Appointment of Arbitrator u/s 11 of Arbitration and Conciliation Act: Extinguishment of Right
A three-Judge Bench of the Supreme Court in Deep Trading Company Vs. Indian Oil Corporation and Ors. have upheld the legal position pronounced by the Supreme Court in earlier judgments of Datar Switchgear and Punj Lloyd, which has held that the right to appoint an arbitrator is not extinguished on the mere expiry of thirty days of a demand from the other party. However, if such party has not appointed an arbitrator before the filing of a petition/application under Section 11 of the Arbitration & Conciliation Act, 1996 then the right to appoint is lost by such party.
In Datar Switchgears Ltd. v. Tata Finance Ltd, a two-Judge Bench of this Court considered the scheme of Section 11 and noted the differentiating features between Section 11(5) and Section 11(6) and then considered the question whether in a case falling under Section 11(6), the opposite party cannot appoint an arbitrator after the expiry of thirty days from the date of demand. This Court held that in cases arising under Section 11(6), if the opposite party has not made an appointment within thirty days of the demand, the right to make appointment of an arbitrator is not forfeited, but such an appointment has to be made before the first party makes application under Section 11 seeking appointment of an arbitrator. If no appointment has been made by the opposite party till an application under Section 11(6) has been made, the right of the opposite party to make appointment ceases and is forfeited.
In Punj Lloyd Ltd. v. Petronet MHB Ltd, the agreement entered into between the parties contained an arbitration clause. The disputes and differences arose between the parties. Punj Lloyd served a notice on Petronet demanding the appointment of an arbitrator and reference of disputes to him. Petronet failed to act. On the expiry of thirty days, Punj Lloyd moved the Chief Justice of the High Court for the appointment of the arbitrator under Section 11(6). Petronet had not made an appointment of arbitrator till the date of moving the application. The designate Judge had refused to appoint the arbitrator holding that the remedy available to it was to move in accordance with the agreement. Aggrieved by the said order, a writ petition was filed which was dismissed and the matter reached this Court. A three-Judge Bench of this Court referred to Datar Switchgears and held that the matter was covered squarely by that judgment and the view taken by the designate Judge while considering the application under Section 11(6) and the Division Bench was not right. This Court restored the application under Section 11(6) before the Chief Justice of the High Court for fresh consideration and appointment of the arbitrator in accordance with Section 11(6).
The court in the present matter was in full agreement with the legal position stated by the Apex Court in Datar Switchgears which has also been followed in Punj Lloyd.
The court held that Section 11(8) provides that Chief Justice or the designated person or institution, in appointing an arbitrator, shall have due regard to two aspects:
(a) qualifications essential for the arbitrator by the agreement of the parties; and
(b) other considerations which are likely to secure the appointment of an independent and impartial arbitrator.
In Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Ltd., the scheme of Section 11 was considered by a three-Judge Bench of this Court. Insofar as Section 11(8) is concerned, this Court stated that appointment of the arbitrator or arbitrators named in the arbitration agreement is not a must, but while making the appointment the requirements mentioned therein have to be kept in view.
If the legal position exposited by this Court in Datar Switchgears to the admitted facts is applied, it will be seen that the Corporation had forfeited its right to appoint the arbitrator. On 09.08.2004, the dealer called upon the Corporation to appoint the arbitrator in accord with terms of Clause 29 of the agreement but that was not done till the dealer had made an application under Section 11(6) to the Chief Justice of the Allahabad High Court for the appointment of the arbitrator. The appointment was made by the Corporation only during the pendency of the proceedings under Section 11(6). Such an appointment made by the Corporation after forfeiture of its right is of no consequence and had not disentitled the dealer to seek the appointment of the arbitrator by the Chief Justice under Section 11(6).
Section 11(8) does not help the Corporation at all in the current situation. Firstly, there was no qualification for the arbitrator prescribed in the agreement. Secondly, to secure the appointment of an independent and impartial arbitrator, it is rather necessary that someone other than an officer of the Corporation is appointed as arbitrator once the Corporation had forfeited its right to appoint the arbitrator under Clause 29 of the agreement.
In the present case, the Corporation had failed to act as required under the process agreed upon by the parties in Clause 29 of the agreement and despite the demand by the dealer to appoint the arbitrator, the Corporation did not make an appointment until the application was made under Section 11(6) of the act. Thus, the Corporation had forfeited its right of appointment of an arbitrator. In this view of the present matter, the Chief Justice ought to have exercised his jurisdiction under Section 11(6) in the matter for appointment of an arbitrator appropriately. The appointment by the Corporation during the pendency of proceedings under Section 11(6) was of no consequence.
The Corporation did not agree to any of the names proposed by the appellant for the appointment of arbitrator leaving the court with no choice and the matter was sent back to the Chief Justice of the Allahabad High Court for an appropriate order on the application made by the dealer under Section 11(6).