Important Point
Appointment of the arbitrator or arbitrators named in the arbitration agreement is not a must, but while making the appointment the twin requirements of sub-section (8) of Section 11of Arbitration and Conciliation Act, 1996 have to be kept in view, considered and taken into account. If it is not done, the appointment becomes vulnerable.

Judgment

Dr. Arijit Pasayat, J. —

1.Leave granted in all the Special Leave Petitions.

2.Noticing two different views in two decisions of this Court in Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn. Ltd. (2007 (5) SCC 304) and Union of India v. Bharat Battery Mfg. Co. (P) Ltd. (2007 (7) SCC 684) the matter has been referred to a larger Bench and that is how these cases are before us.

3.In both the decisions the question related to appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (in short the ‘Act’). In Bharat Battery’s case (supra) the earlier decision in Ace Pipeline’s case (supra) was apparently not brought before the Bench as a result of which there appears to be some confusion. As noted above, the scope and ambit of Section 11(6) of the Act relating to appointment of arbitrator falls for consideration in these cases.

4.The stand of Mr. Harish N Salve appearing for some of the parties in these appeals and Mr. B. Dutta, Additional Solicitor General is that the true scope and ambit of Section 11(6) has to be considered in the background of Section 28(3) and Section 34 of the Act. According to them, the agreed procedure referred to in sub-section (2) of Section 11 has an exception in sub-section (6) i.e. where the agreed procedure fails. Where there is no agreed procedure, sub-sections (3), (4) and (5) of Section 11 apply. It is pointed out that there are three clauses in sub-section (6) of Section 11. Clause (c) relates to failure to perform function entrusted to a person including an institution and also failure to act under the procedure agreed upon by the parties. In other words, Clause (a) refers to parties to the agreement. Clause (c) relates to a person who may not be party to the agreement but has given consent to the agreement. It is also pointed out that there is a statutory mandate to take necessary measures, unless the agreement on the appointment procedure provided other means for securing the appointment. It is, therefore, submitted that before the alternative is resorted to agreed procedure has to be exhausted. The agreement has to be given effect and the contract has to be adhered to as closely as possible. Corrective measures have to be taken first and the Court is the last resort. It is also pointed out that while appointing an Arbitrator in terms of sub-section (8) of Section 11, the Court has to give due regard to any qualification required for the Arbitrator by the agreement of the parties and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. It is pointed out that both these conditions are cumulative in nature. Therefore, the Court should not directly make an appointment. It has to ensure first that the provided remedy is exhausted and the Court may ask to do what has not been done.

5.In response, Mr. Ashok Desai, learned senior counsel appearing for some of the parties who have sought for appointment of Arbitrator submitted that the expression ‘due regard’ relates to some of the factors which have to be considered and it is not mandatory that the qualifications and the considerations as referred to in sub-section (8) of Section 11 perforce have to be applied. It is a question of degree of the parameters of consideration.

6.With reference to the earlier scheme under the Arbitration Act, 1940 (in short the ‘Old Act’) it is stated that the party is forced to move the Court because of request being refused to appoint named Arbitrator and, therefore, the Court in terms of sub-section (8) of Section 11 is not constrained to appoint any arbitrator.

7.Section 11 reads as follows :

“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