Saturday, 30 December 2017

Whether court can appoint arbitrator if arbitrator appointed by party refuses to act?

The decision in the case of S.B.P. and Company vs. Patel Engineering Ltd. and another [MANU/SC/1736/2009 : (2009) 10 SCC 293] is relied by the learned senior counsel since it is held therein that if the clause concerned does not provide that in the event of refusal of an Arbitrator to accept the appointment or arbitrate in the matter, an alternate Arbitrator would be appointed, the appointment of a substitute Arbitrator cannot be assumed as an implicit right of the party. Yet another decision in the case of State of West Bengal vs. National Builders [MANU/SC/0055/1994: (1994) 1 SCC 235] is cited by the learned senior counsel for the petitioner. Though it is rendered under the Arbitration Act, 1940, it is held therein that the Court can exercise the power to appoint the arbitrator, if the arbitrator appointed by the party refuses to act and the clause contained in the agreement does not debar filling of vacancy created as a result of such refusal.


IN THE HIGH COURT OF KARNATAKA AT BENGALURU



C.M.P. No. 97/2016



Decided On: 06.09.2017



 JMC Projects (India) Limited

Vs.
Bangalore Metro Rail Corporation Limited


Hon'ble Judges/Coram:

A.S. Bopanna, J.





1. The petitioner is before this Court in this petition under Section 11(6) of the Arbitration and Conciliation Act ('the Act' for short) seeking appointment of an Arbitral Tribunal in the matter of dispute between the petitioner and the respondent.



2. The petitioner, a public limited company which is engaged in the business of civil and structural works for buildings had participated in the tender floated by the respondents in the year 2009 for construction of elevated structures. The petitioner being successful in the tender process was issued the letter of acceptance dated 21.07.2010 and an agreement dated 17.09.2010 was entered into between the petitioner and the respondent. In respect of the same, certain disputes have arisen between the parties. Since the agreement provides that the disputes or differences are to be resolved through arbitration, the petitioner is before this Court seeking constitution of the arbitral Tribunal.



3. The respondent having entered appearance filed their objection statement. The fact of the agreement having been entered into between the parties and also the same containing a clause for resolution of disputes through arbitration is not in dispute. However, the instant petition is opposed on the ground that the respondents themselves on having indicated that the procedure of conciliation stands waived had also taken steps to respond to the request of the petitioner for constitution of the arbitral Tribunal. In that view it is contended that the arbitral Tribunal is to be constituted by the respondent themselves in terms of the provision in clause 17.9 of the General conditions of contract and in that circumstance, the petition filed under Section 11 of the Act would not be maintainable and is liable to be rejected.



4. Heard Sri Udaya Holla, learned senior counsel for the petitioner, Sri Aravind Kamat, learned counsel for the respondent and perused the petition papers.



5. From the very nature of the rival contentions put forth, the existence of the contract as also the contract containing an arbitration clause is not in dispute. Keeping in view the provision made for appointment of the arbitral Tribunal and also the developments that have taken place relating to the constitution of the panel of Arbitrators, nomination of the arbitrators and such arbitrators declining to act, the question that would arise is as to whether even in that circumstance this Court should decline to entertain this petition and permit the constitution of the Arbitral Tribunal only from the panel of Arbitrators said to have been reconstituted by the respondent subsequently.



6. In order to appreciate the matter in its correct perspective, it would be beneficial to take note of the arbitration clause which reads as hereunder:



"17.9. If the efforts resolve all or any of the disputes through conciliation fails, then such disputes or differences, whatsoever arising between the Parties, arising out of touching or relating to construction/manufacture, measuring operation or effect of the contract or the breach thereof shall be referred to Arbitration in accordance with the following provisions:



(a) Matters to be arbitrated upon shall be referred to a Sole arbitrator where the individual claim does not exceed Rs. Five (5) million or the total value of claims does not exceed Rs. Fifteen (15) millions. Beyond the above limit(s), there shall be three Arbitrators. For This purpose the Employer shall maintain a panel of Arbitrators with the requisite qualifications and professional experience relevant to the field to which the Claims relate. In case of a Sole Arbitrator, the Panel will be of three Arbitrators out of which the Contractor will choose one in case three Arbitrators are to be appointed. The Employer will make out a panel of five. The Contractor and the Employer will choose one Arbitrator each from the above and the two so chosen will choose the third arbitrator from the above Panel only who will act as the 'Presiding arbitrator' of the Arbitration Panel.



If in a dispute, the Contractor fails to choose the Arbitrator within thirty (30) days after the Employer has nominated the Panel, the Employer may apply to the Indian Council of Arbitration, New Delhi, to nominate an Arbitrator from the same panel of Arbitrators given by the Employer for the matter in dispute.



If, in a dispute, the two chosen Arbitrators fail to appoint third Arbitrator within thirty (30) days after they have been appointed, the Employer may apply to the Indian Council of Arbitration, New Delhi, to nominate the third Arbitrator from the same panel of Arbitrators given by the Employer for the matter in dispute.



Neither Party shall be limited in the proceedings before such Arbitrator(s) to the evidence or arguments put before the Engineer for the purpose of obtaining his decision. No decision given by the Engineer in accordance with the foregoing provisions shall disqualify him from being called as a witness and giving evidence before the Arbitrator(s) on any matter, whatsoever, relevant to dispute or difference referred to Arbitrator(s). The arbitration proceedings shall be held in BANGALORE only. The language of proceedings, which of documents and communication shall be English.



(b) The Employer at the time of offering the panel of Arbitrators to be appointed as Arbitrator shall also supply the information with regard to the qualifications of the said Arbitrators nominated in the panel along with their professional experience, phone Nos. and addresses to the Contractor.



(c) The award of the sole Arbitrator shall be finding on all parties.



(d) In arbitral proceedings with more than one Arbitrator, any decision of the arbitral tribunal shall be made by a majority of all the members and shall be binding on all parties."



7. From the admitted position and on a perusal of the arbitration clause, it is clear that the instant claim exceeding Rs. 15 million, the dispute is to be considered by 3 arbitrators. It is in that light the clause provides that from the panel of 5 Arbitrators enlisted by the respondent, the petitioner and the respondent are to choose 1 arbitrator each and such of those chosen Arbitrators would choose the third Arbitrator who would act as the Presiding Arbitrator. In terms of the said clause, the petitioner had addressed the letter dated 02.01.2016 (Annexure-H) seeking the respondent to provide the panel consisting of 5 Arbitrators so as to enable the petitioner to choose one among them. The respondent through their reply dated 22.01.2016 had indicated the names of 5 Arbitrators in the panel. The petitioner through their letter dated 08.02.2016 (Annexure-K) had chosen the name of Sri P.D. Manmohan who was one among the panel of arbitrators but he had declined to accept the nomination.



8. Subsequent thereto, after exchange of correspondence the petitioner through the communication dated 09.03.2016 (Annexure-O) only in order to avoid the further delay in commencement of the arbitration proceedings, nominated Sri Justice V. Jagannathan from the panel of remaining 4 Arbitrators as the nominee of the petitioner. Unfortunately the said learned arbitrator nominated by the petitioner also declined to act. In that view, only three other Arbitrators left in the panel had remained for consideration but at that stage since according to the respondents, Sri Justice G. Patri Basavanagoud had also indicated his unwillingness to act as the Arbitrator, the respondent had addressed the letter dated 05.04.2016 (Annexure-Q) to the petitioner by constituting a fresh panel of 5 Arbitrators. It is at that stage the petitioner finding that the constitution of the Arbitral Tribunal in terms of the clause was not efficacious and there was no requirement to choose from a different panel constituted afresh has filed the instant petition on 26.04.2016 seeking this Court appoint the Arbitral Tribunal.



9. In the background of the sequence noticed above, learned senior counsel for the petitioner contends that in such circumstance it is permissible for this Court in exercise of the power available under Section 11(6) of the Act to constitute the arbitral Tribunal. In that regard the decision in the case of San-A Trading Company Ltd. vs. I.C. Textiles Ltd. [(2012) 7 SCC 192] wherein it is held that when the agreement provides for reference of a dispute to a particular individual and such agreed arbitrator refuses to act, the next appointment could be made as agreed by the parties, but where no such procedure is prescribed authorizing appointment of another Arbitrator, then the agreement clause cannot operate. In such circumstances, the agreement clause will stand exhausted and it would be for the Court under Section 11(6) of the Act to appoint an Arbitrator on the procedure laid down.



10. The decision in the case of S.B.P. and Company vs. Patel Engineering Ltd. and another [MANU/SC/1736/2009 : (2009) 10 SCC 293] is relied by the learned senior counsel since it is held therein that if the clause concerned does not provide that in the event of refusal of an Arbitrator to accept the appointment or arbitrate in the matter, an alternate Arbitrator would be appointed, the appointment of a substitute Arbitrator cannot be assumed as an implicit right of the party. Yet another decision in the case of State of West Bengal vs. National Builders [MANU/SC/0055/1994: (1994) 1 SCC 235] is cited by the learned senior counsel for the petitioner. Though it is rendered under the Arbitration Act, 1940, it is held therein that the Court can exercise the power to appoint the arbitrator, if the arbitrator appointed by the party refuses to act and the clause contained in the agreement does not debar filling of vacancy created as a result of such refusal.



11. In the above backdrop, a perusal of the clause will disclose that except stating with regard to the manner in which each of the party to the agreement would make their choice from the panel of arbitrators provided by the respondent, it does not provide for the contingency of the present nature where out of the panel of 5 Arbitrators, 3 of the members on the panel had declined to act. Therefore, from the remaining 2 members on the panel, the Arbitral Tribunal in the manner as provided in the contract could not have been constituted. The respondents no doubt at that stage through the correspondence dated 05.04.2016 (Annexure-Q) constituted a fresh panel and called upon the petitioner to nominate their Arbitrator. The petitioner at that stage approached this Court seeking appointment of Arbitrator as the constitution of the Arbitral Tribunal in the manner as agreed under the contract had failed though the arbitration clause subsisted and the dispute is to be resolved through arbitration.



12. Learned counsel for the respondent though was vehement in his contention that the reconstitution of the fresh panel of Arbitrators has been done within 30 days of the members in the earlier panel declining to act and as such Section 11(6) of the Act had not come into play, the period of 30 days as provided in the clause is not for that purpose but is for the purpose of nominating the Arbitrator. Further the said contention will not be sustainable if the very stand taken by the respondents themselves in their earlier letter dated 03.03.2016 (Annexure-N) in reply to the request of the petitioner to constitute a fresh panel in view of a member from the panel declining to act as the Arbitrator. With reference to Clause 17.9, in the said letter while declining the request of the petitioner, it is stated as follows:



"Nowhere, in the clause, the provision is made for providing fresh panel or substituting any name of the empanelled member. Under the circumstances, you are requested to choose one among the remaining 4 other panel members."

13. If the above understanding of the clause by the parties is kept in perspective, though at that stage there were 4 members on the panel, it had reduced to 2 members which made the process of constitution of the Arbitral Tribunal unworkable and the formation of the fresh panel is not provided under the clause even as per the understanding of the respondent. If that be the position, the situation had arisen for the party concerned to approach this Court by invoking Section 11(6) of the Act which accordingly has been done by the petitioner.


14. In that view, this Court would be empowered to constitute the Arbitral Tribunal and for that matter in a normal circumstance a sole Arbitrator could have also been appointed. However keeping in view that the clause has envisaged a different composition of the Arbitral Tribunal based on the volume of the dispute, I find it appropriate to constitute an Arbitral Tribunal consisting of 3 arbitrators.



15. Accordingly, Sri Justice R. Gururajan is appointed as the Presiding Arbitrator while Sri Justice A.N. Venugopala Gowda and Sri Justice Keshavanarayana, former Judges of this Court are appointed as members to constitute the Arbitral Tribunal to arbitrate the dispute between the parties. A copy of this order be dispatched by the Registry to the learned Arbitrators. The petitioner to also file the claim statement whereupon the Arbitral Tribunal shall enter upon reference, settle the terms and consider the matter in terms of the Act.



Registry to return the papers if any, sought by the learned counsel for the petitioner.



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