1. Appointment of arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 — Dispute over whether the court must nominate the arbitrator specified in the agreement. (Para 2 )
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2017 Supreme(SC) 424
SUPREME COURT OF INDIA
KURIAN JOSEPH, R. BANUMATHI, JJ.
UNION OF INDIA – APPELLANT(S)
VERSUS
BESCO LTD. – RESPONDENT(S)
CIVIL APPEAL NO. 4483 OF 2017 (Arising out of S.L.P.(C) No. 17838 of 2014)
WITH
SPECIAL LEAVE PETITION (CIVIL) NO. 26614 OF 2014
Decided On : 27-04-2017
Important Points
IMPORTANT POINT
Even though an arbitrator is specified in the agreement for arbitration, if circumstances so warrant, the Chief Justice or the designated Judge is free to appoint an independent arbitrator, having due regard to the qualification, if any, and other aspects.
Even though an arbitrator is specified in the agreement for arbitration, if circumstances so warrant, the Chief Justice or the designated Judge is free to appoint an independent arbitrator, having due regard to the qualification, if any, and other aspects.
Subject
Arbitration Law - Appointment of Arbitrators
Act Referred
Headnote
(a) Arbitration and Conciliation Act, 1996 – Section 11(6) – Arbitrator specified in agreement for arbitration agreement for arbitration – Even then Chief Justice or the designated Judge is free to appoint an independent arbitrator, if circumstances so warrant. (Para 8)
(2008) 10 SCC 240; (2014) 9 SCC 288; (2009) 8 SCC 520 – Relied upon
(2004) 10 SCC 504; (2011) 12 SCC 349 – Distinguished
(b) Arbitration and Conciliation Act, 1996 – Section 11(6) – Arbitration agreement not stipulating any specific person or official for appointment as arbitrator – High Court rightly appointed an independent arbitrator. (Para 11)
Facts of the case:
The short question arising in this case is whether the Chief Justice of a High Court or any person or institution designated by him, while exercising power under Section 11(6) of The Arbitration and Conciliation Act, 1996 is bound to nominate an arbitrator as specified in the agreement for arbitration. The designated Judge in the High Court took the view that the appellant has lost the mandate to appoint an arbitrator since it failed to appoint the arbitrator within the permitted time and hence nominated an independent arbitrator.
Finding of the Court:
There is no infirmity in the impugned order.
Result: Appeal and SLP dismissed.
Legal Category Hierarchy
Table of Contents
2. Whether the court is bound to nominate the arbitrator stipulated in the agreement or is free to appoint an independent arbitrator once nomination rights are forfeited. (Para 3 , 4 )
3. The court may deviate from the arbitration clause to appoint an independent arbitrator if circumstances warrant, while giving due regard to qualifications under Section 11(8). (Para 5 , 6 , 7 )
4. While following the agreed appointment procedure is the rule, the court may, for recorded reasons, appoint an independent arbitrator if impartiality is doubted or circumstances warrant. (Para 7 , 8 )
5. Appeal dismissed; the High Court's nomination of an independent arbitrator upheld. (Para 12 , 13 )
6. Is the Chief Justice or designate bound to appoint the arbitrator specified in the arbitration agreement under Section 11(6) of the Act?
Generally, the court should endeavour to give effect to the prescribed appointment procedure. However, if circumstances warrant or there are justifiable doubts regarding the independence and impartiality of the nominated person, the court may, for recorded reasons, ignore the designated arbitrator and appoint an independent one. (Para 6 , 7 , 8 )
7. Under what conditions can a court deviate from the appointment procedure specified in an arbitration agreement?
Deviation is permissible if there is material to create a reasonable apprehension that the named arbitrator is unlikely to act independently or impartially, if the named person is unavailable, or if other circumstances warrant the appointment of an independent arbitrator. (Para 7 )
8. What must the court consider when nominating an independent arbitrator in deviation of the arbitration agreement?
When deviating from the arbitration clause to nominate an independent person, the court must give due regard to the qualifications prescribed in the arbitration agreement as required under Section 11(8) of the Act. (Para 5 , 8 )
JUDGMENT
KURIAN, J.
CIVIL APPEAL NO. 4483 OF 2017 (Arising out of S.L.P.(C) No. 17838 of 2014)
Leave granted.
2. The short question arising for consideration in this case is whether the Chief Justice of a High Court or any person or institution designated by him, while exercising power under Section 11(6) of The Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) is bound to nominate an arbitrator as specified in the agreement for arbitration. The designated Judge in the High Court took the view that the appellant has lost the mandate to appoint an arbitrator since it failed to appoint the arbitrator within the permitted time and hence nominated an independent arbitrator.
3. Mr. Maninder Singh, learned Additional Solicitor General, placing reliance on Union of India and another v. M.P. Gupta, (2004) 10 SCC 504 and Union of India and others v. Master Construction Company, (2011) 12 SCC 349 submitted that the designated Judge, exercising the power under Section 11(6) of the Act, is bound to nominate a person as stipulated in the agreement for arbitration. In M.P. Gupta (supra), the relevant clauses on arbitration contained a provision that the arbitrators should be Gazetted Railway Officers. It may also be relevant in this context to note that the arbitration agreement contained a specific provision that it is a term of contract that no person other than a gazetted railway officer should act as an arbitrator/umpire and if for any reason, that is not possible, the matter is not to be referred to arbitration at all. This Court hence set aside the order passed by the designated Judge who had nominated a retired Judge as the sole arbitrator. In Master Construction Company (supra), the question in issue was, in fact, left open.
4. Mr. Dushyant Dave, learned Senior Counsel appearing for the respondent submits that once the right of a party to nominate an arbitrator is forfeited, the Chief Justice or the designated Judge under Section 11(6) of the Act is free to nominate any qualified person as arbitrator and that the Chief Justice or the designated Judge is not bound to nominate the arbitrator as specified in the agreement. Our attention has been invited to Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Limited, (2008) 10 SCC 240 and North Eastern Railway and others v. Tripple Engineering Works, (2014) 9 SCC 288.
5. In Patel Engineering Company Limited (supra), a three-Judge Bench of this Court held that the Chief Justice or the designated Judge, if required, is free to deviate from the arbitration clause and nominate an independent person; but while doing so, due regard shall be given to the qualifications prescribed in the arbitration agreement, as required under Section 11(8) of the Act.
6. In Tripple Engineering Works (supra) also this Court reiterated the position that the Chief Justice or the designated Judge was free to deviate from the terms of the contract.
Paragraphs-6 and 7 read as follows:
“6. The “classical notion” that the High Court while exercising its power under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter for short “the Act”) must appoint the arbitrator as per the contract between the parties saw a significant erosion in ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn. Ltd. wherein this Court had taken the view that though the contract between the parties must be adhered to, deviations therefrom in exceptional circumstances would be permissible. A more significant development had come in a decision that followed soon thereafter in Union of India v. Bharat Battery Mfg. Co. (P) Ltd. wherein following a three-Judge Bench decision in Punj Lloyd Ltd. v. Petronet MHB Ltd. it was held that once an aggrieved party files an application under Section 11(6) of the Act to the High Court, the opposite party would lose its right of appointment of the arbitrator(s) as per the terms of the contract. The implication that the Cour
