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2014 (4) TMI 581 - SC - Companies LawAppointment of arbitrator - Reference to arbitration was sought on behalf of the three partners to the PSC - matter was left to the two arbitrators to nominate the third arbitrator who shall be the Chairman of the Arbitral Tribunal - However two arbitrators have not been able to agree on the third arbitrator - Held that - PSC recognizes that the operator would act on behalf of the contractor. All investments are funded by not just the Petitioner No.1 but also by the other parties, and they are equally entitled to the costs recovered and the profits earned. For the sake of operational efficiency, the Operator acts for and on behalf of the other parties. During the course of his submissions, Mr. Anil Divan had, in fact, submitted that Niko and BP will be affected by the arbitral award and it would be binding upon them too. Therefore, if the Petitioner No.1 was to succeed in the arbitration, the award would enure not only to the benefit of Petitioner No.1 but to all the parties to the PSC. Conversely, if the Government of India were to succeed before the tribunal, again the award would have to be enforced against all the parties. In other words, each of the Contractors would have to perform the obligations cast upon them - arbitration in the present case is an international arbitration. A perusal of some of the provisions of PSC would make it clear that all three entities are parties to the PSC. All three entities have rights and obligations under the PSC see Article 28.1(a) , including with respect to the Cost Petroleum, Profit Petroleum and Contract Costs (see Article 2.2), all of which are fundamental issues in the underlying dispute. Where RIL acts under the PSC, including by commencing arbitration, it does so not only on behalf of itself, but also on behalf of all constituents of the contractors including Niko and BP - In any event, the neutrality of an arbitrator is assured by Section 11(1) of the Arbitration Act, 1996, which provides that a person of any nationality may be an arbitrator, unless otherwise agreed by the parties. There is no agreement between the parties in this case that even a third arbitrator must necessarily be an Indian national. In fact, Section 11(9) of the Arbitration Act, 1996 specifically empowers the CJI to appoint an arbitrator of a nationality other than the nationality of the parties involved in the litigation. Merely because the two arbitrators nominated by the parties are Indian would not ipso facto lead to the conclusion that the parties had ruled out the appointment of the third arbitrator from a neutral nationality. In this case, both the arbitrators had been appointed by the parties, therefore, the condition precedent for appointing an arbitrator, from amongst persons, who are not nationals of the country of any of the parties to the arbitration proceedings, had not even arisen - matter ought to be remitted back to the two arbitrators appointed by the parties to choose the third arbitrator on the basis of the observations made in the judgment. However, given the sharp difference of opinion between the two arbitrators, I deem it appropriate to perform the task of appointing the third arbitrator in this Court itself - Therefore, Honourable James Spigelman AC QC, former Chief Justice and Lieutenant Governor of New South Wales, Australia as the third Arbitrator who shall act as the Chairman of the Arbitral Tribunal - Decided in favour of Appellant.
Issues Involved:
1. Appointment of the third and presiding arbitrator under Section 11(6) of the Arbitration Act, 1996. 2. Jurisdiction of the Supreme Court in international commercial arbitration. 3. Interpretation of the Production Sharing Contract (PSC) and the role of the Operator. 4. Requirement of appointing an arbitrator of neutral nationality. 5. Waiver of the requirement for a foreign arbitrator by the Petitioners. 6. Public policy considerations in appointing the third arbitrator. Detailed Analysis: 1. Appointment of the Third and Presiding Arbitrator: The petition was filed under Section 11(6) of the Arbitration Act, 1996, due to the failure of the two arbitrators appointed by the parties to agree on the appointment of the third arbitrator. The relevant arbitration agreement is contained in Article 33 of the PSC, which stipulates that the arbitral tribunal shall consist of three arbitrators, with each party appointing one arbitrator, and the two appointed arbitrators selecting the third. 2. Jurisdiction of the Supreme Court in International Commercial Arbitration: The Petitioners argued that the arbitration was an international commercial arbitration as defined under Section 2(1)(f) of the Arbitration Act, 1996, since two out of the four parties to the arbitration agreement were based outside India. The Respondent's contention that the Supreme Court lacked jurisdiction was dismissed, as the court had previously entertained a similar petition without jurisdictional objections. The court reaffirmed its jurisdiction, emphasizing that the arbitration involved international parties. 3. Interpretation of the Production Sharing Contract (PSC) and the Role of the Operator: The PSC, executed between the Petitioners and the Union of India (UOI), designates Petitioner No.1 as the Operator, responsible for performing functions on behalf of all contractors. The court recognized that the Operator's actions, including initiating arbitration, were on behalf of all parties to the PSC. The court noted that the disputes raised by Petitioner No.1 were effectively on behalf of all contractors, including Niko and BP, as evidenced by the correspondence and the joint operating agreement. 4. Requirement of Appointing an Arbitrator of Neutral Nationality: The court examined Article 33.5 and 33.6 of the PSC, which pertain to the appointment of arbitrators. Article 33.5 requires the appointment of an arbitrator from a neutral nationality if a party fails to appoint one. The court concluded that while Article 33.6 does not explicitly require a neutral nationality for the third arbitrator, the principle of neutrality, impartiality, and independence should guide the appointment. The court referred to international arbitration practices and the UNCITRAL Rules, which favor appointing an arbitrator of a different nationality than the parties to ensure neutrality. 5. Waiver of the Requirement for a Foreign Arbitrator by the Petitioners: The Respondent argued that the Petitioners waived the requirement for a foreign arbitrator by accepting the nomination of Mr. Justice V.N. Khare without reservation. The court rejected this argument, stating that the acceptance of an Indian arbitrator did not preclude the appointment of a neutral third arbitrator under Article 33.6. 6. Public Policy Considerations in Appointing the Third Arbitrator: The Respondent emphasized the PSC's significance for national interests and argued for an Indian arbitrator due to the contract's intricate legal and factual issues under Indian law. The court dismissed this argument, noting that the presence of two Indian arbitrators already ensured adequate representation of Indian legal perspectives. The court emphasized the importance of maintaining the appearance of neutrality in international arbitration by appointing a third arbitrator of a neutral nationality. Conclusion: The court appointed Honourable James Spigelman AC QC, former Chief Justice and Lieutenant Governor of New South Wales, Australia, as the third arbitrator and Chairman of the Arbitral Tribunal. The court directed the tribunal to expedite the arbitration proceedings and render the award promptly. The petition was allowed, ensuring the appointment of an impartial and neutral third arbitrator in line with international arbitration practices.
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