2002 (10) TMI 707 - SC - Companies Law

Whether the appointment of the third arbitrator should necessarily be done by the two appointed arbitrators by sitting together and in writing? Are they required to consult the parties too, while doing so, or at least, to put the parties on previous notice? Whether it can be said that Mr. K.B. Verma while agreeing for appointment of Mr. Williams as third arbitrator was under a mistake as to Indian law, and if so, then its effect? Held that - Held that - Appeal dismissed. It is not necessary within the meaning of section 11(3) that the presiding arbitrator must be appointed by the two appointed arbitrators in writing nor it is necessary that the two appointed arbitrators must necessarily sit at one place, deliberate jointly and take a decision in the presence of each other in regard to the appointment of the presiding arbitrator. It is enough if they have actually consulted or conferred with each other and if both or any of them communicates to the parties the appointment of the presiding arbitrator as having taken place by the joint deliberation of the two. It is clearly spelled out from the correspondence between the two arbitrators reproduced hereinabove that the two arbitrators had agreed on principle that the third arbitrator shall be of a nationality different from the one to which either of the parties belongs.

Summary

Issues Involved:
1. Whether a conjoint petition under section 11(6) and section 14 of the Arbitration and Conciliation Act, 1996 is maintainable.
2. Whether the appointment of the third arbitrator should be done by the two appointed arbitrators by sitting together and in writing.
3. Whether the two appointed arbitrators are required to consult the parties or put the parties on previous notice while appointing the third arbitrator.
4. Whether the appointment of Mr. David A.R. Williams as the presiding arbitrator is valid.
5. Whether Mr. K.B. Verma was under a mistake as to Indian law while agreeing to the appointment of Mr. Williams.
6. Whether the petitioners can raise objections to the constitution of the arbitral tribunal before the arbitral tribunal itself under section 16.

Detailed Analysis:

1. Conjoint Petition under Section 11(6) and Section 14:
The court stated that a conjoint petition under section 11(6) and section 14 would not lie because the petition under section 11(6) is to be heard and decided by the Chief Justice or any person or institution designated by him, while a petition under section 14 lies to the Court. The two fora contemplated by section 11(6) and section 14(2) are different, and therefore, no single forum can grant such reliefs as are contemplated by the two provisions.

2. Appointment of the Third Arbitrator:
The court held that it is not necessary within the meaning of section 11(3) that the presiding arbitrator must be appointed by the two appointed arbitrators in writing, nor is it necessary that the two appointed arbitrators must necessarily sit at one place, deliberate jointly, and take a decision in the presence of each other. It is enough if they have actually consulted or conferred with each other and if both or any of them communicate to the parties the appointment of the presiding arbitrator as having taken place by the joint deliberation of the two.

3. Consultation with Parties:
The court clarified that it is not essential to the validity of the appointment that the parties should be consulted, involved in the process of appointment, or given a previous notice of the proposed appointment. The law nowhere contemplates such appointment being necessarily in writing. The requirement of the law is that there should be an appointment, and the appointment should be by the two appointed arbitrators.

4. Validity of Mr. Williams' Appointment:
The court found that the appointment of Mr. Williams as the presiding arbitrator was valid. The communication of such appointment, though made by Mr. Donovan, was on behalf of himself and Mr. Verma. The correctness of such consultation having preceded the appointment was not doubted in the correspondence and was not disputed by the learned senior counsel for the petitioners during the course of the hearing. Mr. Verma's protest to the appointment of Mr. Williams was based on 're-consideration' of the issue, that is, on second thoughts.

5. Mistake as to Indian Law:
The court rejected the petitioners' argument that Mr. K.B. Verma was under a mistake as to Indian law while agreeing to the appointment of Mr. Williams. The court referred to an order by M. Jagannadha Rao, J. and held that section 11(9) is not mandatory and the word 'may' therein cannot be read as 'shall'. There is nothing wrong in the two arbitrators having formed an opinion that a person of third nationality would be preferable as presiding arbitrator.

6. Objections to the Constitution of the Arbitral Tribunal:
The court held that in Konkan Railway Corpn. Ltd.'s case, it was established that an objection as to the constitution of the arbitral tribunal being improper or without jurisdiction is capable of being raised before the arbitral tribunal itself under section 16. Therefore, assuming without holding that there is any substance in the plea of the petitioners, it is open for them to raise the same before the arbitral tribunal. Once the arbitral tribunal has come into existence, a petition under section 11(6) is not an appropriate remedy. None of the grounds contemplated by clauses (a), (b), and (c) of sub-section (6) of section 11 exists.

Conclusion:
The petition was dismissed as the court found no deficiency in the constitution of the arbitral tribunal attributable to any of the parties or the arbitrators.