To Appoint or Not to Appoint: A Dispute Resolved

Introduction

The Arbitration and Conciliation Act, 1996 (“Act”) was enacted to have a unified legal framework for domestic arbitration, international arbitration and enforcement of foreign awards. This Act has been widely adopted from the UNCITRAL Model Laws. The UNCITRAL Model Laws emphasize on the party autonomy[1] by which the parties are free to choose the procedure for arbitration.

The parties are, thus, free to appoint an arbitrator of their choice and when no consensus is arrived at within 30 days from the receipt of request by one party from another[2], the Arbitration Institution designated by the Supreme Court or the High Court (as the case may be)[3] will appoint an arbitrator. Until the Arbitration (Amendment) Act, 2019 is notified by the Government, the Supreme Court or the High Court may appoint the arbitrator. Importantly, the Courts shall not overlook the procedure as agreed by the parties and suo moto appoint an arbitrator.[4] However, the Arbitrator must fulfil the criteria imposed under Schedule V and VII of the Act.

Interestingly, a petition was filed in the Delhi High Court in 2020 under Section 11(6) of the Act[5]. The question for consideration of the Court was ‘whether the Court can appoint the arbitrator as suggested by the respondent, after the respondent has lost its right to appoint an arbitrator?’

Factual Description- The Dilemma Explained

The petitioner was awarded a tender by the respondent and due to some hindrances and delays caused by the respondent, the petitioner suffered financially. This led to disputes between the parties. The contract between the parties contemplated the resolution of disputes through conciliation or settlement, after which if the dispute has not been resolved, the parties could proceed to arbitration.

Per Clause 1.3.2 (5) of the Contract between the parties, the claimant, has to appoint an arbitrator and the same has to be communicated to the other party along with the letter invoking arbitration. The other party has to appoint an arbitrator of its choice within 15 days of such notice. The two arbitrators shall further appoint a third arbitrator within 30 days who shall act as the Presiding Arbitrator. The Clause has been replicated below:

“5. …. The other Party shall then appoint the second Arbitrator within 15 days from the date of receipt of written notice. The two Arbitrators appointed by the Parties shall appoint the third Arbitrator within 30 days, who shall be the Presiding Arbitrator.

The parties agree that they shall appoint only those persons as arbitrators who accept the conditions of this arbitration clause. No person shall be appointed as arbitrator or presiding arbitrator who does not accept the conditions of this arbitration clause.”

The petitioner approached the High Court under Section 11(6) of the Act as the respondent did not appoint an arbitrator within the time stipulated under Clause 1.3.2 (5) of the Contract. Thereafter, the respondent approached retired Hon’ble Justice G. S. Singhvi to act as an arbitrator on its behalf. Justice Singhvi accepted the request the very same day.

The issue thus, arises now. The Court had to decide whether Hon’ble Justice Singhvi can continue being the arbitrator on behalf of the respondent or whether the Court has to appoint someone else as the petition was filed under Section 11(6) of the Act for the court to appoint an arbitrator.

Analysis

The counsel for the petitioner emphasized that the respondent has lost its right to appoint an arbitrator in view of the lapse in adhering to the timelines contemplated under the contract. In support, the petitioner relied upon below Supreme Court judgments :

1. Datar Switchgear Ltd. v. Tata Finance Ltd[6]: The appointment of the nominee arbitrator was upheld even after the lapse of 30 days as the appointment of the nominee arbitrator was prior to the petition under Section 11(6).
2. Union of India v. Bharat Battery Manufacturing Co. (P) Ltd.[7]: The nomination of the arbitrator was after the petition of Section 11(6) was filed, and hence, the Court held that this appointment was not valid.

The Court had a view that the respondent acted in excess of the right available to it, however, Hon’ble Justice G.S. Singhvi being an eminent retired Judge of the Supreme Court of India, there can be no objection to him being appointed as the arbitrator for the respondent. This has also been accepted by the counsel for the petitioner.

The Court further clarified that there is no instance in the judgments relied upon by the counsel for the petitioner wherein the Supreme Court has, directly or indirectly, iterated any prohibition on appointing an arbitrator under Section 11(6) of the Act suggested by the respondent in default. The Court however, noted that the respondent had not complied with the obligations as imposed through the Contract between the parties and the respondent loses its right to appoint after the petition under Section 11(6) of the Act has been filed by the petitioner.

The Court further stated that the Court may override the suggestion of the respondent for the appointment of the arbitrator. The Court may accept the suggestion of the respondent if the suggested arbitrator possess the required qualifications.

A similar view was taken by the Uttarakhand High Court in the case of Rapti Contractors v. Executive Engineer and others[8] and Karnataka High Court in the case of Malu Sleepers Private Ltd. v. Union of India and Another.[9]

Conclusion

The Court took into consideration the reputation, eminence and the qualifications of Hon’ble Justice G.S. Singhvi and decided to appoint him as the arbitrator on behalf of the respondent. The Court thus cleared the confusion, asserting that the Court can appoint an arbitrator as suggested by the respondent, after the respondent had lost its right to appoint an arbitrator if the arbitrator is suitable and qualified.

[1] Article 19(1), UNCITRAL Model Law, 1985.

[2] Section 11(5), Arbitration and Conciliation Act, 1996.

[3] Section 11(6), Arbitration and Conciliation Act, 1996.

[4] State Trading Corporation of India v. Jindal Steel and Power Limited and Others, Civil Appeal No. 2747 of 2020, decided on 14.07.2020.

[5] Tata Projects Limited v. Oil and Natural Gas Corporation Limited, Arb. P. 302/2020, decided on 09.10.2020.

[6] Datar Switchgear Ltd. v. Tata Finance Ltd., (2000) 8 SCC 151.

[7] Union of India v. Bharat Battery Manufacturing Co. (P) Ltd, (2007) 7 SCC 684.

[8] Rapti Contractors v. Executive Engineer and others, AIR 2007 Utr 12.

[9] Malu Sleepers Private Ltd. v. Union of India and Another, 2009 (6) KarLJ 140.