2015 (9) TMI 866 - SC - Indian Laws

Appointment of the arbitrator - substitute arbitrator after termination of earlier arbitrator - Held that - Clause 22.3 of the Supply Contract contemplates appointment of a sole arbitrator by the parties by mutual consent. In a situation where the original arbitrator i.e. Shri Justice S.K. Dubey had recused himself the substitute or new arbitrator is required to be appointed according to the rules that were applicable to the appointment of the original arbitrator. This is the mandate of Section 15(2) of the Act. It was, therefore, incumbent on the petitioner to give notice and explore the possibility of naming an arbitrator by mutual consent and only on failure thereof the present application under Section 11(6) of the Act could/should have been filed. The above recourse is required to be followed by virtue of the provisions of Section 15(2) of the Act and the decision of this Court in Yashwith Constructions (P) Ltd. 2006 (7) TMI 579 - SUPREME COURT . Admittedly, the same had not been followed. In these circumstances, the Court will understand the present application/arbitration petition to be premature. It is accordingly not entertained leaving it open for the petitioner to act appropriately, if so advised, in terms of the present order and thereafter seek its remedies as provided by law.

Summary

Issues:
1. Appointment of a Sole Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996.
2. Interpretation of the arbitration clause in the Supply Contract for resolution of disputes.
3. Application of Section 15(2) of the Act regarding the appointment of a substitute arbitrator.

Analysis:

Issue 1: Appointment of a Sole Arbitrator under Section 11(6) of the Act
The application sought the appointment of a Sole Arbitrator as per clause 22.3 of the Supply Contract due to a payment dispute. The respondent objected to the appointment of the originally named arbitrator, leading to the need for a new appointment. The Court emphasized the importance of following the procedure outlined in the contract for appointing a new arbitrator by mutual consent before resorting to a Section 11(6) application. Since this step was skipped, the Court deemed the application premature and dismissed it, allowing the petitioner to pursue appropriate actions following the order.

Issue 2: Interpretation of the arbitration clause in the Supply Contract
The arbitration clause in the Supply Contract mandated disputes to be resolved through arbitration conducted by a single arbitrator appointed by mutual consent of the parties. The clause specified the arbitration procedure, including the language, place, and applicable law for the arbitration proceedings. When the original arbitrator recused himself, the Court held that a new arbitrator should be appointed following the rules applicable to the original appointment, as per Section 15(2) of the Act. Since the mutual consent process was not followed for the new appointment, the Court considered the application premature and not maintainable.

Issue 3: Application of Section 15(2) of the Act regarding the appointment of a substitute arbitrator
Section 15(2) of the Act governs the appointment of a substitute arbitrator when the mandate of the original arbitrator terminates. The Court clarified that in the absence of institutional rules, the appointment process should align with the provisions in the Supply Contract. As per the contract's clause 22.3, the parties were required to mutually appoint a sole arbitrator. Failure to adhere to this process before seeking court intervention under Section 11(6) rendered the application premature. The Court disposed of the Arbitration Petition accordingly, leaving room for the petitioner to take appropriate actions in line with the order and seek remedies as per the law.

This detailed analysis highlights the Court's emphasis on procedural compliance and adherence to contractual provisions before seeking judicial intervention in arbitration matters.