2001 (2) TMI 965 - HC - Companies Law

Late Arbitrator Appointment Deemed Invalid: Importance of Timely Selection

The court held that the respondents forfeited their right to appoint an arbitrator by not doing so before the petition under Section 11(6) was filed. The ... Arbitrator - Appointment of Issues Involved:1. Appointment of an Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.2. Validity of the appointment of an arbitrator by the respondents after the filing of the petition under Section 11(6).3. Legal implications of the delay in appointing an arbitrator.Issue-Wise Detailed Analysis:1. Appointment of an Arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996:This case involves an application for the appointment of an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, due to a dispute between the petitioners and respondents regarding the execution of a contract for the construction of a control room building for a 400 KV Sub-station. The contract, valued at Rs. 1,10,02,860, was to be completed within six months, but the petitioners claimed it could not be completed due to reasons attributable to the respondents. The contract contained an arbitration clause (Clause 56) that provided for arbitration by the General Manager of Delhi Electric Supply Undertaking or another appointed person if the General Manager was unable or unwilling to act.2. Validity of the appointment of an arbitrator by the respondents after the filing of the petition under Section 11(6):The primary contention revolves around the timing of the arbitrator's appointment. The petitioners invoked the arbitration clause on 15-5-1996 and reiterated their request on 30-12-1997, specifying the disputes and the claimed amount of Rs. 314 lakhs. When the respondents did not appoint an arbitrator, the petitioners filed the present petition under Section 11(6) on 13-4-1998. The respondents appointed Mr. S.R. Sethi as the sole arbitrator on 24-6-1998, after the filing of the petition. The petitioners argued that the appointment made after the filing of the petition was a nullity, as the respondents forfeited their right to appoint an arbitrator once the petition under Section 11(6) was filed.3. Legal implications of the delay in appointing an arbitrator:The respondents argued that there was no time limit in the arbitration agreement for appointing an arbitrator, and thus, their appointment after the filing of the petition was valid. However, the petitioners relied on precedents from the Bombay, Delhi, and Andhra Pradesh High Courts, which held that the right to appoint an arbitrator is forfeited if not exercised within a reasonable time (typically thirty days) from the demand for arbitration. The Supreme Court in Datar Switchgears Ltd. v. Tata Finance Ltd. clarified that while no specific time limit is prescribed under Section 11(6), the right to appoint an arbitrator continues until the first party moves the court under Section 11. Once an application under Section 11 is filed, any subsequent appointment by the opposite party is a nullity.Conclusion:The court concluded that the respondents forfeited their right to appoint an arbitrator by failing to do so before the filing of the petition under Section 11(6). The appointment made after the filing of the petition was deemed invalid. The Chief Justice or the designated person is to appoint an independent and impartial arbitrator, considering the provisions of Section 11(8). The petition was allowed with costs, emphasizing the importance of timely appointment of arbitrators to avoid unnecessary delays in arbitration proceedings.