Switchgears Ltd. Vs. Tata Finance Ltd. & ANR  INR 522 (18 October 2000)
Special Leave Petition (civil) 13812 of 2000 $ DATAR
K.G.Balakrishna Balakrishnan, J.
The appellant challenges an order passed by the Chief Justice of Bombay High
Court, under Section 11 of the Arbitration and Conciliation Act, 1996 [for
short, "the Act"]. The appellant had entered into a lease agreement
with the 1st respondent in respect of certain machineries.
arose between the parties and the 1st respondent sent a notice to the appellant
on 5.8.1999 demanding payment of Rs. 2,84,58,701 within fourteen days and in
the notice it was specifically stated that in case of failure to pay the
amount, the notice be treated as one issued under Clause
(Arbitration clause) of the Lease Agreement. The appellant did not pay the
amount as demanded by the 1st respondent. The 1st respondent did not appoint an
Arbitrator even after the lapse of thirty days, but filed Arbitration Petition
No. 405/99 on 26.10.99 under Section 9 of the Act for interim protection. On
25.11.99, the 1st respondent appointed the 2nd respondent as the sole
Arbitrator by invoking clause 20.9 of the Lease Agreement and the Arbitrator in
turn issued a notice to the appellant asking them to make their appearance
before him on 13th
Thereafter, the appellant filed Arbitration Application No. 2/2000 before Hon'ble
the Chief Justice of Bombay and prayed for appointment of another Arbitrator
and the 1st respondent opposed this application. This petition was rejected by
the Chief Justice holding that as the Arbitrator had already been appointed by
the first respondent, the Lessor, the petition was not maintainable.
order is challenged before us.
heard the appellant's Counsel Mr. V.A. Mohta and respondent's Counsel Mr. R.F. Nariman.
The appellant's Counsel questioned the authority of the 1st respondent in
appointing an Arbitrator after the long lapse of the notice period of 30 days.
According to the appellant, the power of appointment should have been exercised
within a reasonable time. The appellant's Counsel also urged that unilateral
appointment of Arbitrator was not envisaged under the Lease Agreement and the
1st respondent should have obtained the consent of the appellant and the name
of the Arbitrator should have been proposed to the appellant before
appointment. On the other hand, the Counsel for the 1st respondent supported
the impugned order.
counsel for the appellant , Shri V.A. Mohta argued that the order passed by the
Chief Justice is amenable to Article 136 of the Constitution of India. Even if
it is an administrative order as decided by a three Judge Construction Co.
2000(6) SCALE 71, it is amenable to Article 136. Learned Senior Counsel for the
1st respondent, Shri R.F. Nariman, however, stated that in this case we need
not go into this controversy and we may decide the matter on merits on the
assumption that Article 136 is attracted. In view of the above stand taken for
the respondents, we are not deciding the question of maintainability.
Arbitration and Conciliation Act, 1996 made certain drastic changes in the Law
of Arbitration. This Act is codified in tune with the Model Law on
International Commercial Arbitration as adopted by the United Nations
Commission on International Trade Law (UNCITRAL). Section 11 of the Act deals
with the procedure for appointment of Arbitrator. Section 11(2) says that the
parties are free to agree to any procedure for appointing the Arbitrator. If
only there is any failure of that procedure, the aggrieved party can invoke
sub-clause (4), (5) or (6) of Section 11, as the case may be. In the instant
case, the Arbitration clause in the Lease Agreement contemplates appointment of
a sole Arbitrator. If the parties fail to reach any agreement as referred to in
Sub-Section (2), or if they fail to agree on the Arbitrator within thirty days
from receipt of the request by one party, the Chief Justice can be moved for
appointing an Arbitrator either under sub-clause (5) or sub-clause (6) of
Section 11 of the Act.
(5) of Section 11 can be invoked by a party who has requested the other party
to appoint an Arbitrator and the latter fails to make any appointment within
thirty days from the receipt of the notice. Admittedly, in the instant case,
the appellant has not issued any notice to the 1st respondent seeking
appointment of an Arbitrator. An application under sub-clause (6) of Section 11
can be filed when there is a failure of the procedure for appointment of
Arbitrator. This failure of procedure can arise under different circumstances.
It can be a case where a party who is bound to appoint an Arbitrator refuses to
appoint the Arbitrator or where two appointed Arbitrators fail to appoint the
third Arbitrator. If the appointment of Arbitrator or any function connected
with such appointment is entrusted to any person or institution and such person
or institution fails to discharge such function, the aggrieved party can
approach the Chief Justice for appointment of Arbitrator.
appellant in his application does not mention under which sub- section of
Section 11 the application was filed. Evidently it must be under Sub-section
(6) (a) of Section 11, as the appellant has no case that a notice was issued
but an Arbitrator was not appointed or that there was a failure to agree on
certain Arbitrator. The contention of the appellant might be that the first
respondent failed to act as required under the procedure.
the question to be considered is whether there was any real failure of the
mechanism provided under the Lease Agreement. In order to consider this, it is
relevant to note the Arbitration clause in the Agreement.
20.9 of the Agreement is the Arbitration clause, which is to the following
" It is agreed by and between the parties that in case of any dispute
under this Lease the same shall be referred to an Arbitrator to be nominated by
the Lessor and the award of the Arbitrator shall be final and binding on all
the parties concerned. The venue of such arbitration shall be in Bombay. Save as aforesaid, the Courts at
Bombay alone and no other Courts whatsoever will have jurisdiction to try suit
in respect of any claim or dispute arising out of or under this Lease or in any
way relating to the same." The above clause gives an unfettered discretion
to the 1st respondent-lessor to appoint an Arbitrator. The 1st respondent gave
notice to the appellant and later appointed the 2nd respondent as the
Arbitrator. It is pertinent to note that no notice period is prescribed in the
above arbitration clause and it does not speak about any concurrence or consent
of the appellant being taken in the matter of the choice of Arbitrator.
then arises 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 30 days. Learned Senior counsel for the appellant contends
that even though Section 11(6) does not prescribe a period of 30 days, it must
be implied that 30 days is a reasonable time for purposes of Section 11(6) and
thereafter, the right to appoint is forfeited. Three judgments of the High
Courts from Bombay, Delhi and Andhra Pradesh are relied upon in this connection.
Senior counsel for the respondents submits that the Bombay, Delhi and Andhra pradesh cases relied upon are distinguishable.
It is also contended that under Section 11(6) no period of time is prescribed
and hence the opposite party can make an appointment even after 30 days,
provided it is made before the application is filed under Section 11.
appellant contended that the 1st respondent did not appoint the Arbitrator
within a reasonable period and that amounts to failure of the procedure
contemplated under the Agreement. Our attention was drawn to a decision of the
Bombay High Court reported in 1999(2) Bombay CR. 189 petitioner, a Govt.
Contractor, as per the form of the Arbitration clause requested the Secretary
P.W.D to appoint the arbitrator. The Secretary, P.W.D. did not take any action
and the petitioner filed an application under Section 11(6) of the Act. After
the filing of this application, the respondent appointed an Arbitrator and
urged before the Chief Justice that application under Section 11(6) filed by
the petitioner became infructuous. It was held that the petitioner had waited
for 30 days for appointment of the arbitrator and as the respondent had failed
to appoint the arbitrator the objection was not sustainable and the appointment
of arbitrator made by the respondent was not valid in the eye of law.
above decision has no application to the facts of this case as in the present
case, the Arbitrator was already appointed before the appellant invoked Section
11 of the Act. The Counsel for the appellant contended that the Arbitrator was
appointed after a long lapse of time and that too without any previous
consultation with the appellant and therefore it was argued that the Chief
Justice should have appointed a fresh arbitrator. We do not find much force in
this contention, especially in view of the specific words used in the
Arbitration clause in the Agreement, which is extracted above. This is not a
case where the appellant requested and gave a notice period for appointment of
arbitrator and the latter failed to comply with that request. The 1st
respondent asked the appellant to make payment within a stipulated period and
indicated that in the event of non-payment of the amount within fourteen days,
the said notice itself was to be treated as the notice under the Arbitration
clause in the Agreement. The amount allegedly due from the appellant was
substantial and the 1st respondent cannot be said to be at fault for having
given a larger period for payment of the amount and settling the dispute. It is
pertinent to note that the appellant did not file an application even after the
1st respondent invoked Section 9 of the Act and filed a petition seeking
interim relief. Under such circumstances, it cannot be said that there was a
failure of the procedure prescribed under the contract.
decision of the Delhi High Court in B.W.L. Ltd.
is also distinguishable inasmuch as the respondent, in spite of being given
opportunity on 11.10.99 by the Court after filing of the application under
Section 11 to appoint an arbitrator, failed to do so and the Court felt that it
was a fit case for appointment of an arbitrator under Section 11. This case is
also distinguishable as the appointment was not made before the filing of the
application under Section 11.
Sharma & Sons vs. Engineer-in-Chief, Army Headquarters, New Delhi &
Ors. [2000 (2) Arb.LR 31 (AP)], the respondents were requested on 26.6.95,
6.8.95 and other dates in 1997 to appoint an arbitrator. Application under
Section 11 was filed after nearly 4 years on 21.4.99. Only thereafter the
respondent appointed an arbitrator on 13.5.99, but only in respect of some of
the disputes. The respondent felt that the other disputes were outside the
ambit of the arbitration clause. The High Court of Andhra pradesh held that in
view of Section 11(6) read with Section 11(8) the respondent had forfeited his
right to appoint an arbitrator after the expiry of 30 days from the date of
demand for arbitrator. Even in the above case, the appointment was not made
before the application under Section 11 was filed. Hence, the case is not
applicable to the facts of this case.
the above cases, therefore, the appointment of the arbitrator was not made by
the opposite party before the application was filed under Section 11. Hence,
all the above cases are not directly in point.
present case, the respondent made the appointment before the appellant filed
the application under Section 11 but the said appointment was made beyond 30
is whether in a case falling under Section 11(6), the opposite party cannot
appoint an arbitrator after the expiry of 30 days from the date of demand? 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.
present 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. In our view, the appointment of the arbitrator by the respondent is
valid and it cannot be said that the right was forfeited after expiry of 30
days from the date of demand.
need not decide whether for purposes of sub-clauses (4) and (5) of Section 11,
which expressly prescribe 30 days, the period of 30 days is mandatory or not.
interpreting the power of the Court to appoint arbitrator under Section 8 of
the Arbitration Act, 1940, Another (1995) 5 SCC 329, in para 3 held as under:-
"It is settled law that court cannot interpose and interdict the
appointment of an arbitrator, whom the parties have chosen under the terms of
the contract unless legal misconduct of the arbitrator, fraud, disqualification
pleaded and proved. It is not in the power of the party at his own will or
pleasure to revoke the authority of the arbitrator appointed with his consent.
There must be just and sufficient cause for revocation." When parties have
entered into a contract and settled on a procedure, due importance has to be
given to such procedure. Even though rigor of the doctrine of "freedom of
contract" has been whittled down by various labour and social welfare
legislation, still the court has to respect the terms of the contract entered
into by parties and endeavor to give importance and effect to it. When the
party has not disputed the arbitration clause, normally he is bound by it and
obliged to comply with the procedure laid down under the said clause.
we do not think that the first respondent, in appointing the second respondent
as the Arbitrator, failed to follow the procedure contemplated under the
Agreement or acted in contravention of the Arbitration clause.
the appellant alleged that "nomination" mentioned in the arbitration
clause gives the 1st respondent a right to suggest the name of the Arbitrator
to the appellant and the appointment could be done only with the concurrence of
the appellant. We do not find any force in the contention.
In P. Ramanatha
Aiyar's Law Lexicon (2nd Edition) at page 1310, the meaning of the word
'Nomination" is given as follows:- "The action, process or instance
act, process or an instrument of nominating; an act or right of designating for
an office or duty.
is equivalent to the word "appointments", when used by a mayor in an
instrument executed for the purpose of appointing certain persons to
office." Nomination virtually amounts to appointment for a specific
purpose and the 1st respondent has acted in accordance with Section 20.9 of the
Agreement. So long as the concurrence or ratification by the appellant is not
stated in the arbitration clause, the nomination amounts to selection of the
the appellant, while filing the application under Section 11 of the Act had no
cause of action to sustain the same as there was no failure of the agreement or
that the 1st respondent failed to act in terms of the agreement. The application
was rightly rejected. The appeal deserves to be and is accordingly dismissed,
however, without any order as to costs.