1. Application under Section 11, Arbitration and Conciliation Act, 1996, for appointment of an arbitrator in an international commercial arbitration after the respondent failed to nominate one. (Para 1 , 3 , 7 )
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2000 Supreme(SC) 243
SUPREME COURT OF INDIA
D.P.Wadhwa
National Aluminium Company Limited
Versus
Metalimpex Limited
Case No. : 2 of 1999
Date of Decision : 2/1/00
The court cannot appoint a sole arbitrator if the arbitration agreement specifies a different composition, as the tribunal's composition must align with the parties' agreement to prevent the award from being set aside under Section 34(2)(v) of the Arbitration and Conciliation Act, 1996.
Headnote:(A) Arbitration and Conciliation Act, 1996 - Sections 2(1)(f), 10, 11, 34(2)(v) and 85 - International commercial arbitration - Appointment of arbitrator - Application for nomination of an arbitrator where one party failed to nominate - Arbitration agreement entered into under the Arbitration Act, 1940 - Section 85 provides that the new Act applies to arbitral proceedings which commenced on or after its coming into force (Paras 2, 5, 9) - Where the arbitration agreement envisages the appointment of two arbitrators who in turn appoint an umpire, the court cannot travel beyond the terms of the agreement to appoint a sole arbitrator (Para 8) - Composition of the Arbitral Tribunal must be in accordance with the agreement of the parties as per Section 34(2)(v) (Para 8).
Facts of the case:
An Indian company and a foreign company entered into a contract for the supply of materials. The agreement provided for the appointment of two arbitrators, one by each party, who would then appoint an umpire. Disputes arose, and while the petitioner nominated an arbitrator, the respondent failed to do so despite notices. The petitioner sought the nomination of an arbitrator on behalf of the respondent under Section 11 of the Act.
Findings of Court:
The court found that a valid arbitration agreement exists relating to international commercial arbitration. Since the proceedings commenced after the enforcement of the 1996 Act, the new Act governs the process. The court cannot unilaterally appoint a sole arbitrator when the agreement specifically mandates a two-arbitrator plus umpire structure.
Issues: Whether the court could appoint a sole arbitrator despite the arbitration agreement specifying a panel of two arbitrators and an umpire, and whether the 1996 Act applies to an agreement made under the 1940 Act.
Ratio Decidendi: The court held that it cannot override the agreed-upon composition of the arbitral tribunal. Under Section 34(2)(v), an award can be set aside if the composition of the tribunal is not in accordance with the agreement. Therefore, the court must adhere to the agreement and appoint the missing arbitrator rather than substituting the entire structure with a sole arbitrator.
Result: Request accepted and arbitrator appointed on behalf of the respondent.
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Table of Contents
2. Whether the court can appoint a sole arbitrator when the arbitration agreement specifically mandates a composition of two arbitrators and an umpire. (Para 8 )
3. The court cannot unilaterally alter the agreed composition of the arbitral tribunal, as the appointment must strictly follow the parties' agreement to avoid setting aside the award. (Para 2 , 4 , 5 , 9 )
4. The court must adhere to the agreed composition of the arbitral tribunal specified in the arbitration agreement and cannot appoint a sole arbitrator contrary to those terms. (Para 8 )
5. Request accepted; an arbitrator appointed on behalf of the respondent, with costs of the proceedings awarded to the petitioner. (Para 10 )
6. Does the Arbitration and Conciliation Act, 1996 apply to arbitration agreements entered into under the Arbitration Act, 1940?
Yes, if the arbitral proceedings commence on or after the 1996 Act comes into force, the new Act applies, and the appointment of arbitrators is governed by Section 11. (Para 2 , 4 , 5 , 9 )
7. Can a court appoint a sole arbitrator if the arbitration agreement specifies a different composition, such as two arbitrators and an umpire?
No, the court cannot travel beyond the terms of the agreement. The composition of the tribunal must be in accordance with the agreement of the parties, unless such agreement conflicts with non-derogable provisions of the Act. (Para 8 )
8. What constitutes an international commercial arbitration under the Arbitration and Conciliation Act, 1996?
It is an arbitration relating to disputes arising out of legal relationships considered commercial under Indian law where at least one party is a foreign national, a body corporate incorporated outside India, or a foreign government. (Para 1 )
(1) THIS is an application under Section 11 of the Arbitration and Conciliation Act, 1996 (for short "the Act") by National Aluminium Company Ltd. (NALCO for short) through Mr Ashim Choudhuary, Executive Director made to Honble the Chief Justice of India with a request to nominate an arbitrator as M/s Metalimpex Ltd. ("Metalimpex" for short), the respondent, failed to nominate an arbitrator in terms of the arbitration agreement between the parties. NALCO is an Indian company and Metalimpex a Bangladeshi company. The arbitration would be international commercial arbitration as defined in clause (f) of sub-section (1) of Section 2 of the Act as under:
"2. Definitions.(1) In this Part, unless the context otherwise requires, (a)-(e) * * * (f) international commercial arbitration means an arbitration relating to disputes arising out of legal relationships, whether contractual or not, considered as commercial under the law in force in India and where at least one of the parties is (i) an individual who is a national of, or habitually resident in, any country other than India; or (ii) a body corporate which is incorporated in any country other than India; or (iii) a company or an association or a body of individuals whose central management and control is exercised in any country other than India; or (iv) the Government of a foreign country; (g)-(h) * * *"
(2) THE arbitration agreement was entered into between the parties under the Arbitration Act, 1940 before it was repealed by the Act. Section 85 of the Act provided for repeal and saving. It is as under:
"85. Repeal and savings.(1) The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10 of 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed. (2) Notwithstanding such repeal, (a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force; (b) all rules made and notifications published, under the said enactments shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act."
(3) THE arbitration agreement is as under:
"IN the event of any question or dispute arising under or out of or relating to construction, meaning and operation or effect of this contract or breach thereto, matter in dispute shall be referred to two arbitrators, one to be nominated by the seller and the other by the buyer and in case of the said arbitrators not agreeing then an umpire to be appointed by the arbitrators in writing before proceeding on the reference. The decision of the arbitrators or in the event of their not agreeing, of the said umpire shall be final and binding on the parties to the contract. The provisions of the Indian Arbitration Act and the Rules made thereunder shall apply to the proceedings. The arbitrator or the umpire as the case may be shall be entitled with the consent of the parties, to enlarge the time from time to time, for making the award. The arbitrators/umpire shall give a reasoned award. The venue of the arbitration shall be Bhubaneswar (India). The arbitration shall take place in English language. Pending the settlement and thereafter until the arbitrators make the award. (A) The parties shall continue to perform their obligations hereunder without prejudice to a final adjustment inaccordance with the award made by the arbitrators; except that where the dispute is for non-payment or non-realisation of the price of the materials, the seller will not be obliged to continue/supply the materials; and (B) The operation and activities which shall have given rise to the arbitration need not be discontinued, but if the award recognises that a complaint was justified, provision
