2018 (3) TMI 1694 - HC - Indian Laws

Court Upholds Arbitral Tribunal Constitution Challenge Dismissal

The court upheld the Additional District Judge's order, dismissing the petition challenging the constitution of the Arbitral Tribunal. It found that the ... Maintainability of application filed by the petitioner under Section 14 of the Arbitration and Conciliation Act, 1996 - constitution of Arbitral Tribunal - declaration to the effect that the constitution of the Arbitral Tribunal is illegal, arbitrary, unwarranted - principles of natural justice - Held that:- Issue decided in the case of M/s Gas Authority of India's case [2007 (5) TMI 563 - SUPREME COURT], where it was held that if there is challenge to the Arbitral Tribunal being improperly constituted, it is to be looked into by the Tribunal on an application under Section 16 of the Arbitration and Conciliation Act, 1996. This Court is of the view that once the petitioner had a right to file an application under Section 16 of the Act with regard to constitution of Arbitral Tribunal, before the Tribunal itself, its application under Section 14 of the Act has been rightly dismissed by the Court of Additional District Judge, Chandigarh. No ground is made out to interfere in the impugned order - Petition dismissed. Issues Involved:1. Legality and validity of the constitution of the Arbitral Tribunal.2. Compliance with the dispute resolution clause for amicable settlement.3. Jurisdiction and authority of the Indian Council of Arbitration (ICA) to order the substitution of an arbitrator.4. Applicability of Section 14 of the Arbitration and Conciliation Act, 1996.5. Applicability of Section 16 of the Arbitration and Conciliation Act, 1996.6. Relevance of cited judgments to the present case.Detailed Analysis:1. Legality and Validity of the Constitution of the Arbitral Tribunal:The petitioner challenged the order dated 27.01.2017 by the Additional District Judge, Chandigarh, which dismissed the application under Section 14 of the Arbitration and Conciliation Act, 1996. The petitioner sought a declaration that the constitution of the Arbitral Tribunal was illegal, arbitrary, unwarranted, and against the principles of natural justice. The ICA had appointed Dr. P.C. Markanda as the nominee arbitrator on behalf of the petitioner after rejecting the petitioner's initial nominee, Mr. M.K. Aggarwal, due to objections regarding his impartiality. The court held that the ICA followed due process under its rules, giving the petitioner sufficient time to nominate a substitute arbitrator, which the petitioner failed to do.2. Compliance with the Dispute Resolution Clause for Amicable Settlement:The petitioner argued that respondent No.1 had not exhausted the dispute resolution clause for amicable settlement before invoking arbitration. The court found that sufficient efforts were made for amicable settlement, including the appointment of an independent consultant. When no settlement was reached, respondent No.1 followed the procedure under the Concession Agreement, submitting a statement of claim as per Rule 15 of the ICA Rules of Arbitration.3. Jurisdiction and Authority of the ICA to Order Substitution of an Arbitrator:The petitioner contended that the ICA had no power or jurisdiction to order the substitution of Mr. M.K. Aggarwal as an arbitrator. The court referred to Clause 39.1 of the Concession Agreement, which allowed each party to appoint an arbitrator, and the third arbitrator was to be appointed by the ICA. The agreement was silent on the procedure for objections to an arbitrator's appointment. The ICA followed its rules, giving the petitioner 15 days to reconsider the nomination of Mr. M.K. Aggarwal, and subsequently appointed Dr. P.C. Markanda after the petitioner failed to respond.4. Applicability of Section 14 of the Arbitration and Conciliation Act, 1996:The petitioner filed an application under Section 14, arguing that the mandate of the Arbitral Tribunal stood terminated due to the alleged improper constitution. The court held that the petitioner had impliedly accepted the jurisdiction of the Tribunal by participating in the proceedings and filing counterclaims. The court found no merit in the petitioner's application under Section 14.5. Applicability of Section 16 of the Arbitration and Conciliation Act, 1996:The court emphasized that any challenge to the Arbitral Tribunal's jurisdiction or constitution should be raised before the Tribunal itself under Section 16 of the Act. The court cited the Supreme Court's judgment in M/s Gas Authority of India Ltd. vs. M/s Keti Construction (I) Ltd., which stated that challenges to the Tribunal's constitution should be made at the threshold before the Tribunal to avoid unnecessary delays and expenses. The court concluded that the petitioner should have raised its objections under Section 16 rather than filing an application under Section 14.6. Relevance of Cited Judgments to the Present Case:The petitioner referred to the Supreme Court judgment in C.M.C. Ltd. vs. Unit Trust of India, arguing that parties retained the right to nominate their arbitrators without adhering to ICA rules. The court found this judgment inapplicable, as the Concession Agreement in the present case was silent on the procedure for objections to arbitrator appointments. The court instead relied on the judgment in M/s Gas Authority of India Ltd., which supported the view that challenges to the Tribunal's constitution should be addressed under Section 16.Conclusion:The court dismissed the petition, upholding the Additional District Judge's order. It concluded that the ICA followed due process in appointing the arbitrator, and the petitioner should have raised its objections before the Arbitral Tribunal under Section 16. The court found no grounds to interfere with the impugned order.