In the case of M/s Durga Welding Works v. Chief Engineer, Railway Electrification, Allahabad and Ors., Civil Appeal No. 54 of 2022 dated 04.01.2022, the Supreme Court held that the High Court did not commit any error of law in dismissing an application for the appointment of Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“the Act”), when the Arbitral Tribunal was already constituted with the consent of the parties and an ex-Parte Award was passed.
The tender of M/s Durga Welding Works (“the Appellant”) was accepted by the Railway Electrification Department of Allahabad (“the Respondent”) on 30.11.2006. In reference to the tender, the Appellant and Respondent executed an Agreement which included an Arbitration clause for settlement of claims and/or disputes between the parties.
On account of certain unsettled claims, the Appellant duly served a Legal Notice dated 03.08.2009 upon the Respondent for appointment of an Arbitrator for settlement of claims. The Respondent failed to appoint an Arbitrator pursuant to the said Notice. Thus, the Appellant filed an application before the High Court for appointment of an arbitrator under Section 11(6) of the Act.
However, after filing the said application, the Appellant did not take any action in its furtherance and the application never came to the notice of the Respondent, as no notice was served to them at any stage.
Meanwhile, the Respondents vide Letter dated 28.01.2010 responded to the Appellant’s Notice dated 03.08.2009 and suggested a panel of four persons for the Appellant to select two names for appointment of Arbitrator.
Thereafter, the Appellant filed a Miscellaneous Application on 17.02.2010 seeking an order restraining the Respondents from appointing an Arbitrator. This application remained pending too as no further action was taken by the Appellant to pursue this application or the application under Section 11(6) of the Act.
Additionally, the Appellant chose two Arbitrators from the panel suggested by the Respondent vide its Letter dated 28.08.2010 and subsequent thereto an Arbitral Tribunal was constituted. The Appellant and Respondent appeared before the Arbitral Tribunal and submitted their statement of claim and statement of defence, on 25.10.2010 and 15.11.2010 respectively.
On 27.12.2011, the Appellant submitted an application before the Arbitral Tribunal that since the Tribunal was not nominated within the stipulated time, its constitution was invalid and that the Tribunal should not proceed with the Arbitration proceedings.
The Arbitral Tribunal rejected the aforementioned application of the Appellant as the Tribunal had been constituted with the consent of the Appellant, and proceeded with the Arbitration.
Subsequent to the rejection of the Appellant’s application by the Tribunal, the Appellant did not participate in the Arbitral proceedings despite opportunity being granted to them. Thereafter, the Arbitral Tribunal passed an Ex-Parte Award dated 21.06.2013 rejecting the Appellant’s claim.
In 2016, after almost three years of passing of the Ex-Parte Award, notices were issued by the High Court to the Respondents in the Section 11(6) application filed by the Appellant. The High Court took note of the peculiar facts and circumstances and dismissed the application vide Order dated 26.07.2019, with liberty to the Appellant to submit its objections under Section 34 or 37 of the Act.
Aggrieved by the Order of the High Court dismissing the application of the Appellant under Section 11(6) of the Act, the Appellant filed the present appeal before the Supreme Court.
ISSUE BEFORE THE SUPREME COURT
Whether the High Court can appoint an Arbitrator under Section 11(6) of the Act, after the Arbitral Tribunal was appointed with the consent of the parties and an Ex-Parte Award was passed by it?
DECISION AND FINDINGS
The Supreme Court noted that the legal principle governing the appointment of Arbitrator under Section 11(6) of the Act is well settled, as laid down in in Datar Switchgears Ltd. v. Tata Finance Ltd. & Anr. 2000 (8) SCC 151 and Punj Lloyd Ltd. v. Petronet MHB Ltd. 2006 (2) SCC 638, and stated that:
“…once an application under Section 11(6) of the Act has been filed for appointment of an Arbitrator before the High Court, the respondents forfeited their right to appoint an Arbitrator and the High Court alone holds jurisdiction to appoint an Arbitrator…”
The Supreme Court observed that the Respondent had appointed the Arbitrator after the application under Section 11(6) of the Act was filed by the Appellant. That being said, the Appellant slept over the application so filed and took no action to even serve notice to the Respondent.
The Supreme Court pointed out that the Appellant went ahead with the selection of Arbitrator when the Respondent called upon the Appellant to select two names from the panel suggested by them, consequent to which the Arbitral Tribunal was constituted. Thus, the Supreme Court held that the Appellant was at consensus with the Respondent for appointment of the Arbitral Tribunal.
The Supreme Court further noted that as the Appellant even submitted its statement of claim before the Arbitral Tribunal, this showed the Appellant’s willingness to proceed with the Arbitration proceeding.
The Supreme Court took into account the peculiar facts and circumstances of the present case and observed that the Appellant took no steps to pursue the application under Section 11(6) of the Act.
Thus, the Supreme Court held that the High Court did not commit any error in dismissing the application under Section 11(6) of the Act, even though it is the settled position of law that the Respondent forfeits their right to appoint an Arbitrator once an application under Section 11(6) of the Act has been filed. The Supreme Court dismissed the Appeal and held that:
“16. In our considered view, so far as the question of law is concerned, certainly being settled that after the application has been filed for appointment of an Arbitrator under Section 11(6) of the Act, before the High Court the respondents forfeited their right to appoint an Arbitrator under the clause of arbitration thereafter but from the narration of facts which has been noticed by us, we are of the view that no error was committed by the High Court in dismissing the petition filed under Section 11(6) of the Act for appointment of an Arbitrator by an Order dated 26th July, 2019.”
The primary objective of the Act is to ensure party autonomy and minimal court interference during settlement of dispute through Arbitration. However, certain exceptions have been carved out in the Act to grant judicial interference, where party autonomy does not prevail.
Section 11(6) of the Act envisages one such situation, when a party fails to follow the procedure for appointment of Arbitrator under the Arbitration agreement. In such a situation, the other party may approach the High Court for the appointment of Arbitrator.
The settled principle of law with regards to appointment of Arbitrator under Section 11(6) of the Act is that once an application has been made under Section 11(6) of the Act, the other party cannot proceed to appoint the Arbitrator without judicial interference.
However, the present case had a peculiar set of facts, where the party which filed the application under Section 11(6) of the Act took no action under the application, and later consented to the appointment of Arbitrator by the other party.
Through this judgment, the Supreme Court in an attempt to discourage unnecessary litigation, held that the settled principle of law concerning appointment of Arbitrator would not be applicable when the party making such application sleeps over their rights. This decision will serve as an important precedent in future disputes where a party to an Arbitration misuses the law to defeat its very purpose.
-TEAM AMLEGALS, assisted by Ms. Gazal Sancheti (Intern)
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