2009 (10) TMI 971 - SC - Indian Laws

Supreme Court upholds maintainability of writ petitions challenging arbitrator appointments under Section 11(6)

S.B.P. and Company Versus Patel Engineering Ltd. and anr.

The Supreme Court held that writ petitions against orders appointing arbitrators are maintainable, declaring the Chief Justice's power under Section 11(6) ... - Issues Involved:1. Maintainability of writ petitions against orders appointing arbitrators.2. Validity of appointment of substitute arbitrators under Section 15(2) of the Arbitration and Conciliation Act, 1996.3. Interpretation of arbitration clauses in agreements.4. Judicial versus administrative nature of the Chief Justice's power under Section 11(6) of the Act.Detailed Analysis:1. Maintainability of Writ Petitions:The appellants challenged the Division Bench of the Bombay High Court's orders, which relied on the Supreme Court's judgments in Konkan Railway Corporation Ltd. v. Mehul Construction Company and Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd., holding that writ petitions against orders appointing arbitrators were not maintainable. The Supreme Court overruled these precedents in S.B.P. & Company v. Patel Engineering Ltd., declaring that the Chief Justice's power under Section 11(6) of the Arbitration and Conciliation Act, 1996, is judicial, not administrative. Consequently, orders passed by the Chief Justice or designated Judge are appealable under Article 136 of the Constitution.2. Validity of Appointment of Substitute Arbitrators:The primary issue was whether the appointment of Shri S.L. Jain as a substitute arbitrator by respondent No. 1, following the refusal of Shri S.N. Huddar to act, was legally valid. The Supreme Court analyzed Section 15(2) of the Act, which allows for the appointment of a substitute arbitrator according to the rules applicable to the original appointment. The Court emphasized that the term 'rules' includes the terms of the agreement between the parties. Since the agreements did not explicitly allow for the appointment of a substitute arbitrator, the appointment of Shri S.L. Jain was deemed invalid. Consequently, the appointment of Shri Justice M.N. Chandurkar as the third arbitrator by the designated Judge was also invalidated.3. Interpretation of Arbitration Clauses:Clause 19 of the piece work agreement specified that if an arbitrator appointed by either party refuses to act, the arbitrator appointed by the other party would act as the Sole Arbitrator. The Supreme Court held that the refusal of an arbitrator to act does not equate to withdrawal under Section 15(2) of the Act. Therefore, the appointment of a substitute arbitrator was not permissible under the agreement, and respondent No. 2, appointed by the appellants, became the Sole Arbitrator.4. Judicial versus Administrative Nature of the Chief Justice's Power:The Supreme Court reaffirmed that the power exercised by the Chief Justice or the designated Judge under Section 11(6) of the Act is judicial, not administrative. This was a significant departure from the earlier view that such power was administrative, as held in the overruled judgments of Konkan Railway Corporation Ltd. cases. The Court clarified that orders passed under Section 11(6) are subject to appeal under Article 136 of the Constitution, thereby providing a judicial remedy to aggrieved parties.Conclusion:The Supreme Court allowed the appeals, setting aside the orders of the designated Judge of the High Court appointing Shri Justice M.N. Chandurkar as the third arbitrator. It directed respondent No. 2 to proceed as the Sole Arbitrator and pass an appropriate award within three months. The judgment underscored the necessity of adhering to the terms of the arbitration agreement and clarified the judicial nature of the Chief Justice's power under Section 11(6) of the Act.