Darby Engineering Sdn, Bhd Vs. Engineers India Ltd.  INSC 1266 (22 July
SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION ARBITRATION PETITION NO.3 OF
2009 Sime Darby Engineering SDN. BHD. ....Petitioner (s) - Versus - Engineers
India Ltd. ....Respondent(s)
O R D E R
This petition has been filed under Section 11 of Arbitration and
Conciliation Act 1996 (hereinafter referred "the said Act") by the
petitioner praying for appointment of the arbitral tribunal to adjudicate the
claims and disputes between the petitioner and the respondent.
The petitioner is a company incorporated and existing under the
laws of Malaysia and is engaged in the business 1 of fabrication of all types
of offshore and onshore structures and complexes. The respondent on the other
hand is the company incorporated under the (Indian) Companies Act, 1956 and is inter alia engaged in the business of providing
engineering and related technical services for petroleum refineries and other
The necessary facts of the case are that Oil and Natural Gas
Corporation Limited (ONGC) invited a tender vide notification dated November
17, 2003 for carrying work of Survey, Design, Engineering, Procurement,
Fabrication, Anticorrosion and Weight coating, Laying of submarine pipeline,
Installation of SPM, Load out, Tie- down/Sea-fastening and various other jobs
in respect of Mumbai High South Field offshore site.
In connection with the said tender issued by ONGC, respondent and
petitioner entered into a Business Agreement on 22/01/2004 by which it was
agreed that the respondent shall quote as a bidder against the said Tender with
the petitioner as a sub-contractor for 2 identified scope of work. The tender
was awarded by ONGC to the respondent by notice dated 10/03/2004 for the said
fabrication and installation of D-1 Well-Cum-Water Injection Platform at Mumbai
High South field Off-shore site on a turnkey basis for a sum of US $
62,3000,000/- and thereafter an agreement between the respondent and ONGC was
entered into. Then, the respondent entered into a subcontract with the
petitioner which was signed on 29th of October 2004 and for Fabrication, Load
Out and Transportation of Jacket, Piles, Conductors and Deck for D-1
Well-Cum-Water Injection Platform Project of ONGC at Bombay High South field
off-shore site for a lump sum subcontract price of US $ 20,162,460/-. In terms
of the said subcontract the petitioner carried out its scope of work in terms
of its contractual obligations. As it did not receive the full payment from the
respondent disputes and differences between them cropped up. These disputes
between the parties remained unresolved despite some joint negotiations between
The petitioner by its Advocate's notice on 19/02/2008 invoked the
arbitration clause and referred all disputes 3 and differences between them and
respondent to arbitration including its claim of US $ 14,244,812.02 and claim
for loss and damage on account of financing charges and foreign exchange and
such other damages. In the said letter the petitioner also suggested the names
of a few arbitrators. The respondent by its letter dated 26/02/2008 did not
accept the stand of the petitioner and stated that petitioner's stand to
proceed with arbitration is premature and the respondent requested the
petitioner to withdraw the Notice Invoking Arbitration and come out with a
viable proposal to create a joint settlement mechanism to settle the dispute
However, the learned counsel for the petitioner tried to show
before this Court that several meetings were held between the parties for
settling the dispute amicably but the said efforts ultimately did not succeed.
However before this Court the learned counsel for the respondent fairly
accepted the position but disputes between the parties virtually cannot be
resolved amicably anymore and the matter should be resolved through
Learned counsel for the respondent submitted that he does not
dispute that there are arbitrable disputes between the parties. Nor does he
dispute that the petitioner has invoked the arbitration clause between the
parties. The only point on which the case is argued is that in this case the
arbitration panel must consist of three arbitrators, one is to be nominated by
each party and the third arbitrator is to be chosen by the nominated
arbitrators. Learned counsel for the petitioner on the other hand did not
accept the said stand of the learned counsel for the respondent and submitted
that in terms of the agreement in this case dispute can be decided by the sole
arbitrator. Matter was actually heard before this Court on the aforesaid
Learned counsel for the petitioner submitted that admittedly the
arbitration clauses in the contract which govern the rights of the parties in
the matter of arbitration are as follows:
This Subcontract shall be governed by and construed in accordance with the Laws
of 5 India. The Courts at Delhi shall have sole jurisdiction.
Parties shall endeavour to resolve any dispute or difference amicably through
joint negotiation and when necessary by reference to the Chief Executive of EIL
and SSE. If any dispute or difference, which cannot be mutually resolved by the
parties, the same shall be referred to arbitration in accordance with the
provisions contained in Indian Arbitration and Conciliation Act, 1996 which is generally in accordance with UNCITRAL rules.
arbitrator(s) shall give reasoned award in respect of each dispute or
difference referred to him. The award as aforesaid shall be final, conclusive
and binding on all the Parties of this Subcontract in accordance with the Law.
venue of the arbitration shall be at New Delhi, India."
By relying on para 12.2, learned counsel submitted that the said
clause does not indicate about the number of arbitrators to be appointed while
reciting that the matter be referred to arbitration in accordance with the
provisions contained in the Indian Arbitration and Conciliation, 1996, which is
generally in accordance with the UNCITRAL rules.
Learned counsel also referred to and relied on Section 10 of the
said Act which deals with the composition of Arbitral Tribunals under Chapter
III of the said Act. Section 10 (1) and 10 (2) are as under:- "10. Number
of arbitrators. - (1) The parties are free to determine the number of
arbitrators, provided that such number shall not be an even number.
Failing the determination referred to in sub-section (1), the arbitral tribunal
shall consist of a sole arbitrator."
Relying on Clause 12.2 and Section 10, learned counsel submits
that it is clear that arbitration in this case shall be held by a sole or a
single arbitrator. He particularly emphasised Clause 12.2 of the agreement and
Section 10(2) of the Act which says that failing the determination referred to
in sub-section 1, the Arbitral Tribunal shall consist of a sole arbitrator.
Learned counsel submits that in the instant case Clause 12.2 does
not indicate the number of arbitrators 7 and in that event Sub-section (2) of
Section 10 would apply.
Learned counsel further submits that the matter should not be
referred to three arbitrators as that would prolong arbitration proceedings as
three arbitrators would have to adjust their timings. Apart from that the same
would result in considerable escalation of cost.
Learned counsel has referred to a judgment of this Court in
support of his contention that it has been judicially recognized that reference
of a dispute to a panel of three arbitrators escalates the cost and more so it
is very time consuming.
Learned counsel for the respondent on the other hand submits that
reference of the matter to a panel of three arbitrators is not ruled out if the
arbitration clause is properly construed alongwith Section 10 of the said Act.
Learned counsel admitted that Clause 12.2 is silent about the
number of arbitrators but Clause 12.3 refers to 8 an expression
`arbitrator(s)'. By relying on the said expression in Clause 12.3 learned
counsel submits that the arbitration clause thus postulates the appointment of
more than one arbitrator. As there cannot be two arbitrators which is an even
number, the minimum number of arbitrators other than one would be three.
Learned counsel also submitted that while clause 12.2 stipulates
that the arbitration between the parties would be governed under the said Act
it also says in clause
it shall generally be in accordance with UNCITRAL rules.
Learned counsel also submitted that they have a policy that in
matters involving high stakes above Rupees ten crores, it should be referred to
a Committee on panel of arbitrators. In support of this submission, learned
counsel referred to a Standard Contract Clauses which have been disclosed in
the counter affidavit filed by the respondent and reliance was placed on the
following clause:- 9 "The Arbitration shall be conducted in accordance
with the Indian Arbitration and Conciliation Act, 1996. For Contracts costing
upto Rs.10 Crores, a Sole Arbitrator should be appointed. For Contracts costing
over Rs.10 Crores, a Committee of Arbitrators should be appointed composed of
one Arbitrator to be nominated by the Contractor, one to be nominated by the
Owner and the third Arbitrator, who will act as a Chairman but not as umpire,
to be chosen jointly by the two nominees. The decision of majority of
Arbitrators shall be final and binding on both parties."
Learned counsel also relied on a passage from Redfern and Hunter,
Law and Practice of International Commercial Arbitration, Fourth Edn., 2004,
page 185, which is as under:- "In modern practice, despite the advantages
of a sole arbitrator, particularly in arbitrations involving heavy stakes,
preference is for appointment of three arbitrators, albeit not without
rationale. Particularly, in the area of "international commercial
complex problems peculiar to special types of disputes, eg, engineering,
construction, maritime and international trading disputes, a sole arbitrator,
many a time may not be suitable for resolution of such disputes. In such
situations, the common practice is to appoint a tribual comprising of three
arbitrators. Even though it may involve more expense and delay than a sole
arbitrator arbitration, it is still preferred as it is more effective. `An
arbitral tribunal of three arbitrators is likely to prove more 1 0 satisfactory
to the parties, and the ultimate award is more likely to be accepted to
The learned counsel argued if the aforesaid stipulations in
clauses 12.2 and 12.3 of the agreement and Sections 10(1) and 10(2) are read
harmoniously with UNCITRAL model rules, the appointment of a panel of three
arbitrators in this case cannot be ruled out.
These being the rival contentions of the parties, I am unable to
accept the contentions put-forth by learned counsel for the respondent for the
reasons discussed hereinbelow.
If one looks at the Clause 12.2 of the agreement it should be
clear if the disputes and differences are not resolved mutually, the same shall
be referred to arbitration in accordance with the provisions of the said Act.
Clause 12.3 stipulates the requirement on the part of the arbitrator(s) to give
The Arbitration Tribunal as defined under Section 2(d) of the Act
means "a sole arbitrator or a panel of arbitrators".
Section 10(2) of the Act is very relevant in order to resolve the
controversy in this case in as much as Section 10(2) makes it very clear where
the number of arbitrator is not determined, the arbitral tribunal shall consist
of a sole arbitrator. In this connection if UNCITRAL rules are referred the
position will remain the same. UNCITRAL model law on International Commercial
Arbitration also accepts the same definition of Arbitration Tribunal in Article
2(b). Article 10 of those rules is almost identical with Section 10 of the said
Act. Article 2(b) and Article 10 of those rules are extracted hereinbelow:-
"Article 2. Definition and rules of interpretation - For the purposes of
xxx (b) "arbitral tribunal" means a sole arbitrator or a panel of
"Article 10. Number of arbitrators - (1) The parties are free to determine
the number of arbitrators.
Failing such determination, the number of arbitrators shall be three."
Therefore, the definition of Arbitral Tribunal in Section 2(1)(d)
of the said Act is verbatim the same as in Article 2(b). Article 10 of the
UNCITRAL model law has close similarity with Section 10 of the said Act.
Section 10 deviates from Article 10 of the UNCITRAL law only in
the sense that Section 10(1) of the Act provides that despite the freedom given
to the parties to determine the number of arbitrators such numbers shall not be
even number. But in default of determination of the number, Section 10(2)
provides the tribunal is to consist of a sole arbitrator. Therefore, scheme of
Section 10(2) of the Act is virtually similar to Article 10.2 of the UNCITRAL
In the instant case Clause 12.2 of the Arbitration clause is
silent about the number of arbitrator.
Therefore, Section 10(2) of the said Act squarely applies.
The learned counsel for the respondent has referred to a passage
at page 185 para 4-18 of Redfern and Hunter, Law and Practice of International
Commercial Arbitration, Fourth Edn. But looking at the said book this Court
finds that the said passage was not been properly quoted. In paragraph 4-15 of
the said book it has been provided as follows:- "A sole arbitrator shall
be appointed unless the parties have agreed in writing otherwise, or unless the
LCIA Court determines that in view of all the circumstances of the case a
three-member tribunal is appropriate."
In the said paragraph it has also been stated that there are
distinct advantages of referring a dispute to a sole arbitrator on grounds of
speed and economy. "A sole arbitrator does not need to `deliberate' with
others, without having to spend time in consultation with colleagues in an
endeavour to arrive at an agreed or majority determination of the matters in
dispute." (Page 184) 1 4
Similar opinion has been expressed in Russell on Arbitration 23rd
Edition. At page 129, paragraph 4-035 with reference to arbitration it has been
said "Where no choice is made, the law implied a reference to a tribunal
consisting of a sole arbitrator." In fact Section 15(3) of the (English)
Arbitration Act, 1996 provides for the same.
Mustil and Boyd on Commercial Arbitration, 2nd Edition also
contains the same statement of law. At page 174 of the said book it has been
provided that "an arbitration agreement calls for a reference to a single
arbitrator, either if it contains an express stipulation to that effect, or if
it is silent as to the mode of arbitration."
In the instant case, the arbitration clause 12.2 is silent as to
the number of arbitrator. The said clause read with Section 10(2) of the Act
makes it very clear that arbitral tribunal in the instant case would be
consisting of a sole arbitrator.
The learned counsel for the respondent has referred to its policy
decision which has been quoted hereinabove.
policy decision cannot change the contractual clause. In any event the contract
between the parties was entered into in 2004. The said policy decision came
into effect in 2005. Therefore, the said policy decision cannot in any way
override contract between the parties.
The parties autonomy in the arbitration agreement must be given
due importance in construing the intention of the parties. In so far as
reference to the expression `arbitrator(s)' in clause 12.3 is concerned, the
same does not in any way affect the intention of the parties in clause 12.2.
It is noted in this connection that parties have freedom to change
the number of arbitrator even after the contract has been entered and by mutual
consent the parties may amend the contract. If that takes place, in such an
eventuality clause 12.3 provides that the arbitrator or arbitrators have to
give reasoned award in 1 6 respect of each dispute and difference referred.
Here also the expression which has been used is `him' which also points to a
It is clearly provided in the said Act that an arbitral tribunal
can, if necessary, take the help of experts in terms of Section 27 of the said
Act. If the sole arbitrator requires the assistance of an expert it can always
take such assistance.
Mr. Mukul Rohtagi, learned counsel for the respondent has fairly
submitted that if his argument is not accepted by the Court then his client has
no objection to the appointment of Hon'ble Mr. Justice D.P. Wadhwa, a former
Judge of this Court, to be the sole arbitrator in this case. The name of Justice
Wadhwa also finds place in the list of names suggested by the petitioner.
Therefore, appointment of Justice Wadhwa is fairly by consensus.
Since I am unable to accept the argument of learned counsel for
the respondent, I accordingly appoint Justice 1 7 D.P. Wadhwa, a former Judge
of this Court, the sole arbitrator in this case.
The Hon'ble arbitrator is requested to decide the dispute as early
as possible and preferably within a period of six months from the date of
entering upon the reference. The terms of arbitration proceeding are left to be
decided by learned arbitrator.
The petition is allowed accordingly. No order as to costs.