Arbitration Commences When Arbitral Tribunal Is Constituted, Not When Party Gives Receipt Of Claim: Gauhati High Court

Brief Facts:

The dispute arose when the Badri Rai And Company (“Respondent”) issued a notice to Oil India Limited (“Petitioner”), invoking arbitration procedures as stipulated in the contract. The notice, referring to a dispute, indicated the appointment of a nominee due to the claim exceeding Rs. 5 crores. A copy of this notice was marked to the nominee, suggesting prior consent was obtained. In response, the Petitioner communicated with the nominee arbitrator. However, a subsequent communication from the Respondent changed the earlier-appointed nominee, leading to a declaration under Section 12 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”). The Petitioner approached the Gauhati High Court (“High Court”) and filed a petition under Section 11(6) of the Arbitration Act for appointment of an arbitral tribunal in accordance with Section 15(2) of the Arbitration Act and Clause 15 of the contract.

Clause 15(5) of the Contract which reads as follows:

“If any of the Arbitrators so appointed dies, resigns, becomes incapacitated or withdraws for any reason from the proceedings, it shall be lawful for the concerned party/arbitrators to appoint another person in his place in the same manner as aforesaid. Such person shall proceed with the reference from the stage where his predecessor had left if both parties consent for the same; otherwise, he shall proceed de novo.”

Observations by the High Court:

The High Court held that there is a presumption that there is consent from the nominee arbitrators of both parties for the appointment of the Presiding Arbitrator. It emphasized that the Presiding Arbitrator cannot assume jurisdiction to adjudicate the dispute and issue a declaration under Section 12 of the Arbitration Act without such consent.

Regarding Section 21 of the Arbitration Act, which refers to the "commencement of the proceeding," the Petitioner argued that receipt of the claim by the Respondent signified the commencement of arbitral proceedings. However, the High Court rejected this submission, noting out that the Contract stipulated the constitution of a three-member Tribunal if the claim exceeds Rs. 5 crores. The High Court held that until the Arbitral Tribunal is constituted, the question of commencement does not arise.

The High Court held that the petition was not maintainable under Section 11(6) of the Arbitration Act. It emphasized that unless a petition is presented before the appropriate forum under the appropriate provisions of the law, such a challenge cannot be sustained. Consequently, the petition was dismissed.

Case Title: M.S. Oil India Limited vs M.S. Badri Rai And Company

Case Number: Arb.P./46/2023

Advocate for the Petitioner: K Kalita

Advocate for the Respondent: N.A.

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