C.M.C.
Ltd Vs. Unit Trust of India & Ors [2007] Insc 233 (1 March 2007)
P.K. BALASUBRAMANYAN & V.S. SIRPURKAR
(Arising out of SLP(C) No. 69 of 2004) P.K. BALASUBRAMANYAN, J.
Leave granted.
1. The appellant and respondent No. 1 entered into an agreement dated
23.10.1992 for a Technology Upgrade Project of the latter. The said agreement
contained an arbitration clause. The same read:
"20. In the event of any dispute or difference relating to the
interpretation or application of any of the provision of this Agreement or as
to the performance of any obligation by either party shall be settled by
arbitration. Each party shall appoint an arbitrator and the arbitrators so
appointed shall appoint an umpire to whom the matter on which the arbitrators
disagree will be referred. The decision of the arbitrators and in the event of
there being disagreement between the arbitrators, the decision of the umpire
shall be final, conclusive and binding on the parties with respect to the
matter referred to arbitration. The decision of the arbitrators or the umpire
as the case may be shall constitute arbitrators award for the purpose of Indian Arbitration Act,
1940. The arbitration proceedings shall be conducted in accordance with the
rules prescribed by the Indian Council of Arbitration."
2. Disputes arose between the parties. On 16.5.2002, respondent No. 1 issued
a notice invoking the arbitration clause and calling upon the appellant to
refer the dispute and differences to be settled through arbitration in terms of
the arbitration agreement. Respondent No. 1 named an arbitrator with the
suggestion that he may be accepted as the sole arbitrator. But, if the
appellant was not willing to treat him as such, it was stated that the
arbitrator named by respondent No. 1 may be treated as the one appointed by it
in terms of the arbitration agreement and in that event, the appellant was
called upon to name its arbitrator and the said two arbitrators can then
appoint a Presiding arbitrator. The appellant replied stating that the parties
have agreed to follow the Rules prescribed by the Indian Council of Arbitration
by incorporating the said Rules by reference in the arbitration clause and
since respondent No. 1 had not acted in terms of the said Rules, the appellant
regretted its inability to accept the stand of respondent No. 1 or to appoint
an arbitrator in terms of the arbitration agreement. The appellant regretted
its inability to act on the basis of the notice issued by respondent No.1.
3. Respondent No. 1 thereupon moved the Chief Justice of the High Court
under Section 11(6) of the Arbitration and
Conciliation Act, 1996. Respondent No.1 contended that the appellant had
failed to act in terms of the procedure for appointment of an arbitrator and
hence the Chief Justice or his Judge designate, may appoint an arbitrator to
act along with the arbitrator named by respondent No.1 and direct the two arbitrators
to appoint the third, a Presiding Arbitrator, within the time fixed and to
refer all disputes and differences between respondent No.1 and the appellant
arising out of or in connection with the Technology Upgrade Agreement as per
the provisions of the Act. The appellant resisted the application essentially
pleading that the Rules of the Indian Council of Arbitration and the mandate
thereof had not been complied with by the applicant before the Chief Justice
and that the arbitration clause had not been properly invoked and there is no
failure on the part of the appellant herein to act in accordance with the
procedure accepted by the parties. No occasion had therefore arisen for the
Chief Justice to appoint an arbitrator in terms of Section 11(6) of the Act. It
is said that the appellant as directed by the court had named an arbitrator
without prejudice to its contentions and it is common ground before us that the
said two arbitrators have also named the Presiding Arbitrator and an Arbitral
Tribunal had come into existence, but subject to the decision in this appeal
filed by the appellant.
4. The learned designated Judge of the High Court held that on a true
construction of clause 20 of the Agreement which is the arbitration agreement,
the right or duty to appoint or name an arbitrator each, rested with the
parties to the contract and what was provided for in the arbitration agreement
was only regarding the following of the procedure of the Rules of the Indian
Council of Arbitration. The arbitration agreement did not contemplate the
appointment of the arbitrator to be as per the Rules of the Indian Council of
Arbitration or only from the panel of arbitrators maintained by the Council.
Thus, on a construction of the arbitration agreement in the light of the
decisions brought to his notice, the designated Judge, noticing that the
appellant had also named an arbitrator without prejudice to its contentions and
that the two arbitrators had nominated a Presiding Arbitrator and that Tribunal
can proceed to arbitrate on the dispute allowed the application and constituted
the Tribunal as chosen by the parties. The designated Judge also noticed that
the question about the jurisdiction of the Arbitral Tribunal could be decided
by the Tribunal itself.
5. It may be noted that his decision was rendered before this Court spoke on
the nature of the jurisdiction of the Chief Justice or of the designated Judge
in SBP & CO. VS.
PATEL ENGINEERING LTD. & ANR. [(2005) 8 S.C.C. 618] and held it as a
judicial function. The appellant therefore, filed a petition under Article 226
of the Constitution of India challenging the decision of the designated Judge,
on the basis that the said order was only an administrative order. The Division
Bench held that in view of the restricted jurisdiction that the court had in
such matters and in the absence of any injury of any kind to the appellant,
there was no reason to interfere with the decision of the designated Judge
merely because a writ petition was maintainable to challenge the same. The Petition
for Special Leave to appeal was filed originally challenging the decision of
the Division Bench in the writ petition. But subsequent to the decision in SBP
&
Company (supra), the appellant was permitted to convert the Petition for
Special Leave to Appeal as one challenging the order of the designated Judge
and pursue its challenge thereto directly in this Court. Thus, this appeal
challenges the decision of the designated Judge interpreting the arbitration
clause quoted above and holding that the parties retained the right to nominate
the respective arbitrators and there was no obligation on any of the parties to
choose only an arbitrator as per the Rules of Arbitration of the Indian Council
of Arbitration or to proceed only in terms of those Rules for appointment of an
arbitrator.
6. It is settled that getting resolution of a dispute by arbitration is a
matter of contract between the parties. So long as the contract does not
militate against the provisions of the Arbitration Act,
nothing in law prevents the arbitration agreement between the parties being
given effect to in full.
What is contended by learned counsel for the appellant is that the
arbitration agreement clearly specifies that "the arbitration proceedings
shall be conducted in accordance with the Rules prescribed by the Indian
Council of Arbitration" and this would mean that the procedure for
appointment of an arbitrator and making a claim for arbitration must all be in terms
of the Rules of the Indian Council of Arbitration.
Learned counsel points out that under Rule 15 any party wishing to commence
arbitration proceedings under the Rules of the Council had to give a notice of
the request for arbitration to the Registrar of Indian Council of Arbitration
and to the opposite party and had to follow the procedure laid down in those
Rules. Learned counsel submits that the Rules of the Indian Council of
Arbitration had been incorporated in the arbitration agreement by the parties
and any mode of exercise of right for invoking an arbitration clause other than
the one prescribed by the Rules of the Council would be futile.
Therefore, the notice issued on behalf of respondent No.1 intimating the
appellant of the appointment of an arbitrator and calling upon the appellant to
appoint an arbitrator, would not amount to a proper invocation of the
arbitration agreement and there is no failure on the part of the appellant to
follow the procedure agreed to between the parties for appointment of an
arbitrator resulting in conferment of jurisdiction on the Chief Justice to
appoint an arbitrator in terms of Section 11(6) of the Act. In this context, we
may specifically record that the learned counsel for the appellant agreed that
the arbitration was governed by the Arbitration and
Conciliation Act, 1996.
Respondent No.1 had, of course, invoked that very Act.
7. Even going by the Rules of arbitration of the Indian Council of
Arbitration, it is seen that the parties are not precluded from having a
different procedure for appointment of an arbitrator. The Rules, even at the
inception, suggests the incorporation by the parties of an arbitration clause
in writing in their contracts in the following terms:
"Any dispute or difference whatsoever arising between the parties out
of or relating to the construction, meaning, scope operation or effect of this
contract or the validity or the breach thereof shall be settled by arbitration
in accordance with the Rules of Arbitration of the Indian Council of
Arbitration and the award made in pursuance thereof shall be binding on the
parties."
Rule 4(c) which is relevant reads:
"In case the parties have provided a different procedure for
appointment of arbitrator or schedule of cost including the arbitrator's fee,
the Council shall not be bound to process the case unless both the parties
agree to follow entire procedure or arbitration under Rules of Arbitration of
the Council."
It is clear from the comparison of the arbitration agreement suggested by
the council and the arbitration agreement between the parties, that the
arbitration agreement between the parties substantially differs from the one
suggested by the Indian Council of Arbitration. Secondly, Rule 4(c) is specific
that in case the parties had provided a different procedure for appointment of
an arbitrator, the Council was not bound to process the case unless both the
parties agreed to follow the entire procedure or Arbitration Rules of the
Council.
Obviously, a different procedure for appointment of an arbitrator or
arbitrators had been agreed to by the parties and respondent No.1 had obviously
not agreed to follow the entire procedure or have an arbitration under the
Rules of the Council. Therefore, even if one were to apply the Rules, it is
difficult to accept the argument that respondent No.1 was bound to invoke the
Rules of the Council to put in motion an effective machinery for arbitration.
8. Learned counsel has referred to the decisions in FOOD CORPORATION OF
INDIA vs. INDIAN COUNCIL OF ARBITRATION & ORS. [(2003) 6 S.C.C 564] and in
GESELLSCHAFT FUR BIOTECHNOLOGISCHE FORSCHUN (13) S.C.C. 630] in support of his
submission that respondent No.1 was bound to proceed in terms of the Rules of
the Council. But on a scrutiny of those decisions, it is clear that the
arbitration clauses in those cases were substantially in conformity with the
model arbitration clause prescribed by the Council as quoted earlier and it was
in that context that this Court observed that the Rules of the Council must be
followed.
The very appointment of the Arbitral Tribunal was to be according to those
Rules. But in this case, it is clear that the arbitration clause differs
considerably from the agreements involved in those cases and the parties
retained in themselves the right to appoint the arbitrators. Hence, those
decisions cannot be relied on for the purpose of non-suiting respondent No.1.
9. The argument that there is an incorporation of the Rules of the Council
in the arbitration agreement and hence those Rules must be given effect to
fully, does not take the appellant far in this case. On a true construction of
the arbitration agreement, what we find is that the parties retained in
themselves the right to name an arbitrator of their own, who in turn had to
name a Presiding Arbitrator so as to constitute an Arbitral Tribunal. The power
to appoint has not been ceded to the Indian Council of Arbitration. Once the
appointments are made and the Arbitral Tribunals are constituted, the parties
have also agreed that the arbitration proceedings shall be conducted in
accordance with the Rules prescribed by the Indian Council of Arbitration. The
provision that the proceedings shall be conducted in accordance with the Rules
prescribed by the Indian Council of Arbitration does not in any manner militate
against the retention of the power by the parties of appointing an arbitrator
or constituting an Arbitral Tribunal. Only if there exists any inconsistency
between the two provisions we would be called upon to undertake the existence
of reading down one or ignoring one as ineffective or inconsistent and giving
effect to the other.
Here in this case, there is no difficulty in reconciling both the clauses in
the arbitration agreement. As we have noticed, resolution of disputes by way of
arbitration is a matter of agreement between the parties. If while
contemplating such a resolution of disputes they also retain in themselves the
power to constitute an Arbitral Tribunal, it cannot be said that there is
anything wrong in such a provision or that the same cannot be given effect to.
Therefore, the power retained by the parties to name an arbitrator each, does
not militate either against the provisions of the Act or against the Rules of
the Indian Council of Arbitration. That Arbitral Tribunal once constituted in
terms of the Act, may have to follow the Rules of Indian Council of Arbitration
in that behalf. But as rightly pointed out by the learned Additional Solicitor
General who appeared on behalf of respondent No.1, when an Arbitral Tribunal of
persons well versed in law is constituted, surely, a proper procedure will be
followed by them and there is no reason to insist on a particular procedure to
be followed. But obviously, it is not a matter on which we need pronounce now.
Suffice it to say, that we find no infirmity in the interpretation of the
arbitration agreement by the designated Judge and in the constitution of the
Arbitral Tribunal as presently constituted. We are also inclined to think that
no prejudice is caused to the appellant and no injustice is involved in the
constitution of the Arbitral Tribunal. We therefore affirm the order of the
designated Judge and dismiss this appeal. We expect the Arbitral Tribunal to
enter upon the reference without any further delay and pronounce its award
within nine months of its entering upon the reference.
10. The appeal is thus dismissed with the above expectation. The parties are
directed to suffer their respective costs.
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