VERY IMPORTANT POINT
So far as Section 11(6) of the Arbitration and Conciliation Act, 1996 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, that would be sufficient.

Headnote:Arbitration and Conciliation Act, 1996-Section 11(6)-Appointment of arbitrator-Application for-Failure of procedure for appointment, what amounts to-Condition precedent to invoke Section 11(6)-There must be failure of procedure for appointment of arbitrator-Respondent issuing notice of demand stating that notice would be treated as one issued in terms of arbitration clause if demand not met within 14 days-Respondent appointing arbitrator after 30 days of notice-Subsequent application under Section 11(b) by petitioner-Not maintainable-In cases arising under Section 11(6) if opposite party has not made appointment within 30 days of demand right to make appointment is not forfeited but continues-Appointment has to be made before application under Section 11 seeking appointment of arbitrator is made-Arbitration clause giving absolute discretion to respondent in nominating arbitrator-Nomination amounts to selection of arbitrator-Concurrence of opposite party not necessary-No failure of procedure for appointment-Application under Section 11(6) rightly rejected.
       Sub-clause (5) of Section 11 can be invoked by a party who has requested the other party to appoint an Arbitrator and the latter fails to make any appointment within thirty days from the receipt of the notice. Admittedly, in the instant case, the appellant has not issued any notice to the 1st respondent seeking appointment of an Arbitrator. An application under sub-clause (6) of Section 11 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. If the appointment of Arbitrator or any function connected with such appointment is entrusted to any person or institution and such person or institution falls to discharge such function, the aggrieved party can approach the Chief Justice for appointment of Arbitrator. (Para 6)
       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 beforethe first party has moved the Court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. (Para 19)
       In the instant case the 1st respondent asked the appellant to make payment within a stipulated period and indicated that in the event of non-payment of the amount within fourteen days, the said notice itself was to be treated as the notice under the Arbitration clause in the Agreement. The amount allegedly due from the appellant was substantial and the 1st respondent cannot be said to be at fault for having given a larger period for payment of the amount and settling the dispute. It is pertinent to note that the appellant did not file an application even after the 1st respondent invoked Section 9 of the Act and filed a petition seeking interim relief. Under such circumstances, it cannot be said that there was a failure of the procedure prescribed under the contract. In the present case the respondent made the appointment before the appellant filed the application under Section 11(6) though it was beyond 30 days from the date of demand. In our view, the appointment of the arbitrator by the respondent is valid and it cannot be said that the right was forfeited after expiry of 30 days from the date of demand. When parties have entered into a contract and settled on a procedure, due importance has to be given to such procedure. Even though rigor of the doctrine of "freedom of contract" has been whittled down by various labour and social welfare legislation, still the court has to respect the terms of the contract entered into by parties and endeavor to give importance and effect to it. When the party has not disputed the arbitration clause, normally he is bound by it and obliged to comply with the procedure laid down under the said clause. Therefore, we do not think that the first respondent, in appointing the second respondent as the Arbitrator, failed to follow the procedure contemplated under the Agreement or acted in contravention of the Arbitration clause. (Paras 14, 20, 23 & 24)
       The arbitration clause gave an unfettered discretion to the 1st respondent-lessor to appoint an Arbitrator. The 1st respondent gave notice to the appellant and later appointed the 2nd respondent as the Arbitrator. It is pertinent to note that no notice period is prescribed in the above arbitration clause and it does not speak about any concurrence or consent of the appellant being taken in the matter of the choice of Arbitrator. Nomination virtually amounts to appointment for a specific purpose and the 1st respondent has acted in accordance with Section 20.9 of the Agreement. So long as the concurrence or ratification by the appellant is not stated in the arbitration clause, the nomination amounts to selection of the Arbitrator. Hence, the appellant, while filing the application under Section 11 of the Act had no cause of action to sustain the same as there was no failure of the agreement or that the 1st respondent failed to act in terms of the agreement. (Paras 10, 27 & 28)

Judgement Key Points

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

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 (!) .
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 (!) (!) .
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 (!) (!) .
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 (!) (!) (!) .
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 (!) (!) .
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 (!) (!) .
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 (!) (!) .
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, the appellant filed Arbitration Application No. 2/2000 before Hon ble the Chief Justice of Bombay and prayed for appointment of another Arbitrator and the 1st respondent opposed this application. This petition was rejected by the Chief Justice holding that as the Arbitrator had already been appointed by the first respondent, the Lessor, the petition was not maintainable. This order is challenged before us.

3. We heard the appellant s Counsel Mr. V.A. Mohta and respondent s Counsel Mr. R.F. Nariman. The appellant s Counsel questioned the authority of the 1st respondent in appointing an Arbitrator after the long lapse of the notice period of 30 days. According to the appellant, the power of appointment should have been exercised within a reasonable time. The appellant s Counsel also urged that unilateral appointment of Arbitrator was not envisaged under the Lease Agreement and the 1st respondent should have obtained the consent of the appellant and the name of the Arbitrator should have been proposed to the appellant before appointment. On the other hand, the Counsel for the 1st respondent supported the impugned order.

4. Learned counsel for the appellant, Shri V.A. Mohta argued that the order passed by the Chief Justice is amenable to Article 138 of the Constitution of India. Even if it is an administrative order as decided by a three Judge Bench in Konkan Railway Corporation Ltd. v. M/s. Mehul Construction Co.1, it is amenable to Article 136. Learned Senior Counsel for the 1st respondent, Shri R.F. Nariman, however, stated that in this case we need not go into this controversy and we may decide the matter on merits on the assumption that Article 136 is attracted. In view of the above stand taken for the respondents, we are not deciding the question of maintainability.

5. The Arbitration and Conciliation Act, 1996 made certain drastic changes in the Law of Arbitration. This Act is codified in tune with the Model Law on International Commercial Arbitration as adopted by the United Nations Commission on International Trade Law (UNCITRAL). Section 11 of the Act deals with the procedure for appointment of Arbitrator. Section 11(2) says that the parties are free to agree to any procedure for appointing the Arbitrator. If only there is any failure of that procedure, the aggrieved party can invoke sub-clause (4), (5) or (6) Section 11, as the case may be. In the instant case, the Arbitration clause in the Lease Agreement contemplates appointment of a sole Arbitrator. If the parties fail to reach any agreement as referred to in sub-section (2), or if they fail to agree on the Arbitrator within thirty days from receipt of the request by one party, the Chief Justice can be moved for appointing an Arbitrator either under sub-clause (5) or sub-clause (6) of Sectio

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2000 Supreme(SC) 1660

Cases Referred (2)