Sime Darby Engineering Sdn,Bhd vs Engineers India Ltd

Sime Darby Engineering SDN. BHD. ....Petitioner (s)

- Versus -

Engineers India Ltd. ....Respondent(s)

O R D E R

1. This petition has been filed under Section 11 of

Arbitration and Conciliation Act 1996 (hereinafter

referred "the said Act") by the petitioner praying for

appointment of the arbitral tribunal to adjudicate the

claims and disputes between the petitioner and the

respondent.

2. The petitioner is a company incorporated and existing

under the laws of Malaysia and is engaged in the business 1 of fabrication of all types of offshore and onshore

structures and complexes. The respondent on the other

hand is the company incorporated under the (Indian)

Companies Act, 1956 and is inter alia engaged in the

business of providing engineering and related technical

services for petroleum refineries and other industrial

projects.

3. The necessary facts of the case are that Oil and

Natural Gas Corporation Limited (ONGC) invited a tender

vide notification dated November 17, 2003 for carrying

work of Survey, Design, Engineering, Procurement,

Fabrication, Anticorrosion and Weight coating, Laying of

submarine pipeline, Installation of SPM, Load out, Tie-

down/Sea-fastening and various other jobs in respect of

Mumbai High South Field offshore site.

4. In connection with the said tender issued by ONGC,

respondent and petitioner entered into a Business

Agreement on 22/01/2004 by which it was agreed that the

respondent shall quote as a bidder against the said

Tender with the petitioner as a sub-contractor for 2 identified scope of work. The tender was awarded by ONGC

to the respondent by notice dated 10/03/2004 for the said

fabrication and installation of D-1 Well-Cum-Water

Injection Platform at Mumbai High South field Off-shore

site on a turnkey basis for a sum of US $ 62,3000,000/-

and thereafter an agreement between the respondent and

ONGC was entered into. Then, the respondent entered into

a subcontract with the petitioner which was signed on 29th

of October 2004 and for Fabrication, Load Out and

Transportation of Jacket, Piles, Conductors and Deck for

D-1 Well-Cum-Water Injection Platform Project of ONGC at

Bombay High South field off-shore site for a lump sum

subcontract price of US $ 20,162,460/-. In terms of the

said subcontract the petitioner carried out its scope of

work in terms of its contractual obligations. As it did

not receive the full payment from the respondent disputes

and differences between them cropped up. These disputes

between the parties remained unresolved despite some

joint negotiations between them.

5. The petitioner by its Advocate's notice on 19/02/2008

invoked the arbitration clause and referred all disputes 3 and differences between them and respondent to

arbitration including its claim of US $ 14,244,812.02 and

claim for loss and damage on account of financing charges

and foreign exchange and such other damages. In the said

letter the petitioner also suggested the names of a few

arbitrators. The respondent by its letter dated

26/02/2008 did not accept the stand of the petitioner and

stated that petitioner's stand to proceed with

arbitration is premature and the respondent requested the

petitioner to withdraw the Notice Invoking Arbitration

and come out with a viable proposal to create a joint

settlement mechanism to settle the dispute amicably.

6. However, the learned counsel for the petitioner tried

to show before this Court that several meetings were held

between the parties for settling the dispute amicably but

the said efforts ultimately did not succeed. However

before this Court the learned counsel for the respondent

fairly accepted the position but disputes between the

parties virtually cannot be resolved amicably anymore and

the matter should be resolved through arbitration.

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7. Learned counsel for the respondent submitted that he

does not dispute that there are arbitrable disputes

between the parties. Nor does he dispute that the

petitioner has invoked the arbitration clause between the

parties. The only point on which the case is argued is

that in this case the arbitration panel must consist of

three arbitrators, one is to be nominated by each party

and the third arbitrator is to be chosen by the nominated

arbitrators. Learned counsel for the petitioner on the

other hand did not accept the said stand of the learned

counsel for the respondent and submitted that in terms of

the agreement in this case dispute can be decided by the

sole arbitrator. Matter was actually heard before this

Court on the aforesaid controversy.

8. Learned counsel for the petitioner submitted that

admittedly the arbitration clauses in the contract which

govern the rights of the parties in the matter of

arbitration are as follows:

"12.1 This Subcontract shall be governed by and construed in accordance with the Laws of

5 India. The Courts at Delhi shall have sole jurisdiction.

12.2 The Parties shall endeavour to resolve any dispute or difference amicably through joint negotiation and when necessary by reference to the Chief Executive of EIL and SSE. If any dispute or difference, which cannot be mutually resolved by the parties, the same shall be referred to arbitration in accordance with the provisions contained in Indian Arbitration and Conciliation Act, 1996 which is generally in accordance with UNCITRAL rules.

12.3 The arbitrator(s) shall give reasoned award in respect of each dispute or difference referred to him. The award as aforesaid shall be final, conclusive and binding on all the Parties of this Subcontract in accordance with the Law.

12.4 The venue of the arbitration shall be at New Delhi, India."

9. By relying on para 12.2, learned counsel submitted

that the said clause does not indicate about the number

of arbitrators to be appointed while reciting that the

matter be referred to arbitration in accordance with the

provisions contained in the Indian Arbitration and

Conciliation, 1996, which is generally in accordance with

the UNCITRAL rules.

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10. Learned counsel also referred to and relied on

Section 10 of the said Act which deals with the

composition of Arbitral Tribunals under Chapter III of

the said Act. Section 10 (1) and 10 (2) are as under:-

"10. Number of arbitrators. - (1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number.

(2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator."

11. Relying on Clause 12.2 and Section 10, learned

counsel submits that it is clear that arbitration in this

case shall be held by a sole or a single arbitrator. He

particularly emphasised Clause 12.2 of the agreement and

Section 10(2) of the Act which says that failing the

determination referred to in sub-section 1, the Arbitral

Tribunal shall consist of a sole arbitrator.

12. Learned counsel submits that in the instant case

Clause 12.2 does not indicate the number of arbitrators

7 and in that event Sub-section (2) of Section 10 would

apply.

13. Learned counsel further submits that the matter

should not be referred to three arbitrators as that would

prolong arbitration proceedings as three arbitrators

would have to adjust their timings. Apart from that the

same would result in considerable escalation of cost.

14. Learned counsel has referred to a judgment of this

Court in support of his contention that it has been

judicially recognized that reference of a dispute to a

panel of three arbitrators escalates the cost and more so

it is very time consuming.

15. Learned counsel for the respondent on the other hand

submits that reference of the matter to a panel of three

arbitrators is not ruled out if the arbitration clause is

properly construed alongwith Section 10 of the said Act.

16. Learned counsel admitted that Clause 12.2 is silent

about the number of arbitrators but Clause 12.3 refers to 8 an expression `arbitrator(s)'. By relying on the said

expression in Clause 12.3 learned counsel submits that

the arbitration clause thus postulates the appointment of

more than one arbitrator. As there cannot be two

arbitrators which is an even number, the minimum number

of arbitrators other than one would be three.

17. Learned counsel also submitted that while clause 12.2

stipulates that the arbitration between the parties would

be governed under the said Act it also says in clause

12.2 that it shall generally be in accordance with

UNCITRAL rules.

18. Learned counsel also submitted that they have a

policy that in matters involving high stakes above Rupees

ten crores, it should be referred to a Committee on panel

of arbitrators. In support of this submission, learned

counsel referred to a Standard Contract Clauses which

have been disclosed in the counter affidavit filed by the

respondent and reliance was placed on the following

clause:-

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"The Arbitration shall be conducted in accordance with the Indian Arbitration and Conciliation Act, 1996. For Contracts costing upto Rs.10 Crores, a Sole Arbitrator should be appointed. For Contracts costing over Rs.10 Crores, a Committee of Arbitrators should be appointed composed of one Arbitrator to be nominated by the Contractor, one to be nominated by the Owner and the third Arbitrator, who will act as a Chairman but not as umpire, to be chosen jointly by the two nominees. The decision of majority of Arbitrators shall be final and binding on both parties."

19. Learned counsel also relied on a passage from Redfern

and Hunter, Law and Practice of International Commercial

Arbitration, Fourth Edn., 2004, page 185, which is as

under:-

"In modern practice, despite the advantages of a sole arbitrator, particularly in arbitrations involving heavy stakes, preference is for appointment of three arbitrators, albeit not without rationale. Particularly, in the area of "international commercial arbitration"

involving complex problems peculiar to special types of disputes, eg, engineering, construction, maritime and international trading disputes, a sole arbitrator, many a time may not be suitable for resolution of such disputes. In such situations, the common practice is to appoint a tribual comprising of three arbitrators. Even though it may involve more expense and delay than a sole arbitrator arbitration, it is still preferred as it is more effective. `An arbitral tribunal of three arbitrators is likely to prove more 1 0 satisfactory to the parties, and the ultimate award is more likely to be accepted to them."

20. The learned counsel argued if the aforesaid

stipulations in clauses 12.2 and 12.3 of the agreement

and Sections 10(1) and 10(2) are read harmoniously with

UNCITRAL model rules, the appointment of a panel of three

arbitrators in this case cannot be ruled out.

21. These being the rival contentions of the parties, I

am unable to accept the contentions put-forth by learned

counsel for the respondent for the reasons discussed

hereinbelow.

22. If one looks at the Clause 12.2 of the agreement it

should be clear if the disputes and differences are not

resolved mutually, the same shall be referred to

arbitration in accordance with the provisions of the said

Act. Clause 12.3 stipulates the requirement on the part

of the arbitrator(s) to give reasons.

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23. The Arbitration Tribunal as defined under Section

2(d) of the Act means "a sole arbitrator or a panel of

arbitrators".

24. Section 10(2) of the Act is very relevant in order to

resolve the controversy in this case in as much as

Section 10(2) makes it very clear where the number of

arbitrator is not determined, the arbitral tribunal shall

consist of a sole arbitrator. In this connection if

UNCITRAL rules are referred the position will remain the

same. UNCITRAL model law on International Commercial

Arbitration also accepts the same definition of

Arbitration Tribunal in Article 2(b). Article 10 of

those rules is almost identical with Section 10 of the

said Act. Article 2(b) and Article 10 of those rules are

extracted hereinbelow:-

"Article 2. Definition and rules of interpretation - For the purposes of this Law:

(a) xxx xxx (b) "arbitral tribunal" means a sole

arbitrator or a panel of arbitrators."

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"Article 10. Number of arbitrators - (1) The parties are free to determine the number of arbitrators.

(2) Failing such determination, the number of arbitrators shall be three."

25. Therefore, the definition of Arbitral Tribunal in

Section 2(1)(d) of the said Act is verbatim the same as

in Article 2(b). Article 10 of the UNCITRAL model law has

close similarity with Section 10 of the said Act.

26. Section 10 deviates from Article 10 of the UNCITRAL

law only in the sense that Section 10(1) of the Act

provides that despite the freedom given to the parties to

determine the number of arbitrators such numbers shall

not be even number. But in default of determination of

the number, Section 10(2) provides the tribunal is to

consist of a sole arbitrator. Therefore, scheme of

Section 10(2) of the Act is virtually similar to Article

10.2 of the UNCITRAL model law.

27. In the instant case Clause 12.2 of the Arbitration

clause is silent about the number of arbitrator. 1 3 Therefore, Section 10(2) of the said Act squarely

applies.

28. The learned counsel for the respondent has referred

to a passage at page 185 para 4-18 of Redfern and Hunter,

Law and Practice of International Commercial Arbitration,

Fourth Edn. But looking at the said book this Court finds

that the said passage was not been properly quoted. In

paragraph 4-15 of the said book it has been provided as

follows:-

"A sole arbitrator shall be appointed unless the parties have agreed in writing otherwise, or unless the LCIA Court determines that in view of all the circumstances of the case a three-member tribunal is appropriate."

29. In the said paragraph it has also been stated that

there are distinct advantages of referring a dispute to a

sole arbitrator on grounds of speed and economy. "A sole

arbitrator does not need to `deliberate' with others,

without having to spend time in consultation with

colleagues in an endeavour to arrive at an agreed or

majority determination of the matters in dispute." (Page

184)

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30. Similar opinion has been expressed in Russell on

Arbitration 23rd Edition. At page 129, paragraph 4-035

with reference to arbitration it has been said "Where no

choice is made, the law implied a reference to a tribunal

consisting of a sole arbitrator." In fact Section 15(3)

of the (English) Arbitration Act, 1996 provides for the

same.

31. Mustil and Boyd on Commercial Arbitration, 2nd Edition

also contains the same statement of law. At page 174 of

the said book it has been provided that "an arbitration

agreement calls for a reference to a single arbitrator,

either if it contains an express stipulation to that

effect, or if it is silent as to the mode of

arbitration."

32. In the instant case, the arbitration clause 12.2 is

silent as to the number of arbitrator. The said clause

read with Section 10(2) of the Act makes it very clear

that arbitral tribunal in the instant case would be

consisting of a sole arbitrator.

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33. The learned counsel for the respondent has referred

to its policy decision which has been quoted hereinabove.

Such policy decision cannot change the contractual

clause. In any event the contract between the parties was

entered into in 2004. The said policy decision came into

effect in 2005. Therefore, the said policy decision

cannot in any way override contract between the parties.

34. The parties autonomy in the arbitration agreement

must be given due importance in construing the intention

of the parties. In so far as reference to the expression

`arbitrator(s)' in clause 12.3 is concerned, the same

does not in any way affect the intention of the parties

in clause 12.2.

35. It is noted in this connection that parties have

freedom to change the number of arbitrator even after the

contract has been entered and by mutual consent the

parties may amend the contract. If that takes place, in

such an eventuality clause 12.3 provides that the

arbitrator or arbitrators have to give reasoned award in

1 6 respect of each dispute and difference referred. Here

also the expression which has been used is `him' which

also points to a sole arbitrator.

36. It is clearly provided in the said Act that an

arbitral tribunal can, if necessary, take the help of

experts in terms of Section 27 of the said Act. If the

sole arbitrator requires the assistance of an expert it

can always take such assistance.

37. Mr. Mukul Rohtagi, learned counsel for the respondent

has fairly submitted that if his argument is not accepted

by the Court then his client has no objection to the

appointment of Hon'ble Mr. Justice D.P. Wadhwa, a former

Judge of this Court, to be the sole arbitrator in this

case. The name of Justice Wadhwa also finds place in the

list of names suggested by the petitioner. Therefore,

appointment of Justice Wadhwa is fairly by consensus.

38. Since I am unable to accept the argument of learned

counsel for the respondent, I accordingly appoint Justice

1 7 D.P. Wadhwa, a former Judge of this Court, the sole

arbitrator in this case.

39. The Hon'ble arbitrator is requested to decide the

dispute as early as possible and preferably within a

period of six months from the date of entering upon the

reference. The terms of arbitration proceeding are left

to be decided by learned arbitrator.

40. The petition is allowed accordingly. No order as to

costs.

...................J. (ASOK KUMAR GANGULY)

New Delhi July 22, 2009

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