IMPORTANT POINT
Where clause of arbitration agreement did not prohibit or debar the parties in appointing a substitute arbitrator in place of the named arbitrators and, in the absence of any prohibition or debarment, parties could persuade the court for appointment of an arbitrator under said clause of the agreement.

JUDGMENT

K.S. Radhakrishnan, J.- The question that falls for consideration in this case is whether on the death of a named arbitrator, the arbitration agreement survives or not.

2. At the very outset, let us refer to the relevant arbitration clause in the agreement dated 16.12.1989, which reads as follows:

“21. If any question or difference or dispute shall arise between the parties hereto or their representatives at any time in relation to or with - respect to the meaning or effect of these presents or with respect to the rights and liabilities of the parties hereto then such question or dispute shall be referred either to Mr. N.A. Palkhivala or Mr. D.S. Seth, whose decision in the matter shall be final and binding on both the parties.” (emphasis added)

3. The petitioner submits that both Shri N.A. Palkhivala and Shri D.S. Seth are no more and therefore the arbitration clause in the agreement does not survive. It was pointed out that Shri N.A. Palkhivala was named in the agreement since he was the Chairman of the petitioner company and Shri D.S. Seth was named in the agreement since he was the Director of the company. Both of them were nominated as arbitrators since they were closely associated with the company and also due to their eminence, impartiality and familiarity in all commercial transactions and the corporate laws. The petitioner submits that since the arbitrators are no more, the arbitration clause in the agreement has no life and hence there is no question of entertaining the application preferred under Section 11 of the Arbitration and Conciliation Act, 1996 (for short ‘the Act’) filed by the respondent.

4. The respondent, (applicant before the High Court), refuted those contentions and submitted before the High Court that the arbitration clause in the agreement would survive even after the death of the named arbitrators and the parties can still resolve their difference or dispute by referring them to another arbitrator or move the court for appointing a substitute arbitrator whose decision would be final and binding on both the parties.

5. Bombay High Court entertained the application preferred by the respondent under Section 11 of the Act. The Court took the view that clause 21 of the Agreement did constitute an agreement to refer disputes to arbitration and also took the view that in the absence of any prohibition or debarment, there is no reason for the court to presume an intent on the part of the parties to the effect that a vacancy that arises on account of a failure or inability of a named arbitrator to act cannot be supplied by the court under Section 11. The court took the view unless the parties have expressly precluded such a course being followed, give effect to the policy of the law, which is to promote the efficacy of arbitration and the efficacy of commercial arbitration must be preserved - particularly when business dealings are based on an agreement which provides recourse to arbitration. The designated Judge of the High Court appointed Mr. Justice S.N. Variava, former Judge of this Court as an arbitrator to adjudicate the dispute and difference between the parties. Legality of that order is under challenge before us.

6. Mr. S. Ganesh, Senior Advocate appearing for the petitioner explained the circumstance under which Shri N.A. Palkhivala as well as Shri D.S. Seth was nominated as arbitrators in the arbitration clause of the Agreement dated 16.12.1989. Learned senior advocate pointed out that Shri N.A. Palkhivala was an eminent jurist of high reputation and he was the former Chairman of the applicant’s company and the parties had specifically named him as an arbitrator because of his familiarity and in-depth knowledge of arbitration law as well as corporate law. Learned senior counsel also pointed out that Shri D.S. Seth was appointed since he was the former Director of the applicant’s company and was familiar with the commercial transactions and he was also instrumental in dealing with t