2006 (9) TMI 493 - SC - Companies Law

Supreme Court emphasizes arbitration agreement sanctity, sets aside Presiding Arbitrator appointment.

NATIONAL HIGHWAYS AUTHORITY OF INDIA & ANR. Versus BUMIHIWAY DDB LTD. (JV)

The Supreme Court allowed the appeal, setting aside the High Court's order appointing a Presiding Arbitrator. The Court emphasized the sanctity of the ... Whether High Court was correct making modification of its order dated 01.07.2005 substituted Mr. Justice P. Chenna Keshav Reddy, former Chief Justice of Andhra Pradesh and Gauhati High Court as the Presiding Arbitrator in place of Mr. Justice Y. Bhaskar Rao? Held that:- The said finding of the High Court is self contradictory inasmuch as if the Presiding Arbitrator is a retired Judge of the High Court and one of the arbitrators is a retired Chief Justice of the High Court, the member of hierarchy is upset. Even otherwise, there does not exist any such provision in law which requires that if one of the arbitrators is a retired Judge the Presiding Arbitrator also has to be a retired Judge. The parties have entered into a contract after fully understanding the import of the terms so agreed to from which there cannot be any deviation. The Courts have held that the parties are required to comply with the procedure of appointment as agreed to and the defaulting party cannot be allowed to take advantage of its own wrong. The pleadings before the Arbitral Tribunal are not complete and written statement is yet to be filed by the appellant as the appellants have raised their objections with respect to the appointment before the arbitration proceedings which has been duly recorded by the Arbitral Tribunal in the orders passed by them. In view of the order now passed setting aside the appointment of the Presiding Arbitrator by the High Court, the appointment of the Presiding Arbitrator as per the procedure contemplated under the contract agreement has to be followed and IRC (Ministry of Shipping, Road Transport and Highways, R.K. Puram, New Delhi should be approached. The parties are at liberty to approach the Arbitrators for any further interim directions. Appeal allowed by setting aside the order passed by the High Court Issues Involved:1. Scope of jurisdiction of the Court on the resignation of an arbitrator.2. Applicability of Section 15(2) versus Section 11(6) of the Arbitration and Conciliation Act, 1996 upon resignation of an arbitrator.3. Whether an Arbitration Clause can be rewritten by appointing a judicial arbitrator when no such qualification is provided in the agreement.4. Validity of a consent given by one party to rewrite the arbitration clause.Detailed Analysis:1. Scope of jurisdiction of the Court on the resignation of an arbitrator:The Court examined whether the High Court was justified in appointing a Presiding Arbitrator under Section 11(6) of the Arbitration and Conciliation Act, 1996. The appellant argued that the High Court ignored the statutory provisions under Sections 15(2), 11(3), and 11(4), which confer jurisdiction on the Court to make the appointment only on the failure of the designated persons/institutions to perform their functions. The High Court's actions were deemed to be in violation of the agreed contractual terms.2. Applicability of Section 15(2) versus Section 11(6) of the Arbitration and Conciliation Act, 1996 upon resignation of an arbitrator:The appellant contended that the resignation of an arbitrator should invoke Section 15(2) of the Act, which mandates the appointment of a substitute arbitrator according to the original rules. The Supreme Court referenced the case of Yashwith Construction P. Ltd. Vs Simplex Concrete Piles India Ltd & Anr., which held that the withdrawal of an arbitrator falls under Section 15(1)(a) and thus Section 15(2) should be applied for appointing a substitute arbitrator. The High Court's application of Section 11(6) was found to be erroneous.3. Whether an Arbitration Clause can be rewritten by appointing a judicial arbitrator when no such qualification is provided in the agreement:The Supreme Court emphasized that the arbitration agreement is sacrosanct and cannot be rewritten by the Court. The High Court's decision to appoint a judicial arbitrator, despite the absence of such a qualification in the agreement, was against the express provisions of the contract. The Court referred to the case of You One Engineering & Construction Co. Ltd. vs. National Highway Authority of India, which reaffirmed that the arbitration agreement's terms must be strictly followed.4. Validity of a consent given by one party to rewrite the arbitration clause:The respondent argued that the High Court's appointment of the Presiding Arbitrator was based on the consent of both parties. However, the Supreme Court noted that the alleged consent was not valid as it was not explicitly given by the appellant. The High Court's assumption of jurisdiction and subsequent appointment were found to be vitiated. The Court clarified that any judicial determination replacing an administrative order must adhere to the original contractual terms.Conclusion:The Supreme Court allowed the appeal, setting aside the High Court's order appointing Mr. P. Chenna Keshava Reddy as the Presiding Arbitrator. The Court directed that the appointment of the Presiding Arbitrator should follow the procedure outlined in the contract agreement, involving the Indian Road Congress. The decision underscored the importance of adhering to the agreed dispute resolution mechanisms and statutory provisions under the Arbitration and Conciliation Act, 1996.