Award By Arbitrator Appointed By HC In International Commercial Arbitration Invalid Even If Parties Consent To Appointment: Madras HC

The Madras High Court bench of Justice N Anand Venkatesh has observed that appointment of arbitrator by a high court in case of an international commercial arbitration renders the award a nullity. Sections 4 and 11(6), Arbitration and Conciliation Act (“ACA”) are non -derogable and it is only the Apex Court which can appoint an arbitrator in an international commercial arbitration. Facts The present petitions have been filed under Section 34, ACA by China Datang Technologies and Engineering Company Ltd. (“Datang”) and NLC India Ltd. (“NLC”) assailing different parts of the Award dated 09.11.2022 (“Award”). Datang is a foreign entity incorporated in China while NLC is a public sector undertaking. NLC issued a tender for Neyveli New Thermal Power Project (2x500 MW). Datang emerged as the successful bidder, a letter of award was issued on 31.08.2019 to Datang for works amounting to Rs. 556,50,00,000/-. Parties had agreed to a certain timeline for completion of the works. Disputes arose between the parties when there were delays in completion of the units. NLC vide letter dated 07.09.2020 terminated the contract. NLC also invoked the performance bank guarantee (“PBG”) and encashed the amount deposited towards it. Datang approached Madras High Court under Section 9, ACA seeking to stay the invocation of the PBG. By consent of parties, the High Court appointed Justice R. Banumathi (Retd.) as Sole Arbitrator on 12.10.2020. Datang had raised 11 claims totalling Rs. 146.21 crores, NLC raised counter claim of Rs. 91.45 crores. The Sole Arbitrator allowed only claims amounting to Rs. 5.10 crores but observed that NLC was entitled to encash PBG of Rs. 55.65 crore. All other claims and counterclaims were rejected. Both parties filed applications under Section 34, ACA to set aside the Award. Datang sought to set aside the award and restore the encashed PBG, while NLC challenged the award to the extent it allowed claims amounting to Rs. 5.10 crores and rejected its counterclaims. While neither party raised the preliminary objection regarding the jurisdiction of the Sole Arbitrator, however, the Court before hearing the parties on merits wanted to hear both the parties on this fundamental point whether the High Court could have appointed an arbitrator given the present case is a case of international commercial arbitration. Contentions The Senior Counsel for Datang argued that consent given by the parties for appointment of the Arbitrator does not confer any jurisdiction upon this Court to bind the Arbitrator in a case involving international commercial arbitration. Section 11 (6) and (9) is not derogable and parties cannot waive its application. It was further argued that there was inherent lack of jurisdiction for this Court to appoint the arbitrator, because according to Part I, ACA only the Supreme Court can appoint a tribunal in case of international commercial arbitration. The parties could not have entered into an agreement contrary to the provisions of ACA and could not have by consent conferred jurisdiction where there was none. On the other hand, the ASG appearing for NLC argued that the Arbitrator's appointment was valid and binding as the parties had consented before the High Court. It was contended that consent constitutes an “agreement” within the meaning of Section 7, ACA. Additionally, the ASG submitted that since the parties had participated in the entire arbitration without challenging the jurisdiction under Section 16, ACA, so this plea could not be taken for the first time at the stage of Section 34, ACA. The doctrine of waiver and acquiescence will apply to this issue. Observations The Court observed that since Datang was a foreign incorporated company, Section 2(1)(f), ACA would squarely apply to the arbitration between Datang and NLC. Section 2(1)(f) provides that in an arbitration where inter alia atleast one party is incorporated in any country other than India, the arbitration between the parties is an ICA, which was the present case. The Court further observed that a conjoint reading of Section 11(6) and Section 11(12)(a), ACA makes it abundantly clear that the power to appoint an arbitrator in an ICA lies exclusively with the Supreme Court. The Court further held that the High Court has no jurisdiction to appoint an arbitrator in an international commercial arbitration and such power is in the exclusive domain of the Supreme Court. The aforesaid provisions are non-derogable and any order passed by the High Court appointing an arbitrator in ICA suffers from complete lack of jurisdiction and is a nullity in law. As to the contention that jurisdictional objection cannot be raised for the first time at the stage of Section 34, the Court observed that the plea of lack of inherent jurisdiction is open for examination even at the stage of Section 34 petition even when the same has not been raised...

Award By Arbitrator Appointed By HC In International Commercial Arbitration Invalid Even If Parties Consent To Appointment: Madras HC

Arpita Pande

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Award By Arbitrator Appointed By HC In International Commercial Arbitration Invalid Even If Parties Consent To Appointment: Madras HC

Arpita Pande

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