Wednesday, 6 February 2019

Whether court should appoint substitute arbitrator if there is delay in passing of arbitration award?

 It is true that there was some delay in passing the award.
However, between 2011 and 2013, the respondent has not filed any
application to expedite the proceedings and for passing of the
award. The respondent has neither filed the Request Case for
passing of the award at an early date nor filed the petition under
Section 14 of the Act for termination of the mandate of the arbitrator
that the arbitrator has ‘failed to act without undue delay’.
31. Mere neglect of an arbitrator to act or delay in passing the
award by itself cannot be the ground to appoint another arbitrator in
deviation from the terms agreed to by the parties. We may usefully
refer to RUSSELL ON ARBITRATION, 20th Edition which reads as
under:-
“Mere neglect of an arbitrator to act, as distinct from refusal or
incapacity, does not of itself give the court power to appoint another
arbitrator in his place. It does, however, give the court power to
remove him, whereupon there is a power to replace him.”*
*[RUSSELL ON ARBITRATION, 20th Edition, Pg. 136 quoted in Law relating to
Arbitration and Conciliation, 9th Edition, by Dr. P.C. Markanda at Pg. 620]
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1039 OF 2019

RAJASTHAN SMALL INDUSTRIES
CORPORATION LIMITED  Vs  M/S GANESH CONTAINERS MOVERS SYNDICATE 

R. BANUMATHI, J.
Dated:January 23, 2019.

Leave granted.
2. This appeal arises out of the judgment dated 22.04.2016
passed by the High Court of Rajasthan at Jaipur Bench in and by
which the High Court has allowed the application filed by the
respondent under Section 11 and Section 15 of the Arbitration and
Conciliation Act, 1996 thereby appointing Mr. J. P. Bansal, retired
District Judge as the sole arbitrator to resolve the dispute between
the parties.
3. Brief facts which led to filing of this appeal are as under:-
The appellant-Rajasthan Small Industries Corporation
Limited invited tender for “Handling and Road transportation of ISO
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containers and Cargo between Inland container Depots at Jaipur,
Jodhpur and Ports.” Respondent-Contractor participated in the said
tender and Letter of Intent was issued in favour of the
respondent-Contractor on 21.01.2000. The agreement was
executed on 28.01.2000 between the parties. Initially, the contract
period was of three years; but it was extended for another two years
from 31.01.2003 by consent of both the parties. Dispute arose
between the parties regarding imposition of transit penalty by the
appellant upon the respondent for delay in transportation of
containers, non-payment of handling charges of containers for
various period of time and several other disputes. The terms of the
contract Clause 4.20.1 of Schedule-4 (General Conditions) provided
for arbitration by the Managing Director himself or his or her
nominee for the sole arbitration. The respondent-Contractor
requested for appointment of the arbitrator in terms of Clause 4.20.1
of Schedule-4 (General Conditions). One I.C. Shrivastava, IAS
(Retd.) was appointed as the sole arbitrator on 21.02.2005. Since
the progress of the sole arbitrator was not satisfactory in disposing
the matter, the said sole arbitrator was removed on 26.03.2009 and
in his place, Chairman-cum-Managing Director of the appellant-
Corporation was appointed to act as the sole arbitrator by the
consent of both the parties.
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4. For one reason or other, the arbitration proceedings could not
be concluded. According to the appellant, the matter was adjourned
repeatedly vide orders of the Arbitral Tribunal dated 10.02.2010,
11.02.2010, 15.02.2010, 18.02.2010 and 10.03.2010 as no one
appeared on behalf of the respondent-Contractor. On 16.03.2010,
the respondent raised its doubts regarding impartiality of the newly
appointed sole arbitrator. The sole arbitrator passed the order dated
06.04.2010 stating that the agreement Clause 4.20.1 of Schedule-4
(General Conditions) provides for arbitration by the Chairman-cum-
Managing Director of the Corporation or his nominee and that only
at the joint request of both the parties, the Chairman-cum-Managing
Director has taken up the arbitration to resolve the dispute between
the parties. The proceedings further continued fixing date of hearing
on various dates till 17.08.2011.
5. On 07.02.2013, the respondent-Contractor sent a legal notice
to the appellant stating that even after so many requests, the sole
arbitrator has not passed the award and called upon the appellant
to pay the amount of Rs.3,90,81,602/- said to have been settled,
along with the statutory interest within one month. The appellant
sent a reply dated 19.03.2013 stating that since the Chairman-cum-
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Managing Director has been transferred, award could not be passed
and there is no question of payment to the respondent-Contractor.
6. On 13.05.2015, the respondent-Contractor filed an application
under Section 11(6) and Section 15 of the Arbitration and
Conciliation Act, 1996 before the High Court seeking for
appointment of an independent arbitrator for adjudication of dispute
between the appellant and the respondent in respect of agreement
dated 28.01.2000. On 18.12.2015, it was brought to the notice of
the arbitrator that an arbitration application has been filed before the
High Court. On 05.01.2016, the Arbitral Tribunal adjourned the
matter to 13.01.2016 as a last opportunity of hearing to the parties.
On 13.01.2016, the arbitrator rejected the application of the
respondent-Contractor and his request to adjourn the matter till
hearing and final disposal of the arbitration application pending
before the High Court and held that the arbitration proceedings
would be finalized on the basis of available facts and therefore,
adjourned the matter to 21.01.2016. The sole arbitrator passed an
ex-parte award on 21.01.2016.
7. The High Court vide impugned order allowed the arbitration
application thereby appointing Mr. J.P. Bansal (Retd.), District Judge
as the sole arbitrator. The High Court held that the respondent-
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Contractor had to approach the High Court due to prolongation of
the matter before the sole arbitrator who kept on changing one after
another and only after the notice of the arbitration petition was
served upon the appellant-Corporation, the arbitrator speeded up
the proceedings and the ex-parte award was passed on 21.01.2016
without hearing the respondent-Contractor. The High Court was of
the view that the arbitrator hurried up to conclude the proceedings
with a view to frustrate the arbitration application.
8. Mr. A.D.N. Rao, learned counsel for the appellant-Corporation
submitted that the High Court erred in not keeping in view of Clause
4.20.1 of Schedule-4 (General Conditions) that the respondent
could not have moved the application under Section 11 and Section
15 of the Arbitration and Conciliation Act, 1996 in the light of the
agreement between the parties and the competence of the arbitral
tribunal to adjudicate the dispute between the parties. It was further
submitted that though the arbitrator was ready to proceed with the
matter, the arbitrator could not make progress since the respondent
was either not present or continually taking adjournments and when
the arbitrator was proceeding with the matter in right earnest, the
respondent could not have approached the High Court seeking
appointment of an arbitrator. It was urged that in the light of the fact
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that a final arbitral award has been passed by the arbitral tribunal,
the respondent could only challenge the same by way of an appeal
under Section 34 of the Arbitration and Conciliation Act, 1996 and
the impugned order of the High Court is liable to be set aside.
9. Ms. Mishra, learned counsel for the respondent-Contractor
submitted that in view of Section 12 of the Arbitration and
Conciliation (Amendment) Act, 2015, if the arbitrator is an
employee/advisor or has any past or present business relation or
being the Manager/Director then he cannot be appointed as an
arbitrator and not qualified to decide the dispute and therefore, the
High Court has rightly appointed the fresh independent arbitrator. It
was submitted that the disqualification of the person to hold the post
of an arbitrator as enumerated in Seventh Schedule of Arbitration
and Conciliation (Amendment) Act, 2015 is a legal right conferred
upon the respondent-Contractor and there cannot be any
promissory estoppel against the statute by alleging that in the
agreement dated 28.01.2000, the respondent agreed that the
dispute and differences shall be referred to the Managing Director
himself or his nominee for the sole arbitration. Placing reliance upon
Union of India and Others v. Uttar Pradesh State Bridge
Corporation Limited (2015) 2 SCC 52, it was contended that when
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there is failure on the part of the arbitral tribunal to act and unable to
perform its functions, it is open to a party to the arbitration
proceedings to approach the court for termination of the mandate of
the arbitrator and seek appointment of the substitute arbitrator. The
learned counsel for the respondent further submitted that in the
present case, since for a long period of about ten years, no award
has been passed and that the arbitrators were kept on changing for
one reason or other, the respondent was justified in approaching the
High Court for substitution or appointment of fresh arbitrator. It was
submitted that only after the respondent approached the High
Court, the proceedings were accelerated and award came to be
passed.
10. We have carefully considered the contentions of both the
parties and perused the impugned judgment and materials on
record. The following points arise for consideration:-
 In the light of the proceedings before the sole arbitrator
on various dates and when the proceedings before the
arbitrator was pending, whether the respondent was
right in filing arbitration petition approaching the High
Court under Section 11 and Section 15 of the
Arbitration Act, 1996 for appointment of a substitute
arbitrator?
 When by virtue of arbitration agreement Clause 4.20.1
of Schedule-4 (General Conditions), parties have
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agreed that the dispute, differences between the
parties to be resolved by the Managing Director or his
nominee, whether the High Court was right in deviating
from the terms of the agreement between the parties
and appointing an independent Arbitrator?
 Whether by virtue of Section 12 of the Arbitration and
Conciliation (Amendment) Act, 2015, the Chairmancum-
Managing Director has become ineligible to act as
the arbitrator?
 Whether the High Court was right in terminating the
mandate of the arbitrator whom the parties have
agreed and appointing substitute arbitrator on the
ground that there was delay in passing the award?
11. In deviation from the terms of the agreement, whether the
respondent was right in filing arbitration petition under Section
11 of the Arbitration Act:- Admittedly, the parties entered into an
agreement dated 28.01.2000 for handling on road transportation of
ISO containers and cargo between the Inland Container Depot at
Jaipur, Jodhpur and Ports. The agreement was to remain in force
for a period of three years starting from 10.04.2000. The
abovementioned agreement was extended for another period of two
years starting from 31.01.2003. Clause 4.20.1 of Schedule-4
(General Conditions) provided for arbitration which reads as
follows:-
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“4.20.1 All disputes and difference arising out of or in any way concerning
this Contract, shall be referred to the Managing Director himself, herself or
his or her nominees for the sole arbitration. There will be no objection to
any such appointment on the ground that the person so appointed is an
employee of the Corporation, that he has dealt with the matters to which
the contract relates and that in the course of his duties. As such arbitration
shall be final and binding on the parties to the contract. If the person to
whom the matter was originally referred to for arbitration becomes unable
to function on account of vacation of office, transfer, resignation,
retirement from services, suspension or for any other reason, whatsoever,
the Managing Director shall nominate another person to take over his
function as soon as possible. Such person shall proceed further from the
stage where the matter was left by his predecessor. The arbitrator shall
give reasons for the award.”
12. In order to appreciate the points, it is necessary to refer to the
details of various proceedings before the arbitrator, before the
respondent-Contractor approached the High Court. In terms of
Clause 4.20.1, I.C. Shrivastava, IAS (Retd.) was appointed as sole
arbitrator by order dated 21.02.2005. Since the progress of the
arbitration proceedings before the said arbitrator was not
satisfactory, vide order No.RSIC/Legal/08-09/23999-24001 dated
26.03.2009, appointment of I.C. Shrivastava, IAS (Retd.) as
arbitrator was withdrawn. Since records were not received from the
said arbitrator, an order was passed on 13.08.2009 in the presence
of both the parties, wherein it was agreed that the records of the
case are to be reconstructed and by the same order, it was decided
to request Additional Chief Secretary (SSI), Rukmani Haldea, IAS to
be the sole arbitrator. However, subsequently by the consent of both
9
the parties Chairman-cum-MD of the appellant-Corporation was
appointed as the sole arbitrator.
13. The matter was adjourned before the arbitral tribunal on
24.11.2009 and 30.11.2009 and other dates. It is seen from the
order of the arbitral tribunal dated 08.01.2010, the earlier arbitrator
was requested number of times to handover the records connected
with the case; but he had not handed over the records and
therefore, parties were advised to exchange records so that the
proceedings could begin and the matter was adjourned. In the
subsequent hearing on 25.01.2010, both the parties were
represented by their counsel and therefore, the matter was
adjourned to 08.02.2010 for final arguments. On 08.02.2010,
arguments of the respondent-claimant was heard in part and the
case was adjourned to 10.02.2010 on account of paucity of time. On
the subsequent hearing dates viz. 10.02.2010, 11.02.2010,
15.02.2010, 18.02.2010 and 10.03.2010, there was no
representation for the respondent-claimant and the matter was
adjourned to 17.03.2010. Respondent-Contractor vide its letter
dated 16.03.2010 addressed to the Chairman and Managing
Director of the appellant-Corporation raised doubts on impartiality of
the arbitrator expressing his desire to withdraw the arbitration from
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the present sole arbitrator and was willing to get the matter
adjudicated by the pervious arbitrator, I.C. Shrivastava who was
already removed at the joint request of the parties. By letter dated
18.03.2010, respondent requested for adjournment of the matter. On
the next date of hearing i.e. on 19.03.2010, the respondent-
Contractor has not entered appearance and the matter was
adjourned to 06.04.2010. On 06.04.2010, the respondent-Contractor
was appeared through its representative F.K. Sherwani. As seen
from the proceeding of arbitrator dated 06.04.2010, though initially
pressed for arbitrator outside appellant-RSIC, finally gave his
consent that Chairman-cum-Managing Director may arbitrate.
14. On 29.04.2010, the matter could not be taken up as on
28.04.2010, the arbitral tribunal passed the order stating that the sole
arbitrator-CMD has to go to Mumbai for attending a very important
official work and the matter was adjourned to 19.05.2010. The matter
was then adjourned to 20.05.2010, 16.06.2010, 25.08.2010 and
21.10.2010. It is seen that the respondent-claimant (vide letter dated
21.10.2010) stated that they have full faith in the present sole
arbitrator and that the matter has to be decided at an early date on
the basis of material available on record at the earliest.
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15. For want of reconciliation of records of the parties and certain
clarifications, by order dated 24.03.2011, the arbitrator directed both
the parties to appear before him on 18.04.2011 along with complete
records relating to the claim and counter claim. On the next hearing
dates i.e. 20.04.2011 and 21.04.2011, there were detailed
discussions between the parties and the sole arbitrator and
accordingly, the respondent-Contractor agreed to withdraw certain
claims. By various correspondence dated 21.04.2011, 18.05.2011,
20.05.2011 and 24.05.2011, the arbitrator required certain
clarifications from both the parties to finalise the award and replies
were also received. On 17.08.2011, in the presence of both the
parties, the arbitral tribunal passed the following order:-
“The “file regarding this arbitration” appears tempered/missing
paper or incomplete. Therefore, the chronological events need
to be ascertained and reconstruction will be required. The
detailed order will be passed informing both the parties in this
respect. They must wait till further order in this content.”
16. It was in the above background, the respondent-Contractor
sent a legal notice dated 07.02.2013 stating that both the parties
have submitted their relevant claims before the sole arbitrator on
18.04.2011 and that it was mutually agreed to settle the claim after
deduction of some amount and that the amount was finalised and
settled for Rs.3,90,81,602/- and in spite of the fact that settled
amount was agreed between the parties, no award was passed by
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the arbitrator. The respondent sent another legal notice dated
07.03.2013 reiterating the claim for Rs. 3,90,81,602/- along with
statutory interest. The appellant-Corporation has sent a detailed
reply dated 19.03.2013 denying any settlement and also denying that
the amount was finalised for a sum of Rs.3,90,81,602/-.
17. It was in the above backdrop, on 13.05.2015, the respondent-
Contractor filed an application under Section 11 and Section 15 of
the Arbitration and Conciliation Act, 1996 before the High Court for
appointment of an independent arbitrator for adjudication of disputes
and differences between the appellant-Corporation and the
respondent-contractor in respect of agreement dated 28.01.2000.
When the said petition was pending before the High Court, the
arbitrator vide order dated 18.12.2015 fixed the next date of hearing
for 05.01.2016. The respondent-Contractor sent a letter requesting to
keep the arbitration proceedings in abeyance. However, the Arbitral
Tribunal adjourned the matter to 13.01.2016 and then to 21.01.2016,
on which date the final award came to be passed by the Arbitral
Tribunal. It was thereafter, by the impugned order dated 22.04.2016
passed by the High Court retired District Judge, Mr. J.P. Bansal was
appointed as the sole arbitrator to resolve the dispute between both
the parties.
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18. As pointed out earlier, on 06.04.2010, though the respondent
initially pressed for arbitrator outside RSIC, then finally gave its
consent for Managing Director to arbitrate. The said proceeding
dated 06.04.2010 reads as under:-
“Shri F.K. Sherwani appeared on behalf of the Claimant and Shri G.C.
Garg and Shri R.K. Agarwal, Advocates appeared on behalf of the
Corporation. Shri F.K. Sherwani initially pressed for appointing an
Arbitrator from outside RSIC. His apprehension was that the CMD will
not be an independent Arbitrator since he is likely to take interest of
the RSIC into consideration. This would be more so due to the
financial difficulties being faced by the Corporation.
It was explained to Shri Sherwani that the agreement signed in
principle provides for arbitration by the Chairman or MD of the
Corporation or his nominee and also it was at the joint request of both
the parties that the arbitration was taken away from the earlier
Arbitrator. After discussions it was decided that the CMD may arbitrate
the dispute. Shri Sherwani also has given his consent that CMD may
arbitrate.
The next date of hearing is fixed for 29.04.2010 at 3.00 PM.”
19. As seen from the order dated 21.10.2010, the respondent
submitted that “they do not want to prolong the matter further and
they have full faith in the present sole arbitrator and that they would
like the sole arbitrator to decide the case and pass an award on the
basis of material available on record at the earliest.” As stated
earlier, to that effect, Shri Ram B. Salve, sole proprietor of the
respondent had also given a letter dated 21.10.2010. Since the
papers were missing or incomplete, in the presence of both the
parties, the arbitral tribunal vide its order dated 17.08.2011 has
decided that the chronological events need to be ascertained and
reconstruction will be required and a detailed order will be passed
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informing both the parties in this regard. As seen from the
proceedings of the arbitral tribunal till that time, the respondent
voluntarily participated and acquiesced in the proceedings before
the arbitral tribunal and also expressed faith in the sole arbitrator.
Having thus voluntarily participated in the arbitral proceedings, the
respondent has sent a legal notice dated 07.02.2013 to the
appellant-Corporation stating that in the arbitral proceedings, the
respondent mutually agreed to the claim and the matter was settled
for a sum of Rs.3,90,81,602/- and that in spite of repeated requests,
the amount was not paid to the respondent. The respondent also
sent another legal notice dated 07.03.2013 reiterating its demand
for payment of Rs.3,90,81,602/-. To that effect, the appellant-
Corporation has sent a detailed reply dated 19.03.2013.
20. It is in this backdrop, the respondent has filed the arbitration
petition before the High Court under Section 11 and Section 15 of
the Arbitration and Conciliation Act, 1996 on 13.05.2015 seeking
appointment of an independent arbitrator. As noted earlier, as per
Clause 4.20.1 of Schedule-4 (General Conditions), the parties have
agreed that all disputes and differences arising out of or in any way
concerning the contract, shall be referred to the Managing Director
himself or his nominees for the sole arbitration and that there will be
15
no objection to any such appointment on the ground that the person
so appointed is an employee of the Corporation and that he has
dealt with the matter to which the contract relates. When the parties
have consciously agreed that the disputes or differences shall be
referred to the Managing Director himself or his nominee for sole
arbitration and having participated in the arbitral proceedings before
arbitrator for quite some time, the respondent cannot turn round and
seek for appointment of an independent arbitrator.
21. The respondent having participated in the proceedings before
the arbitral tribunal for quite some time and also having expressed
faith in the sole arbitrator, is not justified in challenging the
appointment of the Managing Director of the appellant-Corporation
as the sole arbitrator. In Indian Oil Corporation Limited and
Others v. Raja Transport Private Limited (2009) 8 SCC 520, this
Court held as under:-
“34. The fact that the named arbitrator is an employee of one of
the parties is not ipso facto a ground to raise a presumption of
bias or partiality or lack of independence on his part. There can
however be a justifiable apprehension about the independence
or impartiality of an employee arbitrator, if such person was the
controlling or dealing authority in regard to the subject contract
or if he is a direct subordinate (as contrasted from an officer of
an inferior rank in some other Department) to the officer whose
decision is the subject-matter of the dispute.
44. While considering the question whether the arbitral
procedure prescribed in the agreement for reference to a named
arbitrator, can be ignored, it is also necessary to keep in view
clause (v) of sub-section (2) of Section 34 of the Act which
provides that an arbitral award may be set aside by the court if
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the composition of the Arbitral Tribunal or the arbitral procedure
was not in accordance with the agreement of the parties (unless
such agreement was in conflict with any provision of Part I of the
Act from which parties cannot derogate, or, failing such
agreement, was not in accordance with the provisions of Part I
of the Act). The legislative intent is that the parties should abide
by the terms of the arbitration agreement.” [underlining added]
22. The respondent has not placed any material to show that it
has reason to believe that the arbitrator had not acted independently
or impartially. The respondent has not brought on record any
material to entertain an apprehension that the Managing Director of
the appellant-Corporation is not likely to act independently or
impartially. On the other hand, as noted earlier, as per the
proceeding of the arbitral tribunal dated 21.10.2010, the respondent
had expressed its full faith in the sole arbitrator and had also given a
letter dated 21.10.2010 to that effect. The fact that the sole arbitrator
is the Managing Director of the appellant-Corporation is not a
ground to raise a presumption of bias or lack of independence on
his part. The arbitration Clause 4.20.1 of Schedule-4 (General
Conditions) stipulates a high official i.e. - Managing Director of the
Corporation not connected with the contract or the work executed by
the respondent. Having participated in the entire arbitration
proceedings and acquiesced in the proceedings, the respondent is
estopped from challenging the competence of the arbitrator. The
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respondent was not justified in filing the arbitration petition seeking
appointment of an independent arbitrator.
Whether by virtue of Section 12 of the Amendment Act, the
Managing Director has become ineligible to act:-
23. After the amendment to the Arbitration and Conciliation Act,
2015, Section 12(5) prohibits the employee of one of the parties
from being an arbitrator. In the present case, the agreement
between the parties was entered into on 28.01.2000 and the
arbitration proceedings commenced way back in 2009 and thus, the
respondent cannot invoke Section 12(5) of the Arbitration and
Conciliation (Amendment) Act, 2015. As per Section 26 of the Act,
the provisions of the amended Act 2015 shall not apply to the
arbitral proceedings commenced in accordance with the provisions
of Section 21 of the principal Act, before the commencement of this
Act unless the parties otherwise agree.
24. In Board of Control for Cricket in India v. Kochi Cricket
Private Limited and others, (2018) 6 SCC 287, this Court held that
the provisions of Amendment Act, 2015 (with effect from
23.10.2015) cannot have retrospective operation in the arbitral
proceedings already commenced unless the parties otherwise
agree. In the present case, there is nothing to suggest that the
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parties have agreed that the provisions of the new Act shall apply in
relation to the arbitral proceedings.
25. Contending that the sole arbitrator/Chairman-cum-Managing
Director, by virtue of 2015 amendment, has become ineligible to act
as the arbitrator, the learned counsel for the respondent placed
reliance upon TRF Limited v. Energo Engineering Projects
Limited (2017) 8 SCC 377. In the said case, though the
agreement/purchase order was dated 10.05.2014 (prior to the
amendment), notice invoking arbitration was issued on 28.12.2015
(after the Amendment Act 2015) and the letter of the Managing
Director nominating the arbitrator is dated 27.01.2016. In such
factual matrix of the case, this Court has held that the named
arbitrator-Managing Director of the respondent therein had become
ineligible by operation of law and therefore, he cannot nominate
another person as an arbitrator. In para (54), it was held as under:-
“54. In such a context, the fulcrum of the controversy would be, can
an ineligible arbitrator, like the Managing Director, nominate an
arbitrator, who may be otherwise eligible and a respectable person.
As stated earlier, we are neither concerned with the objectivity nor
the individual respectability. We are only concerned with the
authority or the power of the Managing Director. By our analysis,
we are obligated to arrive at the conclusion that once the arbitrator
has become ineligible by operation of law, he cannot nominate
another as an arbitrator. The arbitrator becomes ineligible as per
prescription contained in Section 12(5) of the Act. It is inconceivable
in law that person who is statutorily ineligible can nominate a
person. Needless to say, once the infrastructure collapses, the
superstructure is bound to collapse. One cannot have a building
without the plinth. Or to put it differently, once the identity of the
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Managing Director as the sole arbitrator is lost, the power to
nominate someone else as an arbitrator is obliterated. Therefore,
the view expressed by the High Court is not sustainable and we say
so.” [underlining added]
26. The facts of the said case are entirely different from the case
in hand. In the said case, when notice invoking arbitration was
issued on 28.12.2015, after the Amendment Act, 2015 came into
force with effect from 23.10.2015, by virtue of which the person
named in the agreement became ineligible to act as the arbitrator.
In the case in hand, the arbitration proceedings started way back in
2009 long before 2015 Amendment Act came into force and
therefore, 2015 Amendment Act is not applicable to the case in
hand. The statutory provisions that would govern the matter are
those which were then in force before the Amendment Act.
27. To fortify our view, we can usefully refer to the decision of this
Court in Aravali Power Company Private Limited v. Era Infra
Engineering Limited (2017) 15 SCC 32. In this case, the
invocation of arbitration was on 29.07.2015 and the arbitrator was
appointed on 19.08.2015 and the parties appeared before the
arbitrator on 07.10.2015 well before 23.10.2015 i.e. date on which
the Amendment Act was deemed to have come into force. It was
held that the statutory provisions that would therefore govern the
controversy are those that were in force before the Amendment Act
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came into effect. This Court has therefore directed that the
arbitration, in pursuance of the appointment of the arbitrator on
19.08.2015, shall proceed in accordance with law.
Whether the High Court was right in terminating the mandate of
the arbitrator appointed as per the agreement:-
28. The main question falling for consideration is whether the High
Court was right in terminating the mandate of the arbitrator
appointed as per the agreement and appointing a substitute
arbitrator in the application filed under Section 11(6) and Section 15
of the Arbitration Act. As pointed out earlier, the proceedings before
the Arbitral Tribunal proceeded till 17.08.2011 and thereafter, no
progress was made. The respondent issued legal notice on
07.02.2013 calling upon the appellant to pay Rs.3.90,81,602/-
alleging that the said amount was settled during the course of
proceedings before the Arbitral Tribunal. Reiterating the demand,
the respondent has again sent the legal notice on 07.03.2013.
However, no award came to be passed. The respondent filed
application under Sections 11 and 15 of the Act of 1996 on
13.05.2015 seeking appointment of an independent arbitrator for
adjudication of the disputes and differences between the appellant
and the respondent.
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29. In support of his contention, the learned counsel for the
respondent relied upon the decision in Union of India and others
v. Uttar Pradesh State Bridge Corporation Limited (2015) 2 SCC
52. Learned counsel for the respondent contended that the arbitrator
failed to conclude the proceedings even after four years and the
High Court rightly appointed the substitute arbitrator departing from
the arbitration clause in the agreement between the parties. In the
said case, since the Arbitral Tribunal did not pass award in spite of
expiry of four years, the respondent thereon filed Request Case
No.10/2010 and the High Court passed order dated 09.03.2011
giving the last chance to the Arbitral Tribunal to complete the arbitral
proceedings within a period of three months. In para (6) of the
judgment, this Court pointed out that the High Court took note of the
various dates and hearings that are fixed by the Tribunal between
25.03.2011 and 25.06.2011 and came to the conclusion that the
delay caused in the arbitral proceedings was intentional. After
referring to Union of India v. Singh Builders Syndicate (2009) 4
SCC 523 and other judgments, this Court observed that the delays
and frequent changes in the Arbitral Tribunal defeat the process of
arbitration and therefore, the appointment of the arbitrator by the
court of its own choice departing from the arbitration clause has
become an acceptable proposition of law which can be termed as a

legal principle which has come to be established by a series of
judgments of this Court. Having regard to the facts of the said case,
observing that the delay in arbitral proceedings was intentional, in
para (6) of Uttar Pradesh State Bridge Corporation Limited, it
was held as under:-
“6. The High Court took note of the various dates of hearings that
are fixed by the Tribunal between 25-3-2011 and 25-6-2011 and
came to the conclusion that delay caused in the arbitral
proceedings was intentional. So much so, the members of the
Arbitral Tribunal were continuing their dilatory tactics in deciding the
matter before it since 2007 and four years had passed in the
process. The Tribunal had faltered even after giving specific
directions to conclude the matter within three months and long
adjournments were granted thereby violating the specific directions
of the High Court. Terming this attitude of the members of the
Tribunal as negligent on their part towards their duties with no
sanctity for any law or for the orders of the High Court, the High
Court allowed the petition of the respondent herein and set aside
the mandate of the Tribunal with the appointment of sole arbitrator
by the Court itself.”
30. Having regard to the factual matrix of the present case, in our
considered view, the ratio of the said decision cannot be applied to
the case in hand. Per contra, in the present case, the proceedings
of the arbitral tribunal continued till 17.08.2011. From the
proceeding of the arbitral tribunal dated 17.08.2011, it is seen that
the “arbitrator observed that the file regarding arbitration appears
tampered/missing papers are incomplete and therefore, the
chronological events need to be ascertained and reconstitution will
be required.” It is in this background, the award was not passed till
2013. It is true that there was some delay in passing the award.
23
However, between 2011 and 2013, the respondent has not filed any
application to expedite the proceedings and for passing of the
award. The respondent has neither filed the Request Case for
passing of the award at an early date nor filed the petition under
Section 14 of the Act for termination of the mandate of the arbitrator
that the arbitrator has ‘failed to act without undue delay’.
31. Mere neglect of an arbitrator to act or delay in passing the
award by itself cannot be the ground to appoint another arbitrator in
deviation from the terms agreed to by the parties. We may usefully
refer to RUSSELL ON ARBITRATION, 20th Edition which reads as
under:-
“Mere neglect of an arbitrator to act, as distinct from refusal or
incapacity, does not of itself give the court power to appoint another
arbitrator in his place. It does, however, give the court power to
remove him, whereupon there is a power to replace him.”*
*[RUSSELL ON ARBITRATION, 20th Edition, Pg. 136 quoted in Law relating to
Arbitration and Conciliation, 9th Edition, by Dr. P.C. Markanda at Pg. 620]
32. Section 15 deals with termination of the mandate and
substitution of an arbitrator. Sub-section (1) of Section 15 states that
in addition to the circumstances referred to in Sections 13 and 14 of
the Act, the mandate of an arbitrator shall terminate where he
withdraws from office for any reason or by pursuant to the
agreement of the parties. In terms of sub-section (2), after
termination of arbitrator’s mandate, the appointment of the

substitute arbitrator shall be in accordance with the rules applicable
to the appointment of an arbitrator who is being replaced.
33. After analysis of the scheme of Sections 11, 14 and 15, in
S.B.P. and Company v. Patel Engineering Limited and Another
(2009) 10 SCC 293, this Court held that the legislature has
repeatedly laid emphasis on the necessity of adherence to the
terms of agreement between the parties in the matter of
appointment of arbitrators and procedure to be followed for such
appointment. In para (31), it was held as under:-
“31. ………..Even Section 15(2), which regulates appointment of
a substitute arbitrator, requires that such an appointment shall
be made according to the rules which were applicable to the
appointment of an original arbitrator. The term “rules” used in
this sub-section is not confined to statutory rules or the rules
framed by the competent authority in exercise of the power of
delegated legislation but also includes the terms of agreement
entered into between the parties.”
34. In Yashwith Constructions (P) Ltd. v. Simplex Concrete
Piles India Ltd. and Another (2006) 6 SCC 204, the Supreme
Court was called upon to examine the scope of Section 15 of the
Act in the backdrop of the fact that after resignation of the arbitrator
appointed by the Managing Director of the respondent company,
another arbitrator was appointed by him in accordance with the
arbitration agreement. At that stage, the petitioner thereon filed an
application under Section 11(5) read with Section 15(2) of the Act
praying for appointment of a substitute arbitrator to resolve the

disputes between the parties. The said application was dismissed
by the Chief Justice holding that Section 15(2) refers not only to the
statutory rules framed for regulating the appointment of arbitrators
but also to contractual provisions for such appointment upholding
the view taken by the Chief Justice. In para (4), it was held as
under:-
“4. ………The withdrawal of an arbitrator from the office for any
reason is within the purview of Section 15(1)(a) of the Act.
Obviously, therefore, Section 15(2) would be attracted and a
substitute arbitrator has to be appointed according to the rules that
are applicable for the appointment of the arbitrator to be replaced.
Therefore, what Section 15(2) contemplates is an appointment of
the substituted arbitrator or the replacing of the arbitrator by
another according to the rules that were applicable to the
appointment of the original arbitrator who was being replaced. The
term “rules” in Section 15(2) obviously referred to the provision for
appointment contained in the arbitration agreement or any rules of
any institution under which the disputes were referred to arbitration.
There was no failure on the part of the party concerned as per the
arbitration agreement, to fulfil his obligation in terms of Section 11
of the Act so as to attract the jurisdiction of the Chief Justice under
Section 11(6) of the Act for appointing a substitute arbitrator.
Obviously, Section 11(6) of the Act has application only when a
party or the person concerned had failed to act in terms of the
arbitration agreement. When Section 15(2) says that a substitute
arbitrator can be appointed according to the rules that were
applicable for the appointment of the arbitrator originally, it is not
confined to an appointment under any statutory rule or rule framed
under the Act or under the scheme. It only means that the
appointment of the substitute arbitrator must be done according to
the original agreement or provision applicable to the appointment of
the arbitrator at the initial stage…….” [underlining added]
As held in Yashwith Constructions, Section 11(6) of the Act would
come into play only when there was failure on the part of the party
concerned to appoint an arbitrator in terms of the arbitration
agreement. In the case in hand, the High Court, in our view, was not
26
right in appointing an independent arbitrator without keeping in view
the terms of the agreement between the parties and therefore, the
impugned order appointing an independent arbitrator/retired District
Judge is not sustainable.
35. Remedy to the Respondent-Contractor:- The award passed
by the arbitrator dated 21.01.2016, whether sustainable, is the next
question falling for consideration. As discussed earlier, after
17.08.2011 the Arbitral Tribunal could not make progress and as per
the proceeding of the Arbitral Tribunal dated 17.08.2011, the
arbitrator observed that the “…..missing papers are
incomplete…..the chronological events need to be ascertained and
reconstitution will be required….”. As pointed out earlier, the
respondent filed application under Sections 11 and 15 of the Act of
1996 before the High Court on 13.05.2015. As per the proceedings
of the Arbitral Tribunal dated 18.12.2015, the arbitration application
before the High Court was brought to the notice of the tribunal and
the same was recorded. On 05.01.2016, the respondent prayed for
keeping the arbitration proceedings in abeyance and the matter was
adjourned for 13.01.2016. The Arbitral Tribunal passed a detailed
order on 13.01.2016 stating that the matter is pending for quite
some time and on the basis of the available facts and materials, the
27
matter will be finalized and adjourned the matter for 21.01.2016. On
the basis of available materials, the Arbitral Tribunal passed the final
award on 21.01.2016 awarding a sum of Rs.1,38,000/-, Rs.83,000/-
and Rs.1,97,110/- in respect of claims at Serial Nos.3, 4 and 9
respectively to the claimant and the respondent’s claim in respect of
other claims was rejected. So far as the counter claim of the
appellant-Corporation in respect of Serial No.17, the arbitrator
awarded a sum of Rs.58,39,018/-.
36. Since the High Court was in seisin of the matter, the Arbitral
Tribunal could have given further opportunity to the respondent to
put forth his case. The proceedings of the Arbitral Tribunal was
pending for quite some time from 2009 till 2015 and after the
respondent approached the High Court in May, 2015, the arbitrator
appears to have hurriedly passed the award. It is pertinent to note
that the respondent was repeatedly praying for adjournment on
05.01.2016, 13.01.2016 and was not present on the date of passing
of the final award dated 21.01.2016. As pointed out earlier, it was
noted in the proceedings dated 17.08.2011 that the chronological
events need to be ascertained and reconstruction will be required. It
is not known whether the same was ascertained or not and whether
reconstruction was done before passing the final award on
28
21.01.2016. The respondent has made number of claims under
various heads. The respondent has to be given an opportunity to
substantiate its claim under various heads. In order to do complete
justice between the parties and in exercise of power under Article
142 of the Constitution of India, the award dated 21.01.2016 is to be
set aside.
37. In exercise of power under Article 142 of the Constitution of
India, it is open to the court to mould the relief by safeguarding the
interest of parties. The paramount consideration in such cases
should be to ensure that there is no injustice caused. In Raj Kumar
and others v. Union of India and another (2006) 1 SCC 737, this
Court held as under:-
“19. …….in exercise of our powers under Article 142 of the
Constitution in order to do complete justice to a section of the
personnel who would otherwise be placed in an inequitable
situation for which the authorities are also partly to blame. It is open
to this Court to mould the relief by safeguarding the interest of the
parties even while declaring the law. The paramount consideration
in such cases should be to ensure that there is no injustice
caused…….”
38. The phrase “complete justice” engrafted in Article 142(1) is the
word of width couched with elasticity to meet myriad situations
created by human ingenuity or cause or result of operation of
Statute law or law declared under Articles 32, 136 and 141 of the
Constitution. (Vide Ashok Kumar Gupta and another v. State of
29
U.P. and others (1997) 5 SCC 201) In the case in hand, to relegate
the respondent to challenge the award under Section 34 of the Act,
it would further prolong the litigation between the parties.
Considering the facts of the case and in order to do complete justice
between the parties, in exercise of power under Article 142 of the
Constitution, the award dated 21.01.2016 is set aside.
39. In the result, the impugned order of the High Court dated
22.04.2016 is set aside and this appeal is allowed. The present
Managing Director of the appellant-Rajasthan Small Industries
Corporation Limited shall be the sole arbitrator and the Managing
Director is directed to take up the matter and continue the
proceedings and afford sufficient opportunity to both the parties to
adduce further evidence and to make oral submissions and pass the
final award within a period of four months. It is made clear that the
arbitrator may not be influenced by any of the views expressed by
the High Court.
..……………………….J.
[R. BANUMATHI]
...………………………..J.
[INDIRA BANERJEE]
New Delhi;
January 23, 2019

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