Appointment Of Arbitrator By A Party During Pendency Of Section 11(6) Petition
An appeal against the order of the Hon’ble High Court of Orissa, declining to appoint an arbitrator under section 11(6) of the Arbitration and Conciliation Act, 1996, was filed before the Hon’ble Supreme Court in the matter of Durga Welding Works v. Railway Electrification [(2022) 3 SCC 98].
The parties entered into a contract agreement pursuant to a tender floated by the appellant. The agreement had an arbitration clause. On dispute having arisen between the parties, the appellant served a legal notice dated 03.08.2009 for appointment of arbitrator and settlement of claim. Since the parties failed to appoint an arbitrator, the Appellant filed an application under section 11(6) of the 1996 Act for appointment of an arbitrator. However, just after filing of the arbitration petition, the appellant forgot to take any action in furtherance to the application and no notice was served to the respondents at any stage.
In the meanwhile the respondents responded to the legal notice dated 03.08.2009 and suggested two names of arbitrators as an option in their response dated 28.01.2010. The appellant filed an application seeking to restrain the respondents from proceeding to appoint an arbitrator since the matter was pending in the Court under section 11(6) of the 1996 Act. The said application also remained unattended by the appellant and no further action was taken.
Subsequently, the appellant itself on 28.08.2010 selected two officers from the panel suggested by the respondents and accordingly, the respondents constituted an Arbitration Tribunal vide letter dated 24.09.2010. The appellant thereafter not only appeared before the Arbitral Tribunal but also preferred statement of claim. The respondents submitted their statement of defence. Thereafter, the appellant moved an application before the Tribunal stating that the Arbitral Tribunal was not nominated within the stipulated time and hence, the constitution of the Arbitral Tribunal was not valid and that the Tribunal should not proceed with the arbitration proceedings.
The Appellant, however, till this point of time had not proceeded with the application under section 11(6) of the 1996 Act filed in 2009. On the other hand, the Arbitral Tribunal conducted the arbitral proceedings wherein the Appellant did not participate any further. Consequently, while an award dated 21.06.2013 was passed by the Ld. Arbitral Tribunal ex-parte rejecting the claims of the Appellant, the notices in the application under section 11(6) were only issued in 2016. In the light of the peculiar facts of the case, the Hon’ble High Court dismissed the arbitration petition filed under section 11(6) by an order dated 26.07.2019.
The Hon’ble Supreme Court while deciding the issue expounded the law on the issue which has been long settled by the courts in the following terms:
“11. The exposition of legal principles is indeed well settled by this Court in Datar Switchgears Ltd. v. Tata Finance Ltd. [Datar Switchgears Ltd. v. Tata Finance Ltd., (2000) 8 SCC 151] followed in Punj Lloyd Ltd. v. Petronet MHB Ltd. [Punj Lloyd Ltd. v. Petronet MHB Ltd., (2006) 2 SCC 638] that once an application under Section 11(6) of the Act has been filed for appointment of an arbitrator before the High Court, the respondents forfeited their right to appoint an arbitrator and the High Court alone holds jurisdiction to appoint an arbitrator in exercise of power under Section 11(6) of the Act.”
In Datar Switchgears Ltd the respondent failed to pay the amount claimed under the legal notice and further did not appoint the arbitrator as stipulated in the arbitration clause conditionally invoked under the legal notice. The respondent, however, filed an application under section 9 of the 1996 Act for seeking interim reliefs. The 1st respondent thereafter also appointed the 2nd respondent as an arbitrator in November 1999 by invoking arbitration clause. Subsequently, the appellant filed an arbitration application before Hon’ble Bombay High Court praying for appointment of another arbitrator. 1st respondent opposed this application. The petition was rejected by the Court as not maintainable as the arbitrator had already been appointed by the first respondent. The Court held that “An application under sub-section (6) of Section 11 can be filed when there is a failure of the procedure for appointment of an arbitrator.” As per the arbitration clause there was no failure of the respondent as the arbitration clause gave unfettered right to the respondent to appoint an arbitrator and there was no necessity of putting the appellant to notice or taking its consent. The Court framed the issue whether for purposes of Section 11(6) the party to whom a demand for appointment is made, forfeits his right to do so if he does not appoint an arbitrator within the reasonable time or time stipulated.
In the said matter the Court held that “So far as cases falling under Section 11(6) are concerned — such as the one before us — no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited.” Since in that case the respondent made the appointment before the appellant filed the application under Section 11(6), though it was beyond 30 days from the date of demand, the appointment of the arbitrator by the respondent was held as valid. The Court further relied on the settled law that ‘court cannot interpose and interdict the appointment of an arbitrator’ generally, whom the parties have chosen under the terms of the contract and that due importance has to be given to such procedure as agreed by the parties.
In Punj Lloyd Ltd. the respondent had not made appointment as per the arbitration clause within the time stipulated in the notice invoking arbitration till the date of filing of the application under section 11(6) of the 1996 Act by the appellant and therefore, the application for the appointment of arbitrator was allowed by the Hon’ble Supreme Court while applying the principles laid down in Datar Switchgears Ltd.
The Court, after referring to the settled law laid down by the Supreme Court, took the view that although the appointment of an arbitrator was undisputedly made by the respondents after the appellant filed arbitration petition under Section 11(6) of the 1996 Act, however, the matter in hand had peculiar facts and circumstances that the on one hand Appellant slept over its arbitration application filed in 2009 and notices were issued only in 2016 and on the other hand appellant did not participate in the arbitral proceedings before the Tribunal constituted with the consent of the appellant, and therefore, the High Court did not commit any error in declining to exercise its jurisdiction under Section 11(6) of the Act for appointment of an arbitrator and dismissing the arbitration petition. The Court held that although there is a settled law that after the application has been filed for appointment of an arbitrator under Section 11(6) of the Act, the respondents are deemed to have forfeited their right to appoint an arbitrator under the arbitration clause, however, the law would not be applicable to the facts of the present matter.
