merely because he had failed to exercise his right, to appoint an arbitrator, earlier. = The respondent is entitled, in terms of Clause 22-A(iii) of the agreement, to appoint a substitute arbitrator even if they had failed to appoint an arbitrator earlier. On their exercising their right to appoint a substitute arbitrator, no other person can be appointed as an arbitrator, in substitution, by the High Court. It is only if they had failed to appoint a substitute arbitrator, despite being requested to do so by the applicant, would the applicant then have been entitled to invoke the jurisdiction of the High Court, under Section 11(6) of the Act, requesting it to take the necessary measure. As the respondent has appointed Justice C.V. Ramulu as their substitute arbitrator, even before they were called upon by the applicant to do so, the applicant is not entitled to invoke the jurisdiction of the High Court, under Section 11(6) of the Act, seeking appointment of a substitute arbitrator. The application, as filed, is therefore not maintainable.

THE HONBLE THE ACTING CHIEF JUSTICE RAMESH RANGANATHAN

 

Arbitration Application No.55 of 2015

 

27-12-2017

 

 

Gamesa Wind Turbines Pvt. Ltd, Chennai..Applicant

 

Mytrah Energy (India) Ltd.. Respondent

 

!Counsel for Applicant: Sri B.Chandrasen Reddy

 

Counsel for respondent: Sri Vedula Venkataramana, Learned

Senior Counsel for Sri Girish

Govardhan Deshmukh, Learned

Counsel.

 

<GIST:

 

>HEAD NOTE:

 

? Citations:

1. (1988) 4 SCC 534

2. (1992) 2 SCC 683

3. (2017) 7 SCC 729

4. AIR 1964 SC 1419

5. (2005) 6 SCC 138

6. (2000) 2 SCC 617

7. AIR 1987 SC 2235

8. AIR 1989 SC 1972

9. AIR 1999 SC 393

10. (1997) 1 SCC 134

11. (1985) 1 SCC 260

 

 

HONBLE THE ACTING CHIEF JUSTICE RAMESH RANGANATHAN

 

ARBITRATION APPLICATION NO.55 OF 2015

 

ORDER:

 

Arbitration Application No.819 of 2016 is filed, by the

applicant in Arbitration Application No.55 of 2015, to appoint a co-

Arbitrator in the place of late Sri Justice T.Ch. Surya Rao by

modifying the order dated 11.12.2015 in Application No.1451 of

2015.

Facts, to the limited extent necessary, are that the applicant

herein filed Arbitration Application No.55 of 2015 under Section

11(4) and (6) of the Arbitration and Conciliation Act, 1996

(hereinafter called the Act) requesting this Court to appoint an

Arbitrator, as the respondent had failed to appoint its nominee as

an Arbitrator in terms of the Arbitration Agreement dated

25.04.2013. Originally an order dated 20.11.2015 was passed

appointing Sri Justice M. Jagannadha Rao, retired Judge of the

Supreme Court, as the sole arbitrator. Thereafter Arbitration

Application No.1451 of 2015 was filed by the applicant bringing it

to the notice of this Court that, in terms of the Clause 22-A of the

Agreement dated 25.04.2013, the earlier order dated 20.11.2015

was required to be modified as the Arbitration Agreement required

each party to the agreement to appoint an arbitrator, and the two

appointed Arbitrators to appoint a third arbitrator to act as the

Presiding Arbitrator; the applicant had appointed Sri Justice R.

Balasubrahmanian, Retired Judge of the Madras High Court, as

their nominee, and this Court should appoint an arbitrator on

behalf of the respondent.

The earlier order dated 20.11.2015 was modified in

Application No.1451 of 2015 in Arbitration Application No.55 of

2015 dated 11.12.2015, and Sri Justice T.Ch.Surya Rao, a retired

Judge of this High Court, was appointed as an Arbitrator on behalf

of the respondent. Both the arbitrators were requested to appoint

a third arbitrator to act as the Presiding Arbitrator, and the then

Acting Chief Justice left it open to them to consider Sri Justice M.

Jagannadha Rao, retired Judge of the Supreme Court, as the third

arbitrator. Sri Justice T.Ch. Surya Rao passed away on

01.02.2016 before the first hearing scheduled to be held on

20.02.2016.

The Applicant submits that, in view of the demise of the

Co-Arbitrator, it has become necessary for them to approach this

Court for appointment of a Co-Arbitrator to be a member of the

Arbitral Tribunal; and this Court should appoint a co-arbitrator in

the place of late Sri Justice T.Ch. Surya Rao by modifying the

order dated 11.12.2015 passed in Application No.1451 of 2015 in

Arbitration Application No.55 of 2015. In the counter-affidavit,

filed on behalf of the respondent, it is stated that, on the demise of

late Sri Justice T.Ch. Surya Rao, the answering respondent had

the right to suggest/nominate its arbitrator to make up the

vacancy which had occurred due to his death; they had already

exercised such a right by communicating, to Justice M.

Jagannadha Rao, the Presiding Officer of the Tribunal through e-

mail dated 26.02.2016, that they had approached Sri Justice C.V.

Ramulu as their arbitrator; and, as the agreed procedure

prescribed under the contract had been followed, there was no

cause of action for maintaining the present application under

Section 11 of the Act.

Sri B. Chandrasen Reddy, Learned counsel for the applicant,

would submit that the present application, filed under Section

11(6) of the Act, is maintainable as the earlier appointment of Late

Sri Justice T.Ch. Surya Rao was made by this Court under

Section 11(6) of the Act; under Section 15(2) of the Act, once

the mandate of the arbitrator terminates, substitution of the

arbitrator shall be made according to the rules that were

applicable to the appointment of the arbitrator being replaced;

the rules, that are applicable to an arbitrator being replaced,

should be read as the rules that were applicable at the time of

appointment of the earlier arbitrator; the earlier arbitrator was

appointed by this Court under the Act, and the same rules

are applicable, the substitute Arbitrator should also be

appointed by this Court in the same manner; the intention of

the legislature, in using the expression, that the substitute Arbitrator

should be appointed according to the rules that were applicable for

appointment of the arbitrator being replaced, should be given due

regard; the legislature has not used the expression that the

substitute arbitrator shall be appointed “in accordance with the

procedure laid down in the arbitrator agreement” executed between

the parties; there is a clear distinction between the two

propositions; and only this Court has jurisdiction to appoint

the substitute Arbitrator.

On the other hand Sri Vedula Venkataramana, Learned

Senior counsel appearing on behalf of the respondent, would

submit that, since Arbitration Application No.55 of 2015 filed

under Section 11 (5) and (6) of the Act has already been disposed

of, the present petition, filed under Section 151 CPC, is not

maintainable; the power of the High Court to appoint an arbitrator

would arise only when there is a default by either of the parties to

appoint their respective arbitrators; this is evident from the

language of Section 11 (3) and (4) of the 1996 Act; except for

Section 11(6), this Court lacks jurisdiction to appoint or supply

a vacancy in the office of an arbitrator; there is no default on the

part of the respondent in suggesting/appointing its arbitrator; it

has already appointed Justice C.V. Ramulu, as its nominee,

after the death of Justice T. Ch. Surya Rao; Section 15 (2) of the

Act provides for the substitution of an arbitrator as per the

original rules; the Rules would mean the arbitral clause also; the

respondent would be disentitled to appoint an arbitrator on its

behalf, in terms of the arbitration clause of the agreement, only

during the lifetime of the arbitrator appointed by the court; when

once the arbitrator, appointed by the Court, ceases to hold office

either due to resignation or death, the situation reverts back to

the original stage enabling a party to the agreement to suggest/

appoint its arbitrator in accordance with the arbitration

agreement; failure to appoint an arbitrator at an earlier point of

time, cannot result in a permanent disqualification; Section 15 (2)

of the Act would revive the lost opportunity, and enable the

respondent to nominate/appoint its arbitrator on the demise of

the earlier arbitrators, appointed on its behalf, by this Court; any

other construction placed on Section 15(2) of the Act would result

in anomaly and injustice; it is only if the respondent had not

appointed its arbitrator, within 30 days from the date of the death

of late Sri Justice T.Ch. Surya Rao, would the Applicant be entitled

to seek appointment of a substitute arbitrator under Section 11 (6)

of the Act; and since there is no vacancy requiring the Court to

appoint an arbitrator, for the reason that the respondent has

already appointed Justice C.V. Ramulu as its arbitrator, this

petition, filed under Section 11(6) of the Act, is not maintainable in

law.

Before considering the rival submissions, it is useful to refer,

albeit briefly, to the Statement of Objects and Reasons, and the

relevant provisions of the Act. The Statement of Objects and

Reasons for enacting the Arbitration and Conciliation Act, 1996

(for short, the Act) lists the main objects of the Bill which, among

others, is to make provision for an arbitral procedure which is fair,

efficient and capable of meeting the needs of the specific

arbitration; and to minimise the supervisory role of Courts in the

arbitral process. Section 5 prescribes the extent of judicial

intervention and provides that, notwithstanding anything

contained in any other law for the time being in force, in matters

governed by Part I of the Act (Section 2 to 43), no judicial

authority shall intervene except where so provided in Part I of the

Act. Section 7(1) of the Act defines an arbitration agreement to

mean an agreement by the parties to submit to arbitration all or

certain disputes which have arisen, or which may arise between

them, in respect of a defined legal relationship, whether

contractual or not.

Chapter III of the Act relates to the composition of the

Arbitral Tribunal, and Section 10(1) gives the parties the freedom

to determine the number of arbitrators, provided that such

number shall not be an even number. Section 11 relates to the

appointment of arbitrators. Section 11(1) stipulates that a person

of any nationality may be an arbitrator, unless otherwise agreed by

the parties. Section 11(2) provides that, subject to sub-section (6),

the parties are free to agree on a procedure for appointing the

arbitrator or arbitrators. Section 11(3) stipulates that failing any

agreement referred to in sub-section (2), in an arbitration with

three arbitrators, each party shall appoint one arbitrator, and the

two appointed arbitrators shall appoint the third arbitrator who

shall act as the presiding arbitrator. Section 11(4) stipulates that,

if the appointment procedure in sub-section (3) applies, and (a) a

party fails to appoint an arbitrator within thirty days from the

receipt of a request to do so from the other party or (b) the two

appointed arbitrators fail to agree on the third arbitrator within

thirty days from the date of their appointment, the appointment

shall be made, upon the request of a party, by the High Court.

Section 11(6) stipulates that where, under an appointment

procedure agreed upon by the parties, (a) a party fails to act as

required under that procedure; or (b) the parties, or the two

appointed arbitrators, fail to reach an agreement expected of them

under that procedure; or (c) a person, including an institution, fails

to perform any function entrusted to him or it under that

procedure, a party may request the High Court to take necessary

measures, unless the agreement, or the appointment procedure,

provides other means for securing the appointment. Section

11(6A), as inserted by Act 3 of 2016 with effect from 23.10.2015,

stipulates that the High Court, while considering any application

under sub-sections (4) or (5) or (6), shall, notwithstanding any

judgment, decree or order of any Court, confine to the examination

of the existence of an arbitration agreement.

While Sub-section (5) of Section 11, as it stood prior to its

amendment by Act 3 of 2016 with effect from 23.10.2015, enabled

a party to the arbitration agreement to request the Chief Justice,

or his designate, to appoint an arbitrator, Sub-section (6) enabled

the party to request that “the necessary measure” be taken. The

distinction between the words “the necessary measure” in Sub-section

(6) of Section 11 of the Act, and the word “appointment” in Sub-

section (5), is significant. In the absence of an appointment

procedure being prescribed, in the arbitration agreement, a request

could be made to the Chief Justice or his designate (now the High

Court) to appoint an arbitrator. Where, however, a procedure to

secure the appointment of an arbitrator is prescribed in the

arbitration agreement, then the Chief Justice or his designate can

only be requested to “take the necessary measure”. If the legislature

intended to confer power on the High Court to appoint an

arbitrator it would have used the same language in sub-section (6)

as it had employed in sub-section (5) of Section 11. The power of

the High Court under sub-section (6) is to take “the necessary

measure” for securing the appointment of an arbitrator and,

ordinarily, not to take upon itself the task of appointing an

arbitrator merely because one of the parties to the arbitration

agreement had requested it to do so. If the parties have agreed on a

procedure for appointing the arbitrator, as contemplated by

Section 11(2), then the appointment must be in accordance with

the said procedure and recourse to the High Court cannot be taken

straightaway. (The Iron and Steel Company Ltd. v. Tiwari Road

Lines ). Section 11(6) has application only when a party has failed

to act in terms of the arbitration agreement. (National Highways

Authority of India v. Bumihiway DDB Ltd ; Yashwitha

Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. rep

by its Managing Director ).

Section 14(1)(a) of the Act stipulates that the mandate of an

arbitrator shall terminate, and he shall be substituted by another

arbitrator if he becomes de jure or de facto unable to perform his

functions. Section 15 relates to the termination of mandate and

substitution of arbitrator. Section 15(1)(a) provides that, in

addition to the circumstances referred to in Section 13 or 14, the

mandate of an arbitrator shall terminate where he withdraws from

office for any reason. Section 15(2) stipulates that, where the

mandate of an arbitrator terminates, a substitute arbitrator shall

be appointed according to the rules that were applicable to the

appointment of the arbitrator being replaced. Section 15(3)

stipulates that unless otherwise agreed by the parties, where an

arbitrator was replaced under sub-section (2), any hearings

previously held may be repeated at the discretion of the arbitral

tribunal.

Clause 22A of the agreement dated 04.05.2011, entered into

between the applicant and the respondent, reads thus:

22A. ARBITRATION

(i) If any disagreement arises out of or in connection with the

validity, application or interpretation of this agreement (the

Dispute), the parties shall endeavour in good faith to resolve

the dispute through negotiation within 30 (thirty) days of a

written notice setting out the nature of such dispute.

(ii) In the event that any dispute is unable to be resolved between

the parties pursuant to Clause 22A(1) within 30 (thirty) days of

receipt of the notice under Clause 22A(1), then such dispute

shall be referred to arbitration.

(iii) The arbitration will be conducted as per the Arbitration and

Conciliation Act, 1996 under the rules of the Singapore

International Arbitration Centre. The arbitral tribunal shall

comprise of 3 (three) arbitrators. Each party shall appoint one

arbitrator, and the two arbitrators so appointed shall appoint

the third arbitrator. The place of arbitration for any disputes

shall be Bangalore. The language to be used in the arbitral

proceedings shall be English.

(iv) Responsibility of payment for all costs of arbitration, excepting

counsel fees, shall be as per the arbitration award.

(v) While any dispute under this agreement is pending and except

where this agreement has been terminated in accordance with

the terms of this agreement and/or any of the project

agreements, the parties shall continue to perform all of their

respective obligations under this agreement without prejudice

to the final determination in accordance with the provisions

under this Clause 22A.

 

In terms of sub-clause (iii) of Clause 22-A of the aforesaid

agreement, the arbitral tribunal is to comprise of three arbitrators,

each party to appoint one arbitrator, and the two arbitrators to

appoint the third arbitrator. As the respondent had earlier failed

to appoint an arbitrator on their behalf, the jurisdiction of the

Chief Justice was invoked by the applicant, under Section 11(4)

and (6) of the Act, complaining that, while they had appointed

Justice R. Balasubramannian, (Retd. Judge of the Madras High

Court), the respondent had failed to appoint an arbitrator on their

behalf. The then Acting Chief Justice had appointed Sri Justice

T.Ch. Surya Rao as an arbitrator on behalf of the respondent. On

the demise of Justice T.Ch. Surya Rao, a substitute arbitrator was

required to be appointed in his place. While the aforesaid

arbitration clause does not specifically provide for appointment of a

substitute arbitrator, Section 15(2) of the 1996 Act requires a

substitute arbitrator to be appointed in accordance with the rules

applicable to the appointment of the arbitrator being replaced.

The question which arises for consideration is what do the

words, rules that are applicable to the appointment of the arbitrator being

replaced, used in Section 15(2) of the Act, mean? A party, who has

entered into an arbitration agreement with another, should not be

permitted to resile therefrom. When the mandate of the arbitrator

stands terminated, appointment of an arbitrator should,

necessarily. be made in accordance with the arbitration clause of

the agreement. (National Highways Authority of India2;

Yashwitha Constructions (P) Ltd.3). Where the mandate of the

arbitrator stands terminated for any reason, it falls within the

purview of Section 15(1)(a) of the Act, and attracts Section 15(2) of

the Act. (National Highways Authority of India2).

Unless the arbitration agreement between the parties

categorically prohibits or debars resolution of a dispute or

difference between the parties by a substitute arbitrator, in the

case of death of the named arbitrator or non-availability of the said

arbitrator, the power to appoint a substitute arbitrator is given by

Section 15(2) of the Act which should be given liberal

interpretation so as to apply to all possible circumstances under

which the mandate of the earlier arbitrator may have been

terminated. (SBP and Co. v. Patel Engg. Ltd. ). Even if there is

no specific provision in the arbitration agreement authorizing

appointment of a substitute arbitrator on the termination of the

original appointment, or when the originally appointed arbitrator

withdraws from arbitration or is no more, this omission in the

arbitration agreement is made up by the specific provision

in Section 15(2) of the Act. (Yashwitha Constructions (P) Ltd.3).

Section 15(2), when it refers to the applicable rules, does not

confine appointment of a substitute arbitrator to a statutory rule,

or a rule framed under the Act, or under the scheme. It refers to

the provision for appointment contained in the arbitration

agreement, or any rules of any institution under which the

disputes are to be referred to arbitration. Section 15(2) requires a

substitute arbitrator to be appointed according to the original

agreement or provision applicable to the appointment of the

arbitrator at the initial stage. (Shailesh Dhairyawan v. Mohan

Balkrishna Lulla ; Yashwitha Constructions (P) Ltd.3).

As the rules referred to in Section 15(2) is the arbitration

agreement, the procedure prescribed, for appointment of

arbitrators, in the arbitration agreement are the rules which are

applicable to the appointment of a substitute arbitrator also. Since

the arbitration agreement (i.e., Clause 22-A(iii)) of the agreement

requires each party to nominate an arbitrator, the requirement of

the rules, referred to in Section 15(2) of the Act, is for the

respondent to nominate its arbitrator on the death of the previous

arbitrator appointed on their behalf. The procedure, to be followed

in the appointment of a substitute arbitrator, is the same as the

procedure relating to the initial appointment of the arbitrator, i.e.,

in terms of Clause 22-A(iii) of the agreement dated 04.05.2011.

Consequently it is only if the respondent had failed to adhere to

the procedure, prescribed in Clause 22-A(iii) of the agreement, in

appointing an arbitrator (be it the original or the substitute

arbitrator), could the applicant have invoked the jurisdiction of the

High Court under Section 11(6) of the Act requesting it to take the

necessary measure.

Primacy is given to the procedure agreed upon by the

parties, to appoint an arbitrator, failing which alone does the Act

permit judicial interference. In exercising its jurisdiction

under Section 11(6) to take “the necessary measure”, the High Court

should, as far as possible, act in such a manner as to effectuate

the arbitration agreement entered into between the parties.

(Yashwitha Constructions (P) Ltd.3). When parties have entered

into a contract, and have settled on a procedure, due importance

should be given by the High Court to such a procedure. The

parties are, normally, bound by the arbitration clause, and are

obliged to comply with the procedure laid down therein. (Datar

Switchgears Ltd. v. Tata Finance Ltd. ). Since Section

15(2) requires a substitute arbitrator to be appointed in

accordance with the arbitration agreement, the High Court, while

taking “the necessary measure” under Section 11(6), cannot usurp the

powers conferred by the agreement on the respondent to appoint a

substitute arbitrator. On a harmonious construction of Sections

11(6) and 15(2) it must be held that on the mandate of an

arbitrator being terminated and only if the respondent, in

accordance with the arbitration agreement, fails to appoint a

substitute arbitrator, can the jurisdiction of the High Court be

invoked under Section 11(6) of the Act. (Yashwitha Constructions

(P) Ltd.3).

In the present case, soon after the demise of late Sri Justice

T.Ch. Surya Rao, and even before the applicant could make a

request, the respondent had appointed Sri Justice C.V. Ramulu as

an arbitrator on their behalf. The jurisdiction of the High Court,

under Section 11(6)(a) of the Act to take the necessary measure,

can be invoked by a party only where the other party fails to

appoint an arbitrator in terms of the appointment procedure

prescribed under the agreement. It is only if, on the termination of

the mandate of the earlier arbitrator, the respondent had failed to

appoint a substitute arbitrator in accordance with Clause 22A(iii)

of the agreement, despite a specific request in this regard by the

applicant, could the applicant have invoked the jurisdiction of the

High Court under Section 11(4(a) seeking appointment of an

arbitrator on behalf of the respondent, or for necessary measures

to be taken under Section 11(6)(a) of the Act. As the respondent

has acted in accordance with the appointment procedure

prescribed under Clause 22-A(iii) of the arbitration agreement, and

has appointed Sri Justice C.V. Ramulu as their arbitrator, Section

11(4)(a) and Section 11(6)(a) are not attracted. Neither Section

11(4)(a) nor Section 11(6)(a) of the Act confer jurisdiction on the

High Court to appoint a substitute arbitrator, when the respondent

has, in terms of the arbitration agreement, appointed a substitute

arbitrator in the place of the arbitrator whose mandate stood

terminated. Consequently, the applicant was not entitled to invoke

the jurisdiction of the High Court to take the necessary measure,

to appoint an arbitrator in the place of late Sri Justice T.Ch. Surya

Rao.

Is a different procedure required to be adopted in cases

where failure of one of the parties to the arbitration agreement to

nominate its arbitrator earlier, had resulted in an arbitrator being

appointed on its behalf by the High Court under Sections 11(4) and

(6) of the Act? The answer can only be in the negative. Firstly,

because Sections 11(4) and (6) are statutory provisions, and are

not the rules applicable to the appointment of the arbitrator being

replaced. It is the arbitration agreement which constitutes the

rules applicable to the appointment of the arbitrator being

replaced. Secondly, the very purpose of the Act, as is evident from

the Statement of Objects and Reasons, is to minimise the

supervisory role of Courts in the arbitral process, which would

mean from the commencement of arbitral proceedings under

Section 21 of the Act. The present application, whereby a request

is made for appointment of a substitute arbitrator, (in the place of

Sri Justice T.Ch. Surya Rao the earlier arbitrator), under Section

11(6) of the Act is on the erroneous premise that since the

respondent had failed to appoint an arbitrator on their behalf

earlier, which resulted in the then Acting Chief Justice appointing

an Arbitrator on their behalf, the respondent had forfeited their

right to appoint an arbitrator, on their behalf, for all times to come,

and a substitute arbitrator could, therefore, only be appointed by

the High Court under Section 11(6) of the Act. This premise is

flawed for the reasons that (i) the Act gives primacy to the intention

of the parties as is reflected in the arbitration clause of the

agreement; (ii) Section 5 of the Act prohibits judicial intervention

except where explicitly provided under the Act, and there is no

specific provision in the Act which requires the High Court to

appoint a substitute arbitrator if it had earlier appointed the

arbitrator whose mandate stood terminated; and (iii) the rules,

referred to in Section 15(2), is the arbitrator agreement, and not

the provisions of the Act or the rules made thereunder.

Further, parties to the arbitration agreement have been

statutorily conferred (by Section 11(2) of the Act) the freedom to

nominate an arbitrator of their choice. While a party, which had

failed to exercise its right earlier to appoint an arbitrator in terms

of the agreement, resulting in an arbitrator being appointed by the

High Court, under Section 11(4) and (6) of the Act, would not be

entitled to seek substitution of such an arbitrator except on

grounds specified in Sections 13, 14 and 15(1), and following the

procedure prescribed in Section 15(2) of the Act, termination of the

mandate of the arbitrator, appointed either by the parties to the

agreement or by the High Court, would result in the situation

reverting back to the original position, and thereafter the

procedure prescribed under the agreement, for appointment of the

original arbitrator, would apply in the appointment of the

substitute arbitrator. Consequently, it is only if, on a request

made by the other party, the party which is required to nominate

the substitute arbitrator fails to do so, would the party making the

request then be entitled to invoke the jurisdiction of the High

Court, under Section 11(4) and (6) of the Act, seeking appointment

of an arbitrator on behalf of the other. If, on the other hand, the

party to the agreement has exercised its right to appoint a

substitute arbitrator, and the vacancy caused, as a result of the

mandate of the earlier arbitrator being terminated, has been filled

up, the High Court cannot be called upon to fill up a non-existent

vacancy. The mere fact that they had failed to nominate an

arbitrator earlier, in terms of the arbitration agreement, would not

disable them, for all times to come, from exercising their right,

under the arbitration agreement, to nominate their arbitrator in

the place of the arbitrator whose mandate stood terminated under

Sections 13, 14 and 15 of the Act (in the present case on the death

of the earlier arbitrator).

It is only if the respondent had failed to exercise their right

to appoint a substitute arbitrator, could the High Court have

assumed jurisdiction under Section 11(6) of the Act. (National

Highways Authority of India2; Yashwitha Constructions (P)

Ltd.3). Section 11(6) of the Act has application only when a party,

or the person concerned, has failed to act in terms of the

arbitration agreement. (Shailesh Dhairyawan5; Yashwitha

Constructions (P) Ltd.3). In the present case, the agreement

specifically prescribes a procedure for appointment of an

arbitrator, which rules also apply for appointment of a substitute

arbitrator. (Yashwitha Constructions (P) Ltd.3).

In the light of the aforesaid observations, let us now examine

the judgments relied on by Learned Counsel on either side. In

Datar Switchgears Ltd.6, the respondent appointed an arbitrator

beyond 30 days of the request, but before the appellant had filed

the application under Section 11 of the Act. The question, which

arose for the consideration of the Supreme Court, was whether, in

a case falling under Section 11(6), the opposite party was disabled

from appointing an arbitrator after expiry of 30 days from the date

of demand. It is in this context that the Supreme Court held that

an application, under Section 11(6), can be filed when there is a

failure of the procedure for appointment of Arbitrator; this failure

of procedure can arise under different circumstances; it can be a

case where a party who is bound to appoint an Arbitrator refuses

to appoint the Arbitrator or where two appointed Arbitrators fail to

appoint the third Arbitrator; the aggrieved party can then approach

the Chief Justice for appointment of Arbitrator; no time limit has

been prescribed under Section 11(6) of the Act, whereas a period of

30 days has been prescribed under Sections 11(4) and (5) of the

Act; so far as Section 11(6) is concerned, if one party demands the

opposite party to appoint an arbitrator, and the opposite party

does not make an appointment within 30 days of the demand, the

right to appointment does not get automatically forfeited after

expiry of 30 days; if the opposite party makes an appointment even

after 30 days of the demand, but before the first party has moved

the Court under Section 11(6), that would be sufficient; but an

appointment has to be made before an application is filed

under Section 11(6) seeking appointment of an arbitrator; and

thereafter the right of the party, to appoint an arbitrator, ceases.

The law declared in Datar Switchgears Ltd.6 is that, failure

of one of the parties to the agreement to appoint an arbitrator on

being so requested by the other party, resulting in the latter

invoking the jurisdiction of the High Court under Section 11(6) of

the 1996 Act, would disable the party, who failed to appoint an

arbitrator, from doing so thereafter, and it is only the High Court

which can then appoint an arbitrator. In Datar Switchgears Ltd.6

neither was the scope of Section 15(2) examined, nor the question

whether, consequent upon the earlier arbitrator having been

appointed by the High Court under Section 11(6) of the Act, the

substitute arbitrator should also be appointed only by the High

Court, and not by the party on whom the right to appoint an

arbitrator is conferred by the arbitration agreement.

In M/s. Yashwith Constructions (P) Ltd. v. M/s. Simplex

Concrete Piles India Ltd. , on a dispute having arisen, the

Managing Director of the respondent company appointed an

arbitrator in terms of the arbitration clause; the arbitrator

resigned; thereupon the Managing Director of the respondent

company, in view of the mandate in the arbitration agreement,

promptly appointed another arbitrator; at that stage, the petitioner

approached the Chief Justice of the High Court under Section

11(6) read with Section 15(2) of the Act praying that the Chief

Justice may appoint a substitute arbitrator to resolve the disputes

between the parties; and the Chief Justice held that no occasion

arose for him to appoint an arbitrator under Section 11(6) of the

Act in the case.

It is in this context that the Supreme Court observed that

there was no specific provision in the arbitration agreement

authorizing the Managing Director to appoint a substitute

arbitrator if the original appointment terminated or if the originally

appointed arbitrator withdrew from arbitration; this so called

omission in the arbitration agreement was made up by the specific

provision contained in Section 15(2) of the Act; withdrawal of an

arbitrator from office for any reason was within the purview

of Section 15(1)(a) of the Act; therefore Section 15(2) would be

attracted, and a substitute arbitrator had to be appointed

according to the rules that were applicable for the appointment of

the arbitrator to be replaced; what Section 15(2) contemplated was

appointment of a substitute arbitrator, or the replacement of the

arbitrator by another, according to the rules that were applicable

to the appointment of the original arbitrator who was being

replaced; the term “rules”, in Section 15(2), obviously referred to

the provision for appointment contained in the arbitration

agreement, or any Rules of any Institution under which the

disputes were referred to arbitration; when Section 15(2) said that

a substitute arbitrator can be appointed, according to the rules

that were applicable for the appointment of the arbitrator

originally, it was not confined to an appointment under any

statutory rule or rule framed under the Act or under the Scheme; it

only meant that appointment of a substitute arbitrator must be

done according to the original agreement, or provision applicable to

the appointment of the arbitrator at the initial stage; and they were

not in a position to agree with the contrary view taken by some of

the High Courts. The law declared in M/s. Yashwith

Constructions (P) Ltd.7 is that the rules governing appointment

of a substitute arbitrator, (as is referred to in Section 15(2) of the

Act), is not confined to any statutory rules or rules made under the

Act or under a Scheme framed under the Act, but only means that

a substitute arbitrator should be appointed in accordance with the

arbitration agreement.

In National Highways Authority of India2, after

appointment of the presiding arbitrator, the arbitrator, appointed

by the appellant, resigned; the new arbitrator, nominated by the

appellant, did not accept the appointment; thereafter on the

vacancy created by the resignation of the presiding arbitrator, the

process of appointment of the presiding arbitrator started afresh in

accordance with the agreed terms of the contract; the appellant

appointed its arbitrator, and the process of discussion, between

the two nominated arbitrators, was reinitiated as per the agreed

contractual terms, and in accordance with Section 15(2) of the Act;

the two arbitrators failed to arrive at a consensus and therefore,

after 30 days, the appellant referred the issue of appointment of

the presiding arbitrator to the IRC; however, the process which had

been reinitiated by the two nominated arbitrators was restrained

by the High Court.

It was contended, on behalf of the appellant, that Sections

15(1) and 15(2) were complete and wholesome, and contradistinct

to Section 11(6); the resignation of the presiding arbitrator brought

the matter back from the vestiges of Section 11(6), (though in the

first place in law there were none), and brought the matter

squarely within Section 15(2); any decision given under Section

11(6) would tantamount to putting the Act upside down; and the

scope of Section 15(2) was no longer res integra as per the dictum

in M/s. Yashwith Constructions (P) Ltd.7. On the other hand, it

was contended on behalf of the respondent, that there had been a

judicial determination by the High Court which was based on the

reasoning that, hierarchically, a judicial arbitrator must sit with

another Judge only.

It is in this context that the Supreme Court held that the

situation which existed prior to the resignation of the presiding

arbitrator, and those which came about subsequent thereto, only

affirmed that the vacancy created by the resignation of the

presiding arbitrator was accepted by the parties to be filled up in

accordance with the original rules of appointment, which was

wholly in consonance with Section 15(2) of the Act; the

appointment, made by the High Court, was against the express

provisions of the contract as held in You One Engg. &

Construction Co. Ltd. v. National Highways Authority of

India , reaffirming that, once the arbitration agreement clearly

envisages appointment of the presiding arbitrator by the IRC, there

was no qualification that the arbitrator had to be a different person

depending on the nature of the dispute; if the parties had entered

into such an agreement with open eyes, it was not open to ignore it

and invoke the powers under Section 11(6); in the present case, by

making a reference to the High Court under Section 11(6) and

alleging that one of the arbitrators was a retired judicial person,

the respondent has only admitted to rewrite the contract between

the parties, which is against the law of the land; the respondent

had wrongly invoked the jurisdiction of the High Court, without

first following the procedure agreed to between the parties; no

cause of action had arisen in the facts of the case to seek

appointment from the High Court under Section 11(6) of the Act,

and the said petition was premature; there did not exist any such

provision in law which required that, if one of the arbitrators was a

retired Judge, the presiding arbitrator also had to be a retired

Judge; the parties had entered into a contract after fully

understanding the import of the terms so agreed upon, from which

there could not be any deviation; and the parties were required to

comply with the procedure of appointment as agreed to.

In Magma Leasing Limited v. Tonganagaon Tea Co Pvt.

Ltd. the Calcutta High Court held that, under Section 15(2) of the

Act, where the mandate of the Arbitrator is terminated, a

substitute Arbitrator should be appointed according to the rules

that were applicable to the appointment of the Arbitrator being re-

placed; the named Arbitrator had refused to act and, on an

application under Section 11 of the Act, the Chief Justice had

appointed Mr. P.K. Banerjee, retired Chief Justice of the Rajasthan

High Court, as the learned Arbitrator; and when the mandate of

the learned Arbitrator had been terminated, the petitioner had

rightly approached the Court for appointment of the Arbitrator by

the Chief Justice in the place of the outgoing learned Arbitrator. In

Magma Leasing Limited9, while appointment of a substitute

arbitrator by the Chief Justice of the Calcutta High Court was held

valid, the said judgment does not indicate why, on the mandate of

the earlier arbitrator being terminated, the party, on whom the

arbitration agreement confers a right to appoint an arbitrator,

cannot do so.

In Ramjee Power Construction Ltd. v. Damodar Valley

Corporation , the question which arose for consideration in the

Arbitration Application was whether, upon the death, resignation

or termination of the mandate of an Arbitrator appointed by the

Chief Justice under Section 11(6) of the Act, a substitute Arbitrator

was required to be appointed only by the Chief Justice and/or his

designate, or whether such appointment should be made in

accordance with the arbitration agreement. The dispute had

arisen in connection with a contract which, inter alia, contained an

arbitration clause which read thus:-

“ARBITRATION: Except where otherwise provided in the contract

all question and disputes relating to the meaning of specifications,

designs, drawings and instructions herein contained and as to the

quality of the workmanship or materials used on the work or as to any

other question claim, right, matter or thing whatsoever in any way

arising out of or relating to the contract, designs, drawings,

specifications, estimates, instructions, orders or these conditions or

otherwise concerning the works or the execution or failure to execute the

same whether arising during the progress of the work or after the

completion or abandonment therefore shall be referred to the sole

arbitration of a person appointed by the DVC who may or may not be a

DVC Officer.

 

Such appointment shall not be objected on the ground that the

arbitrator so appointed is a DVC Official or that he had to deal with

matters to which the agreement rules and in the course of his duties as

DVC official he had expressed views on all or any of the matter in

disputes or difference. The award of the arbitrator so appointed shall be

final, conclusive and binding on all parties to the contract.”

 

The Calcutta High Court held that the language and tenor

of Section 15(2) was significant; the Legislature had, in its wisdom,

carefully used the expression “the substitute arbitrator shall be appointed

according to the rules that were applicable to the appointment of the arbitrator

being replaced”, instead of using the expression “the substitute

arbitrator shall be appointed in accordance with the procedure for appointment

laid down in the arbitration agreement executed between the parties; if the

legislative intent was that a substitute arbitrator should always be

appointed in accordance with the procedure agreed upon by the

parties, irrespective of whether the arbitrator being replaced was

appointed by the Chief Justice or his designate, the legislature

would perhaps have not used the expression in accordance with the

rules that were applicable to the appointment of the arbitrator being replaced;

in this case, the erstwhile arbitrator was appointed in accordance

with Section 11(6) of the Act, read with the Rules framed by the

Court, and the Rules that have evolved with practice; an arbitrator

must be appointed in accordance with the procedure agreed

between the parties; if however the party, required in terms of the

agreement to appoint or to agree to an arbitrator, fails to do so

within the time stipulated in the agreement and/or in Section 11 of

the Act, the other party may request the Chief Justice or his

designate to appoint an arbitrator under Section 11; once an

application under Section 11 is made, the right of the other party

to appoint an arbitrator, in accordance with the agreement, gets

extinguished; the right under the agreement, of a party, to appoint

an arbitrator, which stands extinguished once an application

under Section 11(6) is made, does not revive, if the arbitrator

appointed by the Chief Justice resigns and/or his mandate is

terminated; the expression “rules that were applicable to the appointment

of the arbitrator being replaced” in Section 15 have been chosen

carefully; if the arbitrator being replaced was appointed by the

Chief Justice and/ or his designate, in accordance with Section

11 of the Act read with the applicable rules, the substitute

arbitrator should also be appointed by the Chief Justice and/or his

designate in the same manner; it is immaterial that the respondent

has appointed an arbitrator in the meanwhile; and appointment of

the arbitrator by the respondent, after filing of this application, is

of no consequence.

The Calcutta High Court in Ramjee Power Construction

Ltd10, held that if the arbitrator being replaced was appointed by

the Chief Justice and/or his designate, in accordance with Section

11 of the Act read with the applicable rules, the substitute

arbitrator must also be appointed by the Chief Justice and/or his

designate in the same manner. The premise, on which this

conclusion is based, is that the words rules that are applicable to the

appointment of the arbitrator being replaced in Section 15(2) of the Act

refers to Section 11 of the Act and the applicable rules, for it is

only then can it be said that a party to the agreement loses his

right to appoint a substitute arbitrator, if he had failed to exercise

his right earlier to appoint the original arbitrator and his failure to

do so had resulted in the jurisdiction of the High Court, under

Section 11(6) of the Act, being invoked. As noted hereinabove, the

Supreme Court, in M/s. Yashwith Constructions Pvt Ltd7, has

held that the rules, referred to in Section 15(2), are the rules

applicable to the appointment of the original arbitrator (the

arbitration agreement), and not to any statutory rules or rules

made under the Act or a Scheme framed under the Act.

In Ignatius Tony Pereira v. Mr.Pifran Sanjivan

Fernandes , the Bombay High Court, following the judgment of

the Calcutta High Court in Ramjee Power Construction Ltd.10,

held that an arbitrator must be appointed in accordance with the

procedure agreed between the parties; if, however, the party

required, in terms of the agreement, to appoint or to agree to an

arbitrator failed to do so within the time stipulated in the

agreement, and/or in Section 11 of the Act, the other party may

request the Chief Justice or his designate to appoint an arbitrator

under Section 11; once an application under Section 11 is made,

the right of the other party to appoint an arbitrator, in accordance

with the agreement, gets extinguished; the right of a party to

appoint an arbitrator under the agreement, which stands

extinguished once an application under Section 11 (6) is made,

does not revive, if the arbitrator appointed by the Chief Justice

resigns and/or his mandate is terminated; the expression “rules

that were applicable to the appointment of the arbitrator being replaced” in

Section 15, have been carefully chosen; if the arbitrator being

replaced was appointed by the Chief Justice and/ or his designate,

in accordance with Section 11 of the Act read with the applicable

rules, the substitute arbitrator would also have to be appointed by

the Chief Justice and/or his designate in the same manner; it was

immaterial that the respondent had appointed an arbitrator in the

meanwhile; and appointment of the arbitrator by the respondent,

after filing of the application, was of no consequence.

I find it difficult to concur with the opinion of the Bombay

High Court in Ignatius Tony Pereira11, and the Calcutta High

Court in Ramjee Power Construction Ltd10, wherein it has been

held that, once an arbitrator is appointed by the Chief Justice of

the High Court under Section 11, the right of the other party to

appoint a substitute arbitrator, in accordance with the agreement,

gets extinguished forever. My inability to agree is, firstly, because

the rules referred to in Section 15(2), (as held by the Supreme

Court in M/s. Yashwith Constructions (P) Ltd7), is the arbitration

agreement; secondly, because Section 5 of the Act permits judicial

intervention only when specifically provided under Part-I of the

Act; and there is no specific provision in Part-I of the Act, much

less in Section 15 thereof, stipulating that, if the earlier arbitrator

is appointed by the High Court under Section 11(4) & (6) of the Act,

the substitute arbitrator must also be appointed only by the High

Court and not by the party to the agreement. Since the very object

of the Act is to minimise the supervisory role of Courts in the

arbitral process, and to give primacy to the agreement between the

parties, there is no justifiable reason why a party to the arbitration

agreement should, forever, be denied his right to appoint a

substitute arbitrator, on the mandate of the earlier arbitrator being

terminated, merely because he had failed to exercise his right, to

appoint an arbitrator, earlier.

The respondent is entitled, in terms of Clause 22-A(iii) of the

agreement, to appoint a substitute arbitrator even if they had failed

to appoint an arbitrator earlier. On their exercising their right to

appoint a substitute arbitrator, no other person can be appointed

as an arbitrator, in substitution, by the High Court. It is only if

they had failed to appoint a substitute arbitrator, despite being

requested to do so by the applicant, would the applicant then have

been entitled to invoke the jurisdiction of the High Court, under

Section 11(6) of the Act, requesting it to take the necessary measure.

As the respondent has appointed Justice C.V. Ramulu as their

substitute arbitrator, even before they were called upon by the

applicant to do so, the applicant is not entitled to invoke the

jurisdiction of the High Court, under Section 11(6) of the Act,

seeking appointment of a substitute arbitrator. The application, as

filed, is therefore not maintainable.

The arbitration application is, accordingly dismissed. The

miscellaneous petitions pending, if any, shall stand closed. No

costs.

________________________________

RAMESH RANGANATHAN, ACJ

Date:27.12.2017.