Trf Ltd vs Energo Engineering Projects Ltd

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5306 OF 2017 (@ S.L.P. (C) NO. 22912 OF 2016)

TRF Ltd. ... Appellant(s)

Versus

Energo Engineering Projects Ltd. ... Respondent(s)

With

CIVIL APPEAL NO. 5307 OF 2017 (@ S.L.P. (C) No. 23324 of 2016)

CIVIL APPEAL NO. 5308 OF 2017 (@ S.L.P. (C) No. 23348 of 2016)

CIVIL APPEAL NO. 5311 OF 2017 (@ S.L.P. (C) No. 14331 of 2016)

CIVIL APPEAL NO. 5309 OF 2017 (@ S.L.P. (C) No. 14226 of 2016)

Signature Not Verified

Digitally signed by CHETAN KUMAR JUDGMENT

Date: 2017.07.03 18:22:47 IST Reason:

2

Dipak Misra, J.

In this batch of appeals, by special leave, the seminal

issues that emanate for consideration are; whether the High

Court, while dealing with the applications under Section 11(6)

of the Arbitration and Conciliation Act, 1996 (for brevity, “the

Act”), is justified to repel the submissions of the appellants

that once the person who was required to arbitrate upon the

disputes arisen under the terms and conditions of the contract

becomes ineligible by operation of law, he would not be eligible

to nominate a person as an arbitrator, and second, a plea that

pertains to statutory disqualification of the nominated

arbitrator can be raised before the court in application

preferred under Section 11(6) of the Act, for such an

application is not incompetent. For the sake of clarity,

convenience and apposite appreciation, we shall state the facts

from Civil Appeal No. 5306 of 2017.

2. The respondent-company is engaged in the business of

procuring bulk material handling equipment for installation in

thermal power plants on behalf of its clients like National 3

Thermal Power Corporation (NTPC) and Moser Baer, Lanco

Projects Ltd., etc. On 10th May, 2014, the respondent issued a

purchase order to the appellant for the complete design,

manufacturing, supply, transport to site, unloading, storage,

erection, testing, commissioning and performance guarantee

testing of various articles including wagon tippler, side arm

charger, apron feeder, etc. To secure the performance under

the purchase order, the appellant had submitted an advance

bank guarantee and a performance bank guarantee.

3. As the controversy arose with regard to encashment of

bank guarantee, the appellant approached the High Court

under Section 9 of the Act seeking an order of restraint for

encashment of the advance bank guarantee and the

performance bank guarantee. As is reflectible from the

impugned order, the said petitions were pending consideration

when the High Court dealt with this matter. Be that as it may,

the narration of the controversy under Section 9 in the

impugned order or the consequences thereof is not germane to

the adjudication of this case.

4

4. As the facts would unveil, the appellant vide letter dated

28.12.2015 invoked the arbitration in terms of Clause 33 of

the General Terms and Conditions of the Purchase Order

(GTCPO) seeking reference of the disputes that had arisen

between the parties to an arbitrator. It was also asserted

before the High Court that the appellant had objected to the

procedure for appointment of arbitrator provided under the

purchase order and accordingly communicated that an

arbitrator be appointed de hors the specific terms of the

purchase order. There was denial of the same by the

respondent on the ground that it was contrary to the binding

contractual terms and accordingly it rejected the suggestion

given by the appellant and eventually by letter dated

27.1.2016 nominated an arbitrator, a former Judge of this

Court, as the sole arbitrator in terms of Clause 33(d) of the

purchase order. It is apt to note here that in certain cases, a

former Chief Justice of a High Court was also appointed as

arbitrator by the Managing Director.

5

5. After the appointment was made, the appellant preferred

an application under Section 11(5) read with Section 11(6) of

the Act for appointment of an arbitrator under Section 11(2) of

the Act. The said foundation was structured on the basis that

under Section 12(5) of the Arbitration and Conciliation

(Amendment) Act, 2015 (3 of 2016) read with the Fifth and the

Seventh Schedules to the amended Act, the Managing Director

had become ineligible to act as the arbitrator and as a natural

corollary, he had no power to nominate. The stand put forth

by the appellant was controverted by the respondent before

the High Court on the ground that the Fifth and the Seventh

Schedules lay down the guidelines and the arbitrator is not

covered under the same and even if it is so, his power to

nominate someone to act as an arbitrator is not fettered or

abrogated. The High Court analysed the clauses in the

agreement and opined that the right of one party to a dispute

to appoint a sole arbitrator prior to the amended Act had been

well recognized and the amended Act does not take away such

a right. According to the learned designated Judge, had the 6

intent of the amended Act been to take away a party’s right to

nominate a sole arbitrator, the same would have been found in

the detailed list of ineligibility criteria enumerated under the

Seventh Schedule to the Act and, therefore, the submission

advanced by the appellant, the petitioner before the High

Court, was without any substance. Additionally, the High

Court noted that the learned counsel for the petitioner before

it had clearly stated that it had faith in the arbitrator but he

was raising the issue as a legal one, for a Managing Director

once disqualified, he cannot nominate. That apart, it took note

of the fact that the learned arbitrator by letter dated 28.1.2016

has furnished the requisite disclosures under the Sixth

Schedule and, therefore, there were no circumstances which

were likely to give rise to justifiable doubts as to the

independence and impartiality. Finally, the designated Judge

directed that besides the stipulation in the purchase order

governing the parties, the court was inclined to appoint the

former Judge as the sole arbitrator to decide the disputes

between the parties.

7

6. Questioning the soundness of the order passed by the

High Court, Mr. Sundaram, learned senior counsel for the

appellant has raised the following contentions:

(i) The relevant clause in the agreement relating to

appointment of arbitrator has become void in view of

Section 12(5) of the amended Act, for the Managing Director

having statutorily become ineligible, cannot act as an

arbitrator and that acts as a disqualification and in such a

situation to sustain the stand that his nominees have been

validly appointed arbitrators would bring in an anomalous

situation which is not countenanced in law.

(ii) Once the owner/employer has been declared

disqualified in law, a nominee by the owner to arbitrate

upon is legally unacceptable. In support of this proposition,

reliance has been placed upon Chairman, Indore Vikas

Pradhikaran v. Pure Industrial Coke & Chemicals Ltd.

& others1.

(iii) The principle embedded in the maxim Qui Facit

Per Alium Facit Per Se (What one does through another is 1 (2007) 8 SCC 705 8

done by oneself) is attracted in the instant case.

Additionally, if such liberty is granted, it will usher in the

concept that an action that cannot be done or is outside the

prohibited area can be done illegally by taking means to the

appointment of a nominee. In this regard, the decision in

Firm of Pratapchand Nopaji v. Firm of Kotrike Venkata

Setty & Sons and others2 has been commended.

(iv) The status of the nominee does not take away the

prohibition of ineligibility of nomination as the nominator

has become ineligible to arbitrate upon. A legal issue of this

nature which goes to the very root of the appointment of the

arbitrator pertaining to his appointment which is ex facie

invalid, cannot be said to be raised before the arbitral

tribunal. For this purpose, inspiration has been drawn

from the authority in Walter Bau AG, Legal Successor, of

the Original Contractor, Dyckerhoff and Widmann A.G.

v. Municipal Corporation of Greater Mumbai3.

2 (1975) 2 SCC 208 3 (2015) 3 SCC 800 9

7. Mr. Chidambaram, learned senior counsel for the

respondent, assisted by Mr. S.S. Shroff, resisting the aforesaid

submissions, raised by the learned senior counsel for the

appellant, proponed as follows:

(a) The submission to the effect that since the

Managing Director of the respondent has become ineligible

to act as an arbitrator subsequent to the amendment in the

Act, he could also not have nominated any other person as

arbitrator is absolutely unsustainable, for the Fifth and the

Seventh Schedules fundamentally guide in determining

whether circumstances exist which give rise to justifiable

doubts as to the independence and impartiality of the

arbitrator. To elaborate, if any person whose relationship

with the parties or the counsel or the subject matter of

dispute falls under any of the categories specified in the

Seventh Schedule, he is ineligible to be appointed as an

arbitrator but not otherwise.

(b) The appellants have not been able to substantiate

before the High Court how the appointment of the sole 10

arbitrator falls foul of the Seventh Schedule and in the

absence of that, the appeals, being devoid of merit, deserve

to be dismissed. As far as language employed in the Fifth

Schedule is concerned, it is also a guide, which indicates

existence of circumstances that give rise to justifiable

doubts as to the arbitrator’s independence and impartiality

and when such a stand has been abandoned before the

High Court, the impugned order is totally invulnerable.

(c) On a careful appreciation of the Fifth and Seventh

Schedules of the amended Act, it is manifest that grounds

provided thereunder clearly pertain to the appointed

arbitrator and not relating to the appointing authority and,

therefore, each and every ground/circumstance categorized

under the Fifth and Seventh Schedules is to be reckoned

and decided vis-à-vis the appointed arbitrator alone and not

as a general principle.

(d) There is no warrant for the conclusion that an

appointed arbitrator will automatically stand disqualified

merely because the named arbitrator has become ineligible 11

to become the arbitrator, for he always has the right to

nominate an independent and neutral arbitrator.

(e) The language of the purchase order does not

stipulate that the Managing Director of the respondent will

have the right to nominate a sole arbitrator as long as he is

also qualified to act as an arbitrator. The role to act as an

arbitrator and to nominate an arbitrator are in two

independent spheres and hence, the authority to nominate

is not curtailed.

(f) Challenge to an appointment of arbitrator under

Section 13 of the Act can only be made before the Arbitral

Tribunal, for despite introducing the Fifth, the Sixth and

the Seventh Schedules to the amended Act under Section

12, the Legislature has consciously retained the challenge

procedure under Section 13 of the Act. It is because

Sections 13(2) and Section 13(3) of the Act clearly postulate

that a challenge to the authority of arbitrator has to be

made before the arbitral tribunal and the said procedure

cannot be bypassed by ventilating the objection under 12 Section 11 of the Act. Any objection to be raised under the

Fifth Schedule or the Seventh Schedule of the amended Act

has to be raised before the arbitral tribunal. To bolster the

said submission, heavy reliance has been placed on Antrix

Corporation Limited v. Devas Multimedia Private

Limited4.

(g) The authority relied on Walter Bau AG (supra) is

not a precedent for the proposition advanced, as it was

dealing with a challenge to an order of a judicial authority

and not that of a court and furthermore the said decision

has been distinguished in State of West Bengal v.

Associated Contractors5.

8. To appreciate the contentions raised at the Bar, it is

necessary to refer to the relevant clauses of the GTCPO that

deals with the resolution of dispute. Clause 33 that provides

resolution of disputes/arbitration reads as follows:

“33. Resolution of dispute/arbitration

a. In case any disagreement or dispute arises between the buyer and the seller under or in

4 (2014) 11 SCC 560 5 (2015) 1 SCC 32 13

connection with the PO, both shall make every effort to resolve it amicably by direct informal negotiation.

b. If, even after 30 days from the commencement of such informal negotiation, seller and the buyer have not been able to resolve the dispute amicably, either party may require that the dispute be referred for resolution to the formal mechanism of arbitration.

c. All disputes which cannot be settled by mutual negotiation shall be referred to and determined by arbitration as per the Arbitration and Conciliation Act, 1996 as amended.

d. Unless otherwise provided, any dispute or difference between the parties in connection with this agreement shall be referred to sole arbitration of the Managing Director of Buyer or his nominee. Venue of arbitration shall be Delhi, and the arbitration shall be conducted in English language.

e. The award of the tribunal shall be final and binding on both; buyer and seller.”

9. We have reproduced the entire Clause 33 to appreciate

the dispute resolution mechanism in its proper perspective.

Sub-clause (c) of Clause 33 clearly postulates that if the

dispute cannot be settled by negotiation, it has to be

determined under the Act, as amended. Therefore, the 14

amended provisions do apply. Sub-clause (d) stipulates that

dispute or reference between the parties in connection with

the agreement shall be referred to sole arbitration of the

Managing Director of the buyer or his nominee. This is the

facet of the clause which is required to be interpreted and

appositely dwelt upon. Prior to amendment, Section 12 read

as follows:

“12. Grounds for challenge.—

(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality.

(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.

(3) An arbitrator may be challenged only if—

(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or

(b) he does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, 15

only for reasons of which he becomes aware after the appointment has been made.”

10. Section 13 of the Act dealt with challenge procedure.

After the amendment, Section 12 that deals with the grounds

of challenge is as follows:

“12. Grounds for challenge.—

(1) When a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances,—

(a) such as the existence either direct or indirect, of any past or present relationship with or interest in any of the parties or in relation to the subject-matter in dispute, which is likely to give rise to justifiable doubts as to his independence or impartiality; and

(b) which are likely to affect his ability to devote sufficient time to the arbitration and in particular his ability to complete the entire arbitration within a period of twelve months.

Explanation 1.–The grounds stated in the Fifth Schedule shall guide in determining whether circumstances exist which give rise to justifiable doubts as to the independence or impartiality of an arbitrator.

Explanation 2.–The disclosure shall be made by such person in the form specified in the Sixth Schedule.

(2) An arbitrator, from the time of his appointment and throughout the arbitral proceedings, shall, 16

without delay, disclose to the parties in writing any circumstances referred to in sub-section (1) unless they have already been informed of them by him.

(3) An arbitrator may be challenged only if—

(a) circumstances exist that give rise to justifiable doubts as to his independence or impartiality, or

(b) he does not possess the qualifications agreed to by the parties.

(4) A party may challenge an arbitrator appointed by him, or in whose appointment he has participated, only for reasons of which he becomes aware after the appointment has been made.

(5) Notwithstanding any prior agreement to the contrary, any person whose relationship, with the parties or counsel or the subject-matter of the dispute, falls under any of the categories specified in the Seventh Schedule shall be ineligible to be appointed as an arbitrator:

Provided that parties may, subsequent to disputes having arisen between them, waive the applicability of this sub-section by an express agreement in writing.”

11. We have referred to both the provisions to appreciate the

change in the fundamental concept of grounds for challenge.

The disclosures to be made by the arbitrator have been made

specific and the disclosures are required to be made in 17

accordance with the Sixth Schedule to the amended Act. The

Sixth Schedule stipulates, apart from others, the

circumstances which are to be disclosed. We think it

appropriate to reproduce the same:

“CIRCUMSTANCES DISCLOSING ANY PAST OR PRESENT RELATIONSHIP WITH OR INTEREST IN ANY OF THE PARTIES OR IN RELATION TO THE SUBJECT-MATTER IN DISPUTE, WHETHER FINANCIAL, BUSINESS, PROFESSIONAL OR OTHER KIND, WHICH IS LIKELY TO GIVE RISE TO JUSTIFIABLE DOUBTS AS TO YOUR INDEPENDENCE OR IMPARTIALITY (LIST OUT):

CIRCUMSTANCES WHICH ARE LIKELY TO AFFECT YOUR ABILITY TO DEVOTE SUFFICIENT TIME TO THE ARBITRATION AND IN PARTICULAR YOUR ABILITY TO FINISH THE ENTIRE ARBITRATION WITHIN TWELVE MONTHS (LIST OUT)”

12. Sub-section (5) of Section 12, on which immense stress

has been laid by the learned counsel for the appellant, as has

been reproduced above, commences with a non-obstante

clause. It categorically lays down that if a person whose

relationship with the parties or the counsel or the subject

matter of dispute falls under any of the categories specified in

the Seventh Schedule shall be ineligible to be appointed as an 18

arbitrator. There is a qualifier which indicates that parties

may, subsequent to the disputes arisen between them, waive

the applicability by express agreement in writing. The

qualifier finds place in the proviso appended to sub-section (5)

of Section 12. On a careful scrutiny of the proviso, it is

discernible that there are fundamentally three components,

namely, the parties can waive the applicability of the

sub-section; the said waiver can only take place subsequent to

dispute having arisen between the parties; and such waiver

must be by an express agreement in writing.

13. At this stage, we think it appropriate to refer to the

Seventh Schedule, which finds mention in Section 12(5). The

Seventh Schedule has three parts, namely, (i) arbitrator’s

relationship with the parties or counsel; (ii) relationship of the

arbitrator to the dispute; and (iii) arbitrator’s direct or indirect

interest in the dispute.

14. In the present case, we are concerned with the first part

of the Seventh Schedule. Be it noted, the first part has 14 19

items. For the present controversy, the relevant items are item

nos. 1, 5 and 12, which read as follows:

“1. The arbitrator is an employee, consultant, advisor or has any other past or present business relationship with a party.

xxxx xxxx

5. The arbitrator is a manager, director or part of the management, or has a similar controlling influence, in an affiliate of one of the parties if the affiliate is directly involved in the matters in dispute in the arbitration.

xxxx xxxx

12. The arbitrator is a manager, director or part of the management, or has a similar controlling influence in one of the parties.”

15. We will be failing in our duty, if we do not refer to some of

the aspects which find mention in the Fifth Schedule. Our

attention has been drawn to item nos. 22 and 24 of the Fifth

Schedule. They are as follows:

“22. The arbitrator has within the past three years been appointed as arbitrator on two or more occasions by one of the parties or an affiliate of one of the parties.

xxxxx xxxxx 20

24. The arbitrator currently serves, or has served within the past three years, as arbitrator in another arbitration on a related issue involving one of the parties or an affiliate of one of the parties.”

We have noted this for the sake of completion.

16. What is fundamentally urged, as is noticeable from the

submissions of Mr. Sundaram, learned senior counsel

appearing for the appellants, is that the learned arbitrator

could not have been nominated by the Managing Director as

the said authority has been statutorily disqualified. The

submission of the respondent, per contra, is that the

Managing Director may be disqualified to act as an arbitrator,

but he is not deprived of his right to nominate an arbitrator

who has no relationship with the respondent. Additionally, it

is assiduously urged that if the appointment is hit by the Fifth

Schedule or the Sixth Schedule or the Seventh Schedule, the

same has to be raised before the arbitral tribunal during the

arbitration proceeding but not in an application under

Section 11(6) of the Act.

21

17. First we shall address the issue whether the Court can

enter into the arena of controversy at this stage. It is not in

dispute that the Managing Director, by virtue of the amended

provision that has introduced sub-section (5) to Section 12,

had enumerated the disqualification in the Seventh Schedule.

It has to be clarified here that the agreement had been entered

into before the amendment came into force. The procedure for

appointment was, thus, agreed upon. It has been observed by

the designated Judge that the amending provision does not

take away the right of a party to nominate a sole arbitrator,

otherwise the legislature could have amended other

provisions. He has also observed that the grounds including

the objections under the Fifth and the Seventh Schedules of

the amended Act can be raised before the Arbitral Tribunal

and further when the nominated arbitrator has made the

disclosure as required under the Sixth Schedule to the Act,

there was no justification for interference. That apart, he has

also held in his conclusion that besides the stipulation of the

agreement governing the parties, the Court has decided to 22

appoint the arbitrator as the sole arbitrator to decide the

dispute between the parties.

18. In Northern Railway Administration, Ministry of

Railways, New Delhi v. Patel Engineering Company

Limited6, while dealing with the sub-section (6) of Section 11

and sub-section (8) of Section 11 and appreciating the

stipulations in sub-sections (3) and (5), a three-Judge Bench

opined that:

“The expression “due regard” means that proper attention to several circumstances have been focused. The expression “necessary” as a general rule can be broadly stated to be those things which are reasonably required to be done or legally ancillary to the accomplishment of the intended act. Necessary measures can be stated to be the reasonable steps required to be taken.”

19. Being of this view, the Court ruled that the High Court

had not focused on the requirement of having due regard to

the qualification required by the agreement or other

considerations necessary to secure appointment of an

independent and impartial arbitrator and further ruled that it

needs no reiteration that appointment of an arbitrator or 6 (2008) 10 SCC 240 23

arbitrators named in the arbitration agreement is not a must

because while making the appointment, the twin

responsibilities of sub-section (8) of Section 11 have to be kept

in view, considered and taken into account. The Court further

observed that if the same is not done, the appointment

becomes vulnerable. In the said case, the Court set aside the

appointment made by the High Court and remitted the matter

to make fresh appointment keeping in view the parameters

indicated therein.

20. In Datar Switchgears Ltd. v. Tata Finance Ltd. and

another7, the appellant questioned the authority of the first

respondent in appointing an arbitrator after a long lapse of

notice period of 30 days on the foundation that the power of

appointment should have been exercised within a reasonable

time. It was further contended that unilateral appointment of

arbitrator was not envisaged under the lease agreement and,

therefore, the first respondent should have obtained the

consent of the appellant and the name of the arbitrator should

have been proposed to the appellant before the appointment. 7 (2000) 8 SCC 151 24

The Court took note of the fact that the arbitration clause in

the lease agreement contemplated appointment of a sole

arbitrator. The Court further took note of the fact that the

appellant therein had not issued any notice to the first

respondent seeking appointment of an arbitrator and it

explicated that an application under Section 11(6) of the Act

can be filed when there is a failure of the procedure for

appointment of arbitrator. Elaborating the said concept, the

Court held:

“6. ... This failure of procedure can arise under different circumstances. It can be a case where a party who is bound to appoint an arbitrator refuses to appoint the arbitrator or where two appointed arbitrators fail to appoint the third arbitrator. If the appointment of an arbitrator or any function connected with such appointment is entrusted to any person or institution and such person or institution fails to discharge such function, the aggrieved party can approach the Chief Justice for appointment of an arbitrator.”

21. After so stating, the Court adverted to the issue whether

there was any real failure of the mechanism provided under

the lease agreement. The Court took note of the fact that the

respondent had made the appointment before the appellant 25

had filed the application under Section 11 of the Act though

the said appointment was made beyond 30 days. It posed the

question whether in a case falling under Section 11(6) of the

Act, the opposite party cannot appoint an arbitrator after the

expiry of 30 days from the date of appointment.

Distinguishing the decisions of Naginbhai C. Patel v. Union

of India8, B.W.L. Ltd. v. MTNL9 and Sharma & Sons v.

Engineer-in-Chief, Army Headquarters, New Delhi10, the

Court held:

“19. So far as cases falling under Section 11(6) are concerned — such as the one before us — no time limit has been prescribed under the Act, whereas a period of 30 days has been prescribed under Section 11(4) and Section 11(5) of the Act. In our view, therefore, so far as Section 11(6) is concerned, if one party demands the opposite party to appoint an arbitrator and the opposite party does not make an appointment within 30 days of the demand, the right to appointment does not get automatically forfeited after expiry of 30 days. If the opposite party makes an appointment even after 30 days of the demand, but before the first party has moved the court under Section 11, that would be sufficient. In other words, in cases arising under Section 11(6), if the opposite party has not made an appointment within 30 days of demand, the right to make

8 (1999) 2 Bom CR 189 (Bom) 9 (2000) 2 Arb LR 190 10 (2000) 2 Arb LR 31 (AP) 26

appointment is not forfeited but continues, but an appointment has to be made before the former files application under Section 11 seeking appointment of an arbitrator. Only then the right of the opposite party ceases. We do not, therefore, agree with the observation in the above judgments that if the appointment is not made within 30 days of demand, the right to appoint an arbitrator under Section 11(6) is forfeited.

[Emphasis supplied]

20. In the present case the respondent made the appointment before the appellant filed the application under Section 11(6) though it was beyond 30 days from the date of demand. In our view, the appointment of the arbitrator by the respondent is valid and it cannot be said that the right was forfeited after expiry of 30 days from the date of demand.

21. We need not decide whether for purposes of sub-sections (4) and (5) of Section 11, which expressly prescribe 30 days, the period of 30 days is mandatory or not.”

And again:

“23. When parties have entered into a contract and settled on a procedure, due importance has to be given to such procedure. Even though rigor of the doctrine of “freedom of contract” has been whittled down by various labour and social welfare legislation, still the court has to respect the terms of the contract entered into by parties and endeavour to give importance and effect to it. When the party has not disputed the arbitration clause, normally he is bound by it and obliged to comply with the procedure laid down under the said clause”.

27 22. On the aforesaid basis, the Court opined that the first

respondent did not fail to follow the procedure contemplated

under the agreement in appointing the arbitrator nor did it

contravene the provisions of the arbitration clause. The said

conclusion was arrived at as the appellant therein had really

not sent a notice for appointment of arbitrator as

contemplated under Clause 20.9 of the agreement which was

the arbitration clause.

23. In Newton Engineering and Chemicals Limited v.

Indian Oil Corporation Limited and others11, a two-Judge

Bench was dealing with an arbitration clause in the agreement

that provided that all disputes and differences between the

parties shall be referred by any aggrieved party to the contract

to the sole arbitration of E.D. (NR) of the

respondent-Corporation. The arbitration clause further

stipulated that if such E.D. (NR) was unable or unwilling to act

as the sole arbitrator, the matter shall be referred to the sole

arbitration of some other person designated by E.D. (NR) in his

11 (2013) 4 SCC 44 28

place who was willing to act as sole arbitrator. It also provided

that no person other than E.D. (NR) or the person designated

by the E.D. (NR) should act as an arbitrator. When the

disputes arose between the parties, the appellant therein

wrote to the Corporation for appointment of E.D. (NR) as the

sole arbitrator, as per the arbitration clause. The Corporation

informed the contractor that due to internal reorganization in

the Corporation, the office of the E.D. (NR) had ceased to exist

and since the intention of the parties was to get the dispute

settled through the arbitration, the Corporation offered to the

contractor the arbitration of the substituted arbitrator, that is,

the Director (Marketing). The Corporation further informed

the contractor that if he agreed to the same, it may send a

written confirmation giving its consent to the substitution of

the named arbitrator. The contractor informed that he would

like to have the arbitration as per the provisions of the Act

whereby each of the parties would be appointing one arbitrator

each. The Corporation did not agree to the suggestion given

by the company and ultimately appointed Director (Marketing) 29

as the arbitrator. The contractor, being aggrieved, moved the

High Court of Delhi for appointment of arbitrator under

Section 11(6)(c) of the Act and the learned Single Judge

dismissed the same and observed that the challenge to the

appointment of the arbitrator may be raised by the contractor

before the arbitral tribunal itself. Interpreting the agreement,

this Court held:

“7. Having regard to the express, clear and unequivocal arbitration clause between the parties that the disputes between them shall be referred to the sole arbitration of the ED (NR) of the Corporation and, if ED (NR) was unable or unwilling to act as the sole arbitrator, the matter shall be referred to the person designated by such ED (NR) in his place who was willing to act as sole arbitrator and, if none of them is able to act as an arbitrator, no other person should act as arbitrator, the appointment of Director (Marketing) or his nominee as a sole arbitrator by the Corporation cannot be sustained. If the office of ED (NR) ceased to exist in the Corporation and the parties were unable to reach to any agreed solution, the arbitration clause did not survive and has to be treated as having worked its course. According to the arbitration clause, sole arbitrator would be ED (NR) or his nominee and no one else. In the circumstances, it was not open to either of the parties to unilaterally appoint any arbitrator for resolution of the disputes. Sections 11(6)(c), 13 and 15 of the 1996 Act have no application in the light of the reasons indicated above.

30 8. In this view of the matter, the impugned order dated 8-11-2006 has to be set aside and it is set aside. The appointment of Respondent 3 as sole arbitrator to adjudicate the disputes between the parties is also set aside. The proceedings, if any, carried out by the arbitrator are declared to be of no legal consequence. It will be open to the contractor, the appellant to pursue appropriate ordinary civil proceedings for redressal of its grievance in accordance with law.”

24. The aforesaid decision clearly lays down that it is not

open to either of the parties to unilaterally appoint an

arbitrator for resolution of the disputes in a situation that had

arisen in the said case.

25. In Deep Trading Company v. Indian Oil Corporation

and others12, the three-Judge Bench referred to clause 29 of

the agreement, analysed sub-sections 1, 2, 6 and 8 of Section

11 of the Act, referred to the authorities in Datar

Switchgears (supra) and Punj Lloyd Ltd. v. Petronet MHB

Ltd.13 and came to hold that:

“19. If we apply the legal position exposited by this Court in Datar Switchgears to the admitted facts, it will be seen that the Corporation has forfeited its right to appoint the arbitrator. It is so for the reason

12 (2013) 4 SCC 35 13 (2006) 2 SCC 638 31

that on 9-8-2004, the dealer called upon the Corporation to appoint the arbitrator in accordance with the terms of Clause 29 of the agreement but that was not done till the dealer had made application under Section 11(6) to the Chief Justice of the Allahabad High Court for appointment of the arbitrator. The appointment was made by the Corporation only during the pendency of the proceedings under Section 11(6). Such appointment by the Corporation after forfeiture of its right is of no consequence and has not disentitled the dealer to seek appointment of the arbitrator by the Chief Justice under Section 11(6). We answer the above questions accordingly.

20. Section 11(8) does not help the Corporation at all in the fact situation. Firstly, there is no qualification for the arbitrator prescribed in the agreement. Secondly, to secure the appointment of an independent and impartial arbitrator, it is rather necessary that someone other than an officer of the Corporation is appointed as arbitrator once the Corporation has forfeited its right to appoint the arbitrator under Clause 29 of the agreement.”

26. The Court accepted the legal position laid down in

Newton Engineering (supra) and referred to Deep Trading

Company (supra) and opined that as the Corporation had

failed to act as required under the procedure agreed upon and

did not make the appointment until the application was made

under Section 11(6) of the Act, it had forfeited its right of

appointment of an arbitrator. In such a circumstance the 32

Chief Justice or his designate ought to have exercised his

jurisdiction to appoint an arbitrator under Section 11(6) of the

Act. Be it noted, the three-Judge Bench also expressly stated

its full agreement with the legal position that has been laid

down in Datar Switchgears Ltd. (supra)

27. In Deep Trading Company (supra), the three-Judge

Bench noticed as the Corporation did not agree to any of the

names proposed by the appellant, and accordingly remitted

the matter to the High Court for an appropriate order on the

application made under Section 11(6) of the Act.

28. At this stage, it is necessary to understand the

distinction between the two authorities, namely, Newton

Engineering (supra) and Deep Trading Company (supra). In

Newton Engineering (supra) the arbitration clause provided

that no person other than ED (NR) or a person designated by

the ED (NR) should act as an arbitrator. Though the

Corporation appointed its Director (Marketing) as the sole

arbitrator yet the same was not accepted by the contractor.

On the contrary, it was assailed before the designated Judge. 33

The Court held that since the parties were unable to arrive at

any agreed solution, the arbitration clause did not survive and

the dealer was left to pursue appropriate ordinary civil

proceedings for redressal of its grievance in accordance with

law. In Deep Trading Company (supra) arbitration clause, as

is noticeable, laid down that the dispute or difference of any

nature whatsoever or regarding any right, liability, act,

omission on account of any of the parties thereto or in relation

to the agreement shall be referred to the sole arbitration of the

Director (Marketing) of the Corporation or of some officer the

Corporation who may be nominated by the Director

(Marketing).

29. As the factual matrix of the said case would show, the

appointing authority had not appointed arbitrator till the

dealer moved the Court and it did appoint during the

pendency of the proceeding. Be it noted that dealer had called

upon the Corporation to appoint arbitrator on 9.8.2004 and as

no appointment was made by the Corporation, he had moved

the application on 6.12.2004. The Corporation appointed the 34

sole arbitrator on 28.12.2004 after the application under

Section 11(6) was made. Taking note of the factual account,

the Court opined that there was a forfeiture of the right of

appointment of arbitrator under the agreement and, therefore,

the appointment of the arbitrator by the Corporation during

the pendency of the proceeding under Section 11(6) of the Act

was of no consequence and remanded the matter to the High

Court. The arbitration clause in Newton Engineering (supra)

clearly provided that if the authority concerned is not there

and the office ceases to exist and parties are unable to reach

any agreed solution, the arbitration clause shall cease to exist. Such a stipulation was not there in Deep Trading Company

(supra). That is the major distinction and we shall delineate on

the said aspect from a different spectrum at a later stage.

30. At this juncture, we may also refer to a two-Judge Bench

decision in Municipal Corpn., Jabalapur and others v.

Rajesh Construction Co14. In the said case the arbitration

clause specifically provided that if the party invoking

arbitration is the contractor, no reference order shall be 14 (2007) 5 SCC 344 35

maintainable unless the contractor furnishes a security

deposit of a sum determined as per the table given therein.

The said condition precedent was not satisfied by the

contractor. Appreciating the obtaining factual score, the Court

held that it 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, and, therefore, the High Court was

not correct in appointing an arbitrator in a manner, which was

inconsistent with the arbitration agreement. Thus, emphasis

was laid on the manner of appointment which is consistent

with arbitration clause that prescribes for appointment.

31. The purpose of referring to the aforesaid judgments is

that courts in certain circumstances have exercised the

jurisdiction to nullify the appointments made by the

authorities as there has been failure of procedure or ex facie

contravention of the inherent facet of the arbitration clause.

Submission of the learned counsel for the respondent is that

the authority of the arbitrator can be raised before the learned

Arbitrator and for the said purpose, as stated hereinbefore, he 36

has placed heavy reliance upon Antrix Corporation Limited

(supra). In the said case, the two-Judge Bench referred to

Article 20 of the agreement which specifically dealt with

arbitration and provided that in the event any dispute or

difference arises between the parties as to any clause or

provision of the agreement, or as to the interpretation thereof,

or as to any account or valuation, or as to rights and

liabilities, acts, omissions of any party, such disputes would

be referred to the senior management of both the parties to

resolve the same within three weeks, failing which the matter

would be referred to an arbitral tribunal comprising of three

arbitrators and the seat of the arbitration would be New Delhi

and further that the arbitration proceedings would be held in

accordance with the rules and procedures of the International

Chamber of Commerce (ICC) or UNCITRAL. As the agreement

was terminated, the petitioner therein wrote to the respondent

company to nominate the senior management to discuss the

matter and to try and resolve the dispute between the parties.

However, without exhausting the mediation process, as 37

contemplated under Article 20(a) of the agreement, the

respondent unilaterally and without prior notice addressed a

request for arbitration to the ICC International Court of

Arbitration and one Mr. V.V. Veedar was nominated as the

arbitrator in accordance with ICC Rules. The correspondence

between the parties was not fruitful and the petitioner filed an

application under Section 11(4) read with Section 11(10) of the

Act for issuance of a direction to the respondent to nominate

an arbitrator in accordance with an agreement dated

28.1.2005 and the Rules to adjudicate upon the disputes

which had arisen between the parties and to constitute an

arbitral tribunal and to proceed with the arbitration.

32. When the matter was listed before the designate of the

Chief Justice of this Court, it was referred to a larger Bench

and the Division Bench, analyzing the various authorities,

came to hold thus:

“35. … Once the provisions of the ICC Rules of Arbitration had been invoked by Devas, the proceedings initiated thereunder could not be interfered with in a proceeding under Section 11 of the 1996 Act. The invocation of the ICC Rules would, of course, be subject to challenge in 38

appropriate proceedings but not by way of an application under Section 11(6) of the 1996 Act. Where the parties had agreed that the procedure for the arbitration would be governed by the ICC Rules, the same would necessarily include the appointment of an arbitral tribunal in terms of the arbitration agreement and the said Rules. Arbitration Petition no. 20 of 2011 under Section 11(6) of the 1996 Act for the appointment of an arbitrator must, therefore, fail and is rejected, but this will not prevent the petitioner from taking recourse to other provisions of the aforesaid Act for appropriate relief.”

33. The said pronouncement, as we find, is factually

distinguishable and it cannot be said in absolute terms that

the proceeding once initiated could not be interfered with the

proceeding under Section 11 of the Act. As we find, the said

case pertained to ICC Rules and, in any case, we are disposed

to observe that the said case rests upon its own facts.

34. Mr. Sundaram, learned senior counsel for the appellant

has also drawn inspiration from the judgment passed by the

designated Judge of this Court in Walter Bau AG (supra),

where the learned Judge, after referring to Antrix

Corporation Limited (supra), distinguished the same and 39

also distinguished the authority in Pricol Limited v. Johnson

Controls Enterprise Limited15 and came to hold that:

“10. Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the Arbitration Act, acceptance of such appointment as a fait accompli to debar the jurisdiction under Section 11(6) cannot be countenanced in law. …”

35. We may immediately state that the opinion expressed in

the aforesaid case is in consonance with the binding

authorities we have referred to hereinbefore.

36. Learned counsel for the respondent commenting on the

authority in Walter Bau AG (supra) would submit that the

decision rendered therein is not a precedent and for the said

purpose, he has placed reliance upon Associated

Contractors (supra) wherein a three-Judge Bench was dealing

with a reference that gave rise to the following issue:

“Which court will have the jurisdiction to entertain and decide an application under Section 34 of the Arbitration and Conciliation Act, 1996.”

37. The three-Judge Bench was called upon to lay down the

meaning of the term “court” under Section 2(1)(e) and

15 (2015) 4 SCC 177 40 Section 42 of the Act. The Court came to hold that an

essential ingredient of Section 42 of the Act is that an

application under Part I must be made to a court. The

three-Judge Bench adverted to the definition of the court

under Section 2(1)(e) of the Act and opined that the definition

contained in the 1940 Act spoke of civil court whereas the

definition of the 1996 Act which says court to be the Principal

Civil Court of original jurisdiction in a district or the High

Court in exercise of original civil jurisdiction. That apart,

Section 2(1)(e) further goes on to say that the court would not

include any civil court of a grade inferior to such Principal

Civil Court, or a Small Cause Court. The Court discussed with

regard to the concept of ‘court’, referred to the meaning of the

phrase “means and includes”, reverted to the judgment in

State of Maharashtra v. Atlanta Limited16 and also

reproduced few passages from the seven-Judge Bench in SBP

& Co. v. Patel Engineering Ltd.17 and eventually ruled:

“24. If an application were to be preferred to a court which is not a Principal Civil Court of original

16 (2014) 11 SCC 619 17 (2005) 8 SCC 618 41

jurisdiction in a district or a High Court exercising original jurisdiction to decide questions forming the subject matter of an arbitration if the same had been the subject matter of a suit, then obviously such application would be outside the four corners of Section 42. If, for example, an application were to be filed in a court inferior to a Principal Civil Court, or to a High Court which has no original jurisdiction, or if an application were to be made to a court which has no subject-matter jurisdiction, such application would be outside Section 42 and would not debar subsequent applications from being filed in a court other than such court.”

38. The Court summed up the conclusions as follows:

“25.(a) Section 2(1)(e) contains an exhaustive definition marking out only the Principal Civil Court of Original Jurisdiction in a district or a High Court having original civil jurisdiction in the State, and no other court as “court” for the purpose of Part I of the Arbitration Act, 1996.

(b) The expression “with respect to an arbitration agreement” makes it clear that Section 42 will apply to all applications made whether before or during arbitral proceedings or after an award is pronounced under Part I of the 1996 Act.

(c) However, Section 42 only applies to applications made under Part I if they are made to a court as defined. Since applications made under Section 8 are made to judicial authorities and since applications under Section 11 are made to the Chief Justice or his designate, the judicial authority and the Chief Justice or his designate not being court as defined, such applications would be outside Section

42.

(d) Section 9 applications being applications made to a court and Section 34 applications to set aside 42

arbitral awards are applications which are within Section 42.

(e) In no circumstances can the Supreme Court be “court” for the purposes of Section 2(1)(e), and whether the Supreme Court does or does not retain seisin after appointing an arbitrator, applications will follow the first application made before either a High Court having original jurisdiction in the State or a Principal Civil Court having original jurisdiction in the district, as the case may be.

(f) Section 42 will apply to applications made after the arbitral proceedings have come to an end provided they are made under Part I.

(g) If a first application is made to a court which is neither a Principal Court of Original Jurisdiction in a district or a High Court exercising original jurisdiction in a State, such application not being to a court as defined would be outside Section 42. Also, an application made to a court without subject-matter jurisdiction would be outside Section 42”.

39. Relying on the said pronouncement, it is urged by the

learned senior counsel for the respondent that the authority in

Walter Bau AG (supra) is not a precedent.

40. We have discussed in detail to understand the context in

which judgment in Associated Contractors (supra) was

delivered. Suffice it to mention that in Walter Bau AG (supra),

the designated Judge only reiterated the principles which have

been stated by a two-Judge or three-Judge Bench decisions 43

that had dealt with Section 11 of the Act. We may also hasten

to make it clear that the authority in Associated Contractors

(supra) deals with a different situation and it has nothing to do

with the conundrum that has arisen in the instant case. We

have devoted some space as the said authority was pressed

into service with enormous conviction. Be it clearly stated that

the said decision is only concerned with the “concept of court”

in the context of Sections 42, 34, 9 and 2(1)(e) of the Act. In

the present case, we are exclusively concerned with the

statutory disqualification of the learned arbitrator. The

principles laid down in Associated Contractors (supra) has

no applicability to the case at hand and reliance placed upon

the same, we are obliged to say, is nothing but a sisyphean

endeavour.

41. As we are required to adjudge on the jurisdiction of the

Designated Judge, we may reproduce the relevant conclusion

from the majority judgment in SBP & Co. (supra). Conclusion

(iv), as has been summed up in para 47 in SBP’s case by the

majority, reads as follow:

44

“47. (iv) The Chief Justice or the Designated Judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be his own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the Designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the Designated Judge.”

42. In Arasmeta Captive Power Company Private Limited

and another v. Lafarge India Private Limited 18, the

two-Judge Bench, though was dealing with the pregnability of

the order passed by the Designated Judge pertaining to

excepted matters, dealt with the submission advanced by the

learned counsel for the appellant that the three-Judge Bench

in Chloro Controls India Private Limited v. Severn Trent

Water Purification Inc.19 has not appositely understood the

principle stated in major part of the decision rendered by the

18 (2013) 15 SCC 414 19 (2013) 1 SCC 641 45

larger Bench in SBP’s case. In the said case, the Court, after

referring to paragraphs 39 and 47(iv), stated thus:

“18. On a careful reading of para 39 and Conclusion

(iv), as set out in para 47 of SBP case, it is limpid that for the purpose of setting into motion the arbitral procedure the Chief Justice or his designate is required to decide the issues, namely, (i) territorial jurisdiction, (ii) existence of an arbitration agreement between the parties, (iii) existence or otherwise of a live claim, and (iv) existence of the conditions for exercise of power and further satisfaction as regards the qualification of the arbitrator. That apart, under certain circumstances the Chief Justice or his designate is also required to see whether a long-barred claim is sought to be restricted and whether the parties had concluded the transaction by recording satisfaction of the mutual rights and obligations or by receiving the final payment without objection.”

43. It is worthy to note here that in the said case, the Court

set aside the impugned order as the designated Judge had

entered into the billing disputes, which he could not have.

The purpose of referring to these two judgments is that apart

from the fact that the Designated Judge can, at the initial

stage, adjudicate upon his jurisdiction, he is also entitled to

scrutinize the existence of the condition precedent for the 46

exercise of his power and also the disqualification of the

arbitrator or arbitrators.

44. Section 11(8) of the Act, which has been introduced in

2015, reads as follows:

“(8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to—

(a) any qualifications required of the arbitrator by the agreement of the parties; and

(b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.”

45. We are referring to the same as learned counsel for the

parties have argued at length with regard to the disclosure

made by the arbitrator and that has also been referred to by

the designated Judge. In this context, we may profitably refer

to sub-section (6A) of Section 11 of the Act which reads as

follows:

“(6A). The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or 47

sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.”

46. The purpose of referring to the said provision is that the

amended law requires the Court to confine the examination of

the existence of an arbitration agreement notwithstanding any

judgment of the Supreme Court or the High Court while

considering an application under Section 11(6) of the Act. As

the impugned order would indicate, the learned Judge has

opined that there had been no failure of procedure, for there

was a request for appointment of an arbitrator and an

arbitrator has been appointed. It is apt to state here that the

present factual score projects a different picture altogether

and we have to carefully analyse the same.

47. We are required to sit in a time machine and analyse the

judgments in this regard. In Datar Switchgears (supra), it

has been held that the appointment made by the respondent

was invalid inasmuch as there was no proper notice by the

appellant to appoint an arbitrator and before an application 48

under Section 11(6) of the Act was filed, the arbitrator was

appointed. Relevant part of clause 20.9 of the agreement in

the said case postulates thus:

“20.9. It is agreed by and between the parties that in case of any dispute under this lease the same shall be referred to an arbitrator to be nominated by the lessor and the award of the arbitrator shall be final and binding on all the parties concerned.”

The aforesaid clause lays down that the lessor shall

nominate the arbitrator.

48. In Newton Engineering (supra), though the agreement

has not been produced in the judgment, the Court has

anaylsed in detail the purport of the arbitration clause in the

agreement and ruled that the matter shall be referred to the

sole arbitration of ED (NR) of the respondent Corporation and

if the said authority is unable and unwilling to act, the matter

shall be referred to the sole arbitration of some other person

designated by ED (NR) in his place who is willing to act as a

sole arbitrator. The said post had ceased to exist and as the

parties intended the matter to go to arbitration, the 49

respondent substituted the arbitrator with the Director

(Marketing) in the arbitration clause subject to the written

confirmation giving the consent by the contractor. The

contractor informed the Corporation that it would like to have

the arbitrator appointed under the Act whereby each of the

parties would be appointing one arbitrator each to which the

Corporation did not accede. At that juncture the contractor

moved an application under Section 11(6C) of the Act and the

High Court appointed a retired Judge. Taking exception to the

view of the High Court, the two-Judge Bench held, as stated

earlier, that the arbitration clause postulated sole arbitrator

would be ED (NR) or his nominee and no one else and,

therefore, Section 11(6C) was not applicable. The Court ruled

that as the parties had not been able to reach the agreed

decision, the arbitration clause did not survive.

49. In Deep Trading Company (supra) while approving the

view expressed in Newton Engineering (supra), the Court

observed that in the said case the Court was not concerned

with the question of forfeiture of the right of the Corporation 50

for appointment of an arbitrator and accordingly while setting

aside the order sent for fresh consideration by the Chief

Justice or the Designated Judge.

50. The aforesaid three cases exposit three different

situations. The first one relates to non-failure of the procedure

and the authority of the owner to appoint the arbitrator; the

second relates to non-survival of the arbitration clause; and

the third pertains to forfeiture of the right of the Corporation

to appoint the sole arbitrator because of the failure to act with

the procedure agreed upon by the parties in clause 29 which

was the arbitration clause in the agreement. It is interesting to

note that clause 29 in Deep Trading Company (supra) does

not mention unlike Newton Engineering (supra) that no one

else shall arbitrate upon.

51. One aspect needs to be noted. In the first and third case,

the parties had not stipulated that there will be no one else

who can arbitrate while in the second case, i.e., Newton

Engineering (supra), such a stipulation was postulated. 51

52. Regard being had to the same, we have to compare and

analyse the arbitration clause in the present case. Clause (c),

which we have reproduced earlier, states that all disputes

which cannot be settled by mutual negotiation shall be

referred to and determined by arbitration as per the Act, as

amended. Clause (c) is independent of Clause (d). Clause (d)

provides that unless otherwise provided, any dispute or

difference between the parties in connection with the

agreement shall be referred to the sole arbitration of the

Managing Director or his nominee.

53. First, we shall deal with Clause (d). There is no quarrel

that by virtue of Section 12(5) of the Act, if any person who

falls under any of the categories specified in the Seventh

Schedule shall be ineligible to be appointed as the arbitrator.

There is no doubt and cannot be, for the language employed in

the Seventh Schedule, the Managing Director of the

Corporation has become ineligible by operation of law. It is

the stand of the learned senior counsel for the appellant that

once the Managing Director becomes ineligible, he also 52

becomes ineligible to nominate. Refuting the said stand, it is

canvassed by the learned senior counsel for the respondent

that the ineligibility cannot extend to a nominee if he is not

from the Corporation and more so when there is apposite and

requisite disclosure. We think it appropriate to make it clear

that in the case at hand we are neither concerned with the

disclosure nor objectivity nor impartiality nor any such other

circumstance. We are singularly concerned with the issue,

whether the Managing Director, after becoming ineligible by

operation of law, is he still eligible to nominate an arbitrator.

At the cost of repetition, we may state that when there are two

parties, one may nominate an arbitrator and the other may

appoint another. That is altogether a different situation. If

there is a clause requiring the parties to nominate their

respective arbitrator, their authority to nominate cannot be

questioned. What really in that circumstance can be called in

question is the procedural compliance and the eligibility of

their arbitrator depending upon the norms provided under the

Act and the Schedules appended thereto. But, here is a case 53

where the Managing Director is the “named sole arbitrator”

and he has also been conferred with the power to nominate

one who can be the arbitrator in his place. Thus, there is

subtle distinction. In this regard, our attention has been

drawn to a two-Judge Bench decision in State of Orissa and

others v. Commissioner of Land Records & Settlement,

Cuttack and others20. In the said case, the question arose

can the Board of Revenue revise the order passed by its

delegate. Dwelling upon the said proposition, the Court held:

“25. We have to note that the Commissioner when he exercises power of the Board delegated to him under Section 33 of the Settlement Act, 1958, the order passed by him is to be treated as an order of the Board of Revenue and not as that of the Commissioner in his capacity as Commissioner. This position is clear from two rulings of this Court to which we shall presently refer. The first of the said rulings is the one decided by the Constitution Bench of this Court in Roop Chand v. State of Punjab. In that case, it was held by the majority that where the State Government had, under Section 41(1) of the East Punjab Holdings (Consolidation and Prevention of Fragmentation) Act, 1948, delegated its appellate powers vested in it under Section 21(4) to an “officer”, an order passed by such an officer was an order passed by the State Government itself

20 (1998) 7 SCC 162 54

and “not an order passed by any officer under this Act” within Section 42 and was not revisable by the State Government. It was pointed out that for the purpose of exercise of powers of revision by the State under Section 42 of that Act, the order sought to be revised must be an order passed by an officer in his own right and not as a delegate of the State. The State Government was, therefore, not entitled under Section 42 to call for the records of the case which was disposed of by an officer acting as its delegate.”

54. Be it noted in the said case, reference was made to

Behari Kunj Sahkari Awas Samiti v. State of U.P. 21, which

followed the decision in Roop Chand v. State of Punjab22. It

is seemly to note here that said principle has been followed in

Chairman, Indore Vikas Pradhikaran (supra).

55. Mr. Sundaram, has strongly relied on Firm of

Pratapchand Nopaji (supra). In the said case, the

three-Judge Bench applied the maxim “Qui facit per alium facit

per se”. We may profitably reproduce the passage:

“9. … The principle which would apply, if the objects are struck by Section 23 of the Contract Act, is embodied in the maxim: “Qui facit per alium facit per se” (What one does through another is done by

21 (1997) 7 SCC 37 22 AIR 1963 SC 1503 55

oneself). To put it in another form, that which cannot be done directly may not be done indirectly by engaging another outside the prohibited area to do the illegal act within the prohibited area. It is immaterial whether, for the doing of such an illegal act, the agent employed is given the wider powers or authority of the “pucca adatia”, or, as the High Court had held, he is clothed with the powers of an ordinary commission agent only.”

56. The aforesaid authorities have been commended to us to

establish the proposition that if the nomination of an

arbitrator by an ineligible arbitrator is allowed, it would

tantamount to carrying on the proceeding of arbitration by

himself. According to learned counsel for the appellant,

ineligibility strikes at the root of his power to arbitrate or get it

arbitrated upon by a nominee.

57. In such a context, the fulcrum of the controversy would

be, can an ineligible arbitrator, like the Managing Director,

nominate an arbitrator, who may be otherwise eligible and a

respectable person. As stated earlier, we are neither concerned

with the objectivity nor the individual respectability. We are

only concerned with the authority or the power of the

Managing Director. By our analysis, we are obligated to arrive 56

at the conclusion that once the arbitrator has become

ineligible by operation of law, he cannot nominate another as

an arbitrator. The arbitrator becomes ineligible as per

prescription contained in Section 12(5) of the Act. It is

inconceivable in law that person who is statutorily ineligible

can nominate a person. Needless to say, once the

infrastructure collapses, the superstructure is bound to

collapse. One cannot have a building without the plinth. Or to

put it differently, once the identity of the Managing Director as

the sole arbitrator is lost, the power to nominate someone else

as an arbitrator is obliterated. Therefore, the view expressed

by the High Court is not sustainable and we say so.

58. Another facet needs to be addressed. The Designated

Judge in a cryptic manner has ruled after noting that the

petitioner therein had no reservation for nomination of the

nominated arbitrator and further taking note of the fact that

there has been a disclosure, that he has exercised the power

under Section 11(6) of the Act. We are impelled to think that

that is not the right procedure to be adopted and, therefore, 57

we are unable to agree with the High Court on that score also

and, accordingly, we set aside the order appointing the

arbitrator. However, as Clause (c) is independent of Clause (d),

the arbitration clause survives and hence, the Court can

appoint an arbitrator taking into consideration all the aspects.

Therefore, we remand the matter to the High Court for fresh

consideration of the prayer relating to appointment of an

arbitrator.

59. Resultantly, the appeals are allowed, the orders passed

by the learned Single Judge are set aside and the matters are

remitted to the High Court for fresh consideration. In the facts

and circumstances of the case, there shall be no order as to

costs.

……….………………………….J. (Dipak Misra)

……….………………………….J. (A.M. Khanwilkar)

New Delhi ………………………………….J. July 03, 2017 (Mohan M. Shantanagoudar) 58

ITEM NO.1501 COURT NO.2 SECTION XIV (For Judgment)

S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

Civil Appeal No.5306/2017

TRF LTD Appellant(s) VERSUS

ENERGO ENGINEERING PROJECTS LTD Respondent(s)

WITH C.A. No.5309/2017 C.A. No. 5311/2017 C.A. No. 5308/2017 C.A. No. 5307/2017

Date : 03-07-2017 These appeals were called on for pronouncement of Judgment today.

For Appellant(s) Mr. Kaushik Poddar, AOR

For Respondent(s) Mr. S.S. Shroff, AOR

Hon'ble Mr. Justice Dipak Misra pronounced the judgment of the Bench comprising His Lordship, Hon'ble Mr. Justice A.M. Khanwilkar and Hon'ble Mr. Justice M. Shantanagoudar.

The appeals are allowed in terms of the signed reportable judgment.

(Chetan Kumar) (H.S. Parasher) Court Master Court Master

(Signed reportable judgment is placed on the file)