IMPORTANT POINT
When arbitration clause in an agreement is invoked by a party by appointing arbitrator on his behalf, and the other party fails to appoint his arbitrator, Court is competent to appoint arbitrator.

JUDGMENT :-

R.M. LODHA, J.

We have heard Mr. Pallav Shishodia, learned senior counsel for the petitioner and Mr. Shyam Divan, learned senior counsel for the respondent.

2. A Development Agreement-cum-General Power of Attorney (for short “Development Agreement”) was executed between the parties on February 7, 2006. Certain disputes arose out of that agreement. On December 10, 2010, the respondent issued a notice to the petitioner invoking arbitration clause in the above agreement and nominated a former Judge of the High Court of Andhra Pradesh - Justice P.L.N. Sharma -on her behalf and called upon the present petitioner to nominate its arbitrator.

3. By reply dated January 10, 2011, the petitioner communicated to the respondent that since the Development Agreement has been cancelled by her, there was no question for resolution of disputes between the parties by the Arbitrator. The reply sent by the petitioner necessitated the invocation of Section 11 of the Arbitration and Conciliation Act, 1996 (for short “the Act”) by the respondent and an application was made before the High Court of Andhra Pradesh requesting the Chief Justice or the Designate Judge to appoint the arbitrator/arbitrators to decide the disputes arising out of the above agreement.

4. On hearing the parties, the Designate Judge by his order dated September 9, 2011 appointed Mr. D.V. Seetharama Murthy, Sr. Advocate as an arbitrator on behalf of the petitioner (respondent therein). It was further observed in the order that the arbitrator nominated by the applicant (present respondent) and the arbitrator appointed by the Designate Judge on behalf of the petitioner (respondent therein) are required to appoint the third arbitrator before entering into reference.

5. The order dated September 9, 2011 is under challenge in this Special Leave Petition.

6. On December 16, 2011, a limited notice was issued by this Court to the respondent. The order issuing notice reads as follows:

“Mr. Pallav Shishodia, learned senior counsel for the petitioner submits that instead of senior advocate, who has been appointed as arbitrator by the designate Judge, a retired High Court Judge, stationed in Hyderabad, may be appointed. He further submits that the petitioner is willing to bear the expenses, if limited notice is issued to the respondent.

Issue notice limited to the above, returnable in five weeks subject to deposit of Rs. one lakh by the petitioner in the Registry towards costs. In the meanwhile, further proceedings before the arbitrators shall remain stayed. “

7. In compliance of the above order, the petitioner has deposited Rs. 1 lakh in the Registry of this Court towards the costs of the respondent.

8. After service, respondent has entered appearance through Mr. Y. Rajagopala Rao, advocate-on-record. Mr. Shyam Divan, learned senior counsel appearing for the respondent, at the outset, submitted that the respondent was not agreeable to the substitution of arbitrator appointed by the Designate Judge on behalf of the petitioner.

9. Mr. Pallav Shishodia, learned senior counsel for the petitioner vehemently contended that the Designate Judge ought to have given an opportunity to the petitioner to nominate its arbitrator. He referred to the suit filed by the petitioner against the respondent challenging the cancellation of the Development Agreement. He also submitted that the respondent made an application under Section 8 of the Act but that came to be dismissed. In backdrop of these facts, Mr. Pallav Shishodia submitted that when the petitioner received the notice dated December 10, 2012, it was communicated by the petitioner to the respondent in its reply dated January 10, 2011 that there was no question for appointment of arbitrator and the disputes between the parties could not be decided by the arbitrator. Learned senior counsel, thus, submitted that the petitioner had not failed to appoint the arbitrator as contemplated under Section 11(4) of the Act.

10. Mr. Shyam Divan,