Arbitration agreements remain valid despite invalid appointment procedures; courts may sever non-compliant clauses while upholding fundamental consent to arbitrate.

JUDGMENT

Anup Jairam Bhambhani J.

Brief Facts

By way of the present petition under section 11 of the Arbitration & Conciliation Act 1996 (`A&C Act', for short), the petitioner seeks appointment of an arbitrator to adjudicate upon the disputes that are stated to have arisen with the respondent from Letter of Award dated 17.12.2010, which related to the setting-up of a township for the respondent's Super Thermal Power Project at Barh, Bihar; the issuance of the letter of award having culminated in the parties signing a Contract Agreement dated 01.02.2011 (`contract').

2. Notice on the petition was issued on 17.12.2020; whereupon the respondent furnished its reply dated 11.12.2020 (filed on 05.02.2021); to which the petitioner also filed rejoinder dated 26.03.2021.

Petitioner's Submissions

3. Mr. Amit Pawan, learned counsel for the petitioner draws the attention of this court to clause 56 of the General Conditions of Contract (`GCCs' for short) which governs the letter of award; and which comprises the arbitration agreement between the parties; and contemplates reference of disputes between them to arbitration in accordance with the A&C Act. Clause 57 of the GCCs, which is the `governing law' provision, is also noticed. The said provisions read as under:

"ARBITRATION AND LAWS

56. Arbitration

"Except where otherwise provided for in the contract all questions and disputes relating to the meaning of the specifications, designs, drawings and instructions herein before mentioned and as to the quality of workmanship or materials used on the work or as to any other question, claim, right, matter or thing whatsoever in any way arising out of or relating to the contract, designs, drawings, specifications, estimates, instructions, orders or these conditions or otherwise concerning the works, or the execution or failure to execute the same whether arising during the progress of the work or after the completion or abandonment thereof shall be referred to the sole arbitrator of the General Manager of NTPC Limited (Formerly National Thermal Power Corporation Ltd.), and if the General Manager is unable or unwilling to act, to the sole arbitration of some other person appointed by the Chairman and Managing Director, NTPC Limited (Formerly National Thermal Power Corporation Ltd.)., willing to act as such arbitrator. There will be no objection if the arbitrator so appointed is an employee of NTPC Limited (Formerly National Thermal Power Corporation Ltd.)., and that he had to deal with the matters to which the contract relates and that in the course of his duties as such he had expressed views on all or any of the matters in dispute or difference....

"...It is also a term of this Contract that no person other than a person appointed by CMD., NTPC Ltd. as aforesaid should act as arbitrator and if for any reason, that is not possible, the matter is not to be referred to arbitration at all.

"...Subject as aforesaid the provision of the Arbitration Act, 1940, or any statutory modification or re-enactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause."

* * * * *

"57. Laws governing the Contract:

This contract shall be governed by the Indian Laws for the time being in force."

(emphasis supplied)

4. Mr. Pawan submits that clause 56, insofar as it contemplates arbitration by the General Manager (`GM'), NTPC or some other