2006 (4) TMI 491 - SC - Companies Law

Prayer made in the applications to appoint a suitable person to act as the sole arbitrator in place of the nominated arbitrator under Clause 6 of the Deed of Reserve and Charge of Property dated 22nd February, 2002 (for short the Deed ) and to refer the disputes between the parties to him Held that - Mr. Manabu Nonoguchi was appointed as an arbitrator by the parties. Normally, the parties are the best judge for deciding as to who will be the person capable and competent to adjudicate the disputes raised considering his experience, knowledge and competence in a particular trade or business to which the disputes relate and taking these factors into account the parties have appointed Mr. Manabu Nonoguchi as an Arbitrator, in case a dispute arises between the parties. Unfortunately, for some reason, the named arbitrator refused to act as an arbitrator. However, during the pendency of these arbitration applications, I.A. supported by affidavit has been filed stating that the named arbitrator is ready and willing to take up the arbitration. Considering this fact, it would be appropriate if Mr. Manabu Nonoguchi, Area Manager, Sales Department, Murata Machinery Ltd., Textile Machinery Department, Osaka 541-0041, Japan is appointed as an Arbitrator to adjudicate upon the disputes arising between the parties. I, accordingly, appoint him as Arbitrator. He shall take up the steps in accordance with law and shall make all possible endeavour to decide the disputes expeditiously. Arbitration Application Nos. 8 and 9 of 2005 stand disposed of.

Summary

Issues Involved:
1. Appointment of a substitute arbitrator under Section 11(6)(c) of the Arbitration and Conciliation Act, 1996.
2. Applicability of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) to arbitration proceedings.

Issue-wise Detailed Analysis:

1. Appointment of a Substitute Arbitrator:
The applicant sought the appointment of a substitute arbitrator under Section 11(6)(c) of the Arbitration and Conciliation Act, 1996, due to the inability of Mr. Manabu Nonoguchi to act as the arbitrator. The arbitration clause in the Deed specified Mr. Manabu Nonoguchi as the sole arbitrator. However, Mr. Nonoguchi expressed his inability to act as an arbitrator via a letter dated 19th June 2003. The respondent contested the application, arguing that the arbitration agreement did not provide for the appointment of another arbitrator and that the clause got exhausted once the named arbitrator refused to act. The court referred to Section 15 of the Act, which allows the appointment of a substitute arbitrator when the originally appointed arbitrator withdraws. The court concluded that in the absence of a specific condition in the contract debarring the appointment of a fresh arbitrator, the arbitration clause does not get obliterated upon the named arbitrator's refusal. Hence, the court has the authority under Section 11(6) to appoint a substitute arbitrator.

2. Applicability of Section 22(1) of SICA to Arbitration Proceedings:
The respondent argued that the arbitration proceedings could not proceed due to the applicability of Section 22(1) of SICA, as the respondent company was declared a sick industrial company and the matter was pending before the Board for Industrial and Financial Reconstruction (BIFR). Section 22(1) of SICA prohibits certain types of proceedings against a sick industrial company, including winding up, execution, distress, and the appointment of a receiver, without the consent of BIFR. The court analyzed the scope of Section 22(1) and concluded that it applies to coercive proceedings such as execution and distress but does not cover arbitration proceedings. The court cited previous judgments to support the view that arbitration proceedings are not coercive in nature and thus do not fall within the ambit of Section 22(1) of SICA. Consequently, the arbitration proceedings were not barred by Section 22(1) of SICA.

Conclusion:
The court appointed Mr. Manabu Nonoguchi as the arbitrator, as he expressed his willingness to act during the pendency of the application. The objections raised by the respondent regarding the applicability of Section 22(1) of SICA to arbitration proceedings were rejected. The court emphasized the importance of arbitration as a means of dispute resolution and upheld the applicant's request for the appointment of a substitute arbitrator.

Disposition:
Arbitration Application Nos. 8 and 9 of 2005 were disposed of with the appointment of Mr. Manabu Nonoguchi as the arbitrator to adjudicate the disputes between the parties.