Court Not Powerless To Appoint Appropriate Arbitral Tribunal, Even If Party Forfeits Its Right Under Arbitration Clause: Bombay High Court
The Bombay High Court has ruled that even if a party’s right to appoint its nominee in the Arbitral Tribunal as per the arbitration clause, is forfeited because it failed to exercise its right within the statutory period after receiving the notice invoking arbitration, it would not render the Court powerless to appoint an appropriate Arbitral Tribunal, after considering the nature of...
The Bombay High Court has ruled that even if a party’s right to appoint its nominee in the Arbitral Tribunal as per the arbitration clause, is forfeited because it failed to exercise its right within the statutory period after receiving the notice invoking arbitration, it would not render the Court powerless to appoint an appropriate Arbitral Tribunal, after considering the nature of the disputes.
The High Court was dealing with a petition filed under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act), seeking appointment of a Sole Arbitrator. The bench of Justice Manish Pitale noted that the respondent had forfeited its right to appoint its nominee as per the Arbitration Clause, which contemplated a three-member Arbitral Tribunal. However, this does not mean that the Court is constrained to only appoint a Sole Arbitrator on the insistence of the petitioner, the Court ruled.
After certain disputes arose between the petitioner, PSP Projects Ltd, and the respondent, Bhiwandi Nizampur City Municipal Corporation, under a construction Contract, the petitioner invoked the Arbitration Clause contained in the Contract and proposed the name of a Sole Arbitrator.
In its reply to the notice invoking arbitration, the respondent contended that the petitioner had deviated from the procedure agreed between the parties for appointment of an Arbitral Tribunal, and denied the claims raised by the petitioner/claimant.
The petitioner consequently filed a petition under Section 11(6) of the A&C Act before the Bombay High Court, seeking appointment of Sole Arbitrator.
The petitioner, PSP Projects, argued before the High Court that the Arbitration Clause contained in the Contract violated Section 12 (5), read with the Seventh Schedule of the A&C Act.
The petitioner submitted that as per the arbitration agreement between the parties, the respondent corporation is required to forward a panel of five Arbitrators, from which the petitioner and the respondent would each choose one Arbitrator. The said two Arbitrators would thereafter choose the third Arbitrator.
The petitioner placed reliance on the judgment of the Supreme Court in Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd. (2017) to contend that the Arbitration Clause was vitiated and hit by Section 12(5), read with the Seventh Schedule. Therefore, it pleaded that the notice issued by it seeking appointment of a Sole Arbitrator was valid.
The petitioner, PSP Projects, further argued that the respondent-Corporation had lost its right to appoint an Arbitrator. It averred that once a notice of arbitration is issued by a party and the opposite party fails to appoint the Arbitrator within the notice period, pursuant to which the party moves the Court under Section 11(6) seeking appointment of Arbitrator, the opposite party, in such cases, would lose its right to appoint an Arbitrator as per the arbitration clause.
Referring to the decision rendered in Perkins Eastman Architects DPC & Anr. v. HSCC (India) Limited (2019), the Court took note that the Supreme Court has held that if one party has the authority to appoint a Sole Arbitrator, such unilateral appointment would vitiate the arbitration clause. However, if two parties had a right to nominate an Arbitrator each, and the two Arbitrators then appointed a third Arbitrator, the unilateral nature of the arbitration clause ceased, as in such a case the rights of both the parties stood counterbalanced.
Further, the High Court reckoned that as per an earlier judgment of the Supreme Court in Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Ltd. (2017), which involved similar facts, when the choice of a party under the Arbitration Clause stands restricted to choose an Arbitrator only from a panel of five names, as forwarded by the opposite party, the said clause is vitiated and falls foul of Section 12(5), read with the Seventh Schedule.
Referring to the facts of the case, the bench observed, “In the facts of the present case and the specific Arbitration Clause executed between the parties, quoted hereinabove, the Petitioner is mandated to choose a name from a panel of five Arbitrators forwarded by the Respondent – Corporation. As in the case of Voestalpine Schienen GMBH Vs. Delhi Metro Rail Corporation Ltd. (supra) the said clause has to be held as having fallen foul of Section 12(5) read with the Seventh Schedule to the said Act.”
Thus, the Court concluded: “The ratio of the judgment of the Hon’ble Supreme Court in the case of Voestalpine Schienen GMBH Vs. Delhi Metro Rail Corporation Ltd. read with Perkins Eastman Architects DPC & Anr. vs HSCC (India) Limited (supra) covers the matter completely in favour of the Petitioner herein. Therefore, it is held that the Arbitration Clause in the present case is hit by Section 12(5) read with Seventh Schedule to the said Act.”
The bench added that as per the law laid down by the Apex Court, once notice invoking Arbitration is issued by a party, and a period of 30 days elapses, after which the first party files a petition under Section 11 before the Court, the other party’s right to appoint its nominee on the Arbitral Tribunal as per the procedure agreed under the Arbitration Clause, would stand forfeited.
Thus, the Court held that in view of the law laid down by the Supreme Court, although it can be held that the respondent – Corporation forfeited its right to appoint its nominee, however, it would not render the High Court powerless to appoint an appropriate Arbitral Tribunal, in the interest of justice.
“…although it can be held that the Respondent – Corporation forfeited its right, but it would not ipso facto lead to a conclusion that even the Court must necessarily appoint only a Sole Arbitrator on the insistence of the Petitioner. In other words, the forfeiture of the right of the respondent would not render this Court powerless to appoint an appropriate Arbitral Tribunal, in the interest of justice,” the Court said.
The Court added: “Considering the nature of disputes raised between the parties in the context of the contract concerning construction of Dwelling Units, necessarily involving technical matters, this Court is of the opinion that an Arbitral Tribunal of three members ought to be constituted.”
The Court thus partly allowed the petition and appointed two Arbitrators, as a nominee of the petitioner and the respondent – Corporation, respectively; directing the two Arbitrators to appoint the third Arbitrator.
Case Title: PSP Projects Limited versus Bhiwandi Nizampur City Municipal Corp.
Citation: 2023 LiveLaw (Bom) 60
Dated: 27.01.2023
Counsel for the Petitioner: Mr. Sharan Jagtiani, Senior Counsel, a/w Mr. Rohil Bandekar. Ms. Sheetal Shah i/by M/s. Mehta & Girdharlal.
Counsel for the Respondent: Mr. Ram S. Apte, Senior Counsel i/by M.J. Bhatta