Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5067 OF 2008
(Arising out of SLP (C) NO. 16196 of 2006)
Northern Railway Administration,
Ministry of Railway, New Delhi …Appellant
Versus
Patel Engineering Company Ltd. …Respondent
With
(Civil Appeal No. 5068 /2008 @ SLP (C) No.10409/2007)
(Civil Appeal No. 5072 /2008 @ SLP (C) No.11550/2007)
(Civil Appeal No. 5073 /2008 @ SLP (C) No.11552/2007)
(Civil Appeal No. 5074 /2008 @ SLP (C) No.11554/2007)
(Civil Appeal No. 5075 /2008 @ SLP (C) No.11556/2007)
(Civil Appeal No. 5076 /2008 @ SLP (C) No.11557/2007)
(Civil Appeal No. 5078 /2008 @ SLP (C) No.11559/2007)
(Civil Appeal No. 5079 /2008 @ SLP (C) No.11560/2007)
(Civil Appeal No. 5080 /2008 @ SLP (C) No.11561/2007)
(Civil Appeal No. 5081 /2008 @ SLP (C) No.11562/2007)
(Civil Appeal No. 5082 /2008 @ SLP (C) No.11563/2007)
(Civil Appeal No. 5083/2008 @ SLP (C) No.11564/2007)
(Civil Appeal No. 5084/2008 @ SLP (C) No.11565/2007)
(Civil Appeal No. 5071/2008 @ SLP (C) No. 8248/2007)
(Civil Appeal No. 5069/2008 @ SLP (C) No. 8744/2007)
(Civil Appeal No. 5085/2008 @ SLP (C) No. 4687/2008)
J U D G M E N T
Dr. ARIJIT PASAYAT, J.
1. Leave granted in all the Special Leave Petitions
2. Noticing two different views in two decisions of this Court
in Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn.
Ltd. (2007 (5) SCC 304) and Union of India v. Bharat Battery
Mfg. Co. (P) Ltd. (2007 (7) SCC 684) the matter has been
referred to a larger Bench and that is how these cases are
before us.
3. In both the decisions the question related to appointment
of arbitrator under Section 11(6) of the Arbitration and
Conciliation Act, 1996 (in short the ‘Act’). In Bharat Battery’s
case (supra) the earlier decision in Ace Pipeline’s case (supra)
was apparently not brought before the Bench as a result of
which there appears to be some confusion. As noted above,
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the scope and ambit of Section 11(6) of the Act relating to
appointment of arbitrator falls for consideration in these
cases.
4. The stand of Mr. Harish N Salve appearing for some of the
parties in these appeals and Mr. B. Dutta, Additional Solicitor
General is that the true scope and ambit of Section 11(6) has to
be considered in the background of Section 28(3) and Section
34 of the Act. According to them, the agreed procedure referred
to in sub-section (2) of Section 11 has an exception in sub-
section (6) i.e. where the agreed procedure fails. Where there is
no agreed procedure, sub-sections (3), (4) and (5) of Section 11
apply. It is pointed out that there are three clauses in sub-
section (6) of Section 11. Clause (c) relates to failure to perform
function entrusted to a person including an institution and also
failure to act under the procedure agreed upon by the parties.
In other words, Clause (a) refers to parties to the agreement.
Clause (c) relates to a person who may not be party to the
agreement but has given consent to the agreement. It is also
pointed out that there is a statutory mandate to take necessary
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measures, unless the agreement on the appointment procedure
provided other means for securing the appointment. It is,
therefore, submitted that before the alternative is resorted to
agreed procedure has to be exhausted. The agreement has to be
given effect and the contract has to be adhered to as closely as
possible. Corrective measures have to be taken first and the
Court is the last resort. It is also pointed out that while
appointing an Arbitrator in terms of sub-section (8) of Section
11, the Court has to give due regard to any qualification
required for the Arbitrator by the agreement of the parties and
other considerations as are likely to secure the appointment of
an independent and impartial arbitrator. It is pointed out that
both these conditions are cumulative in nature. Therefore, the
Court should not directly make an appointment. It has to
ensure first that the provided remedy is exhausted and the
Court may ask to do what has not been done.
5. In response, Mr. Ashok Desai, learned senior counsel
appearing for some of the parties who have sought for
appointment of Arbitrator submitted that the expression ‘due
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regard’ relates to some of the factors which have to be
considered and it is not mandatory that the qualifications and
the considerations as referred to in sub-section (8) of Section
11 perforce have to be applied. It is a question of degree of
the parameters of consideration.
6. With reference to the earlier scheme under the
Arbitration Act, 1940 (in short the ‘Old Act’) it is stated that
the party is forced to move the Court because of request
being refused to appoint named Arbitrator and, therefore, the
Court in terms of sub-section (8) of Section 11 is not
constrained to appoint any arbitrator.
7. Section 11 reads as follows:
"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.
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(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.
(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, upon request of a
party, by the Chief Justice or any person or
institution designated by him.
(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, upon request of a party, by the Chief Justice
or any person or institution designated by him.
(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
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perform any function entrusted to him or it under
that procedure,
a party may request the Chief Justice or any person
or institution designated by him to take the
necessary measure, unless the agreement on the
appointment procedure provides other means for
securing the appointment.
(7) A decision on a matter entrusted by sub-section
(4) or sub-section (5) or subsection (6) to the Chief
Justice or the person or institution designated by
him is final.
(8) The Chief Justice or the person or institution
designated by him, in appointing an arbitrator,
shall have due regard to—
(a) any qualifications required of the arbitrator by
the agreement of the parties; and
(b) 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 Chief Justice of India or the person
or institution designated by him may appoint an
arbitrator of a nationality other than the
nationalities of the parties where the parties belong
to different nationalities.
(10) The Chief Justice may make such scheme as
he may deem appropriate for dealing with matters
entrusted by sub-section (4) or sub-section (5) or
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sub-section (6) to him.
(11) Where more than one request has been made
under sub-section (4) or sub-section (5) or sub-
section (6) to the Chief Justices of different High
Courts or their designates, the Chief Justice or his
designate to whom the request has been first made
under the relevant sub-section shall alone be
competent to decide on the request.
(12) (a) Where the matters referred to in sub-
sections (4), (5), (6), (7), (8) and (10) arise in an
international commercial arbitration the reference
to "Chief Justice in those sub-sections shall be
construed as a reference to the "Chief Justice of
India".
( b) Where the matters referred to in sub-sections (4),
(5), (6), (7), (8) and (10) arise in any other
arbitration, the reference to "Chief Justice" in those
sub-sections shall be construed as a reference to,
the Chief Justice of the High Court within whose
local limits the principal Civil Court referred to in
clause (e) of sub-section (1) of section 2 is situate
and, where the High Court itself is the court
referred to in that clause, to the Chief Justice of
that High Court.”
8. The crucial sub-sections are sub-sections (2), (3), (4), (5)
and (6).
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9. Sub-sections (3) to (5) refer to cases where there is no
agreed procedure. Sub-section (2) provides that subject to
sub-section (6) the parties are free to agree on a procedure for
appointing the arbitrator or arbitrators. Sub-section (6) sets
out the contingencies when party may request the Chief
Justice or any person or institution designated by him to take
necessary measures unless the agreement on the appointment
procedure provides other means for securing the appointment.
The contingencies contemplated in sub-section (6) statutorily
are (i) a party fails to act as required under agreed procedure
or (ii) the parties or the two appointed arbitrators fail to reach
an agreement expected of them under that procedure or (iii) a
person including an institution fails to perform any function
entrusted to him or it under the procedure. In other words,
the third contingency does not relate to the parties to the
agreement or the appointed arbitrators.
10. The crucial expression in sub-section (6) is “a party may
request the Chief Justice or any person or institution
designated by him to take the necessary measures”
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(underlined for emphasis). This expression has to read
alongwith requirement in sub-section (8) that the Chief
Justice or the person or an institution designated by him in
appointing an arbitrator shall have “due regard” to the two
cumulative conditions relating to qualifications and other
considerations as are likely to secure the appointment of an
independent and impartial arbitrator.
11. A bare reading of the scheme of Section 11 shows that
the emphasis is on the terms of the agreement being adhered
to and/or given effect as closely as possible. In other words,
the Court may ask to do what has not been done. The court
must first ensure that the remedies provided for are
exhausted. It is true as contended by Mr. Desai, that it is not
mandatory for the Chief Justice or any person or institution
designated by him to appoint the named arbitrator or
arbitrators. But at the same time, due regard has to be given
to the qualifications required by the agreement and other
considerations.
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12. The expression ‘due regard’ means that proper attention
to several circumstances have been focussed. The expression
‘necessary’ as a general rule can be broadly stated to be those
things which are reasonably required to be done or legally
ancillary to the accomplishment of the intended act.
Necessary measures can be stated to be the reasonable steps
required to be taken.
13. In all these cases at hand the High Court does not
appear to have focussed on the requirement to have due
regard to the qualifications required by the agreement or other
considerations necessary to secure the appointment of an
independent and impartial arbitrator. It needs no reiteration
that appointment of the arbitrator or arbitrators named in the
arbitration agreement is not a must, but while making the
appointment the twin requirements of sub-section (8) of
Section 11 have to be kept in view, considered and taken into
account. If it is not done, the appointment becomes
vulnerable. In the circumstances, we set aside the
appointment made in each case, remit the matters to the High
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Court to make fresh appointments keeping in view the
parameters indicated above.
14. The appeals are disposed of accordingly.
…………………………….J.
(Dr. ARIJIT PASAYAT)
……………………………J.
(P. SATHASIVAM)
……………………………J.
(AFTAB ALAM)
New Delhi,
August 18, 2008
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