These authorities suggest a balanced approach in the matter.
The courts should as far as possible preserve the sanctity of party
autonomy and defer to the appointment procedure agreed to between
the parties, whilst at the same time retaining a discretion to appoint such
arbitrator/s as may be deemed fit to meet the ends of justice. It may be
that in a given case, a party requiring to nominate an arbitrator may be
taking benefit of its own wrong by not naming an arbitrator or frequently
changing the arbitrator. It may also be that an order to follow the
appointment procedure is likely to result in a stalemate or otherwise
interests of justice may require that the appointment procedure ought
not to be followed. In all such cases, the courts are not powerless to
ignore the appointment procedure and appoint an independent tribunal
outside the appointment procedure. After all, the principle of party
autonomy is not so sacrosanct as to require adherence even in the face of
a clear injustice.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION PETITION NO.10 OF 2012
M/s. Siddhi Real Estate Developers … Petitioner
Vs.
Metro Cash And Carry India Pvt. Ltd. & Anr. …Respondents
CORAM : S.C. GUPTE, J.
Read original judgment here;click here
Pronounced on : JUNE 12, 2014
Citation;2014(4) MHLJ 283 Bom
This is an application for appointment of an arbitrator under
Section 11 of the Arbitration and Conciliation Act, 1996 (“Act”).
2 The Petitioners are owners of a large piece and parcel of
land admeasuring about 24,199 sq. mtrs. at Village Dhokali, Taluka and
District Thane, Maharashtra. By an agreement titled as Memorandum of
Understanding dated 26 November 2007 (“MOU”), Respondent No. 1
agreed to acquire development rights and purchase from the Petitioners
a part of the said land admeasuring about 19,000 sq. mtrs. at or for a
consideration of Rs. 101.50 crores. The MOU has an arbitration clause
requiring inter alia each of the parties to appoint one arbitrator and the
two appointed arbitrators to appoint the third arbitrator. Pursuant to the
MOU, an escrow agreement dated 27 November 2007 (“Escrow
Agreement”) came to be executed between the parties inter alia
appointing Respondent No. 2 as the escrow agent to hold the sum of Rs.
25.37 crores payable by Respondent No. 1 to the Petitioners as part of
the consideration under the MOU and deposited by Respondent No. 1
with the escrow agent in an escrow account. The escrow amount was to
be disbursed by Respondent No. 2 in terms of the Escrow Agreement.
The Escrow Agreement contained an arbitration clause requiring inter
alia each of the three parties to the Escrow Agreement (i.e. the
Petitioners, Respondent No. 1 and Respondent No. 2) to appoint one
arbitrator and the three appointed arbitrators to appoint two additional
arbitrators, thus constituting an arbitral tribunal of five arbitrators.
Disputes and differences arose between the parties concerning the
performance of the MOU as well as payment of the escrow amount. The
Petitioners invoked the arbitration agreements contained in the MOU
and the Escrow Agreement. Both the Petitioners and Respondent No. 1
appointed their respective arbitrators, but Respondent No. 2 failed to
appoint any arbitrator. The Petitioners explored the possibility of
continuing with the arbitration proceedings between themselves and
Respondent No. 1 alone under the arbitration agreement contained in
the MOU (which required two arbitrators to be nominated by the parties
and the two nominated arbitrators to appoint a third arbitrator). The two
nominated arbitrators were, however, of the view that it was not possible
to proceed with the arbitration without the presence of Respondent No.
2 and appointment of the third arbitrator by the latter. (The three
nominated arbitrators would have to appoint two additional arbitrators,
thereby constituting a tribunal of five arbitrators, as per the terms of the
Escrow Agreement.) The Petitioners have, accordingly, approached this
court for appointment of a third arbitrator. Though there are separate
prayers in the application for constituting separate tribunals of three
arbitrators for deciding disputes under the MOU and of five arbitrators
(the three nominated arbitrators appointing two others on the tribunal)
for deciding disputes under the Escrow Agreement, the Petitioners have
introduced by way of an amendment a prayer for appointment of a
tribunal of five arbitrators for deciding disputes under both the MOU and
the Escrow Agreement. It is this prayer which is pressed at the hearing
by the Petitioners.
3 Respondent No. 1 has opposed this prayer for constituting a
common arbitral tribunal (of five arbitrators) for deciding disputes under
the MOU and the Escrow Agreement together. It is submitted by
Respondent No. 1 that they have no objection to constituting two
separate tribunals – one of three arbitrators for deciding disputes
between the Petitioners and Respondent No. 1 under the MOU and the
other of five arbitrators for adjudicating disputes between the
Petitioners, Respondent No. 1 and Respondent No. 2 under the Escrow
Agreement. This constitutes the main controversy in this petition. Both
parties accept that there are disputes between them and these are
covered by the two arbitration agreements, one contained in the MOU
and the other in the Escrow Agreement. But the Petitioners want these
disputes to be adjudicated by a common arbitral tribunal, whereas
Respondent No. 1 is prepared to go before two separate tribunals. It is
the case of Respondent No. 1 that after all the two agreements – the
MOU and Escrow Agreement – have separate provisions for the
constitution of arbitral tribunals and in any event, the disputes
thereunder cannot be clubbed for a common trial.
4 The question of validity of joint arbitration concerning the
same claim covered by two separate arbitration agreements to which the
Claimant is a common party and which are separately entered into by
the claimant with the Respondents, was considered by the Supreme
Court in the case of P.R. Shah, Shares and Stock Broker (P) Ltd. Vs. B.
H. H. Securities (P) Ltd.1 In that case the appellant and the first
respondent were members of the Bombay Stock Exchange. The second
respondent was a nonmember
with whom the first respondent claimed
to have entered into a transaction on the instructions of the appellant.
The first respondent thus had claims jointly against the second
respondent and the appellant. These claims, however, were to be
arbitrated upon under separate arbitration agreements – one between
the first respondent (a member) and the second respondent (a nonmember)
under Byelaw
248 and the other between the first respondent
and the appellant (both members) under Byelaw
282. The Supreme
Court held the joint arbitration to be valid. This is how the Supreme
Court explained the position (para 19) :
1 (2012) 1 SCC 594
If A had a claim against B and C, and there was
an arbitration agreement between A and B but there
was no arbitration agreement between A and C, it
might not be possible to have a joint arbitration against
B and C. A cannot make a claim against C in an
arbitration against B, on the ground that the claim was
being made jointly against B and C, as C was not a
party to the arbitration agreement. But if A had a claim
against B and C and if A had an arbitration agreement
with B and A also had a separate arbitration agreement
with C, there is no reason why A cannot have a joint
arbitration against B and C. Obviously, having an
arbitration between A and B and another arbitration
between A and C in regard to the same claim would
lead to conflicting decisions. In such a case, to deny
the benefit of a single arbitration against B and C on
the ground that the arbitration agreements against B
and C are different, would lead to multiplicity of
proceedings, conflicting decisions and cause injustice.
It would be proper and just to say that when A has a
claim jointly against B and C, and when there are
provisions for arbitration in respect of both B and C,
there can be a single arbitration.
5 In the case on hand, we are concerned with two arbitration
agreements – one between two parties, i.e. the Petitioners and
Respondent No. 1, namely, arbitration clause in the MOU and the other
between three parties, i.e. the Petitioners, Respondent No. 1 and
Respondent No. 2, namely, the arbitration clause contained in the
Escrow Agreement. The MOU provided for conferment of development
rights by the Petitioners on Respondent No. 1 at a consideration. The
Escrow Agreement provided for payment of part of the consideration by
deposit with the Escrow Agent (Respondent No. 2) and disbursal by the
Escrow Agent to the Petitioners in accordance with the terms of Escrow.
The Escrow Agreement was incidental to the MOU and entered into in
pursuance of the MOU. The dispute raised by the Petitioners is this:
Respondent No. 1 failed to pay the amount of consideration due under
the MOU to the Petitioners and Respondent No. 2, with whom the
consideration was deposited, wrongfully returned the deposit kept in
escrow with it to Respondent No. 1. This claim for disbursal of the
consideration is jointly against both the Respondents (and with both of
whom the Petitioners have separate arbitration agreements) and arises
out of a single transaction or part of a single transaction. There is no
reason why the Petitioners cannot have a joint arbitration against both
the Respondents. In fact, two separate arbitrations, in the facts of the
case, would lead to multiplicity of proceedings and possibility of
conflicting decisions, leading to serious injustice. This is precisely the
vice that was sought to avoided when the Supreme Court laid down the
law in P. R. Shah (supra). I am fortified in this view by a judgment of
another Single Judge of this Court in Flimwares Combine Private Ltd.
Vs. Kochi Cricket Private Ltd..2
6 The question now is, whether any difference is made to this
2 ARBAP68 of 2012 dtd. 22 February 2013
principle due to separate provisions in the two arbitration agreements for
constitution of the arbitral tribunal – one requiring a tribunal of three
arbitrators and the other five. Learned Counsel for Respondent No. 1
would argue that after all the agreement between the parties essentially
contemplates a three member arbitral tribunal for disputes arising out of
the MOU and a five member arbitral tribunal for disputes arising out of
the Escrow Agreement and one would be doing violance to this
agreement if all the disputes including the disputes under the MOU were
to be referred to an arbitral tribunal of five members.
7 Let this aspect be examined in the light of the powers of the
Chief Justice or his designate under Section 11 of the Act. The question
is whether the principle of party autonomy prohibits the court to appoint
different number of arbitrators from what was agreed to between the
parties. Obviously, in the present case though an appointment procedure
is agreed upon by the parties, they have failed to act under that
procedure. That is the basis of the present application. Section 11
requires the Court (i.e. the Chief Justice or his designate) in such a case
to “take the necessary measure”, unless the agreement on the
appointment procedure provides other means for securing the
appointment. The question as to what constitutes the “necessary
measures” has engaged the attention of the Courts in a number of cases.
Do “necessary measures” imply only those measures that have to be
taken under the appointment procedure as laid down in the arbitration
agreement or are these measures independent of the agreement between
the parties concerning the appointment procedure. Though there have
been conflicting positions earlier by different High Courts on this issue,
the trend now seems to be in favour of a half–way house solution,
suggested by the Supreme Court in the case of Ace Pipeline Contracts
Pvt. Ltd. Vs. Bharat Petroleum Corporation Ltd.3 In that case, the
arbitration agreement required that the Government Department
concerned had to appoint an arbitrator, which the Department failed to
do. The Supreme Court held as follows:
13. It may also not be out of place to mention
that we are aware of the Departmental lethargy in
making appointment of arbitrators in terms of the
arbitration clause. Therefore, mandamus can be
issued by the Courts in exercise of powers under
Section 11(6) of the Act but the demand should be
in the event of failure by the authorities to appoint
arbitrators within the reasonable time. Courts are
not powerless to issue mandamus to the authorities
to appoint arbitrators as far as possible as per the
arbitration clause. But in larger number of cases if
it is found that it would not be conducive in the
interest of parties or for any other reasons to be
3 AIR 2007 Supreme Court 1764
recorded in writing. Choice can go beyond the
designated persons or institutions in appropriate
cases. But it should normally be adhered to the
terms of arbitration clause & appoint the
arbitrator/arbitrators named therein except in
exceptional cases for reasons to be recorded or
where both parties agree for common name.
In Union of India Vs. V. S. Engineering Pvt. Ltd.4, the
Supreme Court observed as follows:
We cannot allow administrative authorities
to sleep over the matter and leave the citizens
without any remedy. Authorities shall be vigilant
and their failure shall certainly give rise to cause to
the affected party. In case, the General Manager,
Railway does not appoint the arbitral tribunal after
expiry of the notice of 30 days or before the party
approaches the High Court, in that case, the High
Court will be fully justified in appointing arbitrator
under section 11 of the Act. It is the discretion of
the High Court that they can appoint any railway
officer or they can appoint any High Court Judge
according to the given situation.
A Three Judge Bench of the Supreme Court in the case of
Northern Railway Administration Vs. Patel Engineering Co. Ltd.,5 laid
down the following proposition:
12. A bare reading of the scheme of Section 11
shows that the emphasis is on the terms of the
agreement being adhered to and/or given effect as
closely as possible. In other words, the Court may ask
to do what has not been done. The Court must first
4 AIR 2007 Supreme Court 285
5 (2008) 10 Supreme Court Cases 240
ensure that the remedies provided for are exhausted. It
is true as contended by Mr. Desai, that it is not
mandatory for the Chief Justice or any person or
institution designated by him to appoint the named
arbitrator or arbitrators. But at the same time, due
regard has to be given to the qualifications required by
the agreement and other considerations.
13. The expression “due regard” means that proper
attention to several circumstances have been focused.
The expression “necessary” as a general rule can be
broadly stated to be those things which are reasonably
required to be done or legally ancillary to the
accomplishment of the intended act. Necessary
measures can be stated to be the reasonable steps
required to be taken.
8 These authorities suggest a balanced approach in the matter.
The courts should as far as possible preserve the sanctity of party
autonomy and defer to the appointment procedure agreed to between
the parties, whilst at the same time retaining a discretion to appoint such
arbitrator/s as may be deemed fit to meet the ends of justice. It may be
that in a given case, a party requiring to nominate an arbitrator may be
taking benefit of its own wrong by not naming an arbitrator or frequently
changing the arbitrator. It may also be that an order to follow the
appointment procedure is likely to result in a stalemate or otherwise
interests of justice may require that the appointment procedure ought
not to be followed. In all such cases, the courts are not powerless to
ignore the appointment procedure and appoint an independent tribunal
outside the appointment procedure. After all, the principle of party
autonomy is not so sacrosanct as to require adherence even in the face of
a clear injustice.
9 This discussion applies even to the number of arbitrators
that the agreed appointment procedure provides for. Even where the
appointment procedure requires a certain number of arbitrators, the
courts have made exceptions on the grounds of doing justice between
parties. In Group Chimique Tunisien SA Vs. Southern Petrochemicals
Industries Corporation Ltd.,6 the arbitration clause provided for
appointment of two arbitrators and in the event of disagreement an
umpire was to be appointed by the two arbitrators. The Supreme Court,
noting the provisions of Section 10 of the Act, appointed a three member
tribunal, with the third arbitrator to be selected at the outset by the two
nominated arbitrators. In KJMC Global Market (India) Ltd. Vs. Jammu
& Kashmir State Power Development Corporation7, the agreement
provided for appointment of three arbitrators, but the Delhi High Court,
accepting a plea of one of the parties, appointed a sole arbitrator instead.
In a more recent case, in Union of India Vs. Singh Builders Syndicate8,
6 2006(6) Mh.L.J.1
7 2005(1)ARDLR 178 (Delhi)
8 2010(3) ALT2(SC)
Raveendran J appointed a retired judge of Delhi High Court as sole
arbitrator, even though the arbitration agreement required two serving
Gazetted Railway Officers as arbitrators. Number of arbitrators is part of
appointment procedure agreed to between the parties, and this part of
the procedure, though ordinarily required to be adhered to, can in a
given case be disregarded on the same grounds as are indicated in the
foregoing paragraph generally in connection with the appointment
procedure.
10 In the case on hand, a strict and inflexible adherence to the
appointment procedure, and particularly the number of arbitrators,
would lead to a complete stalemate. Though the disputes under the MOU
and the Escrow Agreement have a common genesis and can – nay, ought
to be
decided in a single arbitration reference, a rigid adherence to the
number of arbitrators for the respective arbitral tribunals would lead to
truncating of the trial as well as multiplicity of proceedings and
possibility of conflicting decisions. There is a clear case for hearing a
joint arbitration between the Petitioners on the one hand and
Respondent Nos.1 and 2 on the other, and an equally clear case for
deviating from the number of arbitrators agreed upon between the
parties. Five arbitrators to be appointed under the arbitration clause of
the Escrow Agreement could very well decide the disputes under both
MOU and Escrow Agreement.
11 Even in the case of P.R. Shah (supra), the fact that there are
distinct and different appointment procedures as well as consequences
under two arbitration agreements did not deter the court from
countenancing a joint arbitration by one arbitral tribunal. In that case, as
pointed out above, in regard to the arbitration between a member and a
nonmember,
the applicable byelaw
was Byelaw
No. 248, which
required reference to three arbitrators, each party appointing one
arbitrator and the Executive Director of the Exchange appointing the
third arbitrator. On the other hand, in case of a dispute between a
member and another member, the applicable byelaw
was Byelaw
No.
282. This Byelaw
required the reference to be made to a three member
tribunal appointed by the arbitration committee of the exchange. This
tribunal was termed as Lower Bench and appeal from its award could be
taken before the Arbitration Committee constituted by the Governing
Board of the Exchange. In spite of these important differences between
the procedures under two separate Byelaws
including the consequences
of an award (eg. the provision of an appeal in case of arbitration under
one Byelaw
unlike the other), the Supreme Court did not find fault with
the joint arbitration before a common arbitral tribunal of three
arbitrators.
12 Accordingly, the arbitration application is allowed by
appointing Mr. Justice Rebello (Retd.) as the third arbitrator. The three
arbitrators, i.e. Mr. Justice Bharucha (Retd.), Mr. Justice Palshikar
(Retd.) and Mr. Justice Rebello (Retd.), shall appoint two arbitrators.
The reference between the parties for adjudication of disputes under
both the MOU and the Escrow Agreement shall be conducted before the
arbitral tribunal of five arbitrators so constituted.
` ( S.C. GUPTE, J. )
Print Page
The courts should as far as possible preserve the sanctity of party
autonomy and defer to the appointment procedure agreed to between
the parties, whilst at the same time retaining a discretion to appoint such
arbitrator/s as may be deemed fit to meet the ends of justice. It may be
that in a given case, a party requiring to nominate an arbitrator may be
taking benefit of its own wrong by not naming an arbitrator or frequently
changing the arbitrator. It may also be that an order to follow the
appointment procedure is likely to result in a stalemate or otherwise
interests of justice may require that the appointment procedure ought
not to be followed. In all such cases, the courts are not powerless to
ignore the appointment procedure and appoint an independent tribunal
outside the appointment procedure. After all, the principle of party
autonomy is not so sacrosanct as to require adherence even in the face of
a clear injustice.
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
ARBITRATION PETITION NO.10 OF 2012
M/s. Siddhi Real Estate Developers … Petitioner
Vs.
Metro Cash And Carry India Pvt. Ltd. & Anr. …Respondents
CORAM : S.C. GUPTE, J.
Read original judgment here;click here
Pronounced on : JUNE 12, 2014
Citation;2014(4) MHLJ 283 Bom
This is an application for appointment of an arbitrator under
Section 11 of the Arbitration and Conciliation Act, 1996 (“Act”).
2 The Petitioners are owners of a large piece and parcel of
land admeasuring about 24,199 sq. mtrs. at Village Dhokali, Taluka and
District Thane, Maharashtra. By an agreement titled as Memorandum of
Understanding dated 26 November 2007 (“MOU”), Respondent No. 1
agreed to acquire development rights and purchase from the Petitioners
a part of the said land admeasuring about 19,000 sq. mtrs. at or for a
consideration of Rs. 101.50 crores. The MOU has an arbitration clause
requiring inter alia each of the parties to appoint one arbitrator and the
two appointed arbitrators to appoint the third arbitrator. Pursuant to the
MOU, an escrow agreement dated 27 November 2007 (“Escrow
Agreement”) came to be executed between the parties inter alia
appointing Respondent No. 2 as the escrow agent to hold the sum of Rs.
25.37 crores payable by Respondent No. 1 to the Petitioners as part of
the consideration under the MOU and deposited by Respondent No. 1
with the escrow agent in an escrow account. The escrow amount was to
be disbursed by Respondent No. 2 in terms of the Escrow Agreement.
The Escrow Agreement contained an arbitration clause requiring inter
alia each of the three parties to the Escrow Agreement (i.e. the
Petitioners, Respondent No. 1 and Respondent No. 2) to appoint one
arbitrator and the three appointed arbitrators to appoint two additional
arbitrators, thus constituting an arbitral tribunal of five arbitrators.
Disputes and differences arose between the parties concerning the
performance of the MOU as well as payment of the escrow amount. The
Petitioners invoked the arbitration agreements contained in the MOU
and the Escrow Agreement. Both the Petitioners and Respondent No. 1
appointed their respective arbitrators, but Respondent No. 2 failed to
appoint any arbitrator. The Petitioners explored the possibility of
continuing with the arbitration proceedings between themselves and
Respondent No. 1 alone under the arbitration agreement contained in
the MOU (which required two arbitrators to be nominated by the parties
and the two nominated arbitrators to appoint a third arbitrator). The two
nominated arbitrators were, however, of the view that it was not possible
to proceed with the arbitration without the presence of Respondent No.
2 and appointment of the third arbitrator by the latter. (The three
nominated arbitrators would have to appoint two additional arbitrators,
thereby constituting a tribunal of five arbitrators, as per the terms of the
Escrow Agreement.) The Petitioners have, accordingly, approached this
court for appointment of a third arbitrator. Though there are separate
prayers in the application for constituting separate tribunals of three
arbitrators for deciding disputes under the MOU and of five arbitrators
(the three nominated arbitrators appointing two others on the tribunal)
for deciding disputes under the Escrow Agreement, the Petitioners have
introduced by way of an amendment a prayer for appointment of a
tribunal of five arbitrators for deciding disputes under both the MOU and
the Escrow Agreement. It is this prayer which is pressed at the hearing
by the Petitioners.
3 Respondent No. 1 has opposed this prayer for constituting a
common arbitral tribunal (of five arbitrators) for deciding disputes under
the MOU and the Escrow Agreement together. It is submitted by
Respondent No. 1 that they have no objection to constituting two
separate tribunals – one of three arbitrators for deciding disputes
between the Petitioners and Respondent No. 1 under the MOU and the
other of five arbitrators for adjudicating disputes between the
Petitioners, Respondent No. 1 and Respondent No. 2 under the Escrow
Agreement. This constitutes the main controversy in this petition. Both
parties accept that there are disputes between them and these are
covered by the two arbitration agreements, one contained in the MOU
and the other in the Escrow Agreement. But the Petitioners want these
disputes to be adjudicated by a common arbitral tribunal, whereas
Respondent No. 1 is prepared to go before two separate tribunals. It is
the case of Respondent No. 1 that after all the two agreements – the
MOU and Escrow Agreement – have separate provisions for the
constitution of arbitral tribunals and in any event, the disputes
thereunder cannot be clubbed for a common trial.
4 The question of validity of joint arbitration concerning the
same claim covered by two separate arbitration agreements to which the
Claimant is a common party and which are separately entered into by
the claimant with the Respondents, was considered by the Supreme
Court in the case of P.R. Shah, Shares and Stock Broker (P) Ltd. Vs. B.
H. H. Securities (P) Ltd.1 In that case the appellant and the first
respondent were members of the Bombay Stock Exchange. The second
respondent was a nonmember
with whom the first respondent claimed
to have entered into a transaction on the instructions of the appellant.
The first respondent thus had claims jointly against the second
respondent and the appellant. These claims, however, were to be
arbitrated upon under separate arbitration agreements – one between
the first respondent (a member) and the second respondent (a nonmember)
under Byelaw
248 and the other between the first respondent
and the appellant (both members) under Byelaw
282. The Supreme
Court held the joint arbitration to be valid. This is how the Supreme
Court explained the position (para 19) :
1 (2012) 1 SCC 594
If A had a claim against B and C, and there was
an arbitration agreement between A and B but there
was no arbitration agreement between A and C, it
might not be possible to have a joint arbitration against
B and C. A cannot make a claim against C in an
arbitration against B, on the ground that the claim was
being made jointly against B and C, as C was not a
party to the arbitration agreement. But if A had a claim
against B and C and if A had an arbitration agreement
with B and A also had a separate arbitration agreement
with C, there is no reason why A cannot have a joint
arbitration against B and C. Obviously, having an
arbitration between A and B and another arbitration
between A and C in regard to the same claim would
lead to conflicting decisions. In such a case, to deny
the benefit of a single arbitration against B and C on
the ground that the arbitration agreements against B
and C are different, would lead to multiplicity of
proceedings, conflicting decisions and cause injustice.
It would be proper and just to say that when A has a
claim jointly against B and C, and when there are
provisions for arbitration in respect of both B and C,
there can be a single arbitration.
5 In the case on hand, we are concerned with two arbitration
agreements – one between two parties, i.e. the Petitioners and
Respondent No. 1, namely, arbitration clause in the MOU and the other
between three parties, i.e. the Petitioners, Respondent No. 1 and
Respondent No. 2, namely, the arbitration clause contained in the
Escrow Agreement. The MOU provided for conferment of development
rights by the Petitioners on Respondent No. 1 at a consideration. The
Escrow Agreement provided for payment of part of the consideration by
deposit with the Escrow Agent (Respondent No. 2) and disbursal by the
Escrow Agent to the Petitioners in accordance with the terms of Escrow.
The Escrow Agreement was incidental to the MOU and entered into in
pursuance of the MOU. The dispute raised by the Petitioners is this:
Respondent No. 1 failed to pay the amount of consideration due under
the MOU to the Petitioners and Respondent No. 2, with whom the
consideration was deposited, wrongfully returned the deposit kept in
escrow with it to Respondent No. 1. This claim for disbursal of the
consideration is jointly against both the Respondents (and with both of
whom the Petitioners have separate arbitration agreements) and arises
out of a single transaction or part of a single transaction. There is no
reason why the Petitioners cannot have a joint arbitration against both
the Respondents. In fact, two separate arbitrations, in the facts of the
case, would lead to multiplicity of proceedings and possibility of
conflicting decisions, leading to serious injustice. This is precisely the
vice that was sought to avoided when the Supreme Court laid down the
law in P. R. Shah (supra). I am fortified in this view by a judgment of
another Single Judge of this Court in Flimwares Combine Private Ltd.
Vs. Kochi Cricket Private Ltd..2
6 The question now is, whether any difference is made to this
2 ARBAP68 of 2012 dtd. 22 February 2013
principle due to separate provisions in the two arbitration agreements for
constitution of the arbitral tribunal – one requiring a tribunal of three
arbitrators and the other five. Learned Counsel for Respondent No. 1
would argue that after all the agreement between the parties essentially
contemplates a three member arbitral tribunal for disputes arising out of
the MOU and a five member arbitral tribunal for disputes arising out of
the Escrow Agreement and one would be doing violance to this
agreement if all the disputes including the disputes under the MOU were
to be referred to an arbitral tribunal of five members.
7 Let this aspect be examined in the light of the powers of the
Chief Justice or his designate under Section 11 of the Act. The question
is whether the principle of party autonomy prohibits the court to appoint
different number of arbitrators from what was agreed to between the
parties. Obviously, in the present case though an appointment procedure
is agreed upon by the parties, they have failed to act under that
procedure. That is the basis of the present application. Section 11
requires the Court (i.e. the Chief Justice or his designate) in such a case
to “take the necessary measure”, unless the agreement on the
appointment procedure provides other means for securing the
appointment. The question as to what constitutes the “necessary
measures” has engaged the attention of the Courts in a number of cases.
Do “necessary measures” imply only those measures that have to be
taken under the appointment procedure as laid down in the arbitration
agreement or are these measures independent of the agreement between
the parties concerning the appointment procedure. Though there have
been conflicting positions earlier by different High Courts on this issue,
the trend now seems to be in favour of a half–way house solution,
suggested by the Supreme Court in the case of Ace Pipeline Contracts
Pvt. Ltd. Vs. Bharat Petroleum Corporation Ltd.3 In that case, the
arbitration agreement required that the Government Department
concerned had to appoint an arbitrator, which the Department failed to
do. The Supreme Court held as follows:
13. It may also not be out of place to mention
that we are aware of the Departmental lethargy in
making appointment of arbitrators in terms of the
arbitration clause. Therefore, mandamus can be
issued by the Courts in exercise of powers under
Section 11(6) of the Act but the demand should be
in the event of failure by the authorities to appoint
arbitrators within the reasonable time. Courts are
not powerless to issue mandamus to the authorities
to appoint arbitrators as far as possible as per the
arbitration clause. But in larger number of cases if
it is found that it would not be conducive in the
interest of parties or for any other reasons to be
3 AIR 2007 Supreme Court 1764
recorded in writing. Choice can go beyond the
designated persons or institutions in appropriate
cases. But it should normally be adhered to the
terms of arbitration clause & appoint the
arbitrator/arbitrators named therein except in
exceptional cases for reasons to be recorded or
where both parties agree for common name.
In Union of India Vs. V. S. Engineering Pvt. Ltd.4, the
Supreme Court observed as follows:
We cannot allow administrative authorities
to sleep over the matter and leave the citizens
without any remedy. Authorities shall be vigilant
and their failure shall certainly give rise to cause to
the affected party. In case, the General Manager,
Railway does not appoint the arbitral tribunal after
expiry of the notice of 30 days or before the party
approaches the High Court, in that case, the High
Court will be fully justified in appointing arbitrator
under section 11 of the Act. It is the discretion of
the High Court that they can appoint any railway
officer or they can appoint any High Court Judge
according to the given situation.
A Three Judge Bench of the Supreme Court in the case of
Northern Railway Administration Vs. Patel Engineering Co. Ltd.,5 laid
down the following proposition:
12. A bare reading of the scheme of Section 11
shows that the emphasis is on the terms of the
agreement being adhered to and/or given effect as
closely as possible. In other words, the Court may ask
to do what has not been done. The Court must first
4 AIR 2007 Supreme Court 285
5 (2008) 10 Supreme Court Cases 240
ensure that the remedies provided for are exhausted. It
is true as contended by Mr. Desai, that it is not
mandatory for the Chief Justice or any person or
institution designated by him to appoint the named
arbitrator or arbitrators. But at the same time, due
regard has to be given to the qualifications required by
the agreement and other considerations.
13. The expression “due regard” means that proper
attention to several circumstances have been focused.
The expression “necessary” as a general rule can be
broadly stated to be those things which are reasonably
required to be done or legally ancillary to the
accomplishment of the intended act. Necessary
measures can be stated to be the reasonable steps
required to be taken.
8 These authorities suggest a balanced approach in the matter.
The courts should as far as possible preserve the sanctity of party
autonomy and defer to the appointment procedure agreed to between
the parties, whilst at the same time retaining a discretion to appoint such
arbitrator/s as may be deemed fit to meet the ends of justice. It may be
that in a given case, a party requiring to nominate an arbitrator may be
taking benefit of its own wrong by not naming an arbitrator or frequently
changing the arbitrator. It may also be that an order to follow the
appointment procedure is likely to result in a stalemate or otherwise
interests of justice may require that the appointment procedure ought
not to be followed. In all such cases, the courts are not powerless to
ignore the appointment procedure and appoint an independent tribunal
outside the appointment procedure. After all, the principle of party
autonomy is not so sacrosanct as to require adherence even in the face of
a clear injustice.
9 This discussion applies even to the number of arbitrators
that the agreed appointment procedure provides for. Even where the
appointment procedure requires a certain number of arbitrators, the
courts have made exceptions on the grounds of doing justice between
parties. In Group Chimique Tunisien SA Vs. Southern Petrochemicals
Industries Corporation Ltd.,6 the arbitration clause provided for
appointment of two arbitrators and in the event of disagreement an
umpire was to be appointed by the two arbitrators. The Supreme Court,
noting the provisions of Section 10 of the Act, appointed a three member
tribunal, with the third arbitrator to be selected at the outset by the two
nominated arbitrators. In KJMC Global Market (India) Ltd. Vs. Jammu
& Kashmir State Power Development Corporation7, the agreement
provided for appointment of three arbitrators, but the Delhi High Court,
accepting a plea of one of the parties, appointed a sole arbitrator instead.
In a more recent case, in Union of India Vs. Singh Builders Syndicate8,
6 2006(6) Mh.L.J.1
7 2005(1)ARDLR 178 (Delhi)
8 2010(3) ALT2(SC)
Raveendran J appointed a retired judge of Delhi High Court as sole
arbitrator, even though the arbitration agreement required two serving
Gazetted Railway Officers as arbitrators. Number of arbitrators is part of
appointment procedure agreed to between the parties, and this part of
the procedure, though ordinarily required to be adhered to, can in a
given case be disregarded on the same grounds as are indicated in the
foregoing paragraph generally in connection with the appointment
procedure.
10 In the case on hand, a strict and inflexible adherence to the
appointment procedure, and particularly the number of arbitrators,
would lead to a complete stalemate. Though the disputes under the MOU
and the Escrow Agreement have a common genesis and can – nay, ought
to be
decided in a single arbitration reference, a rigid adherence to the
number of arbitrators for the respective arbitral tribunals would lead to
truncating of the trial as well as multiplicity of proceedings and
possibility of conflicting decisions. There is a clear case for hearing a
joint arbitration between the Petitioners on the one hand and
Respondent Nos.1 and 2 on the other, and an equally clear case for
deviating from the number of arbitrators agreed upon between the
parties. Five arbitrators to be appointed under the arbitration clause of
the Escrow Agreement could very well decide the disputes under both
MOU and Escrow Agreement.
11 Even in the case of P.R. Shah (supra), the fact that there are
distinct and different appointment procedures as well as consequences
under two arbitration agreements did not deter the court from
countenancing a joint arbitration by one arbitral tribunal. In that case, as
pointed out above, in regard to the arbitration between a member and a
nonmember,
the applicable byelaw
was Byelaw
No. 248, which
required reference to three arbitrators, each party appointing one
arbitrator and the Executive Director of the Exchange appointing the
third arbitrator. On the other hand, in case of a dispute between a
member and another member, the applicable byelaw
was Byelaw
No.
282. This Byelaw
required the reference to be made to a three member
tribunal appointed by the arbitration committee of the exchange. This
tribunal was termed as Lower Bench and appeal from its award could be
taken before the Arbitration Committee constituted by the Governing
Board of the Exchange. In spite of these important differences between
the procedures under two separate Byelaws
including the consequences
of an award (eg. the provision of an appeal in case of arbitration under
one Byelaw
unlike the other), the Supreme Court did not find fault with
the joint arbitration before a common arbitral tribunal of three
arbitrators.
12 Accordingly, the arbitration application is allowed by
appointing Mr. Justice Rebello (Retd.) as the third arbitrator. The three
arbitrators, i.e. Mr. Justice Bharucha (Retd.), Mr. Justice Palshikar
(Retd.) and Mr. Justice Rebello (Retd.), shall appoint two arbitrators.
The reference between the parties for adjudication of disputes under
both the MOU and the Escrow Agreement shall be conducted before the
arbitral tribunal of five arbitrators so constituted.
` ( S.C. GUPTE, J. )
No comments:
Post a Comment