Whether any party to arbitration agreement can unilaterally change its terms and conditions for its own advantage?

It was held that the Petitioner was the defaulting party, who had failed to appoint/nominate his Arbitrator in terms of the arbitration clause binding both the parties. He could not take advantage of his own wrong. An arbitration agreement is an independent agreement and is binding on both the parties and neither of the parties can unilaterally change the terms and conditions of any agreement. There was a complete violation of procedure of Arbitration clause by the Petitioner. The contention of the Petitioner that the Respondent has waived his right to object in view of Section 4 of the Act and, therefore, even if the Petitioners had appointed an Arbitrator beyond the stipulated date, still the Respondent cannot object to it, was held to be meritless because the Petitioner had failed to appoint the Arbitrator even within the time it asked for. 

The parties are required to act as per procedure agreed upon by them for appointment of an Arbitrator and if a party defaults, the aggrieved party can move to the Court against the defaulting party. In the present case it was the Petitioner who had failed to follow the procedure of appointment of Arbitrator and thus is a defaulting party. 
The Court in the above circumstances declined to appoint any other person as an Arbitrator for want of jurisdiction under section 11(6) of the Act.

IN THE HIGH COURT OF DELHI AT NEW DELHI
ARB.P. 527/2014


Judgement pronounced on: 13th November, 2014
M/S UTKAL GALVANIZERS LTD

versus
M/S POWER GRID CORPORATION OF INDIA LTD... 
CORAM:
HON'BLE MS. JUSTICE DEEPA SHARMA



The present petition has been filed under Section 11(6) of the
Arbitration and Conciliation Act, 1996 for the relief that the appointment of
Justice K.S. Gupta (Retd.), the retired nominee Arbitrator, appointed by the
petitioner, be upheld. The other request, which has been made by the
petitioner in the present petition, is that since the respondent has already
nominated his Arbitrator, pursuant to the arbitration clause and the petitioner
has also appointed his nominee Arbitrator and since both the nominated
arbitrators have failed to reach the consensus to appoint a Presiding
Arbitrator, the Court should appoint a Presiding Arbitrator. A request has

also been made to quash the notice dated 04.09.2014 of the respondent,
whereby the respondent had appointed his nominated Arbitrator as a sole
Arbitrator.
2.
The brief facts of this case are that the petitioner and the respondent
had entered into a contract which was subsequently terminated by the
respondent and the respondent had raised a demand of sum of
Rs.48,05,76,414/- vide their letter dated 13.02.2014. The petitioner had
refuted the said liability vide their letter dated 06.03.2014. The respondent,
thereafter, invoked the arbitration clause 39(2) of the agreement vide their
letter dated 14.05.2014 and informed the petitioner that they had nominated
Justice S.N. Aggarwal (Retd.) as their Arbitrator and called upon the
petitioner to appoint its nominee Arbitrator. The arbitration clause had
required the petitioner to nominate their Arbitrator within 60 days of the
receipt of the notice from the respondent. However, instead of nominating
their Arbitrator, the petitioner sought extension of time till 01.08.2014 on
the ground that they were unable to nominate their Arbitrator due to
unforeseen circumstances vide their letter dated 20.05.2014. Despite that the
petitioner did not nominate his Arbitrator and wrote a letter dated
31.07.2014 seeking further time of 30 days for nominating their Arbitrator.

3.
The case of the petitioner is that although they had written a letter
dated 31.07.2014 seeking further extension of time, but, they had nominated
Justice K.S. Gupta (Retd.) as their Arbitrator even before 02.08.2014 and
also informed the respondent of this nomination vide their letter dated
02.08.2014. It is contended that despite that the respondent vide its letter
dated 06.08.2014 appointed their nominee as the sole Arbitrator on the
ground that the petitioner had failed to nominate its Arbitrator within 60
days in terms of clause 39(2) of the agreement. A protest letter dated
13.08.2014 was sent by the petitioner to Justice S.N. Aggarwal (Retd.),
nominated Arbitrator of the respondent and also to the respondent asking
them to accept the nomination of their Arbitrator. The petitioner had
received a letter dated 24.08.2014 from Justice S.N. Aggarwal (Retd.),
wherein it was disclosed that he had a meeting on 22.08.2014 with Justice
K.S. Gupta (Retd.), nominated Arbitrator of the petitioner, but, since they
could not reach to any consensus over the issue of appointment of a
Presiding Arbitrator, the meeting was adjourned. In the same letter, Justice
S.N. Aggarwal (Retd.) has also informed the petitioner that he had received
a letter of respondent dated 06.08.2014 on 23.08.2014, whereby he had been
asked to act as a sole Arbitrator. The learned Arbitrator vide its written

communication fixed the date of hearing before him.
4.
It is also pleaded by the petitioner that the notice of the respondent
dated 14.05.2014 was actually received by them only on 20.05.2014 and,
therefore, 60 days for appointment of an Arbitrator be counted from that
date and those 60 days thus expired only on 20.07.2014.
It is further
pleaded that the petitioner understood by the silence of the respondent on
their letter seeking extension of time till 01.08.2014 that the respondent had
conceded to their request for extension of time till 01.08.2014. It is also
contended that the respondents have now lost their right to object the
nomination of the Arbitrator by the petitioner. Since the Arbitrator has been
validly appointed by the petitioner and since both the nominated Arbitrators
in the meeting for appointment of a principal Arbitrator had failed to reach a
consensus, it is prayed that the Court should appoint a third Arbitrator
declaring that the petitioner had legally nominated their Arbitrator and also
quash the appointment of the nominated Arbitrator as a sole Arbitrator.
5.
It is further argued by the learned counsel for the petitioner that the
right of a party to appoint an Arbitrator does not automatically cease, but
continues till the application under Section 11(6) of the Act is made and,
therefore, it cannot be said that the petitioner had since nominated its

Arbitrator after 60 days, his nomination is invalid. Reliance has been placed
on Bharat Sanchar Nigam Limited and Another vs. Dhanurdhar
Champatiray (2010) 1 SCC 673.
6.
Learned counsel for the respondent has not filed any reply, but has
argued the matter. It is argued that the present petition under Section 11(6)
of the Act is not maintainable. It is submitted that under Section 11(6), a
petition can be filed against a defaulting party and a defaulting party,
without resorting to the terms of the agreement, cannot move the Court
under Section 11(6) of the Act. It is also submitted that the petitioner itself
is a guilty party. It is submitted that as per arbitration clause 39, a procedure
has been prescribed and the petitioner has not adhered to the said procedure
and, therefore, cannot invoke the jurisdiction of this Court under Section
11(6) of the Act. Reliance has been placed on India Household and
Healthcare Ltd. vs. LG Household and Health Care Ltd. (2007) 5 SCC
510, National Highways Authority of India and Anr. vs. Bumihiway DDB
Ltd. (JV) and Anr. (2006) 10 SCC 763 and Indo Pacific Aviation Private
Ltd. vs. Pawan Hans Helicopters Ltd. (2007) 145 DLT 61.
7.
It is argued that in all the above-mentioned cases, it has been held that
whenever an arbitration clause has been invoked and the other party has

defaulted in following the procedure of the arbitration clause, the aggrieved
party can approach the Court. It is argued that in the present case, the
defaulting party, i.e., the party, who has failed to comply with the terms and
conditions of the arbitral clause, is the petitioner and the defaulting party
cannot approach the Court.
8.
I have given due consideration to the arguments of the parties and also
the relevant case laws relied upon.
9.
The dispute in this case revolves around the interpretation of clause
39.2 which governs the arbitration agreement between the parties. The said
clause is reproduced as under:-
“Clause 39.2- The arbitration shall be conducted by
three arbitrators, one each to be nominated by the
Contractor and the Employer and the third to be
appointed by both the arbitrators in accordance with
the Indian Arbitration Act. If either of the parties fails
to appoint its arbitrator within sixty (60) days after
receipt of a notice from the other party invoking the
Arbitration clause, the arbitrator appointed by the party
invoking the arbitration clause shall become the sole
arbitrator to conduct the arbitration.”
10.
This arbitration clause has two parts. One part lays down the
procedure for appointment of the Arbitrator. It requires that the arbitration
shall be conducted by three Arbitrators. Both the parties, contractor and the
employer has to first nominate their Arbitrator and thereafter both the

Arbitrators, so appointed, has to appoint a third Arbitrator. The clause also
requires that both the parties shall nominate their Arbitrator within 60 days
after receipt of a notice from the party invoking the arbitration clause. The
second part of this arbitration clause prescribes the procedure to be followed
by the parties in case either of the parties fail to appoint an Arbitrator within
60 days. The clause prescribes that in such eventuality, the Arbitrator
appointed by the party invoking the arbitration clause shall become the sole
Arbitrator to conduct the arbitration.
From the bare reading of this clause, it is apparent that the clause
itself prescribes a mode of appointment of an Arbitrator in case of default of
either of the parties to nominate its Arbitrator for constitution of the Arbitral
Tribunal, within 60 days
11.
In the present case, the admitted facts clearly show that the respondent
invoked the arbitration clause and nominated its Arbitrator and the petitioner
did not nominate his Arbitrator within 60 days, the period prescribed in the
clause. The contention of the petitioner is that on receiving a letter from the
respondent invoking the arbitration clause, they wrote a letter dated
20.05.2014 and asked the respondent to give them time up to 01.08.2014 for
appointment of the Arbitrator. It is pertinent to mention here that the

petitioner did not appoint their Arbitrator even by 01.08.2014, the time they
sought from respondent for appointment of the Arbitrator. Their contention
that they did so is contrary to their own documents placed on record. Their
letter dated 31.07.2014 clearly shows that till 31.07.2014, they had not
nominated any Arbitrator. Vide this letter, they had sought further time of 30
days from the respondent for appointment of the Arbitrator. The letter dated
13.08.2014 of the petitioner clearly shows that a letter for appointment of
the Arbitrator dated 02.08.2014 was signed by their Director only on
07.08.2014. Vide letter dated 02.08.2014 the petitioner had informed the
respondent that they had appointed Justice K.S. Gupta (Retd.) as the
nominee Arbitrator.
Since the letter dated 02.08.2014, appointing the
Arbitrator by the petitioner, was executed only on 07.08.2014, it cannot be
said that the petitioner had nominated his Arbitrator before 07.08.2014.
Even if we presume that the respondent by remaining silent on the letter of
the petitioner for seeking time till 01.08.2014 to appoint an Arbitrator
amounts to consent or acquiescing to the request, still the petitioners were
bound to nominate their Arbitrator atleast by 01.08.2014. It is also apparent
from the letter of the respondent dated 06.08.2014 that they turned down the
request of the petitioner in its letter dated 31.07.2014 for grant of further

time for nomination of the Arbitrator and pursuant to second part of the
arbitration clause appointed their nominated Arbitrator as the sole
Arbitrator. The respondent had done so before the petitioner appointed its
arbitrator. From these facts, it is apparent that while the respondent had
acted as per the procedure prescribed under the arbitration clause binding the
parties, it was the petitioner, who had failed to comply the procedure under
the arbitration clause. This clearly shows that the petitioner is a defaulting
party.
12.
The petitioner has also raised a contention that in view of the findings
in Bharat Sanchar Nigam Limited (supra), he could appoint an Arbitrator
at any time before the filing of the present case and since he has done so, his
appointment of the Arbitrator is valid and the Court should appoint the third
Arbitrator. It is argued on behalf of the respondent that the facts in this case
and the facts in Bharat Sanchar Nigam Limited (supra) are entirely
different and the findings of that case is not applicable on the facts of this
case, especially when the petitioner himself is a defaulting party. On this
point, I have given careful consideration to the rival contention and has also
gone through the case law relied upon by the petitioner. From the facts of
the case supra, it is apparent that it was the respondent Dhanurdhar

Champatiray who had invoked the arbitration clause and when the appellant,
i.e., BSNL failed to appoint the Arbitrator within the stipulated period,
approached the Court under Section 11(6) of the Act for appointment of the
Arbitrator. The contention of BSNL was that they had already appointed an
Arbitrator before the respondent Dhanurdhar Champatiray could approach
the Court under Section 11(6) of the Act. Herein in this case, the petitioner
is the defaulting party, who had failed to appoint/nominate his Arbitrator in
terms of the arbitration clause binding both the parties. He could not take
advantage of his own wrong. In view of this, the ratio laid down by the
Supreme Court in Bharat Sanchar Nigam Limited (supra) has no
application to the facts of this case.
13.
An arbitration agreement is an independent agreement and is binding
on both the parties. It is a settled law that neither of the parties can
unilaterally change the terms and conditions of any agreement.
The
petitioner under this agreement was bound to nominate its Arbitrator within
60 days, but admittedly, he did not do so for some reason given by him in
his letter dated 20.05.2014 and requested the respondent to give him the
time to nominate his Arbitrator till 01.08.2014. Even if I say that the silence
on the part of the respondent to this request of the petitioner amounts to

consent and grant of time to petitioner for nominating the Arbitrator till
01.08.2014, still, admittedly, the petitioner did not appoint the Arbitrator
within that extended period. There is therefore a complete violation of
procedure of Arbitration clause by the petitioner. The contention of the
petitioner that the respondent has waived his right to object in view of
Section 4 of the Act and, therefore, even if the petitioners had appointed an
Arbitrator beyond 01.08.2014, still the respondent cannot object to it, has no
merit in it because the petitioner had failed to appoint the Arbitrator even
within the time it asked for. The contention of the petitioner that vide its
letter dated 31.07.2014 the petitioner had further asked for the extension of
time by 30 days for nomination of his Arbitrator and since the respondent
had not objected to the earlier extension of time, so they bona fidely
believed that the respondent would not object to the further extension of
time but still as an abundant caution within 3 days of their writing the letter
dated 31.07.2014, they nominated their Arbitrator and informed the
respondent vide letter dated 02.08.2014. These arguments of petitioner are
contrary to record. Firstly, because when the petitioner did not appoint the
Arbitrator by 01.08.2014 and again wrote a letter dated 31.07.2014, the
respondent vide their letter dated 06.08.2014 did not agree to any further

extension of time and in terms of arbitration clause appointed their
nominated Arbitrator as a sole Arbitrator. It is pertinent to mention here that
the sole Arbitrator was appointed by the respondent vide their letter dated
06.08.2014, before even the petitioner had informed respondent about
nomination of their Arbitrator. Although the petitioner has contended that
vide their letter dated 02.08.2014 they informed the respondent of
appointment of their nominated Arbitrator, but, in their own letter dated
13.08.2014, they have clearly stated that the said letter dated 02.08.2014 was
sent by them on 07.08.2014 as their Director was out of station and could
not sign the letter earlier.
14.
The relevant portion of the said letter is reproduced as under:-
“The said letter dated 02.08.2014 was sent by us on
07.08.2014 as our Director was out of station and could
not sign the letter earlier. You have also received our
letter dated 02.08.2014 after you have issued the letter
dated 06.08.2014 and before we received your letter
dated 06.08.2014.”
If the petitioner is himself a defaulting party, he cannot move the
Court under Section 11(6) of the Act. Provisions under Section 11(6) of the
Act can be invoked against a defaulting party and not by a defaulting party.
15.
In case of National Highways Authority of India (supra), the
Supreme Court has held as under:-

“The parties have entered into a contract after fully
understanding the import of the terms so agreed to from
which there cannot be any deviation. The courts have
held that the parties are required to comply with the
procedure of appointment as agreed to and the defaulting
party cannot be allowed to take advantage of its own
wrong.”
16.
In the case of India Household and Healthcare (supra), the Supreme
Court, after discussing various case laws, has held as under:-
“An application for appointment of an arbitrator,
therefore, is not maintainable unless the procedure and
mechanism agreed to by and between the parties is
complied with.”
17.
In Datar Switchgears Ltd. vs. Tata Finance Ltd. (2000) 8 SCC 151,
the Supreme Court has held as under:-
“An application under sub-section (6) of Section 11 can
be filed when there is a failure of the procedure for
appointment of Arbitrator. This failure of procedure can
arise under different circumstances. It can be a case
where a party who is bound to appoint an Arbitrator
refuses to appoint the Arbitrator or where two appointed
Arbitrators fail to appoint the third Arbitrator. If the
appointment of Arbitrator or any function connected with
such appointment is entrusted to any person or institution
and such person or institution falls to discharge such
function, the aggrieved party can approach the Chief
Justice for appointment of Arbitrator.”
Thus, the ratio of these judgments clearly stipulate that the parties are
required to act as per procedure agreed upon by them for appointment of an

Arbitrator and if a party defaults, the aggrieved party can move to the Court
against the defaulting party.
18.
In the present case, as discussed above, it was the petitioner who had
failed to follow the procedure of appointment of Arbitrator and thus is a
defaulting party. Since the petitioner had failed to appoint its nominee
Arbitrator in terms of Arbitration agreement, it cannot be said that the
appointment of nominee Arbitrator by him is as per the agreed procedure.
19.
The another contention of the petitioner is that since the nominated
Arbitrators had already met on 22.08.2014 for appointment of a principal
arbitrator, but could not reach to any consensus, therefore, this Court should
appoint a third Arbitrator so that the Arbitral Tribunal be completed. This
argument of the petitioner, as discussed above, has no merit in it and their
meeting on 22.08.2014 when they were unaware that pursuant to arbitration
clause, Justice S.N. Aggarwal (Retd.) had been appointed as a sole
Arbitrator, is of no consequence.
20.
Part II of Clause 39(2) clearly stipulates that if either of the parties
fails to appoint their Arbitrator, the nominated Arbitrator appointed by one
party shall act as a sole Arbitrator. In the present case since the respondent
had invoked the arbitration clause, and petitioner had failed to nominate his

Arbitrator in terms of agreement, the respondent has rightly vide letter dated
06.08.2014 nominated its Arbitrator as a sole Arbitrator. This Court under
Section 11(6) of the Act therefore has no jurisdiction to appoint any other
person as an Arbitrator.
21.
In view of the above, it is apparent that the petition has no merit and
the same is liable to be dismissed.
22.
The petition is hereby dismissed.
DEEPA SHARMA
(JUDGE)
NOVEMBER 13, 2014

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