2024 (2) TMI 1009 - HC - Indian Laws

Petition Dismissed: Arbitral Proceedings Can't Begin Without Proper Tribunal Constitution, Says Court.

M.S. OIL INDIA LIMITED Versus M.S. BADRI RAI AND COMPANY

The HC dismissed the petition filed by the petitioner, Oil India Ltd., regarding the commencement of arbitral proceedings and the appointment of ... Appointment of Arbitral Tribunal to adjudicate upon the disputes between the parties - whether a petition under Section 11 (6) of the Act would be maintainable? - HELD THAT:- Under Section 21 of the Act, the expression used is “commencement of the proceeding”. The argument advanced on behalf of the petitioner with regard to the aforesaid provision of the Act is that on receipt of the claim by the respondent, the arbitral proceeding is deemed to be commenced. However, such submission is not acceptable in the facts and circumstances of the instant case. Admittedly, it is the provision of the Contract that in case the claim exceeds Rs. 5 crores, the Tribunal would be constituted by three members and unless and until the Arbitral Tribunal is constituted, the question of commencement will not arise at all. With regard to application of Section 11 (6) of the Act in making a challenge of the present nature, the learned counsel has relied upon a decision of the Hon’ble Supreme Court in the case of HUAWEI TECHNOLOGIES CO. LTD. VERSUS STERLITE TECHNOLOGIES LTD. [2015 (9) TMI 866 - SUPREME COURT]. However, on a reading of the said decision, this Court is of the opinion that the same would not have any application in the present case. Rather, on reading of the contents of paragraph 8, a different interpretation would be available which will not come to the aid of the petitioner. This Court is of the firm opinion that a challenge of this nature would not be maintainable under the provision of Section 11 (6) of the Act and unless a petition is presented before the appropriate forum under the appropriate provisions of law, such challenge cannot be maintained - Petition dismissed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether an arbitral proceeding 'commences' under Section 21 of the Arbitration and Conciliation Act, 1996 upon receipt by a respondent of a notice asserting a claim, thereby precluding subsequent constitution of the tribunal in accordance with a contractually prescribed composition requirement. 2. Whether a challenge to the constitution or composition of an arbitral tribunal of the nature raised in this petition is maintainable under Section 11(6) of the Arbitration and Conciliation Act, 1996. 3. Whether a presiding arbitrator may assume jurisdiction and make declarations under Section 12 of the Act in the absence of consent or apparent agreement by the party-nominee arbitrators as reflected in the appointment communication. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Commencement of arbitral proceedings under Section 21 vis-à-vis contractually prescribed tribunal composition Legal framework: Section 21 of the Act defines the point of commencement of arbitral proceedings as the date when a request for reference of a dispute to arbitration is received by the respondent. Contractual clause (Clause 15) prescribes that where claims exceed a monetary threshold the tribunal must be three-membered, with procedure for replacement and whether successor proceeds from predecessor's stage or de novo. Precedent Treatment: The Court considered but declined to apply a relied-upon higher court decision (as cited by the petitioner), concluding that its ratio was not supportive of petitioner's position in the facts at hand. Interpretation and reasoning: The Court held that the contractual stipulation governing tribunal composition is determinative of when an arbitral proceeding as intended by the parties is properly capable of commencing for purposes of invoking procedural consequences. Where the contract requires constitution of a three-member tribunal for claims beyond a threshold, mere receipt of a notice of claim does not render the proceeding commenced in the operative sense if the required tribunal has not been constituted. The Court reasoned that the contractual requirement conditions the efficacy of the notice in causing an arbitral proceeding to be effectively underway. Ratio vs. Obiter: Ratio - where a contract prescribes a specific tribunal composition for certain claims, the proceeding does not properly commence for all practical purposes merely on receipt of a claim notice; constitution of the tribunal as per contract is a precondition to the exercise of tribunal functions related to that dispute. Obiter - none identified beyond application to the facts. Conclusion: The Court concluded that, on the facts, the first notice alone did not effect commencement of arbitral proceedings because the contract required a three-member tribunal which had not been constituted; therefore the petitioner's contention that proceedings had commenced upon receipt of the claim was rejected. Issue 2: Maintainability of challenge under Section 11(6) to tribunal constitution/composition Legal framework: Section 11(6) empowers courts to appoint arbitrators where parties are unable to agree or where the appointment procedure fails; it also provides a forum for certain pre-appointment disputes. Precedent Treatment: The Court considered prior authority relied upon by the petitioner but found that authority inapplicable to the present factual and contractual matrix; the Court read that precedent as not advancing the petitioner's position. Interpretation and reasoning: The Court held that challenges to the kind raised (i.e., contesting the validity of the purported exercise of authority by a Presiding Arbitrator or the constitution of a tribunal when contractual procedures have not been satisfied) are not maintainable under Section 11(6) in the circumstances presented. The Court emphasized that relief under Section 11(6) is not a catch-all for every dispute about tribunal constitution where other appropriate remedies or fora exist under the Act or contract. The Court further indicated that an application under the appropriate provision(s) of law must be preferred for such challenges. Ratio vs. Obiter: Ratio - a challenge to tribunal constitution/composition of the present nature is not maintainable under Section 11(6) where the contractual scheme and factual matrix require different or specific procedures to be invoked; parties must pursue the remedy provided under the appropriate statutory or contractual provision. Obiter - the Court's reading of the cited higher court authority as distinguishable. Conclusion: The petition under Section 11(6) was not the appropriate remedy for the challenge made; the Court dismissed the petition on this ground. Issue 3: Assumption of jurisdiction by a presiding arbitrator and Section 12 declaration in absence of clear consent of party-nominee arbitrators Legal framework: Section 12 concerns grounds for challenge to arbitrators including circumstances affecting impartiality or independence; appointment communications and the mutual agreement of party-nominees to a presiding arbitrator are relevant to establishment of tribunal legitimacy. Precedent Treatment: No binding precedent was adopted to alter the established proposition that a presiding arbitrator will not validly assume jurisdiction absent requisite consent/appointment as contemplated by the parties' appointment procedure. Interpretation and reasoning: The Court proceeded on the presumption that a presiding arbitrator can assume jurisdiction and make Section 12 declarations only if there is consent by the nominee arbitrators of both parties to the presiding arbitrator's appointment. The absence of an appointment order in the record led the Court to assume consent for present purposes; however, the Court stressed that without such consent a presiding arbitrator would lack jurisdiction to adjudicate and issue Section 12 declarations. Ratio vs. Obiter: Ratio - a presiding arbitrator must have apparent or actual agreement/consent of party-nominee arbitrators to assume jurisdiction and make declarations under Section 12; absent such appointment/consent the presiding arbitrator cannot validly assume jurisdiction. Obiter - the Court's procedural comment that consent is a necessary factual precondition and the consequence that absence of documentary appointment would undermine jurisdiction. Conclusion: The Court assumed consent in the absence of contrary material but held as a legal proposition that in absence of consent by party-nominee arbitrators a presiding arbitrator would not assume jurisdiction to adjudicate or make Section 12 declarations. Cross-references and final determination Cross-reference: Issues 1-3 are interrelated: the contractual requirement for tribunal composition (Issue 1) informs the question whether the tribunal had power to act (Issue 3) and whether Section 11(6) was the proper remedy (Issue 2). Final conclusion: The Court dismissed the petition, holding that the first notice did not effect commencement given contractual composition requirements; that the challenge was not maintainable under Section 11(6); and that a presiding arbitrator cannot assume jurisdiction absent consent/appointment by party-nominees, a condition the Court presumed but required documentary support in contested situations.