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 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION

ARBITRATION PETITION NO. 27 OF 2013

Reliance Industries Ltd. & Ors.             …

Petitioners  

Versus

Union of India   

….Respondent

J U D G M E N T

SURINDER SINGH NIJJAR,J.

1. This petition has been filed under Section 11(6) of  

the  Arbitration  Act,  1996,  with  a  prayer  for  

appointment  of  the  third  and  the  presiding  

arbitrator, as the two arbitrators nominated by the  

parties  have  failed  to  reach  a  consensus  on  the  

appointment of the third arbitrator.  

2. Petitioner  No.1  is  a  company  incorporated  and  

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registered  under  the  provisions  of  the  Companies  

Act,  1956;  Petitioner  No.2  is  a  company  

incorporated  in  Cayman  Islands,  British  Virgin  

Islands; Petitioner No.3 is a company incorporated  

according  to  the  laws  of  England  &  Wales.  The  

Respondent  herein  is  Union  of  India  (hereinafter  

referred  to  as  “UOI”),  represented  by  the  Joint  

Secretary, Ministry of Petroleum and Natural Gas.

3. Briefly stated, the relevant facts are as under:

4. In  1999,  UOI  announced a  policy-New Exploration  

and  Licensing  Policy  (hereinafter  referred  to  as  

“NELP”). Under NELP, certain blocks of hydrocarbon  

reserves were offered for exploration, development  

and  production  to  private  contractors  under  the  

agreements which were in the nature of Production  

Sharing Contract. One of the said blocks was Block  

KG-DWN-98/3 (“Block KG-D6”). The joint bid made  

by the Petitioners No.1 and 2 for the Block KG-D6  

was accepted by the UOI. Thereafter on 12th April,  

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2000,  Production  Sharing  Contract  (hereinafter  

referred  to  as  ‘PSC’)  was  executed  between  the  

Petitioners  No.1 and 2  as  Contractor on  one side  

and UOI on the other. The Arbitration Agreement in  

the PSC is contained in Article 33.  Relevant facts  

thereof, is in the following words:

“ARTICLE 33   SOLE EXPERT, CONCILIATION AND ARBITRATION  33.1 * * *

33.2 * * *

33.3 Subject to the provisions of this Contract,  the Parties hereby agree that any controversy,  difference, disagreement or claim for damages,  compensation or otherwise (hereinafter in this  Clause  referred  to  as  a  "dispute")  arising  between the Parties,  which cannot be settled  amicably  within  ninety  (90)  days  after  the  dispute arises, may (except for those referred  to in Article 33.2, which may be referred to a  sole expert) be submitted to an arbitral tribunal  for final decision as  hereinafter provided.  

33.4 The arbitral tribunal shall consist of three  arbitrators.  Each  Party  to  the  dispute  shall  appoint one arbitrator and the Party or Parties  shall  so  advise  the  other  Parties.   The  two  arbitrators  appointed  by  the  Parties  shall  appoint the third arbitrator.  

33.5  Any  Party  may,  after  appointing  an  arbitrator,  request  the  other  Party(ies)  in  writing to appoint the second arbitrator. If such  

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other Party fails to appoint an arbitrator within  thirty (30) days of receipt of the written request  to do so, such arbitrator may, at the request of  the first Party, be appointed by the Chief Justice  of India or by a person authorised by him within  thirty (30) days of the date of receipt of such  request,  from  amongst  persons  who  are  not  nationals of the country of any of the Parties to  the arbitration proceedings.  

33.6 If the two arbitrators appointed by or on  behalf  of  the  Parties  fail  to  agree  on  the  appointment of the third arbitrator within thirty  (30)  days  of  the  appointment  of  the  second  arbitrator  and if  the Parties  do not  otherwise  agree, at the request of either Party, the third  arbitrator shall be appointed in accordance with  Arbitration and Conciliation Act, 1996.  

x --------------- x ---------------x ------------x -----------x

33.12 The venue of the sole expert, conciliation  or  arbitration  proceedings  pursuant  to  this  Article, unless the Parties agree otherwise, shall  be New Delhi, India and shall be conducted in  the  English  language.  Insofar  as  practicable,  the  Parties  shall  continue  to  implement  the  terms  of  this  Contract  notwithstanding  the  initiation of arbitral  proceedings before a sole  expert,  conciliator or arbitral tribunal and any  pending claim or dispute.  

33.13 * * *”

5. On 8th August, 2011, UOI granted its approval to the  

Petitioner  No.1  to  assign  30% of  its  participating  

interest  in  the  Block  KG-D6,  under  the  PSC  to  

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Petitioner No.3. On the same date, i.e. 8th August,  

2011,  Petitioner No. 3 also entered into PSC as a  

party. Further, Petitioner No.1 was appointed as the  

‘Operator’ for Block KG-D6, both under the terms of  

the  PSC,  and  the  Joint  Operating  Agreement  that  

was  executed  between  Petitioner  No.  1  and  

Petitioners No. 2 & 3.

6. It  appears  that  in  the  financial  year  2010-2011,  

differences relating to the scope and interpretation  

of  the  provisions  of  the  PSC  arose  between  the  

Petitioners and Respondent after the publication of  

some media reports. These reports, according to the  

Petitioners,  suggested  that  the  Respondent  was  

planning  to  disallow  cost  recovery  of  the  

expenditures incurred by the  Contractor since the  

productions  levels  from  the  gas  fields  had  fallen  

drastically.  According  to  the  Petitioners,  all  the  

disagreements  and  differences  that  have  arisen  

between them and UOI will inevitably lead to serious  

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problems in the working of the PSC. To resolve this  

dispute,  lengthy  correspondence  ensued  between  

Petitioner  No.1  and  the  officers/representatives  of  

Respondent No.1.

7. On 16th September, 2011, RIL (Petitioner no.1) wrote  

to the Respondent and pointed out that any attempt  

to  disallow  or  to  restrict  cost  recovery  of  

expenditures incurred by the  Contractor since the  

production levels from gas fields had fallen, would  

be  contrary  to  the  provisions  of  the  PSC  and,  

requested  that  no  such  action  should  be  taken.  

There was no response to the aforesaid letter from  

the Respondent.  

8. On  23rd November,  2011,  Petitioner  No.1  (RIL),  

through its Advocates, served upon the Respondent  

a notice invoking arbitration, in accordance with the  

arbitration agreement contained in Article 33 of the  

PSC.  In  this  letter,  Petitioner  no.1 also  nominated  

Mr.  Justice  S.P.  Bharucha,  former  Chief  Justice  of  

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India,  as  its  arbitrator  and  called  upon  the  

Respondent  to  nominate  its  arbitrator  within  30  

days of the receipt of this letter. Respondent replied  

to this letter             on 21st December, 2011, and  

intimated Petitioner No.1 that the matter is under  

consideration  and  that  “the  Ministry  needs  more  

time to respond and would do so by 31st January,  

2012.”  In  its  letter  dated  2nd January,  2012,  the  

Petitioners pointed out to the Respondent that, “the  

PSC, the UNCITRAL Rules and the Indian Arbitration  

and Conciliation Act, 1996 – set a period of thirty  

days for your making appointment of an Arbitrator.”  

Nevertheless,  as  a  matter  of  good faith,  time for  

nomination of an arbitrator by the Respondent was  

extended until 31st January, 2012.

9. The  Respondent,  however,  by  a  letter  dated  25th  

January,  2012 addressed to  Petitioner  No.1 called  

upon  the  Petitioner  to  withdraw  the  Notice  of  

Arbitration  on  the  ground  that  the  same  was  

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premature,  “for  the  reason  that  no  ‘dispute’  has  

arisen  between  the  parties  to  the  Production  

Sharing Contract.” It is noteworthy that no objection  

was taken with regard to Petitioner No.1 being the  

only party under the PSC that seems to be raising  

the disputes.   

10. Thereafter on 2nd February, 2012, Petitioner No.1  

replied to the Respondent,  by a letter  through its  

advocates, wherein it was reiterated that there have  

been  a  long  standing  controversy,  differences  

and/or disagreement as to whether the contractor’s  

right to recover its contract cost is capable of being  

limited by the Government, in the manner and on  

the grounds as is sought to be done under the PSC.  

It  was  also  stated  that:  “Our  client  treats  and  

construes  your  letter  under  reply  as  your  refusal  

and failure to appoint an arbitrator.”

11. On  17th February,  2012,  Respondent  wrote  a  

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letter to Petitioner No.1, wherein it was reiterated  

that no dispute concerning the cost recovery under  

the PSC has arisen between the parties to the PSC.  

The  Respondent  once  again  called  upon  the  

Petitioners  to  withdraw  the  notice  of  arbitration  

dated 23rd November, 2011.  

12. In  response  to  the  aforesaid  letter,  Petitioner  

No.1,  through  its  Advocates,  addressed  a  letter  

dated 9th March, 2012 to the Respondent, wherein  

the demand made in the notice of arbitration dated  

23rd November, 2011 was reiterated. The letter inter  

alia stated as under:

“We are instructed to state that the assertion  that disputes and differences have not arisen  between  the  Government  and  the  Contractor  overlooks the previous correspondence that the  ensured (sic: ensued) between the parties”  

* * * “The underlying reason for all this appears to  be  disputes  that  have  arisen  between  the  Contractor and the DGH…”                 * * * “The DGH, on its part has disagreed with the  contractor  inter  alia  on  whether  the  factual;  assertion that drilling of more wells would not  augment the rate of production”  

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Annexure-I  to the aforesaid letter listed some of the  

issues that have already arisen between the parties; which  

are as under:

(I)   Whether  the  FDP implies  a  commitment  of  the  

contractor to produce particular or at a particular rate?

(II)   Whether  the  FDP implies  a  commitment  of  the  

contractor  to  do  a  series  of  development  activities  

even if  there is  a difference of opinion between the  

Government and the Contractor as to the efficacy of  

these activities?

(III)  Whether the FDP is revised pro tanto by WP & B’s  

from time to time approved by MC?

(IV) Whether  the  variation  between  the  costs  

proposed in the FDP and the actual cost can be a basis  

for disallowing Capex?

(V) Is the recovery of cost related in any manner to  

the estimates of production even if the costs are within  

the sanctioned budgets?

(VI)  Is the recovery of costs of facilities in any manner  

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related to the attainment of production estimates of  

the  FDP  or  the  estimates  of  deposits  or  reservoir  

characteristics?

(VII) Whether  the  FDP  was  a  representation  by  the  

contractor to produce at a particular rate or to produce  

a  particular  quantity  for  a  defined  period,  which  by  

conduct  became  a  binding  contract  between  the  

parties?

(VIII)  Would  the  drilling  of  additional  wells  result  in  

increased production rates/volumes.

(IX) Did the approval of the WP & B’s [FY 2009-10 (RE)  

and 2010-11 (BE)] result in a modification of FDP?

(X) Were the reasons given by the MoPNG/DGH for  

declining approval to the WP & B’s for FY 2010-11(RE)  

and 2011-12 valid?

(XI) If  the answer to (IX) and (X) is in the negative,  

what is the consequence?”

13. On  16th April,  2012,  Petitioners  No.1  &  2  filed  

Arbitration  Petition  No.  8  of  2012  under  Section  

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11(6) of the Arbitration Act, 1996 before this Court  

(hereinafter referred to as               “A.P. No. 8”),  

seeking constitution of Arbitral Tribunal in terms of  

Article 33.5 of the PSC. After filing of this petition,  

correspondence  ensued  between  the  Petitioners  

and  the  Respondent,  wherein  the  subject  matter  

related to cost recovery of expenditure incurred by  

the  Contractor  for  the  years  2010-2011  was  

discussed.  This  was  done  through  letters/notice  

dated 2nd May, 2012; 4th May, 2012 and          8th  

June, 2012. In the letter dated 2nd May, 2012, the  

Respondent  makes  a  reference  to  the  PSC  dated  

12th April, 2000 in the following terms:

“We  write  with  reference  to  the  Production  Sharing Contract (“PSC”) dated April 12, 2000  between Ministry of Petroleum and Natural Gas  (“Government”),  Reliance  Industries  Limited  (being  the  operator)  and  Niko  Resources  Limited  (collectively  “Contractor”),  in  relation  to  block  KG-DWN-98-3.  The  expressions  used  and not defined herein and defined in the PSC,  shall have the meaning ascribed thereto in the  PSC.”

The letter claims that the Petitioners have failed:  

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“to fulfil your obligations and to adhere to the terms of  

the PSC and are in deliberate and wilful breach of PSC  

and have thereby caused immense loss and prejudice  

to the Government. You have also repeatedly failed to  

meet  your  targets  under  the  PSC.”   Thereafter  the  

specific instances of the breach have been highlighted  

in detail. Finally, it is recorded as under:-

“In  this  regard,  we  have  been  instructed  to  state  that  any  such  purported  attempt  to  unilaterally adjust any amounts as threatened  or  otherwise  would  be  completely  illegal  and  constitute a serious breach of the provisions of  the PSC and that our client reserves all its right  under  the  PSC,  the  Arbitration  Act,  and  the  UNCITRAL Arbitration Rules if the Government  attempts  to  proceed  to  implement  the  purported decision threatened or otherwise.”  

14. The  Petitioners  by  an  equally  detailed  letter  

denied the claims made by the Respondent on 8th  

June, 2012. In paragraph 31 of the aforesaid letter,  

the Petitioners again called upon the Respondent to  

appoint an arbitrator forthwith (without raising any  

other  procedural  issues  designed  to  delay  the  

dispute resolution process) so that the vital project  

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undertaken by the parties is not put in jeopardy on  

account of the continuing uncertainty.   

15. In its letter dated 5th July, 2012, the Respondent  

makes a reference to the letter dated 2nd May, 2012  

addressed to Contractors of the block KG-DWN-98/3  

and to the letter dated 8th June, 2012 written by the  

Solicitors  on  behalf  of  Petitioner  No.1  and  stated  

that  the  Ministry  had  nominated  Mr.  Justice  

V.N.Khare,  former  Chief  Justice  of  India  as  the  

arbitrator on behalf of the Government of India. The  

letter also called upon the Petitioners to withdraw  

the A.P. No. 8.  On 16th July, 2012, the Petitioners,  

through  its  advocates,  addressed  a  letter  to  the  

Registrar  of  this  Court,  wherein  it  was  requested  

that the A.P. No. 8 may be disposed of. Accordingly,  

the A.P. No. 8 was disposed of by this Court by an  

order  dated  7th August,  2012.  It  would  be  

appropriate to  notice here the relevant extract  of  

the order:

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“Both  the  parties  have  no  objection  to  the  Arbitrators nominated by each other. Under the  arbitration  clause,  the  two  nominated  Arbitrators are to nominate the third Arbitrator.  In  view of the  above,   in   my  opinion,   no  further  orders  are required to be passed in  this Arbitration Petition. The Arbitration Petition  is disposed of as such.”

16. On 12th July,  2013,  Petitioner  No.1 addressed a  

letter  to Mr.  Justice S.P.  Bharucha and Mr.  Justice  

V.N. Khare, requesting them to nominate the third  

arbitrator.                 On 1st August, 2013, Mr. Justice  

Bharucha  wrote  a  letter  to  Petitioner  No.1,  inter  

alia, as follows :

“Undoubtedly,  there  has  been a  delay  in  the  appointment of a third arbitrator. I had made a  suggestion to my fellow arbitrator,  which was  not acceptable to him. I asked him to make a  counter suggestion which he said he would do.  I have not heard any counter suggestion as yet.

In  the  circumstances,  you  must  consider  whether the court should be approached for the  appointment of a third arbitrator.”

17. It  was  in  these circumstances  that  the  present  

arbitration petition came to be filed under Section  

11(6) of the Arbitration Act, 1996.  

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Submissions:

18. I  have heard elaborate arguments, and perused  

the written submissions submitted by the learned  

senior counsel appearing for the parties.  

19. Mr.  Harish  N.  Salve,  learned  senior  counsel,  

appearing for the Petitioners has made the following  

submissions:

I. Re: International Commercial Arbitration

20. It  was  submitted  that  the  present  arbitral  

proceedings relate to an International  Commercial  

Arbitration, as defined under Section 2 (1) (f) of the  

Arbitration Act, 1996. Ld. senior counsel pointed out  

that two out  of the four parties to  the arbitration  

agreement are based outside India; Petitioner No. 2  

being  a  U.K.  based  company  and  Petitioner  No.3  

being  based  in  Canada.  Substantiating  this  

submission, it was pointed out by   Mr. Salve that  

each  of  the  Petitioners  is  a  party  to  the  PSC,  as  

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defined under Article 28.1 of PSC; and each of the  

Petitioners comprise a “Contractor”, under Article 2  

of PSC.  

21. It  was  also  submitted  that  Petitioner  No.  1,  as  

“Operator,” performs each and every function of the  

Contractor under  the  PSC  on  behalf  of  all  the  

constituents  of  the  Contractor,  as  defined  under  

Articles 7.1 and 7.3 of the PSC. Mr. Salve mentioned  

that  the  Appendix  ‘C’  to  the  PSC  provides  

accounting  procedure  which  is  required  to  be  

followed  by  the  Contractor and  the  Government.  

Learned  senior  counsel  also  brought  to  our  

attention the accounting procedure that is required  

to  be  followed  by  the  contractor  and  the  

Government. Sections 1.4.2 and 1.4.4 of Appendix  

‘C’ to the PSC indicate that the accounts are to be  

maintained  by  the  Operator on  behalf  of  the  

Contractors.  On the  basis  of  the  aforesaid  it  was  

submitted  that  for  the  purpose  of  cost  recovery,  

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only one set of accounts, as opposed to three sets  

of accounts, has to be maintained. Thus, according  

to  the  submission,  the  award  will  affect  the  cost  

recovery under the PSC and impact all the parties,  

particularly Petitioners,  equally. In the light of the  

aforesaid, it was submitted that the  Operator was,  

therefore, obliged to raise a dispute on behalf of all  

the parties/Petitioners. This was also made clear in  

the A.P. No. 8

22. Lastly  it  is  submitted  by  Mr.  Salve  that  the  

Respondent  itself  has  always  understood  and  

accepted  that  the  substance  of  the  dispute  is  

related to and has implications for all the parties to  

PSC. It was also pointed out that the Notice dated  

2nd May, 2012 was addressed by the UOI to all the  

three  Petitioners  and  that  the  nomination  of  the  

Arbitrator by the UOI was with reference to notice  

dated 2nd May, 2012.

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II. Re: Jurisdiction of the Supreme Court:  

23. Mr.  Salve  submitted  that  the  parties  cannot  

confer  jurisdiction on the  Supreme Court,  it  flows  

from  the  fact  that  there  is  an  international  

arbitration. He submits that the stand of the UOI is  

inconsistent.  On the one hand it has accepted that  

this  court  has  the  jurisdiction  to  entertain  the  

petition,  and  on  the  other  hand  it  questions  the  

assertion that this petition concerns an international  

arbitration. It is further submitted by him that A.P.  

No.  8  was  filed  in  2012  on  the  premise  that  the  

arbitration between the Petitioner and the UOI was  

an international  arbitration on account of the fact  

that  Petitioner  No.2  is  a  company  incorporated  

outside India. It was pointed out that no dispute, as  

to the maintainability of the petition, was raised at  

that time.  A.P. No. 8 was disposed of by this Court  

on merits and not for the want of jurisdiction. No  

dispute was raised to the effect that this Court has  

no jurisdiction to entertain the petition, which was  

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filed  under  Section  11(6)  of  the  Arbitration  Act,  

1996.  On the basis of the above, he submits that  

the objection was raised by the Respondents that  

Petitioner No.1 is the only party raising disputes in  

relation  to  PSC,  and  claiming  reference  to  

arbitration is an afterthought.

24. Mr. Salve further submits that the contention of  

the  UOI  that  this  Court  has  no  jurisdiction  to  

entertain  the  present  petition  in  view  of  Section  

11(2) of the Arbitration Act, 1996, is misconceived.  

It is also submitted that Sub-section (2) of Section  

11 is subject, expressly, to subsection (6) thereof.  

Section 11(6) provides that in case the appointment  

procedure  agreed  upon  by  the  parties  is  not  

complied with, a party may request the Chief Justice  

to  take the necessary  measures.   The expression  

“Chief Justice” has been defined under              sub-

section (12)(a) of Section 11 as the Chief Justice of  

India,  in  the  case  of  an  international  commercial  

arbitration.           In other arbitrations under Section  

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11(12)(b), it would be the Chief Justice of the High  

Court.  It  was  then  submitted  that  a  procedure  

agreed  to  by  the  parties  for  appointment  of  

arbitrator(s) is subject to Sub-section (6); it cannot  

override sub-section (6) and provide that in respect  

of  a  domestic  arbitration,  not-withstanding  sub-

section(12), the parties would only move the Chief  

Justice  of  India,  or  vice  versa  in  the  case  of  an  

international  arbitration.  On  the  basis  of  the  

aforesaid,  it  was submitted that the contention of  

the  UOI  that  this  Court  has  no  jurisdiction  to  

entertain  the  petition  under  Section  11(6)  is  

misconceived.

III. Re: Notice :  

25. Further,  it  was  stated  that  the  Joint  Operating  

Agreement entitles the Operator to initiate litigation  

on behalf of all  the parties. It was also submitted  

that  it  is  significant  to  note  that  there  is  

inconsistency in the stand taken by the Respondent.  

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On  the  one  hand,  Respondent  claims  that  the  

arbitral award would bind not merely Petitioner No.1  

but also Petitioners   No. 2 and 3; however on the  

other  hand,  the  Respondent  insists  that  the  

arbitration proceedings are only between Petitioner  

No. 1 and UOI. This stand of the Respondents has  

been submitted to  be contrary to  the established  

jurisprudence that an arbitral award is binding only  

on the parties to the arbitration.   

IV. Re: Arbitrator of Neutral Nationality  

26. Mr. Salve submitted that since the arbitration is  

an international one, this court, in accordance with  

the  established  international  practise,  should  

consider  appointing  an  arbitrator  of  a  nationality  

other  than the nationalities  of  the parties.  In  this  

context,  it  was  pointed  out  that  the  statute  

expressly obligates the Court to examine the issue  

of  nationality  of  the  arbitrator  vis-à-vis  the  

nationality of the parties. It was asserted that Article  

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33(5)  of  the  PSC  is  conclusive  on  this  issue.  It  

provides that if one of the parties fails to appoint its  

arbitrator, the Court would appoint an arbitrator of a  

nationality other than that of the defaulting party. It  

was  submitted  that  this  clause  indicates  the  

significance that the parties have attached to the  

neutrality  of  the  arbitrators.   A  fortiori, the  

chairman/presiding  arbitrator  should  be  of  a  

nationality other than Indian.  The contention of the  

UOI  that  absence of  a  provision  similar  to  Article  

33(5) of the Arbitration Agreement in relation to the  

appointment  of  the  third  arbitrator  suggests  that  

the  presiding arbitrator  could  be Indian  has been  

submitted by Mr. Salve to be misconceived.   

27. It  was  also  brought  to  our  notice  that  the  

UNCITRAL Rules, in force at the time when the PSC  

was drafted and entered into, recognised that while  

the appointing authority could appoint an arbitrator  

of  the  same  nationality  as  that  of  the  defaulting  

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party (in the event where a party fails to nominate  

its arbitrator), but the presiding arbitrator that has  

to be appointed would be of the nationality other  

than that of the parties. The Petitioners states that  

the  PSC  provides  for  even  a  greater  degree  of  

neutrality than the UNCITRAL by provisioning that in  

case  one  of  the  parties  makes  a  default  in  

nominating its arbitrator then the arbitrator has to  

be appointed from a neutral nationality.  It was then  

submitted  that  there  was  no  need  of  a  similar  

provision in relation to the presiding arbitrator since  

the  arbitration  was  to  be  in  accordance  with  

UNCITRAL  Rules.   In  this  context,  learned  senior  

counsel  relied  upon  the  law  laid  in  Antrix  

Corporation  Limited Vs.  Devas  Multimedia  

Private Ltd  1  ,   wherein it was inter alia held that the  

reference  to  such  rules  (ICC  in  that  case)  would  

include the process of constitution of a tribunal.  

28. Mr. Salve also referred to the submission of the  

Respondent  that  the  PSC  being  governed  by  the  

1  2013 (7) SCALE 216 (Para 34)

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Indian law or/and that it involves the issues of public  

policy for India as irrelevant. The fact that a party  

nominee  had  to  be  from  a  neutral  country  

establishes  that  the  parties  did  not  consider  the  

governing law of the contract to be of any relevance  

to  the  nationality  of  the  arbitrator.  It  was  also  

submitted  that  the  trend  of  appointing  presiding  

arbitrator  from  a  “neutral  nationality”  is  now  

universally accepted under various arbitration rules  

as well as under the Arbitration Act, 1996.  

29. Mr. Salve also pointed out that Article 33 (9) of  

the  PSC  adopts  the  UNCITRAL  Rules  for  the  

arbitration  Agreement  and  that  at  the  time  of  

signing  the  Arbitration  Agreement  the  UNCITRAL  

Rules, 1976 were in force. Mr. Salve also referred to  

Article 6 of UNCITRAL Rules, 1976. He laid particular  

stress on Article 6 (4).  

30. It was further mentioned that the UNCITRAL Rules  

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of 2010 are now at par with the procedure under  

Article  33.5,  even with respect  to  appointment of  

second arbitrator.

31. Relying  upon  the  judgment  of  this  Court  in  

Northern Railway Administration,  Ministry of  

Railway,  New  Delhi Vs.  Patel  Engineering  

Company  Limited  2  ,   it  was  submitted  that  the  

scheme of Section 11 emphasises that the terms of  

an Arbitration Agreement should be given effect as  

closely as possible.

32. Lastly, it was submitted that the Respondents had  

lost their right to nominate the second arbitrator in  

the  earlier  round of  litigation,  i.e.  A.P.  No.  8  and  

hence,  the  Petitioners  could  have  insisted  under  

Article 33.5 that the Tribunal must be constituted of  

two  non-Indian  Arbitrators  in  addition  to  the  

arbitrator  appointed  by  the  Petitioner.  It  is,  

therefore, imperative that the third arbitrator should  

have a neutral nationality.  

2  (2008) 10 SCC 240  

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Respondent’s Submissions  

33. Mr.  Anil  B.  Divan  and  Mr.  Dushyant  A.  Dave,  

learned  senior  counsel,  appeared  for  the  

Respondents.  At the outset, it was pointed out that  

the present arbitration petition has been filed under  

Sections  11(6)  and  11(9)  of  the  Arbitration  Act,  

1996, read with Article 33.6 of the PSC. It was then  

submitted that the Article 33.6 of the PSC, unlike  

Article 33.5, does not require that the arbitrator to  

be  appointed  should  be  a  foreign  national.  The  

learned senior counsel suggested that the aforesaid  

omission is  both deliberate and significant.  It  was  

further submitted that the Petitioners, by choosing  

not to object to the appointment of Mr. Justice V.N.  

Khare,  have  waived  of  the  requirement  that  a  

foreign national be appointed as an arbitrator by the  

parties, under Article 33.5 of the PSC. It was further  

submitted that this waiver also becomes clear from  

the letter dated 16th July, 2012, which was sent on  

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behalf of the Petitioners to the Respondent, wherein  

the nomination of Mr.  Justice Khare was accepted  

without  any  reservation.  The  Petitioners  are,  

therefore, as stated by the learned senior counsel,  

estopped  from  insisting  upon  appointment  of  a  

foreign arbitrator.   

34. Next, learned senior counsel submitted that that  

the  PSC  is  one  of  the  most  valued,  crucial  and  

sensitive contracts for the nation, in as much as it  

deals with the PSC in offshore areas; and it deals  

inter alia with License and Exploration,  Discovery,  

Development and Production of the most valuable  

natural  resources,  viz.  petroleum  products,  

including crude oil and/or natural gas. Propounding  

further,  it  was  submitted  that  these products  are  

vital to the survival of the nation.             UOI  

entered into the PSC with Petitioners No. 1 and 2,  

with  avowed  objective  of  exploiting  the  aforesaid  

natural  resources(s)  in  the  most  efficient,  

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productive manner and in a timely fashion. The PSC,  

therefore,  has great  significance for  the nation.  It  

was also submitted that the entire subject matter of  

the  contract  is  situated  in  India  and  hence,  the  

applicable  law  is  the  Indian  law  for  both  the  

substantive contract and the Arbitration Agreement.  

35. Placing strong reliance on the factual situation, it  

was submitted that the PSC, its interpretation, and  

its  execution  involve  intricate  and  complex  

questions  of  law  and  facts  relating  to  Indian  

conditions and Indian laws.  It was further submitted  

that  since  the  parties  were  aware  about  the  

aforesaid nature of PSC, they consciously refrained  

from  having  the  requirement  that  the  third  

arbitrator should be a foreign national. Thus, it was  

submitted by the learned senior counsel,  that the  

issue  relating  to  the  appointment  of  the  third  

arbitrator  has  been  left  squarely  to  the  two  

nominated arbitrators, and that the two arbitrators  

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are not to be influenced by any requirement that  

the third arbitrator should be a foreign national.  

36. In  the  support  of  the  aforesaid  submission,  

learned  counsel  relied  upon  the  letter  dated  12th  

July,  2013  written  by  the  Petitioner  to  the  two  

arbitrators,  wherein  a  request  was  made  to  

complete  the  constitution  of  the  arbitral  tribunal.  

The following excerpt has been relied upon:

“While it is understood that it is sometimes  a time consuming exercise, Your Honour will  appreciate that the issues which are subject  matter of the arbitration proceedings are of  significant importance to the Claimants.

Accordingly,  on  behalf  of  our  clients  we  humbly request Your  Honour  to  complete the constitution of  the  Arbitral   

Tribunal at your earliest convenience.”

37. Learned senior counsel also relied upon the letter  

dated  1st August,  2013  written  by  Mr.  Justice  

Bharucha  to  submit  that  there  is  not  even  a  

suggestion  that  the  third  arbitrator  has  to  be  a  

foreign national.    

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38. The next  submission  of  the  Respondent  is  that  

Petitioners No 2 and 3 have not raised any dispute  

under the PSC at any stage. It is only the Petitioner  

alone that has raised the dispute and come forward  

as the  Claimant.  To substantiate the submissions,  

Respondents rely upon the following documents:

(i) Letter dated 23.11.2011; (ii) Notice of Arbitration dated 23.11.2011; (iii) Letter  dated  02.01.2011  on  behalf  of  

Petitioner     No. 1 by its solicitors.   (iv) Letter  dated  02.02.2011,  on  behalf  of  

Petitioner    No. 1 by its solicitors. (v) Letter dated 05.07.2012 of the Respondent  

to the Solicitors of RIL. (vi) Letter dated 1st August, 2013 of Mr. Justice  

Bharucha, as per the Respondent shows that  the  arbitration  was  between  Reliance  Industries  Limited  and  the  Government  of  India.  

39. It  was  also  emphasised  that  all  the  

communications annexed with the present petition  

identify the claimant to be                       Petitioner  

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No. 1.  It was also highlighted that the contents of  

the  letter  dated  2nd May,  2012  written  by  the  

Respondents,  which  inter-alia deals  with  

inadmissibility  of  recovery  of  costs  has  not  been  

disputed by Petitioners No. 2 and 3. Learned senior  

counsel also relies upon the letter dated 12th July,  

2013,  sent  on  behalf  of  Petitioner  No.1  by  its  

Solicitors  to  the  Arbitrators.  This  letter  was  sent  

after the order                    dated 7 th August 2012  

was  passed  by  this  Court  in  A.P.  No.  8  of  2012.  

According to the Respondents this letter also shows  

that  the  dispute  is  only  between  RIL  and  the  

Respondent.  

40. Mr.  Divan also submitted that  Petitioners No.  2  

and 3 have not conformed to Article 33 of the PSC,  

for the purposes of invoking arbitration. Such non-

compliance  cannot  be  considered  as  merely  an  

omission.  In  the  light  of  the  aforesaid,  it  was  

submitted that Petitioner No.1, an Indian Company,  

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is  the  only  party  to  the  dispute  with  the  

Respondents  and  therefore,  there  is  no  need  to  

appoint  a  foreign  arbitrator.  Further,  it  was  

submitted even if it is assumed that Petitioners No.  

2 and 3 have raised the disputes in terms of Article  

33.6,  there  is  no  question  of  appointment  of  a  

foreign  arbitrator  as  the  dispute  raised  is  only  

between two Indian parties, viz. Petitioner No.1 and  

the Respondents.

41. The next submission of Mr. Divan is that Section  

11(1) of the Arbitration Act, 1996 provides that an  

arbitrator  can  be  of  any  nationality,  unless  

otherwise agreed by the parties.  It  was submitted  

that  since  the  parties  did  not  choose  to  have  a  

foreign  national  to  be  appointed  as  the  third  

arbitrator in Article 33.6, the parties did not choose  

to make Section 11(1) applicable to them.  Learned  

senior  counsel  also  pointed  out  that  the  parties  

instead agreed to proceed under Section 11(2) as  

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they  agreed  to  appoint  an  arbitrator  without  

requiring him to be of any foreign nationality.  

42. Mr. Divan then points out that Section 11(9) has  

been  authoritatively  interpreted  in  Malaysian  

Airlines  Systems BHD II Vs.  STIC  Travels  (P)  

Ltd.  3   and  MSA  Nederland  B.V. Vs.  Larsen  &  

Toubro  Ltd.4  According  to  the  learned  senior  

counsel,  UNCITRAL Rules cannot override Sections  

11(1) & (2),  read with Article 33.6, nor can these  

Rules  aid  in  interpreting  Section  11(9).   It  was  

further submitted that the appointment of the third  

arbitrator under Article 33.6 of PSC has to be made  

under  Arbitration  and  Conciliation  Act,  1996.  The  

UNCITRAL Rules will  come into play only after the  

Arbitral Tribunal has been constituted. According to  

learned senior counsel, following factors negate the  

application  of  UNCITRAL  Rules  in  making  the  

appointment of the arbitrators:

(a) The  law  governing  the  arbitration  3  (2001) 1 SCC 509 4  (2005) 13 SCC 719

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agreement is Indian Law;  (b) The seat of the arbitration is in India which  

makes  the  curial  law  of  the  arbitration  as  Indian law.  

(c) The  governing  law  of  the  contract  is  the  Indian law.  

(d) All these factors would show that UNCITRAL  Rules would become relevant only after the  Arbitral Tribunal has been constituted.  

43. Lastly, it was submitted that the appointment of a  

foreign national  as the third arbitrator is  not only  

legally untenable, but also undesirable, in the facts  

and  circumstances  of  the  present  case.  To  

substantiate  this,  it  was  submitted  that  both  

Petitioners  No.  2  and  3  are  multi-national  

companies,  with  Petitioner  No.  3  having  

presence/business  connections  in  about  80  

countries.  These  countries  include  the  countries  

whose nationals are sought to be nominated by the  

Petitioners. It was further submitted that unravelling  

all the countries in which Petitioner No. 3 may have  

a  connection  would  be difficult,  if  not  impossible.  35

Page 36

Thus, the very object of neutrality, impartiality and  

independence  will  be  defeated  by  appointing  a  

foreign  national  as  the  third  arbitrator.  On  the  

contrary, it was submitted, appointment of a former  

judge  of  this  Court  would  be  the  most  suitable  

arrangement.    

44. In  response,  Mr.  Salve  submitted  that:  (i)  The  

reliance placed by the Respondents upon the law  

laid  in  Malaysian  Airlines Systems BHD II Vs.  

STIC  Travels  (P)  Ltd.  (supra) and  MSA  

Nederland  B.V. Vs.  Larsen  &  Toubro  Ltd.  

(supra) is  misplaced  as  these  cases  are  

inapplicable in the present case. (ii) The contention  

of  the  UOI  that  nationals  of  the  80  countries  in  

which Petitioner No. 3 has operations would become  

ineligible  to  be  appointed  as  arbitrators  is  

misconceived. In this context, it was submitted that  

the  Arbitration  Act,  1996  and  the  related  

international  practices  takes  into  account  

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nationality  but  not  area  of  operation.  This  

submission  of  the  Respondent,  according  to  Mr.  

Salve,  is  not  tenable  because  it  confuses  the  

question  of  independence and  impartiality with  

neutrality. The aspect of neutrality is dealt with in  

Section 11(8) and Section 12; whereas, nationality  

is considered in Sections 11(1) & (9) of Arbitration  

Act, 1996. Further, it was submitted that these two  

provisions  would  be  rendered  otiose  if  the  

submission of the UOI is accepted.

45. Before parting with submissions made on behalf  

of  the  parties,  it  must  also  be  noticed  that  the  

learned  senior  counsel  for  the  parties  have  

submitted  a  list  each  of  proposed/suggested  

arbitrators; which according to them would satisfy  

the  requirements  of  the  arbitration  agreement  

contained in PSC.   

46. I  have considered the submissions made by the  

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learned senior counsel for the parties.  

47. I am not inclined to accept the submissions made  

by       Mr.  Anil  B.  Divan, learned senior counsel  

appearing on behalf of the UOI. Initially, Arbitration  

Petition  No.8  was  filed  by  Reliance  Industries  

Limited– RIL  (Petitioner  No.1)  and Niko (Petitioner  

No.2).  In paragraph 6 of the arbitration petition, it  

was specifically averred as follows:-

“The Respondent by its letter dated 8th August,  2011, granted its approval to Petitioner No.1 to  assign 30% of  its  Participating Interest  under  the  PSC  to  BP,  thereby  also  making  BP  a  partner in the Block KG-D6. …….”

Therefore, it is apparent that reference to  

arbitration was sought on behalf of the three partners  

to the PSC.  

48. The Arbitration Petition was disposed of as both  

the  parties  had  no  objection  to  the  arbitrator  

nominated by each other. Therefore, the matter was  

left  to  the  two  arbitrators  to  nominate  the  third  

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arbitrator who shall be the Chairman of the Arbitral  

Tribunal. However, by letter dated 1st August, 2013,  

Mr.  Justice  Bharucha  pointed  out  that  the  two  

arbitrators have not been able to agree on the third  

arbitrator.   Therefore,  the  Petitioners  had  to  

approach  this  court  for  appointment  of  a  third  

arbitrator.  In  these  circumstances,  the  present  

Petition came to be filed under Section 11(6).  

49. There is  an additional  reason for  not  accepting  

the  submission  made  by  Mr.  Anil  Divan,  learned  

senior counsel, that the Petitioner is not acting on  

behalf of all the three Contractors.  The notice was  

served  by  RIL  in  the  capacity  of  Operator, which  

included all the three Contractors, i.e., RIL, Niko and  

British Petroleum (BP).  

50. A  perusal  of  some  of  the  correspondence  

reproduced  earlier  clearly  indicates  that  the  

Respondent recognised that  the Petitioner  No.1 is  

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the  Operator on  behalf  of  all  the  Contractors,  

namely, Reliance, Niko and BP.  

51. I  find much substance in the submission of  Mr.  

Salve  that  the  contentions  raised  in  the  counter  

affidavit reflect a misunderstanding of:-

(i) the terms of the PSC; (ii) reality  of  the  Parties’  commercial  

relationship; (iii) application  of  the  Arbitration  and  

Conciliation Act, 1996; and (iv) UNCITRAL Arbitration Rules and the practise  

of large scale arbitrations involving foreign  parties.  

52. It is also not possible to accept the submission of  

Mr. Anil Divan that Niko and BP are not  operators  

under  the  PSC  and,  therefore,  have  forfeited  any  

right  to  operations  under  the  PSC.  It  is  also  not  

possible to accept the submission that Niko and BP  

are  not  the  parties  to  the  dispute  with  the  

Respondent.   I  am of  the considered opinion that  

the  provisions  of  the  PSC  clearly  identified  the  40

Page 41

parties to the PSC.  The disputes that have arisen  

between the parties are also clearly identified in the  

correspondence  exchanged  between  the  parties.  

The three named contractors are, in fact, frequently  

mentioned  in  the  correspondence  between  the  

parties.  It  has  been  correctly  highlighted  by  Mr.  

Salve  that  the  terms  of  the  PSC  have  to  be  

considered  in  the  light  of  the  fact  that  the  

Respondent  expressly  consented,  after  detailed  

inquiry, to the assignment of participation interests  

in the PSC to BP. It is a matter of record that Niko  

has been a party  to  the PSC from the beginning.  

Therefore,  at-least  at  this  stage,  it  would  not  be  

possible to accept the submission of Mr. Divan that  

BP and Niko are not “operating” under the PSC.

53. I am also unable to accept the submission of Mr.  

Divan that given the nature of operations under the  

PSC,  the  issues  involved thereunder  are of  public  

law and public policy.       Mr. Divan, on the basis of  

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the aforesaid submission, has insisted that the third  

arbitrator ought to be from India. It was pointed out  

by  Mr.  Divan  that  even if  it  is  accepted that  the  

disputes raised by the Petitioner would also include  

the  disputes  of  Petitioner  Nos.  2  and  3,  the  

arbitration  still  essentially  remains  an  Indian  

arbitration. Such a submission cannot be accepted  

as the Respondents have not at any stage earlier  

raised  an  objection  that  the  disputes  had  been  

raised by Petitioner No.1 only on its own behalf and  

did not relate to the disputes of Petitioner No.2 and  

3 also.    

54. In  my  opinion,  the  submission  is  misconceived  

and  proceeds  on  a  misunderstanding  of  the  PSC,  

RIL, Niko and BP are all parties to the PSC. They are  

all  contractors under the PSC. The PSC recognizes  

that  the  operator would  act  on  behalf  of  the  

contractor.  All  investments are funded by not just  

the  Petitioner  No.1 but  also  by the other  parties,  

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and they are equally entitled to the costs recovered  

and the profits earned. For the sake of operational  

efficiency, the Operator acts for and on behalf of the  

other  parties.  Therefore,  I  find  substance  in  the  

submission of Mr. Salve that the disputes have been  

raised  in  the  correspondence  addressed  by  

Petitioner  No.1  not  just  on  its  own behalf  but  on  

behalf  of  all  the parties.  During the course of his  

submissions, Mr. Anil Divan had, in fact, submitted  

that  Niko  and  BP  will  be  affected  by  the  arbitral  

award  and  it  would  be  binding  upon  them  too.  

Therefore, if the Petitioner No.1 was to succeed in  

the arbitration, the award would enure not only to  

the benefit of Petitioner No.1 but to all the parties to  

the  PSC.  Conversely,  if  the  Government  of  India  

were  to  succeed  before  the  tribunal,  again  the  

award  would  have  to  be  enforced against  all  the  

parties.  In  other  words,  each  of  the  Contractors  

would  have  to  perform the  obligations  cast  upon  

them. In that view of the matter, it is not possible to  

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accept  the  submission  of    Mr.  Divan  that  the  

arbitration  in  the  present  case  is  not  an  

international arbitration.  

55. It is equally not possible to accept the contention  

of       Mr. Divan that Niko and BP have not raised  

any arbitrable dispute with Union of India.  A perusal  

of some of the provisions of PSC would make it clear  

that  all  three  entities  are  parties  to  the  PSC.  All  

three entities have rights and obligations under the  

PSC [see Article 28.1(a)], including with respect to  

the Cost Petroleum, Profit Petroleum and Contract  

Costs (see Article 2.2), all of which are fundamental  

issues  in  the  underlying  dispute.  Where  RIL  acts  

under  the  PSC,  including  by  commencing  

arbitration, it does so not only on behalf of itself, but  

also  “on  behalf  of  all  constituents  of  the  

contractors” including Niko and BP.  I am inclined to  

accept the submission of Mr. Salve that there is a  

significant and broad ranging dispute between RIL,  

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Niko and BP on the one hand and the UOI on the  

other  hand,  that  goes  to  the  heart  of  the  main  

contractual  rights  and  obligations  under  the  PSC.  

Furthermore,  it  is  a  matter  of  record  that  in  the  

correspondence leading to the filing of the earlier  

petition being A.P.No.8 of 2012, no such objection  

about Niko and BP not being a party to the dispute  

had been taken. In fact, the petition was disposed of  

on  a  joint  request  made  by  the  parties  that  two  

arbitrators  having  been  nominated,  no  further  

orders were required. Therefore, there seems to be  

substance in  the submission of  Mr.  Salve  that  all  

these objections about Niko and BP not being the  

parties are an afterthought. Such objections, at this  

stage,  can  not  be  countenanced  as  the  

commencement  of  arbitration  has  already  been  

much delayed.   

56. Both the parties had brought to the attention of  

the  Court  the  correspondence  from  their  own  

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perspective.  Having  considered  the  aforesaid  

correspondence,  relevant  extract  of  which  have  

been noticed earlier, it is not possible to hold that  

the correspondence is only on behalf of the RIL. I,  

therefore, do not accept the submission of Mr. Anil  

Divan that  this  is  an arbitration between the two  

Indian parties only.  

57. Further  more  the  accounting  procedure  

(Appendix C to PSC) clearly provides that RIL shall  

keep the accounts for the purposes of cost recovery  

statement.  Therefore,  it  cannot  be  said  that  the  

claims made by the Petitioner are only on behalf of  

RIL.  The  joint  operating  agreement  expressly  

provides that  the operator “to initiate litigation on  

behalf of all  the parties.” The fallacy of the stand  

taken  by  UOI  is  patent.  On  the  one  hand,  the  

Respondent  claims  that  the  arbitral  award  would  

bind not only Petitioner No.1 but also Petitioner Nos.  

2 and 3, but on the other hand, is insisting that the  

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arbitration proceedings are only between Petitioner  

No.1 and UOI.

58. This now brings me to the major divergence of  

views  between  Mr.  Salve  and  Mr.  Divan  on  the  

interpretation to be placed on Articles 33.5 and 33.6  

of the PSC. Both the learned senior counsel accept  

that when exercising power under Section 11(6) of  

the Arbitration Act, the ‘Chief Justice of India or the  

person  or  the  institution  designated  by  him’  

(hereinafter referred to as “CJI” for convenience) is  

required to appoint the 2nd Arbitrator from amongst  

persons who are not nationals of the country of any  

of  the  parties  to  the  arbitration  proceedings.  

Thereafter,  both  the  learned  senior  counsel  have  

expressed divergent views. According to Mr. Salve,  

the provisions contained in Article 33.5 indicates the  

significance that the parties have attached to the  

neutrality of the arbitrators. Therefore,  necessarily  

the Chairman/Presiding Arbitrator would have to be  

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of a  nationality  other than India. According to him,  

appointment  of  an  Indian  Arbitrator  under  Article  

33.6 would not be an option open to the CJI. On the  

other hand, Mr. Divan emphasised that there is no  

requirement  in  Article  33.6  for  appointment  of  a  

foreign  arbitrator,  identical  or  similar  to  the  

provision  in  Article  33.5.  His  view  is  that  the  

absence  of  such  a  requirement  is  deliberate  and  

significant. According to him, it clearly signifies that  

only an  Indian  National  can  be  appointed  as  the  

third arbitrator.  I  am of the opinion that both the  

learned  senior  counsel  are  only  partially  correct.  

Both sides have adopted extreme positions on the  

pendulum.  I  accept  the  interpretation of  both the  

learned senior counsel with regard to Article 33.5 as  

the request will go to the Chief Justice of India for  

appointment  of  an  arbitrator,  “from  amongst  

persons who are not nationals of the country of any  

of  the  parties  to  the  arbitration  proceedings”.  In  

exercise of the jurisdiction under Section 11(6), the  

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CJI  would  usually  appoint  the  third  arbitrator  in  

accordance with the request. I have no hesitation in  

accepting the submission of Mr. Divan that even the  

third arbitrator is an Indian National, it would not be  

contrary to Article 33.6. But it would not be possible  

for me to accept the extreme views expressed by  

Mr.  Divan  that  only an  Indian  National  can  be  

appointed, as there is an absence of a requirement  

of  appointing  a  foreign  national  as  the  third  

arbitrator.  In  my  opinion,  Article  33.6  virtually  

leaves it to the Chief Justice of India to appoint the  

third arbitrator who would be neutral, impartial and  

independent from anywhere in the world  including  

India.  Just  as  India  cannot  be  excluded,  similarly,  

the countries where British Petroleum and Niko are  

domiciled,  as  an  option from  where  the  third  

arbitrator could be appointed, cannot be ruled out.  

Having said this, it must be pointed out that this is  

the  purely  legal  position.  This  would  be  a  very  

pedantic view  to  take  whereas  international  

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arbitration problems necessarily have to be viewed  

pragmatically. Fortunately, Arbitration Act, 1996 has  

made express  provision  for  adopting  a  pragmatic  

approach.   When the CJI  exercises his  jurisdiction  

under  Section  11(6)  he  is  to  be  guided  by  the  

provisions  contained  in  the  Arbitration  Act,  1996  

and  generally  accepted  practices in  the  other  

international jurisdictions. CJI would also be anxious  

to ensure that no doubts are cast on the neutrality,   

impartially and  independence of  the  Arbitral  

Tribunal.  In  international  arbitration,  the  surest  

method  of  ensuring  atleast  the  appearance  of  

neutrality would be to appoint the sole or the third  

arbitrator from nationality other than the parties to  

the arbitration. This view of mine will find support  

from  numerous  internationally  renowned  

commentators  on  the  practice  of  international  

arbitration as well as judicial precedents.  

59. At  this  stage,  it  would  be  appropriate  to  take  

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notice  of  the  observations  made  by  two  such  

commentators.

60. Redfern and Hunter on International Arbitration,  

Fifth  Edition  (2009)  Para  4.59  expresses  similar  

views  with  regard  to  the  importance  of  the  

nationality of the sole or the third arbitrator being  

from a country different from that of the parties to  

the arbitration. The opinion of the learned authors is  

as follows:-     

“In  an  ideal  world,  the  country  in  which  the  arbitrator  was  born,  or  the  passport  carried,  should  be  irrelevant.  The  qualifications,  experience,  and  integrity  of  the  arbitrator  should be the essential criteria. It ought to be  possible to proceed in the spirit  of the Model  Law which, addressing this question, provides  simply:  ‘No  person  shall  be  precluded  by  reason  of  his  nationality  from  acting  as  an  arbitrator,  unless  otherwise  agreed  by  the  parties.’  Nevertheless,  as  stated  above,  the  usual  practice  in  international  commercial  arbitration is to appoint a sole arbitrator (or a  presiding  arbitrator)  of  a  different  nationality  from that of the parties to the dispute.”  

61. Gary  B.  Born  in  International  Commercial  

Arbitration,  Volume  I  (2009)  has  an  elaborate  

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discussion  on  the  impact  of  the  UNCITRAL  Model  

Laws as well as UNCITRAL Rules on the appointment  

of the sole or the third arbitrator. He points out that  

some  arbitration  legislations  contain  different  

nationality  provisions,  similar  to  those  applicable  

under leading institutional rules, which apply when  

a national court acts in its default capacity to select  

an arbitrator (in limited circumstances).

62. Article  11(5)  of  the  UNCITRAL  Model  Law  reads  as  

under:-

“A decision on a matter entrusted by paragraph  (3) or (4) of this Article to the court or other  authority specified in Article 6 shall be subject  to no appeal.  The court or other authority,  in  appointing an arbitrator, shall have due regard  to any qualifications required of the arbitrator  by the agreement  of  the parties and to such  considerations  as  are  likely  to  secure  the  appointment  of  an independent  and impartial  arbitrator  and,  in  the  case  of  a  sole  or  third  arbitrator,  shall  take into account as well  the  advisability  of  appointing  an  arbitrator  of  a  nationality other than those of the parties.”  

63. Article  6(4)  of  UNCITRAL Rules,  1976 in  almost  

identical terms reads as under :-

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“In  making  the  appointment,  the  appointing  authority  shall  have  regard  to  such  considerations  as  are  likely  to  secure  the  appointment  of  an independent  and impartial  arbitrator  and shall  take into account as well  advisability  of  appointing  an  arbitrator  of  a  nationality  other  than the nationalities  of  the  parties.”

64. Taking  note  of  the  aforesaid  two  Articles,  it  is  

observed by the learned author as follows :

“Article  11(5)  does  not  restrict  the  parties’  autonomy  to  select  arbitrators  of  whatever  nationality  they  wish.  It  merely  affects  the  actions of national courts, when acting in their  default roles of appointing arbitrators after the  parties’  efforts  to  do  so  have  failed.  Article  11(5)  does  not  forbid  the  appointment  of  foreign  nationals  as  arbitrators,  but  on  the  contrary  encourages  the  selection  of  an  internationally-neutral tribunal.

Far  from resembling national  law prohibitions  against foreign arbitrators, Article 11(5) aims at  exactly  the  opposite  result.  Indeed,  Article  11(1)  of  the  UNCITRAL  Model  Law  also  provides, like the European and Inter-American  Conventions,  that  “no  person  shall  be  precluded  by  reason  of  his  nationality  from  acting as an arbitrator, unless otherwise agreed  by  the  parties.  That  properly  reflects  the  international  consensus,  embraced  by  the  European,  Inter-American  and  New  York  Conventions,  that  mandatory  nationality  prohibitions  are  incompatible  with  the  basic  premises of international arbitration.”   

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65. Earlier in the same volume at page 1431, while  

discussing the “Criteria for Judicial Selection of the  

Arbitrator”,  he  re-states  the  general  practice  

adopted  in  appointment  of  an  independent and  

impartial arbitrator.  The  opinion  of  the  learned  

author is as follows :

“National  arbitration  legislation  provides  only  limited  guidance  for  courts  actually  to  make  the  selection  of  arbitrators  in  international  arbitrations.  Article  11(5)  of  the  UNCITRAL  Model  Law  provides  that  “in  appointing  an  arbitrator, [the court] shall have due regard to  any qualifications required of the arbitrator by  the  agreement  of  the  parties  and  to  such  considerations  as  are  likely  to  secure  the  appointment of  an independent and impartial  arbitrator,”  the  same  provision  requires  the  court  to  “take  into  account  as  well  as  the  advisability  of  appointing  an  arbitrator  of  a  nationality  other  than  those  of  the  parties.”  This  language  requires  courts  to  have  “due  regard” to the parties’  contractually  specified  requirements  for  arbitrators-which  very  arguably  accords  such  requirements  inadequate  weight,  given  the  importance  of  party  autonomy  in  the  arbitrator  selection  process.  Similarly,  it  is  doubtful  that  it  is  sufficient  for  courts  merely  to  “take  [the  arbitrator’s nationality] into account”, rather it  should generally be essential that the presiding  arbitrator have a neutral nationality.”

66. Redfern and Hunter on International Arbitration,  54

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Fifth Edition (2009) at Page 263, expresses a similar  

opinion,  after  taking  into  consideration  the  

UNCITRAL  Rules;  ICC  Rules;  LCIA  Rules  and  ICDR  

Rules, which is as follows :-  

“The  fact  that  the  arbitrator  is  of  a  neutral  nationality is no guarantee of independence or  impartiality. However, the appearance is better  and  thus  it  is  a  practice  that  is  generally  followed”.

67. Section  11  of  the  Arbitration  Act,  1996  uses  

similar phraseology as Article 11 of the UNCITRAL  

Model Law. Therefore, it  would not be possible to  

accept the submission of Mr. Divan that the Court  

cannot look to Model Laws or the UNCITRAL Laws as  

legitimate  aids  in  giving  the  appropriate  

interpretation  to  the  provisions  of  Section  11,  

including Section 11(6).

68. In  any  event,  the  neutrality  of  an  arbitrator  is  

assured  by  Section  11(1)  of  the  Arbitration  Act,  

1996,  which  provides  that  a  person  of  any  

nationality may be an arbitrator,  unless otherwise  

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agreed  by  the  parties.  There  is  no  agreement  

between the parties in this case that even a third  

arbitrator must necessarily be an Indian national. In  

fact,  Section  11(9)  of  the  Arbitration  Act,  1996  

specifically  empowers  the  CJI  to  appoint  an  

arbitrator of a nationality other than the nationality  

of the parties involved in the litigation. Therefore, I  

am  unable  to  accept  the  submission  of  Mr.  Anil  

Divan  that  it  would  not  be  permissible  under  the  

Arbitration Act, 1996 to appoint the third arbitrator  

of any nationality other than Indian. Merely because  

the  two  arbitrators  nominated  by  the  parties  are  

Indian would not    ipso facto lead to the conclusion  

that the parties had ruled out the appointment of  

the third  arbitrator  from a neutral  nationality.   In  

this case, both the arbitrators had been appointed  

by the parties,  therefore,  the  condition  precedent  

for appointing an arbitrator, from amongst persons,  

who are not nationals of the country of any of the  

parties to the arbitration proceedings, had not even  

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arisen.

69. I also do not find merit in the submission made by  

Mr. Anil  Divan on the basis of Articles 33.5 of the  

PSC. A bare perusal of Article 33.5, PSC would show  

that it deals only with the situation where the other  

party fails to appoint an arbitrator and a request is  

made  to  the  Chief  Justice  of  India  or  a  person  

authorised by him to appoint the second arbitrator.  

In such a situation, the Chief Justice is required to  

choose  the  second  arbitrator  from  amongst  the  

persons who are not nationals of a country of any of  

the  parties  to  the  arbitrator  proceedings.  Article  

33.6 is invoked when the two arbitrators appointed  

by the parties fail to nominate the third arbitrator.  

In  such  circumstances,  the  Chief  Justice  or  the  

nominees of the Chief Justice is required to appoint  

the  third  arbitrator  in  accordance  with  the  

Arbitration and Conciliation Act, 1996. At that stage,  

Section  11(9)  of  the  Arbitration  Act,  1996  would  

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become  relevant.  It  would  be  necessary  for  the  

Chief Justice of India to take into consideration the  

will  of  the Indian Parliament expressed in  Section  

11(9). It appears to me that the submission made  

by the Petitioners cannot be said to be without any  

merit.   I  am unable  to  read into  Article  33.6,  an  

embargo on the appointment of a foreign national  

as the third arbitrator as submitted by Mr. Divan.  It  

is  not  possible  to  accept  the submission that  the  

parties  have  specifically  decided  to  exclude  the  

appointment  of  a  foreign  arbitrator  under  Article  

33.6,  as  no  specific  provision  was  made  para  

materia to Article 33.5.  Even in the absence of a  

specific  provision,  the  appointment  of  the  third  

arbitrator  under  Article  33.6  would  have  to  be  

guided by the provisions  contained under  Section  

11(9) of the Arbitration Act.

70. I am also unable to accept the submission of Mr.  

Divan that since the provision contained in Section  

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11(9) of the Arbitration Act, 1996 is not mandatory;  

the Court ought to appoint the third arbitrator, who  

is  an  Indian  National.   This  Court,  in  the  case  of  

Malaysian  Airlines  Systems  BHD  II  (supra),  

interpreting  Section  11(9)  after  taking  into  

consideration the position in some other countries  

where  the  UNCITRAL  Model  Law  is  adopted,  has  

come to the following conclusions:-

“25. It  is,  therefore,  clear  that  in  several  countries  where  the  UNCITRAL  Model  is  adopted,  it  has  been  held  that  it  is  not  impermissible  to  appoint  an  arbitrator  of  a  nationality of one of the parties to arbitration.

26. In the light of the above rules in various  countries and rulings of the court and also in  view of the fact that the 1996 Act is based on  UNCITRAL Model Law which in Article 6(4) only  speaks of “taking into account” the nationality  as one of the factors, I am of the view that the  word “may” in Section 11(9) of the Act is not  intended to be read as “must” or “shall”.

27. I  am,  therefore,  of  the  view  that  while  nationality of the arbitrator is  a matter to be  kept  in  view,  it  does  not  follow from Section  11(9) that the proposed arbitrator is necessarily  disqualified  because  he  belongs  to  the  nationality  of  one  of  the  parties.  The  word  “may” is not used in the sense of “shall”. The  provision is  not mandatory.  In case the party  who belongs to a nationality other than that of  

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the proposed arbitrator, has no objection, the  Chief  Justice  of  India  (or  his  nominee)  can  appoint an arbitrator belonging to a nationality  of one of the parties. In case, there is objection  by  one  party  to  the  appointment  of  an  arbitrator  belonging  to  the  nationality  of  the  opposite party, the Chief Justice of India (or his  nominee) can certainly consider the objection  and see if  an arbitrator  not  belonging to  the  nationality of either parties can be appointed.  While taking that decision, the Chief Justice of  India (or his nominee) can also keep in mind, in  cases where the parties have agreed that the  law  applicable  to  the  case  is  the  law  of  a  country  to  which  one  of  the  parties  belong,  whether there will be an overriding advantage  to  both  the  parties  if  an  arbitrator  having  knowledge of the applicable law is appointed.

28. In  the  result,  I  am of  the  view that  under  Section 11(9) of the Act it is not mandatory for  the court to appoint an arbitrator not belonging  to the nationality of either of the parties to the  dispute.”

71. The aforesaid ratio of law in Malaysian Airlines  

Systems BHD II  (supra) has been reiterated by  

this Court in  MSA Nederland B.V. (supra) in the  

following words:-

“3. The  learned  counsel  appearing  for  the  petitioner  drew my attention to  the  fact  that  the  petitioner  Company  is  a  company  incorporated  in  the  Netherlands  while  the  respondent  Company  is  a  company  incorporated in India. He prayed that in view of  

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the  provisions  of  Sections  11(9)  of  the  Arbitration  and  Conciliation  Act,  an  arbitrator  having  a  neutral  nationality  be  appointed,  meaning thereby that the sole arbitrator should  neither be a Dutch national  nor be an Indian  national. Section 11(9) is reproduced as under:

“11.  (9)  In the case of appointment of  sole  or  third  arbitrator  in  an  international commercial arbitration, the  Chief  Justice  of  India  or  the  person  or  institution  designated  by  him  may  appoint  an  arbitrator  of  a  nationality  other  than  the  nationalities  of  the  parties  where  the  parties  belong  to  different nationalities.”

The key word in the above provision is  “may”  which leaves a discretion in the Chief Justice or  his  nominee  in  this  behalf  and  it  is  not  mandatory that the sole arbitrator should be of a  nationality  other  than  the  nationalities  of  the  parties to the agreement.”

72. But the ratio in the aforesaid cases can not be  

read  to  mean  that  in  all  circumstances,  it  is  not  

possible  to  appoint  an  arbitrator  of  a  nationality  

other than the parties involved in the litigation.  It is  

a  matter  of  record  that  Clause  33.5  of  the  PSC  

provides  that  on  failure of  the  second  party to  

nominate  its  arbitrator,  the  Chief  Justice  of  India  

may be requested to appoint the second arbitrator  61

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from amongst persons who are not nationals of the  

country  of  any  of  the  parties  to  the  arbitration  

proceedings.   Therefore,  in  principle,  it  becomes  

apparent that the Respondents have accepted the  

appointment of the second arbitrator from a neutral  

country.  Merely because, the seat of arbitration is  

in India, the applicable law is Indian Law; it does not  

become incumbent on the Court to appoint the third  

arbitrator, who is an Indian national.  The concern of  

the Court  is  to  ensure  neutrality,  impartiality and  

independence of the third arbitrator.  Choice of the  

parties has little, if anything, to do with the choice  

of  the  Chief  Justice  of  India  or  his  nominee  in  

appointing the third arbitrator.  It is true that even  

at  the  stage  of  exercising  its  jurisdiction  under  

Section 11(6) at the final stage, the Chief Justice of  

India or his nominee can informally enquire about  

the preference of the parties.  But it is entirely upto  

the Chief Justice of India, whether to accept any of  

the preferences or to appoint the third arbitrator not  

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mentioned by any of the parties.  In making such a  

choice, the Chief Justice of India will be guided by  

the relevant provisions contained in the Arbitration  

Act, UNCITRAL Model Laws and the UNCITRAL Rules,  

where the parties have included the applicability of  

the  UNCITRAL  Model  Laws/UNCITRAL  Rules  by  

choice.

73. I must emphasise here that the trend of the third  

arbitrator/presiding  officer  of  a  neutral  nationality  

being  appointed  is  now  more  or  less  universally  

accepted under the Arbitration Acts and Arbitration  

Rules in different jurisdictions.  

74. In  the  present  case,  Article  33(9)  of  the  PSC  

adopts  the  UNCITRAL  Rules  for  the  arbitration  

agreement under         Article 39.  The applicable  

UNCITRAL Rules  at  the  time when the  arbitration  

agreement was signed were the 1976 Rules.   

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75. The  aforesaid  Rules  have  been  literally  

paraphrased in Section 11(9) of the Arbitration Act,  

1996.  Rule 4 of UNCITRAL states that in making the  

appointment,  the  appointing  authority  shall  have  

regard to such consideration as are likely to secure  

appointment  of  an  independent and  impartial  

arbitrator.  Superimposed on those two conditions is  

a provision that the appointing authority shall take  

into account, as well, the advisability of arbitrator of  

a  nationality  other  than  the  nationalities  of  the  

parties.  These  rules  in  my  opinion  are  almost  

parallel to Article 33(5) of the PSC.   

76. Mr.  Anil  Divan  had,  however,  raised  serious  

doubts about the impartiality of the third arbitrator  

due  to  the  omnipresence  of  British  Petroleum all  

over the world. I am of the considered opinion that  

the apprehension expressed by the learned senior  

counsel is imaginary and illusory. Such a proposition  

cannot possibly be accepted as a general practice  

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for  the  appointment  of  Chairman/Presiding  

Officer/Third  Arbitrator  guided  by  the  principle  

consideration  that there  must  not  only  be  the  

neutrality, but appearance of neutrality of the third   

arbitrator.  In  that  view  of  the  matter,  I  have  no  

hesitation in rejecting this submission of Mr. Divan  

that only an Indian National can be appointed as the  

third arbitrator.        

77. This  apart,  I  must  notice  here the  judgment  of  

this  Court  in  the  case  of  Northern  Railway  

Administration, Ministry of Railway, New Delhi  

(supra), whilst considering the contingencies under  

which a party may request the Chief Justice or any  

person  or  institution  designated  by  him  under  

Section  11  to  take  necessary  measures  held  as  

follows:-

“11. The crucial expression in sub-section (6) is  “a party may request the Chief Justice or any  person or institution designated by him to take  the  necessary  measure”  (underlined  for  emphasis*).  This  expression  has  to  be  read  along with requirement in sub-section (8) that  

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the Chief Justice or the person or an institution  designated by him in appointing an arbitrator  shall have “due regard” to the two cumulative  conditions  relating  to  qualifications  and other  considerations  as  are  likely  to  secure  the  appointment  of  an independent  and impartial  arbitrator.

12. A bare reading of the scheme of Section 11  shows that the emphasis is on the terms of the  agreement  being  adhered  to  and/or  given  effect as closely as possible. In other words, the  Court may ask to do what has not been done.  The Court must first ensure that the remedies  provided  for  are  exhausted.  It  is  true  as  contended by Mr Desai, that it is not mandatory  for the Chief Justice or any person or institution  designated  by  him  to  appoint  the  named  arbitrator or arbitrators. But at the same time,  due regard has to be given to the qualifications  required  by  the  agreement  and  other  considerations.

13. 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.”

78. Keeping in view the aforesaid principles,  I  have  

examined  the  submissions  of  Mr.  Divan  and  Mr.  

Salve  on  the  issue  with  regard  to  the  neutrality,   

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impartiality and  independence of  the  third  

arbitrator.   As  held  earlier,  the  apprehension  

expressed by the Respondent Union of India seems  

to be imaginary and illusory. Whatever is being said  

about the influence/presence of British Petroleum in  

other jurisdictions would apply equally to the Union  

of India, if the third arbitrator is an Indian national,  

within the Indian jurisdiction.   

79. The apprehension expressed by Mr. Divan that if  

a foreign national is appointed as a third arbitrator,  

the  Tribunal  would  be  at  a  disadvantage  as  all  

applicable laws are Indian, in my opinion, overlooks  

the fact that the two arbitrators already appointed  

are Former Chief Justices of India and can be very  

safely relied upon to advise the third arbitrator of  

any legal position, which is peculiar to India.  

80. At this  stage,  normally  the  matter  ought  to  be  

remitted back to the two arbitrators appointed by  

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the  parties  to  choose  the  third  arbitrator  on  the  

basis  of  the  observations  made  in  the  judgment.  

However,  given  the  sharp  difference  of  opinion  

between the two arbitrators, I deem it appropriate  

to perform the task of appointing the third arbitrator  

in this Court itself.  Therefore, I  had requested the  

learned senior counsel for the parties to supply a list  

of  eminent  individuals  one  of  whom  could  be  

appointed as the third arbitrator. Although two lists  

have been duly supplied by the learned counsel for  

the parties, I am of the opinion, in the peculiar facts  

and  circumstances  of  this  case,  it  would  be  

appropriate if an individual not named by any of the  

parties is appointed as the third arbitrator. I  have  

discretely  conducted  a  survey  to  find  a  suitable  

third arbitrator who is not a National of any of the  

parties involved in the dispute.  

81. Upon  due  consideration,  I  hereby  appoint  

Honourable James Spigelman AC QC, former Chief  

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Justice  and  Lieutenant  Governor  of  New  South  

Wales, Australia as the third Arbitrator who shall act  

as the Chairman of the Arbitral Tribunal.  The   E-

mail address which has been supplied to this Court  

is as follows :

spigel@bigpond.net.au  

82. In  view  of  the  considerable  delay,  the  Arbitral  

Tribunal is requested to enter upon the reference at  

the  earliest  and  to  render  the  award  as  

expeditiously as possible.   

83. The Arbitration Petition is allowed in the aforesaid  

terms.  No costs.

……………………………J. [Surinder  Singh  Nijjar]

New Delhi; March 31, 2014.

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ITEM NO.1A          COURT NO.6             SECTION XVIA

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

        ARBITRATION PETITION NO. 27 OF 2013

RELIANCE INDUSTRIES LTD. & ORS.       Petitioner(s)

                VERSUS

U.O.I.                                 Respondent(s)

Date:  31/03/2014   This  Petition  was  called  on  for  pronouncement of judgment today.

For Petitioner(s) M/S. Parekh & Co., Advs.

For Respondent(s) Mr. Shailendra Swarup, Adv.

Hon'ble Mr. Justice Surinder Singh Nijjar pronounced  

the judgment.  

The  petition  is  allowed  in  terms  of  the  signed  

reportable judgment.  

[Nidhi Ahuja]              [Indu Bala Kapur]      Court Master                    Court Master

[Signed reportable judgment is placed on the file.]

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