(IN) Bachawat: Arbitration and Conciliation

Bachawat: Arbitration and Conciliation

Justice R S Bachawat

Bachawat: Arbitration and Conciliation > Bachawat: Arbitration and Conciliation > Volume I > PART I
ARBITRATION > CHAPTER 3 COMPOSITION OF ARBITRAL TRIBUNALS

S. 11. Appointment of
arbitrators

38. Dispute to be within scope of arbitration agreement

In Patel Engineering, the Supreme Court laid down in categorical terms that issues relating to whether the
claim is within the purview of the arbitration clause are best left for determination by the arbitral tribunal.
In the words of P.K. Balasubramanyan J. of the Supreme Court 51 —

“It may not be possible at that stage, to decide whether a live claim made, is one which comes within the purview of the arbitration
clause. It will be appropriate to leave that question to be decided by the arbitral tribunal on taking evidence, along with the merits of the
claims involved in the arbitration.”

These observations have been subsequently revisited by the Supreme Court, and the category of cases
which the Chief Justice should leave exclusively for determination by the arbitral tribunal have been held
to include questions of “whether a claim made falls within the arbitration clause, as for example, a matter
which is reserved for final decision of a departmental authority and excepted or excluded from
arbitration.”52

If the exercise before the Chief Justice involves any determination on merits of any claim, these are best
left to the arbitral tribunal itself.53 In certain cases, where the disputes clearly do not fall within the scope
of the arbitration agreement, courts have been known to reject the application for appointment of
arbitrator, since no useful purpose could have been served by appointing a tribunal.54 These cases
obviously turn on their facts and must be read in that light.55
 Page 2 of 115
(IN) Bachawat: Arbitration and Conciliation

The following cases must be read keeping in mind the above principles laid down by the Supreme Court.

The petitioner was appointed handling-cum-General Services Contractor for fertiliser supplies. The letter
of appointment issued to him had an arbitration clause. The agreement was terminated. A dispute arose as
to the amount due to him for the work already done for which appointment of an arbitrator was sought.
The clause was to the effect that a dispute arising out of interpretation of any clause would be resolved
through arbitration. The court said that the claim for payment of work done did not relate to
interpretation and, therefore, it was not within the scope of the arbitration clause.56

Disputes relating to “excepted matters” or whether certain claims fall within the scope of the agreement
to arbitrate should be left for determination by the arbitral tribunal, and it is for the arbitral tribunal to
decide whether it has jurisdiction to decide a particular dispute or claim.57 The Delhi High Court has
noted in this context58—

“It cannot be said that the defence that the respondent may have to the claim of the petitioner based on [the contract], disentitles the
petitioner from even seeking reference of its claim to arbitration. It would be for the arbitrator to consider the claims, counter-claims
and the respective defences of the parties based on the terms and conditions of the contract, and to interpret and apply the terms of the
contract while arriving at his decision.”

Thus, where on a prima facie assessment, the court noted that the claims did not constitute excepted
matters, these were referred to arbitration, and it was open for the arbitrator to rule on his jurisdiction and
decide on the defence of “excepted matters”.59 There is however some authority for the contrary view as
well, though these cases should be read in light of their facts. Even where the appointing authority has
made a reference of only particular disputes, and rejected reference of others on the ground that they fall
within “excepted matters”, courts, upon a prima facie satisfaction, have been open to refer all the disputes
to the arbitrator. If out of a basket of claims, some are found arbitrable and others are capable of two
opposite but equally plausible interpretations, it is fair to refer all such claims to arbitration.

If it is ex facie clear that some, or all, claims do not fall within the arbitral clause or are “excepted matters”
which cannot be arbitrated upon, courts are hesitant to refer those claims to the arbitrator.

Where under the terms of the contract the quantification of liquidated damages for delay was an excepted
matter, this was held to only apply when the “factum” of delay itself was proved. In the instant case, since
it was disputed whether there was a delay in discharge of obligations by the supplier, it was held that the
ascertainment of delay, which precedes a quantification of liability, was a matter which is to be decided by
the arbitrator.
 Page 3 of 115
(IN) Bachawat: Arbitration and Conciliation

All differences that arise between the parties to a contract cannot be characterised as ‘disputes’ that are
capable of being submitted for arbitration. Differences between parties relating to modification or re-
negotiation of the contract, cannot certainly be characterised as a dispute that may be submitted to an
arbitrator. While an arbitrator is competent to rule on the interpretation and scope of the contract, he
does not have the power to rewrite or renegotiate the contract on behalf of either of the parties.

In a Bombay case there was a finally approved contract under which a work order was issued, but even so
the contractor was not allowed to work. The arbitration clause in the contract provided that all disputes,
differences, arising out of or in connection with and/or in consequence of or relating to the agreement
whatsoever shall be referred to the arbitrator. The claim of the contractor by way of damages for loss of
anticipated profits was held to be a dispute of this kind and, therefore, referable to arbitration. An
arbitrator was accordingly appointed.

Where a reference was made in connection with a dispute about which the provision was that it was to be
decided by the managing director himself, the decision of the arbitration to terminate the proceeding
because the reference was clearly beyond the terms of the agreement was held to be justified.

Objection regarding territorial jurisdiction

Where the petitioner challenged the appointment of arbitrator on the ground of lack of territorial
jurisdiction and lack of signed arbitration agreement, it was held, that while appointing arbitrator under S.
11, the court only performed administrative functions. There was no merit in the writ, hence, it had to be
dismissed. Even otherwise, the objections raised by the petitioner could be taken before the arbitrator.

39. Statutory Bar

Public Premises (Eviction of Unauthorised Occupants) Act, 1971 carried a

provision prohibiting any suit or proceeding against recovery of damages for unauthorised occupation.
The claim in the present case was for damages for business loss caused by renovation and repairing and
failure of electricity. This was held to be outside the scope of the statutory bar proceedings for
appointment of arbitrator were not affected.

In the context of an application under S. 8 of the Act, it has been held that the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDBAct)
 Page 4 of 115
(IN) Bachawat: Arbitration and Conciliation

confers exclusive jurisdiction upon the Debt Recovery Tribunals, and no application can be made seeking
reference to arbitration in cases covered by the
RDB Act .A fortiori, no application is maintainable even for appointment of an
arbitrator where the disputes are covered by the
RDB Act .

The question as to whether an alternative remedy exists under a different enactment depends on the
object and purpose of that enactment. When the agreement between the parties was regarding
compensation for land acquisition and the purpose of the relevant Act was to regulate the marketing of
agricultural produce, it was held that the scheme in the Act would not apply. Also, on facts, the Act
envisaged a revision petition where an order had been passed under the Act, and no such order was in
existence.

The preliminary question as to whether the agreement containing the arbitration clause can be so
characterized to invite any statutory bar, may be left to the arbitrator.

Where the question of the scope, validity and applicability of a statutory bar is sub judice, and its operation
has been stayed by orders of the court, the jurisdiction of courts to entertain arbitration applications under
the 1996 Act cannot be said to be ousted.

40. Accord and satisfaction

When a contract has been fully performed, there is a discharge of the contract by performance and the
contract comes to an end. A contract can also be discharged in much the same way as it was created — by
agreement. The following lines from the Privy Council decision in Payana Reena illustrates this concept—

“No matter what were the respective rights of the parties inter se they are abandoned in consideration of the acceptance by all of a new
agreement. The consequence is that when such an accord and satisfaction takes place the prior rights of the parties are extinguished.
They have in fact been exchanged for the new rights and the new agreement becomes a new departure, and the rights of all the parties
are fully represented by it.”

This is the principle of accord and satisfaction. Once an agreement is so discharged, either upon full
performance or substituted or modified performance of the obligations, the arbitration agreement cannot
be invoked to seek reference to arbitration. However, it is clear that the issue of whether parties are ad
idem over accepting such performance as discharging all obligations under the contract, may itself give rise
 Page 5 of 115
(IN) Bachawat: Arbitration and Conciliation

to an arbitrable dispute.

Scope of Power of Chief Justice

The issue arises whether the Chief Justice exercising powers under S. 11, must himself go into these
questions and decide on the “genuineness” of accord and satisfaction, while establishing whether the
reference to arbitration lies. The trend, prior to Patel Engineering, revealed that the Chief Justice usually
referred the dispute to the arbitral tribunal, since the exercise of determining whether accord and
satisfaction was genuine and not fraudulent or coerced, could not be undertaken without getting into
complicated questions of fact. This has however changed subsequent to the decision in Patel Engineering..

Subsequent to Patel Engineering , the Supreme Court has recognised that in the
interests of justice and speedy disposal of cases, preliminary issues relating to accord and satisfaction may
now be dealt with by the Chief Justice (or his designate) under S. 11. On a proper reading of Patel
Engineering however, the Chief Justice still has the discretion to leave these issues for determination by the
arbitral tribunal —

“It is necessary to indicate that he [the Chief Justice] can also decide the question whether the… parties have concluded the transaction
by recording satisfaction of their mutual rights and obligations or by receiving the final payment without objection.” (emphasis added)

The availability of discretion to the Chief Justice in these issues, as envisaged under Patel Engineering, has
also been recognised by the Supreme Court in Boghara Polyfab, where it held that the discretion of the
Chief Justice to leave these issues for determination by the tribunal must be guided by the object of the
Act of expediting the arbitration process while keeping judicial intrusion to a minimum. However, where
allegations of forgery/fabrication are made in regard to the document recording discharge of contract by
full and final settlement, the Supreme Court recognised that it would be appropriate if the Chief Justice
himself decides the issue and not leave it for the determination of the arbitral tribunal.

Despite availability of this discretion subsequent to Patel Engineering, instead of appointing arbitrators and
leaving it to them to decide such contentious issues, in some instances the merits of these issues have
been decided by the Chief Justice himself. However, there have been contrary cases as well, and these
appear more in keeping with the import of the decision in Patel Engineering.

Thus, to sum up the above survey of all the authorities, the position regarding disputes relating to accord
and satisfaction which come up before the Chief Justice for exercise of his power of appointment under
S. 11 appears to be this. Upon a full and final settlement, the contract comes to an end and there exists no
 Page 6 of 115
(IN) Bachawat: Arbitration and Conciliation

arbitrable dispute which can be referred to arbitration. However, questions relating to whether such
settlement was obtained by coercion, fraud or duress, or whether the claims were covered by the terms of
the settlement give rise to an arbitrable dispute. If allegations of forgery/fabrication are made regarding
the document of settlement, then this must necessarily be decided by the Chief Justice. All other questions
may either be entertained by the Chief Justice or he may in his discretion leave it for decision by the
arbitral tribunal. The Chief Justice will be guided in the exercise of his discretion by the objects of the
1996 Act and in particular the principles of minimising judicial intervention and expediting the arbitral
process.

The following cases must be read keeping the above principles in mind.

Illustrative Cases

The Supreme Court has laid down the following illustrative situations regarding arbitrability of claims
when discharge of contract by accord and satisfaction is disputed —

“(i) A claim is referred to a conciliation or a pre-litigation Lok Adalat. The parties negotiate and arrive
at a settlement. The terms of settlement are drawn up and signed by both the parties and attested
by the Conciliator or the members of the Lok Adalat. After settlement by way of accord and
satisfaction, there can be no reference to arbitration.
(ii) A claimant makes several claims. The admitted or undisputed claims are paid. Thereafter
negotiations are held for settlement of the disputed claims resulting in an agreement in writing
settling all the pending claims and disputes. On such settlement, the amount agreed is paid and
the contractor also issues a discharge voucher/no claim certificate/full and final receipt. After the
contract is discharged by such accord and satisfaction, neither the contract nor any dispute
survives for consideration. There cannot be any reference of any dispute to arbitration thereafter.
(iii) A contractor executes the work and claims payment of say Rupees Ten Lakhs as due in terms of
the contract. The employer admits the claim only for Rupees Six Lakhs and informs the
contractor either in writing or orally that unless the contractor gives a discharge voucher in the
prescribed format acknowledging receipt of Rupees Six Lakhs in full and final satisfaction of the
contract, payment of the admitted amount will not be released. The contractor who is hard
pressed for funds and keen to get the admitted amount released, signs on the dotted line either in
a printed form or otherwise, stating that the amount is received in full and final settlement. In
such a case, the discharge is under economic duress on account of coercion employed by the
employer. Obviously, the discharge voucher cannot be considered to be voluntary or as having
resulted in discharge of the contract by accord and satisfaction. It will not be a bar to arbitration.
(iv) An insured makes a claim for loss suffered. The claim is neither admitted nor rejected. But the
insured is informed during discussions that unless the claimant gives a full and final voucher for a
specified amount (far lesser than the amount claimed by the insured), the entire claim will be
 Page 7 of 115
(IN) Bachawat: Arbitration and Conciliation

rejected. Being in financial difficulties, the claimant agrees to the demand and issues an undated
discharge voucher in full and final settlement. Only a few days thereafter, the admitted amount
mentioned in the voucher is paid. The accord and satisfaction in such a case is not voluntary but
under duress, compulsion and coercion. The coercion is subtle, but very much real. The ‘accord’
is not by free consent. The arbitration agreement can thus be invoked to refer the disputes to
arbitration.
(v) A claimant makes a claim for a huge sum, by way of damages. The respondent disputes the claim.
The claimant who is keen to have a settlement and avoid litigation, voluntarily reduces the claim
and requests for settlement. The respondent agrees and settles the claim and obtains a full and
final discharge voucher. Here even if the claimant might have agreed for settlement due to
financial compulsions and commercial pressure or economic duress, the decision was his free
choice. There was no threat, coercion or compulsion by the respondent. Therefore, the accord
and satisfaction is binding and valid and there cannot be any subsequent claim or reference to
arbitration.”

An arbitration clause may survive where a contract is ended by full and final settlement payment
accompanied by a certificate of no claim if the party accepting such payment alleges that his consent was
not free. The matter can be referred to arbitration at his instance for a consideration of the balance
amount. Where consent to the accord is free and there is nothing to suggest to the contrary, the party
accepting the accord would be estopped from going against it and say that it was not a sufficient
satisfaction. Where a railway contract was terminated by mutual agreement and as per the conditions
imposed by the contractor his whole material lying at the site for which he was paid along with all other
dues and he signed no-claim certificate, he was not permitted afterwards to demand arbitration for any
alleged claim for breach of contract. The Kerala High Court, however, permitted the contractor to
proceed with arbitration even after he admitted that no further claims were due. The court was of the
opinion that when the contractor alleged some two years later that he still had a claim and the department
denied it, that was a dispute and if there was a dispute about the contract, it would still be a living
contract, subject only to such considerations, there is no right to demand arbitration under an agreement
which has been settled by the parties by accord and satisfaction.

If one of the parties claims that no dispute subsists and the entire amount due has been paid, as long as
this is denied by the other party, and there is nothing to prove to the contrary, this is still a “dispute” and
arbitrators must be appointed to adjudicate.

If the acknowledgment of final settlement is not stricto sensu the subject matter of the claim, a party is not
precluded from pursuing its other claims that do not fall within the scope of such acknowledgment..

The parties can put an end to a contract as if it had never subsisted and can substitute it with a new
contract governing their rights and obligations. In such a case, the arbitration clause in the original
contract perishes and the arbitration clause in the substituted or abrogated contract cannot be invoked for
the determination of the questions under the new agreement for a claim to set aside a contract on the
grounds such as fraud, duress or coercion. Once the contract is substituted by a new contract, the old
contract does not subsist. In a contract which is substituted or abrogated, the parties have no right to
 Page 8 of 115
(IN) Bachawat: Arbitration and Conciliation

invoke the clause which has perished with the contract. In such a case, there is no question of appointing
arbitrator as the very jurisdiction of the arbitrator is dependent upon the existence of the arbitration
clause. In this case, parties to the contract, which was executed in 1987, had subsequently agreed to bring
it to an end to all intents and purposes and to treat it as if it had never existed by substituting a fresh Mou.
Fresh contract did not provide for arbitration and it was specifically stated in the Mou that both the
parties had discharged their respective obligations in respect of the contract. In full and final settlement
the applicant had received the amount stated in the Mou for the work done. Hence, for that purpose there
existed no arbitrable dispute for reference. It was not open to the applicant unilaterally to treat the
settlement as non est and proceed to invoke the arbitration clause.

Issue of a “No Claim” Certificate

A “no claim” certificate is a prima facie indication of discharge of the agreement through accord and
satisfaction between the parties. Upon such a settlement, the contract and the arbitration clause would
come to an end and are substituted by the new contract which is in the nature of settlement.

However, it has been recognised by the Courts that as a matter of commercial practice usually a discharge
or “no-claim” certificate is given in advance to avoid the delay in payment of bills. The Supreme Court
has come down heavily against departmental arm-twisting, where contractors are pressurised to give
undated “No Claim” certificates before any payment is released to them. Deprecating this situation,
Raveendran J made very stern observations—

“But what is of some concern is the routine insistence by some government departments, statutory corporations and government
companies for issue of undated ‘no due certificate’ or a ‘full and final settlement vouchers’ acknowledging receipt of a sum which is
smaller then the claim in full and final settlement of all claims, as a condition precedent for releasing even the admitted dues. Such a
procedure requiring the claimant to issue an undated receipt (acknowledging receipt of a sum smaller than his claim) in full and final
settlement, as a condition for releasing an admitted lesser amount, is unfair, irregular and illegal and requires to be deprecated.”

Thus, a clause restricting claims after issuance of such certificate, or where such certificate was given
under protest, the withdrawal of such protest, will not be an absolute bar to a contracting party raising
claims which are “genuine”, even after submission of such certificate, or withdrawal of protest.

The decision as to whether the claims are “genuine” or in other words whether the certificate actually
reflects true accord and satisfaction between the parties would involve detailed examination of the
correspondence and is best left for determination by the arbitrator. Although the Chief Justice has the
power to decide the issue finally and upon taking all necessary evidence, if this is going to lead to a
protracted trial before him, it is best if he stops short of finally deciding whether the issue/claim is
extinguished by accord and satisfaction between the parties. In such situation, it will be inappropriate for
 Page 9 of 115
(IN) Bachawat: Arbitration and Conciliation

the Chief Justice to make this determination himself while exercising jurisdiction under Section 11 of the
Act and it is better if this is left for the arbitral tribunal.

In some other cases, where it is evident on the face of the matter, that settled claims are sought to be
resurrected by challenging the “no claim” certificate, courts have been known to refuse to appoint the
arbitrator. Obviously, the Chief Justice will be hesitant to make any such determination if it involves
heavily contested facts.

The following observations of Sirpurkar J of the Supreme Court in Shree Ram Mills
are illustrative —

“The Chief Justice has to examine as to whether the claim is a dead one or in the sense whether the parties have already concluded the
transaction and have recorded satisfaction of their mutual rights and obligations or whether the parties concerned have recorded their
satisfaction regarding the financial claims. In examining this if the parties have recorded their satisfaction regarding the financial claims,
there will be no question of any issue remaining. It is in this sense that the Chief Justice has to examine whether there remains anything
to be decided between the parties in respect of the agreement and whether the parties are still at issue on any such matter. If the Chief
Justice does not, in the strict sense, decide the issue, in that event it is for him to locate such issue and record his satisfaction that such
issue exists between the parties. It is only in that sense that the finding on a live issue is given. Even at the cost of repetition we must state that
it is only for the purpose of finding out whether the arbitral procedure has to be started that the Chief Justice has to record satisfaction that there remains a live
issue between the parties.” (emphasis added)

The Supreme Court in Shree Ram Mills has laid down an extremely liberal test and the decision suggests a
position where the Chief Justice only has to see whether the issue stands closed. Even where a subsequent
contract in the nature of an Mou was entered into between the parties to settle all previous disputes, it was
held that “the very necessity felt on ['the parties'] part for a Mou would suggest that the issue was not
closed.” Although the test, if taken literally, is broader than what may be logically defensible (since now
the court can find no settlement to possibly be “final” or “binding”), it will have the effect of giving
greater powers to the arbitral tribunal to decide preliminary issues, and marks a needed watering down of
the principles laid down in Patel Engineering.

In the instant case, the contractor contended that he was coerced into giving the No Claim certificate. The
Court noted that the certificate, which acknowledged receipt of consideration in full and final settlement
of the claims, pre-dated the actual date of payment of the amounts. Thus, at the time of signing and
delivery of the certificate, the contents of the certificate were clearly false and not supported by any
consideration. The court was prima facie satisfied that there was no accord and satisfaction and the dispute
was arbitrable. It still left it open for the department to prove before the arbitrator that there was a valid
and binding discharge of the contract by way of accord and satisfaction.

Although subsequent to these Supreme Court cases the law can be taken to be fairly well settled on this
 Page 10 of 115
(IN) Bachawat: Arbitration and Conciliation

point, Endlaw J of the Delhi High Court has made a bold “suggestion” in a later judgment. The situation
has been logically analysed by Endlaw J in this way —

“I am, personally, of the view that a party to a contract containing an arbitration agreement, when faced with a situation of being
required to sign a full and final discharge or a settlement agreement, howsoever, economically coerced it may be, has two choices.
Either the party can at the cost of its economic detriment and delay in receiving even admitted payments, to not succumb into signing
of such discharge or settlement agreement and ought to invoke the arbitration process at that stage itself. In such a situation, the
remedy of seeking interim relief/directions from the Court or from the Arbitral Tribunal of payment of admitted amounts is available
to such a party. Thus, though there may be delay in receiving the admitted and/or offered amounts but it cannot be said that the party
is remediless. Alternatively, such a party can succumb to the coercion, pressure and sign the discharge voucher and/or the settlement
agreement. It will then immediately receive the offered/admitted amounts. Naturally when such a party makes further claims, the other
will set up a plea of the contract having been discharged and no disputes or arbitration thereof thereunder being possible. It is not as if
the claimant party in such a situation is remediless. The claimant party in such a situation has the option of a civil suit available to it. In
such civil suit, it will be decided whether the discharge or settlement is legal or not. If not found to be legal and valid, the same court
would also adjudicate the remaining claims of such party. The other party in such eventuality would not be entitled to take the plea of
the Court being not entitled to adjudicate the claims for the reason of being covered by the arbitration clause inasmuch as such party
would have forfeited the rights to take such a plea by contending that the contact stood discharged.”

Thus, where an agreement has admittedly been discharged/settled, even if by fraud, misrepresentation or
coercion, the dispute would not, as per this understanding, be within the ambit of the arbitration clause in
the original agreement. The benefit of such a suggestion, according to the Judge, would be to obviate
delays and ensure clarity in courts that where such settlement has been recorded, remedy of arbitration
will not be available to the contractor, but it will be open for it to approach the civil courts.

These suggestions, however, are merely by way of academic comment, since Endlaw J himself admits that
the law stands well settled after the Supreme Court decisions in Patel Engineering ,
and Boghara Polyfab. Endlaw J'S suggestions may also perhaps have the inevitable
effect of rewarding departments indulging in such arm-twisting practices and deny the speedier method of
arbitration to contractors who, in case their claims are genuine, most need it.

In situations where there is extensive correspondence demanding outstanding payments, and there is
record of disputing the no claim certificate contemporaneous with its submission, or soon thereafter, the
courts will be more inclined to believe there is no full and final settlement and that the party was coerced
into accepting the payment. Delays in disputing the settlement, would weaken the right to get further
payment under the contract, and might lead the court to conclude that such a plea is only resorted to as an
afterthought. It is essentially a question of fact and peculiarities in fact situations will be taken into
account before coming to a conclusion. To be binding, a settlement must be recorded in clear and
unambiguous terms. Mere endorsement on a bill that reads ‘full and final’ does not amount to a
settlement. Similarly, mere signature on a bill regarding measurements cannot be taken as a settlement,
especially when the disputes and differences still remain between the parties.
 Page 11 of 115
(IN) Bachawat: Arbitration and Conciliation

Where the petitioners received an amount under a works contract in full and final settlement of his claim,
but even so raised an additional claim by way of loss and damages in respect of the same work, the court
said that such claim could not be referred to arbitration. There is also the decision to the effect that on the
settlement on the basis of the final bill, the right to get further payment gets weakened but the claim
subsists and the question whether it does subsist as a matter of fact is a question which is arbitrable. On
the facts, however, further claim was held to be time-barred because under the terms and conditions of
the contract any dispute, after receiving full and final payment, had to be raised within three months. This
requirement was not complied with and, therefore, the right to further claim had been lost. The
circumstances also operated as a waiver.

Any lingering question in such cases can be the subject-matter of a civil suit and not a matter for
arbitration. The appointment of an arbitrator was accordingly refused in a case in which the final bill was
settled though under protest and a no claim certificate was also given. There was a clear provision in the
contract that the contractor would not be left with any claim after issuing his no claim certificate. The
court further pointed that the power under S. 11 could be exercised only if there was a provision in the
agreement for arbitration and for appointment of arbitrator. Further, if the agreement provided that a
certain matter was not to be considered as a dispute, an arbitrator could not be appointed.

Suppression of no claim certificate in seeking appointment

A no claim certificate was issued by the petitioner on a certain date and an application for appointment of
an arbitrator was filed 14 months after that date and also the fact of no claim certificate was not disclosed
in the application. This fact was brought to the notice of the court after some delay. The Court said that
the petitioner came with unclean hands. His application was dismissed with costs of Rs. 10,000.

41. Ex.p., cancellation or repudiation of contract

Cancellation of the contract by one party does not disentitle the other party from claiming arbitration and
appointing as arbitrator in terms of the arbitration clause in the agreement. A case of this kind was before
the Gauhati High Court in MWC Market Services P. Ltd. v. State of Manipur.

The court said that in an application to the Chief Justice or his designate for appointment of an arbitrator
the contentious issues between the parties were not to be examined at that stage. Such issues are to be
raised before and are to be examined before the arbitrator. In this case, there was an agreement between
the petitioner and the State Government to start an on-line lottery. The agreement contained an
arbitration clause. The State Government subsequently cancelled the agreement. The petitioner sought
appointment of an arbitrator. The Government pleaded that because of the cancellation of the contract by
it, the arbitration clause had ceased to exist alongwith the contract. This plea was not accepted. A retired
 Page 12 of 115
(IN) Bachawat: Arbitration and Conciliation

Judge of the Supreme Court was appointed as an arbitrator. The court said:

At this stage, it would not be appropriate to entertain any contentious issue between the parties, and
decide the same as such questions and issues can be decided and determined by the Arbitrator only. The
court made this observation keeping in view the settled principles of law laid down by the Apex Court. In
Konkan Railway Corporation v. Rani Construction, the Apex Court held thus (paras 18
and 19 of AIR):

“There is nothing in Section 11 that requires the party other than the party making the request to be noticed. It does not contemplate a
response from that other party. It does not contemplate a decision by the Chief Justice or his designate on any controversy that the
other party may raise, even in regard to its failure to appoint an arbitrator within the period of thirty days. That the Chief Justice or his
designate has to make the nomination of an arbitrator only if the period of thirty days is over does not lead to the conclusion that the
decision to nominate is adjudicatory. In its request to the Chief Justice to make the appointment the party would aver that this period
has passed and, ordinarily, correspondence between the parties would be annexed to bear this out. This is all that the Chief Justice or
his designate has to see. That the Chief Justice or his designate has to take into account the qualifications required of the arbitrator by
the agreement between the parties (which ordinarily, would also be annexed to the request) and other considerations likely to secure the
nomination of an independent and impartial arbitrator also cannot lead to the conclusion that the Chief Justice or his designate is
required to perform an adjudicatory function. That the word ‘decision’ is used in the matter of the request by a party to nominate an
arbitrator does not of itself mean that an adjudicatory decision is contemplated.”

“As we see it, the only function of the Chief Justice or his designate under Section 11 is to fill the gap left by a party to the arbitration
agreement or by the two arbitrators appointed by the parties and nominate an arbitrator. This is to enable the arbitral tribunal to be
expeditiously constituted and the arbitration proceedings to commence. The function has been left to the Chief Justice or his designate
advisedly, with a view to ensure that the nomination of the arbitrator is made by a person occupying high judicial office or his designate,
who would take due care to see that a competent, independent and impartial arbitrator is nominated.”

It may be noted that though Rani Construction stands over-ruled by the later decision in Patel Engineering,
the conclusion reached in MWC Market Services (supra) would perhaps remain unaffected.

In this case a party participated in a tender process and accepted the Letter of Intent, thus resulting in a
binding contract. It later tried to unilaterally change the terms of the contract. The court held that
subsequent repudiation of the contract does not preclude the parties from relying on the arbitration clause
to resolve their disputes. It was observed —

“Though the petitioner had repudiated the contract by not accepting the same, the question would still be as to whether the petitioner
could validly do so. Further questions regarding the liabilities arising out of the breach of contract, if any, would also remain alive and
so would be the arbitration clause.”
 Page 13 of 115
(IN) Bachawat: Arbitration and Conciliation

42. Unilateral alteration of contract

Where the Government unilaterally altered the norms specified in the original contract and gave them
retrospective effect and a writ petition against it was dismissed for the reason that there was an arbitration
clause in the contract, it was held that the dispute created by the unilateral alteration was not within the
framework of the contract and, therefore, there could be litigation outside the arbitration clause.

Similarly, where a circular providing a limit to claims came into effect only subsequent to the date of
contract, it was held that in the absence of an amendment to the original contract, the limits under the
circular could not be applied to reject the claims raised by the contractor.

43. Appointment after setting aside of award

The authority to refer the dispute to arbitration is not exhausted until the arbitration agreement subsists
and the dispute is not finally resolved. In case an award is set aside by a competent court, it is ‘non est’ and
is treated as a nullity and therefore the arbitration agreement continues to govern the dispute between the
parties.

Where an award was set aside because of procedural error on the part of the arbitrator and the court told
the parties that it was open to them to seek appointment of another arbitration under S. 11 if they could
not agree over an arbitrator, it was held that the arbitration clause was not exhausted. One part could ask
the other to concur in the appointment in accordance with the agreement and failing this to invoke
appointment under S. 11.

44. Recourse to criminal proceedings

Where a party to the arbitration agreement took recourse to criminal proceeding in respect of the
agreement, the other party would not be prevented thereby from seeking appointment of an arbitrator. If
the criminal proceedings turned out to be false, the party starting them might have to face consequences,
but the other party's right to seek arbitration remained unaffected.

45. Preliminary objections

 Page 14 of 115
(IN) Bachawat: Arbitration and Conciliation

The objection that the applicant, whose services were terminated, had filed a bloated claim was not
accepted because it is for the claimant to value his claim either wrongly or rightly. The claimant had, at the
earliest point of time, before invocation of the arbitration clause, valued his claim. The arbitration clause
prima facie indicated that it comprehended the dispute regarding validity of the order of termination. A sole
arbitrator was appointed who was to decide the objection regarding valuation also.

46. Preliminary Issues

Where preliminary issues, like arbitrability, legality and validity, were raised for opposing the application
for appointment of an arbitrator, the order appointing an arbitrator and reserving the judgment on issues
because it was the proper field of the arbitrator, was held to be quite legal, valid and acceptable.

The question whether the excise duty already paid was refundable was for the arbitrator to decide and not
by the authority exercising the administrative power of ordering an appointment.

The question of non-existence of arbitration clause and non-filing of original agreement can not be
decided by the court as preliminary objection. These questions should be referred to arbitrator.

Joinder of parties

The questions relating to non-joinder of a party to the proceedings ought to be decided by the arbitrator.
Thus, where disputes arose between the procurement agent and seller, which were sought to be referred
to arbitration, the issue regarding non-joinder of the ultimate buyer was best left to be raised before the
arbitrator.

Claims not contrary to Law

Where the claims of a party seeking appointment of an arbitrator are contrary to law, then no purpose will
be served in directing the parties to arbitration for the said claim. Thus, where claims of a party for
formation of a “holding organisation” as per the terms of the agreement, was against the Apartment Act,
the court refused to appoint an arbitrator.
 Page 15 of 115
(IN) Bachawat: Arbitration and Conciliation

47. Premature petition

In the event of a dispute, it is not permissible for a party to immediately approach the court for
appointment of the arbitrator. There must be some steps taken by the party to initiate the arbitration,
before the court can exercise its powers to appoint an arbitrator.

An application for appointment of an arbitrator is not maintainable unless the procedure prescribed by
the parties is complied with. The Court will have to examine whether the procedure prescribed is to be
followed in respect of the specific disputes raised. Where the provision in the railway contract was that
any dispute or difference must be brought to the notice of the railways and the latter would give its
decision about it within 120 days, it was held that an application for appointment of an arbitrator without
undergoing the prescribed procedure was a premature step. It deprived the contracting party of its right to
consider the matter and pronounce its decision. However, the Patna High Court has held that where an
agreement provided for a waiting period of 120 days before the arbitration clause may be invoked, such a
clause would be overridden by the statutory limit of 30 days. An application filed for appointment after
the 30 day period, but before 120 days, would not be premature. The court also noted that during the
pendency of the S. 11 application, the specified time period of 120 days elapsed, and therefore, the plea of
prematurity became infructuous. Where the contract required that arbitration could be demanded only
after filing the final bills on the disputed claims, a notice for appointment of an arbitrator before
complying with this requirement was held to be premature.

Where the agreement provided for appointment with mutuality, it was held that it was premature to apply
to the Chief Justice for an appointment without first attempting at mutuality. However, where the
agreement provided for amicable settlement of disputes before having resort to arbitration, it was held
that where correspondence between the parties disclose failed attempts at settlement, the petition for
appointment of arbitrator was not premature.

Where the appointing authority was approached only for enquiring whether they had a judicial member
available for appointment, it was held that this was merely a “clarification” and not a “reference” to the
authority to appoint an arbitrator. Accordingly the arbitration application was held premature since there
was no “failure” to act upon the agreed procedure.

Where the agreement was that in the event of abandonment of the works or cancellation of the contract,
reference to arbitration shall not take place until alternative arrangements have been finalised by the
Government to get the works completed by or through any other contractor or contractors or agency or
agencies, it was held that till the eventuality as provided by the agreement took place there was no cause of
action for the petitioner to request for an arbitration. The petition a pre-mature petition. Arbitrator
appointed by the respondent after finalisation of alternative arrangement was valid. Where the procedure
prescribed either names a specified arbitrator, or a person or institution to appoint such arbitrator, an
application under S. 11 will be premature if there has been no attempt by the disputing party to appoint an
 Page 16 of 115
(IN) Bachawat: Arbitration and Conciliation

arbitrator as per agreed procedure. The court may, if it feels that the answer to such question involves a
lengthy foray into disputed facts, arrive at a prima facie finding that the application is not premature, and
leave this issue for determination by the arbitral tribunal upon collection of evidence.

Where the dispute resolution clause in a construction contract provided for dispute resolution by an
adjudicator who was to give his decision within 28 days, and thereafter if this was disputed then reference
to arbitration was possible, it was held that upon failure of the adjudicator to render his decision within 28
days, the reference to arbitration was proper. On the other hand, under a contract with the Railways, the
notice of arbitration was to be made 120 days after receiving the final claim. It was held that application
made under S. 11 before the expiry of the 120 day period as prescribed in the contract, was premature.

Where the dispute relates to the accrual of liability, an application for appointment of the arbitral tribunal
will not be premature just because a decision is awaited on the quantification of liability. For instance, in
this case, an arbitrator was appointed to decide reimbursement claims on customs duty paid for importing
a rig into India. The court held that the customs duty had already been paid and hence liability had already
accrued, and the awaited decision of the Customs officer was only on the issue of quantification. Since the
dispute raised was with regard to the accrual of liability, the failure to respond to a notice invoking the
arbitration clause within a period of 30 days justified an application under S. 11(4).

48. Party to agreement

Only a party to an agreement may invoke the machinery of the Act and apply for appointment of an
arbitrator.
Section 2(h) of the Arbitration and Conciliation Act, 1996 defines “party” to mean
a party to an arbitration agreement. A person to whom certain portion of the excise duty was refunded
became a party to the relationship and his demand for appointment of an arbitrator to consider his claim
for refund of the whole amount was not allowed to be ruled out under the defence that he was not a party
to the agreement. The contract under which excise duty was paid was made with the petitioner's
predecessors in interest. Where it was not proved on record that the applicant was the successor in
interest of the contracting party, the application to appoint an arbitrator was rejected. Similarly, where the
agreement related to construction of a factory, which factory was subsequently sold to a third party, the
arbitration clause was not allowed to be invoked against the subsequent owner of the factory.

In the instant case, a Memorandum of Understanding regarding sale of certain plot of land was executed
between two sets of parties, which also contained an arbitration clause. Subsequently the sellers executed a
sale deed relating to the same plot of land in favour of another party. It was held that the arbitration
clause would also cover the new buyers since they had knowledge of the Memorandum of Understanding
and had stepped into the shoes of the sellers. The Court relied on the following observations from Russell
On Arbitration :
 Page 17 of 115
(IN) Bachawat: Arbitration and Conciliation

“Parties to the arbitration agreement — An arbitration agreement will bind not only the actual parties to it, but also an ‘assignee’ of a
contract containing it, the personal representative of a deceased party, a trustee in bankruptcy who adopts a contract containing it, and
in general all persons claiming under a party to it but not a stranger to the agreement.”

Where certain disputes arose out of a shareholder agreement between two parties. It was held that a
subsidiary of one of the parties, whose rights were affected by the agreement could rely on the arbitration
clause and demand an arbitration.

An arbitration agreement is not discharged by the death of a party. An application for appointment of the
arbitrator can be maintained by the legal representatives of the deceased. The application for appointment
cannot be rejected on the ground of non-production or non-Probate of the Will, where the Will is
otherwise undisputed.

Talking of the position of a sub-contractor, the court said that he being not a party to maintain, could not
seek a remedy against appointment of an arbitrator under the main contract. Neither the submission of a
bank guarantee nor the fact that payments were being made directly to the sub-contractor had established
a direct contractual relationship with the sub-contractor.

An action filed by a third party for recalling of an of appointment was not allowed. The dispute was about
repair charges of the ship. The applicant conceded that was not bound by the reference because an agent
had made it without authorisation. Thus, he had no locus standi.

Impleading third parties

Third parties who do not have any privity and are not part of the dispute cannot be impleaded.

In all other cases, the court should be satisfied before the appointment of an arbitrator that where third
parties are also involved in the dispute, they should be impleaded on record. Thus, where there was a
dispute between the owner of a plot and a developer regarding unauthorised constructions, the court did
not appoint arbitrators since these portions of the building were in occupation of third parties.

Partnership dispute
 Page 18 of 115
(IN) Bachawat: Arbitration and Conciliation

The petitioner and respondent jointly carried on business and the partnership deed contained a valid
arbitration clause, it was held, that the court while exercising jurisdiction under S. 11 could not adopt an
adjudicatory role and returned a verdict. Even if there was an objection to the existence of a valid
enforceable agreement, it had to be adjudicated by the arbitral tribunal and the court could not undertaken
an adjudicatory task of judging contentious issues between the parties. Disputes arising between the
parties had to be adjudicated by the arbitrator only.

49. Takeover of company

The corporation which was a party to an arbitration agreement was acquired by the State Government.
The Acquisition Act terminated all contracts and arrangements relating to the affairs of the corporation.
The arbitration clause which was contained in a memorandum of understanding did not survive under the
provisions of the statute. Hence, it could not resorted for settlement of a dispute with the corporation. A
settlement commission was constituted under the provisions of the Act as an alternative forum for taking
care of disputes. An application for appointment of an arbitrator was held to be merit less and liable to be
dismissed.

Where a company which was party to the agreement was merged into another company with all its rights,
liabilities and assets, it was held that it was not necessary in the invocation of the arbitration clause to
implead the company so merged.

50. Partnership converted into company

Where a work was executed by a partnership firm under a contract which contained an arbitration clause
and the firm was subsequently converted into a company which tookover the assets and liabilities of the
firm, the other party was not allowed to say that there was no contract with the company. The court said
that no fresh contract was necessary. The company became entitled to enforce and bound by all the
contracts of the firm. An arbitrator was appointed at the instance of the company.

51. Assignment of contract

A company which was the owner of a resort transferred its operational rights of the resort to another
company which accepted the same. The assignee company was held to be entitled to exercise rights under
the contract including the right to seek appointment of an arbitrator.
 Page 19 of 115
(IN) Bachawat: Arbitration and Conciliation

52. Applicable to cases of appointment by consent

Section 8(1)(a) of the 1940 Act [now S.11(6) of the 1996 Act] was limited to cases in which the arbitration
clause provided for reference to one or more arbitrators to be appointed by consent of the parties. The
Calcutta High Court in a case before it noted the effect of the provision in the following words:

“In the instant case, First Schedule to the

Arbitration Act of 1940 [now Sub-s. (2) of S. 10 of the 1996 Act] applies since the same has not been
excluded. Therefore, the reference has to be to a sole arbitrator as per the decision of the Division Bench of this High Court in India
Hosiery Works v. Bharat Woolen Mills Ltd. The reference in the instant case can only be to a sole arbitrator and such arbitrator can only be
appointed by consent of the parties. The petitioner did give notice to the respondent and it is clear that the parties could not concur in
the appointment of an arbitrator. Since the parties could not concur, the petitioner is entitled to apply to this court for the appointment
of an arbitrator.”

The following passage from a Division Bench judgment was cited :

“An arbitration agreement neither specifying the number of arbitrators, nor specifying the mode of appointment, is perfectly effective
and valid and the incidents of such an agreement are that it is to take effect as an agreement for reference to a sole arbitrator to be
appointed by the consent of the parties or, where the parties do not concur in making an appointment, to be appointed by the court,
except where the operation of Rule 1 of the First Schedule of the 1940 Act [now sub-s (5) of Section 11 of the 1996 Act] is excluded.”

The Division Bench cited a passage from Halsbury'S Laws of England:

“The submission itself may name the arbitrator or arbitrators, or it may without naming them direct how they are to be selected or it
may simply provide for a reference to arbitration without either naming the arbitrator or directing how they are to be selected.

In the last mentioned situation, if the submission is contained in a written agreement and does not express a contrary intention the
following rules apply :

(1) the reference is to a single arbitrator;

 Page 20 of 115
(IN) Bachawat: Arbitration and Conciliation

(2) if the parties do not concur in the appointment of the arbitrator, any party may serve the other parties with a written notice to
appoint an arbitrator, and if the appointment is not made within seven clear days (here under S.11 of the 1996 Act, 30 days)
after service of the notice, the court may on the application of the party who gave such notice, appoint an arbitrator.”

Such an arrangement does not apply to an agreement for reference to two arbitrators, one to be appointed
by each party or to an agreement which provides that if the parties fail to agree upon the appointment of a
single arbitrator, the disputes are to be settled by three arbitrators, one to be appointed by each party and
the third to be appointed by the High Court and the parties fail to agree to a single arbitrator. Nor does it
apply where one of the parties is to appoint two arbitrators, one of them out of a panel of names to be
supplied by the other party, since the appointments are not made by consent of the parties.Section 8(1)(a)
of the 1940 Act [now Sub-s (5) of S. 11 of the 1996 Act] did not apply where the agreement provided for
reference to an arbitrator to be appointed by a third party and there was an express or implied agreement
that if the third party failed to appoint, the arbitrator should be appointed by the consent of the parties. In
such a case, the court had no jurisdiction to appoint an arbitrator if the third party fails to appoint one.
The proper course was to apply to the third party to obtain the appointment of an arbitrator. There is the
following pertinent observation in Russell on Arbitration on this point :

“There is no general power for the court to appoint, in cases not falling within the sections, nor will the court make an appointment
where the arbitration agreement provides a method by which appointments are to be made (such as appointment by a named person),
and that method has not been invoked.”

“Where the nomination of the arbitrator was to be by the consent of the parties, e.g., where the reference was to be to a superintending
engineer unconnected with the work at any stage and failing such an engineer, to the chief engineer, the provision applied.”

The consent need not be express, it may be implied. Section 8(1)(a) of the 1940 Act [ S. 11(2) and (5) of
the 1996 Act] applied where the appointment was to be made by the managing director of the Food
Corporation of India.

Where the contractor (petitioner) voluntarily agreed in terms of the tender to the appointment of
arbitrator by being named by the concerned authority, he was not permitted subsequently to say that the
arbitrator so appointed was under the influence of the appointing authority.

Where the agreement is for reference to an arbitrator to be appointed by a designated third party and it is
an implied term of the agreement that the selection of the arbitrator will be by the consent of the parties,
and the person designated fails to appoint an arbitrator, or by the secretary of a particular Department of
the Government of India or if he is unwilling an officer nominated by him, if it does not appear that the
person designated has applied his mind to the problem and if he has not assigned any reason for not
appointing an arbitrator or if there is no compelling reason for not appointing one, the court has power to
appoint an arbitrator and may direct the person designated to appoint one. Where the agreement provides
that reference would be to the arbitrator appointed by the managing director of the concerned
 Page 21 of 115
(IN) Bachawat: Arbitration and Conciliation

corporation and that no person other than a person so appointed will act as arbitrator and if for any
reason this is not possible, the matter is not to be referred to arbitration at all, the court has no power to
appoint an arbitrator if the persona designate fails or refuses to appoint an arbitrator. But, if the persona
designate fails or refuses for no good reason to appoint an arbitrator the court can direct him to appoint
one. Refusal of the named person to act as arbitrator does not wipe out the arbitration clause; but, the
authority of the named person to act as an arbitrator and the procedure or machinery for appointing the
arbitrator get exhausted. The procedure of Section 11 would have to be followed. Where the agreement
was for reference to the chief engineer of the Department or if he was unwilling or unable to act, to an
arbitrator to be appointed by him and the chief engineer after having accepted the office of the arbitrator
neglected or refused to act, the court could appoint an arbitrator.

Where the agreement provided that if the nominated arbitrator was unwilling or unable to act as an
arbitrator, the authority under the agreement would be under an obligation to appoint some person as the
new arbitrator, it was held that the appointment of an independent arbitrator by the court without having
resort to the procedure agreed to by the parties was not sustainable.

An arbitration clause provided that disputes, if any, shall be referred to an arbitrator to be appointed by
the CMD of Engineers Projects (I) Ltd. and any vacancy would also be filled by the same process and, if
the vacancy could not be filled, the matter should not be referred to arbitration at all. The court said that
the power to fill a vacancy was not to be forfeited at all and would continue after the original
appointment.

53. Conditions for applicability of Section 8 (1)(b), 1940 Act

The provisions of clause (b) have been laid out in a different manner in sections
Section 13 ,
14 and
15 of the
Arbitration and Conciliation Act, 1996 . They have the effect of terminating the
office of the arbitrator.Section 15 (2) then provides that the substitute arbitrator would be appointed in
accordance with the rule applicable to the appointment provided that the parties would have to start again
with their exercise of constituting an arbitral tribunal in accordance with the applicable rules. The
decisions under the relevant provisions of the 1940 Act have been retained because they provide
illustrations of the terms and concepts used in the 1940 Act and which are there in the 1996 Act also.

Before Section 8(1)(b) of 1940 Act could come into operation, (1) there had to be an arbitration
agreement between the parties to refer the dispute to arbitration, (2) they must have appointed an
arbitrator or arbitrators or umpire to resolve the dispute, (3) any one of the appointed arbitrators or
umpire had refused to act or was incapable of acting or had died. (4) the arbitration agreement must not
show that it was intended that the vacancy should not be filled and (5) the parties or the arbitrators, as the
 Page 22 of 115
(IN) Bachawat: Arbitration and Conciliation

case might be, had not supplied the vacancy.

As to the one of the above-mentioned points the Supreme Court proceeded as follows :

The Judicial Commissioner had refused to act as the arbitrator. The parties had not supplied that vacancy. Therefore, the only question
was whether the agreement read as a whole either explicitly or implicitly showed that the parties intended that the vacancy should not
be supplied. It may be noted that the language of the provision is not that the parties intended to supply the vacancy but that ‘the
parties did not intend to supply the vacancy’. In other words, if the agreement is silent as regards supplying the vacancy, the law
presumes that the parties intended to supply the vacancy. In order to take the case out of S.8 (1) (b) [1940 Act] what is required is not
the intention of the parties to supply the vacancy but their intention not to supply the vacancy.

“Any” means one of several arbitrators and includes all.

The court has power to fill the vacancy in case of refusal to act by one of two named arbitrators. Where
under the agreement the court itself was named as the arbitrator, it was held that the appointment of an
arbitrator without considering whether the court was prepared to act as the arbitrator was liable to be set
aside. Where the Chairman-cum-Managing Director who was the first designated arbitrator refused to act
and Chief Justice, Shri Sikri, also refused to act for health reasons, the court said that it could intervene
and appoint another arbitrator because there was nothing to show that the parties did not intend the
vacancies to be filled up.

Application for appointment under new Act

The old 1940 Act applied only to pending proceedings. In this case, the agreement was entered into in
1992. A civil suit was filed in 1995. It was held that a prayer for appointment of an arbitrator under the
new 1996 Act was maintainable, since no arbitration proceedings were pending at the time of the
commencement of the new Act.

54. Person or Institution designated by Chief Justice is not ‘Court‘

The District Judge, designated by the Chief Justice as authority to discharge the judicial function is a
‘person’ as provided in sub-section (6) of Section 11 of the Act. The District Judge is an authority other
than a regular court of justice. It is not necessary for him to follow the procedure prescribed for the
courts. The District Judge is thus an adjudicating authority ‘other than a court’. The ‘person’ appointed by
the Chief Justice under sub-section (6) of Section 11 of the Act, is not the Court. In clause (3) of the
 Page 23 of 115
(IN) Bachawat: Arbitration and Conciliation

Scheme for appointment of arbitrators by the Chief Justice of the Rajasthan High Court, the word
‘authority’ has been used. The request under sub-section (4) or sub-section (5) or sub-section (6) of
Section 11 has to be made to the ‘authority’ and not to the ‘Court’. According to clause (3), the District
Judge, Additional District Judge and Civil Judge (Senior Division) come within the purview of authority
designated by the Chief Justice.

Looking to the entire scheme of the Act as well as the scheme framed by the Hon'ble Chief Justice of the
Court for appointment of arbitrators, the District Judge and other judicial officers designated by the Chief
Justice under sub-section (6) of Section 11 of the Act are ‘persona designata’ and they do not come under the
definition of court subordinate to High Court (
Section 3 of the CPC ). Thus their orders are not revisable under Sec.
Section 115 of the CPC by the High Court.

It may be noted that subsequent to the decision of the Supreme Court in Patel Engineering.
The power to appoint can only be delegated by the Chief Justice to another Judge of the same Court. It
has also been clarified that the Chief Justice or his designate is not acting as a “Court” While exercising
the power of appointment under Section 11.

55. Pecuniary jurisdiction limit not relevant

The High Court may not have original civil jurisdiction or his nominee may not have pecuniary
jurisdiction up to the amount involved in the dispute, yet the power under S. 11 can be exercised because
such power is not being exercised in the capacity of a court. The function is of administrative nature.

Application does not create exclusive jurisdiction

An application under the section for appointment of an arbitrator does not create an exclusive jurisdiction
of the court whose Chief Justice is approached for this purpose. The Chief Justice does not function as a
court under S. 11. Accordingly, a suit for recovery of lease equipment and lease money filed in some other
High Court was held to be not barred. It is relevant to note that even though the power of the Chief
Justice under S. 11 has now been held to be judicial in nature and the Chief Justice has to “finally” decide
on the preliminary issues which arise, the Chief Justice is not acting as a “Court”. It seems that this
position continues even subsequent to the decision in Patel Engineering and therefore the making of an
application under S. 11 does not attract the exclusivity rule under S. 42 nor is an application under S. 11
restricted by the bar under S. 42.
 Page 24 of 115
(IN) Bachawat: Arbitration and Conciliation

Application not restricted by exclusivity rule in S. 42

Since the Chief Justice or his designate is not acting as a “court” while exercising their powers of
appointment under S. 11, an application under S. 11 is not restricted by the jurisdictional bar enshrined
under S. 42. The Supreme Court therefore rejected the contention that since an application had been
made under S. 9 before the Delhi High Court, even the application for appointment must be made there.
It was held by BN Srikrishna J

“It is contended that as recourse had been taken by the petitioner under S. 9 of the Act to obtain interim relief by moving the Delhi
High Court… by reason of S. 42 of the Act that court alone could have jurisdiction upon the arbitral tribunal. In my view, this
contention has no merit as I have held earlier, neither the Chief Justice nor his designate under S. 11(6) is a “court” as contemplated
under the Act. S. 2(1)(e) of the Act defines the expression “court”. The bar of jurisdiction under S. 42 is only intended to apply to a
“court” as defined in S. 2(1)(e). The objection, therefore, has no merit and is rejected.”

Subsequent to this decision of the Supreme Court, the cases to the contrary, cannot be regarded as good
law.

No Requirement regarding minimum number of Judges under Supreme Court Rules

Art. 145 of the Constitution empowers the Supreme Court to frame “rules for
regulating generally the practice and procedure of the court”. The Supreme Court has framed the
Supreme Court Rules, 1966, Or. VII Rule 1 of which provides that “every cause, appeal or matter shall be
heard by a bench consisting of not less than two Judges nominated by the Chief Justice.” Exceptions are
made for certain specific matters, and the power under S. 11 of the 1996 Act is not specifically mentioned.
The Supreme Court has however held that although subsequent to Patel Engineering, this power has judicial
characteristics, the power exercisable by the Chief Justice or his designate under S. 11 is not “the power of
the Supreme Court under the
Constitution .” Therefore the requirement of a minimum number of two Judges
has no application to S. 11 petitions.

56. Withdrawal of Authority

The schemes framed by the Supreme Court and High Courts under Section 11(10) of the 1996 Act
provide for withdrawal of the authority given by the Chief Justice in terms of Sec. 11(6) on the following
 Page 25 of 115
(IN) Bachawat: Arbitration and Conciliation

lines :

“If the Chief Justice on receipt of a complaint from either party to the arbitration agreement or otherwise, is of opinion that the person
or institution designated by him has neglected, refused to act or is incapable of acting or has incurred any other disqualification to act as
such, he may withdraw the authority given by him to such person or institution and either deal with the request himself or designate
another person or institution for that purpose.”

57. Hesitation in accepting appointment, neglect to act

In a case before the Allahabad High Court , an arbitrator was appointed through
judicial authority. He returned the papers to the court with a note that he was doing so because one of the
parties did not wish him to act and also he had no leisure in future to carry out the task. The following day
he approached the court with this request that he was willing to act and that his papers should be given
back to him. The court held that in such circumstances, the communication of the arbitrator could not be
regarded as a flat refusal. He did not become functus officio by reason of such communication. He had not
finally divested himself from his status as an arbitrator. The clear rationale is that the courts do not lean
against arbitration proceedings and those who appointed an arbitrator can persuade him to accept office
irrespective of any hitch which the arbitrator may feel. If the parties request him to act after his refusal
and he resumes office, it is perfectly lawful on his part to do so.

A named arbitrator who had initially conveyed his inability to arbitrate the dispute between the parties can
still be appointed by the court in the event that he has changed his mind during the pendency of the
proceedings under S. 11 and expressed a willingness to arbitrate. The Supreme Court held that abiding by
the parties’ wishes as to choice of arbitrator would be appropriate in such circumstances. In the event that
the appointed arbitrator is unable or unwilling to conduct the arbitration and the dispute still subsists, the
parties may appoint a mutually agreed substitute, or file a fresh application for appointment.

Where the appointed arbitrator neglected to act because he did not proceed with the reference by making
every effort to commence and conclude proceedings with a reasonable despatch, it was held that this
entailed his removal entitling the parties to substitute him of their own or through the Court. Where the
opposite party remained silent inspite of notice and the agreed arbitrator did not initiate proceedings and
an application was made for appointment of an arbitrator and at this stage the agreed arbitrator submitted
his award, it was held that the award was without jurisdiction and non est in the eyes of law.

58. Simultaneous availing of Remedies under 1940 and 1996 Acts

 Page 26 of 115
(IN) Bachawat: Arbitration and Conciliation

An application filed under Section 11(5) cannot be dismissed on the plea that the defendant was pursuing
two mutually exclusive remedies—one under Section 34 of the 1940 Act and the other being the present
application under Section 11(5) of the 1996 Act—as the said application was filed after the trial court
stayed the suit and after the notice given by the defendant to the appellant was not responded to.

59. Preliminary Steps

The necessary preliminary steps had to be taken before the court could make an appointment under
Section 8 of the 1940 Act (Section 11 of the 1996 Act). Those steps were—(a) A party had served the
other party or parties or the arbitrators as the case might be, with a written notice to concur in the
appointment or in supplying the vacancy, (b) the appointment was not made within 15 (now 30) clear days
of the service of the notice, (c) the party serving the notice had applied to the court, (d) the court had
given the other parties an opportunity of being heard.

60. Notice by applicant [ S. 11 of 1996 Act]

Service of notice is an essential precondition for invoking S. 11. It is also a statutory requirement under Ss.
11(4) and (5) and under most rules of arbitral institutions. The purpose and importance of the
requirement of service of notice has been highlighted by Swatanter Kumar J of the Delhi High Court
thus—

“It is the default of one party to act which gives right to the other to invoke the provisions of S. 11 of the Act for the appointment of
an arbitrator. The default is a fact. This fact must be shown to have existed to the satisfaction of the Court by the party which
approaches the Court. The onus to establish this fact that other party has failed to act despite the receipt of the notice is on the party
which pleads this fact and wishes to take advantage of the provisions of S. 11 of the Act. The most significant expression in the relevant
provisions and which would be the basis for determining the effect of default on the part of the concerned party and from where the
point of limitation of 30 days would commence would be the date on which the party called upon to adjudicate receives the notice.”

In a subsequent case, Swatanter Kumar J followed the above dicta and explained the requirement in
further detail —

“The receipt of notice by the party who is called upon to appoint an arbitrator in consonance with the arbitration clause, has to be a
notice properly containing complete particulars and duly received by the party. This is for the reason that a definite benefit accrues to a
petitioner to claim substitution of the arbitrator by the process of the court on the ground that the other party has defaulted to comply
with the terms of the arbitration clause despite the notice not having been received by it. The obvious consequence in law is that instead
 Page 27 of 115
(IN) Bachawat: Arbitration and Conciliation

of a nominated arbitrator, the applicant is entitled to have an independent arbitrator appointed through the process of the court. This
advantage accrues to the applicant because of default. Thus, it is important that there is strict compliance to the provisions of Sections
11(1) and 11(6) of the Act. Secondly the onus lies upon the applicant to show that he has complied sincerely with the requirements
which are condition precedent to maintain such a petition.”

The filing of the application under S. 11 cannot of itself be treated as sufficient compliance with the
requirement of giving notice, nor is it possible to contend that since a party must be given an opportunity
of being heard, the requirement of notice will merely be an empty formality. The Andhra Pradesh High
Courtspeaking through Ranganathan J relied upon the aims of the
Arbitration and Conciliation Act, 1996 , principles of statutory interpretation and
prior precedent to explain this position as follows —

“Strict adherence to the conditions prescribed in S. 11(5) of the Act is essential. As a general rule, statutes which enable persons to take
legal proceedings under certain specified circumstances must be accurately obeyed…. Complying with the requirement of putting the
other party on notice, and waiting for thirty days, before invoking the jurisdiction of the Chief Justice's designate has a salutory purpose.
On being put on notice, the respondent may well inform the applicant that there is no arbitration agreement in existence, that there is
no arbitrable dispute, that the claim is long barred or even that the parties could mutually agree on the arbitrator, without the
intervention of the Chief Justice's designate under S. 11(5) of the Act, and thereby, avoid needless expenditure involved in such a
process. It cannot, therefore, be said that no prejudice would be caused to the respondent, merely because he is entitled to be given an
opportunity of being heard after the application under S. 11(5) is filed, for even prior thereto, on his being put on notice, the
respondent may well take steps to avoid an application being filed under S. 11(5) of the Act.”

An application filed under S. 11, however, though not capable of over-riding the requirement of notice,
may itself constitute sufficient notice to initiate the applicable time limits.

To determine the issues surrounding “receipt” of notice, reliance may profitably be made to the
Commentary under S. 3 of the Act.

Under Section 11 of the 1996 Act, the parties have to approach the Chief Justice or any person or
institution designated by him. Any party can do so and not necessarily the party who had given notice. But
under the 1940 Act service of the notice by the applicant was an essential preliminary step to give
jurisdiction to the court. In the absence of such a notice the court would act with material irregularity if it
appointed an arbitrator and the order was liable to be set aside in revision. The notice could be served by
the party or his agent and upon the other party or his attorney. A notice served during the pendency of
the petition was held to be good enough for the purposes of the section and, therefore, it was not
necessary that the agreement should be superseded on such a technical ground. Where no notice was
given but the other party agreed that they were ready and willing to act in accordance with the arbitration
clause, the court said that the requirement of notice had become dispensed with. An arbitrator was
appointed as per the agreement. The notice to the Government should be sent to the appropriate
Ministry. Fifteen clear days (now 30) must expire after the service of the notice. Clear days mean from
mid-night to mid-night. Both the terminal days must be excluded in computing 15 clear days (now 30).
 Page 28 of 115
(IN) Bachawat: Arbitration and Conciliation

The party served with the notice must inform the party serving the notice of the appointment within 15
(now 30) clear days; otherwise the party giving the notice will be entitled to apply to the court (now Chief
Justice or his designate). An appointment by the court before expiry of 15 (now 30) clear days was invalid,
but the appointment could be made after the expiry of the period on an application filed before the expiry
of the period. The court had no jurisdiction to appoint the arbitrator before the expiry of 15 (now 30)
clear days. The period of limitation for making an application to the court commenced from the expiry of
the notified 15 (now 30) day period.

Even though a notice of arbitration might require appointment of the arbitrators even prior to the expiry
of the statutory period, it cannot curtail the time period statutorily available to a party for appointing the
arbitrator, i.e. a period of 30 days under S. 11(5) of the Act.

It has been held that once notice is served, simultaneous efforts to settle the matter will not amount to
abandonment of the notice, and the person serving the notice could seek appointment of an arbitrator by
the Chief Justice on the expiry of 30 days from the date of serving of the notice.

Where the notice was to concur in the appointment, both parties must concur. The party served with the
notice alone could not appoint the arbitrator.

If the arbitrators served with the notice to appoint an umpire (now presiding arbitrator) did not appoint
an umpire within 15 (now 30) clear days they could not appoint one after an application for the
appointment is made and the court is seized of the appointment but the appointment of an umpire after
the expiry of 15 (now 30) days cannot be challenged by the parties at whose request the appointment was
made and who accepted the appointment.

A notice calling on the other party to appoint an arbitrator, to act with the arbitrator of the party giving
the notice was held to be not a valid notice. The mere seeking of a “clarification” from an institution
required to appoint an arbitrator under the agreed procedure, does not amount to a “reference” (or
“request”) to appoint such arbitrator.

It had been held that on a plain reading of S.8(2) of the 1940 Act it was clear that the statute did not
require any particular time to be mentioned in the notice given by one party to the other party for
appointment of an arbitrator. The lower court was not justified in thinking that 15 (now 30) days time
must have been mentioned in the notice.

A contractor executed some part of the work, received part payment for the same, the balance remaining
unpaid inspite of several representations. Two writ petitions were filed. One was dismissed and the other
 Page 29 of 115
(IN) Bachawat: Arbitration and Conciliation

was withdrawn. An application for appointment of an arbitrator was filed 14 years after the arising of the
dispute. No notice was given or demand raised before filing of the application under s. 11(6). The
application was held to be not maintainable being without notice and also being barred by limitation.

It is not necessary that disputes should be enumerated in the notice. The court will not be unreasonable or
unduly technical to see whether there is compliance with the procedure under the agreement. For
instance, in this case the arbitration agreement provided for disputes to first be referred to the Engineer,
and subsequently allowed for arbitration within a period of 30 days after the decision of the Engineer. The
contractor raised some disputes and requested ‘nomination’ of an engineer but no response was
forthcoming to this request. Upon an application being filed under S. 11, it was contended that there was
no proper ‘request’ for ‘arbitration’ by the Engineer, but only ‘request’ for ‘nomination’. The court held
that this was a mere technicality and a valid request had been made. Thus, the application under S. 11 was
justified since no response was received.

In a case under the 1996 Act, a letter setting out that in the event of claims of the party were not satisfied
within 30 days, they shall be “compelled to knock on the doors of justice” for which the “first available
legal remedy would be to seek arbitration” was held to be a notice seeking arbitration. Where neither the
name of the person proposed to be appointed as an arbitrator was suggested, nor the other party was
called upon to concur in the appointment of sole arbitrator, it was held that the notice was not in
accordance with the requirements of the section [sub-s. (5)]. The petition for appointment was dismissed.

Where an appointment was made even in the absence of a prior notice and the parties terminated the
mandate because of the invalidity, and the arbitrator closed the proceedings rejecting the claim, the High
Court directed the party to place an application before the Chief Justice for naming an arbitrator in place
of the outgoing arbitrator.

In the instant case, notice invoking the arbitration agreement was returned with the remark “unclaimed”.
The court ordered substituted service by way of proclamation in newspaper and notice board of the court.
Despite this, where no one appeared on behalf of the party, the court appointed a sole arbitrator to settle
the disputes.

The period to appoint the arbitrator will commence only at the point of time where an application
invoking arbitration is made complying with all contractually stipulated procedures. In case, the arbitration
clause requires deposit of fees as a precondition to arbitration, the notice of arbitration will be taken to be
from the date when, all other formalities having been complied with, such fees are deposited.

61. “Procedure agreed upon by the parties” [Sub-sec. (6)]

 Page 30 of 115
(IN) Bachawat: Arbitration and Conciliation

Where a procedure contemplated by S. 11(2) was agreed to for appointment of arbitrator, S. 11(6) and not
S. 11(5) was held applicable. Writ petition was also maintainable for appointment of arbitrator.

This expression encompasses the alternatives provided in the agreement in respect of appointment of
arbitrator. Thus, failure of the parties or arbitrators or person or institution to do what is required of them
under such agreed procedure, including the alternative procedure, will activate the provisions of sub-sec
(6). In other words, if a procedure fails, the alternative procedure, if any, should also be exhausted before
invoking sub-sec. (6). This is further emphasised by the expression “unless the agreement on the appoint
procedure provides other means for securing the appointment”. In the words of B.N. Srikrishna J of the
Supreme Court —

“If the parties have entered into such an agreement [which provides the procedure for appointment of arbitrators] with open eyes, it is
not open to [the court to] ignore it and invoke exercise of powers in Section 11(6).”

In the instant case, as per the arbitration agreement, in the event arbitrators could not reach a consensus
with regard to choice of presiding arbitrator, the arbitrator was to be appointed by the IRC. It was held
that where the presiding arbitrator is appointed by IRC in accordance with the contract, petition under S.
11(6) is not maintainable. In another case, guidelines provided by the Department for appointment of
arbitrators were held to be not binding upon the contractor. It was held that the arbitrator could be
appointed in accordance with the agreement, and failing this, the court may appoint the arbitrator in
accordance with S. 11(6). On the other hand, where the arbitration clause provided for appointment of
the Deputy Housing Commissioner, appointment of a retired Superintending Engineer in contravention
of this clause was held to be against the “procedure agreed upon by the parties”.

Where the clause provided for resolution of disputes by way of “institutional arbitration”, the court
understood it to mean a reference to arbitration under the auspices of an arbitral institution as opposed to
ad hoc arbitration. The Supreme Court referred the dispute to the Singapore International Arbitration
Centre to nominate arbitrators and to take charge of arbitration proceedings.

The Court will have to examine whether the procedure prescribed is to be followed in respect of the
specific disputes raised.

Where the parties agreed that the arbitrator or arbitrators shall be appointed by mutual consent and
without trying this method, one of them applied to the Chief Justice for appointing an arbitrator, it was
held that the application was not maintainable because no effect had been made to exhaust the avenues
available under the agreement. Where as per the terms of the agreement there was a requirement that a
dispute was to be first referred to an adjudicator and only then could the matter be referred to arbitration,
 Page 31 of 115
(IN) Bachawat: Arbitration and Conciliation

it was held that it is not open to ask for appointment of an arbitrator without first approaching an
adjudicator and bypassing the terms of the contract.

The court has to implement the procedure agreed upon between the parties. It cannot appoint an
independent arbitrator at the first instance. A decision of the M.P. High Court is also to the same effect.
Where a clause in the contract contemplated arbitration in case either party did not accept the decision of
the chief engineer and one of the parties had not accepted that decision, it was held that it was a case for
appointment of an arbitrator.

Where the railways claimed that the appointment of an arbitrator had to be from among the officers
named by the general manager as prescribed by the standard terms and conditions applicable to the
contract, but no proof was offered of the fact that such terms and conditions formed part of the contract,
the claim for such appointment was not accepted.

The appointing authority cannot travel beyond the terms of the parties’ agreement. The agreement
envisaged two arbitrators who in turn had to appoint an umpire. The petitioner had appointed his
arbitrator and asked the other party to appoint their arbitrator. On the failure of the respondent to do so,
a request was made to the Chief Justice for appointing a sole arbitrator. It was held that a sole arbitrator
could not be appointed because the agreement of the parties was not to that effect.

When the parties to a contract agree to any special mode for resolution of their disputes arising out of the
agreement, they are bound to comply with the mode prescribed under the agreement. Without resorting
to the first step provided for the resolution of the dispute in the agreement, they cannot jump to the
second step or to the final step to settle the disputes between them. The Supreme Court has held in a
series of decisions that an application under S. 11 without approaching the authority agreed upon by the
parties is not maintainable. Thus where parties have chosen the arbitration rules of the ICC, ICA or other
similar arbitration institutions, it has been held that where the applicant has not followed the procedure
laid down in those rules for appointment of the arbitrator, an application under S. 11 is not maintainable.
In the words of G.P. Mathur J —

“The legislative scheme of S. 11 is very clear. If the parties have agreed on a procedure for appointing an arbitrator or arbitrators as
contemplated by sub-section (2) thereof, then the dispute between the parties has to be decided in accordance with the said procedure
and recourse to the Chief Justice or his designate cannot be taken straightaway. A party can approach the Chief Justice or his designate
only if the parties have not agreed on a procedure for appointing the arbitrator as contemplated by sub-section (2) of S. 11 of the Act or
the various contingencies provided for in sub-sections (6) have arisen. Since the parties here had agreed on a procedure for appointing
an arbitrator for settling the dispute by arbitration as contemplated by sub-section (2) and there is no allegation that any one of the
contingencies enumerated in clauses (a) or (b) or (c) of sub-section (6) had arisen, the application moved [under S. 11]… was clearly not
maintainable.”
 Page 32 of 115
(IN) Bachawat: Arbitration and Conciliation

It is relevant to note that where the rules selected by the parties also provide for party autonomy, then the
parties may make their choice through agreement. The Supreme Court has had occasion to remark upon
the effect of choosing the rules of particular institutions to govern arbitral proceedings where the parties
had opted out of a few provisions in the rules. It was held as follows —

“The provision that the proceedings shall be conducted in accordance with the Rules prescribed by the Indian Council of Arbitration
does not in any manner militate against the retention of the power by the parties of appointing an arbitrator or constituting an arbitral
tribunal. Only if there exists any inconsistency between the two provisions we would be called upon to undertake the existence of
reading down one or ignoring one as ineffective or inconsistent and giving effect to the other.”

The first attempt should be to keep the parties bound by the agreement in so far the procedure is
concerned. The purpose of sub-section (6) is to take the measure to ensure compliance with the agreed
procedure to appoint an arbitrator by issuing necessary direction to the defaulting party. In case the party
defaults again, after having been given an opportunity, then that would not be the end of the matter in
view of the object of the Act. In such circumstances, the Chief Justice or any person or institution
designated by him to take necessary measure shall certainly be justified in appointing the arbitrator
accordingly, on its own, without any further waiting for the appointment by the concerned authority.

Where the arbitration clause provided that if a party failed to appoint an arbitrator even after notice, the
arbitrator appointed by another party would act as the sole arbitrator, the court said that since such
procedure was agreed between the parties, it could not to be said that formation of Arbitral Tribunal was
illegal. In a case, the arbitration clause provided that if no arbitrator could be appointed by the appointing
authority, then there could be no arbitration at all. The appointing authority however did not appoint an
arbitrator as per the agreed procedure. It was held that to be consistent with the agreement of the parties,
a petition under S. 11 could not lie.

Standing or position of arbitrator irrelevant

Where the agreed procedure for appointment has been followed in cases of resignation of the earlier
arbitrator, the appointment of the substitute arbitrator cannot be challenged on the ground that the
substitute arbitrator so appointed is not of the same standing or position as the earlier arbitrator. It is also
not possible to insist upon the appointment of an arbitrator of a similar or better standing as the other
arbitrators on the panel, so long as the procedure prescribed is followed in such appointment and no such
special requirement is laid down in such procedure. The Supreme Court has held —

“It was argued… that hierarchically a judicial arbitrator must sit with another judge only. This reasoning, in our opinion is de hors the
sanction in the contract…. Once the arbitration agreement clearly envisages the appointment of the presiding arbitrator by IRC, there is
 Page 33 of 115
(IN) Bachawat: Arbitration and Conciliation

no qualification that the arbitrator has to be a different person depending upon the nature of the dispute. If the parties have entered
into such an agreement with open eyes, it is not open to ignore it and invoke exercise of powers in S. 11(6)… There does not exist any
provision in law which requires that if one of the arbitrators is a retired judge, the presiding arbitrator also has to be a retired judge. The parties have entered
into a contract after fully understanding the import of the terms so agreed [f]rom which there cannot be any deviation. The courts have held that the parties
are required to comply with the procedure of appointment as agreed to and the defaulting party cannot be allowed to take advantage of
its own wrong.” (emphasis added)

A substitute arbitrator, being a Retired Judge of the Delhi High Court was appointed by a party as per the
agreed procedure, upon resignation of the earlier arbitrator who was a Retired Chief Justice of India. The
court was moved to appoint an independent arbitrator on the ground that there was a great difference in
station between the two arbitrators - a retired Chief Justice of India cannot be replaced by a retired High
Court Judge. It was held by the Supreme Court that once an arbitrator has admittedly been appointed as
per the agreed procedure, the appointment cannot be challenged on this ground alone, especially when
the credibility of the appointed arbitrator is not in question.

Selected claims accepted for reference

Where the prayer for appointment of an arbitrator was in respect of several claims but the respondent
accepted reference only in respect of some of them segregating them from the rest, it was held that this
was a failure to act on the agreed procedure and, therefore, an appointment under sub-s. (6) became
justified.

Agreed procedure, when need not be followed

An objection was raised that the petitioner should have approached designated the authority specified in
arbitration agreement, in the first instance. The court said that it was not necessary where the respondent
was opposing the applications vociferously. No purpose would have been served in taking such a course
as ultimately petitioner had to come to this court by filing the present application. Therefore, it would not
be proper to mandate the petitioner to complete the ritual of procedure prescribed in the agreement and
thereby further delay the whole process of constituting the Arbitral Tribunal. Too technical an objection.
Where the first step envisaged for settlement of dispute by means other than arbitration, has failed
because of the recalcitrance of a party or appointing authority despite a request, the arbitration clause may
validly be invoked without going through the ritual of the agreed procedure. Similarly, where the
agreement provides for an attempt to settle the disputes amicably as a pre-condition to arbitration, a
threat from one party to invoke criminal proceedings means ‘the question of amicable settlement has been
given a go-bye,’ and, in such circumstances, and a settlement need not be attempted.

The Court may disregard the procedure for appointment in these cases, (i) Where the appointing authority
deliberately tries to defeat the agreed procedure; (ii) Where the Court doubts the impartiality of the
designated authority and the arbitrator; (iii) Where peculiar circumstances, not covered by the provisions
 Page 34 of 115
(IN) Bachawat: Arbitration and Conciliation

of the Act are placed before the Court.

It has also been held that in view of the failure of the parties to appoint their arbitrators as per the agreed
procedure, where the rights of parties are not prejudiced, the appointment by the court without taking
into account the agreed procedure is maintainable. However, it is a moot question whether such an
appointment against the agreed procedure itself constitutes a prejudice. The scope of permissible
derogation is also circumscribed by the interpretation given to the phrase “necessary measures”.

The agreed arbitral procedure which provides for a prior non-binding reference of the disputes to a
named body, need not be followed since the reference to arbitration is not dependent upon the outcome
of such proceedings and the decision of the body, being itself referable to arbitration, is not final.

There is another line of reasoning on the understanding that questions as to the invocation of the
arbitration clause and validity of the reference are more appropriately decided by the arbitrator since the
power of appointment is merely an administrative power. It must be noted that subsequent to the
decision in Patel Engineering, these authorities may no longer be good law.

Failure To Pay Agreed Fees

A specific clause in the arbitration agreement provided that an application for appointment of an
arbitrator will have to be supplemented by a non-refundable fee for the application. It was held that an
application for appointment of arbitrator under S. 11 will not be allowed straight away, when non-
appointment of arbitrator under the terms of the agreement itself was because of the failure of the party
to pay the requisite fee. However, where failure to pay fees is because of non-responsiveness of the
respondent, the applicant having sent notice to refer the dispute to arbitration, the right to appoint will be
forfeited after 30 days, and the Chief Justice can take the “necessary measure”.

Ouster of statutory power to appoint not possible

In case a party forfeits its right to appoint, or there is a failure to act by any of the parties or by the
arbitrator, the court may validly appoint the arbitrator. It is not open for such a party to argue that the
parties agreed for a particular method of appointment of the arbitrator or agreed to appoint a particular
arbitrator. Such an argument is premised upon ouster of the statutory power of the courts to appoint an
arbitrator and is thus violative of not just S. 11 of the 1996 Act, but also of S. 23 of the Contract Act. An
argument that no arbitration is to take place if the arbitrator is not appointed by one of the parties, or that
the arbitration will not be conducted by a particular agreed arbitrator, according to such logic, will not be
 Page 35 of 115
(IN) Bachawat: Arbitration and Conciliation

maintainable.

Application for appointment of arbitrator

Where there was no arbitration clause in the loan agreement between the applicant and the bank, the
applicant, a borrower and loanee of the bank, was held barred from maintaining an application under S.
11(6). Provisions of S. Section 11 of the Securitization and Reconstruction of Financial Assets and
Enforcement of Security
Interest Act , 2002 could not be invoked as they were limited only to parties namely
‘Bank or Financial Institutions’ or ‘securitization or reconstruction of a company’ and not to the borrower
and loanee of a bank. The applicant, was admittedly a borrower of the bank and was not a bank or
financial institution registered unders. 3 of the Securitization Act, hence, he was not entitled to invoke the
provisions of S. 11 of that Act.

62. Where no procedure prescribed [Sub-sec. (5)]

Section 11 deals with the procedure for appointment of arbitrators. It provides that the parties are free to
agree on a procedure for appointment of arbitrator or arbitrators. It is further provided that if the parties
have agreed upon the procedure for appointment of the arbitrator then such procedure should be
followed initially. However, in the present case arbitration proceeding no such procedure has been
prescribed for appointment of an arbitrator. Sub-section (5) of Section 11 provides the procedure for
appointment of a sole arbitrator. If the parties fail to agree upon and appoint an arbitrator, the court shall
have power to appoint an arbitrator. In the words of the Delhi High Court —

“The controversy in the present case has arisen on account of the fact that indisputably the petitioner never called upon the respondent
to appoint an arbitrator, and thus, the question of failure to so appoint did not arise… The arbitration clause in the present case only
states that the reference has to be to a sole arbitrator. The sole arbitrator has to be mutually nominated by the parties. There was no
such mutual nomination. There is no specific procedure prescribed under the arbitration clause. In the absence of any procedure, it
cannot be said that there is violation of the prerequisites before S. 11 can be invoked. There is no doubt that if the petitioner had at
least called upon the respondent to appoint an arbitrator, this difficulty would not have arisen but the line of judgments starting from
Greenland Foods, Anand Kumar Jain and finally in G Premjee Trading Pvt. Ltd. held that
as the arbitration clause does not indicate as to who would be the arbitrator and no specific procedure is prescribed, the court should
have the power to appoint an arbitrator. In view thereof, it cannot be said that this court is devoid in the facts of the present case to
appoint an arbitrator.”

The Supreme Court has also held to the same effect. In a situation where the arbitration agreement does
not provide any procedure for appointment of an arbitrator, the right to resort to arbitration cannot be
denied on this basis alone. The Court can appoint an arbitrator under S. 11(5) of the Act.
 Page 36 of 115
(IN) Bachawat: Arbitration and Conciliation

An appointment made by the respondent after expiry of 30 days and also after a petition for appointment
has been made before the Chief Justice was held to be non-est. The Chief Justice could order an
appointment.

An appointment can be made even after expiry of 30 days provided it is done before an application is
moved before the Chief Justice for appointment and notice of it has been served upon the other party.

63. Where procedure prescribed not observed

Once the parties enter into an agreement spelling out covenants in specific and categorical terms, it is not
open to any of the parties to deviate from those terms even in the matter of appointment of arbitrator as
reposition of faith in the integrity, impartiality and fairness either of the arbitrator or the authority vested
with the power to appoint the arbitrator is the core of such an agreement. Any amount of infraction of
such a term of the agreement vitiates the appointment of arbitrator. As the arbitrator cannot transverse
beyond the terms of the agreement whenever reference of disputes is made to him so is the position as to
the appointment of arbitrator in case there is specific stipulation that a particular person shall have the
authority to appoint an arbitrator. As is apparent from relevant clause of the agreement, the authority to
appoint an arbitrator was conferred upon the President of the respondent-company and none else and
therefore information sent by the respondent vide its letter under the signature of Executive Director &
Chief Operation Officer gave the impression that the arbitrator was appointed by him and not by
President of the respondent company. The expression ‘We’ mentioned in the communication does not
mean that the Arbitrator was appointed by the President. It rather connotes that the respondent-company
has appointed the arbitrator.

Though at first instance, the word ‘We’ gave an impression that appointment might have been made by
the President but this impression was soon dispelled by a subsequent letter sent by the petitioner to the
respondent whereby he lodged a protest to the legality of the appointment of the arbitrator inasmuch he
was not appointed by the President of the company.

Where the applicant, in accordance with the supply orders for Cables, supplied the requisite quantity, but
some deduction was made from the bill amount and this created a dispute by reason of which the
applicant invoked the arbitration clause but the other party made no appointment within 30 days, it was
held that the Chief Justice was obliged to make an appointment after the party approached for it.

If the prescribed procedure has not been observed by a party, it is not open for it to impute against the
other party, a failure to observe the agreed procedure. In such a situation, the court will not easily rule in
favour of a forfeiture of the other party's right to appoint, and will strive to hold both parties to their
 Page 37 of 115
(IN) Bachawat: Arbitration and Conciliation

agreement.

Requirement for Deposit of Security

It is a common clause in most construction contracts that if any claim is brought by a party, it must first
deposit security of a determinable sum, usually a percentage of the claimed amount, before it can bring
the claim before the arbitrator. The underlying object behind these clauses is to prevent frivolous and
extravagant claims being brought by the parties, in the hope of “trying their luck” with the arbitrators.
Such clauses are valid, and cannot be challenged on the ground of substantive unfairness or
unreasonableness, where the process of entering into the contract was otherwise valid under the
provisions of the Contract Act.

If such security pursuant to the contract is not deposited, it is now settled authority that till this is
complied with, the Courts will not appoint an arbitrator under S. 11. Overruling the decision of the High
Court in appointing an arbitrator where the requirement as to deposit of security was not met, Tarun
Chatterjee J of the Supreme Court held —

“[I]t has to be kept in mind that it is always the duty of the court to construe the arbitration agreement in a manner so as to uphold the
same. Therefore, we must hold that the High Court ought not to have appointed an arbitrator in a manner which was inconsistent with
the arbitration agreement.”

Courts have however been willing to interpret such terms flexibly. Thus where the amount of security was
large and the contract required a cash security to be deposited, the court allowed deposit through a bank
draft instead.

Failure To Pay Agreed Fees

Rules of arbitral institutions require payment of certain non-refundable fees (or administrative charges) to
commence arbitration. Such clauses must be honoured and the court must not be approached under S.
11(6) just to evade the obligation to pay the agreed fees of the arbitral institutions. This has been
recognised by the Courts. For instance, in this case, the arbitration agreement provided that an application
for appointment of an arbitrator will have to be supplemented by a non-refundable fee. Where these fees
were not paid, it was held that an application for appointment of arbitrator under S. 11 will not be allowed
straight away, especially when the failure to appoint the arbitrator under the terms of the agreement is
because of the failure to pay the requisite fee.
 Page 38 of 115
(IN) Bachawat: Arbitration and Conciliation

In case, fees are deposited subsequently, the notice of arbitration will be taken to be from the date when,
all other formalities having been complied with, such fees are deposited.

64. Nature of power of the agreed appointing authority

Where an appointing authority is mentioned within a contract, and whose function is to appoint
arbitrators in case of failure of either party to do so, it has been held that the function of the appointing
authority is not adjudicatory and therefore it is not required to consider the merits of the respective claims
before it. In this context it has been held by Mukul Mudgal J speaking for the Delhi High Court
—

“It is settled law, which needs no reiteration, that an appointing authority, which is not a court, is not to perform any adjudicatory
functions. It has but one role, and that is to make the appointment and all contentious issues, including those in respect of the existence
of disputes, have to be decided by the arbitral tribunal under S. 16.”

65. Failure of agreed appointing authority (‘ persona

designata ’) to refer all disputes

In cases where parties appoint an arbitrator by consent for ‘the case’ or the ‘matters in question’, there is
no restriction on the claims that may be referred to the arbitrator. It will be up to the arbitrator to decide
the scope of the contract, and the rights and liabilities of the parties.

There may arise situations however where certain claims are not included within the terms of reference by
a party that exercises the power to draw up such terms under the agreed procedure, or are not referred to
the arbitrator by the appointing authority. This may either amount to a failure under Ss. 11(6)(a) or
11(6)(c). It is not the function of the party exercising the power of reference or the arbitral authority to
consider the merits of the respective claims and deny the party the right to have these decided by the
arbitrator. In such cases, it is open to the party aggrieved to make an application for appointment, and the
Court will appoint an arbitrator to hear such ‘rejected’ claims. In cases where the arbitral tribunal has
already been appointed the court will normally appoint the same arbitrator for such claims, and in a sense
this decision will have the effect of specific reference of such matters to the arbitrator.

It has been held that the defence of the other side cannot be a ground for disentitling a party from even
seeking a reference of its claims to arbitration. Thus, where the persona designata had not referred two
 Page 39 of 115
(IN) Bachawat: Arbitration and Conciliation

claims of a party to the arbitrator, the Court directed the authority to refer these claims. Similarly, where
only three out of nine claims raised were initially referred to arbitration by the other party, and upon
realising that a S. 11 application had been filed, the remaining six claims were also referred, it was held
that the party had forfeited its right to refer claims to arbitration and the Chief Justice could appoint an
arbitrator for the remaining six claims.

It is inevitable that where the matter comes before the Court, the court may have to examine whether the
matters are indeed referable to arbitration. Where it was contended that certain matters that were not
referred to the arbitrator were excepted matters, the Court on examining those matters, found that prima
facie they were not excepted matters, and hence directed the persona designata to refer those matters to
arbitration.

It may happen that certain claims which were not referred to the arbitrator, were subsequently claimed
before the arbitrator and were denied on the ground that they were not referred to him. In such cases also
the Court has entertained an application under S. 11(6) and will decide whether the claims are referable or
not. Where certain counter-claims were denied by the arbitrator on the ground that they were not referred
to her, the Court went on to find that the counter claims were beyond the limitation period and stale.
When a claim relating to the encashing of a bank guarantee during the pendency of arbitral proceedings
was sought to be referred to the arbitrator, and the arbitrator denied the claim, the Court found that the
claim was not barred by res judicata and was referable to the arbitrator. It is relevant to note that in such
cases, the arbitrator did not refuse the claims on merits, but refused to hear the claims solely on the
ground that he did have jurisdiction as the claims was not referred to him. It would seem, that if the
arbitrator indeed decided the matters on merits, for example, that the claims were excepted matters or
were beyond limitation etc., approaching the Court under S. 11(6) might not be appropriate, as the refusal
to hear the matter would amount to an award. In such cases, the recourse ought to be a challenge to the
award under S. 34, rather than approaching the Court under S. 11.

66. Abuse of power to appoint by appointing authority

The scheme of the 1996 Act, in so far as it places a premium on party autonomy in the arbitral process,
envisages that in many cases the power to appoint an arbitrator is exercised by an authority other than a
court. Such appointing authority, depending on the terms of the arbitration agreement, may be one of the
parties itself acting independently, or a person or an institution who is a stranger to the arbitration
agreement. Whichever be the case, it is important for appointing authorities to exercise their power
prudently in a manner so as to best facilitate the arbitral process being conducted in a fair and unbiased
manner, accommodative of the parties’ needs. In fact, recent decisions suggest that if the arbitrator is to
be nominated by one party, it is the fiduciary duty of that party to nominate a fair and unbiased arbitrator.

The rationale for imposition of a fiduciary standard may perhaps be traced to the fact that an improper
exercise of such power may have serious implications which might vitiate the entire arbitral process. For
instance, if the appointing authority knowingly chooses a biased arbitrator, a challenge may initially be
 Page 40 of 115
(IN) Bachawat: Arbitration and Conciliation

made under the procedure prescribed under S. 13. If the arbitrator refuses to recuse himself, the
consequent award may also be set aside under S. 34.

The repeated appointment of inefficient or evidently biased arbitrators by the appointing authority can be
considered as a ‘failure to perform its function’ and consequently the court may take over under S. 11(6)
to appoint an independent arbitrator having due regard to the required qualifications. For instance, a case
before the Supreme Court the contract provided for appointment of serving Gazetted Railway Officers as
arbitrators. The department however kept furnishing panels with names of officers due for transfer. This
led to severe delay in the proceedings, and upon being seized of the matter under S. 11, the court
appointed a retired Judge of the High Court as the sole arbitrator. Deprecating the delays caused, it was
observed by Raveendran J

”We fail to understand why the General Manager of the Railways repeatedly furnished panels containing names of officers who were
due for transfer in the near future. We are conscious of the fact that a serving officer is transferred on account of exigencies of service
and transfer policy of the employer and that merely because an employee is appointed as arbitrator, his transfer cannot be avoided or
postponed. But an effort should be made to ensure that officers who are likely to remain in a particular place are alone appointed as
Arbitrators and that the Arbitral Tribunal consisting of serving officers, decides the matter expeditiously. Constituting Arbitral
Tribunals with serving officers from different far away places should be avoided. There can be no hard and fast rule, but there should be a
conscious effort to ensure that Arbitral Tribunal is constituted promptly and arbitration does not drag on for years and decades… The delays and frequent
changes in the arbitral tribunal make a mockery of the process of arbitration.” (emphasis added)

It is also possible to envisage situations where the very choice of a particular arbitrator may render a party
‘unable to present its case’ thereby exposing the final award of proceedings to attack under S. 34(2)(a)(iii)
of the Act. This might happen for instance if the arbitrator appointed commands an extremely high fee
disproportionate to the value of the case, or if the arbitrator is located at an inconvenient jurisdiction, or if
he does not have the required qualifications to decide the dispute. Indeed, a recent decision by a Division
Bench of the Madras High Court holds that the party appointing an arbitrator has an obligation to ensure
that it appoints a person stationed at a place where there exists a ‘real opportunity’ for adjudication of the
dispute. Thus where the cause of action arose at Chennai, the parties and witnesses had offices in
Chennai, the court held that the party having right to appoint may not select an arbitrator situated in
Delhi, if such appointment was inconvenient to the other party.

Despite these precedents it cannot but be seen that in the absence of a statutory provision expressly
addressing abuse of such power, there exists the risk that appointing authorities might still improperly
exercise their power since they do not face any real threat of sanction. The statutory remedies of
challenging the arbitrator or the award, while they may prevent the carrying on or enforcement of unjust
arbitral proceedings, cannot compensate the party who does not have the power of appointment for the
time and money spent on challenging such appointment or award. In the face of such a situation, it is
perhaps advisable for the courts to resort to imposing costs on the party abusing its power to appoint an
arbitrator, so as to deter such behaviour.
 Page 41 of 115
(IN) Bachawat: Arbitration and Conciliation

67. 'Appoint' [Sub-s.(3)-(5)] and 'Secure appointment' [Sub-s. (6)]

Where there is no agreed procedure, on the failure of the parties after notice to appoint arbitrator or
arbitrators, the appointment is to be made by the Chief Justice under Section 11(3) to (5). In a case where
an agreed procedure for appointment of arbitrator or arbitrators is not followed, on a request by one of
the parties, the Chief Justice has merely to take necessary measures for ‘securing appointment’ of
arbitrators, for initiating arbitration proceedings, under Section 11(6).

Under sub-section (6), the Chief Justice or his designate has not to make any appointment but to enforce
or compel the party to make the appointment in accordance with the agreed procedure. It would appear
that if, however, the agreed procedure cannot be given effect to for any valid reason (e.g., when the
authority of a named person to act as arbitrator gets exhausted on his refusal to act as such), the Chief
Justice or his designate can secure the appointment under sub-section (6) by directly appointing an
arbitrator.

Where the agreement between the parties was that the dispute between them was to be decided by two
arbitrators one to be appointed by each party and, in case of disagreement between them, by an arbitrator
to be appointed by them whose decision was to be final, the petitioner appointed his arbitrator but the
other party insisted upon decision by sole arbitrator, the court said that this was not justified. The court
accordingly appointed an arbitrator from the side of the respondent.

68. Withdrawal of request

The making of a request for payment after asking for appointment of an arbitrator has been held to be of
no consequence. Such a request does not tantamount to asking for withdrawal of the request for
appointment. The arbitrator was accordingly appointed.

Application for withdrawal of a petition for appointment of arbitrator

In this case, a foreign party wrongly filed an application under S. 11 before the Chief Justice of the High
Court which it subsequently withdrew and refiled before the Chief Justice of India. This was held
permissible, since the High Court had no jurisdiction to entertain the application to begin with.

An application under S. 11 can be withdrawn by its initiator on the ground that the disputes have been
 Page 42 of 115
(IN) Bachawat: Arbitration and Conciliation

settled. Such withdrawal cannot be prevented by any other person who, though a party to the arbitration
agreement, had not himself invoked the arbitration procedure, but had merely supported the initiator in
invoking the arbitration clause.

In a dispute between partners, one of them served a notice on another seeking arbitration, and when no
appointment was made, an application was filed under S. 11 by the first partner against the second
partner. A third partner supported the first partner in his invocation of the arbitration clause, but did not
himself send a notice requesting appointment. An arbitrator was appointed by the court, but he withdrew
even before he had entered into reference. Subsequently there was a settlement between the first and the
second partner and the first partner sought to withdraw the application under S. 11, but this was opposed
by the third partner who requested appointment of substitute arbitrator as per S. 15(2). The court held
that the withdrawal of the application by the first partner was valid and could not be objected to by a
partner who merely supported such application.

69. Limitation for filing application

The period of limitation for the purpose of application to the court for filling a vacancy started running
from the expiry of one month during which the arbitrator was to enter upon the reference and on the
expiry of which neglect or refusal became evident. Application had to be made within three years from
that date. The fact that repeated letters were written to the arbitrators asking them to enter did not have
the effect of extending time.

For the purposes of S.8 (2) of the 1940 Act the period of limitation commenced from the expiry of 15
(now 30) days from the date of notice. Where the application is within time, it cannot be rejected on the
ground that the claims which are proposed to be referred are barred by time. In other words, where the
application filed for appointment of an arbitrator is in time, it does not mean that all claims raised before
the arbitrator are also in time. The Supreme Courthas held the following in the context of the 1940 Act,
these observations also being relevant for the 1996 Act —

“The limitation for a suit is calculated as on the date of filing of the suit. In the case of arbitration, limitation for the claim is to be
calculated on the date on which the arbitration is deemed to have commenced. S. 37 (3) of the Act(S. 43 of the 1996 Act) provides that
for the purpose of the
Limitation Act , an arbitration is deemed to have commenced when one party to the arbitration agreement
serves on the other party thereto, a notice requiring the appointment of an arbitrator. Such notice having been served…, it has to be
seen whether the claims were in time as on that date. If the claims were barred on [that date], it follows that the claims had to be
rejected by the arbitrator on the ground that the claims were barred by limitation. The said period has nothing to do with the period of
limitation for filing a petition unders. 8 (2) of the Act (S. 11 of the 1996 Act). In so far as a petition under S. 8(2), the cause of action
would arise when the other party fails to comply with the notice invoking arbitration. Therefore the period of limitation for filing a
petition under S. 8(2) (S. 11 of the 1996 Act) seeking appointment of an arbitrator cannot be confused with the period of limitation for
making a claim.”
 Page 43 of 115
(IN) Bachawat: Arbitration and Conciliation

Thus for instance, in the instant case the cause of action arose on April 1977 and contractor had raised
certain claims in 1978. The notice invoking the arbitration clause was sent in June 1980. A petition was
also filed in the court to appoint an arbitrator. This was allowed by consent order and the claim statement
was filed in June 1986 which included claims raised in 1978 and also included certain other claims relating
to the same cause of action. The arbitrator allowed all claims of the contractor, including fresh claims
raised in 1986. The Court pointed out that in case the claims were barred in June 1980 (which the fresh
claims were) on the day when the arbitration clause was invoked, then these have to be rejected.
Accordingly the court set aside part of the award in so far as the arbitrator had allowed the fresh claims.
Similarly, in another case the arbitration clause was invoked in December 1994, the arbitrator was
appointed by one party in February 1995 and by the other party in February 1999. Upon presentation of
the claim petition in July 1999 the award was passed in November 2000. It was held that the award which
had allowed claims which were within the period of limitation as on December 1994, was incapable of
being set aside on this ground.

Relevant date for Limitation

It is now well accepted that when the Chief Justice or his designate is approached to make a reference to
arbitration, he has to decide, inter alia whether the claim is a “dead one” or a “time barred claim” that is
sought to be resurrected.

This assertion is supported by legislative authority in S. Section 43 of the 1996

Arbitration Act , as well as a catena of judicial decisions, both under the old 1940
Act and the new 1996 Act. The time limit of 30 days in Ss. 11(4) and 11(5) is only the period prescribed
from the date of invoking the arbitration clause, before which the Chief Justice cannot be approached. It
is not determinative of the period of limitation in any way. Despite stray opinions to the contrary, it can
be taken as well settled that the
Limitation Act is applicable to proceedings unders. 11(6)and
Art. 137 of the Limitation Act , dealing with the period of limitation for situations
not specifically provided in other Articles, will be applicable to determine the time period for limitation.
As per Art. 137, the limitation is three years from the date of accrual of the “right”.

The time when this “right to appoint the arbitrator” is said to arise is a matter which depends upon the
facts of each individual case and is based on a determina-tion as to when the “dispute arise between the
parties”. In some instances it might be the date when the notice of demand for arbitration is received by
the other party. In other cases, especially if the parties are in settlement talks, this might be the date when
the last correspondence was exchanged between the parties. If the parties are in dialogue, and negotiations
to resolve the dispute between them are still continuing, then the accrual of cause of action and thereby
the date to count the period of three years will only be from the date when talks have broken down and a
party has withdrawn from the process or when the last exchange between the parties took place. In the
words of the Supreme Court —
 Page 44 of 115
(IN) Bachawat: Arbitration and Conciliation

“[W]here a settlement with or without conciliation is not possible, then comes the stage of adjudication by arbitration. Article 137,
[when] construed in this sense, then as long as the parties are in dialogue, [even though] the differences would have surfaced, it cannot
be asserted that a limitation under Article 137 has commenced. [A contrary] interpretation will compel the parties to resort to
litigation/arbitration even where there is serious hope of the parties themselves resolving the issues.”

It must be noted that the first of these exchanges must itself be within the period of three years from the
date of the dispute having arisen, or the accrual of the right to appoint the arbitrator. However, in case a
party objects on the ground of limitation much later, having all this time participated in correspondence
or negotiations, the plea of limitation will be deemed as an afterthought and held waived.

In cases involving works contracts, the cause of action is usually the date when the work is completed and
the right to receive the payments arise. In some cases, where for instance the work is not even assigned,
the cause of action cannot be later than the scheduled date for completion of the work. If the bills are not
finalised, cause of action might also arise on the date an assertion is made that payment is due, or from
when is an acknowledgment of liability. So far as such bills remain pending without decision by the
authority, no dispute arises between the parties and there can be no cause of action to appoint the
arbitrator. It is only upon a refusal to pay the bills or upon the dissatisfaction with the determination by
the department with regard to withholding of any amount, can the contractor invoke arbitration. It is also
possible for a party to reserve the right to claim its dues later, and although there might then arise
‘differences’ between the parties, the cause of action will only arise once the payments have been refused
and there is a ‘dispute’ between them.

If differences arise regarding payment, and there is subsequent exchange of correspondence, then the
cause of action arises at the point of time when the claim is rejected, as per the procedure envisaged under
the contract (if any), and there accrues a right to resort to the dispute resolution mechanism.

However, this is not a rigid rule, and everything depends upon the facts of the case and the terms of the
contract.

In a works contract, the work was completed on 2.4.1980, but the bill of the contractor was not settled.
He wrote several letters to finalise the bills with the first letter written on 28.2.1983. Thereafter, the
contractor applied for appointment of the arbitrator in January 1986. It was held that the first letter
written on 28.2.1983 was within the limitation period of three years from the date of completion of the
work. On these facts, the application for appointment of the arbitrator, which was within the period of
three years from the date of receipt of the letters, was held to be within limitation. In the same case, the
Supreme Court has examined the practice of writing ‘reminders’ with the aim of merely postponing the
cause of action —
 Page 45 of 115
(IN) Bachawat: Arbitration and Conciliation

“[A] party cannot postpone the accrual of cause of action by writing reminders or sending reminders, but where the bill had not been
finally prepared, the claim by the claimant is the accrual of cause of action, A dispute arises where there is a claim and a denial and
repudiation of the claim. [T]here should be a dispute and there can only be a dispute when a claim is asserted by one party and denied
by the other on whatever grounds. Mere failure or inaction to pay does not lead to the inference of the existence of dispute. Dispute
entails a positive element and assertion of denying, not merely inaction to accede to a claim or request. Whether in a particular case
dispute has arisen or not has to be found out from the facts and circumstances of the case.”

In cases where the disputes are referred to arbitration by the judicial authority, the ‘right to appoint’ the
arbitrator arises from the date of such reference.

The notice to “dispute” itself must be raised within the period of limitation. It is not open for a party to
raise a dispute on a matter upon which it had slept for a long period of time (more than three years).
Thus, where as per the admitted case of the applicant, it had completed the work within the scheduled
time and had given legal notice demanding arbitration after more than 6 years of the completion of the
work, their case was held to be hopelessly barred by limitation. It is not open for the party to contend that
limitation will only start from the date when notice to take the matter to arbitration is first served.
Without any facts showing seriousness or vigilance to pursue their remedies, the matter is deemed closed
after an elapse of three years from the conclusion of the work under the contract.

Where a contract was fully executed and full payment was made and accepted without any reservation,
even then the contractor subsequently raised another demand and asked for arbitration. The notice was
served on the opposite party on 22.8.1994. The court said that an application for appointment of
arbitrator should have been made within three years from that date. The applicant was late. His
application was not entertained.

Where the claim was made after 19 years when it had already ceased to exist and had become
unenforceable and stale claim due to passage of time, the application praying for appointment of
arbitrator was not granted. Where in a construction contract, the final bill was submitted and accepted in
1994, it was held that the right to seek an arbitration arose on that day. The petition for appointment of
an arbitrator filed in 1999, after expiry of three years, was time-barred. Claims brought after 9 years,
without any explanation being offered, were held to be barred.

Usually when a party tries to bring such a hopelessly time barred application before the Courts, it is by
way of a gamble in order to try its luck. Such applications that are wholly devoid of substance and merit
must be strongly disapproved. They not only harass the other party, but also clog the business of the
Courts. Looking at the number of cases that are dismissed by the Courts on such grounds, it can be said
that this practice is quite common. It is submitted that perhaps the only way to root out such practice is
by imposition of heavy costs.
 Page 46 of 115
(IN) Bachawat: Arbitration and Conciliation

In this case a S. 11 application, initially filed within the period of limitation, was rejected due to a technical
defect. This was permitted to be cured by the court. Consequently, the application was amended and
submitted within one year of the court permitting such cure, but was now beyond the period of three
years from the date when the right to appoint the arbitrator had accrued. It was held that the amended
application, though by itself being beyond time, will be deemed a continuation of the earlier application
and hence fall within limitation.

Where the claims were patently time-barred on the basis of admitted facts and the court was of the
opinion that an application under S. 11(6) was ex facie not maintainable, it was held that the contention
that the limitation was a matter for the arbitrator to consider was not tenable because, instead of
advancing the cause of justice, it would encourage frivolous and untenable litigation.

Normally when a plea of limitation is taken, in reply to an application under Section 11, it is to be
considered by the arbitrator to be appointed. But that does not mean that those claims which are
obviously stale, on their face and became time barred much before coming into force of the New Act,
could be raised.

Special provision in agreement or Rules—International agreement

In an international arbitration agreement a time frame of 60 days was provided after which on the failure
of the Appointing Authority to appoint an arbitrator the Appointing Authority's right to appoint passed
on the Secretary General of the Permanent Court of Arbitration who was required to designate an
Appointing Authority. Therefore, the period within which an arbitrator was to be appointed by the
Appointing Authority could in no event be more than sixty days. The court said: “The dominant feature
underlying the 1996 statute is expeditious disposal. In particular even Section 11(4) and Section 11(5)
clearly set out a 30 days time limit for taking action by a party when more than one Arbitrator is to be
appointed or parties have failed to agree upon a procedure. Thus even though Section 11(6) does not
stipulate an explicit time limit, yet inherent in the 1996 enactment and other sub-section of Section 11 is
the element of expedition. Section 11(4) and (5) certainly provide a guidance if not a limit to the time
taken by the Appointing Authority. By no stretch of imagination can a period of about 11 months, taken
by the respondent, after the first demand for appointment of an Arbitrator was made, be considered
reasonable.

“In the facts of the present case it is clear that the petitioners are professionals with an acknowledged degree of excellence. This was
evident from the Award for 1999 for Excellence in Architecture for the structure constructed by the respondent under the supervision
of the petitioner. In fact it should be a matter of pride for the respondent that the building in the present case has won the award for
Excellence in Architecture. However, continued recalcitrance and indifference on the part of the public bodies should not lead to a
situation where talented professionals avoid projects of public nature. Such a situation is fraught with danger which can only lower
 Page 47 of 115
(IN) Bachawat: Arbitration and Conciliation

standards as in such circumstances only professionals of indifferent merit and achievements would strive for projects of public bodies.”

“In views of the above discussion an arbitrator should be appointed by this Court. The appointment of a technical person is also
indicated by the provisions of sub-section (8) of Section 11 where it has been provided that in appointing an arbitrator due regard shall
be had to any qualifications required by the arbitrator by the agreement of the parties and the other considerations as are likely to secure
the appointment of an independent and impartial arbitrator.

Where the decision of the adjudicator under the terms of the agreement was made on July 22, 2002 and
request for arbitration was made on Sept. 2, 2002, which request as per the agreement was to be made
within 28 days of the decision of the adjudicator, it was held that the request being beyond the limitation
of 28 days, was incompetent and that an arbitrator could not be appointed on the basis of that request.

Where the agreement provided that all questions were to be decided by the arbitrator, the court said that
the question of limitation was also to be decided by the arbitrator. The contract was for construction of a
building. The contract required that all claims for extra payment or compensation were to be made within
10 days. A claim was made by the contractor by sending a notice for appointment of an arbitrator. There
was no action in response. Rather a dispute was raised that the claim was barred by limitation. It was held
that the matter of limitation was to be considered by the sole arbitrator. A sole arbitrator was accordingly
appointed.

Where the agreement provided a shorter period than that of three years, the agreement was held to be
void under S. 28 of the Contract Act, 1872. The appointment could be sought within the normal period
of three years. This proposition reflects the law subsequent to the 1997 amendment to S. 28 to the
Contract Act, 1872. Earlier cases which had drawn a distinction between time-bar clauses barring the
remedy to arbitrate and clauses barring the claim itself, cannot now be relied upon.

Subsequent amendment to an application filed within time

In case the application for appointment of the arbitrator has been filed within time, subsequent
amendment to the application to refer to the specific agreement which gave rise to the disputes between
the parties, does not make the application stale or time-barred.

Negotiations after notice

Where a notice for appointment of an arbitrator was given and the cause of action arose with the notice, it
 Page 48 of 115
(IN) Bachawat: Arbitration and Conciliation

was held that an application for appointment of an arbitrator made after 4 years was time-barred. The fact
that subsequent to the notice the parties entered into negotiations did not have the effect of suspending
the continuous running of the period of limitation once it commenced.

Condonation of delay

Section 5 of the Limitation Act, 1963 is applicable to applications for appointment

of an arbitrator under S. 11 of the Act.

There was delay of 91 days. When the petitioner contacted their senior counsel in August, 2000, they were
informed that he had gone abroad and would be returning in 3rd week of August. Thereafter, attorney of
petitioners fell ill and was confined to bed rest for a period of two weeks. The moment the attorney
resumed duties, instant petition was filed. It was held that in view of adequate explanation, application for
condonation was allowed.

The delay caused by a judicial authority cannot be used to claim bar of limitation against a party seeking
for a reference to arbitration.

The time spent prosecuting the claim in a wrong forum would be taken into consideration when
considering whether the claim is time barred. There is however some authority to the contrary.

In this case, in a dispute arising out of an international commercial arbitration, a party spent time pursuing
an application under S. 11 before the Chief Justice of a High Court instead of the Chief Justice of India.
The benefit of S.
Section 14 of the Limitation Act was held available to the party, and the time spent
in the High Court was excluded in determining whether the subsequent application before the Chief
Justice of India was time barred.

70. Limitation: Position in English Law

The position in English law on the issue of limitation for approaching the court to appoint an arbitrator
may be contrasted with that in India. Under English law, the limitation period to initiate arbitration
proceedings ceases upon the issue of notice, which does not lapse with time or upon issue of a subsequent
 Page 49 of 115
(IN) Bachawat: Arbitration and Conciliation

notice.

It has been held that provided the notice to arbitrate is served before the expiry of the limitation period, a
party can take as long as it likes to apply for the appointment of an arbitrator. The only remedy available
to the other party is to apply for dismissing the arbitration for want of prosecution under S. Section
41(3)of the English
Arbitration Act (which it may be noted, can be made only to the arbitrator if and
when he is appointed.) Russell has summarised the position in these words—

“The position is more complicated where arbitration has been commenced by service of a notice of arbitration which stops the
limitation period running, but no tribunal has ever been appointed. In those circumstances, absent factual evidence of abandonment, or
some express or implied provision to proceeding without delay, the reference continues and the right to appoint an arbitrator subsists.”

71. Selection of arbitrators, opportunity of being heard

Before making the appointment the court must give the respondents an opportunity of being heard. An
order made without giving such an opportunity may be set aside in revision. In one case an umpire was
appointed after hearing the arbitrators who had failed to concur in the appointment of an umpire without
giving notice to a party who was resident abroad outside the jurisdiction of the court. Making the
arbitrators a party to the application was held to be proper. The court should hear the parties and if
necessary ask for the assistance of the arbitrators in the selection of an arbitrator or umpire (now
presiding arbitrator) but is not bound to do so. The position on the opportunity of being heard has now
been conclusively clarified by the Supreme Court in Patel Engineering, where it was observed—

“It is fundamental to our procedural jurisprudence, that the right of no person shall be affected without he being heard. This
necessarily imposes an obligation on the Chief Justice to issue notice to the opposite party when he is
moved under Section 11 of the Act. The notice to the opposite party cannot be considered to be merely an intimation to
that party of the filing of the arbitration application and the passing of an administrative order appointing an arbitrator or
an arbitral tribunal. It is really the giving of an opportunity of being heard. There have been cases where claims for
appointment of an arbitrator based on an arbitration agreement are made ten or twenty years after the
period of the contract has come to an end. There have been cases where the appointment of an arbitrator
has been sought, after the parties had settled the accounts and the concerned party had certified that he
had no further claims against the other contracting party. In other words, there have been occasions when
dead claims are sought to be resurrected. There have been cases where assertions are made of the
existence of arbitration agreements when, in fact, such existence is strongly disputed by the other side
who appears on issuance of notice. Controversies are also raised as to whether the claim that is sought to
be put forward comes within the purview of the concerned arbitration clause at all. The Chief Justice has
necessarily to apply his mind to these aspects before coming to a conclusion one way or the other and
before proceeding to appoint an arbitrator or declining to appoint an arbitrator. Obviously, this is an
 Page 50 of 115
(IN) Bachawat: Arbitration and Conciliation

adjudicatory process. An opportunity of hearing to both parties is a must.” (emphasis added)

The court should select an impartial person. This is now statutorily laid down in Section 11(8) of the 1996
Act which requires the Chief Justice or his designate to have due regard to the qualification, impartiality
and independence of the proposed appointee. A very strong case must be made out for the appointment
of an employee of a party as an arbitrator, though an employee of a party was originally appointed
arbitrator but was no longer available.

An arbitrator could not be appointed an umpire (now presiding arbitrator). The umpire could not be at
the same time an arbitrator. Where the agreement to refer named two arbitrators and an umpire to decide
the dispute and one of the arbitrators refused to act, the court could not under Section 20(4) of the 1940
Act (This provision is not there in the 1996 Act) appoint the umpire as the sole arbitrator for that would
be in effect to substitute a new agreement altogether for the original one. The court should respect the
agreement between the parties as far as possible.

If the agreement provides for reference to two European Merchants residing in Karachi, the court should
not appoint an arbitrator who is not a European merchant.

The court could not delegate its power of appointment. The power of appointment was given to the court
and not to an officer. Presently, under the 1996 Act, this power is vested in the Chief Justice or any
person or institution designated by him. Though the appointment was required to be made by the court it
was not invalid because the appointment was of an arbitrator chosen by both parties. The court should
not thrust upon the parties an arbitrator not acceptable to them except for good reasons. It is the court
which has to apply its mind and make the final appointment of the arbitrator. A Division Bench of Punjab
High Court consisting of Khosla and Soni, JJ. in Union of India v. New India Constructions, Delhi,
while setting aside the appointment of an advocate as an arbitrator and directing that Shri C.P. Malik,
Superintending Engineer be appointed as an arbitrator, observed :

“A qualified engineer is surely better than a mere advocate in settling disputes involving technical matters. I, therefore, hold that the
court, even if it had jurisdiction to decide this application under the
Arbitration Act , made an improper use of its discretion in not appointing Mr. C.P. Malik as the arbitrator. I
would set aside the order of the court below and direct that Mr. C.P. Malik enter on the reference as an arbitrator and perform his
duties as such and make his award as expeditiously as possible.”

A similar view was taken by the High Court of Patna in Union of India v. D.P. Singh.
 Page 51 of 115
(IN) Bachawat: Arbitration and Conciliation

An arbitration agreement provided that the arbitrator would be appointed by the managing director of the
corporation, which was a party to the agreement. The agreement was filed in the court. The court passed
an order that an acceptable arbitrator be appointed by the designated authority. The court said that this
direction could not be taken to mean that the person to be appointed should be acceptable to both the
parties. If this were so, the very purpose of the clause would be defeated. The trust placed upon the
managing director to appoint an arbitrator would be nullified. An acceptable person would mean a
suitable and qualified person.

An arbitration clause provided that the “dispute shall be referred to an arbitrator appointed by the
chairman and managing director of the company.” The court said that the clause could not be given a go-
by at the askance of the party. He must challenge its validity in an appropriate proceeding. The prayer for
the appointment of a retired High Court Judge was rejected.

72. Court power (Chief Justice) under S. 11 of 1996 Act

Where there is a reference to named arbitrator and the agreement contains no provision for payment of
remuneration to the arbitrator and one party is unwilling to appoint an arbitrator, the court cannot
appoint an arbitrator on payment of fixed remuneration to be paid by the parties half and half and cannot
direct one of the parties to pay one half of the remuneration personally. The summary appointment and
the direction to pay the remuneration were held to be illegal.“Looking at the scheme of the
Arbitration Act , 1940 (now The
Arbitration and Conciliation Act, 1996 ) the court has no power or absolute power
to appoint arbitrator and unless all the ingredients mentioned ins.8(1) of the 1940 Act (now sections 11
and 14 of the 1996 Act) were fulfilled, the court cannot appoint an arbitrator. Section 4 also provides that
if a persona designata has been named and agreed to by the parties, it is he alone who can nominate an
arbitrator and not the court and it is only under S.20(4) that the court can appoint an arbitrator if the
conditions mentioned in that sub-section exist but in no case the court can appoint an arbitrator under
S.8”. (Section 20 has been dropped by the 1996 Act). Where a contractor, after filing an application under
S.20(4) for appointment of arbitrator, filed another application during the pendency of the earlier
application for appointment under S.8(2), it was held that these two sections operated in different fields.
Their scope was different and the end results of the proceedings under the sections were different.
Though under both the sections the court had the power to appoint an arbitrator of its choice but that
power was exercisable under different-circumstances. Hence, these two sections could not be invoked
together.Section 8 of the 1940 Acthas been recast into sections
Section 11 and
14 of the
Arbitration and Conciliation Act, 1996 and s. 20 has been deleted.

In proceedings under Section 8 of the 1940 Act (Sections 11 and 14 of 1996 Act), the court had no
jurisdiction after appointing the arbitrator to make an order of reference of the disputes to the arbitrator
and if it did so, the award was invalid. The court could not specify the dispute which was to be referred to
arbitration. It was for the parties to make the reference to the arbitrator after he was appointed. Reference
 Page 52 of 115
(IN) Bachawat: Arbitration and Conciliation

to arbitration could be made by the court under Section 20(4), of 1940 Act (repealed under 1996 Act) but
its provision could be invoked only if no proceeding under Chapter II of 1940 Act was pending. The
court would order appointment where repeated attempts by the parties to appoint failed to materialise
either because of repeated resignations or disagreement between parties.

An application was made under S. 20 of the 1940 Act (repealed) for appointment of an arbitrator for
referring to him that part of the claim which remained out of reference to the arbitrator already appointed.
This request was made prior to the new Act. The agreement provided for application of the 1940 Act
subject to its statutory modification or re-enactment. The court said that the new Act became applicable
by virtue of re-enactment. The application under S. 20 was to be treated as one under S. 11 of the new
Act. The remaining claim was referred to the same arbitrator before whom the earlier claim was pending
for arbitration.

Where certain disputes between partners subsisted even after dissolution of their partnership and the
dissolution deed contained an arbitration clause, it was held that the court could make an appointment of
an arbitrator to fill the vacancy caused by the inability of the earlier arbitrator.

An arbitrator appointed by the court has the like power to act in the reference and to make an award as if
he was appointed by consent of the parties. Though he neglects to act, his mandate continues until it is
revoked by an order of court under Section 5(4) of 1940 Act (S. 14 of 1996 Act). Consent of the parties is
not necessary for an appointment by the court.

“Unconnected with Work”

The agreement provided for the appointment of a “superintending engineer, Irrigation Deptt, who should
be unconnected with the work.” The Supreme Court held that the effect of the clause was that the person
to be appointed must belong to the field of irrigation because he would have technical knowledge to
understand matters but that he should not be connected with the particular work which was under
dispute.

It is the duty of the Chief Justice to see that a competent, independent and impartial arbitrator is
appointed. In the facts and circumstances of the case the appointment of Chief Engineer (retired) of the
Department was considered to be the proper person.

Where a contract was terminated by the Department, it was held that the officer who passed the order of
termination could not be an arbitrator to resolve a dispute between the parties. A person cannot be a
prosecutor and a judge at the same time. It was open to the respondent to nominate some other officer of
 Page 53 of 115
(IN) Bachawat: Arbitration and Conciliation

the Branch.

Bias

Where the contractor voluntarily agreed that an arbitrator might be named by the authority through its
tender as also under the agreement, the court said that it was not open to the contractor subsequently to
say that the person so appointed must be under the influence of the Department. He must produce an
acceptable material to substantiate his charge of bias on the part of the appointee.

In another case of the same kind, the parties had agreed to the appointment of a particular person or his
nominee as an arbitrator. He was a high ranking officer. The respondent failed to refer the disputes to the
appointed agreed arbitrator in spite of notice. The court had to take necessary measures for securing the
appointment. Court will have no power to appoint another arbitrator. Taking the “necessary measure for
securing the appointment” in the circumstances would mean to appoint the agreed arbitrator, if any.
Agreement between the parties has to be given effect to and cannot be given go-bye. Section 11(6) read
with Section 11(2) and not Section 11(5) is attracted. Parties shall be deemed to have waived the objection
of bias having specifically agreed to appointment knowingly.

Where the President of the Satna Cement Works was the named arbitrator, but he was throughout
involved in the matter under dispute and had also taken a decision in that capacity against the applicant,
the court said that it would not be proper to appoint him as an arbitrator. A retired Chief Justice was
appointed in his place.

Failure to appoint an arbitrator within limitation

Where the respondent failed to appoint an arbitrator within limitation period and it was pleaded that
arbitrator could not be appointed by the court dehors arbitration agreement, it was held, that the petitioner
failed to supply vacancy in terms of arbitration agreement after expiry of the 30 days notice period, it
could not supply the vacancy. Writ petition had to be dismissed.

Constitutional validity of arbitration clause

Constitutional validity of arbitration clause for appointment of arbitrator under S. 11(2) could not be
decided while exercising power under S. 11(6); as the procedure did not provide for a notice. It was,
therefore, violative of
 Page 54 of 115
(IN) Bachawat: Arbitration and Conciliation

Article 14 of the Constitution . Relying on Konkan Rly. Corpn. Ltd. v. Nehur

Construction Co. , the function of the court exercising power under S. 11 was held
merely administrative and not adjudicatory. Hence, constitutional validity of arbitration clause was neither
feasible, desirable nor permissible.

73. Named arbitrator

Where the arbitrator is named in the parties’ agreement, only he has to be appointed at the initial stage.
The challenge, if any, to his appointment on the ground of lack of independence or impartiality, etc., has to
be presented before him under S. 16. The Chief Justice cannot to begin with entertain objections about
his appointment and demand a list from the parties for selecting a proper person. No appointment can be
made beyond the terms of the agreement between parties.

The Chief Justice refused to entertain an application and appoint an independent arbitrator where the
arbitrator to be appointed was already named in the agreement. An independent arbitrator could be
appointed only if there was an agreement to that effect between the parties.

It is not necessary that the name of the arbitrator should be mentioned in the arbitration agreement. An
arbitration agreement does not become void only because of non-mentioning of the name of the
arbitrator.

Even in the context of a hire-purchase agreement which was between private parties and under which the
arbitrator was to be named by the hire-seller, the court said that it was helpless in the matter and had no
choice but to accept the individual so appointed. The Court, however, felt that the Parliament should
reconsider this aspect that where both parties are private individuals, it would be better to authorise the
court to make an appointment even if the arbitrator is named in the agreement. The court was afraid of
victimisation of hire-purchasers. In the case before the court, the hire-purchaser had already made a
payment of Rs. 2,90,000 and the balance unpaid amount was Rs. 95,700. Yet the hire-seller had hijacked
the claim to Rs. 5,70,000 and also retained ownership of the vehicle and appointed his own arbitrator.

Normally the court must respect the agreement of the parties in the matter of appointing an arbitrator.
Nothing stands in the way of permitting the named persons to arbitrate the dispute as agreed by the
parties. However, it does not mean that court does not have the power to appoint an arbitrator on its
own. But the exercise that power only in extra-ordinary situations or only when it is satisfied that some
injustice may be caused to either of the contracting parties if the procedure chosen by the parties was to
be insisted upon. While considering an application for appointment of an arbitrator, a court may choose
not to appoint the named arbitrator where serious disputes have developed between one of the parties
and such named arbitrator. The reason for allowing deviation is to ensure that the proceedings are just,
 Page 55 of 115
(IN) Bachawat: Arbitration and Conciliation

fair and equitable. In the words of the Delhi High Court

“Arbitration agreement and the proceedings are founded on principle of mutuality and the procedure adopted by the arbitral forum has
not only to be fair, but there should be fairness to the extent that they could not be questioned. Not only nemo est supra legs, but nemo debet
esse judex in propria causa.”

An arbitration agreement would come to an end where the named arbitrator refuses to act and the parties
did not intend arbitration by any other person. In this case, there was a family dispute between brothers.
In the arbitration agreement, their mother was named as the arbitrator she died. The person next named
could not be appointed because he was a disputant. The appointment of any outsider would have violated
the intention of the parties, which was settlement through the family process. The court said that the
arbitration clause became frustrated. The only alternative was either a new agreement or a civil suit.

Named arbitrator not to be approached directly

It is not open to a recalcitrant party to argue that there is no failure to act under the agreed procedure,
merely because the agreement contains a named arbitrator. Even if the agreement contains a named
arbitrator, notice still has to be given to the parties and the named arbitrator cannot be approached
directly.

Failure of named arbitrator to act

The Commissioner of the Municipal Corpn. who was the named arbitrator, failed to enter upon reference
within time and act as arbitrator within 30 days of the receipt of notice, an appointment under S. 11(6)(c)
was held to be justified.

The Supreme Court has considered this issue in San-A Trading and has clarified the position of law. It is
now clear that in the absence of any specific condition to the contrary, a refusal by the named arbitrator to
perform his function does not obliterate the arbitration clause in the agreement. In case the arbitrator has
already been appointed, a party can have recourse to Ss. 11 and 15 to appoint a new arbitrator. The
Supreme Court explained the rationale for this proposition as follows:

“ [S]ection 15 provides for a remedy for appointment of another arbitrator when the arbitrator appointed by the parties as provided in
 Page 56 of 115
(IN) Bachawat: Arbitration and Conciliation

the agreement refuses to act as an arbitrator. Settlement of dispute between the parties through medium of an independent person in
whom both parties repose confidence is the basic foundation on which the law of arbitration stands and is founded. When the
agreement provides for reference of a dispute to a particular individual and such agreed arbitrator refuses to act, the next appointment
could be made as agreed by the parties, but where no such procedure is prescribed authorizing appointment of another arbitrator then
the agreement clause cannot operate. It, therefore follows that in case where the arbitration clause provides for appointment of a sole arbitrator and he had
refused to act, then the agreement clause stands exhausted and then the provisions of Section 15 would be attracted and it would be for the court under Section
11(6) to appoint an arbitrator on the procedure laid down in Section 11(6) being followed unless there is an agreement in the contract where the parties
specifically debar appointment of any other arbitrator in case the named arbitrator refuses to act.” (emphasis added)

On the other hand, if the arbitrator has not been appointed at all, the scope of “necessary measures”
which may be taken by the court is broad enough to appoint an independent arbitrator, even where an
arbitrator is specifically named in the agreement. Thus, either way, the arbitration clause continues to
remain valid and parties can be bound to their intention to arbitrate.

Misconduct by parties’ arbitrators

Where the arbitrators appointed by the parties both misconducted themselves and their award was for
that reason set aside, it was held that the parties’ right to appoint was exhausted and the court became
competent to appoint arbitrator under S. 20 instead of directing the parties to nominate their arbitrators
under S.8. (1940 Act). This was the position under the 1940 Act. It is different under the 1996 Act. This
Act has not reincorporated S. 20 of the 1940 Act. The provisions of S. 11 are such that the parties’ right
to appoint revives.

Where the agreement was for reference to two nominated arbitrators and the respondent made allegations
of conspiracy against them, the court said that at the most, the respondent could take the plea that since
he had lost confidence in the impartiality, independence and fairness of both the arbitrators, an
independent arbitrator should be appointed instead of initiating an action under
S. 340, Crpc for forgery and fraud.

Direction to Arbitrator

Where the agreement was for a sole arbitrator but he was not taking action inspite of notice and the court
directed him to act or nominate one of the named persons, it would operate as a reference under S.20 (4)
and not under S.8.Section 20 of the 1940 Act has not been incorporated in the 1996 Act.

Since the Act provides a full-fledged mechanism for an application for the appointment of arbitrator by
any of the parties to the arbitration agreement, an application under
 Page 57 of 115
(IN) Bachawat: Arbitration and Conciliation

Article 226 of the Constitution is not warranted.

74. Power of review

The Act does not confer power of review. The court cannot review its own order after appointing an
arbitrator. Earlier to this, it was held in another case that the court could exercise the power to review the
appointment of an arbitrator if the justice of the case so required, but that it should not be normally done
particularly when the arbitrator had entered on the reference and heard the parties. However, courts can
exercise the power of review where apart from the appointment of an arbitrator, no progress appears to
have taken place. In a case, the Chief Justice rejected an application under S. 11 as time barred. This order
was recalled on the ground that “the [party] is serious about arbitration” and an arbitrator was appointed.
Upon a review of the order of recall, it was held that the recall, which was itself a “review” of the order of
rejection, was unwarranted and beyond the permissible scope of the power of review. The decision of the
Chief Justice will not be reviewed merely because a different view was possible on the same facts.
Section 5 of the Arbitration and Conciliation Act, 1996 provides that
notwithstanding anything in any other law for the time being inforce, no judicial authority shall intervene
in any matters of arbitration except as provided under the Act.

An order passed under S. 11(6) has always been held to be of administrative nature, and, therefore, open
to judicial review under
Articles 226 and
227 of the
Constitution .

Subsequent to the decision of the Supreme Court in Patel Engineering , the position
in relation to the power of appointment has undergone a complete change. The power of appointment by
the Chief Justice is now regarded as a judicial power. Seen in this light, the scope of review of the decision
of the Chief Justice needs to be examined afresh.

It is well settled that the power to review is not an inherent power and must be conferred by law either
specifically or by necessary implication. The expression “review”, however, has now acquired two distinct
senses. It is a “review on merits” which does not lie unless provided specifically or by necessary
implication. However, “procedural review” has been recognised to be inherent in a judicial authority to set
aside procedural errors which go to the root of the matter and invalidate the proceedings itself. The
Supreme Court has elaborated on the situations which fall within the scope of “procedural review” in the
following words —

“Cases where a decision is rendered by the Court or quasi judicial authority without notice to the opposite party or under a mistaken
 Page 58 of 115
(IN) Bachawat: Arbitration and Conciliation

impression that the notice had been served upon the opposite party, or where a matter is taken up for hearing and decision on a date
other than the date fixed for its hearing, are some illustrative cases in which the power of procedural review may be invoked. In such a
case the party seeking review or recall of the order does not have to substantiate the ground that the order passed suffers from an error
apparent on the face of the record or any other ground which may justify a review. He has to establish that the procedure followed by
the Court or the quasi judicial authority suffered from such illegality that it vitiated the proceeding and invalidated the order made
therein, inasmuch as the opposite party concerned was not heard for no fault of his, or that the matter was heard and decided on a date
other than the one fixed for hearing of the matter which he could not attend for no fault of his. In such cases, therefore, the matter has to be re-
heard in accordance with law without going into the merit of the order passed. The order passed is liable to be recalled and reviewed not because it is found to be
erroneous, but because it was passed in a proceeding which was itself vitiated by an error of procedure or mistake which went to the root of the matter and
invalidated the entire proceeding.” (emphasis added)

The 1996 Act does not provide for a “review on merits” of the power exercised by the Chief Justice under
S. 11 of the Act. Further, subsequent to Patel Engineering, it is now clarified that the order of the Chief
Justice or his designate cannot be challenged by invoking the writ jurisdiction. An appeal under Art. 136 is
only available against an order of the Chief Justice of the High Court or his designate. However, such
appeal will not be available against an order of the Chief Justice of the Supreme Court in the case of
international commercial arbitrations. The scope for review therefore arises at the High Court level
against an order of the Chief Justice of the High Court under S. 11, and at the Supreme Court level against
an order of the Chief Justice of the Supreme Court under S. 11 and against the appeal which may be taken
under Art. 136 against the order of the Chief Justice of the High Court.

Review at the Supreme Court Level

It has been held by the Supreme Court in Jain Studios that against an order of the Chief Justice of the
Supreme Court or his designate under S. 11, review is possible under Art. 137. The Supreme Court
speaking through Thakker J observed as follows—

“In Patel Engg. Ltd. this court by a majority of 6:1 held the function performed by
the Chief Justice of a High Court or his nominee or by the Chief Justice of India or his nominee to be a “judicial” one. Once the
function performed by the Chief Justice of India or his nominee is held to be judicial, it cannot be contended that an application for
review of an order passed by the Chief Justice of India or his nominee is not maintainable… An order passed by the Chief Justice of
India or his nominee under S. 11(6) is indeed an “order” within the meaning of
Art. 137 of the Constitution and is subject to review under the aforesaid provision.”

By logical extension, this should also include a power of the Supreme Court to review the order in an
appeal that may be preferred against the order of the Chief Justice of the High Court.

The scope of this power of review was described in Jain Studios in extremely narrow terms by the Supreme
Court. This power must not be equated with appellate jurisdiction and must be exercised sparingly. It was
 Page 59 of 115
(IN) Bachawat: Arbitration and Conciliation

held that —

“It is settled law that the power of review cannot be confused with the appellate power, which enables a superior court to correct all
errors committed by a subordinate court. It is not a rehearing of an original matter. A repetition of old and overruled argument is not
enough to reopen concluded adjudication. The power of review can be exercised with extreme care, caution and circumspection and
only in exceptional cases.”

The Supreme Court's warning notwithstanding, since the power to review flows from Art. 137, it will still
be subject to the extensive legal principles developed in the context of Art. 137. Thus, a review will be
maintainable in situations where there is “discovery of new and important matter of evidence”, in case of
an “error apparent on the face of the record”, and “for any other sufficient reason” where, for instance, it
is necessary to do “full and effective justice”. Thus even though the 1996 Act does not provide for a
power of review, at the Supreme Court level review is possible not just for procedural errors but also for a
review on merits, on the grounds available under the jurisprudence developed in relation to Art. 137.

Review at the High Court level

Some cases, prior to Jain Studios, had recognised the power to “review” an order under S. 11 of the Chief
Justice of the High Court.

This position has been cemented subsequent to the decision of the Supreme Court in Jain Studios.
Extending the principles laid down in this case, since the power exercised by the Chief Justice of the High
Court under S. 11 is also “judicial”, review should be maintainable.

There must, however, necessarily arise a distinction between the scope of the review at the High Court
and the Supreme Courtlevel. It is debatable that given the absence of a specific conferment of the power
of review under the 1996 Act, review at the High Court level will be restricted only to “procedural
review.” Only where a procedural illegality vitiates the proceeding and consequently invalidates the order
will it be open to review the order under S. 11 of the Chief Justice of the High Court.

The power of review could also be argued to bring in the entire range of cases under Or. 47 of the
CPC . In any case, unlike a possibly restricted scope of review under the power of
appointment in case of domestic arbitrations where order is by Chief Justice of the High Court, the order
of the Chief Justice of the Supreme Court under S. 11, which relates to international commercial
arbitrations, attracts the entire gamut of arguments possible under Art. 137. This appears to fly in the face
 Page 60 of 115
(IN) Bachawat: Arbitration and Conciliation

of judicial minimalism envisaged by the Act itself.

To illustrate the scope of review at the High Court level, the following cases are helpful. Where an
arbitrator had been appointed by the court with the consent of the parties and this was recorded by the
Judge in his order, it was held not open to argue for a review of this decision even though the arbitral
clause provided for appointment of a tribunal of three arbitrators.

75. Appeal

An order under S. 11 of 1996 Act is not appealable. Where the statute does not confer any right of appeal,
no appeal is maintainable. An order disposing of a petition filed under Section 11(6) is not an order
against which an appeal would be maintainable under Section 37. Contention that the order has been
passed by a Single Judge of the High Court in exercise of Ordinary Civil Jurisdiction, under Section 10 of
the Delhi High Court Act, was not tenable. Section 10 of the Delhi High Court Act does not confer any
right of appeal but it provides only a Forum of appeal. Appeal is a creature of statute and there is no
inherent right of appeal.

It has been held, that a letters patent appeal, if otherwise maintainable, can be entertained against an order
passed in respect of application under S. 11 even though it is not expressly mentioned as an appealable
order under S. 37. This position appears to be against settled authority, and has been discussed elsewhere.

An interlocutory order under Or 2 Rule 10 (mandating personal appearance) was passed during the course
of a S. 11 application. It was held that this was unappealable under both the Delhi High Courts Act and S.
37 of the 1996 Act.

The Supreme Court in its momentous 7 Judge decision in Patel Engineering has
brought about a distinction between appeals in relation to S. 11 orders made by the Chief Justice of the
High Court (or his designate) and S. 11 orders of the Chief Justice of the Supreme Court (or his
designate). Orders made by the Chief Justice of the High Court (or his designate) are appealable under
Art. 136 of the Constitution and an appeal will therefore lie to the Supreme Court
in case of such orders. On the other hand there is no appeal possible against an order of the Chief Justice
of the Supreme Court (or his designate).

If a preliminary objection has not been taken before the designate Judge at the first instance, such
objections cannot be taken up in the appeal. These will be deemed waived.
 Page 61 of 115
(IN) Bachawat: Arbitration and Conciliation

Failure of Justice

In an application under S. 11(5), the designate judge had proceeded on factually wrong premises stating
that no reply was filed in the case before him, having completely failed to peruse the counter affidavit
filed. On appeal the court held that serious prejudice and a failure of justice had resulted because of the
oversight of the designate judge, and the matter was remanded to the Chief Justice of the High Court for
fresh consideration. Similarly, where the order passed under S. 11(6) was non-speaking, without
application of mind and against the terms of the agreement between the parties, the same was set aside
and remitted for fresh consideration.

No writ remedy/appeal where challenge made before tribunal and rejected

The Calcutta High Courtdismissed a writ petition challenging the appointment of an arbitrator under S. 11
of the Act, as the alternative statutory remedy of challenging the same before the tribunal itself (under S.
16) had been opted for. It seems, while this decision was based on the appointment by the Chief Justice
being an
administrative act (now judicial), the decision still holds as, even today, a party
aggrieved by an appointment by the Chief Justice of a High Court (not the Supreme Court) has the option
of either appealing the appointment under Art. 136, or challenging the appointment under S. 16 before
the tribunal itself. No appeal will lie against an order of the Chief Justice under S. 11, in case the party
challenges the appointment before the arbitrator and this challenge is rejected. It is to be noted that
despite S. 16(6), a challenge on this ground cannot also be taken at the stage of challenging the award
under S. 34.

76. Writ remedy

The Supreme Court in Patel Engineering has clarified the scope of writ remedies in
arbitration proceedings. In the context of S. 11 applications, the Court has held, that no appeal would lie
against an order under S. 11 of the Chief Justice of India (or his designate). However, against an order
passed by the Chief Justice of the High Court (or his designate), an appeal may be maintained under Art.
136. Apart from the permissible intervention under Art. 136 against the order of the Chief Justice of the
High Court (or his designate), Patel Engineering does not contemplate any other form of judicial intrusion.
Thus, the writ remedy of the constitutional courts is barred to this extent, and courts are hesitant to
exercise their discretion for fear of delaying arbitration proceedings.

The limitation on the Constitutional powers of Judicial Review was sought to be justified by P.K.
Balasubramanyan J of the Supreme Court holding —
 Page 62 of 115
(IN) Bachawat: Arbitration and Conciliation

“the object of minimizing judicial intervention while the matter is in the process of being arbitrated upon, will certainly be defeated if
the High Court could be approached under
Art. 227 of the Constitution of India or under
Art. 226 Constitution of India against every order made by the arbitral tribunal. Therefore, it is necessary to
indicate that once the arbitration has commenced in the arbitral tribunal, parties have to wait until the award is pronounced unless, of
course, a right of appeal is available to them under S. 37 of the Act even at an earlier stage.”

It would appear that the ordinary rights of appeal available under the
CPC or the Letters Patent of the Chartered High Courts have been similarly
judicially circumscribed.

It is not that orders relating to applications decided only after Patel Engineering would be recognised as
judicial orders. The ratio of this case affects all orders, and they will be deemed to be judicial, even if they
are made prior to Patel Engineering. The Delhi High Court has recognised this effect of the judgment in
Patel Engineering. It has been held that irrespective of whether the order deciding an application under S.
11(6) was passed before or after the decision in Patel Engineering, the same would be a judicial order and
cannot be challenged under
Art. 226 of the Constitution . A challenge will lie only under Art. 136.

The Andhra Pradesh High Court has taken a contrary view, and has held that orders passed prior to Patel
Engineering would continue to be governed by the rules laid down in Konkan Railway. It appears that the
reasoning of the Delhi High Court is conceptually more attractive since it avoids the need to maintain
different procedures depending upon the date of the order of the Chief Justice. It also ensures that all
orders, even though some might have relied upon the earlier substantive law laid down in Rani
Constructions, now fall under the same procedural umbrella of Patel Engineering.

In case a writ petition has already been admitted by the High Court before the decision in Patel Engineering,
the writ would not be dismissed as non-maintainable. The writ would however have to be decided as per
the substantive principles laid down in Patel Engineering. There are three options open to the court in cases
where writ has already been admitted before the decision Patel Engineering — (1) The writ court can treat it
as an original petition under S. 11(6); (2) It can relegate it back to the Chief Justice (or his designate) to
decide the matter afresh, in light of Patel Engineering; and (3) It can require the parties to file an SLP under
Art. 136.

It may be noted that the Supreme Court in Maharshi Dayanand takes the view that for pre Patel Engineering
cases, the substantive principles laid down in Konkan Railway will be applicable and not those in Patel
Engineering. This decision is interesting since it was given by Balasubramanium J, who had also penned the
majority opinion in Patel Engineering. The authority of the decision of the Division Bench of the Delhi
High Court in India Trade Promotion (above), in so far as it talks of pre Patel Engineering cases also being
 Page 63 of 115
(IN) Bachawat: Arbitration and Conciliation

governed by the substantive law laid down in Patel Engineering, therefore appears doubtful.

The following cases have to be read, keeping this in mind.

The order of Chief Justice or his nominee passed under S. 11 is amenable to writ jurisdiction under
Article 226 of the Constitution . The Chief Justice did not decide the preliminary
issue of arbitrability and left it open for decision of the arbitrator. This was held to be quite legal, valid
and acceptable.

The writ of mandamus can be issued where the Chief Justice or his designate has refused to exercise the
power for the purpose of appointing an arbitrator, but not where the power has been either exercised or
not exercised because the requirements of the section have not been satisfied.

The Chief Justice or his nominee has just to appoint an arbitrator without wasting any time and without
entertaining any contentious issues at that stage. The decision under the section is an administrative
decision. Where there is a refusal, the party seeking appointment cannot be left to a state of no remedy.
The writ of mandamus would lie in such a case.

The purpose of the section is to bring about a speedy disposal of a commercial dispute. The power under
the section is not amenable to judicial intervention because otherwise any reluctant party may frustrate the
entire purpose of the Act by adopting dilatory tactics by approaching a court even against an order of
appointment under the section. Hence, the writ remedy should be allowable only in cases of refusal of
exercise of the power.

The question whether an appeal under

Article 136 of the Constitution against an order of appointment was maintainable
arose constantly in large number of cases. The matter was placed before the Chief Justice for re-
examination and directions.

An aggrieved party is not without a remedy because a challenge can be presented under S. 16 against the
appointment and thereafter there are further remedies. All facts and aspects touching the arbitration
agreement from its existence, enforceability and validity of the
constitution of the tribunal have to be adjudicated by the tribunal once a reference
has been made to it. Hence, writ remedy is not available for such purposes. It is only in the rarest of rare
cases that a decision appointing an arbitrator is allowed to be challenged by means of a writ petition. An
example where writ jurisdiction is appropriate is where an ex parte decision was
 Page 64 of 115
(IN) Bachawat: Arbitration and Conciliation

obtained by practicing fraud, or that decision, if allowed to remain, will cause grave miscarriage of justice.

A writ petition was not allowed to test the validity of the termination of the contract where it contained an
arbitration clause and the matter of termination was covered by the clause.

It has been held that the provisions of Sections 11(5), (4), (6), (7) & 5 cannot curtail the power of the
High Court conferred by
Article 226 of the Constitution . However, it will not be a sound exercise of
discretion to entertain a petition under Article 226 at the initial stage wherein challenge is made to an
order of appointment of arbitrator under Section 11.

Where the question was whether the arbitration clause was there in the contract or whether it had been
scored out at the time of execution, it was held that this was a disputed question of fact and it was for the
arbitrator to decide. It could not adjudicated upon in a writ petition.

A writ petition was not allowed to challenge an appointment made under the section. There is a remedy
under the Act itself.

The determination of whether a case falls within the scope of ‘international commercial arbitration’
requires a foray into factual issues and cannot be agitated in a writ. Questions as to whether a case falls
within the scope of an ‘international commercial arbitration’ are best left for determination by the
arbitrator himself.

Writ against order of lower court Judge as designate of Chief Justice

In Patel Engineering, the Supreme Court has also held that the power to appoint may be delegated only to
another Judge of the Supreme Court or the High Court. To the extent such a power has been delegated to
a District Judge, appointment orders made till the date of Patel Engineering (26.10.2005) will be valid, but
pending proceedings shall be transferred to the Chief Justice of the concerned High Court or his
designated High Court Judge.

In case the power has been delegated to such a Judge, who is not a Judge of the High Court, his order can
be challenged under Arts. 226, 227 as well. In this case, the power had been delegated by the Chief Justice
of the Punjab & Haryana High Court to a Civil Judge, Senior Division as designate. Distinguishing the
ratio of Patel Engineering as applicable only to a situation where the power has been delegated to “another
 Page 65 of 115
(IN) Bachawat: Arbitration and Conciliation

Judge of that High Court”, the Supreme Court held —

“… though the order under S. 11(4) is a judicial order, having regard to S. 11(7) relating to finality of such orders, and the absence of
any provision for appeal, the order of Civil Judge was open to challenge in a writ petition under
Art. 227 of the Constitution . The decision in S.B.P [Patel Engineering] does not bar
such a writ petition. The observations of this court in S.B.P [Patel Engineering] that against an order under S. 11
of the Act, only an appeal under
Art. 136 of the Constitution would lie, is with reference to orders made by the Chief Justice of a High Court or
by the Designate Judge of that High Court. The observations do not apply to a subordinate court functioning as designate of the Chief
Justice.” (emphasis original)

Writ for Prevention of Wrongful Exercise of Power

Where the cause of action for arbitration had arisen under the old Act in 1986 and had already become
time-barred, it was held that an application for appointment of an arbitrator under S. 11(6) of the new Act
was not even maintainable. The order appointing arbitrator was, therefore, without jurisdiction, and could
be challenged in proceedings under
Article 226 of the Constitution . The writ petition was maintainable.

77. Limitation

Where an application under the section was made some six years after the rejection of the application by
the Union of India for reference of the claim to arbitration, it was held that the application was barred by
Art
Section 137 of the limitation Act, 1963 . An application could have been made
within three years from the date of the accrual of the right.

Where one of the Rules was that the claimant must being his matter before the Association constituted
under the Rules and it would be then for the Association to decide whether the claim required
adjudication, it was held that the cause of action would arise only when the Association refused to appoint
an arbitrator as required under the Rules.

A party cannot postpone the accrual of the cause of action by sending reminders.

The contract provision was that the contractor would have to make the demand for arbitration within 90
 Page 66 of 115
(IN) Bachawat: Arbitration and Conciliation

days of receiving the intimation from the corporation that the bill was ready for payment, failing which
the claim of the contractor was to be deemed to have been waived and absolutely barred and the
corporation would be discharged and released of its obligation under the contract. It was held that the
limitation of 90 days was to start from the date of intimation that the bill was ready for payment. In
another similar case, the Supreme court held that “in view of the provision in the arbitration clause, the
liability of the appellants ceases if no claim of the contractor is received within 90 days of receipt by the
contractor of an intimation that the bill is ready for payment. This clause operates to discharge the liability
of the appellants on expiry of 90 days as set out therein and is not merely a clause providing a period of
limitation. In the present case, the contractor has not made any claim within 90 days of even receipt of the
amount under the final bill. The dispute has been raised for the first time by the contractor 10 months
after the receipt of the amount under the final bill.” It may be noted that these cases do not reflect current
law. All ‘time-bar’ clauses are now void in light of the 1997 amendment to S. 28 of the Contract Act, 1872.
The cases decided on the earlier position of law, it appears, cannot be relied upon anymore. Thus, even
where parties expressly agree to a time-limit within which to perform certain formalities, failing which
either the claim, or the right to assert the claim, will be barred, such clause will be void and parties will still
be entitled to the benefit of the statutory limitation period of three years.

Three-year period is available from the date on which request for arbitration is received by the opposite
party as provided in S. 21. But even so the claim for arbitration must be raised as soon as the cause of
action arises as in the case of a cause of action for a civil suit.

An application under S. 11 is not before a judicial authority but before a judge in the performance of an
administrative function. Hence, the
Limitation Act, 1963 is not applicable.

The question of limitation being a mixed question of law and fact, it has to be adjudicated upon by the
Arbitral Tribunal and not by the Chief Justice or his designate while exercising the power of appointment.

Where there are documents and material on record, the genuineness of which is not disputed between the
parties to arbitration proceedings, the High Court while considering the question of appointment of
arbitrator is competent to decide the question of limitation but where no material is placed before High
Court or the documents in question and the material are disputed and the question of limitation is
debatable and arguable, then the question of limitation should be left to be decided by the arbitrator.

It is not the duty of the contractor to raise a claim against the respondent on completion of the work but
it is a duty of respondent himself to finalise the account by preparation of final bill and not to expect and
wait for the contractor to put forth his claim regarding dues in respect of work completed by him in terms
of the agreement. There was no explanation on the part of respondent, while raising the plea of bar of
limitation, about so much delay in preparing bill. The court said that the respondent was not entitled to
raise a point of limitation where he himself unreasonably and without any justification prolongs the
preparation of final bill. A mere assertion on the part of contractor cannot extend the period of limitation.
 Page 67 of 115
(IN) Bachawat: Arbitration and Conciliation

However, admission of the liability within the period of limitation can extend the period of limitation.

Where the agreement was subsequently modified by the parties by a supplementary agreement and the
new arbitration clause specified the time period of 30 days from the end of each contract year for
invoking the arbitration and that the clause was to cease if not so invoked. An invocation after 2 years was
held to be time-barred.

Limitation period for appointment of an arbitrator

Time-limit of 30 days was held applicable to a party only in cases, where the appointment procedure under
S. 11(3) applied and not where there was an appointment procedure agreed to between the parties under
S. 11(6). In cases where there was no agreed provision, the Chief Justice could make an appointment of
arbitrator but where there was an agreed provision the Chief Justice had to take necessary measures to
secure appointment as per agreed procedure under S. 11(6). Mere fact that a party failed to follow the
agreed procedure did not mean that the Chief Justice or designated person would not take any measure to
give effect to the agreed procedure. In the facts of the case, the single judge was held not justified in
appointing a third party as a sole arbitrator to resolve the dispute between the parties.

Objection regarding limitation not property taken up before the arbitrator

There was a contract for construction of houses for safai karamcharis, which was delayed for which
compensation/penalty was levied. Raised disputes were referred to arbitration and the award was
challenged by MCD. On a contention that claims were barred by limitation it was held that objection
regarding limitation was not properly taken up before the arbitrator and not at all urged in written
submissions, otherwise too, the claims were within limitation as per pleadings.

Limitation was held to commence when cause of action accrued or when a right was infringed or
threatened to be infringed.

78. Pre-condition of reference to consultant

The agreement between the parties was that the dispute was to be referred to consultant first for
adjudication and if any party was dissatisfied with the decision of the consultant, then the matter could be
referred to arbitrator within 28 days. The consultant refused to decide the matter. The court said that the
matter could be referred to arbitrator within 28 days or within the period of limitation considering the
 Page 68 of 115
(IN) Bachawat: Arbitration and Conciliation

subject matter of the dispute if the period of 28 days was found to be a directory requirement and not
mandatory.

Any such preconditions do not become ineffective merely because the contract has been unilaterally and
illegally terminated. An arbitration clause is an independent agreement. It remains applicable inspite of the
breach and, therefore, the pre-condition of reference to the engineer could not be avoided.

The procedure under such clauses may be avoided where the party which has the power to appoint the
authority and whose decision is a pre-condition for reference, deliberately tries to frustrate the arbitration
agreement.

The rigour of clauses which provide for adjudication by another authority as a pre-condition for reference
to arbitration, which must itself be taken up in a time-bound manner, has now been severely watered
down. There is authority to the effect that an agreed arbitral procedure, which provides for a prior non-
binding reference of the disputes to a named body, need not be followed where the reference to
arbitration is not dependent upon the outcome of such proceedings and the decision of the body, being
itself referrable to arbitration, is not final. The specific time-limits imposed by such clauses may also be
not enforceable in light of S. 28 of the Contract Act.

APPOINTMENT OF SOLE ARBITRATOR

One of the provisions is to be seen in S.10 (2) of 1996 Act. It says that in the absence of determination of
the number of arbitrators by the parties, the arbitral tribunal shall consist of a sole arbitrator. Thus, the
parties are free to determine their own number of arbitrators failing which the tribunal shall consist of a
sole arbitrator. Section 11(2) also grants freedom to parties to agree on a procedure for appointing the
arbitrator or arbitrators. Where one party makes the selection of an arbitrator and makes a request to the
other to agree to it but the other fails to do so within 30 days from the receipt of the request, any of them
may make a request to the Chief Justice or any person or institution designated by him and then the
appointment shall be made by such authority [ S.11(5)]. If the designated authority does not act, a request
can be made to the Chief Justice again for necessary measure.

The decision in this respect is final [ S.11(7)]. In making an appointment in the exercise of this power,
regard shall be had to the requisite qualifications specified in the parties’ agreement and also to the
independence and impartiality of the appointee [ S. 11(8)]. In the case of an international commercial
arbitration, the appointee may belong to a nationality different from those of the parties. The Chief Justice
may prescribe a general scheme for dealing with matters under S. 11. The jurisdiction belongs to that High
Court within whose local limits the principal civil court is located having the power to decide the subject-
matter of the arbitration as if it were a civil suit [ S. 11(12)(b).
 Page 69 of 115
(IN) Bachawat: Arbitration and Conciliation

When one party fails to appoint an arbitrator either originally or by substitution within 15 days [now 30]
clear days after the service by the other party of a notice in writing to make the appointment, such other
party having appointed his arbitrator before giving the notice, the party who has appointed his arbitrator
may appoint his arbitrator to act as the sole arbitrator in the reference and his award will be binding on
both parties as if he had been appointed by consent. This position will hold good under the
Arbitration and Conciliation Act, 1996 only if the parties have so agreed and not
“as if he had been appointed by consent”.Section 11 will come into play.

Where according to the parties’ agreement, a panel of arbitrators was necessary, but one of them failed to
co-operate in constituting the panel, it was held that their agreement ceased to exist so far as the panel
aspect was concerned. The party could seek, and the Chief Justice could make, appointment of a sole
arbitrator.

Where the arbitration clause called for appointment of three-man tribunal and the question arose whether
the court appoint a sole arbitrator, it was held as follows:

Section 15(3) (UK) provides that in default of other provisions by the parties the tribunal should consist of a sole arbitrator, and clearly
applied at the expiry of time. The subsequent correspondence did not affect the fact that there had already been a default in the
procedure for the appointment of the arbitration tribunal; and that jurisdiction existed from that date if there was no subsequent
agreement, to make an appointment in consequence of that failure in the procedure for appointment of the arbitration tribunal. The
Court has discretion under S. 18(3) whether or not to exercise its powers to make an appointment and has to consider whether it was
appropriate to do so. There were, without doubt, disputes (which appeared likely to be complex) between the parties requiring
arbitration if the parties’ agreement was to be given effect and the Court should in principle be inclined to make an appointment. There
was nothing to suggest the contrary. Section 15(3) stipulated the nature of the tribunal in terms of number, and there was no possible
justification for departing from the implicit provision of a sole arbitrator under this agreement under S. 15(3).

There was no suggestion of any custom of having only two-man or three-man tribunal.

The 1996 Act is clear and the charter-party in this case implied or involved an arbitration before one-man
tribunal. The submission by the respondents that the complexity of the disputes justified a three-man
tribunal to cover all possible areas of legal and commercial expertise and justified the extra expense and
delay which would be involved in a three-man tribunal was rejected. These factors were all irrelevant
because the Court had, if it appointed at all, to appoint a single arbitrator. However if there was
jurisdiction to look at the matter more widely the respondents had failed to satisfy the Court that the prima
facie position i.e., that there should be a sole arbitrator, should be ignored. There was eminent justification
in the present case for the appointment of an arbitrator who had legal as well as commercial experience;
and the Court would appoint a sole arbitrator to resolve such disputes as being referred under the clause.
 Page 70 of 115
(IN) Bachawat: Arbitration and Conciliation

79. Conditions of appointment, requirement of notice

The conditions of the provisions had to be strictly complied with before a party could appoint his
arbitrator as the sole arbitrator. [The party calling upon the other to nominate an arbitrator must
previously have nominated an arbitrator ; otherwise the notice was ineffective.] The arbitrator nominated
by him had to possess the qualification required by the agreement. The notice had to be in writing and
served on the other party in accordance with the Act, but it had not to be signed and could be served
upon the attorney of the other party. Notice meant receipt of notice. Fifteen [now 30] clear days must
expire from the date of the receipt of the notice before the party giving the notice could appoint his
arbitrator as the sole arbitrator. This was the position under the 1940 Act. Now under S.11 of the 1996
Act, an application has to be made to the Chief Justice for appointing sole arbitrator. Such application lies
under Sec. 11(5). The ground for approaching the Chief Justice is the failure of the parties to concur in
the matter of appointment within 30 days from the receipt of such request for concurrence. The failure to
give 30 clear days notice is fatal to the appointment. Clear days mean from mid-night to mid-night.

An agreement for reference to two arbitrators, one to be appointed by each party with power to the two
arbitrators to appoint a third arbitrator, is within the purview of the section where the third is not
appointed. The section also applies to an agreement for reference to three arbitrators, one to be appointed
by each party and the third by the two arbitrators, since by virtue of the section, the third arbitrator is to
be treated as a presiding arbitrator (formerly an umpire).

[The appointment contemplated by the section is complete when the arbitrators are appointed and it is
not necessary to follow it up with a formal reference to them. The section applies though ultimately one
arbitrator may become the sole arbitrator.]

Section 9 of 1940 Act did not apply to a reference to two arbitrators to be appointed by mutual consent
or to three arbitrators, one to be appointed by each party and the third by the two so appointed, or to five
panchayatdars or to two arbitrators, both to be appointed by the General Manager
of a certain Railways.Section 9 of 1940 Act did not apply when the agreement was silent as to the number
of arbitrators but the parties in fact appointed two arbitrators, one by each party.

Section 9 of 1940 Act applied to an agreement providing for reference to an arbitrator to be appointed by
the parties or, if they could not agree to a single arbitrator, to the decision of two arbitrators with the
further condition of appointing an umpire (now known as presiding arbitrator).Section 9, 1940 Act also
applied to an agreement providing for arbitration under the rules of the Bengal Chamber of Commerce
or, at the option of the sellers, to the arbitration of two European sugar importers of Calcutta, one to be
appointed by the sellers and the other by the buyers with power to appoint a European merchant as
umpire after the sellers had elected to go to the arbitration of two European merchants but not before.
 Page 71 of 115
(IN) Bachawat: Arbitration and Conciliation

Section 9 of 1940 Act was intended to supplement and not override the contract between the parties. It
did not apply when the contract provided a different course to be pursued in the event of the failure of
the party to appoint his arbitrator, e.g., when it provided that in the event of failure of one party to
nominate an arbitrator within a stated period after notice calling upon him to do so, the other party was to
be at liberty to nominate both arbitrators. Nor did Section 9 of 1940 Act apply to an agreement providing
that the Chairman of an Arbitration Board would be at liberty to appoint an arbitrator on behalf of the
defaulting party or providing that the party giving the notice shall be at liberty to appoint an arbitrator on
behalf of the party served with the notice to appoint an arbitrator. When the agreement provides a
different course to be pursued in the event of a party failing to nominate his arbitrator, an appointment of
a sole arbitrator could not be made under Section 9(b) of 1940 Act.

The provision contained in Section 9(b) of repealed 1940 Act could operate only if and insofar as a
different intention was not expressed in the agreement. If full provision was made in the agreement to
meet the contingency specified in clause (b), [failure of a party to appoint] that clause would not apply at
all. If the agreement provided for a part of the contingency, that part which was left unprovided for would
be covered by the provision in clause (b). A provision in a bye-law of an association incorporated in the
arbitration agreement providing for appointment of an arbitrator by the Governing Board or the
President of the Association on failure of a party to appoint an arbitrator within a specified period after
the service of a written notice to appoint an arbitrator was valid and held to be not in conflict with Section
9(b). Clause (b) of S.9 of 1940 Act has not been incorporated in the 1996 Act.

When application is filed under S. 11, the Chief Justice or his designate is not required to issue a notice to
the other party. Notices are normally issued to inform the other party that an arbitrator has been
appointed. Notice is not issued with the intention of hearing contentious issues raised by the other party.

A composite notice for dissolution of the firm and also accompanying a prayer for appointment of an
arbitrator was held to be valid.

A party can waive the requirement of notice by conduct or otherwise.

80. Requirement of notice for appointing substitute arbitrator

The original appointment provisions contained in the arbitration agreement have to be followed even for
appointing a substitute arbitrator. The parties clear intention in this case was to give 30 days’ notice for
appointing arbitrators. This requirement had to be followed as it accorded with the concern of the Act for
promoting party autonomy.
 Page 72 of 115
(IN) Bachawat: Arbitration and Conciliation

81. Appointment of substituted arbitrator

Where the applicant filed an application under S. 11(5) read with S. 15(2) for appointment of a substituted
arbitrator it was held, that substituted arbitrator had to be appointed in consonance with rules applicable to
the arbitrator being replaced.

The procedure applicable for appointment of a substituted arbitrator under S. 15(2) is attracted not only
to situations where the mandate of the arbitrator is terminated under S. 15, but also to situations calling
for appointment of a substitute arbitrator by operation of other provisions of the Act such as Ss. 13 & 14.

It is not open for a party to seek appointment under S. 11, without first following the agreed procedure.
In case, the agreed procedure prescribes the method of appointing a substitute arbitrator, that must be
followed. If the agreed procedure does not specify any time period for appointment of the substitute
arbitrator, then a period of 30 days is reasonable for the appointment of the arbitrator, and the court
cannot appoint an arbitrator on the ground of inordinate delay if the arbitrator is so appointed within this
time period. Such agreed procedure, however, need not be followed in some situations. This has been
discussed elsewhere.

In case the agreement does not specifically lay down any procedure for appointment of a substitute
arbitrator, the procedure agreed upon by the parties for the initial appointment of the arbitrator is equally
applicable to the appointment of the substituted arbitrator. If such procedure has not been followed prior
to the request for appointment of the arbitrator, the court will not entertain the application. In this case,
the original arbitrator withdrew due to health reasons. The court refused to appoint a substitute arbitrator
where this had already validly been done by the Managing Director, whose task it was to appoint the
original arbitrator under the arbitration agreement. Obviously, in case there is failure of such procedure,
the court has the power to appoint the substitute arbitrator.

In cases where the right to appoint had been forfeited and the original arbitrator had been appointed by
the Court, the substitute arbitrator must also be appointed by the Court, rather than under the originally
agreed procedure.

In case there is no controversy as to whether the mandate of the arbitral tribunal has been terminated, for
example where the arbitrator is dead, has resigned or there is an in-principle agreement regarding
termination of his mandate, no application needs to be made under S. 14 and a party may directly pursue
his rights under the procedure applicable for appointment of a substitute tribunal. Thus, where the
correspondence clearly disclosed that parties had by agreement terminated the mandate of the arbitrator,
an application under S. 11, without approaching the court under S. 14, was entertained since there was no
 Page 73 of 115
(IN) Bachawat: Arbitration and Conciliation

need to approach the court under S. 14 for a ‘formal’ termination of mandate.

82. Failure to inform arbitrator of change of address

Where an arbitrator was appointed on the prayer of the petitioner who failed to inform the arbitrator of
her change of address and there being no response from her side, the arbitrator closed the file and
returned it to DDA, the court said:

“It appears that the applicant did not inform the arbitrator about her change of address and the arbitrator sent notice at the old address.
Being a household lady, she may not be aware of the legal obligation that it is the duty of the party to inform the court or the arbitrator
about his/her change of address so that communication is received by the party concerned. But such inaction on the part of the
petitioner/applicant cannot operate adversely against her or to her detriment.”

83. Procedure of appointment of sole arbitrator and its completion

Where the agreement is for reference to two arbitrators one to be appointed by each party, neither party
can be said to have chosen an arbitrator until he lets the other party know the object of his choice. In
such cases the two nominated arbitrators would have to appoint a third presiding arbitrator. Nomination
implies notice to the other party. The nomination is not complete until the name is communicated to the
other party. The word “nominate” means not only the choice of a referee but the communication of the
appointment to the other party. Where the agreement was to buy certain growing crops at a valuation to
be made by valuers, one to be named by each party by May 31, and an appointment was made by the
plaintiff of a referee on May 31 and a communication of that appointment was made to the defendant by
letter which reached him on June 1, it was held that the plaintiff had not nominated his reference by May
31. On the failure of the party to communicate the appointment of his arbitrator within 15 days, [as under
the earlier Act] the other party could appoint his arbitrator as the sole arbitrator. No further notice was
necessary at that time. This was the position under the 1940 Act. It is different under the 1996 Act. Now
in such circumstances the appointment has to be sought by approaching the Chief Justice.

If one party has power to appoint an arbitrator on behalf of the other party in the event of his failing to
appoint an arbitrator within a certain time, an appointment of an arbitrator on behalf of the defaulting
party before the expiry of the time was invalid though the arbitrator accepted the appointment after the
expiry of the time. The period of time after which one party may nominate an arbitrator on behalf of the
other party commences from the midnight of the date of the receipt of the letter requiring the other party
to nominate his arbitrator.
 Page 74 of 115
(IN) Bachawat: Arbitration and Conciliation

Where an arbitration clause provided for appointment of two arbitrators, one to be nominated by each
party and the sellers were empowered to appoint an arbitrator on behalf of the buyer on their failure to
appoint an arbitrator but did not confer such power on the buyers in the event of the sellers’ failure to
appoint an arbitrator, it was held that the buyer had the right to appoint their arbitrator as sole arbitrator
by following the procedure under Section 9 of 1940 Act. But they could not appoint another arbitrator in
addition to the arbitrator whom they had appointed, unless the arbitration agreement provided that they
could do so.

An arbitration clause provided that should either of the parties not name an arbitrator within 21 days of
the notice by one of the parties, the arbitrator named by the other party should be competent to arbitrate
alone. The necessary implication of the clause was that the party calling upon the other party to nominate
an arbitrator must himself at the same time nominate or have previously nominated an arbitrator. This is
plainly the usual practice. It would be a most unusual proceeding for the party claiming redress by
arbitration to call on the other party to nominate his arbitrator first.

An arbitration clause for reference to two arbitrators, one to be nominated by each party, provided that if
either party would fail to nominate his arbitrator within seven days after notice calling upon him to do so
had been sent to him, the other party should have the power to appoint an arbitrator on behalf of the
defaulting party. The contract provided that all notices sent by prepaid post to the buyers at Amritsar
should be considered delivered to them in due course of post. The notice so sent by the sellers to the
buyers should have been delivered within two days of the dispatch, but it was actually delivered after a
fortnight. It was held that after the expiry of seven days from the date of the dispatch of the notice, the
sellers were at liberty to nominate an arbitrator on behalf of the buyers. But the sellers, before giving the
notice, ought to have nominated their arbitrator first and ought to have specified the nature of the dispute
in the notice and as they did not do so, the appointment of an arbitrator by them on behalf of the buyers
was invalid. The arbitration clause of which the sellers are the authors should be construed contra
preferntium.

An arbitration clause provided that if within 20 clear days after being requested by letter addressed to
them at their usual place of business, either party would fail to appoint an arbitrator ready and willing to
act, the decision of the arbitrator appointed by the other party would be binding on both parties. It was
held that an award made by the arbitrator of the party serving the notice within 19 days of service of the
notice was invalid. The stipulation for the giving of 20 clear days notice must be strictly observed though
before the expiry of the period of 20 days, the other party had repudiated the submission altogether. The
principle of anticipatory breach does not apply to submission to arbitration. The provision for allowing so
many days for appointing an arbitrator means that so many clear days notice from midnight to midnight is
to be allowed.

There must be an actual appointment of the arbitrator as the sole arbitrator. Without such appointment
he could not arrogate to himself the powers of a sole arbitrator. Such appointment should be made after
the notice under Section 9(b) of 1940 Act had been given.Section 9 (1940 Act) contemplated two
appointments, an appointment as arbitrator and later an appointment as sole arbitrator. The provisions of
 Page 75 of 115
(IN) Bachawat: Arbitration and Conciliation

S.9 (b) have not been retained under the 1996 Act.

A notice of appointment of an arbitrator required the appointment of an arbitrator by the other party and
stated that failing appointment within the specified time the dispute and differences should stand referred
to the arbitrator appointed by the party giving the notice as sole arbitrator. The notice was not an
appointment of the sole arbitrator. Assuming it constituted an appointment, it was invalid because it was a
conditional appointment and also because it was made before the expiry of the prescribed period. This
case and those of Rubin v. W Smith & Co. (Grimsby) Ltd. and Kiril Mischeff Ltd. v.
British Dough Nut Co. Ltd. followed in Ministry of Food, Govt. of Bangladesh v. Bengal
Liner Ltd. (The Bengal Pride) serve as a reminder that the
Arbitration Act is what has been termed a technical statute and the language of it
has to be carefully observed. In the Bengal Pride case the appointment of an arbitrator fell short of legal
requirements because there was no compliance with the strict requirements of the Act. A ship had to go
back without getting a berth and the promised-load. The charterers said that the absence of a berth was
due to congestion within the port while the owners of the ship said that the vessel left because no cargo
was available to be loaded for some time to come. The owners sent to the charterers their bill. They
appointed an arbitrator and notified the charterers that they were waiting for the appointment of their
arbitrator. They received no reply. They then notified on No v. 4 that if no response was there by Nov 11,
their own arbitrator would become the sole arbitrator. There was no response to this notice. Their first
response came only when they received the ex parte award. They questioned the validity of the
appointment. The appointment was held to be invalid. Their letter called upon the charterers to appoint
their arbitrator within seven days and so did not accord them the period of seven clear days which was
required by the (English) Act. [Now the (English)
Arbitration Act, 1996 provides for 14 days]. But a letter of
appointment of a sole arbitrator by the sellers was not conditional and invalid because in their letter of
appointment to their arbitrator they added: “But if you like you may give another warning. So the buyers
had additional time to nominate their arbitrator, if pleased do so.”

An appointment limited to particular disputes is bad. If the claimant appoints his arbitrator without any
limitation on his authority and the defendant appoints his arbitrator limited to the construction of the
lease and notified it to the claimant, an award of damages was in excess of the authority of the arbitrators
and was set aside.

An appointment “without prejudice” is invalid.

To appoint a sole arbitrator it is not necessary to use the word “appoint”. It is sufficient if the intention to
appoint is clear from the notice. A notice was not rendered invalid because it required the party served to
notify the appointment to the solicitor then acting for the party giving the notice or because it was given
by a party to the arbitration and a stranger temporarily interested in the result of the arbitration severally.
The notice might be bad if it had been the joint act of the two. Nor was the notice bad because it did not
particularise the matters to be arbitrated upon. A notice requesting the appointment of an arbitrator who
must attend at a named place and time is invalid. A party may be justified in refusing to appoint his
arbitrator, if inspite of request, the party giving the notice refuses to inform him of the nature of the
 Page 76 of 115
(IN) Bachawat: Arbitration and Conciliation

dispute.

To make the appointment of a sole arbitrator valid it was not necessary to give notice of the appointment
to the other party either before or after making the appointment.

84. Power of court [Chief Justice]

Under the proviso to the now repealed Section 9(b) of the 1940 Act, the court could set aside the
appointment of a sole arbitrator and on sufficient cause being shown allow further time to the defaulting
party to appoint an arbitrator or pass such other order as it thought fit. The court had a wide discretion to
set aside or not to set aside the appointment of a sole arbitrator.

If the appointment of a sole arbitrator was set aside, the award made by him was invalid and liable to be
set aside even though the court had refused to stay the arbitration proceedings.

The proviso to Section 9(b) enabled the court to condone the delay of the defaulting party to make the
appointment of the arbitrator on equitable grounds.

The scheme of the provisions in the

Arbitration and Conciliation Act, 1996 is that where one party requests the other
for an appointment but they do not come to a point of agreement within 30 days from the date of the
receipt of the request, the Chief Justice may be approached by a party for an appointment. It would seem
that the scheme of the Act is that the party who gives notice to the other of the appointment of an
arbitrator would have to go to the Chief Justice if the other gives no response to the notice. This is,
however, subject to any other procedure to the contrary agreed to between the parties. It seems there is a
scope for the agreement to provide that in case of default by the other party, the arbitrator suggested by
one will become the sole arbitrator. If one party's appointee becomes, because of the default of the other,
the sole arbitrator, the only course, it would seem, open to the other would be to challenge the
appointment under Sections 12 and 13 within 15 days from the date of knowledge of the appointment or
awareness that the person appointed is either not qualified or is not likely to be independent or impartial.

The parties entering into arbitration agreement are expected to act within 30 days as set out in the notice
issued by the opposite party for appointment of arbitrator. Of course that may not forfeit his right to
appoint an arbitrator even beyond 30 days provided such appointment is made before filing of the
application into the Court by one of the parties seeking appointment of an arbitrator by the Chief Justice
or his designate under the Scheme. Once that application, is filed into the Court, the opposite party
forfeits his right to appoint an arbitrator and the procedure envisaged, under the arbitration clause for
 Page 77 of 115
(IN) Bachawat: Arbitration and Conciliation

appointment of arbitrator ceases to be in existence.

Where one party applied for appointment of an arbitrator other than the one named in the agreement and
the other party denied the existence of the arbitration agreement, but the court finding the agreement to
be valid, held that it had the power to supersede the named arbitrator and appoint an independent person.
The court cited the following passage from a judgment of the Madhya Pradesh High Court
emphasizing the duty of the court in this respect:

It is the duty of the court to satisfy itself as to why it is not just to make a reference to the arbitrator named in the agreement or to the
arbitrators to be selected by following the procedure prescribed in the agreement and whether an objection to the person named in the
agreement is just.

Where the lower court appointed the superintending engineer after removing the earlier arbitrator but
even he failed to act, the High Court directed the appointment of an independent arbitrator from persons
outside the department.

The Explanation to the Section [ S. 9(b) has been deleted from the 1996 Act] provided about a deemed
vacancy, namely, if on the request of either party to enter upon reference, the arbitrator does not do so
within one month after the request, it will be deemed to be a neglect or refusal within the meaning of S.8
[1940 Act].

Where the arbitrators did not submit the award within the time allowed by the court and one party's
arbitrator showed his unwillingness but that party appointed another arbitrator within 15 days on receipt
of notice, and yet the court ordered the other party's arbitrator to continue as sole arbitrator, the order
was struck down as illegal. The nominee should have been appointed as one of the arbitrators.

A and B who were appointed as arbitrators resigned before entering on the

reference. The party appointing A appointed C as sole arbitrator on 9.12.1979. The right to apply for his
removal arose on that date. An application for his removal was filed on 31.7.80 and was within the time
under
article 139 of the Limitation Act .

85. Remedy against order (Finality of Order) [Sub-s. (7)]

 Page 78 of 115
(IN) Bachawat: Arbitration and Conciliation

Where an order is passed by the Chief Justice or his nominee, the jurisdiction and validity of the order can
be challenged before the Arbitral Tribunal under S. 16. A writ petition against the order was held to be
not maintainable. The order being purely of administrative nature, a special leave petition against it was
not allowed.

The Allahabad High Court held that the order passed by the Chief Justice under S. 11 is of administrative
nature. A writ petition against it is, therefore, maintainable. A written petition as to the jurisdiction of the
appointed arbitrator would not be maintainable because the proper course is to raise the question of
jurisdiction before the Tribunal itself under S. 16.

The Supreme Court has also been of the view that the Chief Justice or his nominee acting in discharge of
his functions would be acting in an administrative capacity. A default on his part in discharging his
functions would not be amenable to the jurisdiction of the Supreme Courtunder Article 136 but it being
an act of non-performance of duty, the writ of mandamus would lie.

The position has now changed subsequent to the decision of the Supreme Court in Patel Engineering. It is
now recognised that the order of the Chief Justice is ‘judicial’ and not ‘administrative’ in nature. The court
went to great lengths to justify its holding on the basis of S. 11(7) that accords “finality” to the decision of
the tribunal. Accordingly the scope of the arbitrator's exercise of powers under S. 16 is restricted to the
extent that the Chief Justice has already made a determination under S. 11 proceedings. There are also
very limited avenues for challenging such order of the Chief Justice.

The validity of the order cannot be questioned under S. 34 of the Act.

WHERE TRIBUNAL ALREADY CONSTITUTED

The power under sub-s. (6) ceases to be exercisable where a tribunal has been already constituted.

ARBITRATORSMODE OF APPOINTMENT

From a plain reading of S. 11 of the Act, there are essentially three methods to secure the appointment of
an arbitrator;
 Page 79 of 115
(IN) Bachawat: Arbitration and Conciliation

(i) parties may agree for a procedure for appointment of arbitrators;

(ii) if the parties do not reach such an agreement sub-sec. (3) provides a mechanism for appointing a
three member Arbitral Tribunal without the request made to the Chief Justice or any person or
institution designated by him.
(iii) sub-sections (4), (5) and (6) of the Act provide for appointment of an arbitrator or arbitrators, if
the circumstances set out therein, by the Chief Justice, or person or institution designated by him.

An arbitration agreement is valid though no arbitrator is named therein. By Scotish Law an agreement to
refer future disputes was not binding unless the arbitrator was named therein. The appointment of a
person holding a particular office was not a sufficient selection. The agreement need not specify either the
number of their mode of appointment. The
Arbitration Act puts no limit on the number of arbitrators or to their mode of
appointment. If there are three parties, the agreement may provide for reference to three arbitrators.

Where an agreement for reference to a single arbitrator provides that if he could not for some reasons act
as arbitrator, each party could appoint an arbitrator. The substitutional clause is attracted if the appointed
arbitrator is unfit to act, e.g., for his being a witness in the case and alleged partiality or collusion with one
of the parties.

The very foundation of arbitration agreement is consent of the parties. They may by mutual consent,
without recourse to the procedure prescribed by the Act and without any order of the court, change the
number of arbitrators and the
constitution of the arbitral tribunal.

An agreement may provide for “disputes to be settled by arbitration in London in the usual manner”. or
in usual way. It means the way in which disputes arising out of the particular commodity or commodities
are settled in London. It may be shown by extrinsic evidence that the usual way is an arbitration by two
arbitrators who could appoint an umpire.[Under the (Indian)
Arbitration and Conciliation Act, 1996 , the umpire has been replaced with the
third presiding arbitrator].

Where power is given to a public officer to appoint an arbitrator, the appointment should be made with
an eye upon integrity and impartiality ; but the appointment is not a judicial act in the sense that it is a
condition precedent to the validity of the appointment that the appointee shall give previous notice to the
parties and invite discussion.
 Page 80 of 115
(IN) Bachawat: Arbitration and Conciliation

86. Arbitrator designated as holder of office

An arbitrator may be designated as the holder of an office or appointed to the office for the time being.
Such an agreement is certain and valid. It means that the reference would be made to person holding the
particular office or appointment at the time the dispute arises and the reference is to be made. Even if the
contract specifies the appointment of a ‘person’ as an arbitrator, the term ‘person’ is capable of meaning
not just a natural person but also a nominated ‘office’ which would be held by a natural person. There is
no vacancy in the office of the arbitrator so long as there is an officer who holds the designated office.
Where the agreement was for reference to the engineer for the time being of the Railway company
concerned and the occupant of the post of the engineer at the time when the reference was made began
the hearing of the reference and almost immediately thereafter resigned, D who was appointed as the
engineer in his place was not substituted as the arbitrator and was not competent to proceed with the
hearing. Where the agreement was for reference to T if and so long as he should continue to be the
company's principal engineer and afterwards the company was amalgamated with another company, it was
held that T continued to be the arbitrator and was the proper person to make the award. Where the
arbitrator was designated as the holder of an office, e.g., the Director of Farms (D.O.F.) and that post was
merged with the Veterinary and Remount Department, the officer holding the combined post of Director
of Remount and Veterinary Farms was not competent to act as the arbitrator.

Where the dispute is referred to the holder of an office on account of his possessing special technical
knowledge, his award is not invalid because he made the award after he had vacated the office. Where
such official is appointed by name, he can continue with proceedings even after retirement unless it is
otherwise specifically agreed, or if it is incorporated in the terms of reference.

Where the agreement provided for nomination of an arbitrator by the Secretary to the Ministry of Food
and Agriculture, which was subsequently bifurcated into two and later re-integrated and two Secretaries
were put in charge of the two departments, it was held that the Secretary in charge of Food which was the
subject matter of the contract could nominate the arbitrator and the award made by the arbitrator was
valid.

When the contract provided for reference of disputes to the Chairman of CMWSA Corporation which
was later superseded by statute and replaced by CMDA Corporation after disputes had arisen under the
contract and by the statute CMDA was substituted in respect of all rights and obligations of CMWSA, it
was held that the disputes were to be referred to the Chairman of CMDA.

Where a construction contract provided for reference of the dispute to the superintending engineer of the
circle for the time being, the superintending engineer of the circle within whose jurisdiction the work was
completed was competent to act as the arbitrator and he could dispose of the reference and make the
award even though he was transferred to another circle before the award was made. Where the agreement
provided for arbitration by the engineer officer, it was held that in the absence of any precise definition of
 Page 81 of 115
(IN) Bachawat: Arbitration and Conciliation

the expression “engineer officer”, any person belonging to whatever service, so long as he was performing
the duties of an engineer could safely be called an engineer officer.

Where under an arbitration clause the appointment of an arbitrator was to be made by the Chief
Engineer, but he did nothing in the matter for over a year, this long silence was held to be sufficient to
indicate that he failed or neglected to appoint an arbitrator or to enter into reference himself. This was
held to be a fit and proper case for revocation of his authority.

Where the parties agreed to have their dispute decided by making reference to the executive director of
the corporation and, though the petitioners invoked his jurisdiction, he made no response, and, therefore,
the petitioners approached the Chief Justice for an appointment, it was held that no compelling
circumstances existed so as to justify an appointment outside the terms of the agreement. No case of bias
was made out against the executive director. The court directed the executive director to enter upon the
reference. The matter of the petitioners’ expenses was directed to be raised before the arbitrator.

Where the agreement provided for appointment of arbitrator by the Chief Engineer or Managing
Director, the court said that there could be no finding of bias on his part only for the reason that he was
an employee of one of the parties. The petitioner had made no objection when, on an earlier application,
the court had directed the managing director to make an appointment. Objections could not be raised
after his death as to the mode of appointment.

An appointment in any other manner than that indicated by the parties, unless other provisions come into
play, would be null and void and so would be the proceedings before the appointee. An acquiescence
cannot cure the defect of jurisdiction.

Where the agreement provided that the “engineer-in-charge” or “engineer” was to be appointed as an
arbitrator in the event of a dispute, but at the time when the clause was invoked there was no such person
in office, because he had retired, the court said that no other person could be appointed. It was
incumbent upon the company to assure presence of the office holder on the relevant post at the relevant
time.

An arbitration agreement stated that if the arbitrator was ‘transferred’ or ‘vacated his office’ or was ‘unable
to act for any reason’, another person could be appointed as arbitrator. The agreement did not however
say that the arbitrator must necessarily occupy a ‘specific’ office. The court held that the term ‘office’
under such a clause referred only to the ‘office of arbitrator’. There is no requirement that a person
appointed as an arbitrator must continue to remain in the post he occupied at the time of his appointment
(Chief Engineer) for him to continue to be eligible to function as an arbitrator. In such cases, the
arbitrator does not become functus officio merely because he is transferred.
 Page 82 of 115
(IN) Bachawat: Arbitration and Conciliation

Where there is an agreement to refer disputes to a corporate entity as the arbitrator, the reference was
held to be to the Managing Director of the Corporation.

87. Named arbitrator

Where the arbitrator is named in the agreement, the provisions of S. 11 are not attracted. The Chief
Justice will have no jurisdiction to try and decide a petition filed by a party for appointment of another
arbitrator. The position relating to named arbitrators has now been somewhat altered. The scope of the
term “necessary measure” in S. 11(6) has been subject to extensive judicial scrutiny, and the law laid down
with respect to “necessary measures” deals with situations relating to named arbitrators as well.

88. Appointment of arbitrator when complete

The appointment of an arbitrator is complete as soon as it is made. Acceptance of the office by the
arbitrator is not necessary to complete the appointment. Where both parties have nominated the
arbitrator, the nominee is an arbitrator even before he accepts the office. An arbitration clause followed
by nomination of an arbitrator is a complete reference to arbitration. The acceptance of the office need
not be in writing. It may be indicated either orally or by conduct of the arbitrator, e.g., by entering on the
reference. It is not essential for the arbitrator to formally notify his acceptance to the party nominating
him.

The appointment of an arbitrator nominated by one party on behalf of the other party under a power
conferred by the agreement is made as soon as the nomination is communicated to the other party and
before the arbitrator has accepted the office. However, there is some authority for the contrary view. It
has been held that until acceptance there is nothing more than agreement to refer to him and there can be
no question of revoking or cancelling his authority for he possesses none. In one case an application was
made to the court of quarter sessions to appoint an umpire under the [English] Public Health Act, 1949
which empowered the court to appoint an umpire on the application of a party. On such an application
the court by an order on July 3, 1961 named Y as an umpire. According to the practice of the court, the
order would not be drawn up until the assent of the umpire had been obtained. As the assent of the
umpire had not been obtained, the order was not drawn up and no record of the order was kept. Had the
order been drawn up, it would have stated simply that Y was named the umpire subject to his acceptance
and that such acceptance had not been signified. The umpire was appointed by a formal order at the next
session. Y duly made his award within 21 days of his appointment as required by the Act but after the
expiry of 21 days from July 3, 1961. The court held that the award was duly made within 21 days of his
appointment. The case did not decide that acceptance of the office by the arbitrator is necessary to
complete his appointment. If the appointment of the umpire is made conditional on acceptance of the
office by the appointee, there is of course no appointment and no question of reappointment if he refuses
 Page 83 of 115
(IN) Bachawat: Arbitration and Conciliation

to accept.

A mere nomination of an arbitrator unknown to the appointee is not an effective “appointment”. It does
not become an appointment merely by being communicated to the other side. The stage of effective
appointment is not reached before the appointee has been told that it is desired to appoint him in a
particular matter and he has indicated his willingness to act in that matter. On this reasoning it was held
that the plaintiff had not appointed C as their arbitrator within three months of the final discharge of the
cargo though they had notified the other party of the appointment within time since they notified C of the
dispute and asked him to act after the expiry of the time.

The
Arbitration and Conciliation Act, 1996 does not specifically provide for acceptance
of appointment in writing. However,Section 12 casts a duty on the person proposed to be appointed as
the arbitrator to disclose in writing any circumstances likely to give rise to justifiable doubts as to his
independence and impartiality. If no such disclosure is made by the proposed arbitrator, within a
reasonable time (no time-limit is specified) he is presumed to have accepted the proposal to appoint him
as arbitrator. But it is advisable in practice to communicate acceptance in some form so as to enable the
party to inform the other of the appointment and to request the latter to appoint his arbitrator in terms of
the agreed procedure.

The order of appointment under sub-s. (6) would be taken to have been made when it is communicated
to and is received by the arbitrator and the concerned party. Once the appointment becomes final, it
cannot be questioned.

89. Appointment how made

The appointment of an arbitrator may be made orally, unless the agreement prescribes a special mode of
appointment. The appointment should be made in writing under the hand of the appointer if the
agreement so requires it. A proposal in writing under the hand of the appointer followed by acceptance of
the office in writing by the appointee is sufficient appointment under the hand of the appointer. The
objection as to the absence of the appointment in writing may be waived.

Requirement for appointment of arbitrator

To apply for appointment of arbitrator under S. 11 following requirements had to be satisfied—

 Page 84 of 115
(IN) Bachawat: Arbitration and Conciliation

(a) there existed an arbitration agreement between the parties;

(b) such agreement provided for reference to arbitrator;
(c) disputes arose between the parties to which agreement applied; and
(d) the parties failed to concur an appointment of arbitrator and concerned party failed to appoint
him despite 30 days notice.

Nature of application

Application for appointment of arbitrator under S. 11 could not be said to be a suit because it neither
involved any adjudication or determination of rights and claims of parties nor did it lead to any decision
of them. It was a mere request to appoint an arbitrator and to refer a dispute to him. Order passed would
only be administrative in nature and not adjudicatory.

Appointment of arbitrator and communication thereof—two essential features

In the facts of the case, it was found on perusal of the record that an arbitrator was appointed to
adjudicate upon the dispute, hence, appointment of arbitrator and communication thereof would be two
essential features for appointment of arbitrator. Where the appointment of the arbitrator was not
communicated, it was held, that there was no infirmity in the order of the single judge in holding time for
appointment of the arbitrator and in holding that no arbitrator was appointed by the petitioner after
giving notice to the respondent before filing of the petition under S. 11 writ petition had to be dismissed.

Procedure for appointment of an arbitrator

The NTPC had awarded a contract to the respondent. An agreement containing exhaustive procedure for
appointment of an arbitrator was entered into. It also contained stipulation that if the arbitrator was not
appointed according to the prescribed procedure, the dispute could not be referred to arbitration. On
arising of a dispute, the respondent requested the petitioner NTPC, to appoint an arbitrator. Thereafter, it
filed a petition under S. 11(6)(a). But in the meanwhile the petitioner appointed a sole arbitrator as per the
prescribed procedure. The High Court acting under the request of respondent quashed the appointment
of arbitrator and appointed a third party as the sole arbitrator. It was held, that the single judge was not
justified in appointing third party as a sole arbitrator to resolve the dispute between the parties.
 Page 85 of 115
(IN) Bachawat: Arbitration and Conciliation

90. Qualifications, etc. [Sub-s. 11(8)]

This sub-section makes it a duty of the Chief Justice to have regard to any qualifications which the
arbitrator is expected to possess under the arbitration agreement. Regard has also to be had to any other
considerations as are necessary to secure the appointment of an independent and impartial arbitrator.
Commenting upon an aspect of this clause, the court said:

“It appears that the Chief Justice must act within the parameters of the arbitration clause on the one hand, and at the same time, must
ensure that the arbitrator so appointed, is an independent and impartial arbitrator, as required under sub-section (8) of the Act. The
court, in terms of sub-section (8) of the Act, is supposed to make minimal interference in the agreement and is supposed to force the
parties to adhere to the agreement. Consequently, it cannot be said that no person, who is not duly qualified in terms of the arbitration
clause, shall be appointed by the court as an arbitrator. The Director General of Telecommunications, having failed to appoint the
arbitrator within time, abdicated his rights to do so and the court will step in, in his place to make parties to adhere to the agreement.
Accordingly, the defendant was directed to send a panel of more than five names of officers of appropriate status eligible to be
appointed as arbitrator within four weeks to the petitioner who shall suggest a panel of two names out of the list so sent by the
defendant within four weeks thereafter and the Director General of Telecommunications may appoint one arbitrator out of this panel
of two officers in terms of clause (d) of the arbitration agreement, within a period of two weeks thereafter.”

An appointment of an arbitrator is not valid unless he possesses the qualification prescribed by the
arbitration agreement. If he is not duly qualified to act, his appointment as also the award made by him is
a nullity. But a party who takes part in the arbitration proceedings without any objection with full
knowledge of the lack of qualification is estopped from challenging the award on this ground.

It must be noted that the court cannot import a qualification which does not exist in the agreement. In
this case, the court imported a qualification requiring the arbitrator to be a retired judge. This was held to
be invalid as it amounted to substituting the procedure agreed to by the parties

A member of the London Maritime Association practicing as a full time marine arbitrator would be
regarded by most ship owners as a commercial man. He satisfies the requirement of an arbitration
agreement that the arbitrators should be “commercial men”. It does not matter whether the arbitrator has
retired from commerce or is still engaged in it. What matters is the practical commercial experience. The
use of the word “commercial men” would exclude those whose experience is solely as practicing members
of the legal profession. Some of them might be described as commercial lawyers, but whilst they serve the
commercial world, they are not of it. The meaning of the words “commercial men” is not so vague as to
render the agreement invalid.

The term “merchant” in a contract for sale of goods is not restricted to a person trading entirely on his
own account. A “merchant” is a person who trades in goods, that is to say, who buys and sells goods. It
 Page 86 of 115
(IN) Bachawat: Arbitration and Conciliation

may not include a manufacturer of goods, but it includes a general manager of a trading company. The
test is whether the person buys or sells goods. It is immaterial whether he is remunerated by a share of the
profits or by a salary. In the absence of an indication to the contrary, a provision requiring the special
qualification of an arbitrator applies to an umpire [Now under the 1996 Act, presiding arbitrator].

Section 12 of the Arbitration and Conciliation Act, 1996 provides that an arbitrator
may be challenged if he does not possess the qualification agreed to by the parties. The party can
challenge only on the ground on which he became aware after the making of the appointment. The
challenge is to be presented to the tribunal within fifteen days of its being constituted or of awareness of
the ground of challenge. The tribunal would have to decide the matter unless the arbitrator in question
withdraws or the other party agrees to the challenge. If the challenge is not successful, the tribunal may
deliver the award. The party presenting the challenge may apply for setting aside the award. If the court
orders setting aside, it may also decide whether the arbitrator who was challenged was to be entitled to his
fee or not.

No special qualification was considered to be necessary where the arbitrator had only to decide as to
whether the loss of the consigned goods was occasioned due to negligence of the railways. The
appointment was not permitted to be challenged on the ground of qualification. It has to be shown for
raising the ground of qualification that the dispute is such that it requires the arbitrator to possess
qualifications of a certain kind on degree without which he would not be able to adjudicate upon the
matters in dispute. But that was not the case here.

The above authorities need to be read in light of jurisprudence developed in the context of “necessary
measures” under S. 11(6). The position of law, that is relevant in so far as the requirement of
qualifications under S. 11(8) is concerned, has been earlier summed up in these words —

“In exercising his jurisdiction under Section 11(6) to take the “necessary measure” the Chief Justice should, as far as possible, act in
such a manner as to effectuate the arbitration agreement entered into by the parties. If the facts disclose exceptional circumstances
where a party is deliberately trying to delay proceedings, or where an order to follow the appointment procedure is likely to result in a
stalemate, or otherwise in the interests of justice, the Chief Justice has the discretion to ignore the appointment procedure and appoint
an independent arbitral tribunal giving due regard to any qualifications required of the arbitrator (which may itself be waived in the
interests of justice).”

91. Qualification of arbitrator

The parties’ right to challenge the validity of the appointment of an arbitrator on the ground that he did
not possess the requisite qualification was held as not affecting the power of the court to decide the
 Page 87 of 115
(IN) Bachawat: Arbitration and Conciliation

question under S. 8 where there is an arbitration agreement.

92. Power of appointment when exhausted

Where power is conferred upon a person to appoint an arbitrator willing to act, the power is not
exhausted by one appointment in the absence of an indication to the contrary in the arbitration
agreement. Thus, when an agreement provided for reference to A and if A was unwilling, to a person
nominated by X and X appointed B who entered on the reference but resigned subsequently, the power
of X to appoint another arbitrator was not exhausted and he could appoint another arbitrator C.
But it has been held that the power is exhausted unless it was intended that the appointment would be of
a person willing to act as arbitrator.

Where an agreement provides for reference to X and failing him to a person named by the holder of an
office, the agreement authorises successive appointments which may become necessary as successive
disputes arise. If the person named as the arbitrator refuses to act, the party having the power to appoint
an arbitrator on his behalf may appoint another arbitrator in his place by way of substitution. But the
contrary view is also held. When the bye-law of an association provided that on the failure of party to
appoint an arbitrator within the time limited, the Chairman of the Association should appoint an
arbitrator; prima facie, the consequences provided in the agreement for failure to appoint an arbitrator
follow in the event of an appointment by way of substitution and the words “failure to appoint an
arbitrator” include a failure to appoint a substituted arbitrator if the appointed arbitrator declined or was
unwilling to act.

If the arbitrators appoint an umpire who refuses to act or is disqualified from acting, they may appoint
another umpire. But if the umpire accepts office and proceeds with the reference they cannot appoint
another umpire. If the appointment of umpire is conditional on his acceptance of the office and he does
not accept, the arbitrators may appoint another umpire.

Where the General Manager of the concerned Railway was empowered to appoint both arbitrators and he
appointed them and subsequently one of them resigned, it was held that the power of the General
Manager to appoint arbitrators was exhausted and that if the parties did not supply the vacancy in
accordance with their agreement or applicable rules, only the court could make the substitutional
appointment.

Appointment of arbitrator by the court

Where the agreement between parties contained arbitration clause and arbitration was invoked by the
 Page 88 of 115
(IN) Bachawat: Arbitration and Conciliation

petitioner by letter to respondent, it was held, that there was no denial of the existence of arbitration
clause, arbitrator had to be appointed by the court.

93. Fluctuating body

The parties may make a reference to an unincorporated and fluctuating body whose members vary from
time to time. When a dispute is referred to a body of persons who can act as a tribunal they have no
power to delegate their power to individuals or to one or more of their members. But where a dispute is
referred to an Association consisting of a large and fluctuating body of persons they may arbitrate in the
only way it is possible to do so, viz., by individuals selected for this purpose in accordance with its
byelaws. A quorum of the body when authorised by the rules of that body may act as arbitrators. The
Secretary of the Association cannot arrogate to himself the power and functions of the entire body
without any authority to do so.

A reference may be made by unincorporated and fluctuating bodies such as Sampradayas concerning
disputes between them.

94. Appeal from award to appellate tribunal

An arbitration agreement may lawfully provide for an appeal from the award of the arbitrators or the
umpire [the institution of umpire has been replaced by the presiding arbitrator under the 1996 Act] to an
appellate tribunal. The provision of paragraph 8 of Schedule 1 of 1940 Act (corresponding to S. 35 of the
1996 Act) that the award shall be final and binding on the parties and the persons claiming through them
respectively must be read as subject to any right of appeal conferred by the arbitration agreement or by
the rules of the association.

The Supreme Court in Centrotrade Minerals was faced with a peculiar two-tier
arbitration clause which was challenged as being invalid, but on account of a difference of opinion
between S.B Sinha J and Tarun Chatterjee J on the validity of such a clause, the matter has been referred
to a larger Bench. It may be noted that Centrotrade was dealing with a peculiar arbitration clause which
envisaged two awards, both final in their own respects and both governed by a different set of rules in
different jurisdictions and thus coming under different Parts of the Act. Centrotrade has not cast any doubt
on cases where multi-tier clauses do not envisage applicability of different procedures to the various legs
of arbitration. Till such time as a final decision emerges from a larger Bench of the Supreme Court, such
multi-tier clauses where all tiers of arbitration are governed by either Part I or Part II of the Act (but not
both) may be taken as valid.
 Page 89 of 115
(IN) Bachawat: Arbitration and Conciliation

The award of the appeal committee is valid and could be filed in court [filing is no longer necessary under
the 1996 Act] and enforced as if it were the award of an umpire. It does not matter whether they are called
an appellate committee or a fresh set of arbitrators. The contract contains as it were a submission within a
submission. It is the award of the appellate tribunal which becomes the final award.

In the absence of an agreement to the contrary, notice of the appeal need not have any specific format, as
long as it is capable of being construed as an appeal.

Where the agreement specifies the time within which the notice of the appeal is to be filed, the notice of
appeal is invalid unless it is filed within the specified time. A letter merely asking for extension of the time
to file the appeal is not an effective notice of appeal. The notice of appeal is invalid if it does not comply
with a mandatory rule requiring deposit of the amount of the award along with the notice of appeal. In
the absence of any provision in the rules of the association, the appellate body has no general power to
extend the time for filing the appeal. The appeal has to be filed within the time specified or if no time is
specified within the time in which an application could be moved for the filing of the award. Where the
agreement provided that the notice of the appeal should be given to the other party and to the secretary of
the association within 14 days of the date of the award and that the notice would be deemed to be served
within 24 hours after it was posted and the sellers notified the secretary within time and posted a notice to
the buyers but the letter was wrongly addressed, it was held that the notice of appeal was invalid and the
award remained effective and though the secretary had informed the buyers of the sellers’ intention to
appeal within time the sellers could not rely upon it as the secretary was not their agent to give notice of
the appeal.

If the award of the appellate body is declared to be a nullity, the notice of appeal remains effective.
Subject to that notice the original award remains and the parties are relegated to the same position which
they occupied before the abortive proceedings began. Instead of appeal, a party could apply to the
arbitrator to state a special case without going through the successive stages of arbitration. The power of
stating a special case for the opinion of the court is not available under the
Arbitration and Conciliation Act, 1996 .

In the absence of any provision to the contrary in the rules of the association the position of the
committee of appeal of the Calcutta Jute Balers Association is not like that of a court of appeal. They are
not precluded from taking evidence. Their refusal to take evidence and to afford any opportunity to the
parties to be present at the hearing of the case constituted misconduct. Where the matter is within their
expert knowledge the appellate body may decide without hearing evidence.

Where the bye-laws of the association were amended providing for a right of appeal to an appellate
tribunal after the claim statement had been filed, it was held that the arbitration was subject to the
amended bye-law and there was a right of appeal before the appellate tribunal.
 Page 90 of 115
(IN) Bachawat: Arbitration and Conciliation

There is no right of appeal from an award unless it is given by the arbitration agreement or by the rules of
the association.

When the appeal committee is constituted in accordance with the rules and starts hearing the appeal, the
question arises whether some members of the committee can withdraw from the hearing of the appeal
and the remaining members may continue the hearing and deliver the award. It has been held that they
could not do so, but the Privy Council left the question open. When the rules of the association
specifically provide that the reference may be heard by a fluctuating body, the award is not invalid on the
ground that the award was not made by all the members who originally constituted the arbitral tribunal or
that all of them were not present at the meeting or that the members who gave the award were not
present at the meeting. An appeal committee may allow to be raised before them a point not raised before
the arbitrator and may give an award in favour of the buyers for a sum admitted to be due to them in the
statements of the sellers though the only point before the arbitrator was whether or not the buyers were
entitled to reject the goods.

95. Appeal against award of commercial judge

Under S.4 of the [English] Administration of Justice Act, 1970 a judge of the commercial court can be
appointed a sole arbitrator or as umpire under certain conditions. The extent to which an appeal would lie
against the award of a judge-arbitrator was considered by the Court of Appeal in Seaworld Oceanline Co. SA
v. Catseye Maritime Co. Ltd. (The Kelaniya). The subject-matter of the arbitration substantially affected the
rights of one or more parties to the agreement so as to satisfy the statutory requirement for leave to
appeal. The court had also to take note of the Nema guidelines one of which instructs the court to
consider, first of all, whether the case is a “one-off” case, namely a case in which the general market and
the commercial fraternity have no interest, but which merely affects the rights of the particular parties; in
such a case the courts will only intervene if it can be demonstrated quickly and easily that the arbitrator
was plainly wrong. The case in hand was found to be not “one-off” case as it concerned the application of
the inter-club agreement for the apportionment of liabilities in respect of cargo under the notoriously
imprecise New York Produce Exchange Form of charterparty. The court also thought that there was a
prima-facie case that the judge-arbitrator was right, the parties had submitted to the arbitrament of an
arbitrator who happened to be a commercial judge and that gave rise to the presumption that they wanted
a judge because he was likely to get the law right. The application for leave to appeal was refused.

96. Reference to Bengal Chamber of Commerce

Where the arbitration agreement provides for arbitration by the Bengal Chamber of Commerce in
accordance with its rules and bye-laws, the Bengal Chamber of Commerce is the appointed arbitrator. The
parties and the arbitrator are bound by its rules and bye-laws. The Registrar may appoint a new arbitral
tribunal if the arbitrators originally appointed by him allow the time to make the award to expire, or
 Page 91 of 115
(IN) Bachawat: Arbitration and Conciliation

become incapable of acting but if the new tribunal includes one or more of the original arbitrators, the
award made by the new tribunal is invalid. The tribunal may be reconstituted if one of the arbitrators
refuses to act. The provision for appointment of a new tribunal coupled with the fact that the new
tribunal will have again four months time after entering on the reference was not opposed to the
provisions of Section 28 of 1940 Act, and was not invalid.

The limits of time for making awards envisaged under the 1940 Acthave been removed by the
Arbitration and Conciliation Act, 1996 . Unders. 14 of the 1996 Act, the arbitrator
is expected to act without undue delay.

The requirement of a rule providing for appointment of the arbitrators in writing under the hand of the
Registrar was held to have been satisfied when the proposal to appoint them was made by the Registrar in
writing under his hand though the letters asking for their consent and the letters intimating them of their
appointment were signed not by the Registrar but by some one else on his behalf. The objection as to the
non-compliance of this rule is waived by participation of the parties in the arbitration proceedings without
any protest. Where the agreement was to refer disputes to the arbitration of the chamber acting through a
named arbitrator, the provision of a rule of the chamber requiring the appointment of two arbitrators had
no application. Assuming that the rules still apply the party who took part in the arbitration proceedings
waived the objection and was estopped from objecting.

97. Arbitration Rules of Chamber of Commerce

If the parties agree to abide by the rules of an association and subsequent to the agreement, there is a
change in the rules, the rules existing on the date of the reference and not those existing on the date of the
agreement have to be followed.

Where the rules of an association authorised the Chairman to extend the time for the making of the
award, it was held that the Vice-Chairman could not enlarge the time unless authorised to do so by the
Chairman.

Where a rule of a Chamber of Commerce incorporated under the

Companies Act provided for decision of disputes between the members of the
Chamber of Commerce in respect of certain commodities, the sub-committee had no jurisdiction to
decide disputes arising before the incorporation of the Chamber or to decide disputes in respect of
transactions before the rule was framed.
 Page 92 of 115
(IN) Bachawat: Arbitration and Conciliation

98. Bye-laws of National Stock Exchange

Where a trading member was expelled from membership of the National Stock Exchange because of
defaults, the court said that the parties to the agreement remained bound by the arbitration clause despite
the fact that the trading member had ceased to be a member at the time when reference was made. The
bye-laws did not in any indicate that an arbitration agreement between an ex-trading member and the
constituents of the NSE could not be enforced at the instance of an ex-trading member or that a
defaulting member ceased to be a party to the arbitration agreement. The court considered it as an
untenable plea that all the rights of a trading member who has been declared to be defaulter vested in the
Defaulters’ Committee including the right to go to arbitration.

AGREEMENT FOR REFERENCE TO THREE OR MORE

ARBITRATORS [SUB-S. (3)]

An agreement may provide that a reference shall be to three arbitrators, one to be appointed by each party
and the third by the two appointed arbitrators. By Section 10(1) of 1940 Actsuch an agreement took effect
as if it provided for appointment of an umpire by the two arbitrators. The position under the
Arbitration and Conciliation Act, 1996 is that the parties are free to determine the
number of arbitrators which should not, however, be an even number. Parties are also free to agree on the
procedure of appointment. In the absence of such an agreement, in an arbitration with three arbitrators,
each party is to appoint one and the two so appointed are to appoint the third one to act as the presiding
arbitrator.

99. Meeting of two arbitrators for appointing third

The appointment of the third arbitrator has to be made by the two appointed arbitrators. Such
appointment need not be in writing. It is also not necessary that they should have a joint deliberation by
sitting at one place and taking a decision in the presence of each other. They can achieve effective
consultation also by resort to the electronic media. The court said:

Whether the appointment of the third arbitrator should necessarily be done by the two appointed
arbitrators by sitting together and in writing? Are they required to consult the parties too, while doing so,
or at least, to put the parties on previous notice? Primarily it is for the parties to agree upon a procedure
for appointing the arbitrator or arbitrators. Failing such agreement, sub-sec. (3) of S. 11 of the Act
provides that in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two
appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. The law
nowhere contemplates such appointment being necessarily in writing. The requirement of the law is that
there should be an appointment and the appointment should be by the two appointed arbitrators.
 Page 93 of 115
(IN) Bachawat: Arbitration and Conciliation

Reliance was placed on the law as stated in Halsbury's Laws of England. The statement of law there is: the
appointment of umpire by the arbitrators is a judicial act; they must therefore meet and exercise the power
together. This statement of law in Halsbury is based on two decided cases, namely, Re Hopper;Re Lord and
Lord. Reliance was also placed on Keshavsinh Dwarkadas Kapadia, etc. v. Indian
Engineering Company. Dealing with the case of appointment of an umpire under the
Arbitration Act , 1940 this Court observed by reference to certain English cases:

“The appointment of an umpire by two arbitrators means that the arbitrators are to concur in appointing an umpire. There is no
particular method of appointment of an umpire prescribed by the Act. The usual method of appointment of an umpire by the
arbitrators is in writing. Arbitrators who are required to appoint an umpire are under no obligation to obtain the approval of the choice
of the personnel by the parties who appointed the arbitrators. If any party is dissatisfied with the choice that will not affect the validity
of the appointment. See, Oliver v. Collings,

The appointment by arbitrators of an umpire should be the act of the will and judgment of the two. Such an appointment is to be one
of choice and not of chance.

In ‘Lord v. Lord’, it appeared by the submission that the parties had bound
themselves in case the two arbitrators first appointed should not agree, to perform the award of such third
person as the said arbitrators should by writing under their hands, to be indorsed on the submission,
appoint as umpire. One of the arbitrators sweared that the memorandum of appointment was not made
or signed by himself. In this background it was held that every judicial act, to be done by two or more,
must be completed in the presence of or who do it; for those who are to be affected by it have a right to
the united judgment of all upto the very last moment.

Re Hopper (supra), Lord v. Lord (supra), Lord v. Lord (supra) was cited and
distinguished. Cockburn, C.J., held that signing the appointment of umpire is not a judicial act; the judicial
act is the agreement as to the appointment of the particular person who is to be the umpire, and the
signing is merely the record of that which they have already done in the judicial exercise of their functions.
Blackburn, J. noted, after seeing several cases that were cited, that no case has decided that, where two
arbitrators have exercised their judgment in the selection of an umpire, their not being present together at
the mere formal act of afterwards recording the appointment vitiates it, and to uphold this proposition
would be to adhere to the letter of the law instead of to the substance.

Lord v. Lord was cited before Court of Appeal in European Grain and Shipping Ltd. v.
Johnston, The rule propounded in Lord v. Lord was adversely commented upon.
Lord Denning, MR held that the time has come when business convenience requires laying down a
different rule. When an agreement or award or another document is to be done by two or three, generally
the drafts can be exchanged and it would be enough if the final document is signed by all. It is quite
unnecessary for them all to meet together to sign it though each signed it at a different time or place from
the others. Karr, L.J. in his speech noticed some arbitral rules, particularly of the International Chamber
of Commerce and held that where arbitrators were in different countries and took many important
 Page 94 of 115
(IN) Bachawat: Arbitration and Conciliation

decisions by correspondence or by telephone, it would be in the interest of all parties for saving costs that
coincidence in time and place of the arbitrators for the purely formal purposes of signing the award is not
insisted on as essential.

Failure on the part of two arbitrators to appoint the third arbitrator as per orders of the Chief Justice was
held to be improper. The two arbitrators were appointed on the application of a party with a direction
that they were free to appoint a presiding arbitrator. They held a meeting but did not appoint their
presiding arbitrator. Yet they proceeded with the arbitration. The proceedings were held to be in violation
of S. 10.

Whether appointment of third arbitrator a judicial act

The Supreme Court explained this position in Grid Corporation of Orissa Ltd. v. AES Corpn.
Reference was made to the decision of the
Constitution Bench in Jaswant Sugar Mills Ltd. v. Lakshmichand,
wherein it laid down the criteria for determining a decision or an act to be judicial, and submitted, by
reference to those tests that the act of appointing the third arbitrator cannot be said to be a judicial act. In
the
Constitution Bench decision of this Court in Konkan Railway (supra) the principles
laid down in Jaswant Sugar Mills Ltd., (supra) have been reiterated and it has been held that the appointment
of an arbitrator by the Chief Justice under S. 11(6) of the Act is not an adjudicatory order and cannot be
said to be discharging of a judicial function. That being so, the appointment of the third arbitrator by two
arbitrators can certainly not be a judicial act. Reference was made to the provisions contained in Ss. 7(3),
7(4)(a), 12(1), 12(2), 31(1) of the Act and it was submitted that the Legislature has taken care to use the
word ‘writing’ or ‘in writing’ wherever it intended any act or function to be performed in writing but the
Legislature has not chosen to engraft the requirement of writing into S. 11(3), and therefore, by process of
interpretation or by attributing an intention to Legislature which the legislative drafting does not, the
requirement of the appointment of third arbitrator by the two arbitrators being necessarily in writing
cannot be spelled out. The court said that there was substance in the submission so made.

The court, therefore, said that it is not necessary within the meaning of S. 11(3) that the presiding
arbitrator must be appointed by the two appointed arbitrators in writing nor it is necessary that the two
appointed arbitrators must necessarily sit at one place, deliberate jointly and take a decision in the
presence of each other in regard to the appointment of the presiding arbitrator. It is enough if they have
actually consulted or conferred with each other and if both or any of them communicates to the parties
the appointment of the presiding arbitrator as having taken place by the joint deliberation of the two. It is
clearly spelled out from the correspondence between the two arbitrators reproduced hereinabove that the
two arbitrators had agreed on principle that the third arbitrator shall be of a nationality different from the
one to which either of the parties belongs. They had also agreed upon the appointment of Mr. Williams.
The communication of such appointment though made by Mr. Donovan is on behalf of himself and Mr.
Verma. The correctness of such consultation having preceded the appointment is not doubted in the
correspondence and has also not been disputed by the learned senior counsel for the petitioner during the
course of hearing. Mr. Verma's protest to appointment of Mr. Williams was based on ‘re-consideration’ of
 Page 95 of 115
(IN) Bachawat: Arbitration and Conciliation

the issue, that is, on second thoughts. The practice adopted by the two arbitrators is consistent with the
practice of International Commercial Arbitration and conducive to the convenience of the parties and also
saves them from avoidable expenditure. When an effective consultation can be achieved by resort to
electronic media and remote conferencing it is not necessary that the two persons required to act in
consultation with each other must necessarily sit together at one place unless it is the requirement of law
or of the ruling contract between the parties. The appointment need not necessarily be by a writing signed
by the two arbitrators; it satisfies the requirement of law if the appointment (i) has been actually made, (ii)
is preceded by such consultation as to amount to appointment by the two, and (iii) is communicated. It is
not essential to the validity of the appointment that the parties should be consulted, or involved in the
process of appointment or given a previous notice of the proposed appointment.

100. Appointment of foreign national [ S. 11(9)]

Where in an international commercial arbitration, the two appointed arbitrators formulated the opinion in
consultation with each other that a person of third nationality would be preferable for appointing the
presiding arbitrator, the Supreme Court held that there was no illegality in such appointment. The court
said:

A reference was made to the order passed by M. Jagannadha Rao, J. acting as designate of the Chief
Justice deciding an application under S. 11(5) of the Act in Malaysian Airlines Systems BHD (II) v. Stic Travels
(P.) Ltd. His Lordship held that S. 11(9) of the Act is not mandatory and the word
‘may’ therein cannot be read as ‘shall’ and to appoint an arbitrator not belonging to the nationality of
either of the parties is not mandatory. There is no quarrel with the abovesaid proposition. Yet, there is
nothing wrong in the two arbitrators having formed an opinion in consultation with each other that a
person of third nationality would be preferable as presiding arbitrator. The submission based on “mistake
of law” doctrine is unwarranted and besides the point.

“In several countries where the UNCITRAL model is adopted, it has been held that it is not impermissible to appoint an arbitrator of a
nationality of one of the parties to arbitration.

In the light of the above rules in various countries and rulings of Court and also in view of the fact that the 1996 Act is based on
UNCITRAL model law which in Article 6(4) only speaks of “taking into account” the nationality as one of the factors, the court was of
the view that the word ‘may’ in Section 11(9) of the Act is not intended to be read as ‘must’ or ‘shall’. While nationality of the arbitrator
is a matter to be kept in view, it does not follow from Section 11(9) that the proposed arbitrator is necessarily disqualified because he
belongs to the nationality of one of the parties. The word ‘may’ is not used in the sense of ‘shall’. The provision is not mandatory. In
case the party who belongs to a nationality other than that of the proposed arbitrator, has no objection, the Chief Justice of India (or his
nominee) can appoint an arbitrator belonging to the nationality of one of the parties. In case, there is objection by one party to the
appointment of an arbitrator belonging to the nationality of the opposite party, the Chief Justice of India (or his nominee) can certainly
consider the objection and see if an arbitrator not belonging to the nationality of either parties can be appointed. While taking that
decision, the Chief Justice of India (or his nominee) can also keep in mind, in cases where the parties have agreed that the law applicable
to the case is the law of a country to which one of the parties belongs, whether there will be an overriding advantage to both parties if
 Page 96 of 115
(IN) Bachawat: Arbitration and Conciliation

an arbitrator having knowledge of the applicable law is appointed. Under Section 11(9) of the Act it is not mandatory for the Court to
appoint an arbitrator not belonging to the nationality of either of the parties to the dispute.”

The court will be hesitant, however, to overlook the requirement as to nationality of the arbitrator, especially where the agreement of
the parties provides for the same.

Where there is a majority decision, the opinion of the minority cannot be looked at for any purpose.

Where the agreement provided for reference of the disputes to three arbitrators, one to be appointed by each party and, one to be
chosen by the two so chosen, thedecision of any two of the three on any point or points to be final, the third arbitrator to be chosen by
the two arbitrators is to be treated as if he were an umpire [now under the [Indian]
Arbitration and Conciliation Act, 1996 , presiding arbitrator] and the provision that the decision of any two of
them or of the majority was to prevail was overridden by Section 10(3) of 1940 Act (the award of the umpire shall prevail, unless
otherwise agreed by parties) corresponding to the unamended Section 9(1)of the (English)
Arbitration Act , 1950, reproducing Section 4 of the English
Arbitration Act , 1934.[All English Acts have been replaced by the (English)
Arbitration Act, 1996 ].Section 10(1) did not apply to a case where the reference was to two arbitrators with
power to appoint a third. The two arbitrators were not bound to appoint a third. This position has been changed by the
Arbitration and Conciliation Act, 1996 . Now, the two appointed arbitrators are bound to appoint a third who
will act as the presiding arbitrator. Where the agreement requires the two arbitrators to appoint a third and does not authorise them to
act on their own, an award by two only would be liable to be set aside.

Where the agreement provides for reference to three arbitrators to be appointed otherwise than in accordance with Section 10(1) of
1940 Act, S. 11(3) of 1996 Act], e.g., where the reference is to two arbitrators with power to appoint a third arbitrator and the third is
appointed by them, the decision of the majority prevails by virtue of Section 10(2) of 1940 Act, [ S. 29 of 1996 Act] unless the
agreement provides otherwise. When all the three arbitrators are appointed, the arbitral tribunal consists of all the three arbitrators and
the hearing must take place before them all. Where one of the three arbitrators is absent at the hearing, the award is invalid.

Where the agreement provided for the appointment of three arbitrators, one each to be appointed by each of the three partners and
while two of them appointed their arbitrators, the third refused to do so, it was held that neither S.8, nor 9, nor 10 of 1940 Act were
applicable and therefore the parties would have to go in for a civil suit. This result would not follow under the 1996 Act. The agreement
would prevail because the Chief Justice can be approached for getting the arbitrator for the partner who was refusing to make his
appointment in accordance with the agreement.

An agreement which provides for an even number of arbitrators is not invalid by that reason alone. The two arbitrators can appoint the
third to act with them as the presiding arbitrator and thus the agreement becomes workable. The requirements of S. 10(1), 1996 Act
would be satisfied and S. 10(2) 1996 Act was not applicable. The court proceeded as follows:

The arbitration clause provides that each party shall nominate one arbitrator and the two arbitrators shall then appoint an umpire
before proceeding with the reference. The arbitration agreement is valid as it satisfies the requirement of Section 7 of the New Act.
Section 11(3)requires the two arbitrators to appoint the third arbitrator or the umpire. There can be no doubt that the arbitration
 Page 97 of 115
(IN) Bachawat: Arbitration and Conciliation

agreement in the present case accords with the implied condition contained in para 2 of the First Schedule to the
Arbitration Act , 1940 requiring the two arbitrators, one each appointed by the two sides, to appoint an umpire
not later than one month from the latest date of their respective appointments.

The question is : Whether there is anything in the New Act to make such an agreement unenforceable? We do not find any such
indication in the New Act. There is no dispute that the arbitral proceeding in the present case commenced after the New Act came into
force and, therefore, the New Act applies. In view of the term in the arbitration agreement that the two arbitrators would appoint the
umpire or the third arbitrator before proceeding with the reference, the requirement of sub-section (1) of Section 10 is satisfied and
sub-section (2) thereof has no application. As earlier stated the agreement satisfies the requirement of Section 7 of the Act and,
therefore, is a valid arbitration agreement. The appointment of arbitrators must, therefore, be governed by Section 11 of the New Act.

In view of the fact that each of the two parties have appointed their own arbitrators. Section 11(3) was attracted and the two appointed
arbitrators were required to appoint a third arbitrator to act as the presiding arbitrator, failing which the Chief Justice of the High Court
or any person or institution designated by him would be required to appoint the third arbitrator as required by Section 11(4)(b) of the
New Act. Since the procedure prescribed in Section 11(3) has not been followed the further consequences provided in Section 11 must
follow.

Accordingly, we direct that the Chief Justice of the High Court is to appoint the third arbitrator under Section 11(4)(b) of the New Act
in view of the failure of the two appointed arbitrators to appoint the third arbitrator within thirty days from the date of their
appointments. Direction given by the Chief Justice of the High Court is substituted to this effect.

A charterparty provided for reference of disputes in connection with the charter to a board consisting of three arbitrators, one to be
appointed by the owners, one by the charterers and one by the two so chosen. A dispute as to demurrage having arisen, two arbitrators
were appointed who proceeded to arbitration and made an award without appointing a third arbitrator. It was held that the two
arbitrators had jurisdiction to make the award and the award was valid. Since the clause provided compulsorily for the appointment of
three arbitrators it had effect by virtue of Section 10(1) of 1940 Act as an agreement for the appointment by the two arbitrators of an
umpire rather than a third arbitrator.

Where the agreement provides for the appointment of more than three arbitrators, the award of the majority, or if the arbitrators are
equally divided, the award of the umpire prevailed by virtue of Section 10(3) of 1940 Act unless the agreement provides otherwise.
Apart from the provisions of Section 10(2) of 1940 Act and 10(3) of 1940 Act where there are more than one arbitrator, the award must
be unanimous; an award by the majority is invalid. The institution of umpire having been abolished by the
Arbitration and Conciliation Act, 1996 , now the third arbitrator becomes the presiding arbitrator and the
majority opinion has to prevail.

An umpire must be distinguished from a third arbitrator. An umpire denotes a person appointed by the arbitrators to settle the
differences that may arise between them. A sarpanch does not necessarily mean an umpire. He may be an umpire or a third arbitrator or
a chairman of the board of arbitrators. Where the reference was to more than one arbitrator, there was no implication under the 1940
Act that the award of the majority would be binding. Now S. 29(1) of 1996 Act expressly provides for the efficacy of the majority
award. Where in a dispute between the employees of a statutory university the matter was to be referred to arbitrators appointed by the
parties and the Chancellor of the university was to appoint an umpire to sit with them, it was held that the umpire so appointed was in
essence a third arbitrator. He was not an umpire in the sense of that word under the
 Page 98 of 115
(IN) Bachawat: Arbitration and Conciliation

Arbitration Act of 1940.

The institution of umpire continues to be operative under the (English)

Arbitration Act, 1996 . It was there under the Indian 1940 Act. But it has been abolished by the
Arbitration and Conciliation Act, 1996 . The third arbitrator is to be appointed by the two arbitrators.

Where there is a majority award, the reasons in the minority award cannot be looked into for finding the reasons of the majority view.
There is authority for the contrary view and it has been held that by agreeing to settle their differences by the judgment of a body of an
uneven number of arbitrators, the parties are presumed to imply that they would accept the decision of the majority.

Section 6(2) of the English

Arbitration Act , 1979 had substituted Section 9(1)in the English
Arbitration Act , 1950 and provided that unless the contrary intention was expressed in the arbitration
agreement, where there was a reference to three arbitrators, the award of any two of the arbitrators shall be binding. Under the section
as it then stood the parties could refer their disputes to three arbitrators, one to be appointed by each party and third by the two
arbitrators. Thus, the section did not override the intention of the parties and convert such reference into a reference to two arbitrators
and an umpire. The English Acts mentioned have been substituted with the [English]
Arbitration Act, 1996 . The position continues to be the same under the new Actalso. Unlike the [Indian]
Arbitration and Conciliation Act, 1996 , the English Act has maintained the tradition of “umpire” and not
substituted it with that of “presiding arbitrator.”

101. Death of nominated arbitrator

The third appointed arbitrator becomes the presiding arbitrator as well as a member of the Tribunal to sit
alongwith the two other arbitrators. He cannot be deemed to be an umpire. Even if one of the arbitrators
nominated by a party dies, the presiding arbitrator remains in his position. There will be no need for
appointing new third arbitrator after taking concurrence of the person who might be appointed to fill the
vacancy.

102. Effective date of appointment

An appointment becomes effective not when it is made but when it is communicated and received by the
arbitrator and the parties concerned.

103. Parties’ choice as to arbitrators : Minimum judicial interference

 Page 99 of 115
(IN) Bachawat: Arbitration and Conciliation

An arbitration clause in an agreement provided for settlement of disputes through arbitration by three
persons designated by their posts. The matter was referred to them. But they did not dispose of the matter
expeditiously. The civil court removed them all and appointed a sole arbitrator. An appeal against this
order was allowed. The order was set aside and the court below was directed to refer the dispute to the
decision of the three designated arbitrators. The court directed them to proceed expeditiously and the
parties were directed to cooperate with them.

The spirit of this decision is reflected by S.

Section 5 of the Arbitration and Conciliation Act, 1996 . The section under the
heading “Extent of judicial interference” that in the matters governed by theact (Part I : Arbitration) no
judicial authority can intervene except to the extent permitted by the Act. The section carries a non-
obstante clause, that is, notwithstanding any other law for the time being in force, the declaration in the
section will prevail. It also indicates that the Court would decline to supersede the agreement.

A contractor's suit for recovery of dues was dismissed because of the arbitration clause in the contract. He
then applied to the Civil Judge for appointment of an arbitrator under the old Act. The Civil Judge
appointed two arbitrators. This order was held to be not in accordance with the law because at the time of
the order the new Act had come into force and the appointment of even number of arbitrators without
arranging for the appointment of a third arbitrator is not compatible with the provisions of the new Act.

104. More than one request made : Bar under S. 11 (11)

If a petition under S. 11 has already been filed before one High Court for appointing an arbitrator, during
the pendency of that first application, no other such application may be entertained by any other High
Court, irrespective of whether the first High Court had jurisdiction to appoint an arbitrator. In view of the
clear language of S. 11 (11) of the Act, the moment it is brought to the attention of a court before which
an application under S. 11 is pending, that another such application has been filed before a different High
Court, the only inquiry which the court may make is which application was filed first, and not any further
enquiries as to territorial jurisdiction of the other court etc. If the court finds that the other application
was filed first, it has no option but to dismiss the application before it. The courts have considered this
rule to be based on public policy so as to avoid both courts appointing arbitrators and confusions
regarding jurisdiction.

105. Jurisdiction

The Chief Justice within whose jurisdiction the principal Civil Court has jurisdiction over the subject
matter of the dispute, has jurisdiction to appoint an arbitrator. When jurisdiction falls within the local
limis of more than one High Courts, the Chief Justice of the High Court who is approached first becomes
 Page 100 of 115
(IN) Bachawat: Arbitration and Conciliation

the competent court. The provisions of Section 11(11) and (12) and S. 2(1)(e) have to be read together so
as to harmonise them. Where a part of the cause of action which forms the subject matter of arbitration
arises in one state, an application before the Chief Justice of the High Court of that state was held to be
maintainable. In this case, the purchase order was placed by CJM at Bhopal. The entire communications
regarding grant of letters of intent and purchase orders were received at Secunderabad in AP. Inspection
of Cables was done at that place. The court said that the cause of action had arisen in MP as well as in AP.
No request for appointment of arbitrator was made either at Delhi or in MP. The applicant first knocked
the door of the AP High Court. It was held that the AP High Court became competent to appoint an
arbitrator. In case however, no relevant cause of action arises within a particular jurisdiction, the courts of
such place will reject the application to appoint the arbitrator.

Where the claim of the applicant was basically for the amount due on account of construction work at
Allahabad, it was held that the Chief Justice of the High Court at that place had jurisdiction to entertain
the application for appointment of an arbitrator. Referring to the argument that there was no jurisdiction
at Allahabad because the contract clearly provided for jurisdiction at New Delhi, the court said that the
argument was not raised in counter-affidavit filed in reply to the application under S. 11(5). Therefore, it
could not be raised for the first time in petition against appointment of an arbitrator. The court further
held that the agreement was of the period before the commencement of the new Act. Clauses excluding
jurisdiction of courts become inoperative in view of the provisions of the new Act.

Where there was a conflict between the place of residence, the place of business and the place of cause of
action and there was no averment of any nexus or connection of cause of action with the place of
residence or business, nor any prayer in letters patent for purpose of invocation of jurisdiction of the
court was made, the application for appointment of arbitrator was dismissed for want of jurisdiction.
Where the respondent had its office within the jurisdiction of the Punjab & Haryana High Court, the
Chief Justice of that Court appointed an arbitrator in the absence of any exclusive jurisdiction clause.
However, since the agreement was entered into in J&K, work was executed there and one of the parties
had its presence there, the court appointed a retired Chief Justice of the J&K High Court as an arbitrator.

Where the agreement contained a clause specifying the jurisdiction at a particular place (Calcutta) for all
cases arising out of the agreement, the filing of an application for appointment of an arbitrator at some
other place was held to be not permissible.

Where a clause in the agreement provided that all or any disputes agreed to be decided by the court or
tribunal would be those situated in Hyderabad or Secunderabad cities, the court said that this did not
mean that only the Civil Court had the jurisdiction to decide the dispute.

The petitioner was carrying on contract work and suffered from breach of contract by reason of denial of
some payment. A petition for appointment of an arbitrator was made at that place. This was held to be
within the jurisdiction of the courts there because a part of the cause of action had arisen at that place
though the contract documents were executed at some other place. Where the chairman-cum-managing
 Page 101 of 115
(IN) Bachawat: Arbitration and Conciliation

director appointed the arbitrator at New Delhi, it was held that the objections as to the territorial
jurisdiction of the Courts at Delhi were not to be entertained. One of the duties of the court while
considering questions of jurisdiction is to see that one party does not steal a march over the other by
invoking a particular jurisdiction and the adversary should not be put to a detriment in respect of
monetary or administrative aspects.

Where the parties, contract provided for exclusive jurisdiction for a particular court, the court said:

“The Court derives its jurisdiction under Section 11 of the Act only when there exists a valid arbitration clause. As there does not exist
any arbitration clause, the question of referring the matter does not arise. It is true that by reason of Clause 14, the jurisdiction had been
conferred upon this Court. Such a conferment of jurisdiction in one Court does not offend Section 28 of the Contract Act. But such
clause in the contract can be taken recourse to only in the event of the cause of action or any part thereof arises within the jurisdiction
of this Court as agreed to by the parties. No case has been made out for exercising the jurisdiction of this Court under Section 11 of the
Act. The Arbitration Application is accordingly dismissed.”

Where the contract was subject to the requirement that only sued cases as were of the value of twenty five
lakh rupees or above could go in for arbitration. The court said that the clause did not mean that the share
of the suing partner should be of greater value than that. The entire assets of the firm which had to be
distributed among the partners were of the value of thirty seven lakh rupees. Hence, the contract clause
was attracted.

A stipulation in the arbitration agreement was that venue of the proceedings was to be at Bombay. One of
the investors had already invoked jurisdiction of the Bombay High Court under S. 9. The petitioner and
the coinvestor had commonality of interest. The Bombay High Court acquired exclusive jurisdiction
unless it held the view that it had no jurisdiction and, therefore, parties’ agreement could not have
bestowed jurisdiction on it. In a case, parties had agreed for the venue of arbitration to be Bangalore and
also for the execution of the documents, payments etc. to be at Bangalore. When a party approached the
Chief Justice of the Andhra Pradesh High Court to appoint an arbitrator, the court held that the
agreement for holding arbitration proceedings in Bangalore was an “implied agreement” to give
jurisdiction to the Courts at Bangalore alone. This case however appears to have overlooked the fact that
choice regarding a venue of arbitration might be made for a number of considerations. This, by itself,
does not reveal any implied agreement according exclusive jurisdiction. In such situations, if cause of
action arises in multiple jurisdictions, in the absence of an express exclusivity clause, the parties will be at
liberty to approach the Chief Justice of any of the relevant High Courts within whose local limits the
principal civil court, as defined under S. 2(1)(e), is situated.

Where the machinery was despatched from Calcutta, but everything else was done at Visakhapatnam, e.g.,
installation, trial run, payment of price, so that almost a complete transaction took place at
Visakhapatnam, it was held that a unilateral endorsement by the respondent that the transaction was
subject to Calcutta jurisdiction without an ouster clause using words like ‘alone’, ‘exclusion’, ‘only’, etc.
 Page 102 of 115
(IN) Bachawat: Arbitration and Conciliation

was of no consequence. The High Court of AP had jurisdiction to entertain an application under S. 11(6).

Provision about jurisdiction in agreement

Where a clause in the agreement provided for jurisdiction of the Delhi High Court till issue of
authorisation letters to circles for placement of purchase orders, it was held that this clause was not to
apply to dispute which had arisen after issuance of authorisation letters. Where the dispute resolution
clause of the agreement provided that the settlement of disputes would be through a sole arbitrator to be
appointed by mutual consent and that the courts at Delhi were to have exclusive jurisdiction, it was held
that the courts at Delhi had exclusive jurisdiction. It was immaterial that some other courts also had
territorial jurisdiction in the matter.

Provision for reference to Standing Committee

A clause in the agreement envisaged reference of a dispute to a Standing Committee. An application to

the Chief Justice for appointment of an arbitrator without first fulfilling the requirement of coming before
the Standing Committee was held to be not allowable.

Application not restricted by exclusivity rule in S. 42

Since the Chief Justice or his designate is not acting as a “court” while exercising his powers of
appointment under S. 11, an application under S. 11 is not restricted by the jurisdictional bar enshrined
under S. 42. The Supreme Court therefore rejected the contention that since an application had been
made under S. 9 before the Delhi High Court, even the application for appointment must be made there.
It was held by Bn Srikrishna J

“It is contended that as recourse had been taken by the petitioner under S. 9 of the Act to obtain interim relief by moving the Delhi
High Court… by reason of S. 42 of the Act that court alone could have jurisdiction upon the arbitral tribunal. In my view, this
contention has no merit as I have held earlier, neither the Chief Justice nor his designate under S. 11(6) is a “court” as contemplated
under the Act. S. 2(1)(e) of the Act defines the expression “court”. The bar of jurisdiction under S. 42 is only intended to apply to a
“court” as defined in S. 2(1)(e). The objection, therefore, has no merit and is rejected.”

Subsequent to this decision of the Supreme Court, the cases to the contrary, cannot be regarded as good
 Page 103 of 115
(IN) Bachawat: Arbitration and Conciliation

law.

106. Place of arbitration

Where the parties were already interlocked in a civil litigation at Ahmedabad, all documents were signed at
Ahmedabad and all supplies were made from there, but the parties’ agreement as to place talked of either
Delhi or Ahmedabad, the Court said that it would be better to appoint an arbitrator situated at
Ahmedabad. Under the scheme of the Act, the Court is not competent to fix or order a change of venue
of the arbitration. This power must be exercised, either upon agreement of the parties, or by the
arbitrator, keeping in mind the mandate of S. 20. There is, however, authority to the contrary. It has been
held by the Uttaranchal High Court that the court may also fix the venue of the arbitration while
appointing an arbitrator under S. 11.

Where the parties have agreed upon a venue of arbitration, or designated a person who will have the right
to choose a place for conducting the arbitration proceedings, the court cannot change such place of
arbitration as provided for in agreement. The same would amount to alteration of terms of the agreement
entered into between the parties. If the venue of arbitration was chosen to be at the Netherlands, the
court would not deviate from the same merely because it caused hardship for the other party.

Place of subordinate office

The respondent company had a subordinate office at Delhi. This fact gave jurisdiction to the High Court
of Delhi under
S. 20 CPC . The Court said that it was the choice of the plaintiff to file a suit at the
place where the subordinate office was situate and that he could not be compelled to file a suit only at the
place where the principal office was situate.

107. Designate of Chief Justice

Whether in an application under Section 11 the delegate could refuse reference on the ground that the
claim was barred by limitation, it was held that, ordinarily in an administrative enquiry such an exercise
will not be done if there are disputed questions of fact which are required to be proved. It is only if the
admitted facts are clear and require no further investigation can under Section 11, reference be refused.

The power of the Chief Justice is either to nominate the arbitrator himself or to designate another person
 Page 104 of 115
(IN) Bachawat: Arbitration and Conciliation

who will make the nomination. Either for nomination or for designation, the Chief Justice will have to be
satisfied about the preliminaries. The designation of the nominator by the Chief Justice must be from case
to case and not a general designation for all matters.

Under the Act of 1940 applications inter alia under Sections 8, 20 and 33 could be made to District Courts
also. In the first two of those sections appointments of arbitrators were possible. In the present law
wherever parties need the intervention of the Court for nomination of an arbitrator, they have to
approach the High Court of the State. The old law has been changed. Power to nominate an arbitrator has
been centralized in every State. The second change is that under the old Act the Court always itself
nominated the arbitrator. Under the new Act there is a possibility of designation for purposes of
nominator.

There is no power of refusal of ordering appointment if the parties are bound by the agreement to have
their dispute decided through arbitration and both are not agreeable to a civil suit.

108. Practice

Mentioning of Wrong Section in Title of Petition

The mention of a wrong section in the title of the petition does not make it liable to be rejected. The
petition for appointment of an arbitrator was presented to the right forum but under a wrong section. It
should have been a petition under S. 11 but S. 8 was mentioned in its title. The Court rectified it to be a
petition under S. 11. If an application under S. 11(6) is styled and filed as an application under Section
11(4), the court can simply treat it as an application under S. 11(6).

Typographical Error or Printing Mistake

Where a reference made under Orissa Arbitration Tribunal Rules, 1979 made the error of designating the
Rules as ‘Act’ (Orissa Arbitration Tribunal Act), the Court said that this could not affect the substance of
the reference.

Petition must be filed by a defined legal entity

 Page 105 of 115
(IN) Bachawat: Arbitration and Conciliation

An application must be filed by a defined legal entity. A sole proprietorship firm is not recognised as a
separate legal entity and cannot maintain an application for appointment in its name, unless it is
accompanied by a prayer to seek amendment to the plaint to sue in the name of the sole proprietor.

Compliance with Scheme Framed By High Court

Where the substantial requirements of S. 11 have been satisfied, an application for appointment of
arbitrator would not be rejected merely on account of some minor procedural defects in complying with
the scheme framed by the High Court in this regard.

Power to compel personal attendance

The Court has the power to compel the personal attendance of any party in case it is justified by the facts
and circumstances of the case. This should however be done only when there are compelling
circumstances and in exceptional situations. For instance, in an application under Ss. 11 & 9, the court
compelled the attendance of the Managing Director of the Container Corporation of India. On facts, it
was established that the department was harassing the contractor and was consistently misleading the
court. The order compelling personal attendance was held justified.

Say of parties in appointment

Unless there is an “agreed procedure” for the appointment of the arbitrator, the Chief Justice, or his
designate, is not required to either inform, or obtain the consent of, the parties to the agreement regarding
the person proposed to be appointed as an arbitrator. Neither party has a say regarding the person to be
appointed as the arbitrator, and the choice of the person to be appointed as the arbitrator lies within the
exclusive discretion of the Chief Justice or his designate which is to be exercised keeping in mind the
requirements of S. 11(8) of the Act. Usually the courts try to take into account the preferences of the
parties while exercising their power of appointment, though, strictly speaking, this is not a pre-condition
or a legal requirement. The only requirement is that parties must be given an opportunity of being heard.

Responsible Exercise of Power of Appointment (Minimising Costs of Arbitration)

The choice of the persons who comprise the arbitral tribunal is vital and often the most decisive step in
an arbitration. It has rightly been said that arbitration is only as good as the arbitrators. The power of
 Page 106 of 115
(IN) Bachawat: Arbitration and Conciliation

appointment is a serious power which is wielded by the Chief Justices, and great responsibility must be
shown by them while exercising the power of appointment.

The Supreme Court in Singh Builders has noticed the recent trend of appointment of retired judges as
arbitrators and expressed alarm at the concomitant rising costs to the parties. Raveendran J has identified
the problems with the current system of appointment and noted—

“[T]he cost of arbitration can be high if the arbitral tribunal consists of retired Judges… There is no doubt a prevalent opinion that the
cost of arbitration becomes very high in many cases where retired Judges are arbitrators. The large number of sittings and charging of
very high fees per sitting, with several add-ons, without any ceiling, have many a time resulted in the cost of arbitration approaching or
even exceeding the amount involved in the dispute or the amount of the award. When an arbitrator is appointed by a court without
indicating fees, either both parties or at least one party is at a disadvantage. Firstly, the parties feel constrained to agree to whatever fees
is suggested by the arbitrator, even if it is high or beyond their capacity. Secondly, if a high fee is claimed by the arbitrator and one party
agrees to pay such fee, the other party, who is unable to afford such fee or reluctant to pay such high fee, is put to an embarrassing
position. He will not be in a position to express his reservation or objection to the high fee, owing to an apprehension that refusal by
him to agree for the fee suggested by the arbitrator, may prejudice his case or create a bias in favour of the other party who readily
agreed to pay the high fee.”

Having said this, Raveendran J went on to suggest certain practical solutions which may be pursued by
courts and policy makers —

“It is necessary to find an urgent solution for this problem to save arbitration from the arbitration cost. Institutional arbitration has
provided a solution as the arbitrators’ fees is not fixed by the arbitrators themselves on case to case basis, but is governed by a uniform
rate prescribed by the institution under whose aegis the arbitration is held. Another solution is for the court to fix the fees at the time of
appointing the arbitrator, with the consent of parties, if necessary in consultation with the arbitrator concerned. Third is for the retired
Judges offering to serve as arbitrators, to indicate their fee structure to the Registry of the respective High Court so that the parties will
have the choice of selecting an Arbitrator whose fees are in their ‘range’ having regard to the stakes involved. What is found to be
objectionable is parties being forced to go to an arbitrator appointed by the court and then being forced to agree for a fee fixed by such
arbitrator. It is unfortunate that delays, high cost, frequent and sometimes unwarranted judicial interruptions at different stages are
seriously hampering the growth of arbitration as an effective dispute resolution process. Delay and high cost are two areas where the
Arbitrators by self regulation can bring about marked improvement.”

Comity of Jurisdiction

The court, while exercising its judicial function, will not ordinarily pass an order which requires a party
before it to violate a lawful order passed by another court. This is the principle of judicial comity, and has
been explained by the Supreme Court in the following words —
 Page 107 of 115
(IN) Bachawat: Arbitration and Conciliation

“Where a court having general jurisdiction and having acquired jurisdiction of the subject-matter has issued an injunction, a court of
concurrent jurisdiction will usually refuse to interfere by issuance of a second injunction. There is no established rule of exclusion which
would deprive a court of jurisdiction to issue an injunction because of the issuance of an injunction between the same parties
appertaining to the same subject-matter, but there is what may properly be termed a judicial comity on the subject. And even where it is
a case of one court having refused to grant an injunction, while such refusal does not exclude another coordinate court or judge from
jurisdiction, yet the granting of the injunction by a second judge may lead to complications and retaliatory action….”

Thus, the Supreme Court faced with an application for appointment of arbitrator refused to interfere,
where the Madras High Court had already passed an injunction against taking any action in terms of the
underlying agreement in a case challenging the agreement on the ground of a massive fraud. The effect of
the order of the Supreme Court appointing an arbitrator would have been in violation of a lawful order
passed by the Madras High Court. The Court speaking through Sinha J noted—

“A court while exercising its judicial function would ordinarily not pass an order which would make one of the parties to the lis violate a
lawful order passed by another court.”

109. Relief beyond pleading

Where the applicant sought appointment of a panel of three arbitrators as required under the agreement
but the other party remained absent, and an ex parte order appointing a sole arbitrator was passed. This
order was challenged in a writ petition by the absentee. The court said that the writ was not liable to be
dismissed only because of non-appearance. A relief which was not sought was granted by the court and
that more disadvantageous to the writ petitioner. The order became vitiated by reason of denial of natural
justice and fair play.

110. Disputes between Public Departments

In situations where disputes arise between two public departments, as per the law laid down by the
Supreme Court, the disputes must first be referred to the Committee of Secretaries, seeking to resolve the
dispute or to obtain permission from them for instituting and prosecuting proceedings. It was ordered in
this case —

“We direct that the Government of India shall set up a committee consisting of representatives from the Ministry of Industry, the
Bureau of Public Enterprises and the Ministry of Law, to monitor disputes between Ministry and Ministry of Government of India,
 Page 108 of 115
(IN) Bachawat: Arbitration and Conciliation

Ministry and Public Sector Undertakings of the Government of India and Public Sector Undertakings in between themselves, to ensure
that no litigation comes to court or to a tribunal without the matter having been first examined by the committee and its clearance for
litigation. Government may include a representative of the Ministry concerned in a specific case and one from the Ministry of Finance
in the Committee. Senior officers only should be nominated so that the Committee would function with status, control and discipline.

It shall be the obligation of every court and every tribunal where such a dispute is raised hereafter to demand a clearance from the
committee in case it has not so pleaded and in the absence of the clearance, the proceedings would not be proceeded with.”

It has been held that the order of the Supreme Court is binding even where such parties want to agitate
their rights under the arbitration agreement.

The clearance of the Committee of Secretaries need not be taken where one of the parties to the dispute is
a joint venture company in the form of a public-private partnership. In such situations the dispute cannot
be split between the public entity and the private entity for the purposes of clearance.

Special Machinery of Arbitration

In certain cases, a special permanent machinery of arbitration set up by the government is applicable to
resolve disputes only between public departments. In case the court finds that one of the parties is a
private party, it may refuse to appoint the arbitrator, since such machinery of arbitration applies only to
disputes between public entities.

111. Criminal prosecution

A commercial transaction under which a cheque was issued and which was dishonoured and, therefore,
the requirements of S.
Section 138 of the Negotiable Instruments Act, 1881 , being satisfied an offence
was constituted. It was held that launching of criminal proceedings for the same was not debarred by the
fact that arbitration were also commenced by seeking appointment of an arbitrator. Reference to
arbitration under the terms of the transaction was not an effective substitute for a criminal prosecution
when the disputed act was an offence.

112. Sick Industrial Company

 Page 109 of 115
(IN) Bachawat: Arbitration and Conciliation

Proceedings under the section for appointment of an arbitrator can continue even if the respondent has
been declared to be a sick company under the
Sick Industrial Companies (Special Provisions) Act, 1985 . An arbitration
proceeding is neither a suit under
Section 22(1) of the SICA nor a proceeding of the nature envisaged thereunder,
and therefore there is no prohibition to take up arbitration proceedings to adjudicate the liability of
parties.

An attempt to recover hire purchase machinery and action taken for it is not stayed under Section 22 as it
is not a recovery against sick company's properties. Arbitration Proceedings are not proceedings for
winding up, nor it is a proceedings for execution, distress or like, nor it is a proceedings for appointment
of receiver, nor it is a suit for recovery of money or enforcement of any security. Therefore,
Section 22(1) of SICA could not be invoked, nor the arbitration proceedings are to
be stayed. Although the Supreme Court has held that the provisions of
SICA “seek to achieve a higher goal”, and the enforcement of awards under S. 36
may be suspended in light of specific provisions of
SICA under Ss. 22(1) and 22(3), there is no reason to suppose that this has
brought about a change to the settled position of law under S. 11.

113. Recalling of order of appointment

The Chief Justice possesses inherent power for doing justice and has the power to recall an order passed
by him previously. A direction for appointment of arbitrator was given by the Supreme Court on the
request of the petitioner. When arbitrator wanted to fix the venue, counsel of petitioner informed him
that petitioner was no longer interested in pursuing arbitration proceedings. It was held that the way in
which he proceeded in the matter was highly objectionable. But in view of ill-health of the petitioner, the
application for recalling of the order was allowed. The petition was dismissed with costs which were
assessed to the extent of the balance amount deposited with the Registry towards cost of litigation.

The object of getting disputes decided through arbitration is not to complicate the matter by way of
splitting and multiplying the reference to different arbitrations but to decide all the disputes arising in the
midst of proceeding through the same arbitrator. Otherwise the very object of expeditious and an
inexpensive mode of adjudicating disputes through arbitration would be frustrated.

The words “subject to an agreement between the parties”, “unless otherwise agreed by the parties” and
“parties are free to agree” appear in Act of 1996 in its various provisions and these to indicate that the
Parliament, in its wisdom, has given a free will to the parties to agree to the procedure in respect of the
proceedings for the purpose of arbitration. The procedure prescribed is not only fair and efficient but
takes care of all situations, and is further aimed to give finality to the proceedings and awards so as to
keep away even least interference by courts of law. The words are important but the context in which they
 Page 110 of 115
(IN) Bachawat: Arbitration and Conciliation

are used, is not less important.

114. Suppression of material facts (Clean Hands)

During pendency of arbitration application, the respondent appointed a sole arbitrator for adjudication of
disputes between the parties. The petitioners submitted themselves to his jurisdiction for filing claim
papers. This fact was suppressed by the petitioner from the court while getting an order for appointment
of an arbitrator. This was held to be an abuse of the process of the court. He took an unfair advantage of
the absence of the respondents’ counsel.

Where the application before the court was grounded in fraudulent interpolations to the arbitration
agreement and suppression of material facts, the court dismissed the application and also refused leave to
withdraw and file a fresh suit on the same matter. The court took the matter extremely seriously and
refused to condone the argument that the interpolations only related to the venue of arbitration and did
not affect the substantive rights of the parties. Awarding punitive and exemplary damages, Gita Mittal J
held —

“The petitioner has admittedly filed the present case placing reliance on a photocopy where it has effected several interpolations noticed
above. There is interpolation so far as place of arbitration is concerned. This interpolation has been obviously effected with the intent
of conferring territorial jurisdiction to entertain and adjudicate upon the subject matter of the petition on this Court which the court
otherwise did not have. The petitioner has contended that even if this interpolation was made, it was not made with the intention of
defeating any rights on the merits of the disputes of the respondent. In my view, the fraud of a party on the court would be much worse
than fraud on the party. While fraud on an individual affects only the individual, fraud on judicial process and the court pollutes the
entire administration of justice. The same has undoubtedly much graver and far reaching consequences than fraud on an individual. The
court has held that forging or altering of courts documents and other deceits of like kind are punishable as serious contempts…”

Non-disclosure of earlier application

Where a party filed an application under S. 11 before the Delhi High Court and did not disclose that it
had earlier filed another application, for the same matter, before the Bombay High Court, the Delhi High
Court refused to entertain the application holding it to be an abuse of the judicial process.

115. Winding up of company

The question of winding up of a company is not referable to arbitrator despite existence of arbitration
 Page 111 of 115
(IN) Bachawat: Arbitration and Conciliation

agreement. Even if arbitration clause subsisted the court has an unfettered power to entertain winding up
petition. There is no likelihood of a conflict between the statutory relief of winding-up and of the
contractual right to have disputes settled by arbitration. Once a bona fide defence is shown, arbitration will
be the efficacious and proper remedy. Where the defence is mala fide, company judge can pass appropriate
orders in the winding up petition.

The power to order winding up of a company is vested with a court as envisaged under the
Companies Act . However disputes relating to whether or not a company is
functional, the nature and status of the company's assets can be the subject matter of arbitration. The
arbitrator can also issue directions regarding the liabilities of the company and, as long as this is within his
competence, provide an appropriate remedy.

Merely because a party files a winding up petition and a suit is instituted for recovery of the amount
claimed on the basis of leave granted by the winding up court, the right to seek appointment of an
arbitrator in accordance with the arbitration clause is not ousted.

116. Res Judicata

An application for appointment of arbitrator was made under S. 20 of the 1940 Act but was dismissed on
the technical ground of jurisdiction. Such dismissal was not regarded as a decision of a court of competent
jurisdiction. It constituted no res judicata to an application under S. 11 of the new 1996 Act.

Where in a dispute between the parties, nine claims were raised by the applicant but only three claims
were actually referred by the respondent to the arbitrator and award received. Subsequently he proceeded
again under sub-section (5) and (6) for appointment of an arbitrator for consideration of the remaining
claims. At this stage the respondent appointed an arbitrator and referred the remaining claims. The court
said that he had forfeited the right to appoint an arbitrator. The appointment made by him was non-est in
the eyes of law. The application was allowed and a sole arbitrator was appointed by the court for
adjudication of the remaining claims.

Subsequent to Patel Engineering, the authority to decide on by a District Judge as a delegate of the Chief
Justice S. 11 applications cannot be delegated to a District Judge, however, orders decided prior to Patel
Engineering, would continue to be valid. Thus, where an order was dismissed by the District Judge on
merits, and such court had the jurisdiction to decide the matter at the time the order was made, a
subsequent application was not entertained merely on the ground that the jurisdiction thereafter lay with
the High Court and not the District Judge.
 Page 112 of 115
(IN) Bachawat: Arbitration and Conciliation

117. Availing Remedy under

Consumer Protection Act

Having availed of the remedy available under the

Consumer Protection Act, 1986 , the claimant was not allowed to seek remedy
under the 1996 A&CA. The claimant had a choice of proceeding under the
Consumer Protection Act and having obtained an award under that Act he became
debarred from making reference under the 1996 A&CA. Once a matter has been finally decided by the
National Consumer Disputes Redressal Commission and further on appeal by the Supreme Court, a party
cannot subsequently be allowed to invoke the arbitration clause.

It is however submitted that remedies available under the 1996 Actand the remedies available under the
Consumer Protection Act, 1986 are different in nature. The remedy obtained
under one forum will not be a bar to pursue remedies available under the other.

118. M.P. Madhyastham Adhikaran Adhiniyam, 1983

It is now settled that if a particular procedure is prescribed under the works contract in order to refer the
dispute to the final authority, the procedure laid down in the contract must be followed. Thus, where an
appeal was not preferred in accordance with the relevant clause of the works contract, the reference
petition was held not maintainable before the tribunal. Similarly where the counter-claim was not referred
to the final authority as per the procedure in the works contract, it was held that the same could not be
entertained by the tribunal. Similarly, where the Superintending Engineer was approached after the time
stipulated under the agreement, the decision rendered by him was held to be on an incompetent reference
and was not held to give rise to a fresh cause of action.

119. Court Fee

The question whether the petitioner was liable to pay court fee was not decided. The counsel agreed to
pay the court fee of Rs. 2 without prejudice to the petitioner's stand.

Further Suggested Reading (Appointment of Arbitrators)

 Page 113 of 115
(IN) Bachawat: Arbitration and Conciliation

1. H.C. Johari, “Can the Arbitrator appointed by a Party act as Sole Arbitrator when the other Party
fails to appoint an Arbitrator inspite of Notice”,
(1999) 2 ARB LR 4 .
2. Bishop and Reed, “Practical Guidelines for Interviewing, Selecting and Challenging Party-
Appointed Arbitrators in International Arbitration”, 14(4) ARBN INTL 395 (1998).

DISQUALIFICATIONS OF ARBITRATORS

Sections
Section 12 and
13 of the
Arbitration and Conciliation Act, 1996 lay down a set of provisions about the
disqualifications of an arbitrator and the procedure for challenge. The provisions of Section 12 are as
follows :

51. S.B.P. & Co. v. Patel Engineering Ltd.,

2005 3 Arb LR 285 , 309 :
AIR 2006 SC 450 [
LNIND 2005 SC 851 ]:
(2005) 3 RAJ 388 :
(2005) 8 SCC 618 [
LNIND 2005 SC 851 ].

52. National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd.,

2008 3 Arb LR 633 , 646 :
AIR 2009 SC 170 [
LNIND 2008 SC 1869 ]:
(2008) 4 RAJ 557 :
(2009) 1 SCC 267 [
LNIND 2008 SC 1869 ], per Raveendran J. See also S.P. Singla Constructions v.
Union of India,
(2009) 1 Arb LR 1 :
(2009) 2 RAJ 301 :
(2009) 156 DLT 625 (Del), issue of “excepted matters” to be left for decision by arbitrator relying
on Earnest Builders Pvt. Ltd. v. Union of India,
(2007) 3 Arb LR 183 :
(2007) 4 RAJ 345 :
(2007) 141 DLT 555 (Del). Jain Traders v. Executive Engineer, UPRVUN,
(2006) 3 RAJ 475 (Del), contract providing for sale of materials on an “as is where is” basis and
prohibiting claims regarding deficiency of materials, held dispute arising out of a small deviation in quality will fall within the clause and
be prohibited, but a large deviation in quality, would prima facie lead to an arbitrable dispute; T. Srinivasa Rao v. Union of India,
2009 2 Arb LR 581 , 590 (AP), objections that claims are ‘remote’ or ‘not liable to be adjudicated’ by
the arbitral tribunal cannot be raised at the time of appointment, tenability of the claims has to be canvassed before the arbitrator and
not the Chief Justice.

53. National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd.,

2008 3 Arb LR 633 , 646 :
AIR 2009 SC 170 [
LNIND 2008 SC 1869 ]: (2008) 4 RAJ 557 :
(2009) 1 SCC 267 [
 Page 114 of 115
(IN) Bachawat: Arbitration and Conciliation

LNIND 2008 SC 1869 ], per Raveendran J. See also Sterlite Optical Technologies Ltd.
v. Bharat Sanchar Nigam Ltd.,
2009 1 Arb LR 139 , 143 :
(2009) 2 RAJ 418 (Del), if court starts examining tenability of claims, it will open floodgates and
delay proceedings.

54. Pioneer Construction v. State of Rajasthan,

2006 2 Arb LR 321 , 324 :
AIR 2006 RAJ 103 : (2006) 2 RAJ 659 :
(2006) 1 RAJ LW 782 :
(2006) 1 RAJ LR 150 , where claim for price escalation made after 5 years from completion and
where no escalation clause, application for appointment of arbitrator rejected; Union of India v. Madani Construction Corporation Pvt. Ltd.,
2006 3 Arb LR 63 , 66 :
(2005) 4 Pat LJR 383 (Pat), contractor claimed compensation for certain preparations taken ‘before’
commencement of work under the contract, held preparation not ‘under’ the contract and disputes relating to the same not arbitrable;
Interocean Shipping (I) Pvt. Ltd. v. Ashish Dhall,
2006 3 Arb LR 390 , 395 :
(2007) 3 RAJ 151 :
(2006) 133 DLT 77 (Del), arbitral clause contained in an employment contract, not allowed to be
invoked in relation to disputes beyond the tenure of the agreement; Dilip Bafna v. K.S. Vasudeva,
AIR 2007 (NOC) 2433 : (2007) 5 AIR Kant R 236 : (2007) 6 Kant. LJ 564, agreement contained
arbitration clause for resolution of disputes but also contained provision for approaching civil court for specific performance, arbitrator
not appointed where disputes raised related to the issue of specific performance; Harjit Singh v. Delhi Development Authority,
(2009) 2 Arb LR 349 (Del-DB) where clause regarding arbitration restricted to only particular kind
of disputes, and not the one in question (violation of building plans), appointment was refused; M. Venkat Rao v. Union of India,
(2009) 1 ALT 126 where a ‘remote’ claim was not referred to the arbitrator.

55. See for instance Siddhivinayak Realties Pvt. Ltd. v. Tulip Hospitality Services Ltd.,
2007 1 Arb LR 530 , 516 :
(2007) 2 RAJ 258 , parties entered into Escrow Arrangement to cover specific disputes despite pre-
existing arbitration agreement between them, held that it is not intention of parties to only provide for arbitration on appeal from
Siddhivinayak Realties Pvt. Ltd. v. Tulip Hospitality Services Ltd.,
(2007) 1 Arb LR 530 :
(2007) 2 RAJ 258 (Bom).

56. Suresh Raina v. National Fertilisers Ltd.,

(2003) 1 RAJ 129 :
(2002) 101 DLT 56 (Del).

57. S.P. Singla Constructions v. Union of India,

(2009) 1 Arb LR 1 :
(2009) 2 RAJ 301 :
(2009) 156 DLT 625 (Del), issue of “excepted matters” to be left for decision by arbitrator relying
on Earnest Builders Pvt. Ltd. v. Union of India,
(2007) 3 Arb LR 183 :
(2007) 4 RAJ 345 :
(2007) 141 DLT 555 (Del).

58. Earnest Builders Pvt. Ltd. v. Union of India,

2007 3 Arb LR 183 , 187 :
(2007) 4 RAJ 345 :
(2007) 141 DLT 555 (Del).

59. Earnest Builders Pvt. Ltd. v. Union of India,

2007 3 Arb LR 183 , 187 :
(2007) 4 RAJ 345 :
(2007) 141 DLT 555 (Del).
 Page 115 of 115
(IN) Bachawat: Arbitration and Conciliation

End of Document