2000 (10) TMI 873 - SC - Companies Law

Whether in a case falling under section 11(6), the opposite party cannot appoint an Arbitrator after the expiry of 30 days from the date of demand? Held that - Appeal dismissed. We do not think that the first respondent, in appointing the second respondent as the Arbitrator, failed to follow the procedure contemplated under the Agreement or acted in contravention of the arbitration clause. Hence, the appellant, while filing the application under section 11 had no cause of action to sustain the same as there was no failure of the agreement or that the first respondent failed to act in terms of the agreement. The application was rightly rejected.

Issues Involved:
1. Authority of the first respondent to appoint an Arbitrator after the lapse of the notice period.
2. Validity of the unilateral appointment of an Arbitrator without the appellant's consent.
3. Applicability of Article 136 of the Constitution to the Chief Justice's order.
4. Interpretation of Section 11(6) of the Arbitration and Conciliation Act, 1996 regarding the forfeiture of the right to appoint an Arbitrator after 30 days.
5. Compliance with the arbitration procedure outlined in the Lease Agreement.
6. Interpretation of the term "nomination" in the arbitration clause.

Issue-wise Detailed Analysis:

1. Authority of the First Respondent to Appoint an Arbitrator After the Lapse of the Notice Period:
The appellant contended that the first respondent did not have the authority to appoint an Arbitrator after the notice period of 30 days had lapsed. The appellant's counsel argued that the power of appointment should have been exercised within a reasonable time. However, the court held that the first respondent's appointment of the Arbitrator was valid even though it was made beyond 30 days from the date of demand, as it was done before the appellant filed an application under Section 11.

2. Validity of the Unilateral Appointment of an Arbitrator Without the Appellant's Consent:
The appellant argued that the unilateral appointment of an Arbitrator was not envisaged under the Lease Agreement and that the first respondent should have obtained the appellant's consent. The court noted that Clause 20.9 of the Lease Agreement gave the first respondent the unfettered discretion to appoint an Arbitrator without requiring the appellant's consent. Therefore, the appointment was valid as per the terms of the agreement.

3. Applicability of Article 136 of the Constitution to the Chief Justice's Order:
The appellant's counsel argued that the order passed by the Chief Justice was amenable to Article 136 of the Constitution, even if it was an administrative order. The respondent's counsel suggested deciding the matter on merits, assuming Article 136 was applicable. The court did not decide on the maintainability question, focusing instead on the merits of the case.

4. Interpretation of Section 11(6) of the Arbitration and Conciliation Act, 1996:
The court examined whether the right to appoint an Arbitrator under Section 11(6) was forfeited if not exercised within 30 days. It concluded that Section 11(6) does not prescribe a time limit, unlike Sections 11(4) and 11(5). Therefore, the right to appoint an Arbitrator is not automatically forfeited after 30 days. The appointment remains valid if made before the filing of an application under Section 11.

5. Compliance with the Arbitration Procedure Outlined in the Lease Agreement:
The appellant contended that the first respondent failed to follow the procedure outlined in the Lease Agreement. The court found that the first respondent had acted in accordance with Clause 20.9, which did not specify a notice period or require the appellant's concurrence. The court held that there was no failure of the procedure prescribed under the contract.

6. Interpretation of the Term "Nomination" in the Arbitration Clause:
The appellant argued that "nomination" in the arbitration clause implied that the first respondent could only suggest an Arbitrator, requiring the appellant's concurrence. The court referred to the definition of "nomination" in P. Ramanatha Aiyar's Law Lexicon, concluding that "nomination" virtually amounts to "appointment." Therefore, the first respondent's nomination of the Arbitrator was valid without the need for the appellant's concurrence.

Conclusion:
The court dismissed the appeal, holding that the first respondent's appointment of the Arbitrator was valid and in accordance with the Lease Agreement. The application under Section 11 was rightly rejected, and there was no failure of the procedure or contravention of the arbitration clause. The appeal was dismissed without any order as to costs.

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