2012 (6) TMI 431 - SC - Companies Law

Enforceability of Arbitration agreement on the death of a named arbitrator - petitioner on ground of arbitration clause having no life questions entertaining of application preferred u/s 11 of the Arbitration and Conciliation Act, 1996 - Held that - Time factor mentioned in the arbitration clause at any time is a clear indication of the intention of the parties. At any time expresses a time when an event takes place expressing a particular state or condition that is when the dispute or difference arises. The arbitration clause 21 has no nexus with the life time of the named arbitrator. Arbitration clause would have life so long as any question or dispute or difference between the parties exists unless the language of the clause clearly expresses an intention to the contrary. Hence, clause 21 does not prohibit or debar the parties in appointing a substitute arbitrator in place of the named arbitrators. Therefore, High Court was justified in entertaining such an application and appointing arbitrator to adjudicate the dispute and difference between the parties - Petition dismissed.

Issues Involved:
1. Whether the arbitration agreement survives after the death of the named arbitrators.
2. Interpretation of the arbitration clause in the agreement.
3. Application of Sections 14 and 15 of the Arbitration and Conciliation Act, 1996.
4. Appointment of a substitute arbitrator under Section 11 of the Act.

Detailed Analysis:

1. Survival of Arbitration Agreement Post-Death of Named Arbitrators:
The primary issue is whether the arbitration agreement continues to be enforceable after the death of the named arbitrators, Shri N.A. Palkhivala and Shri D.S. Seth. The petitioner argued that the arbitration clause does not survive their death, as the arbitrators were specifically chosen due to their close association with the company and their eminence in commercial transactions and corporate laws. The respondent countered, asserting that the arbitration clause remains valid and disputes can be referred to another arbitrator or the court can appoint a substitute arbitrator.

2. Interpretation of Arbitration Clause:
Clause 21 of the agreement dated 16.12.1989 was scrutinized, which stated that any dispute shall be referred to either Mr. N.A. Palkhivala or Mr. D.S. Seth, whose decision would be final and binding. The Bombay High Court held that the clause constituted an agreement to refer disputes to arbitration and did not preclude the appointment of a substitute arbitrator by the court under Section 11 of the Act. The High Court emphasized the policy of promoting the efficacy of arbitration in commercial dealings.

3. Application of Sections 14 and 15 of the Arbitration and Conciliation Act, 1996:
Section 14 outlines the circumstances under which an arbitrator's mandate terminates, including the impossibility of performing functions or withdrawal from office. Section 15(2) states that a substitute arbitrator must be appointed according to the rules applicable to the replaced arbitrator. The court interpreted these sections liberally to facilitate dispute resolution through arbitration, even in the absence of the originally named arbitrators.

4. Appointment of Substitute Arbitrator under Section 11:
The court examined whether the arbitration clause allowed for the appointment of a substitute arbitrator. It was noted that unless there is a clear prohibition in the arbitration clause, the court can appoint a substitute arbitrator. The legislative intent of Sections 14 and 15 is to enable arbitration to continue despite the death or incapacity of the named arbitrators. The High Court's decision to appoint Mr. Justice S.N. Variava, a former Judge of the Supreme Court, as the arbitrator was upheld.

Reasoning and Conclusion:
The court concluded that Clause 21 of the Agreement is an arbitration agreement under Section 7 of the Act. The intention of the parties to resolve disputes through arbitration was clear, and the clause did not explicitly prohibit the appointment of a substitute arbitrator. The court emphasized the policy to promote arbitration and noted that the expression "at any time" in Clause 21 indicated that disputes could be resolved during or beyond the lifetime of the named arbitrators. The arbitration clause remains effective as long as disputes exist unless explicitly stated otherwise.

The High Court was justified in appointing a substitute arbitrator, and the petition for special leave to appeal was dismissed. The court found no reason to grant leave to appeal, thereby affirming the High Court's decision.

Conclusion:
The Supreme Court upheld the Bombay High Court's decision, confirming that the arbitration agreement survives the death of the named arbitrators and that a substitute arbitrator can be appointed under Section 11 of the Arbitration and Conciliation Act, 1996. The petition for special leave to appeal was dismissed, reinforcing the legislative policy to facilitate arbitration and ensure the efficacy of dispute resolution mechanisms.

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