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2019 (11) TMI 1154 - SC - Indian LawsAppointment of arbitrators - appointment of Design Consultants for the comprehensive planning and designing, including preparation and development of concepts, master plan for the campus, preparation of all preliminary and working drawings for various buildings/structures, including preparation of specifications and schedule of quantities for the proposed All India Institute of Medical Sciences at Guntur, Andhra Pradesh - whether the arbitration in the present case would be an International Commercial Arbitration or not? - Section 11(6) read with Section 11(12)(a) of the Act - whether a case is made out for exercise of power by the Court to make an appointment of an arbitrator? HELD THAT - It is not disputed by the respondent that it was a requisite condition to declare a lead member of the Consortium and that by aforesaid declaration the applicant No.1 was shown to be the lead member of the Consortium - It is clear that the declaration shows that the Applicant No.1 was accepted to be the lead member of the Consortium. Even if the liability of both the Applicants was stated in Clause 9 to be joint and several, that by itself would not change the status of the Applicant No.1 to be the lead member. We shall, therefore, proceed on the premise that Applicant No.1 is the lead member of the Consortium. In M/S LARSEN AND TOUBRO LIMITED, SCOMI ENGINEERING BHD VERSUS MUMBAI METROPOLITIAN REGION DEVELOPMENT AUTHORITY 2018 (12) TMI 178 - SUPREME COURT more or less similar fact situation came up for consideration and it was held that Association and Body of individuals referred to in Section 2(1)(f) of the Act would be separate categories. However, the lead member of the Association in that case being an Indian entity, the Central Management and Control of the Association was held to be in a country other than India. Relying on said decision we conclude that the lead member of the Consortium company i.e. Applicant No.1 being an Architectural Firm having its registered office in New York, requirements of Section 2(1)(f) of the Act are satisfied and the arbitration in the present case would be an International Commercial Arbitration . Whether the power can be exercised by this Court under Section 11 of the Act when the appointment of an arbitrator has already been made by the respondent and whether the appellant should be left to raise challenge at an appropriate stage in terms of remedies available in law? - HELD THAT - In TRF LTD. VERSUS ENERGO ENGINEERING PROJECTS LTD. 2017 (7) TMI 1288 - SUPREME COURT , the Managing Director of the respondent had nominated a former Judge of this Court as sole arbitrator in terms of aforesaid Clause 33(d), after which the appellant had preferred an application under Section 11(5) read with Section 11(6) of the Act. The plea was rejected by the High Court and the appeal therefrom on the issue whether the Managing Director could nominate an arbitrator was decided in favour of the appellant as stated hereinabove. As regards the issue about fresh appointment, this Court remanded the matter to the High Court for fresh consideration - In the light of these authorities there is no hindrance in entertaining the instant application preferred by the Applicants. Application allowed.
Issues Involved:
1. Whether the arbitration in the present case would be an International Commercial Arbitration. 2. Whether a case is made out for exercise of power by the Court to make an appointment of an arbitrator. Issue-Wise Detailed Analysis: 1. Whether the arbitration in the present case would be an International Commercial Arbitration: The court examined the Consortium Agreement between the applicants, which designated Applicant No.1 as the lead member of the Consortium. The relevant clauses indicated that Perkins Eastman Architects DPC, an architectural firm registered in New York, was the lead member. The court noted that even though the liability of both applicants was joint and several, this did not alter the status of Applicant No.1 as the lead member. The court referred to the decision in Larsen and Toubro Limited SCOMI Engineering BHD v. Mumbai Metropolitan Region Development Authority (2019) 2 SCC 271, which dealt with a similar issue. The court concluded that since Applicant No.1 was a foreign entity, the requirements of Section 2(1)(f) of the Arbitration and Conciliation Act, 1996 were satisfied, making the arbitration an "International Commercial Arbitration." 2. Whether a case is made out for exercise of power by the Court to make an appointment of an arbitrator: The court considered several factors to determine whether it should exercise its power under Section 11(6) of the Act to appoint an arbitrator. The communication invoking arbitration was sent by the applicants on 28.06.2019, and the respondent was required to make the necessary appointment by 28.07.2019. The appointment was made on 30.07.2019, which was technically beyond the stipulated period. The court, however, did not find this delay sufficient to warrant the exercise of its power under Section 11(6) solely on this ground. The court then examined the validity of the appointment made by the respondent. Clause 24 of the contract empowered the Chairman and Managing Director of the respondent to appoint a sole arbitrator. The court referred to the decision in TRF Limited v. Energo Engineering Projects Limited (2017) 8 SCC 377, which held that if a person is ineligible to act as an arbitrator, they are also ineligible to appoint another arbitrator. The court found that the Chairman and Managing Director, having an interest in the outcome of the dispute, should not have the power to appoint an arbitrator. This principle was reinforced by the Law Commission's report and the decision in Voestalpine Schienen Gmbh v. Delhi Metro Rail Corpn. Ltd. (2017) 4 SCC 665, emphasizing the need for impartial and independent arbitrators. The court also considered whether it should entertain the application under Section 11 of the Act despite the respondent already appointing an arbitrator. Referring to Walter Bau AG (2015) 3 SCC 800, the court held that if the appointment of the arbitrator is not ex facie valid, the court can exercise its jurisdiction under Section 11(6). The court found the appointment made by the respondent invalid as it did not comply with the agreed procedure and the principles of impartiality and independence. Conclusion: The court allowed the application, annulled the appointment made by the respondent, and appointed Dr. Justice A.K. Sikri, former Judge of the Supreme Court, as the sole arbitrator to decide all disputes arising from the Agreement dated 22.05.2017. The arbitrator was required to make a mandatory declaration under the amended Section 12 of the Act regarding independence and impartiality and complete the arbitration within the period specified in Section 29A of the Act. The fees and expenses of the arbitrator were to be shared equally by the parties. The court emphasized that the appointment of an arbitrator by the court should not be seen as a reflection on the competence of the arbitrator appointed by the respondent.
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