This case is a part of our Annual Arbitration Review 2019.
Citation: AIR 2020 SC 59
Court: Supreme Court of India
Coram: Uday Umesh Lalit & Indu Malhotra, JJ.
Date: 26th November 2019
Keywords: Appointment of Arbitrator, Impartiality, Independence, Section 11, Section 12.
This decision clarifies, that a person who is ineligible to act as an arbitrator also cannot appoint an arbitrator. Secondly, the Court has the power to intervene under Section 11 unless the appointment on the face of it is valid. Lastly, an unincorporated consortium with the lead member or the member with the determining voice being controlled and managed in a country other than India would come within the scope of Section 2 (1)(f)(iii) of the Arbitration and Conciliation Act ("A&C Act") and will thus, be an International Arbitration.
The Applicants in this case, namely, Perkins Eastman and Edifice Consultants are architectural firms based in New York and Mumbai. They were declared successful bidders for the Respondent, HSCC. Thereafter, a contract was commissioned for the same that contained Clause 24 that provided that the chairman and managing director of the Respondent company shall appoint a sole arbitrator to adjudicate the dispute between the parties.
Within 6 days of the contract, the Respondent alleged failure on part of the Applicants which followed a notice to stop construction work. Later a termination notice was issued as well, alleging noncompliance with the contractual obligations which the Applicants denied. Thereafter, a notice was issued by the Advocate for the Applicants invoking the dispute resolution clause. As per Section 24, a prior notice was to be taken within one month, but communication was issued by the Respondent after a period of 30 days intimating that a reply to the notice would be sent within 30 days.
An appeal was filed by the Applicants to the director of engineering in terms of Clause 24, however, the director refused to discharge the obligations under the same. Soon after, a letter was addressed to the Applicants and the chief managing director of the Respondents was called upon to appoint a sole arbitrator. The same was not adhered to for 30 days, but after a month the chief general manager of the Respondent appointed one Major General K.T Gajria as the sole arbitrator.
Aggrieved by the same, the Applicants filed an application under Section 11(6) read with Section 11(12)(a) of the A&C Act, before the honorable Supreme Court ("Court") seeking the appointment of a sole arbitrator in accordance with terms of the contract.
Whether the arbitration in the present case is an International Commercial Arbitration? And whether a case had been made out for the exercise of power by the court to appoint an arbitrator?
The arbitration was held to be an international commercial arbitration as one of the Applicants was a foreign party having registered office in New York. This made them suitable for the requirements under Section 2(1)(f) of A&C Act. The Court also held that it could not have dealt with the application under Section 11(6) read with Section 11(12)(1) of the A&C Act if the arbitration was not an International Commercial Arbitration.
Relying on TRF Limited v. Energo Engineering Projects Ltd.[i] ("TRF Limited") the Court said that where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Further, the person who has an interest in the outcome of the decision of the dispute must not have the power to appoint a sole arbitrator and that must be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognized by the decision of this Court in TRF Limited.
Using the case of Indian Oil Corporation v. Raja Transport, the Court ruled that if there are justifiable doubts as to the independence and impartiality of the person nominated as an arbitrator, and if other circumstances warrant the appointment of an independent arbitrator by ignoring the procedure prescribed, such appointment can be made by the competent court in order to necessitate the impartiality and independence of an arbitrator.
It was held that unless the appointment of an arbitrator is ex facie valid and such appointment satisfies the court exercising jurisdiction under Section 11(6) of the A&C Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be accepted.
Appointment of an arbitrator is supposed to be subject to mandatory declaration under the amended Section 12 of the A&C Act with respect to independence and impartiality and the ability to devote sufficient time to complete the arbitration within the period as per Section 29A of the A&C Act.
Appeal was allowed and letters by Respondent for appointment of arbitrator were annulled. The Court appointed Dr. Justice A.K Sikri, former judge of this Court as the sole arbitrator to settle all disputes arising from the contract.
[i] (2017) 8 SCC 377.