India: In The Presence Of An Arbitration Agreement, A Party Can Approach The Court For Appointment Of Arbitrator

Last Updated: 19 October 2018
Article by AMLEGALS  

THE SUPREME COURT OF INDIA
IBI CONSULTANCY INDIA PRIVATE LIMITED
VS.
DSC LIMITED
[ARBITRATION CASE (C) NO. 53 OF 2016]

FACTS

The Petitioner, IBI Consultancy India Private Limited is the Indian subsidiary of the IBI Group based in Canada. It is engaged in the business of providing system integration and maintenance service for Toll and Traffic Management Systems.

The Respondent, DSC Limited, is a company registered under the Companies Act, 1956, having two subsidiary Companies; firstly Lucknow Sitapur Expressway Limited (LSEL) and secondly, Raipur Expressway Limited (REL), both of which are engaged in developing Expressways in collaboration with the National Highway Authority of India (NHAI).

Vide email dated 16.02.2010 the Respondent Company sent a Request for Proposal (RFP) to the Petitioner-Company inviting technical and commercial proposal for their LSEL and REL Projects.

Vide letter dated 07.06.2010 the Petitioner Company gave a proposal to execute the contract for installation, erection and commissioning of the Toll Collection and Traffic Control Equipments at NH-24. The proposal was accepted by the Respondent Company vide letter dated 14.06.2010 and the Contract was mutually finalized and executed on 30.08.2010 for the value of Rs. 1,55,20,700/-. In total, the Petitioner had entered into 6 separate contracts for the respective LSEL and REL projects, with the Respondent Company.

The facts of the case suggest that, during completion of the projects, the Respondent-Company defaulted in releasing the agreed payment to the Petitioner-Company and the IBI Group, despite several verbal and written communications being exchanged between the parties.

A legal notice for invoking Arbitration Clause and appointment of Mr. Debashish Moitra as the Arbitrator, was sent to the Respondent-Company on 24.04.2014. However, there was no reply from the other side.

The IBI Group and the Petitioner-Company herein filed Petition Nos. 443,448,444 and 449 of 2014 under Section 11 of the Arbitration Act before the High Court of Delhi.

Further, the High Court disposed of the petitions while holding that since one of the parties to the petition is an entity incorporated outside India, therefore, the arbitration of the dispute involving such an entity would be an International Commercial Arbitration within the meaning of Section 2(1)(f) of the Act.

Further, it was held that for seeking appointment of an Arbitrator in a dispute involving such an entity, an application will have to be filed before the Supreme Court under Section 11(9) of the Act. Hence, the current Petition has been filed in accordance with the order dated 24.02.2015, of the High Court of Delhi.

ISSUE BEFORE SC

Whether there is an existence of an Arbitration Agreement between the parties for the disputes to be referred to Arbitration.

OBSERVATION

The Court observed that the existence of an arbitration agreement between the parties to the petition under Section 11 of the Arbitration Act and the existence of disputes to be referred to Arbitrator is a condition precedent for appointing an Arbitrator under Section 11 of the said Act.

It is also a well settled principle that while deciding the question of appointment of Arbitrator, the Court must not delve into the merits of the case as it may cause prejudice to the case of the parties. The scope under the Arbitration and Conciliation Act, 1996, under Section 11(6) read with Section 11(9) is very limited to the extent of appointment of Arbitrator.

The relevant portion of Section 11 of the Arbitration and Conciliation Act, 1996 has been reproduced herein below:

"11. Appointment of arbitrators.

  1. A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
  2. Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
  3. Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.
  4. If the appointment procedure in sub-section (3) applies and—

    1. a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or
    2. the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
  5. Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him.
  6. Where, under an appointment procedure agreed upon by the parties,—

    1. a party fails to act as required under that procedure; or
    2. the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
    3. a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
  7. A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justice or the person or institution designated by him is final.
  8. The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to—

    1. any qualifications required of the arbitrator by the agreement of the parties; and
    2. other considerations as are likely to secure the appointment of an independent and impartial arbitrator.
  9. In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

... ... ..."

CONCLUDING VIEW

The bench comprising of Justice R.K Aggarwal and Justice Abdul Nazeer, held that the contention of the Respondent-Company that there does not exist any Arbitration Agreement between the parties is not sustainable in the eyes of law. Arbitration clause exists in the Contract and it holds in favour of the Petitioner-Company.

Further the court stated that:

"It is a cardinal principle of the Arbitration and Conciliation Act that the parties are free to decide the number of arbitrators, provided that it is an odd number, as well as the procedure for appointing them. However, if the parties are not able to agree on the said procedure, or constitute the Arbitral Tribunal to their mutual satisfaction, either of the party has an option to route to an appropriate remedy under Section 11 of the Act, which provides detailed machinery for appointment of Arbitrator through judicial intervention."

AMLEGALS REMARKS

This decision has established that either party has an option to route to an appropriate remedy under Section 11 of the Act, which provides detailed machinery for appointment of Arbitrator through judicial intervention. The only pre-requisite is the existence of an arbitration agreement.

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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