Back
SUPREME COURT OF INDIA
Dipak Misra, A.M. Khanwilkar, Mohan M. Shantanagoudar, JJ.
TRF Ltd. – Appellant(s)
Versus
Energo Engineering Projects Ltd. – Respondent(s)
CIVIL APPEAL NO. 5306 OF 2017 (@ S.L.P. © NO. 22912 OF 2016) With CIVIL APPEAL NO. 5307 OF 2017 (@ S.L.P. © No. 23324 of 2016) CIVIL APPEAL NO. 5308 OF 2017 (@ S.L.P. © No. 23348 of 2016) CIVIL APPEAL NO. 5311 OF 2017 (@ S.L.P. © No. 14331 of 2016) CIVIL APPEAL NO. 5309 OF 2017 (@ S.L.P. © No. 14226 of 2016)
Decided On : 03-07-2017
(b) Arbitration – Appointment of arbitrator – Failure of procedure as agreed or contravention of inherent facet of arbitration clause – No appointment of arbitrator can be made. (Para 31)
(2008) 10 SCC 240; (2000) 8 SCC 151; (1999) 2 Bom CR 189 (Bom); (2000) 2 Arb LR 190; (2000) 2 Arb LR 31 (AP); (2013) 4 SCC 44; (2013) 4 SCC 35; (2006) 2 SCC 638; (2007) 5 SCC 344 – Referred
(2014) 11 SCC 560; (2015) 4 SCC 177; (2015) 1 SCC 32; (2014) 11 SCC 619; (2005) 8 SCC 618 – Distinguished
(c) Arbitration and Conciliation Act, 1996 – Section 11(6) – Designated Judge entitled to adjudicate upon his jurisdiction – He is also entitled to scrutinize the existence of the condition precedent for the exercise of his power and also the disqualification of the arbitrator or arbitrators. (Para 43)
(2013) 15 SCC 414; (2013) 1 SCC 641 – Relied upon
(d) Arbitration and Conciliation Act, 1996 – Section 11(8) and 11(6A) – Arbitration clause providing for named sole arbitrator, i.e., Managing Director – Said arbitrator also empowered to nominate an arbitrator in his place – Managing Director nominating an arbitrator – Appellant challenging the same on ground that named arbitrator lost power to nominate in view of amendment of section 12 – High Court holding no failure of procedure and appointing the Managing Director as arbitrator – Held, Managing Director having become ineligible by operation of law to being appointed an arbitrator, cannot nominate an arbitrator – Impugned judgment not sustainable. (Para 43, 52, 57)
(2000) 8 SCC 151; (2013) 4 SCC 44; (2013) 4 SCC 35; (1998) 7 SCC 162; (1997) 7 SCC 37; AIR 1963 SC 1503; (1975) 2 SCC 208; (2007) 8 SCC 705 – Referred
(e) Arbitration and Conciliation Act, 1996 – Section 11(6) – Arbitration clause (c) postulating that arbitration shall be conducted as per amended Act – Clause (d) providing that Managing Director or his nomine would be the sole arbitrator – Both clauses independent of each other – Clause (d) becoming inapplicable in view of disqualification of Managing Director for being appointed as arbitrator – Even then Clause (c) survives – High Court can appoint an arbitrator – Matter remitted. (Para 58)
Facts of the case:
The issues arising in these cases are; whether the High Court, while dealing with the applications under Section 11(6) of the Arbitration and Conciliation Act, 1996, is justified to repel the submissions of the appellants that once the person who was required to arbitrate upon the disputes arisen under the terms and conditions of the contract becomes ineligible by operation of law, he would not be eligible to nominate a person as an arbitrator, and second, a plea that pertains to statutory disqualification of the nominated arbitrator can be raised before the court in application preferred under Section 11(6) of the Act, for such an application is not incompetent.
The respondent issued a purchase order to the appellant. To secure the performance under the purchase order, the appellant had submitted an advance bank guarantee and a performance bank guarantee.
As the controversy arose with regard to encashment of bank guarantee, the appellant approached the High Court seeking an order of restraint for encashment of the advance bank guarantee and the performance bank guarantee.
During pendency of the matter before the High Court, the appellant invoked the arbitration clause. The said clause specified the procedure for arbitration. Appellant sought appointment of arbitrator de hors the terms and conditions of the contract. The respondent rejected the contention and nominated an arbitrator in terms of the contract. Appellant challenged the same on the ground that the respondent Managing Director had become ineligible to be an arbitrator in view of the Section 12(5) of the Arbitration and Conciliation (Amendment) Act, 2015. Hence he, himself being disqualified, could not nominate an arbitrator. This plea has been rejected by the High Court.
Finding of the Court:
Impugned judgment is not sustainable.
Result: Appeal allowed. Matter remitted.
.
The respondent issued a purchase order to the appellant on 10th May 2014 for design, manufacturing, supply, and commissioning of equipment for thermal power plants, secured by bank guarantees.[1000595460001] Disputes arose regarding encashment of these guarantees, leading the appellant to seek interim relief under Section 9 of the Arbitration and Conciliation Act, 1996 ("the Act").[1000595460002] On 28.12.2015, the appellant invoked arbitration under Clause 33 of the General Terms and Conditions of the Purchase Order (GTCPO), objecting to the contractual appointment procedure and seeking appointment dehors the contract.[1000595460003] The respondent rejected this, nominating a former Judge of the Supreme Court as sole arbitrator on 27.01.2016 under Clause 33(d), which designated the Managing Director (MD) of the respondent or his nominee as the sole arbitrator.[1000595460003] (!) The appellant then filed an application under Section 11(5) read with Section 11(6), arguing the MD's ineligibility under Section 12(5) of the 2015 Amendment Act extended to nomination power.[1000595460004]
The High Court rejected the appellant's challenge, holding: - No failure of procedure under the contract. - MD's nomination right survived despite Section 12(5), as Schedules V and VII apply only to the appointed arbitrator, not the nominator. - Parties had faith in the nominee; disclosures under Sixth Schedule complied with. - Appointed the nominee as arbitrator under Section 11(6).[1000595460004]
Appellant: - MD ineligible under Section 12(5); cannot act or nominate, rendering clause void. (!) - Nomination by ineligible person invalid; applies "qui facit per alium facit per se" (act through another is one's own act). (!) [1000595460054] - Court under Section 11(6) can scrutinize ex facie invalid appointments and disqualifications. (!) [1000595460016]
Respondent: - Schedules apply to appointed arbitrator, not nominator; MD retains nomination power. (!) (!) - Challenge to nominee under Section 13 before tribunal, not Section 11. (!) - No automatic disqualification of neutral nominee. (!)
This judgment reinforces post-2015 amendment rigor on arbitrator neutrality, empowering courts under Section 11 to invalidate tainted nominations at threshold, prioritizing statutory ineligibility over contractual autonomy. (!) (!) (!) [1000595460001] through [1000595460058]
JUDGMENT
Dipak Misra, J.
In this batch of appeals, by special leave, the seminal issues that emanate for consideration are; whether the High Court, while dealing with the applications under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for brevity, “the Act”), is justified to repel the submissions of the appellants that once the person who was required to arbitrate upon the disputes arisen under the terms and conditions of the contract becomes ineligible by operation of law, he would not be eligible to nominate a person as an arbitrator, and second, a plea that pertains to statutory disqualification of the nominated arbitrator can be raised before the court in application preferred under Section 11(6) of the Act, for such an application is not incompetent. For the sake of clarity, convenience and apposite appreciation, we shall state the facts from Civil Appeal No. 5306 of 2017.
2. The respondent-company is engaged in the business of procuring bulk material handling equipment for installation in thermal power plants on behalf of its clients like National Thermal Power Corporation (NTPC) and Moser Baer, Lanco Projects Ltd., etc. On 10th May, 2014, the respondent issued a purchase order to the appellant for the complete design, manufacturing, supply, transport to site, unloading, storage, erection, testing, commissioning and performance guarantee testing of various articles including wagon tippler, side arm charger, apron feeder, etc. To secure the performance under the purchase order, the appellant had submitted an advance bank guarantee and a performance bank guarantee.
3. As the controversy arose with regard to encashment of bank guarantee, the appellant approached the High Court under Section 9 of the Act seeking an order of restraint for encashment of the advance bank guarantee and the performance bank guarantee. As is reflectible from the impugned order, the said petitions were pending consideration when the High Court dealt with this matter. Be that as it may, the narration of the controversy under Section 9 in the impugned order or the consequences thereof is not germane to the adjudication of this case.
4. As the facts would unveil, the appellant vide letter dated 28.12.2015 invoked the arbitration in terms of Clause 33 of the General Terms and Conditions of the Purchase Order (GTCPO) seeking reference of the disputes that had arisen between the parties to an arbitrator. It was also asserted before the High Court that the appellant had objected to the procedure for appointment of arbitrator provided under the purchase order and accordingly communicated that an arbitrator be appointed de hors the specific terms of the purchase order. There was denial of the same by the respondent on the ground that it was contrary to the binding contractual terms and accordingly it rejected the suggestion given by the appellant and eventually by letter dated 27.1.2016 nominated an arbitrator, a former Judge of this Court, as the sole arbitrator in terms of Clause 33(d) of the purchase order. It is apt to note here that in certain cases, a former Chief Justice of a High Court was also appointed as arbitrator by the Managing Director.
5. After the appointment was made, the appellant preferred an application under Section 11(5) read with Section 11(6) of the Act for appointment of an arbitrator under Section 11(2) of the Act. The said foundation was structured on the basis that under Section 12(5) of the Arbitration and Conciliation (Amendment) Act, 2015 (3 of 2016) read with the Fifth and the Seventh Schedules to the amended Act, the Managing Director had become ineligible to act as the arbitrator and as a natural corollary, he had no power to nominate. The stand put forth by the appellant was controverted by the respondent before the High Court on the ground that the Fifth and the Seventh Schedules lay down the guidelines and the arbitrator is not covered under the same and even if it is so, his power to nominate someone to
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
