India: Courts Not Bound To Nominate Arbitrator Specified In The Arbitration Agreement

Last Updated: 15 October 2018
Article by AMLEGALS  

Deviation can be made from arbitration agreement for appointment of arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.

IN THE SUPREME COURT OF INDIA
UNION OF INDIA
VS.
BESCO LIMITED
CIVIL APPEAL NO. 4483 of 2017
(ARISING OUT OF SLP (C) No. 17838 OF 2014)

FACTS

The facts of the case arises from the Arbitration Petition No. 425 of 2013 wherein Union of India (hereinafter referred as "the Petitioner") had placed an order on Besco Limited (hereinafter referred as "the Respondent") for supply of railway wagons on 16.12.2012. 2937 wagons were allocated to the Respondent. The Respondent was ordered to manufacture and supply 1469 wagons and in relation to the remaining wagons, i.e. 1468 wagons the right to place an order subsequently, was being withheld with the Petitioner.

The Petitioner issued an Amendment No. IV to the contract on 03.04.2013. As per the said Amendment, the Petitioner had decided to release the order for 1215 wagons against the withheld quantity of 1468 wagons. It was also communicated that the Petitioner had decided to divert 253 wagons from the withheld wagons.

Furthermore, the Petitioner required that the Respondent to convey its unconditional acceptance. The Respondent gave its unqualified acceptance on 04.04.2013. However, the very next day, i.e. on 05.04.2013 the Respondent raised an issue with regard to the balance quantity of 253 wagons and invoked the arbitration clause.

The Petitioner did not appoint the Arbitrator in terms of Clause 18, hence the Respondent filed a Petition for the appointment of Arbitrator.

The Respondent before the Learned Delhi High Court claimed that there was fraud, coercion and undue influence while conveying aforementioned amendment and thereby raised the dispute on the following day of amendment.

Thereafter, the High Court held that since the Petitioner had failed to appoint an arbitrator, he had now lost the mandate to appoint one.

Subsequently, the Learned Delhi High Court appointed Mr. Justice G.S. Singhvi, retired Judge, Supreme Court of India as the Arbitrator to adjudicate all the disputes of the parties arising out of the aforesaid contract.

Against the order of Learned Delhi High Court, a Special Leave Petition was filed by the Petitioner before the Supreme Court of India contending that Delhi High Court had erred in nominating an independent arbitrator wherein the Petitioner had failed to appoint an arbitrator within the time frame permitted under the arbitration agreement and further went outside the provisions of the arbitration agreement.

ISSUE BEFORE SC

Whether the Chief Justice of High Court or any person or institution designated by him, while exercising power under Section 11(6) of the Arbitration and Conciliation Act, 1996, is bound to nominate an arbitrator as specified in the agreement of arbitration?

OBSERVATION

The Learned Court in the case of Patel Engineering Company Case (2014) observed that:

"the designated judge, if required, was free to deviate from the arbitration clause and nominate an independent person, subject to the qualifications prescribed in the arbitration agreement under Section 11(8) of the Act."

Further, in Tripple Engineering Case the term "to take necessary measures" was interpreted wherein Section 11(6) was to be read with Section 11(8). It was further observed that:

"this was mainly because Section 11(8) keeps the autonomy of a party intact as the required qualifications of the arbitrators need to be in accordance with their agreement.

Earlier the decision of the court to appoint an arbitrator or arbitration tribunal was considered to be an administrative function and not the adjudicatory function.

Later the court had to look into various factors before appointing an arbitrator such as existence of a valid arbitration agreement, expiry of limitation period, person being a party to the agreement.

This entire process defeated the purpose of keeping the courts away from the dispute wherein arbitration clause is invoked by either of the party and it resulted in delay in the appointment of arbitrator.

With the effect of 2015 amendment pertaining to Section 11(6-A), it is considered as pro-arbitration development. The reason for such a consideration is because it constricts the role of the court leading to speedier disposal of cases.

CONCLUDING VIEW

The Bench comprising of Hon'ble Justice Kurian Joseph and Hon'ble Justice R. Banumathi held that the designated judge of High Court has rightly exercised his powers in terms of the agreement by nominating an independent arbitrator.

RELIED UPON DECISIONS

The Learned Court while deciding the issue has placed reliance on the following cases:

  1. BESCO Limited V. Union of India, (2014) Arbitration Petition No. 425 of 2013, Delhi High Court.
  2. Union of India & Anr. V. M.P. Gupta, (2004) Civil Appeal No. 2053 of 1999.
  3. Northern Railway Administration, Ministry of Railway, New Delhi V. Patel Engineering Company Limited, (2008) Civil Appeal No. 5067 of 2008.
  4. North Eastern Railway and others V. Tripple Engineering Works, (2014) Civil Appeal No. 6275 of 2014.

AMLEGALS REMARKS

This decision has established that even if an arbitrator is specified in the agreement for arbitration, yet, if the circumstances so warrant and if the parties fail to appoint an arbitrator, the Chief Justice or the designated Judge is free to appoint an independent arbitrator, having due regard to the qualification, if any, and other aspects as required under Section 11(8) of the Act.

This content is purely an academic analysis under "Legal intelligence series".

© Copyright AMLEGALS.

Disclaimer: The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Reade should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

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