2014 Supreme(SC) 253

SUPREME COURT OF INDIA
Surinder Singh Nijjar, JJ.
Reliance Industries Ltd. & Ors. – Appellants
Vs.
Union of India – Respondent
[Arbitration Petition No. 27 of 2013]
Decided On : 31-03-2014

IMPORTANT POINT
In international arbitration a foreign national not of the nationality of any of the parties should be appointed as the third and presiding arbitrator.

Headnote:(a) Arbitration and Conciliation Act, 1996 – Section 11(6) – Petitioner 1 – whether acting on behalf of all three petitioners – Respondent granting approval to Petitioner No.1 to assign 30% of its Participating Interest under the PSC to BP, thereby also making BP a partner in the Block KG-D6 – Reference to arbitration by petitioner no. 1 was on behalf of all three partners – Petitioner no. 1 serving notice for arbitration as Operator – Capacity of Operator included all the three petitioners – Therefore arbitration petition has been filed by all the three petitioners. (Para 48, 49)

       (b) Arbitration and Conciliation Act, 1996 – Section 11(6) – Dispute between the parties clearly identified in the correspondence – Disputes raised by petitioner no. 1 also includes disputes of other two petitioners. (Para 52)

       (C) Arbitration and Conciliation Act, 1996 – Section 7 – Petitioner no. 1RIL is an Indian Company – Petitioner no. 2 Niko is a Company incorporated in Cayman Islands, British Virgin Islands – Petitioner No.3 BP is a company incorporated according to the laws of England & Wales – PSC signed by all the three petitioners as well as the respondent, UoI – Arbitration by invoking arbitration clause in the PSC is an international arbitration. (Para 54)

       (d) Arbitration and Conciliation Act, 1996 – Section 11(6) – Parties already appointing one arbitrator each – Not open to the respondent at this stage to raise plea about non-existence of dispute. (Para 55)

       (e) Administration of Justice – Approbation and Reprobation – UOI contending on the one hand that arbitral award would bind all the three petitioners – On the other hand, insisting that arbitration proceeding is only between petitioner no. 1 and UOI – Not tenable. (Para 57)

       (f) Arbitration and Conciliation Act, 1996 – Section 11(6) r/w Articles 33.5 And 33.6, PSC, and, Article 11(5), UNCITRAL Model Law and Article 6(4), UNCITRAL Rules, 1976 – Third arbitrator – Nationality – International arbitration problems necessarily have to be viewed pragmatically – Neutrality of third arbitrator – To ensure, the third arbitrator should be from nationality other than the parties to the arbitration. (Para 58)

       (g) Interpretation of statute – Arbitration and Conciliation Act, 1996 – Section 11 uses similar phraseology as Article 11, UNCITRAL Model Law – same can be used as legitimate aid to interpret section 11. (Para 67)

       (h) Arbitration and Conciliation Act, 1996 – Section 11 r/w Article 33.6, PSC – Section 11(1) – No agreement between the parties to chose third arbitrator from India only – Section 11(9) specifically empowering CJI to appoint an arbitrator of a nationality other than the nationality of the parties involved in the litigation. (Para 68)

       (2008) 10 SCC 240; (2001) 1 SCC 509 – Relied upon

       2013 (7) SCALE 216 – Referred

        (i) Arbitration and Conciliation Act, 1996 – Section 11(6) – Both parties appointing one Indian arbitrator each – Instantly, seat of arbitration is in India – Applicable law is Indian Law – Does not oblige Court to appoint third arbitrator who is an Indian national. (Para 72)

       (2005) 13 SCC 719 – Relied upon

       (j) Arbitration and Conciliation Act, 1996 – Section 11(6) – Appointment of a foreign national as third and presiding arbitrator – Apprehension of lack of knowledge of Indian Laws – Parties have already appointed one retired CJI each – Apprehension unfounded. (Para 79)

       Facts of the case:

       In 1999, UOI announced a policy-New Exploration and Licensing Policy ("NELP"). Under NELP, certain blocks of hydrocarbon reserves were offered for exploration, development and production to private contractors under the agreements which were in the nature of Production Sharing Contract (PSC). One of the said blocks was Block KG-DWN-98/3 ("Block KG-D6"). The joint bid made by the Petitioners No.1 and 2 for the Block KG-D6 was accepted by the UOI. Thereafter 'PSC' was executed between the Petitioners No.1 and 2 as Contractor on one side and UOI on the other. The Arbitration Agreement in the PSC is contained in Article 33.

       On 8th August, 2011, UOI granted its approval to the Petitioner No.1 to assign 30% of its participating interest in the Block KG- D6, under the PSC to Petitioner No.3. On the same date, i.e. 8th August, 2011, Petitioner No. 3 also entered into PSC as a party. Further, Petitioner No.1 was appointed as the 'Operator' for Block KG-D6, both under the terms of the PSC, and the Joint Operating Agreement that was executed between Petitioner No. 1 and Petitioners No. 2 & 3.

       In the financial year 2010-2011, differences relating to the scope and interpretation of the provisions of the PSC arose between the Petitioners and Respondent after the publication of some media reports.

       On 23rd November, 2011, Petitioner No.1 (RIL), through its Advocates, served upon the Respondent a notice invoking arbitration, in accordance with the arbitration agreement contained in Article 33 of the PSC. In this letter, Petitioner no.1 also nominated Mr. Justice S.P. Bharucha, former Chief Justice of India, as its arbitrator and called upon the Respondent to nominate its arbitrator within 30 days of the receipt of this letter.

       In its letter dated 5th July, 2012, the Respondent stated that the Ministry had nominated Mr. Justice V.N.Khare, former Chief Justice of India as the arbitrator on behalf of the Government of India.

       Both the arbitrators failed to appoint the third arbitrator.

       In these circumstances the present arbitration petition has been filed under Section 11(6) of the Arbitration Act, 1996.

       Finding of the Court:

       A foreign national not of the nationality of any of the parties should be appointed as the third and presiding arbitrator.