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REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION

ARBITRATION CASE (CIVIL) NO.35 OF 2014 WALTER BAU AG,LEGAL SUCCESSOR,  OF THE ORIGINAL CONTRACTOR, DYCKERHOFF & WIDMANN A.G.     ...PETITIONER

VERSUS MUNICIPAL CORPORATION OF GREATER MUMBAI & ANR.      ...RESPONDENTS

JUDGMENT

1. A works contract No.3AAA dated 20th  

December, 2000 was executed by and between  the  petitioner  and  the  Municipal  Corporation of Greater Mumbai (respondent  No.1 herein) for execution of city tunnel  rehabilitation works for the purposes of  transporting  the  city's  sewage.  Disputes  and differences having arisen between the  parties  under  the  said  contract,  the  petitioner invoked the arbitration clause

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contained therein and by letter, dated 24th  

February,  2014,  nominated  one  Shri  R.G.  Kulkarni as its Arbitrator.  By the said  communication, the petitioner called upon  the  respondent  No.1  to  appoint  its  Arbitrator within 30 days of the receipt  of the aforesaid letter/notice.

2. The  arbitration  clause  in  the  agreement  between  the  parties  would  require  to  be  specifically  noticed  and,  therefore,  is  being  extracted  herein  below:

“Modified Sub-Clause 67.3

Arbitration Sub-clause 67.3 is modified to read  as follows: Any dispute, in respect of which the  Recommendation(s),  if  any,  of  the  Board  has  not  become  final  and  binding pursuant to Sub-clause 67.1,  shall  be  finally  settled  by

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arbitration as set forth below.  The  Arbitral  Tribunal  shall  have  full  power to open-up, review and revise  any decision, opinion, instruction,  determination,  certificate  or  valuation  of  the  Engineer  and  any  Recommendation(s)  of  the  Board  related to the dispute:   I) A  dispute  with  and  Indian  

contractor  shall  be  finally  settled  by  arbitration  in  accordance  with  the  Indian  Arbitration  and  Conciliation  Act,  1996  or  any  statutory  amendment  thereof.   The  Arbitral  Tribunal  shall  consist of 3 Arbitrators, one  each  to  be  appointed  by  the  Employer  and  the  Contractor.  The third arbitrator shall be  chosen  by  two  arbitrators  so  appointed  by  the  parties  and  shall  act  as  Presiding  Arbitrator.   In  case  of  failure  of  the  two  arbitrators,  appointed  by  the  parties  to  reach  upon  a  consensus  within  a  period  of  30  days  from  the  appointment  of  the  arbitrator  appointed  subsequently,  the  presiding  arbitrator  shall  be  appointed  by  the  International  Centre  for  Alternative  Dispute  Resolution in India.  For the  purpose  of  this  Sub-Clause,

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the  term  “Indian  Contractor”  means  a  contractor  who  is  registered in India and is a  juridical person created under  Indian Law as well as a Joint  Venture  between  such  a  Contractor  and  a  Foreign  Contractor.

II. In  case  of  a  dispute  with  a  foreign  Contractor,  the  dispute  shall  be  finally  settled in accordance with the  provisions  of  UNCITRAL  Arbitration  Rules.   The  arbitral  tribunal  shall  consist  of  3  Arbitrators  one  each  to  be  appointed  by  the  Employer  and  the  Contractor.  The third arbitrator shall be  chosen by the two arbitrators  so  appointed  by  the  parties,  and  shall  act  as  presiding  arbitrator.   In  case  of  the  failure of the two arbitrators  appointed  by  the  parties  to  reach upon a consensus within  a period of 30 days from the  appointment  of  the  arbitrator  appointed  subsequently,  the  presiding  arbitrator  shall  be  appointed by the International  Centre for Alternative Dispute  Resolution in India.  For the  purposes  of  this  clause  67,  the  term  “Foreign  Contractor”  means a contractor who is not

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registered in India and is non  juridical person created under  India Law.

III. Neither party shall be limited  in the proceedings before such  tribunals to the evidence nor  did  arguments  already  put  before  the  Engineer  or  the  Board, as the case may be, for  the  purpose  of  obtaining  its/his  said  Recommendations/  decision.   No  such  Recommendations/decision  shall  disqualify the Engineer or any  of the members of the Board,  as the case may be, from being  called as a witness and giving  evidence  before  the  arbitrators  or  any  matter  whatsoever  relevant  to  the  dispute.

IV) Arbitration  may  be  commenced  prior  to  or  after  completion  of the works, provided always  that  the  obligations  of  the  Employer,  the  Engineer,  the  contractor and the Board shall  not  be  altered  by  reason  of  the  arbitration  being  conducted  during  the  progress  of the works.

V) If one of the parties fails to  appoint  its  arbitrator  in  pursuance  of  Sub-clause  (i)

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and (ii) above, within 30 days  after receipt of the notice of  the  appointment  of  its  arbitrator by the other party,  then  the  International  Centre  for  Alternative  Dispute  Resolution  in  India,  both  in  cases  of  foreign  contractors  as well as Indian Contractors,  shall appoint an arbitrator. A  certified copy of the order of  the  International  Centre  for  Alternative Dispute Resolution  in  India  making  such  and  appointment shall be furnished  to each of the parties.

VI) Arbitration proceeding s shall  be held at Mumbai, India, and  the  language  of  the  arbitration  proceedings  and  that  of  all  documents  and  communications  between  the  parties shall be English.

VII The  decision  of  the  majority  of  the  arbitrators  shall  be  final  and  binding  upon  both  parties.   The  cost  and  the  expenses  of  arbitration  proceedings  will  be  paid  as  determined  by  the  arbitral  tribunal.   However,  the  expenses  incurred  by  each  party  in  connection  with  the  preparation,  presentation,  etc. of its case as also the

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fees and expenses paid to the  arbitrator  appointed  by  such  party or on its behalf shall  be  borne  by  each  party  itself.”  

3. A reading of the aforesaid clause  of  the  agreement  would  go  to  show  that  after one of the parties thereto invokes  the  arbitration  clause;  appoints  its  arbitrator and thereafter give notice to  the other party to appoint its arbitrator,  if the same is not done within 30 days or  if the two arbitrators appointed by both  sides fail to nominate a third arbitrator,  the  matter  is  to  be  referred  to  the  International  Centre  for  Alternative  Dispute  Resolution  in  India  (for  short  “ICADR”).  For  appointment  of  the  Arbitrator on behalf of one of the parties

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who  has  failed  to  so  act  or  for  appointment  of  the  third  arbitrator,  as  may be, ICADR is governed by certain norms  contained in Rules 5 and 35 of the ICADR  Rules,  1996  governing  the  procedure  for  appointment of Arbitrators. The same rules  may be usefully extracted herein below:

5. Appointment of arbitrators.- (1)  Unless  otherwise  agreed  by  the  parties, a person of any nationality  may be an arbitrator.  (2) Where the arbitration agreement  provides  that  each  party  shall  appoint one arbitrator, and the two  appointed arbitrators shall appoint  the presiding arbitrator, and-(a) a  party fails to appoint an arbitrator  within thirty days from the receipt  of a request to do so from the other  party; or  (b)  the  appointed  arbitrators  fail  to agree on the presiding arbitrator  within thirty days from the date of  their  appointment,  the  appointment  shall  be  made,  upon  request  of  a  party, by the ICADR.

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(3) In an arbitration with a sole  arbitrator, if the parties fail to  agree  on  the  arbitrator  within  thirty  days  from  receipt  of  a  request by one party from the other  party to so agree, the appointment  shall  be  made,  upon  request  of  a  party, by the ICADR. (4)  A  decision  by  the  ICADR  on  a  matter entrusted to it by sub-rule  (2) or sub rule (3) will be final  and binding on the parties. (5) Upon receipt of a request under  sub-rule  (2)  or  sub-rule  (3),  the  ICADR will- (a) make the appointment as promptly  as possible, (b)  follow  the  procedure  specified  in rule 35,  (c) have regard to- (i)  any  qualifications  required  of  the arbitrator by the agreement of  the parties (ii)  such  considerations  as  are  likely to secure the appointment of  an  independent  and  impartial  arbitrator; and  (iii) in the case of appointment of  a sole or presiding arbitrator in an  international  commercial  arbitration,  the  advisability  of  appointing a person of a nationality

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other than the nationalities of the  parties.

35.  Services  as  appointing  authority.-  (1)  On  receipt  of  a  request to appoint an arbitrator in  pursuant of rule 5(2) or 5(3), the  ICADR  will  follow  the  following  procedure- (i)  the  ICADR  will  communicate  to  each  party  a  list  containing  the  names, addresses, nationalities and  a description of qualifications and  experience  of  at  least  three  individuals  from  the  panel  of  arbitrators; (ii)  within  thirty  days  following  the receipt of the list, a party may  delete any name to which he objects  and after re-numbering the names in  the order of his preference, return  the list to the ICADR; (iii)  on  receipt  of  the  list  returned  by  the  party,  the  ICADR  will appoint the arbitrator from the  list taking into account the order  of  preference  indicated  by  the  parties; (iv)  if  for  any  reason  the  appointment cannot be made according  to  the  procedure  specified  in

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clauses (i) to (iii), the ICADR may  appoint  the  arbitrator  from  the  panel of arbitrators. (2) In appointing an arbitrator the  ICADR  will  have  regard  to  the  matters referred to in rule 5(5)(c)  and  will  carefully  consider  the  nature of the dispute in order to  include in the list, persons having  appropriate  professional  or  businiess  experience,language  ability and nationality. (3)  All  appointments  on  behalf  of  the  ICADR  will  be  made  by  the  Secretary-General and in his absence  by  such  member  of  the  Governing  Council  as  is  designated  by  the  Chairperson: Provided  that  where  the  Secretary- General is to be appointed as the  arbitrator, the appointment will be  made by the Chairperson.

4. The respondent Corporation having  failed to respond to the notice dated 24th  

February,  2014  of  the  petitioner,  an  approach  was  made  to  the  ICADR  by  the  petitioner on 19th May, 2014.  On the basis

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thereof, the ICADR by its letter dated 3rd  

June,  2014  called  upon  the  respondent  Corporation  to  make  appointment  of  an  Arbitrator  from  a  panel  of  three  names  that  was  furnished  to  the  respondent  Corporation or to independently appoint an  arbitrator.   The  respondent  Corporation  pursuant to the said communication of the  ICADR appointed Mr. Justice (Retd.) A.D.  Mane  as  its  arbitrator  by  communication  dated  3rd July,  2014.  Thereafter,  this  application/petition  under  Section  11(6)  of the Arbitration and Conciliation Act,  1996 (for short “the Arbitration Act”) was  filed on 21st August, 2014.   

5. Mr.  Shamik  Sanjanwala,  learned  counsel appearing for the petitioner has  submitted that the arbitration clause in

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the agreement read with  Rules 5 and 35 of  the  ICADR  Rules  embody  a  procedure  that  was agreed upon by the parties with regard  to  appointment  of  the  arbitrator(s).  Clearly and evidently, the appointment of  Mr.  Justice  A.D.  Mane  by  the  respondent  Corporation is contrary to the procedure  agreed upon inasmuch as under the relevant  Rules governing the ICADR, the said Body  was required to communicate the respondent  Corporation a panel of three names and it  is from the said panel that the respondent  Corporation  was  required  to  name  its  Arbitrator.  The Rules do not contemplate  an  alternative  procedure  giving  the  respondent Corporation liberty to appoint  an  Arbitrator  of  his  choice  once  the  respondent  Corporation  failed  to  appoint  its  arbitrator  within  the  agreed  upon

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period of thirty days from the receipt of  the  notice  from  the  petitioner.   The  appointment  of  Mr.  Justice  A.D.Mane  as  Arbitrator is, therefore, non-est, leaving  it  open  for  this  Court  to  exercise  its  powers under Section 11(6) of the Act to  appoint  an  Arbitrator  on  behalf  of  the  respondent Corporation. It is also pointed  out  that  the  petitioner  has  a  serious  basis  to  question  the  impartiality  and  independence  of  the  arbitrator  purported  to  be  appointed  by  the  respondent  Corporation.

6. Mr.  Mukul  Rohatgi,  learned  Attorney  General,  appearing  for  the  the  respondent Corporation, on the other hand,  has  submitted  that  the  present  petition  would not be maintainable inasmuch as an

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Arbitrator has already been appointed and  any exercise of power under Section 11(6)  of  the  Arbitration  Act,  at  this  stage,  would  operate  as  an  ouster  of  the  said  Arbitrator.   It  is  submitted  that  the  remedy  of  the  petitioner,  if  any,  lies  elsewhere  and  under  different  provisions  of the Arbitration Act and not by way of  an  application  under  Section  11(6)  thereof.  Reliance has been placed on the  decision  of  this  Court  in  Antrix  Corporation  Limited  versus  Devas  Multimedia Private Limited [(2014) 11 SCC  560] and another recent pronouncement of  this  Court  dated  16th December,  2014  in  Pricol  Limited  versus  Johnson  Controls  Enterprise Ltd. & Ors. [Arbitration Case  (Civil) NO.30 of 2014].

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7. Alternatively,  it  has  been  urged  by Mr.Rohatgi that as the appointment of  Mr. Justice A.D. Mane was made before the  present application/petition was filed in  this Court, the said appointment would be  valid in law.  It is submitted that the  requirement of appointment within 30 days  of receipt of a notice is only in cases  covered under Section 11(4) and 11(5) of  the   Arbitration  Act,  whereas  in  cases  falling  under  Section  11(2)  read  with  Section 11(6) of the Arbitration Act, so  long  the  appointment  is  made  before  the  concerned aggrieved party moves the Court  under Section 11(6), such appointment will  not  be  invalidated.   In  this  regard,  reliance  has  been  placed  on  Datar  Switchgears Ltd.  Versus  Tata Finance Ltd.  and another [(2000) 8 SCC 151] and  Deep

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Trading  Company versus  Indian  Oil  Corporation and others [(2013) 4 SCC 35].   8. While it is correct that in Antrix  (supra) and Pricol Limited (supra), it was  opined  by  this  Court  that  after  appointment of an Arbitrator is made, the  remedy of the aggrieved party is not under  Section  11(6)  but  such  remedy  lies  elsewhere  and  under  different  provisions  of  the  Arbitration  Act  (Sections  12  and  13),  the  context  in  which  the  aforesaid  view  was  expressed  cannot  be  lost  sight  of.  In Antrix (supra), appointment of the  Arbitrator, as per ICC Rules, was as per  the  alternative  procedure  agreed  upon,  whereas  in  Pricol  Limited  (supra),  the  party  which  had  filed  the  application  under Section 11(6) of the Arbitration Act

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had already submitted to the jurisdiction  of the Arbitrator.  In the present case,  the situation is otherwise.

9. 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.   In  the  present  case,  the  agreed  upon  procedure  between  the  parties  contemplated  the  appointment  of  the  arbitrator  by  second  party  within  30  days  of  receipt  of  a  notice  from  the  first  party.  While  the  decision in Datar Switchgears Ltd. (supra)  may  have  introduced  some  flexibility  in

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the time frame agreed upon by the parties  by  extending  it  till  a  point  of  time  anterior to the filing of the application  under  Section  11(6)  of  the  Arbitration  Act, it cannot be lost sight of that in  the present case the appointment of Shri  Justice A.D. Mane is clearly contrary to  the provisions of the Rules governing the  appointment of Arbitrators by ICADR, which  the  parties  had  agreed  to  abide  in  the  matter  of  such  appointment.   The  option  given to the respondent Corporation to go  beyond  the  panel  submitted  by  the  ICADR  and to appoint any person of its choice  was  clearly  not  in  the  contemplation  of  the parties.  If that be so, obviously,  the appointment of Shri Justice A.D. Mane  is non-est in law.  Such an appointment,  therefore, will not inhibit the exercise

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of  jurisdiction  by  this  Court  under  Section 11(6) of the Arbitration Act.  It  cannot,  therefore,  be  held  that  the  present proceeding is not maintainable in  law.  The appointment of Shri Justice A.D.  Mane made beyond 30 days of the receipt of  notice  by  the  petitioner,  though  may  appear to be in conformity with the law  laid  down  in  Datar  Switchgears  Ltd.  (supra), is clearly contrary to the agreed  procedure  which  required  the  appointment  made by the respondent Corporation to be  from the panel submitted by the ICADR. The  said  appointment,  therefore,  is  clearly  invalid in law.  

10. Consequently, we allow the present  petition  and  appoint  Shri  Justice  S.R.  Sathe, a retired judge of the Bombay High

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Court as the Arbitrator on behalf of the  respondent  Corporation.   Both  the  Arbitrators  shall  now  name  the  third  Arbitrator  forthwith  whereafter  the  arbitration proceedings will be held and  concluded  as  expeditiously  as  possible.  The terms of appointment of Shri Justice  S.R. Sathe as the Arbitrator on behalf of  the respondent Corporation will be settled  in  consultation  with  the  respondent  Corporation.

11. The  arbitration  petition  is  disposed of in the above terms.    

....................,J. (RANJAN GOGOI)

NEW DELHI JANUARY 20, 2015