arbitrator is specified in the agreement for arbitration, if
circumstances so warrant, the Chief Justice or the designated
Judge is free to appoint an independent arbitrator, having due
regard to the qualification, if any, and other aspects as required
under Section 11(8) of the Act.
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4483 OF 2017
UNION OF INDIA
V
BESCO LTD.
Dated:MARCH 27, 2017.
Citation: AIR 2017 SC 1628
2. The short question arising for consideration in this case
is whether the Chief Justice of a High Court or any person or
institution designated by him, while exercising power under
Section 11(6) of The Arbitration and Conciliation Act, 1996
(hereinafter referred to as “the Act”) is bound to nominate an
arbitrator as specified in the agreement for arbitration. The
designated Judge in the High Court took the view that the
appellant has lost the mandate to appoint an arbitrator since it
failed to appoint the arbitrator within the permitted time and
hence nominated an independent arbitrator.
3. Mr. Maninder Singh, learned Additional Solicitor General,
placing reliance on Union of India and another v. M.P.
Gupta1
and Union of India and others v. Master
Construction Company2
, submitted that the designated
Judge, exercising the power under Section 11(6) of the Act, is
bound to nominate a person as stipulated in the agreement for
arbitration. In M.P. Gupta (supra), the relevant clauses on
arbitration contained a provision that the arbitrators should be
Gazetted Railway Officers. It may also be relevant in this
context to note that the arbitration agreement contained a
specific provision that it is a term of contract that no person
other than a gazetted railway officer should act as an
arbitrator/umpire and if for any reason, that is not possible, the
matter is not to be referred to arbitration at all. This Court
1
(2004) 10 SCC 504
2
(2011) 12 SCC 349
hence set aside the order passed by the designated Judge who
had nominated a retired Judge as the sole arbitrator. In Master
Construction Company (supra), the question in issue was, in
fact, left open.
4. Mr. Dushyant Dave, learned Senior Counsel appearing
for the respondent submits that once the right of a party to
nominate an arbitrator is forfeited, the Chief Justice or the
designated Judge under Section 11(6) of the Act is free to
nominate any qualified person as arbitrator and that the Chief
Justice or the designated Judge is not bound to nominate the
arbitrator as specified in the agreement. Our attention has
been invited to Northern Railway Administration, Ministry
of Railway, New Delhi v. Patel Engineering Company
Limited3
and North Eastern Railway and others v. Tripple
Engineering Works4
.
5. In Patel Engineering Company Limited (supra), a
three-Judge Bench of this Court held that the Chief Justice or
the designated Judge, if required, is free to deviate from the
arbitration clause and nominate an independent person; but
while doing so, due regard shall be given to the qualifications
3
(2008) 10 SCC 240
4
(2014) 9 SCC 288
prescribed in the arbitration agreement, as required under
Section 11(8) of the Act.
6. In Tripple Engineering Works (supra) also this Court
reiterated the position that the Chief Justice or the designated
Judge was free to deviate from the terms of the contract.
Paragraphs-6 and 7 read as follows:
“6. The “classical notion” that the High Court
while exercising its power under Section 11 of the
Arbitration and Conciliation Act, 1996 (hereinafter
for short “the Act”) must appoint the arbitrator as
per the contract between the parties saw a
significant erosion in ACE Pipeline Contracts (P)
Ltd. v. Bharat Petroleum Corpn. Ltd. wherein this
Court had taken the view that though the contract
between the parties must be adhered to,
deviations therefrom in exceptional circumstances
would be permissible. A more significant
development had come in a decision that followed
soon thereafter in Union of India v. Bharat Battery
Mfg. Co. (P) Ltd. wherein following a three-Judge
Bench decision in Punj Lloyd Ltd. v. Petronet MHB
Ltd. it was held that once an aggrieved party files
an application under Section 11(6) of the Act to
the High Court, the opposite party would lose its
right of appointment of the arbitrator(s) as per the
terms of the contract. The implication that the
Court would be free to deviate from the terms of
the contract is obvious.
7. The apparent dichotomy in ACE Pipeline
and Bharat Battery Mfg. Co. (P) Ltd. was reconciled
by a three-Judge Bench of this Court in Northern
Railway Admn. v. Patel Engg. Co. Ltd. wherein the
jurisdiction of the High Court under Section 11(6)
of the Act was sought to be emphasised by taking
into account the expression “to take the necessary
measure” appearing in sub-section (6) of Section
11 and by further laying down that the said
expression has to be read along with the
requirement of sub-section (8) of Section 11 of the
Act. The position was further clarified in Indian Oil
Corpn. Ltd. v. Raja Transport (P) Ltd. Para 48 of the
Report wherein the scope of Section 11 of the Act
was summarised may be quoted by reproducing
sub-paras (vi) and (vii) hereinbelow: (Indian Oil
case, SCC p. 537)
“48. (vi) The Chief Justice or his designate
while exercising power under sub-section (6) of
Section 11 shall endeavour to give effect to the
appointment procedure prescribed in the
arbitration clause.
(vii) If circumstances exist, giving rise to
justifiable doubts as to the independence and
impartiality of the person nominated, or if other
circumstances warrant appointment of an
independent arbitrator by ignoring the
procedure prescribed, the Chief Justice or his
designate may, for reasons to be recorded
ignore the designated arbitrator and appoint
someone else.”
(emphasis in original)”
7. In Indian Oil Corporation and others v. Raja
Transport Private Limited5
, this Court has elaborately
discussed the scope of Section 11 of the Act and held that if the
circumstances so warrant, the Chief Justice or the designated
Judge can ignore the specified arbitrator as stipulated in the
agreement. Paragraphs-45 and 48, to the extent relevant, read
as follows:
5
(2009) 8 SCC 520
5Page 6
“45. If the arbitration agreement provides for
arbitration by a named arbitrator, the courts
should normally give effect to the provisions of the
arbitration agreement. But as clarified by Northern
Railway Admn., where there is material to create a
reasonable apprehension that the person
mentioned in the arbitration agreement as the
arbitrator is not likely to act independently or
impartially, or if the named person is not available,
then the Chief Justice or his designate may, after
recording reasons for not following the agreed
procedure of referring the dispute to the named
arbitrator, appoint an independent arbitrator in
accordance with Section 11(8) of the Act. In other
words, referring the disputes to the named
arbitrator shall be the rule. The Chief Justice or his
designate will have to merely reiterate the
arbitration agreement by referring the parties to
the named arbitrator or named Arbitral Tribunal.
Ignoring the named arbitrator/Arbitral Tribunal and
nominating an independent arbitrator shall be the
exception to the rule, to be resorted for valid
reasons.
xxxx xxxx xxxx xxxx xxxx
48. In the light of the above discussion, the
scope of Section 11 of the Act containing the
scheme of appointment of arbitrators may be
summarised thus:
(i) Where the agreement provides for
arbitration with three arbitrators (each party to
appoint one arbitrator and the two appointed
arbitrators to appoint a third arbitrator), in the
event of a party failing to appoint an arbitrator
within 30 days from the receipt of a request
from the other party (or the two nominated
arbitrators failing to agree on the third
arbitrator within 30 days from the date of the
appointment), the Chief Justice or his designate
will exercise power under sub-section (4) of
Section 11 of the Act.
(ii) Where the agreement provides for
arbitration by a sole arbitrator and the parties
have not agreed upon any appointment
procedure, the Chief Justice or his designate will
exercise power under sub-section (5) of Section
11, if the parties fail to agree on the arbitration
within thirty days from the receipt of a request
by a party from the other party.
(iii) Where the arbitration agreement
specifies the appointment procedure, then
irrespective of whether the arbitration is by a
sole arbitrator or by a three-member Tribunal,
the Chief Justice or his designate will exercise
power under sub-section (6) of Section 11, if a
party fails to act as required under the agreed
procedure (or the parties or the two appointed
arbitrators fail to reach an agreement expected
of them under the agreed procedure or any
person/institution fails to perform any function
entrusted to him/it under that procedure).
(iv) While failure of the other party to act
within 30 days will furnish a cause of action to
the party seeking arbitration to approach the
Chief Justice or his designate in cases falling
under sub-sections (4) and (5), such a
time-bound requirement is not found in
sub-section (6) of Section 11. The failure to act
as per the agreed procedure within the
time-limit prescribed by the arbitration
agreement, or in the absence of any prescribed
time-limit, within a reasonable time, will enable
the aggrieved party to file a petition under
Section 11(6) of the Act.
(v) Where the appointment procedure has
been agreed between the parties, but the cause
of action for invoking the jurisdiction of the
Chief Justice or his designate under clauses (a),
(b) or (c) of sub-section (6) has not arisen, then
the question of the Chief Justice or his designate
exercising power under sub-section (6) does not
arise. The condition precedent for approaching
the Chief Justice or his designate for taking
necessary measures under sub-section (6) is
that
(i) a party failing to act as required
under the agreed appointment procedure; or
(ii) the parties (or the two appointed
arbitrators) failing to reach an agreement
expected of them under the agreed
appointment procedure; or
(iii) a person/institution who has been
entrusted with any function under the agreed
appointment procedure, failing to perform
such function.
(vi) The Chief Justice or his designate while
exercising power under sub-section (6) of
Section 11 shall endeavour to give effect to the
appointment procedure prescribed in the
arbitration clause.
(vii) If circumstances exist, giving rise to
justifiable doubts as to the independence and
impartiality of the person nominated, or if other
circumstances warrant appointment of an
independent arbitrator by ignoring the
procedure prescribed, the Chief Justice or his
designate may, for reasons to be recorded
ignore the designated arbitrator and appoint
someone else.”
8. Thus, the issue is no more res integra. Though an
arbitrator is specified in the agreement for arbitration, if
circumstances so warrant, the Chief Justice or the designated
Judge is free to appoint an independent arbitrator, having due
regard to the qualification, if any, and other aspects as required
under Section 11(8) of the Act.
9. On the facts of the present case, one wonders whether
the issue actually arose or not. Clause 2900 of the Standard
Conditions of Contract no doubt provides that the sole
arbitrator shall be a Gazetted Railway Officer but in Clause 19.0
of the agreement dated 16.01.2012 executed between the
parties, it is clearly stipulated that the contract shall be
governed by the General Conditions and Special Conditions of
Contract. Clause 19.0 specifically provides that ... “the contract
shall be governed by the general conditions and special
conditions of contract. ...”.
10. Paragraph-18.0 of the General Conditions and Special
Conditions of Contract, reads as follows:
“18.0 ARBITRATION:
(a) In the event of any question, dispute or
difference arising under these conditions
or any special condition of contract, or
in connection with this contract (except
as to any matters the decision of which
is specially provided for by these or the
special conditions) the same shall be
referred to the sole Arbitration of a
person appointed to be arbitrator, by
the General Manager in the case
contracts entered into by the Zonal
Railways and Production Units by the
member of the Railway Board
concerned, in the case of contracts
entered into by the Railway Board and
by the head of the organizations in
respect of the contracts entered into by
the other organizations under the
Ministry of Railways. There will be no
objection if the arbitrator is a
Government Servant that he had to deal
with matters to which the contract
relates or that in the course of his duties
as a Government Servant, he has
expressed views on all or any of the
matters in disputes or difference. The
award of the Arbitrator shall be final and
binding on the parties to this contract.”
11. Thus, it is clear that there is no stipulation for
appointment of a Railway Officer. It can be any person. The
designated Judge of the High Court has only exercised his
powers in terms of the agreement by nominating an
independent arbitrator.
12. Thus, we find no merit in this appeal and the same is
accordingly dismissed. There shall be no order as to costs.
SPECIAL LEAVE PETITION (CIVIL) NO. 26614 OF 2014
13. In view of the Judgment of this Court in Civil Appeal No.
4483 of 2017 @ Special Leave Petition (Civil) No. 17838 of
2014, we find no merit in this petition and the same is
accordingly dismissed. There shall be no order as to costs.
.......................J.
(KURIAN JOSEPH)
.……………………J.
(R. BANUMATHI)
New Delhi;
MARCH 27, 2017.
Only in India . . . .
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