as the request which has
been made under Section 21 for appointment of sole arbitrator, is
not being acted upon within the statutory period and once the
application is being filed by taking recourse of the provision of
Section 11(6) of the Act, 1996, the party will be seized to have
exercised the jurisdiction to appoint arbitrator.
34. Herein, in the instant case, it is admitted fact that the
petitioner/applicant has filed an application making request for
appointment of arbitrator in view of the provision of Section 21 of
the Act, 1996 and only on failure on the part of the respondent,
since the arbitrator has not been appointed within the stipulated
period, an application under Section 11(6) of the Act, 1996 has
been filed but the arbitral proceeding stands terminated due to
demise of learned sole arbitrator and if again, the
petitioner/applicant will be relegated before the respondent for
making a fresh request for appointment of arbitrator, the same
will not be permissible, since, the remedy available to the
claimant as per the contract since has been exhausted at the initial
stage for resolution of dispute and only on its failure, an
application under Section 11(6) has been filed, therefore, all the
measures provided under the contract since have been taken
recourse thereof, therefore, the same will be extinguished and
only a fresh application is to be filed before the High Court under
Section 11(6) for appointment of substitute arbitrator, since there
is nothing contrary in the contract thereto.
35. If the objection of the learned counsel for the respondent
will be accepted, then the power for appointment of arbitrator
which has been seized the moment application under Section
11(6) has been filed, then again, the same will be revived which
according to the considered view of this Court is not permissible.
36. This Court, in view of the aforesaid discussions on fact and
on consideration of the legal position as above, is of the view that
the objection which is being raised on behalf of the respondent is
not sustainable in the eye of law, accordingly, such objection is
overruled.
37. In the result, this Court is of the view that it is a fit case
where this application is held to be maintainable.
38. Accordingly, the instant application is held to be
maintainable.
39. In view thereof, the instant application deserves to be
allowed.
40. Accordingly, the instant application stands allowed.
41. This Court has asked the suggestion from the learned
counsel for the parties for disclosing the name for appointment of
Arbitrator, so as to resolve the dispute.
42. Learned counsel for the parties, however, has submitted
that this Court may appoint any Former Judge of the Hon'ble
Supreme Court to act as Arbitrator.
43. Considering the aforesaid submission, this Court, therefore,
appoints Hon'ble Mr. Justice (Retd.) Kurian Joseph, Former Judge
of the Hon'ble Supreme Court, presently residing at No.50,
Poorvi Marg, Vasant Vihar, New Delhi-110057, Email:-
[email protected], to act as Arbitrator for
resolution of dispute between the parties.
44. The proposed learned Arbitrator is required to submit a
declaration in terms of Section 12 of Arbitration and Conciliation
Act, 1996.
45. Let photocopy of the entire pleadings along with copy of
the entire order sheet be sent to the learned Arbitrator by the
Registry.
46. Pending Interlocutory Application(s), if any, stands
disposed of.
(Sujit Narayan Prasad, J.)
Rohit/-
A.F.R.
