APPOINTMENT OF SOLE ARBITRATOR

Jasmine | February 24, 2020

INTRODUCTION

The case (Perkins Eastman Architects DPC & Anr. v. HSCC (India) Ltd.) revolves around the appointment of arbitrator under section 11(6) read with section 11(12)a of the Arbitration and Conciliation Act in accordance with clause of the Contract entered into between the parties and the sole arbitrator so appointed may adjudicate the disputes and differences between the parties arising from the contract.

FACTS OF THE CASE

The respondent was desirous of comprehensive architectural planning and designing. Therefore, a request for a proposal for appointment of Design Consultant was proposed for All India Institute of Medical Sciences, Andhra Pradesh.

Perkins Eastman Architects DPC, an Architectural firm submitted their bid. Letter of Intent was issued in favour of the firm and a contract was entered into between the parties.

As per the arbitration clause, in case of any disputes the Design Consultant shall request (Chief General Manager) CGM, HSCC in writing for written instruction or decision. If the Design Consultant(s) is dissatisfied with the instructions or decision of the CGM, HSCC, the Design Consultants(s) may appeal to the Director (Engg.) HSCC and if the Design Consultant is still dissatisfied with the decision he shall give notice to the CMD, HSCC for the appointment of sole arbitrator.

In this case within six days of the signing of the said contract the respondent alleged failure on part of the Applicants which was followed by stop work notice i.e. the respondents were deliberately trying to stall the project and were non-co-operative right from the initial stages.

Later, a termination notice was issued by the respondent alleging non-compliance of contractual obligations on the part of the applicants and termination letter was issued.  Notice was issued invoking the dispute resolution clause.

An appeal was filed by the Applicants before the Director (Engineering) but there was complete failure on his part to discharge the obligations. Therefore, by letter, the Chief Managing Director was requested to appoint the sole arbitrator and thus a letter was addressed by Chief General Manager of the respondent purportedly appointing the sole arbitrator.

Issues before the court

1.Whether the arbitration in the present case would be an International Commercial Arbitration?

2.Whether a case is made out for exercise of power by the Court to make an appointment of an arbitrator?

ARGUMENTS OF THE PETITIONER:-

It was argued that the appointment process contemplated in the contract gave complete discretion to the Chairman and Managing Director(CMD) of the respondent to make an appointment of an arbitrator of his choice and as such, it would be desirable that the Court makes an appropriate appointment of an arbitrator.

The applicant submitted:-

(a) The applicants had duly invoked the arbitration clause;

(b) The Chairman and Managing Director was the competent authority to appoint  sole arbitrator;

(c) But the Chief General Manager of the respondent wrongfully appointed the sole arbitrator;

(d) Such appointment was beyond the period prescribed;

(e) In any case, an independent and impartial arbitrator is required to be appointed.

ARGUMENTS OF THE RESPONDENT:-

Respondent submitted that no case was made out to maintain the instant application. He submitted that two basic submissions were that the Chairman and Managing Director failed to appoint sole arbitrator within 30 days of the requisition and that it was the Chief General Manager of the respondent who purportedly made the appointment of  sole arbitrator. The infirmities thus projected were on two counts, namely, for over-stepping the limit of 30 days; and secondly the appointment was not made by the Chairman and Managing Director of the respondent. He pointed out that the period in terms of requisition dated 28.06.2019 expired on Friday and the appointment was made on the first available working day. Secondly, the appointment was actually made by the Chairman and Managing Director but was conveyed by the Chief General Manager, and as such the alleged infirmities were completely non-existent.

JUDGEMENT

In the present case, Clause 24 empowers the Chairman and Managing Director of the respondent to make the appointment of a sole arbitrator and said clause also stipulates that no person other than a person appointed by such Chairman and Managing Director of the respondent would act as an arbitrator.

The inference is based on the judgement of TRF Limited v. Energo Engineering Projects Limited[1]. It was held that there are two categories of cases. The first, similar to the one dealt with in TRF Limited where the Managing Director himself is named as an arbitrator with an additional power to appoint any other person as an arbitrator. In the second category, the Managing Director is not to act as an arbitrator himself  but is required to appoint any other person of his choice or discretion as an arbitrator. If, in the first category of cases, the Managing Director was found incompetent, it was because of the interest that he would be said to be having in the outcome or result of the dispute. The element of invalidity would thus be directly relatable to and arise from the interest that he would be having in such outcome or decision. If that be the test, similar invalidity would always arise and spring even in the second category of cases. If the interest that he has in the outcome of the dispute, is taken to be the basis for the possibility of bias, it will always be present irrespective of whether the matter stands under the first or second category of cases.

According to section 11(6) of the Arbitration and Conciliation Act 1996 where, under an appointment procedure agreed upon by the parties,— (a) a party fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request  [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

So, if there are justifiable doubts as to the independence and impartiality of the person nominated, and if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, such appointment can be made by the Court. The application was allowed and an arbitrator was appointed to decide all the disputes arising out of the agreement.

CONCLUSION

The Supreme Court by allowing the application has made it very clear that if the arbitration clause in a contract mentions the procedure as to the appointment of an arbitrator in case a dispute arises between the parties to a contract, then the same must be given effect to. The court has authority to annul the application of the respondent and appoint the arbitrator according to the procedure laid in section 11 of the Arbitration and Conciliation Act.

Disclaimer:

The information contained in this document is intended for informational purposes only and does not constitute legal opinion, advice or any advertisement. This document is not intended to address the circumstances of any particular individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a particular situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances

[1] (2017) 8 SCC 377

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