Friday, October 8, 2010

Appointment of arbitrators under section 11 - A recent Bombay High Court judgment

We had recently posted a link to the Bombay High Court decision Thyssen Krupp Industries India Pvt. Ltd. v. S.D. Industries and observations on the same. Here, I put forth some of my own comments on the judgment.

The case appeared before the High Court in the form of an appeal under section 37 of the Arbitration and Conciliation Act, 1996 from a section 34 application before the District Court of Pune. The award of the arbitral tribunal was challenged on merits as well, but here I will restrict my discussion to the challenge to the constitution of the tribunal, composed of 3 arbitrators.

The arbitration clause in the Letters of Intent exchanged between the parties provided for appointment of 2 arbitrators, one nominated by each party, subject to the provisions of the Arbitration Act. When the Respondent invoked the arbitration clause, arbitrators were appointed by both parties. However, both these arbitrators appointed the presiding arbitrator after more than 30 days had passed since their appointment.

Contention of the Appellant:
The Appellant challenged the appointment of the presiding arbitrator more than 30 days after appointment of the latter of the two arbitrators. For this contention, he relied on section 11(4)(b) of the Arbitration and Conciliation Act, 1996, which provides that if the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or his designate.

The Court agreed with the contention that the present case fell under sub-section (3) of section 11, the parties not having decided the mode of selection of the president.

However, the Court did not agree with the applicability of sub-section (4). Section 11(4)(b) comes into play only when the two party-appointed arbitrators fail to agree on the third arbitrator. In this case, the presiding arbitrator had been appointed, albeit, more than 30 days after the second party-appointed arbitrator. The fact that "failure to agree" is distinct from "failure to appoint" is clear from use of these phrases in two different contexts in clauses (a) and (b) of section 11(4).

The Court looked into legislative intent and ruled that use of these different phrases in separate circumstances made it amply clear that the legislature did not mean to use them interchangeably. Thus, if the legislature had intended that failure to appoint a presiding arbitrator within 30 days would bar them from appointing at a later date, then sub-section (4)(b) would have used the phrase "fails to appoint", which is a wider term than the phrase "fails to agree".

If the above position is held to be true, then a problem would arise when the party-appointed arbitrators do not appoint an umpire for an indefinite period of time. Parties would then be left remediless. The Court held that in this case the appointed arbitrators would be held to have failed to act without undue delay under section 14(1)(a), leading to termination of their mandate. The remedy for the parties in this case would be substitution of arbitrators under section 15. The question of undue delay is, of course, to be determined depending on the facts of each case.

There being no undue delay in the instant case, the appellant's challenge to the constitution of the tribunal was rejected.

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