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2000 Supreme(SC) 1660

K.G.BALAKRISHNAN, J.JAGANNADHA RAO
Datar Switchgears LTD. – Appellant
Versus
Tata Finance LTD. – Respondent


Judgement Key Points

Based on the provided legal document, the key points are as follows:

  1. The right to appoint an arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996, is not automatically forfeited if one party does not appoint an arbitrator within 30 days of a demand. The right continues until an appointment is made before the first party files an application under Section 11 seeking appointment (!) .

  2. An appointment made after the expiry of 30 days from the demand can still be valid if it occurs before the filing of an application under Section 11 by the aggrieved party. The period of 30 days is not a strict mandatory limit but a guideline, and the right to appoint persists beyond this period until the application is filed (!) (!) .

  3. The procedure for appointment, as stipulated in the arbitration clause, must be followed. If the clause grants unfettered discretion to one party to appoint an arbitrator, and that party exercises this discretion without acting in contravention of the procedure, the appointment is valid. The nomination of an arbitrator by the respondent, even if beyond 30 days, is valid if done in accordance with the contractual terms (!) (!) .

  4. The concept of "nomination" in the arbitration clause is equivalent to appointment and does not necessarily require the concurrence or ratification of the other party unless explicitly stated in the clause. Nomination for a specific purpose, when done in accordance with the contractual provisions, amounts to a valid appointment (!) (!) (!) .

  5. When parties have agreed on a procedure for arbitration, courts are generally obliged to respect that procedure and will not interfere unless there is a clear failure or breach. The failure to follow the procedure as agreed, such as not issuing a notice or not obtaining consent where required, can be grounds for challenging an appointment, but mere delay or appointment beyond a certain period does not automatically invalidate the process (!) (!) .

  6. The appointment of an arbitrator before the filing of an application under Section 11 is significant. If the appointment occurs after the application is filed, it may be considered a failure of the procedure, but if it occurs beforehand, even if delayed, it can still be valid, provided it is in accordance with the contractual terms (!) (!) .

  7. In cases where the arbitration clause grants discretion to the respondent to appoint an arbitrator, the absence of a requirement for the respondent to seek approval or concurrence from the other party means the appointment is valid as long as it complies with the contractual provisions (!) (!) .

  8. The law emphasizes respecting the contractual procedure for arbitration and recognizes that delays or appointments made after the prescribed period do not necessarily nullify the appointment if done prior to the filing of a Section 11 application and in accordance with the agreement (!) (!) .

These points collectively clarify the legal principles governing the appointment of arbitrators, the significance of adherence to contractual procedures, and the interpretation of time limits under the relevant provisions of the arbitration law.


JUDGMENT

Balakrishnan, J.-Leave granted.

2. The appellant challenges an order passed by the Chief Justice of Bombay High Court, under Section 11 of the Arbitration and Conciliation Act, 1996 [for short, "the Act"]. The appellant had entered into a lease agreement with the 1st respondent in respect of certain machineries. Disputes arose between the parties and the 1st respondent sent a notice to the appellant on 5.8.1999 demanding payment of Rs. 2,84,58,701 within fourteen days and in the notice it was specifically stated that in case of failure to pay the amount, the notice be treated as one issued under Clause 20.9 (Arbitration clause) of the Lease Agreement. The appellant did not pay the amount as demanded by the 1st respondent. The 1st respondent did not appoint an Arbitrator even after the lapse of thirty days, but filed Arbitration Petition No. 405/99 on 26.10.99 under Section 9 of the Act for interim protection. On 25.11.99, the 1st respondent appointed the 2nd respondent as the sole Arbitrator by invoking clause 20.9 of the Lease Agreement and the Arbitrator in turn issued a notice to the appellant asking them to make their appearance before him on 13th March, 2000. Thereafter



































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