2006 (7) TMI 579 - SC - Companies Law

Whether the Managing Director of the respondent company appointed an arbitrator in terms of the arbitration clause? Held that - When Section 15(2) says that a substitute arbitrator can be appointed according to the rules that were applicable for the appointment of the arbitrator originally it is not confined to an appointment under any statutory rule or rule framed under the Act or under the Scheme. It only means that the appointment of the substitute arbitrator must be done according to the original agreement or provision applicable to the appointment of the arbitrator at the initial stage. We are not in a position to agree with the contrary view taken by some of the High Courts. Since here the power of the Managing Director of the respondent is saved by Section 15(2) of the Act and he has exercised that power on the terms of the arbitration agreement we see no infirmity either in the decision of the learned Chief Justice or in that of the Division Bench. Appeal dismissed.

Summary

Issues:
1. Validity of the appointment of a substitute arbitrator after the resignation of the original arbitrator.
2. Jurisdiction of the Chief Justice under Section 11(6) of the Arbitration & Conciliation Act, 1996 for appointing a substitute arbitrator.
3. Challenge to the decision of the Chief Justice through a Writ Petition in the High Court.
4. Interpretation of Section 15(2) of the Act regarding the appointment of a substitute arbitrator.
5. Authority of the Managing Director to appoint a substitute arbitrator based on the arbitration agreement.
6. Maintainability of the Writ Petition before the High Court.

Analysis:

1. The Managing Director of the respondent company appointed a substitute arbitrator after the original arbitrator resigned, as per the arbitration agreement. The Chief Justice found this appointment valid under Section 15(2) of the Act, which allows for such appointments based on the contract terms. The application challenging this decision was dismissed, allowing the parties to continue their claims before the appointed arbitrator.

2. The petitioner challenged the Chief Justice's decision through a Writ Petition in the High Court. The Division Bench held that the appointment of a substitute arbitrator by the Managing Director was in accordance with Section 15(2) of the Act and the arbitration agreement. It differentiated the provisions of the present Act from the Arbitration Act of 1940, emphasizing the Managing Director's authority to make such appointments.

3. The Division Bench concluded that the Managing Director's power to appoint a substitute arbitrator was saved by Section 15(2) of the Act. It upheld the decision of the Chief Justice, dismissing the Writ Petition challenging the appointment process. The Division Bench's decision was then challenged through a petition for special leave to appeal.

4. The Supreme Court affirmed the understanding of the Chief Justice and the Division Bench regarding the scope of Section 15 of the Act. It clarified that Section 15(2) allows for the appointment of a substitute arbitrator based on the rules applicable to the original appointment. The Court emphasized that the appointment must align with the terms of the arbitration agreement.

5. Given that the Managing Director's authority to appoint a substitute arbitrator was in line with Section 15(2) and the arbitration agreement, the Supreme Court found no fault in the decisions of the Chief Justice and the Division Bench. The Court declined to delve into the question of the maintainability of the Writ Petition before the High Court, as the key issue was the validity of the appointment process.

6. Ultimately, the Supreme Court dismissed the petition for special leave to appeal, affirming the decisions of the lower courts regarding the appointment of a substitute arbitrator by the Managing Director as per the arbitration agreement and Section 15(2) of the Act.