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TMI Blog2009 (10) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... ailway Corporation Ltd. and Ors. v. Mehul Construction Company : (2000) 7 SCC 201 which was subsequently approved by a Constitution Bench in Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd. : (2002) 2 SCC 388. The ratio of the Constitution Bench judgment was that the power exercised by the Chief Justice or any person or institution designated by him under Section 11(6) of the Arbitration and Conciliation Act, 1996 (for short, `the Act') is purely administrative and the measures taken under that section are not open to be challenged by the aggrieved party by resorting to intermediary proceedings. The judgment of the Constitution Bench was overruled by the seven-Judge Bench in S.B.P. Company v. Patel Engineering Ltd. and Anr. (supra) and it was held that the power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is a judicial power and not an administrative power and further that an order passed by the Chief Justice of the High Court or by the designated Judge of that Court can be challenged only under Article 136 of the Constitution. 3. After the judgment of the larger Bench, the appellants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es or shall appoint an arbitrator who shall refuse to act then the arbitrator appointed by the other party shall be entitled to proceed with the reference as a Sole Arbitrator and to make final decision on such difference or dispute and the award made as a result of such arbitration shall be a condition precedent to any right of action against any two parties hereto in respect of any such difference and dispute. 6. In October 1996, some disputes and differences arose between the Government of Maharashtra and respondent No. 1 with regard to contract dated 10.3.1992. The panel of three arbitrators appointed by the parties passed unanimous awards on 11.2.2000 requiring the State Government to pay ₹ 24,09,25,965/- to respondent No. 1. The State Government challenged those awards but, later on, withdrew its challenge and paid the amount to respondent No. 1. 7. On 3.7.2001, the appellants through their power of attorney holder, Balasaheb B. Patil served a notice upon respondent No. 1 requiring it to pay the amount allegedly due to them, but the latter did not comply with their demand. After three months, the appellants invoked the arbitration clauses enshrined in the sub-cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Nos. 114 of 2002 and 90 of 2002 under Section 11 of the Act for appointment of the third arbitrator by asserting that in view of refusal of Shri S.N. Huddar to act as an arbitrator, it had appointed Shri S.L. Jain as a substitute arbitrator in terms of Section 15(2) of the Act and in that view of the matter respondent No. 2 was not entitled to act as the Sole Arbitrator. The designated Judge of the Bombay High Court allowed both the applications and appointed Shri Justice M.N. Chandurkar (Retired) as the third arbitrator. The learned designated Judge noticed the arguments made on behalf of the parties, the provisions of Section 15 of the Act and observed: Section 15 is a new provision. Sub-section (1) and (2) thereof correspond to Article 155 of the UNCITRAL model Law. Sub-section (2) of Section 15 provides that where the mandate of arbitrator is terminated, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. Thus the Legislature clearly intended that upon termination of the mandate of an arbitrator, a substitute arbitrator shall be appointed in accordance with the same rules as were appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rty fails to appoint an arbitrator in spite of the notice, the arbitrator appointed shall be entitled to act as the sole arbitrator as such procedure was agreed upon between the parties. The case before Patankar J. was under Part II of the Act. In the instant case, in view of the provisions contained in Section 15(2) of the Act, upon withdrawal of the arbitrator Shri Huddar the petitioners had right to appoint a new arbitrator as per the Rules that were applicable to appointment of arbitrator. 11. The appellants challenged the orders of the learned designated Judge in two separate writ petitions, but could not persuade the Division Bench of the High Court to entertain their prayer for nullifying the appointment of Shri Justice M.N. Chandurkar as the third arbitrator. The Division Bench referred to the judgments of this Court in Konkan Railway Corporation Ltd. and Ors. v. Mehul Construction Company (supra) and Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd. (supra), and held that the writ petitions are not maintainable against the orders passed by the designated Judge, which were administrative in nature. However, liberty was given to the appellants to rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the designated Judge. (v) xxx xxxx xxxx (vi) Once the matter reaches the Arbitral Tribunal or the sole arbitrator, the High Court would not interfere with the orders passed by the arbitrator or the Arbitral Tribunal during the course of the arbitration proceedings and the parties could approach the Court only in terms of Section 37 of the Act or in terms of Section 34 of the Act. (vii) Since an order passed by the Chief Justice of the High Court or by the designated Judge of that Court is a judicial order, an appeal will lie against that order only under Article 136 of the Constitution to the Supreme Court. (viii) xxxx xxxx xxxx (ix) In a case where an Arbitral Tribunal has been constituted by the parties without having recourse to Section 11(6) of the Act, the Arbitral Tribunal will have the jurisdiction to decide all matters as contemplated by Section 16 of the Act. (x) xxxx xxxx xxxx (xi) xxxx xxxx xxxx (xii) The decision in Konkan Rly. Corpn. Ltd. v. Rani Construction (P) Ltd. is overruled. Arguments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this Court in Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. : (2006) 6 SCC 204. Shri Dave further argued that in view of the plain language of Section 15, respondent No. 1 had the right to appoint a substitute arbitrator and respondent No. 2 could not act as the Sole Arbitrator merely because Shri S.N. Huddar who was originally appointed as an arbitrator on behalf of respondent No. 1 refused to accept the appointment. Shri Dave submitted that learned designated Judge of the High Court did not commit any error by appointing the third arbitrator because respondent No. 2 did not agree to the suggestion of Shri S.L. Jain to appoint third arbitrator from the panel of three retired Judges of the High Court. Relevant provisions of the Act and their analysis 11. Appointment of arbitrators.-- (1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. (2) Subject to Sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. (3) Failing any agreement referred to in Sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itral tribunal shall decide on the challenge. (4) to (6) xxx xxx xxx 14. Failure or impossibility to act.-- (1) The mandate of an arbitrator shall terminate if-- (a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and (b) he withdraws from his office or the parties agree to the termination of his mandate. (2) If a controversy remain concerning any of the grounds referred to in Clause (a) of Sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate. (3) If, under this section or Sub-section (3) of Section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or Sub-section (3) of Section 12. 15. Termination of mandate and substitution of arbitrator. -- (1) In addition to the circumstances referred to in Section 13 or Section 14, the mandate of an arbitrator shall terminate-- (a) where he withdraws from office for any reason; or (b) by or pursuant to agreement of the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f them under such procedure, or (iii) a person including an institution fails to perform any function entrusted to him or it under the procedure. Sub-section (8) requires that in appointing an arbitrator, the Chief Justice or any person or institution designated by him shall have due regard to any qualification required of the arbitrator by the agreement of the parties and other considerations as are likely to secure the appointment of an independent and impartial arbitrator. Sections 14 and 15 enumerate the circumstances in which the mandate of an arbitrator shall terminate. Sub-section (1) of Section 14 lays down that the mandate of an arbitrator shall terminate if he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay and he withdraws from his office or the parties agree to terminate his mandate. Sub-section (2) lays down that if there is any controversy between the parties in relation to any of the grounds referred to in Clause (a) of Sub-section (1) and there is no other provision in the agreement between the parties, either party can apply to the Court for termination of the mandate of an arbitrator unless the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the disputes between the parties. The learned Chief Justice dismissed the application and held that Section 15(2) refers not only to statutory rules framed for regulating appointment of arbitrators but also to contractual provisions for such appointment. The Division Bench of the High Court which heard the writ petition filed by the petitioners noted that in view of the judgment of the larger Bench in S.B.P. Company v. Patel Engineering Ltd. and Anr. (supra), a writ petition would not lie against an order made by the Chief Justice under Section 11 of the Act and an appeal could be filed only under Article 136 of the Constitution but proceeded to consider the issue raised by the writ petitioners on merits on the premise that appointments made on or before the judgment of the larger Bench had been saved. The Division Bench then observed that in terms of Section 15(2) of the Act, the Managing Director could, by relying upon the arbitration agreement, appoint another arbitrator because the original arbitrator had resigned. The Division Bench held that Section 15(2) of the Act is applicable not only to the cases of appointments under the statutory rules or rules framed under the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ays, the Chief Justice of the High Court was bound to exercise power under Section 11(6) of the Act and appoint an arbitrator. This Court referred to the arbitration clause contained in the agreement entered into between the parties, some of the judicial precedents on the subject and held that failure of respondent No. 1 to appoint an arbitrator within 30 days of the receipt of the notice did not have the effect of forfeiting his right to do so and that the said right could be exercised till the filing of an application under Section 11 by the other side. The Court then proceeded to observe: When parties have entered into a contract and settled on a procedure, due importance has to be given to such procedure. Even though rigor of the doctrine of 'freedom of contract' has been whittled down by various labour and social welfare legislation, still the court has to respect the terms of the contract entered into by parties and endeavour to give importance and effect to it. When the party has not disputed the arbitration clause, normally he is bound by it and obliged to comply with the procedure laid down under the said clause. 18. In Northern Railway Administration, Minist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the qualifications required by the agreement and other considerations. 19. The aforementioned judgment was followed in Union of India v. Singh Builders Syndicate (supra). In that case it was found that the Arbitral Tribunal constituted in accordance with Clause 64 of the agreement, could not function due to frequent transfer of the incumbent of the post of General Manager who was appointed as one of the members of the Tribunal and, therefore, on a petition filed by the respondent, the High Court appointed a retired Judge as an arbitrator. This Court noted that the dispute was pending for nearly 10 years from the date when the demand for arbitration was first made and declined to interfere with the order of the High Court. Paragraphs 14 and 15 of the judgment which have bearing on this case are extracted below: 14. It was further held in Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Ltd. that the Chief Justice or his designate should first ensure that the remedies provided under the arbitration agreement are exhausted, but at the same time also ensure that the twin requirements of Sub-section (8) of Section 11 of the Act are kep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty appointing such arbitrator has an implicit right to appoint a substitute arbitrator. Thus, in terms of the agreement entered into between the parties, respondent No. 1 could not appoint Shri S.L. Jain as a substitute arbitrator simply because Shri S.N. Huddar declined to accept the appointment as an arbitrator. The only consequence of Shri S.N. Huddar's refusal to act as an arbitrator on behalf of respondent No. 1 was that respondent No. 2 who was appointed as an arbitrator by the appellants became the Sole Arbitrator for deciding the disputes or differences between the parties. 21. The learned designated Judge appointed the third arbitrator because he was of the view that in terms of Section 15(2), a substitute arbitrator could be appointed where the mandate of an already appointed arbitrator terminates. In taking that view, the learned designated Judge failed to notice that Section 15(1) provides for termination of the mandate of arbitrator where he withdraws from office for any reason or by or pursuant to agreement of the parties and not where the arbitrator appointed by either party declines to accept the appointment or refuses to act as such and that the term `rules& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith Koyna Hydel Project implying thereby that he may not be able to objectively examine the claims of the parties or the other party may question his impartiality. To put it differently, Shri S.N. Huddar did not enter upon the arbitration. Therefore, there was no question of his withdrawing from the office of arbitrator so as to enable respondent No. 1 to appoint a substitute arbitrator. In any case, in the absence of a clear stipulation to that effect in the agreements, respondent No. 1 could not have appointed a substitute arbitrator and the learned designated Judge gravely erred in appointing the third arbitrator by presuming that the appointment of Shri S.L. Jain was in accordance with law. 25. The decision in Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. (supra) on which reliance has been placed by Shri Dave does not help the cause of respondent No. 1. A careful reading of that judgment shows that immediately after the arbitrator appointed by the Managing Director of the respondent-Company resigned, another arbitrator was appointed in accordance with arbitration agreement. The permissibility of appointment of another arbitrator by the Managing Directo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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