Airlines Systems Bhd (Ii) Vs. M/S. Stic Travels (P) Ltd.  INSC 605 (30
JAGANNADHA RAO J.
is an application under Section 11(5) of the Arbitration and Conciliation Act,
1996 and relates to a dispute under an agreement between a foreign company and
an Indian company. The application is filed by the foreign company against the
Indian company seeking reference of the disputes to an arbitrator. The learned
Chief Justice of India has nominated me to deal with the application.
claim of the petitioner is that the respondent company is liable to pay the
petitioner a sum of Rs.96,21,137/- with interest at 24% with quarterly rests w.e.f.
1.5.99 besides other amounts.
facts set out in the petition by the petitioner as follows: The petitioner
company has its Principal place of business at Kaulalumpur, Malaysia.
an office at New Delhi and it is carrying on business of
air-transportation, operation of air flights in and from India under a bilateral agreement between
Malaysia and India. It is stated that its Senior Vice President, South Asian
Region, Mr. Noor Amiruddin holds a general power of attorney to act for and on
behalf of the petitioner and that the said person is the Principal Officer of
the petitioner company in India. Original power of attorney dated 15.12.97 has
been produced and by order dated 3.11.2000, it was impounded for collection of
stamp duty and penalty and, after overruling objections by an order dated
21.11.2000, the original power of attorney was treated as evidence under
Section 42(1) of the Indian Stamp Act. It is the case of the petitioner that
the respondent has been appointed as General Sales Agent ( passenger) for
various countries and that under agreements dated 15.9.86 and 11.1.89, the
respondent has been so appointed, the former agreement relating to passengers
and the latter relating to cargo. The agreements were to be performed in India and the cause of action arose in India. The originals of the agreements
are with the respondent. It is stated that the aforesaid agreements could be
terminated by either side by giving to the other, written notice 60 days in
advance as per Article 3 of the agreements. It is stated that the petitioner
established its office for North India w.e.f.
further stated that the petitioner terminated the aforesaid agreements by
notice dated 1.3.99 ( delivered to respondent on the same date).
was done on the ground that the respondent failed to remit and pay to the
petitioner, all the sums and monies received by it in the course of agency on
account of sale of passenger tickets and airway bills. At present, it is said,
the respondent has to pay a sum of Rs.96,21,137/- besides such further sums as
may be ascertained after rendition of accounts by respondent.
at 24% is also claimed with quarterly rests w.e.f. 1.5.99 till payment.
According to the petitioner, the respondent had, in its letter dated 15.6.99
admitted liability upto Rs.83,54,655.79 and failed to pay the same and had
fraudulently attempted to "arbitrarily and illegally" adjust the same
against false claims with a view to defraud petitioner. All the amounts
unilaterally adjusted by respondent were false claims. The petitioner, it was
said, had enforced Bank guarantee for 13 lakhs of rupees one day before the
expiry of the guarantees. But the American Express Bank, it is said, did not
immediately honour the same and contacted the respondent allowing adequate time
to the respondent to file a suit ( No. 1710/99) for injunction against the
Bank. The petitioner filed an application under Section 8 in that suit but has
not taken any other step in the said proceedings. The respondent, it is said,
is further declining illegally to refund clams of passengers and directing them
to the appellants. This was not tenable.
respondent is also not restoring the commissions received. Petitioner gave
registered notice on 25.8.99 to respondent to concur in the appointment of a
retired Judge of the Supreme Court of India or any other person of equivalent
status. Respondent, in his reply dated 16.9.99, refused to concur. It is in
these circumstances that petitioner is seeking appointment of a retired Judge
of the Supreme Court as an arbitrator. These are the broad contentions of the
filed a counter contending that the agreements dated 15.9.86 and 11.1.89 ceased
to exist w.e.f. 1.5.99 and hence there is no arbitration clause.
notice dated 25.8.99 of the petitioner is bad in law. The petitioner has not
produced the original agreements. They are not with the respondent. The
petitioner cannot file attested copies of the two agreements. It is denied that
Mr. Noor Amiruddin is authorised to file this suit on behalf of petitioner.
petitioner is put to strict proof. The original of power of attorney is not
placed on record ( The original has since been produced, impounded and stamp
duty collected and returned after substitution of a copy).
Goyal is not the Managing Director of the respondent Company but is its
Goyal is its Managing Director. The cause of action has not arisen in India if Malaysian laws were applicable
as per clause 28. The petitioner does not have an established office in North India w.e.f. 1.5.99 as alleged. The
termination of agreements is bad. No sums are due to the petitioner much less
has been admitted in letter dated 15.6.99.
is no liability to account for any money collected and no interest is payable.
The respondent is not liable to refund any amounts to passengers nor is it
responsible to pay any commissions. There are no disputes or differences which
can be referred to arbitration.
rejoinder was filed by the petitioner refuting the various allegations made in
the counter. It is pointed out that the respondent, could not have denied that
the original agreements were with him. Nor could respondent deny the existence
of the arbitration agreements. It is said that, in fact, respondent had
admitted its existence and also the various clauses.
are disputes and differences which are to be referred to arbitration.
point was also raised whether in the case of an international arbitration it is
incumbent on the Chief Justice of India or his nominee to appoint an arbitrator
not belonging to Indian nationality? The learned counsel for the petitioner and
for the respondent have made their respective submissions reflecting the above
following points arise for consideration:
Whether the preliminary issues raised by the respondent can be decided at this
stage or be referred to the arbitrator? (2) Whether, in the case of an
international arbitration agreement, where one of the parties is an Indian
national, it is not permissible to appoint an arbitrator of Indian nationality
in view of the Enterprises Inc. 1998(5) SCC 724? Point 1:
5.9.2000, learned counsel for the petitioner took time for filing an
application directing the respondent to produce the original agreements which,
according to him, were with the respondent. Inasmuch as the petitioner has
contended that the respondent is in possession of the original agreements and
the respondent has contended that the originals are with the petitioner,
question arises whether, as required by Section 8 of the Act, the petitioner
has complied with the requirement of the said section or whether secondary
evidence could be permitted to be adduced. Question also arises whether Mr. Noor
Amiruddin could have signed the petitioner and as to whether he was duly authorised
to do so. Yet another question raised is that after termination of the agency,
there is no agreement in existence and hence arbitration clause cannot be
question arises whether such issues raised at the stage of Section 11
application or at the stage of Section 8 proceedings ( corresponding to Section
34 of the Old Act, 1940) could be decided by the Court.
Court in some cases felt that they could be decided to cut short litigation and
waste of time, where the documents are clear enough. But, subsequently the
three Mehul Construction Co. (JT 2000(9) SC 362) has taken the view that the
Chief Justice or his nominee is performing an administrative duty and cannot
decide the preliminary issues at this stage and it is for the arbitrator alone
to decide the same. ( No doubt, the question has now been referred for fresh
consideration in M/s Konkan Construction Pvt. Ltd. ( JT 2000 ( Supple.2) SC
150). In view of the said three Judge judgment, I decline deciding these
preliminary issues and direct that the matter be straightaway referred to an
arbitrator. Point 1 is decided accordingly.
question has arisen because of some Enterprises Inc. ( 1998(5) SCC 724).
the petitioner is a foreign company while the respondent is an Indian national.
Learned counsel for the petitioner foreign company, in fact, requested that an
arbitrator of Indian nationality is acceptable to the petitioner. The question
is whether when a foreign company has a dispute with an Indian national and
approaches an Indian Court, it is mandatory for the Court under Section 11(9)
of the Indian Arbitration & Conciliation Act, 1996, to appoint an
arbitrator who does not belong to the respondent's ( i.e. Indian) nationality,
even where the foreign company has no objection to have an Indian Judge as an
(9) of Section 11 of the Act reads as follows:
11(9): In the case of appointment of a 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." Ronak Enterprises Inc. (1998(5) SCC 724) observed
that at an earlier point of time in the said case when it was listed before
Justice Punchhi ( as he then was ), it appears a view was 'orally' expressed
that section 11(9) was mandatory. Therefore Majmudar, J. did not go into the
meaning of the word 'may' in section 11(9) and thought that if one of the
parties belonged to Indian nationality, it was not permissible to appoint an
arbitrator who was an Indian national. Further, it does not appear that, in
that case, the foreign company made any statement that an Indian arbitrator was
acceptable to it. I am, therefore, of the view that in Dolphin International
case, this Court did not have to examine in detail the legal position under the
UNCITRAL law on which the Indian Act of 1996 is modelled.
initially point out that under Article 11(5) of the Model Law, all that was
required was for the Court to "take into account, as well, the
advisability of appointing an arbitrator of a nationality other than those of
the parties". Thus, the Court has to keep this aspect in mind and is not
compelled to appoint an arbitrator not belonging to the nationality of either parties.
In fact, in several countries which have adopted the UNCITRAL MODEL, 1985, it
is clear that the point relating to nationality is only a factor to be kept in
shall refer to the position in some other countries where the UNCITRAL model is
adopted, in so far as appointment of arbitrators of a nationality other than
that of one of the parties.
6(4) of the UNCITRAL Arbitration Rules, 1976 stated that the appointing
authority shall take into account the advisability of appointing an arbitrator
of a nationality other than the nationality of the parties.
London Court of International Arbitration Rules (LCIA), 1998 say in Article 6 that
the "sole Arbitrator or Chairman of the Arbitral Tribunal shall not have
the same nationality as any party unless the parties who are not of the same
nationality as the proposed appointee all agree in writing otherwise." The
Rules of Arbitration of the International Chamber of Commerce, 1998 say in
Article 9(1) that the Court shall 'have regard to' to the prospective
arbitrator's nationality. Article 9(5) says that the sole arbitrator or the
Chairman of the Arbitral Tribunal shall be of a nationality other than that of
the party, but, in suitable circumstances and "provided neither party
objects within the time limit fixed by the Court, the arbitrator or the
Chairman of the Arbitral Tribunal may be chosen from the country of which any
of the parties is a national." The American Arbitration Association
International Arbitration Rules as amended in 1997 say in Article 6(4) that the
'administrator, after inviting consultation with the parties, shall endeavour
to select suitable arbitrators. "At the request of any party or on its own
initiative, the administrator may appoint nationals of a country other than
that of the parties." In the Rules of the ICADR, New Delhi (International Centre for
Alternative Dispute Resolution, New Delhi), it is stated in Rule 5(5)(c)(iii), that the ICADR will have 'regard
to' the "advisability of appointing a person of a nationality other than
the nationalities of the parties." In Fouchard Gaillard Goldman on
'International Commercial Arbitration' (1999) it is stated ( see para 1037 and
764) (page 570) that though normally, the independence of arbitrators and
likewise their neutrality, can be enhanced by their nationality still, 'several
institutional arbitration rules containing it also allow the institution to
disregard this principle in certain circumstances ( The authors refer to ICC
Rules, LCIA Rules, ICADR Rules, and those applicable in France and Algeria) (
1986 Rev.Arb.311). The Paris Tribunal of First Instance has held in one case (
Paris, ref.May 22 and June 23, 1987) ( 1988 Rev.Arb.699) as follows:
the practice is adopted in a number of arbitration rules, it does not
necessarily oblige the President of the Tribunal of First Instance to reject
the choice of an arbitrator who is of the same nationality as one of the
parties .................... The arbitrator, who is a Judge and not a party's
representative, cannot be suspected of bias solely on the basis of his
nationality, and the requirement of impartiality which determines the choice of
the individual .........is sufficient to guarantee that the hearings will be
Court, in that case, considered itself justified in appointing a French
Chairman where one of the parties was French, although its opponent, a Mexican
Corporation, had asked for the appointment of a 'neutral' individual. (I am
however dealing with a case where the foreign company has no objection to an
Indian Judge being appointed as arbitrator). The authors (Fouchard etc.) say
that "the Court cannot be reproached in law for considering that an
arbitrator's nationality cannot constitute an element of partiality in itself.
it should have taken such nationality into account as a factual matter, the
appearance of neutrality being as important in international arbitration as
neutrality itself." In "Law and Practice of International Commercial
Arbitration" by Alan Redfern and Martin Hunter ( 3rd Ed)(1999), it is
pointed out ( at p.215, para 4.55) that though the practice in international
arbitration is normally to appoint an arbitrator of a nationality other than
that of the parties, sometimes difficult problems can arise if a mandatory
principle is applied. The following example is given: 'Consider, for instance,
a dispute between a Swiss company and a French company, where the law
applicable to the dispute is the law of Switzerland. It seems sensible that the person chosen as the sole or
presiding arbitrator should be a Swiss lawyer, particularly if the seat of the
arbitration is Switzerland. Yet the insistence on a so-called
"neutral" nationality ensures that the one person who cannot be
chosen ( unless the parties agree otherwise) is a Swiss lawyer." ( See
also 'On the Neutrality of the Arbitrator and the place of Arbitration by Lalive)
( Swiss Essays on International Arbitration) ( 1984)(PP.23, 25) It is,
therefore, clear that in several countries where the UNCITRAL model is adopted,
it has been held that it is not impermissible to appoint an arbitrator of a
nationality of one of the parties to arbitration.
light of the above rules in various countries and rulings of Court and also in
view of the fact that the 1996 Act is based on UNCITRAL Model law which in
Article 6(4) only speaks of "taking into account" the nationality as
one of factors, I am of the view that the word 'may' in section 11(9) of the
Act is not intended to be read as 'must' or 'shall'.
therefore of the view that while nationality of the Arbitration is a matter to
be kept in view, it does not follow from section 11(9) that the proposed
arbitrator is necessarily disqualified because he belongs to the nationality of
one of the parties. The word 'may' is not used in the sense of 'shall'. The
provision is not mandatory. In case the party who belongs to a nationality
other than that of the proposed arbitrator, has no objection, the Chief Justice
of India ( or his nominee) can appoint an arbitrator belonging to a nationality
of one of the parties. In case, there is objection by one party to the
appointment of an arbitrator belonging to the nationality of the opposite
party, the Chief Justice of India ( or his nominee ) can certainly consider the
objection and see if an arbitrator not belonging to the nationality of either
parties can be appointed. While taking that decision, the Chief Justice of
India ( or his nominee ) can also keep in mind, in cases where the parties have
agreed that the law applicable to the case is the law of a country to which one
of the parties belongs, whether there will be an overriding advantage to both
parties if an arbitrator having knowledge of the applicable law is appointed.
result, I am of the view that under section 11(9) of the Act it is not
mandatory for the Court to appoint an arbitrator not belonging to the
nationality of either of the parties to the dispute.
circumstances of the case and after hearing the counsel on both sides and
inasmuch as the petitioner has no obligation for appointment of an arbitrator
of Indian nationality, I appoint Sri Justice D.P.
retired Judge of this Court as the sole arbitrator in the case. The
remuneration payable for the case and other costs payable may be fixed by the
arbitrator after hearing the parties on both sides.
petition is disposed of accordingly.