Allahabad High Court
Deepak Goel vs Sri Avinash Chandra And Ors. on 17 February, 2020
Equivalent citations: AIR 2021 (NOC) 374 (ALL.), AIRONLINE 2020 ALL 1595
Author: Jaspreet Singh
Bench: Jaspreet Singh
HIGH COURT OF JUDICATURE AT ALLAHABAD, LUCKNOW BENCH
A.F.R.
Court No.6
Case :- ARBITRATION APPLICATION No. - 49 of 2019
Applicant :- Deepak Goel
Opposite Party :- Sri Avinash Chandra And Ors.
Counsel for Applicant :- Sachin Garg
*****
Hon'ble Jaspreet Singh,J.
Heard Shri N.K. Seth, learned Senior Advocate assisted by Shri Sachin Garg, learned counsel for the petitioner.
The instant petition has been preferred under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act of 1996", for short).
Briefly, the facts are that the petitioner and the respondents had entered in a builder's agreement dated 23.04.2009. In terms of the aforesaid agreement, the property i.e. House No.95/56 (Old No.19 situated at Meer Jan Lane, Gautam Budh Marg, Latouche Road, Lucknow) was to be developed by the petitioner by raising a four storied construction comprising of lower ground floor, upper ground floor, first floor and second floor. The said agreement also provided that the entire construction would be raised on the cost of the petitioner. However, 70% of so constructed area was to vest with the petitioner and the remaining 30% of the area would vest with the respondents.
Be that as it may, certain disputes arose in between the parties. The agreement as mentioned above contained an arbitration clause, which reads as under:-
"11. ;g fd ;fn bl vuqcU/k i=@fcYMlZ ,xzhesUV ;k izLrkfor Hkou ds ckjs esa dksbZ fookn mHk;i{k ds njfe;ku mRiUu gksrk gS mudk QSlyk mHk;i{k }kjk fu;qDr e/;LFk Jh v:.k [kUuk] ,MoksdsV }kjk fd;k tk,xk vkSj e/;LFk }kjk fd;k x;k QSlyk mHk; i{k dks ekU; gksxk rFkk y[kuÅ U;k;ky; ds vUrxZr jgsxkA"
It is the case of the petitioner that after the disputes had arisen, he invoked the arbitration clause and wrote a letter to the respondents dated 21.08.2017 calling upon the respondents to resolve the dispute failing which the petitioner would approach the nominated arbitrator in terms of the agreement. It has further been submitted that since the respondents did not respond to the said notice, consequently, the petitioner by means of the letter dated 01.01.2019 addressed to the nominated arbitrator required him to enter into the reference to adjudicate the disputes arisen in between the parties in term of the agreement dated 23.04.2009.
It has further been submitted that the named arbitrator by means of his letter dated 02.01.2019, a copy of which has been annexed as Annexure No.4 with the petition, recused himself and withdrew from the office of the arbitrator and required the parties to nominate some other arbitrator. It is thereafter that the petitioner preferred the instant petition under Section 11(6) of the Act of 1996 seeking the appointment of an arbitrator.
This Court by means of the order dated 05.08.2019 had issued notices to the respondents. Since, the office report on service indicated that the respondents were unserved, accordingly, by means of the order dated 16.10.2019 fresh notices were again directed to be issued to the respondents.
The office report further indicates that in compliance of the order passed by this Court dated 16.10.2019, the learned counsel for the petitioner had failed to take steps. Later, by means of the order dated 13.11.2019, the petitioner filed fresh steps for the respondents and as per the office report dated 07.12.2019, it was reported that the respondents were not residing at the given addresses and thus, the service was not sufficient. Since, thereafter, the matter remained pending before this Court and on 21.01.2020, this Court passed the following order, which reads as under:-
"Heard Shri Sachin Garg, learned counsel for the petitioner.
The office report dated 07.12.2019 has reported that the respondents No.1 to 5 could not be served for the reasons that the addresses are incomplete. The addresses as mentioned in the petition have now occupied by some other persons and the premise has already been sold. In absence of the correct addresses, the respondents could not be served.
Learned counsel for the petitioner shall provide the correct addresses of the respondents by filing a supplementary affidavit within ten days.
Learned counsel for the petitioner shall also satisfy the Court as to how the present petition is maintainable. It has been averred in the petition that the agreement in between the parties contained an arbitration clause wherein the named arbitrator was mentioned. It is the case of the petitioner that the arbitrator was approached on the 1st January, 2019 to enter into a reference. However, by means of the letter dated 02.01.2019, the named arbitrator recused. The question whether the petition under Section 11(6) of the Act of 1996 in the aforesaid circumstances would be maintainable or it would be a case for appointment of a substitute arbitrator is a query put by the Court.
Shri Sachin Garg, learned counsel for the petitioner prays for some time to prepare the case. Accordingly, put this matter on 03.02.2020 on which date, he shall answer the aforesaid."
It is in furtherance thereof that the petitioner has made his submission regarding the maintainability of the petition. The submission of Shri Seth, learned Senior Advocate is two fold:-
(i) At the very outset, the arbitration clause in between the parties does not contemplate of a situation that in case if the nominated arbitrator recused himself, what would be procedure and in absence thereof, the petitioner had no option but to approach the Court under Section 11(6) of the Act of 1996.
(ii) The other submission is that even otherwise if it is to be considered that once the arbitrator had recused himself, a fresh arbitrator/substituted arbitrator had to be appointed in that case it is not necessary for the petitioner to approach the respondents first but can straight away file a petition before this Court for appointment of the substituted arbitrator.
Learned Senior Advocate in support of his submissions has relied upon the decisions of the Hon'ble Apex Court in the case of San-A Tradubg Company Ltd., vs. I.C. Textiles Ltd., (2012) 7 SCC 192; ACC Ltd. vs. Global Cements Ltd., (2012) 7 SCC 71 and the decision of a Coordinate Bench of this Court in the case of M/s. Tirath Ram Sumer Kumar vs. Rakesh Kumar Mishra and another [MANU/UP/0190/2017], passed in Arbitration Application No.16 of 2015, decided on 05.01.2017 and a decision of the Single Judge of the Bombay High Court in the case of M/s. Smile Realtors Pvt. Ltd. vs. Farmerbank Employees Co-operative Housing Society, passed in Misc. Civil Application (Arbitration) No.829 of 2017, decided on 22.09.2017.
The Court has heard learned Senior Advocate and also perused the record.
The facts which are not disputed are that an agreement was entered in between the petitioner and the respondents dated 23.04.2009, which contains an arbitration clause. In the aforesaid arbitration clause, which has been reproduced hereinabove, it would indicate that the parties had agreed that Shri Arun Khanna, Advocate shall be the named arbitrator. It is relevant to point out that the aforesaid agreement was entered in the year 2009, however, as per Para-13 of the petition, it has been mentioned that since the respondents No.2 to 5 failed to deliver the possession of the property in question to the petitioner for carrying out necessary construction activities and that in the year 2017, the respondents had already started demolition activities by entering into a separate agreement with some other party it is at that point of time that the petitioner became aware of the ill-intention of the respondents and, thereafter a notice dated 21.08.2017 was sent.
Since, the aforesaid notice dated 21.08.2017 was not responded, it is only after a lapse of more than year and a half, the petitioner approached the arbitrator for entering into the reference.
From the perusal of the record, it would indicate that the notice annexed as Annexure No.3 is addressed to the named arbitrator and it is stated that a copy of the same was also addressed to the respondents. However, there is nothing on record to indicate that the said letter was ever communicated to any of the respondents. Similarly, reply dated 02.01.2019 is also addressed to the petitioner and a copy which has been marked to the respondents but there is no material on record to indicate that this reply by the named arbitrator was ever sent to any of the respondents. It is in this backdrop that once the named arbitrator recused himself by means of communication dated 02.01.2019, the petitioner has approached this Court for appointment of an arbitrator.
At this stage, it will be relevant to notice the provisions of Sections 14 and 15 of the Act of 1996, which read as under:-
"14. Failure or impossibility to act.--(1) [The mandate of an arbitrator shall terminate and he shall be substituted by another arbitrator, if]--
(a) he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay; and
(b) he withdraws from his office or the parties agree to the termination of his mandate.
(2) If a controversy remains concerning any of the grounds referred to in clause (a) of sub-section (1), a party may, unless otherwise agreed by the parties, apply to the Court to decide on the termination of the mandate.
(3) If, under this section or sub-section (3) of section 13, an arbitrator withdraws from his office or a party agrees to the termination of the mandate of an arbitrator, it shall not imply acceptance of the validity of any ground referred to in this section or sub-section (3) of section 12.
15. Termination of mandate and substitution of arbitrator.--(1) In addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate--
(a) where he withdraws from office for any reason; or
(b) by or pursuant to agreement of the parties.
(2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced.
(3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal.
(4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal."
It would indicate that where an arbitrator becomes de jure or de facto unable to perform his functions or for other reasons, fails to act without undue delay or he withdraws from his office or the parties agree to the termination of his mandate, the mandate of arbitrator stands terminated.
In the present case, admittedly sub-section (2) of Section 14 of the Act of 1996 is clearly applicable since the named arbitrator recused himself and withdrew from his office, in a situation where the arbitrator withdraws from his office, Section 15 of the Act comes into play.
From the perusal of Section 15 of the Act of 1996, it would indicate that where the arbitrator withdraws from his office, sub-section (2) of Section 15 becomes applicable, therefore, in the given situation, once the named arbitrator had recused himself, it was a clear case where a substituted arbitrator had to be appointed. In terms of sub-section (2) of Section 15 of the Act of 1996 for the purposes of appointment of a substituted arbitrator, the Rules which are applicable to the appointment of the arbitrator so replaced are to be followed.
In the present case, apparently, the arbitration agreement or the clause does not contemplate of any situation nor it relates to any Rules which can be relied upon in a situation where the arbitrator has recused himself.
From the perusal of the agreement, this Court finds that the parties at the initial stage had agreed to appoint a named arbitrator, implies that both the parties had agreed to his appointment. It necessarily follows that the parties agreed to refer their disputes to an arbitrator appointed with mutual consent as they could identify such a person. Once, the named arbitrator withdrew from his office again, it necessarily follows in terms of Section 15(2) of the Act of 1996 that the parties would be required to appoint the substituted arbitrator with mutual consent.
In order to undertake this exercise, it was incumbent upon the petitioner to approach the respondents calling upon them and seek their participation for identifying a person to be the substituted arbitrator.
Apparently as already noted above, the letter dated 01.01.2019 contained in Annexure No.3 as well as reply dated 02.01.2019 contained in Annexure No.4 does not indicate that the same were ever communicated to the respondents. Even otherwise assuming that the arbitrator had informed both the parties about his recusal yet it was incumbent upon the petitioner before filing the petition under Section 11(6) of the Act of 1996 to have approached and call upon the respondents to participate in the formation of the arbitral Tribunal for the purpose of substituting the named arbitrator, however, the same has not been done.
In the aforesaid backdrop as already noticed above, the submission of the learned counsel for the petitioner is that the petitioner was left with no option, but to institute the petition under Section 11(6) of the Act of 1996 and the other limb of the submission is that once the arbitrator had recused himself, there was no requirement to issue a fresh notice and call upon the respondents for the purposes of appointing a substituted arbitrator and the petition without any notice before this Court was competent.
It would be seen that Section 11 of the Act of 1996 which relates to appointment of an arbitrator and a complete scheme is envisaged therein. For ready reference, Section 11 as it stands after amendment of 2015 as well as 2019 reads as under:-
"11. Appointment of arbitrators.--(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator.
[(3-A) The Supreme Court and the High Court shall have the power to designate, arbitral institutions, from time to time, which have been graded by the Council under section 43-I, for the purposes of this Act:
Provided that in respect of those High Court jurisdictions, where no graded arbitral institution are available, then, the Chief Justice of the concerned High Court may maintain a panel of arbitrators for discharging the functions and duties of arbitral institution and any reference to the arbitrator shall be deemed to be an arbitral institution for the purposes of this section and the arbitrator appointed by a party shall be entitled to such fee at the rate as specified in the Fourth Schedule:
Provided further that the Chief Justice of the concerned High Court may, from time to time, review the panel of arbitrators.] (4) If the appointment procedure in sub-section (3) applies and--
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or
(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, [the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be.] (5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree [the appointment shall be made on an application of the party in accordance with the provisions contained in sub-section (4).] (6) Where, under an appointment procedure agreed upon by the parties,--
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, [the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
(6-A) [* * *] [(6-B) The designation of any person or institution by the Supreme Court or, as the case may be, the High Court, for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.] (7) [* * *] [(8) [The arbitral institution referred to in sub-sections (4), (5) and (6)], before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of Section 12, and have due regard to--
(a) any qualifications required for the arbitrator by the agreement of the parties; and
(b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.] (9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, [the arbitral institution designated by the Supreme Court] may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.
(10) [* * *] [(11) Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to different arbitral institutions, the arbitral institution to which the request has been first made under the relevant sub-section shall be competent to appoint.
(12) Where the matter referred to in sub-sections (4), (5), (6) and (8) arise in an international commercial arbitration or any other arbitration, the reference to the arbitral institution in those sub-sections shall be construed as a reference to the arbitral institution designated under sub-section (3-A).
(13) An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the arbitral institution within a period of thirty days from the date of service of notice on the opposite party.
(14) The arbitral institution shall determine the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal subject to the rates specified in the Fourth Schedule.
Explanation.--For the removal of doubts, it is hereby clarified that this sub-section shall not apply to international commercial arbitration and in arbitrations (other than international commercial arbitration) where parties have agreed for determination of fees as per the rules of an arbitral institution.]."
However, in the present controversy, this Court is only concerned with sub-sections (2), (5) and (6) of Section 11 read with Section 15(2) of the Act of 1996. Sub-section (5) of Section 11 clearly provides that if the parties fail to agree upon any procedure for appointment of an arbitrator, then the party has to call upon other with a request regarding the appointment of an arbitrator requested and in case if the other person declines or the appointment procedure fails, then it gives a cause of action to the person so concerned to file a petition under Section 11(6) of the Act of 1996 which has three contingencies mentioned thereunder.
In the present case, Section 11(6)(a) of the Act of 1996 would be relevant and is applicable in the given situation. It would indicate that the parties did not agree to any specific procedure for appointment of an arbitrator. However, as already noticed above, at the time of executing the agreement they had agreed to appoint the named arbitrator, mutually. This implies that for substituting the arbitrator also mutuality would be important. In order to indicate that any effort was made to arrive at a substitute appointment mutually, it was required of the petitioner to have approached the respondents. Since, no effort was made, therefore, it cannot be said that the agreed procedure in between the parties had failed which gave a cause of action to the petitioner to invoke Section 11(6) of the Act of 1996. Nor there are any pleadings to the said effect that after recusal the petitioner had called upon the respondents for mutually appoint an arbitrator.
Having said that, this Court is of the clear opinion that the present petition is not maintainable inasmuch as it was a clear case of appointment of a substitute arbitrator and in terms of sub-section (2) of Section 15 of the Act of 1996 the parties would be required to first attempt appointment by mutuality and consent. Since, the petitioner did not approach the respondents seeking their consent or even offered to suggest certain names calling upon the respondents to respond indicates that the petitioner has failed to comply with its responsibility.
At this stage, it will be relevant to consider the cases cited by the learned counsel for the petitioner, who has relied upon the decision in the case of San-A Tradubg Company Ltd., vs. I.C. Textiles Ltd., (2012) 7 SCC 192 (supra). In the aforesaid case, it would be relevant to note that in Para-5 of the said report it has clearly been noticed that once the named arbitrator had withdrawn from his office, the petitioner had sent a notice for demand of arbitration dated 10.12.2004, which was not complied and it is under such circumstances, the aforesaid petition was filed. In Para-18 of the aforesaid report, the Hon'ble Apex Court has clearly held that where an arbitration clause provides for appointment of a sole arbitrator and he refuse to act then the agreement clause stands exhausted and the provisions of Section 15 of the Act of 1996 would be attracted and it would be for the court under Section 11(6) of the Act of 1996 to appoint an arbitrator provided the procedure laid down has been followed unless there is an agreement and contract, to the contrary.
In light of the aforesaid pronouncement, the view as taken by this Court is buttressed and the aforesaid decision does not help the petitioner.
Even in the case of ACC Ltd. vs. Global Cements Ltd., (2012) 7 SCC 71 (supra), the same proposition has been broadly dealt with though that was not the issue in the aforesaid case. The case of ACC Ltd., (supra) was on a different footing altogether where the question before the Hon'ble Apex Court was that in case if the parties had named their arbitrator and the named arbitrator refused to act then whether such an arbitration clause became unenforceable or the same would continue to bind the parties. It is in the aforesaid backdrop that the Hon'ble Apex Court held that once the named arbitrator did not act, it would be open for the parties to fill up the vacancy in terms of agreed procedure and the arbitration clause does not outlive its utility. The ratio of the aforesaid decision, therefore, is not applicable in the present situation.
The other decision relied upon by the learned counsel for the petitioner of the Bombay High Court in the case of M/S Smile Realtor Pvt Ltd., (supra) does not consider the provisions of the Act nor there is any reasoning under what circumstances the Court came to a conclusion nor it is evident from the aforesaid judgment whether after the recusal any notice was sent calling upon the other party to cooperate in appointing the substitute arbitrator, hence the decision of the Bombay High Court does not constitute a binding precedent.
The learned Senior Adv has heavily relied upon the decision of a Coordinate Bench of this Court in the case of M/s. Tirath Ram Sumer Kumar vs. Rakesh Kumar Mishra and another (supra). The facts of the said case were a little different. In the said case, the arbitration clause in the agreement provided that each party would nominate its arbitrator and the two nominated arbitrators would appoint a Presiding Arbitrator. Since, both the named arbitrators refused to act, thereafter giving notice to the other party, the petition under Section 11(6) of the Act of 1996 was filed and the High Court had appointed an arbitrator, who during the course of proceedings expired and thereafter again petition under Section 11(6) read with Section 15(2) of the Act of 1996 was filed which was found to be maintainable.
Further in the said decision reliance was placed on the decision of the Apex Court in the case of San-A Tradubg Company Ltd., (supra) to arrive at a conclusion that once the arbitrator was appointed by the High Court then in case of substitute arbitrator also, it would be the High Court, who would appoint and it did not require the compliance of Section 11(6)(a)(b)(c) of the Act of 1996 as it stood complied with when the earlier petition under Section 11(6) of the Act of 1996 was filed when originally the arbitrator was appointed.
After comprehensively going through the judgment of the Coordinate Bench of this Court in the case of M/s. Tirath Ram Sumer Kumar vs. Rakesh Kumar Mishra & Anr., passed in Arbitration Application No.16/2015, decided on 05.01.2017, this Court finds that the aforesaid decision is clearly distinguishable on the facts inasmuch as the arbitration clause in this case as well as in the case of M/s. Tirath Ram (supra) is materially different. Moreover, in the said case of M/s. Tirath Ram, the High Court had already appointed an arbitrator originally and then upon the said arbitrator having expired, the petition was entertained. The Coordinate Bench had placed reliance on the case of San-A Tradubg Company Ltd., (supra) and Yashwith Constructions (P) Ltd. vs. Simplex Concrete Piles India Ltd., (2006) 10 763 in the case of M/s. Tirath Ram (supra) and in Para-21 of the said report as cited in Manupatra Edition noticed as under:-
"Even though in this case there was no agreement between the parties prior to institution of the suit and the same was arrived at under section 89 and based on such agreement to refer the matter to arbitration the Bombay High Court, exercising original civil jurisdiction in the suit, appointed a retired Judge of the Supreme Court as an arbitrator to resolve the matter in terms of the agreement, who resigned subsequently. The plaintiff filed an application for appointment of a substitute arbitrator in the disposed suit which was dismissed, whereupon, he filed an application under section 11(6) before the Bombay High Court. It is this appointment which was challenged on various grounds before the Supreme Court. The Supreme Court,, after considering the earlier judgments in Yashwith Construction (supra), S.B.P. and Co. v. Patel Eng., (2009) 10 SCC 293, ACC lTD. (supra), discussed and explained the law on the subject and upheld the appointment of the substitute arbitrator under section 11(6) read with section 15(2) by the Bombay High Court as the application had been filed before the appointing authority i.e. the Bombay High Court, which had appointed the earlier arbitrator. It observed as under :
"21. In fact, as has correctly been pointed out by learned counsel for the respondent, Section 89 of the CPC specifically provides that a Court hearing a suit may formulate terms of settlement between the parties and may either settle the same or refer the same for settlement by conciliation, judicial settlement, mediation or arbitration. On the facts in the present case, it is clear that following the mandate of Section 89, the Bombay High Court disposed of the suit between the parties by recording the settlement between the parties in clauses 1 to 7 of the consent terms and by referring the remaining disputes to arbitration. In the present case therefore it is clear that it is the Bombay High Court that was the appointing authority which had in fact appointed Mrs. Justice Sujata Manohar as arbitrator in terms of clause 8 of the consent terms. We must remember, as was held in C.F. Angadi v. Y.S. Hirannayya, [1972] 2 S.C.R. 515 at 523 that an order by consent is not a mere contract between the parties but is something more because there is super-added to it the command of a Judge. On the facts of the present case, it is clear that the Bombay High Court applied its mind to the consent terms as a whole and appointed Mrs. Justice Sujata Manohar as arbitrator for the disputes that were left to be resolved by the parties. The said appointing authority has been approached by the respondent for appointment of a substitute arbitrator, which was then done by the impugned judgment. This would therefore be "according to the rules that were applicable to the appointment of the arbitrator being replaced" in accordance with Section 15(2) of the Act. We, therefore, find that the High Court correctly appointed another independent retired Judge as substitute arbitrator in terms of Section 15(2) of the Arbitration Act, 1996. The appeal is, therefore, dismissed.""
Thus, from the above, it would reveal that the parties in between them did not have an arbitration clause. However, during course of proceedings before the High Court in exercise of power under Section 89 CPC, the High Court with consent terms appointed the arbitrator. It was held that since the High Court was the appointing authority, thus, the application under Section 15 of the Act of 1996 would lie before the High Court.
From the aforesaid, it would be clear that the High Court was acting as an institution authorized to appoint an arbitrator (institution as envisaged to perform a function entrusted to it under a procedure) which is quite different to the jurisdictions which the High Court exercises under Section 11(6) of the Act of 1996 which becomes active only when the procedure agreed between the parties fail as provided in Section 11(6)(a)(b) and (c). Moreover, in the case of M/s. Tirath Ram (supra) the provisions of Section 11(5) has specifically not been noted, which is not the case in the instant matter at hand hence the decision of M/s. Tirath Ram (supra) being based on a different premise is not applicable in the present case.
Under the Act of 1996, this Court get jurisdictions under Section 11(6) of the Act of 1996, only when the persons including an institution fails to perform any function entrusted to it under the procedure. This Court is fortified in its view in light of the decision of the Apex Court in the case of National Highways Authority of India & Another vs. Bumihiway DDB Ltd. (JV) & Ors., (2006) 10 SCC 763. The relevant portion thereof read as under:-
"20. In the facts of the present appeal, the following questions of law have arisen for consideration and determination by this Court from the arguments of both the sides:
(a) What is the scope of jurisdiction of the Court on the resignation of an arbitrator considering a specific mandate and mechanism under Section 15(2) of the Arbitration and Conciliation Act, 1996 and clause 67.3 [Ed.: See paras 5 and 43 in this regard.] of the contract?
(b) Whether on resignation of one of the arbitrators, the statutory provision that comes into play is Section 15(2) or Section 11(6) of the Arbitration and Conciliation Act, 1996?
(c) Whether an arbitration clause, which is a sacrosanct clause, can be rewritten by appointment of a judicial arbitrator when no qualification therefor is provided in the agreement?
(d) Whether the consent given by one of the parties (if treated to be so on assumption) is enough for the clause to be rewritten?
23. In the present case, for the purpose of appointment of presiding arbitrator, the respondent unilaterally approached the High Court of Orissa at Cuttack under Section 11(6) of the Arbitration and Conciliation Act, 1996, in express violation of the contract agreement without first requesting the Indian Roads Congress being the designated authority for appointment of the presiding arbitrator.
30. It is pertinent to state that under Section 11(6) of the Act, the Court has jurisdiction to make the appointment only when the person including an institution, fails to perform any function entrusted to it under that procedure. In the present case, the relief claimed by the respondents by invoking Section 11(6) is wholly erroneous as prior to the order dated 1-7-2005, the respondents only sought a clarification from IRC and without making a reference to them, immediately filed the petition under Section 11(6) on the purported ground that the Indian Roads Congress had failed to make the appointment within the stipulated time. Therefore, the reliance placed by the respondent on the judgment of this Court in Punj Lloyd Ltd. v. Petronet MHB Ltd. [(2006) 2 SCC 638] is wholly erroneous and is not applicable to the facts of the present case.
32. Learned Solicitor General appearing for the appellants argued that on the resignation of an arbitrator, the statutory provision which steps in is only Section 15(2) and not Section 11(6). Hence, after the resignation of Mr Justice Y. Bhaskar Rao, the process of appointment had restarted as per Section 15(2). However, the institution concerned i.e. IRC being restrained by the High Court from making the appointment, there was no failure on the part of the institution concerned i.e. IRC so as to justify invocation of Section 11(6).
33. Reliance was placed on Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. [(2006) 6 SCC 204 : (2006) 7 Scale 48] wherein this Court had reiterated the well-settled law and held that: (SCC p. 206, para 4) "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."
(emphasis supplied) In the light of the legal position, it was submitted that the impugned order is wholly erroneous and liable to be set aside.
34. In our view, the invocation of Section 11(6) of the Arbitration and Conciliation Act, 1996 is squarely based on a default of a party. The ratio laid down in Datar Switchgears Ltd.v. Tata Finance Ltd. [(2000) 8 SCC 151] is the correct proposition and Punj Lloyds Ltd. v.Petronet MHB Ltd. [(2006) 2 SCC 638] followed Datar Switchgears [(2000) 8 SCC 151] . The question arising for consideration here is who had defaulted and on what basis of default has the Court entered jurisdiction under Section 11(6). This question though raised by the appellant in the counter-affidavit before the High Court has not been answered at all. Hence, the assumption of jurisdiction and adjudication by the High Court, in our opinion, is vitiated.
44. As rightly pointed out by the appellants, the High Court failed to appreciate that in accordance with Section 15(2) of the Act on the termination of the mandate of the presiding arbitrator, the two nominated arbitrators were first required to reach a consensus and on their failure to arrive at a consensus only was Respondent 2 authorised to make the appointment. Unless Respondent 2 failed to exercise its jurisdiction, the High Court could not assume jurisdiction under Section 11(6) of the Act. Respondent 1 has wrongly invoked the jurisdiction of this Court (sic the High Court) without first following the procedure agreed to between the parties. Thus no cause of action had arisen in the facts of the case to seek the appointment from the High Court under Section 11(6) of the Act and thus the said petition was premature. The High Court is also not correct in relying on the contention of Respondent 1 that in case one of the arbitrators is a retired Chief Justice, the presiding arbitrator should be at least a retired Chief Justice or a retired Judge of a High Court with considerable experience. It was submitted by learned Solicitor General appearing for the appellants that the said finding of the High Court is self-contradictory inasmuch as if the presiding arbitrator is a retired Judge of the High Court and one of the arbitrators is a retired Chief Justice of the High Court, the order of hierarchy is upset. Even otherwise, there does not exist any such provision in law which requires that if one of the arbitrators is a retired Judge the presiding arbitrator also has to be a retired Judge. 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."
This court also gainfully draws strength from the decision of the Apex Court in the case of Huawei Technologies Company Ltd. vs. Sterlite Technologies Ltd., (2016) 1 SCC 721. The relevant paras read as under:-
"1. This application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as "the Act") has been filed seeking appointment of a sole arbitrator in terms of Clause 22.3 of the supply contract between the parties which was entered into in the following circumstances: in March 2006, MTNL issued a tender for supply, installation, testing, commissioning of Broadband Access Network. Both the petitioner and the respondent together bid against the tender floated and the respondent acted as the lead bidder. The contract was awarded in favour of the respondent by MTNL. On 9-4-2007, the parties entered into a supply contract for the aforesaid project. According to the petitioner, though it had complied with all the terms and conditions of the said supply contract and had shipped/delivered all equipments on time, the respondent had failed to make full payment of the amounts due and an amount quantified at USD 13,390,000 is due and payable. The petitioner sent a legal notice dated 28-11-2014 calling upon the respondent to make payment of the outstanding dues along with interest thereon within seven days failing which it was stated in the notice that the petitioner would be invoking Clause 22 of the supply contract which provided for arbitration and will proceed to appoint Mr Justice S.K. Dubey, a former Judge of the High Court of Madhya Pradesh as the sole arbitrator.
2. As no response was received to the aforesaid notice, the petitioner by letter dated 29-12-2014 appointed Shri Justice S.K. Dubey which appointment was accepted. Thereafter the respondent raised a dispute with regard to the reference to the arbitration and rejected the appointment of Shri Justice S.K. Dubey as the sole arbitrator.
3. In these facts the learned sole arbitrator Shri Justice S.K. Dubey by order dated 21-1-2015 recused himself from the proceedings. It is in the aforesaid circumstances that the present application/arbitration petition has been filed under Section 11(6) of the Act for appointment of a sole arbitrator.
4. A counter-affidavit has been filed on behalf of the respondent wherein it has been, inter alia, stated that upon appointment of Shri Justice S.K. Dubey as the sole arbitrator the notice invoking the arbitration clause had spent its force; Shri Justice S.K. Dubey having recused himself from the proceedings fresh appointment of a learned sole arbitrator has to be made by, once again, resorting to the provisions of Clause 22 of the supply contract and by following the procedure prescribed therein. Certain other objections have also been raised on the merits of the dispute contending that the petitioner had not fulfilled its obligations under the supply contract so as to be entitled to the amounts as claimed.
6. Under Section 15(2) of the Act in a situation where the mandate of an arbitrator terminates, a substitute arbitrator is required to be appointed according to the rules that were applicable to the appointment of the arbitrator who is replaced. In Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. [(2006) 6 SCC 204] , the term "rules" appearing in Section 15(2) of the Act has been understood to be referring to the provisions for appointment contained in the arbitration agreement or any rules of any institution under which the disputes are to be referred to arbitration. In the present case, admittedly, there are no institutional rules under which the disputes between the parties are to be referred to arbitration and, therefore, the expression "rules" appearing in Section 15(2) of the Act will have to be understood with reference to the provisions for appointment contained in the supply contract.
7.Clause 22.3 of the supply contract which deals with the matter may be extracted at this stage:
"22.3. All disputes, controversies or claims arising out of or in connection with or in relation to this contract of its negotiation, performance, breach, existence or validity, whether contractual or tortious, shall be referred to arbitration in accordance with the Indian Arbitration and Conciliation Act, 1996 and conducted by a single arbitrator to be appointed by the parties by mutual consent. The cost of arbitration shall be shared by the parties. The place of the arbitration shall be India and the applicable law in relation to the procedure of the arbitration shall be determined by reference to the law of the place of the arbitration is to be held. The arbitration proceedings shall be conducted in English language. The award of the arbitration shall be final and binding against the parties hereto."
8. Clause 22.3 of the supply contract contemplates appointment of a sole arbitrator by the parties by mutual consent. In a situation where the original arbitrator i.e. Shri Justice S.K. Dubey had recused himself the substitute or new arbitrator is required to be appointed according to the rules that were applicable to the appointment of the original arbitrator. This is the mandate of Section 15(2) of the Act. It was, therefore, incumbent on the petitioner to give notice and explore the possibility of naming an arbitrator by mutual consent and only on failure thereof the present application under Section 11(6) of the Act could/should have been filed. The above recourse is required to be followed by virtue of the provisions of Section 15(2) of the Act and the decision of this Court in Yashwith Constructions (P) Ltd.[(2006) 6 SCC 204] Admittedly, the same had not been followed. In these circumstances, the Court will understand the present application/arbitration petition to be premature. It is accordingly not entertained leaving it open for the petitioner to act appropriately, if so advised, in terms of the present order and thereafter seek its remedies as provided by law."
Equally relevant is the decisions of the Apex Court in the case of Shailesh Dhairyawan vs. Mohan Balkrishna Lulla, reported in (2016) 3 SCC 619, to understand the proposition applicable in context of Section 11(6) read with Section 15 of the Act of 1996 and the power of the High Court to appoint an arbitrator while acting as an Institution entrusted to perform any function.
Recently, the Hon'ble Apex Court in the case of Government of Haryana PWD Haryana (B and R) Branch vs. G.F. Toll Road Private Limited & Ors., reported in (2019) 3 SCC 505 had the occasion to consider this aspect of the matter and has held as under:-
"13. The High Court while considering the application under Section 15 failed to take note of the provisions of Section 15(2) of the Act. Section 15(2) provides that a substitute arbitrator must be appointed according to the rules that are applicable for the appointment of the arbitrator being replaced. This would imply that the appointment of a substitute arbitrator must be according to the same procedure adopted in the original agreement at the initial stage.
14. Section 15(2) of the Act reads as under:
"15. Termination of mandate and substitution of arbitrator.--(1)*** (2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced."
(emphasis supplied) The provisions of Section 15(2) require that when the mandate of an arbitrator terminates either by his withdrawal from office, or pursuant to an agreement by the parties, or for any reason, a substitute arbitrator shall be appointed according to the rules applicable to the appointment of the arbitrator being replaced.
15. This Court in ACC Ltd. v. Global Cements Ltd. [ACC Ltd. v. Global Cements Ltd., (2012) 7 SCC 71 : (2012) 4 SCC (Civ) 60] held that the procedure agreed upon by the parties for the appointment of the original arbitrator is equally applicable to the appointment of a substitute arbitrator, even if the agreement does not specifically provide so. In the present case, Clause 39.2.2. of the agreement expressly provided that each party shall nominate one arbitrator, and the third arbitrator shall be appointed in accordance with the Rules of ICA.
16. The appellant State had vide letter dated 16-11-2015 requested for 30 days' time to appoint another nominee arbitrator, after objections were raised by ICA to the first nomination. ICA declined to grant the period of 30 days, and instead appointed the arbitrator on behalf of the appellant State. ICA could have filled up the vacancy only if the appellant State had no intention of filling up the vacancy. ICA could not have usurped the jurisdiction over appointment of the nominee arbitrator on behalf of the State prior to the expiry of the 30 days' period requested by the petitioner. The appointment of the nominee arbitrator on behalf of the appellant State by ICA was unjustified and contrary to the Rules of ICA itself."
The Hon'ble Apex Court in the case of Yashwith Constructions (P) Ltd. vs. Simplex Concrete Piles India Ltd. & Anr., reported in (2006) 6 SCC 204 has held as under:-
"4. In our view, the learned Chief Justice and the Division Bench have rightly understood the scope of Section 15 of the Act. When the arbitrator originally appointed in terms of the arbitration agreement withdrew for health reasons, the Managing Director, as authorised originally by the arbitration agreement, promptly appointed a substitute arbitrator. It is true that in the arbitration agreement there is no specific provision authorising the Managing Director to appoint a substitute arbitrator if the original appointment terminates or if the originally appointed arbitrator withdraws from the arbitration. But, this so-called omission in the arbitration agreement is made up by the specific provision contained in Section 15(2) of the Act. 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. We are not in a position to agree with the contrary view taken by some of the High Courts."
Thus after considering the conspectus of various Apex Court decisions, it is clear that in order to appoint a substitute arbitrator, the original rule has to be complied with.
Hence, for all the reasons aforesaid, this Court is of the view that in absence of any notice given by the petitioner to the respondents seeking appointment of a substitute arbitrator mutually or with consent and not having complied with this original procedure, hence, the petition under Section 11(6) of the Act of 1996 is bad and not maintainable accordingly it is liable to be dismissed. However, in case if the law so permits, the petitioner shall be at liberty to approach the respondents for getting a substitute arbitrator appointed in accordance with the agreed procedure and law.
With the aforesaid, the petition is dismissed. There shall be no order as to cost.
Order Date :- 17.02.2020 Rakesh/-