IMPORTANT POINT
Mandate of an arbitrator terminating, a substitute arbitrator “shall” be appointed subject to the terms of arbitration agreement.
Authority appointing arbitrator can appoint substitute arbitrator.

Headnote:(a) Arbitration and Conciliation Act, 1996 – Section 15(2) – Expression ‘the Rules’ – Rules include arbitration clause or agreement itself – Procedure agreed upon by the parties for the appointment of the original arbitrator – Equally applies to the appointment of substitute arbitrator – Mandate of an arbitrator terminating, a substitute arbitrator “shall” be appointed subject to the terms of arbitration agreement – Instantly, clause 8 of consent terms naming a retired Supreme court Judge to be the arbitrator – Clause not qualifying the name as the ‘only’ person agreed upon – Clause 8, therefore, not excluding appointment of substitute arbitrator in the event of mandate of the named arbitrator coming to an end. (Para 18, 20, 21)
       (2006) 6 SCC 204; (2012) 7 SCC 71; (2009) 10 SCC 293 – Relied upon
       (1971) 1 SCC 79 – Referred
       (b) Code of Civil Procedure, 1908 – Section 89 – High Court recording settlement on 7 disputes between the parties – Referring remaining disputes to arbitration – Appointing arbitrator under clause 8 of consent terms – High Court being the appointing authority for an arbitrator rightly appointing substitute arbitrator – Section 15(2), Arbitration and Conciliation Act, 1996. (Para 22)
       [1972] 2 SCR 515 – Relied upon
       Facts of the case:
       The respondent had filed a suit in the Bombay High Court, being Suit No.1927 of 2007, against the appellant and some others seeking a declaration that a development agreement dated 27.12.2004 together with a Power of Attorney of even date had stood terminated and for certain other reliefs.
       On 3.10.2008, the parties to the suit entered into consent terms largely settling the disputes between them. Therefore the suit was disposed of in terms of the consent.
       However, with regard to two specific differences, the plaintiff and defendant No.1 agreed to refer the said differences to the arbitration of a retired Supreme Court Judge.
       Despite several meetings held by the named arbitrator, the arbitration proceedings continued to drag on, until by a letter dated 22.01.2011, the Arbitrator resigned as arbitrator in the aforesaid matter.
       The plaintiff-respondent then applied vide Notice of Motion in the disposed of suit No.1927 of 2007 for appointment of a substitute arbitrator which was dismissed.
       The plaintiff moved the High Court under Section 11 for appointment of a substitute arbitrator. By the impugned judgment the High Court appointed a retired Judge of the said High Court as substitute arbitrator.
       Finding of the Court:
       High Court rightly appointed the substitute arbitrator.
       Result: Appeal dismissed.

JUDGMENT :

R.F. Nariman, J.

1. Leave granted.

2. The respondent had filed a suit in the Bombay High Court, being Suit No.1927 of 2007, against the appellant and some others seeking a declaration that a development agreement dated 27.12.2004 together with a Power of Attorney of even date had stood terminated, and for certain other reliefs.

3. On 3.10.2008, the parties to the suit entered into consent terms largely settling the disputes between them. However, with regard to two specific differences, the plaintiff and defendant No.1 agreed to refer the said differences to the arbitration of a retired Supreme Court Judge as follows:-

“8). The Plaintiff and the Defendant No.1 agree to and hereby do refer to Arbitration of Mrs. Justice Sujata Manohar (Retd.) the dispute as to (i) the difference in carpet area of the 5 flats agreed to be allotted as per the Development Agreement dated 27-12-2004 being Exhibit-B to the Plaint by Defendant No.1 to the Plaintiff and his family members (i.e. 800 sq. ft. area) as provided in the said Development Agreement dated 27-12-2004 and the actual carpet area of the said 5 flats hereby allotted and handed over and (ii) the valuation of the deficient area if any, and the damages for the same. The Learned Arbitrator to make an award with regard to the compensation and the damages to be paid by Defendant No.1 to the plaintiff for the deficient area, if any, Defendant No.1 shall not raise any dispute as to the jurisdiction of the arbitrator. The Arbitrator shall decide the same as expeditiously as possible in accordance with law and under the provisions of the Arbitration & Conciliation Act, 1996.”

The said consent terms were taken on record by a Single Judge of the Bombay High Court who passed an order dated 8.10.2008 disposing of the suit in the following terms:

“1. Pursuant to the suggestion given by this Court, parties were exploring the possibility of settlement and therefore the matter was kept part heard.

2. Today, the parties are tendering Consent terms. Consent terms are taken on record and marked “X” for the purpose of identification. Consent Terms are signed by the Plaintiff, Defendant No.1, Defendant No.3 and their respective Advocates. Undertakings, if any, given in the Consent terms by any of the parties is accepted. Decree is passed in terms of the consent terms.

3. In respect of the dispute regarding compensation, the matter by consent is referred to Mrs. Justice Sujata Manohar (Retd.) for arbitration. The issue regarding the allotment of parking spaces or plaintiffs returning the promissory note can also be decided by the learned arbitrator. Plaintiff is permitted to withdraw the amount which is deposited by Defendant No.1 and which is lying in the suspense account of Oriental Bank of Commerce, Khar Branch, Mumbai.

1. Plaintiff and Defendants are present in court.

2. Suit is disposed off in the aforesaid terms.

3. Refund of court fees be paid in accordance with the rules.

4. Since the suit itself is disposed of, Notice of motion if any, does not survive and the same is also disposed of.”

4. Nothing much seems to have materialised in the arbitration, and despite several meetings held by the named arbitrator, the arbitration proceedings continued to drag on, until by a letter dated 22.01.2011, the Arbitrator resigned as arbitrator in the aforesaid matter.

5. The plaintiff-respondent then applied vide Notice of Motion No.2245 of 2012 in the disposed of suit No.1927 of 2007 for appointment of a substitute arbitrator. This Notice of Motion was dismissed by order dated 20.9.2013 stating that an appointment can only be made for a substitute arbitrator under Section 11(5) of the Arbitration Act and not by a Notice of Motion in a disposed of suit.

6. Pursuant to the dismissal of the said Notice of Motion, the plaintiff moved the Bombay High Court under Section 11 by an application of January, 2014 for appointment of a substitute arbitrator. By the impugned judgment dated 12.6.2015, the Bombay Hig

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2015 Supreme(SC) 963

SUPREME COURT OF INDIA A.K. Sikri, R.F. Nariman, JJ.SHAILESH DHAIRYAWAN – APPELLANTVERSUS MOHAN BALKRISHNA LULLA – RESPONDENT CIVIL APPEAL NO. 8731 OF 2015 (Arising out of S.L.P. (Civil) No.19617 of 2015) Decided on : 16.10.2015

IMPORTANT POINT Mandate of an arbitrator terminating, a substitute arbitrator “shall” be appointed subject to the terms of arbitration agreement.Authority appointing arbitrator can appoint substitute arbitrator.

Cases Referred (5)

SUPREME COURT OF INDIA
A.K. Sikri, R.F. Nariman, JJ.
SHAILESH DHAIRYAWAN – APPELLANT
VERSUS
MOHAN BALKRISHNA LULLA – RESPONDENT
CIVIL APPEAL NO. 8731 OF 2015 (Arising out of S.L.P. (Civil) No.19617 of 2015)
Decided on : 16.10.2015

IMPORTANT POINT
Mandate of an arbitrator terminating, a substitute arbitrator “shall” be appointed subject to the terms of arbitration agreement.
Authority appointing arbitrator can appoint substitute arbitrator.