In Talbros Sealing Materials Private Limited vs Slach Hydratecs EquipmentsPrivate Limited, the Hon'ble Delhi High Court ("Hon'ble High Court") has,inter alia held that, an arbitration clause is not invalidated merely on theground that it provides for an arbitral tribunal consisting of even number ofarbitrators.
FACTS
The Petitioner had expressed interest in buying certain machinery from theRespondents. Accordingly, the Respondent issued a Commercial Offer thatcontained an arbitration clause, which inter alia, provided that, any disputearising in relation to the order placed for purchase of machinery pursuant tothe said Commercial Offer, shall be referred to an arbitral tribunal consistingof two arbitrators. The Commercial Offer was accepted by the Petitioner andthe Petitioner issued a purchase order for purchase of machinery ("Purchase Order").
Since certain disputes arose inter-se the parties with respect to thePurchaseOrder, the Petitioner issued a notice invoking arbitration. However,the Respondent failed to reply to the same. Accordingly, the Petitioner filedan application under Section 11(6) of the Arbitration and Conciliation Act,1996 ("Act"), before the Hon'ble High Court, seeking appointment ofarbitrator ("Application").
ISSUES
The main issue before the Hon'ble High Court was whether the arbitrationclause is contrary to the provisions of Section 10 of the Act, since it envisagesreference of disputes to two arbitrators and whether the same renders thearbitration clause invalid.
CONTENTIONS OF THE PARTIES
The Petitioner contended that the arbitration clause is valid. The Petitioner relied on the judgment of the Hon'ble Supreme Court in Babanrao Rajaram Pund v. Samarth Builders & Developers and Anr. [(2022) 9 SCC 691], wherein the Hon'ble Supreme Court has held that the courts should give effect to the intention of the parties to refer the dispute to arbitration. The Petitioner further relied on the decision of the Hon'ble Supreme Court in M.M.T.C. Limited vs. Sterlite Industries (India) Ltd., [(1996) 6 SCC 716], wherein the Hon'ble Apex Court has held that, the validity of an arbitration agreement does not depend on the number of arbitrators specified therein.
The Application was opposed by the Respondent, inter alia, on the ground that the arbitration clause is not valid, as it envisages reference of disputes to a tribunal consisting of two arbitrators.
FINDINGS
The Hon'ble High Court observed that, a perusal of the arbitration clause contained in the Commercial Offer clearly shows the intention of the parties to settle their disputes through arbitration.
In so far as the legality of the arbitration clause is concerned, the Hon'ble High Court observed that the same is contrary to Section 10 of the Act, which provides that the numbers of arbitrators should not be an even number. However, the Hon'ble High Court, after noting the decisions of the Hon'ble Supreme Court in M.M.T.C Limited (supra) and in Narayan Prasad Lohia vs. Nikunj Kumar Lohia and Ors., [(2002) 3 SCC 572], held that an arbitration clause is not invalidated merely on the ground that it provides for appointment of arbitrators even in number, since Section 7 of the Act does not mandate that the number of arbitrators should be mentioned in the arbitration agreement.
The Hon'ble High Court held that the arbitration clause is not invalid but merely contrary to Section 10 of the Act. Accordingly, the Hon'ble High Court appointed a sole arbitrator for adjudication of disputes and disposed off the Application.
CONCLUSION
The judgment has reiterated and clarified that the intention of the parties to refer the dispute to arbitration is paramount and once the same is established, the courts would endeavour to give effect to the clear and true intention of the parties, by referring the dispute to arbitration. This decision also re-emphasises the proactive approach of the Indian judiciary to encourage arbitration and minimise judicial intervention by refusing to entertain technical objections vis-à-vis arbitration agreements. However, it is critical that, at the time of negotiating contracts, the parties ensure that the arbitration clause is carefully drafted to ensure that the arbitration agreement is in accordance with the Act.
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