1996 (11) TMI 301 - SC - Companies Law

Effect of the Arbitration and Conciliation Act, 1996 in the present case on the arbitration agreement made prior to the commencement of the New Act. Held that - There is no dispute that the arbitral proceeding in the present case commenced after the New Act came into force and, therefore, the New Act applies. In view of the term in the arbitration agreement that the two arbitrators would appoint the umpire or the third arbitrator before proceeding with the reference, the requirement of sub-section (1) of section 10 is satisfied and subjection (2) thereof has no application. As earlier stated, the agreement satisfies the requirement of section 7 and, therefore, is a valid arbitration agreement. The appoint- ment of arbitrators must, therefore, be governed by section 11. Thus direct that the Chief Justice of the High Court is to appoint the third arbitrator under section 11(4)(b) in view of the failure of the two appointed arbitrators to appoint the third arbitrator within thirty days from the date of their appointments.

Summary

Issues: Effect of the Arbitration and Conciliation Act, 1996 on an arbitration agreement made prior to its commencement, validity of an arbitration agreement specifying an even number of arbitrators, interpretation of sections 7, 10, and 11 of the New Act, appointment of arbitrators under the New Act.

Analysis:

The Supreme Court addressed the effect of the Arbitration and Conciliation Act, 1996 on an arbitration agreement made before its commencement. The case involved a dispute between two parties regarding dues under a contract and the invocation of an arbitration clause. The respondent appointed an arbitrator, but the appellant claimed arbitration could not be resorted to. The High Court rejected the appellant's objections and ordered the appointment of an arbitrator. The appellant argued that an arbitration agreement with an even number of arbitrators is invalid under section 10(1) of the New Act, contending that such cases should be resolved through a suit, not arbitration.

In response, the respondent argued that there was no inconsistency between the New Act and the previous provisions, emphasizing the need to interpret the New Act to facilitate alternative dispute resolution and enforce earlier arbitration agreements. The respondent highlighted that the number of arbitrators is a machinery provision under section 10 and does not affect the validity of the arbitration agreement, as determined by section 7 of the New Act.

The Supreme Court analyzed the relevant sections of the New Act, including sections 7, 10, and 11. Section 7 defines an arbitration agreement, section 10 addresses the number of arbitrators, and section 11 deals with the appointment of arbitrators. The Court clarified that the validity of an arbitration agreement is not dependent on the number of arbitrators specified and that an agreement with an even number of arbitrators does not render it invalid under the New Act.

Furthermore, the Court emphasized that the arbitration agreement in the case satisfied the requirements of section 7 and that the appointment of arbitrators should be governed by section 11. Since each party had appointed an arbitrator, section 11(3) required the two arbitrators to appoint a third arbitrator. As the prescribed procedure was not followed, the Chief Justice was directed to appoint the third arbitrator under section 11(4)(b) due to the failure of the appointed arbitrators.

Ultimately, the Supreme Court directed the Chief Justice to appoint the third arbitrator and disposed of the appeal accordingly, without costs.