+

Week 7 – COMPOSITION OF
ARBITRAL TRIBUNAL

© Amit Jyoti S. Gomber

+ Part I, Chp III: Composition of Arbitral
Tribunal
 Number of arbitrators (Section 10)

 Appointment of arbitrators (Section 11)

 Power of the CG to amend Fourth Schedule (Section 11A)

 Grounds for challenging an arbitrator (Section 12)

 Challenge procedure (Section 13)

 Termination of the mandate of an arbitrator on Failure or

Impossibility to Act (Section 14)

 Appointment of a Substitute Arbitrator (Section 15)

 + THE UNCITRAL MODEL LAW and A&C
ACT
 Article 2(b) “arbitral tribunal” means a sole arbitrator or a panel
of arbitrators.

 Article 10: Number of Arbitrators

1) The parties are free to determine the number of arbitrators.

2) Failing such determination, the number of arbitrators shall be

three.

 Section 2(1)(d) “arbitral tribunal” means a sole arbitrator or a

panel of arbitrators.

 Section 10: Number of Arbitrators

1) The parties are free to determine the number of arbitrators,

provided that such number shall not be an even number.

2) Failing the determination referred to in sub-section (1), the

arbitral tribunal shall consist of a sole arbitrator.
 NARAYAN PRASAD LOHIA VS. NIKUNJ KUMAR
+ LOHIA (2002)
 Is S.10 a derogable provision?

 Facts: NP Lohia and NK Lohia are family members who had

disputes and differences in respect of the family business and
properties. They agreed to resolve their disputes through Mr
Pramod Kumar Khaitan and Mr. Sardul Singh Jain who have an
award in a month’s time.

 After an year, NK Lohia filed an application the Calcutta HC for

setting aside the award on the ground that arbitration was by two
arbitrators whereas under the Act there cannot be an even
number of arbitrators. Single Judge held in their favor and set
aside the award.

 DB also dismissed the appeal and hence the appeal in SC.

 Issue: Whether a mandatory provision of the Act (to have odd

number of arbitrators) can be waived by the parties?
 +
 Held:

- The court took into consideration S. 4, 5, 10, 11, 16 and 34(2)(a)(v);

- One of the objects of the Act is to minimize the role of courts in

the arbitration process.

- S. 16, the arbitral tribunal has the jurisdiction to adjudicate on its

own jurisdiction, including the objection on the composition of
the arbitral tribunal, but such a challenge must be taken not later
than the submission of the statement of defence.

- Thus from conjoint reading of S. 10 and 16 it appears that an

objection to the composition of the Arbitral Tribunal is a matter
which is derogable as the party is free to object within the
prescribed time. If a party chooses not to so object there will be a
deemed waiver u/ S.4. Therefore, S. 10 is a derogable
provision.

- U./S. 34(2)(a)(v) the parties can challenge the award when the
composition of the arbitral tribunal is not in accordance with the
agreement of the parties.
+ MMTC Ltd. v. Sterlite Industries Ltd. (1996) 6 SCC
716
 The parties entered into a contract, containing the arbitration
clause, before the commencement of the A&C Act, 1996 but the
proceedings commenced after the coming into force of the 1996
Act. Hence provisions of the A&C Act, 1996 apply here.

 The arbitration clause provided: Both the parties shall nominate one
Arbitrator each and the arbitrators shall appoint an umpire before
proceeding with the reference…The provisions of the Indian
Arbitration Act and Rules made thereunder shall apply for
proceedings.

 When the dispute arose, Sterlite sent a notice to arbitrate and

appointed one arbitrator. MMTC responded that arbitration cannot
be resorted to and therefore did not appoint an arbitrator.

 Sterlite filed an application in the Bombay HC under S. 11 to

appoint arbitrator. MMTC argued here that arbitration agreement
provides for appointment of two arbitrators but the Act [S.10(1)]
says that it cannot be an even number. HC rejected the contention
and asked MMTC to appoint an arbitrator else the sole arbitrator,
appointed by Sterlite will adjudicate as given under S. 11(5).

 MMTC filed an SLP in the SC.

+
Held:

 Validity of the arbitration agreement does not depend on the

number of arbitrators specified in the arbitration agreement.

 S. 10 is a machinery provision for the working of the

arbitration agreement.

 S.11(3) states that when two arbitrators are appointed then

they shall appoint the third arbitrator who shall act as the
presiding arbitrator.

 If the above procedure fails, then the appointment shall be

made by the High Court upon request of a party as per
S.11(4).
 +
 Where the parties fail to determine the number consensually, the
default number as provided by S.10(2), is a sole arbitrator.

 If parties fail to reach an agreement on appointment of arbitrator

then provisions under S. 11 provides for default procedure.

 The arbitrator must be independent, impartial and neutral.

 Arbitral Tribunal’s jurisdiction emanates from:

1) The arbitration agreement between the parties;

2) The contract (if any) between the parties and the arbitrators;
and

3) The law applicable to the conduct of the arbitration.

 + SECTION 11: APPOINTMENT OF
ARBITRATORS
 Section 11(1): Nationality of the
arbitrator - A person of any
nationality may be appointed as an
arbitrator

Grant absolute autonomy to the parties

to choose arbitrators from different
nationalities.

Article 11(1), UNCITRAL Model Law:

“No person shall be precluded by
reason of his nationality from acting as
an arbitrator, unless otherwise agreed by
the parties.”
+
 Section 11(2): Party Autonomy in Procedure of Appointment -
The Parties are free to agree on a procedure for appointing the
arbitrator (s).

 Relevant provision in case of institutional arbitrations where the

institutions generally provide their own procedures.

 The most common forms of the contract of appointment

mechanisms are:
a) Arbitration by a sole arbitrator named in the arbitration
agreement;
b) Arbitration before a sole arbitrator to be agreed upon by the
parties after the dispute has arisen;
c) Arbitration before a sole arbitrator nominated by a trade or
professional institution;
d) Arbitration by a tribunal of three arbitrators, one nominated by
each of the parties, and the third to be appointed either by the
nominated arbitrators, or in default, by the Supreme Court/ High
Court or any person or institution designated by him.
 +
 Requirement of a valid appointment of an arbitrator:

a) Informing the other party: U/S,34(2)(iii) the party appointing

an arbitrator must give proper notice of appointment of an
arbitrator to the other party or parties. Otherwise the
appointment of the arbitral tribunal will be invalid and resultant
award, would be enforceable.

b) Obtaining consent of the arbitrator to act: It is necessary to

obtain the consent of the person who has been nominated as
arbitrator so that he can consider whether there is any conflict
of interest.

 Appointment of the arbitrator can be challenged on the grounds

given u/ S. 12 and 13.

 If the challenge remain unsuccessful, it can be challenged u/ S. 34

after the award has been made.
+
Section 11: Pre and Post Amendment

 Replaced the words ‘the Chief Justice or any person or

institution designated by him’ with ‘the Supreme Court or, as
the case may be, the High Court or any person or institution
designated by such Court.’ – Section 11(5), (6), (7), (8), (9) and
(10)

 Added new sub-sections: S.11(6A), (6B), (13) and (14).

 Modified sub-sections: S.11(8) and 11(12)(a) & (b).

 AUTHORITY under S. 11
+ S.11(12)

International Commercial Any other Arbitration matters u./

Arbitration matters u./ subsections subsections (4), (5), (6), (7), (8) and (10)
(4), (5), (6), (7), (8) and (10)

Supreme Court of India HIGH COURT

Within whose local limits the PCC as u/S.
2(1)(e) is situated and where the HC itself
is the court referred to in that clause.
+ Section 11 (3) to Section 11 (5): DEFAULT
PROCEDURE
 S. 11(3): If the parties fail to agree on a procedure in an
arbitration with three arbitrators, each party shall appoint one
arbitrator, and the two appointed arbitrators shall appoint the
third arbitrator, who shall act as the presiding arbitrator.

 S. 11(4): If the parties fail to make the appointment in

accordance with this procedure within 30 days from the receipt
of the request, S. 11(4) provides that the appointment of the
arbitrator shall, upon request of a party, be made by the
Supreme Court or, as the case may be, the High Court or any
person or institution designated by such Court.

 S. 11(5): In the absence of an agreement on procedure u./S.

11(2), if the parties fail to agree on the appointment of a sole
arbitrator within 30 days from receipt of a request, then upon
the request of a party, the appointment shall be made by the
Supreme Court or, as the case may be, the High Court or any
person or institution designated by such Court.
+Section 11(6): Appointment by Supreme Court/
High Court
The freedom of the parties to agree upon the appointment
procedure is restricted and subject to S. 11(6), which
provides that unless the agreement on the appointment
procedure provides other means for securing the
appointment, a party may request the Supreme Court or, as
the case may be, the High Court or any person or
institution designated by such Court to take all necessary
measures to secure the appointment of an arbitrator. Such
request can be made in the following three situations:
a) A party fails to act as required under that procedure; or
b) The parties or the two appointed arbitrators fail to reach
an agreement expected of them under the procedure; or
c) A person including an institution, fails to perform any
function entrusted under that procedure.
 + Section 11(6A): Scope of Examination
 Notwithstanding any judgment, decree or order of any Court,
while considering the application under S.11(4), (5) or (6),
confine to the examination of the existence of an arbitration
agreement.

Section 11(6B) Nature of Delegated Power

 The designation of any person or institution under Section 11
shall not be regarded as a delegation of judicial power.

Section 11(7): Finality of Appointment

 The decision of the Supreme Court or, as the case may be, the
High Court or any person or institution designated by such Court
under S.11(4), (5) and(6) is final.

 There is no right to appeal against the decision, including Letters

Patent Appeal.
 Section 11(8): Requisites of Appointment

+The Supreme Court or, as the case may be, the High Court or any
person or institution designated by such Court while appointing an
arbitrator shall have due regard to:
a) Any qualifications required of the arbitrator by the agreement of the
parties; and
b) Other considerations which are likely to secure the appointment of
an independent and impartial arbitrator.

And shall seek a disclosure in writing from the prospective arbitrator in

terms of S.12(1).

Section 11(10): Frame Scheme for appointment

 SC or HC are empowered to make such schemes as they may deem
appropriate for dealing with matters of appointing or securing
appointment of arbitrators as entrusted to them by sub-sections (4),
(5) and (6).

Section 11(11): More than One Request to HCs

 Where more than one request has been made u/S.11 (4), (5) or (6) to
different HCs or their designates, the HC or his designate to whom
the request is made first, shall alone be competent to decide on the
request.
+ Section 11(13): Time Limit

 Any application under S.11 to be disposed off as expeditiously as

possible and an endeavor shall be made to dispose of the matter
within 60 days from the date of service if notice on the opposite
party.

Section 11(14): Fee

 HC can frame rules to determine the fee and manner of payment

to the arbitral tribunal.

 It should take into consideration the rates specified in the Fourth

Schedule.

 This clause is not applicable to ICA.

 This clause is not applicable in arbitrations where parties have

agreed for determination of fees as per the rules of an arbitral
institution.
 Is the power of Chief Justice “Judicial” or
+ “Administrative”?
SBP & Co. vs. Patel Engineering Ltd. (2005)
(pre-amendment case)
Ω What is the nature of the function of the Chief Justice or his designate
under S. 11 of the Arbitration and Conciliation Act, 1996?

Ω What is the scope of the right conferred on Arbitral Tribunal to rule

upon its own jurisdiction and the existence of arbitration clause,
envisaged by S. 16(1), once the CJ or person designated by him had
appointed an arbitrator after satisfying himself present in the case?

Ω On whom can the CJ delegate the power u./ S. 11(6)?

Ω Whether the CJ u/S. 11(6) can look into the validity of the arbitration
agreement?

Ω Can there be an appeal against the order of the CJ u/S.11(6)?

Ω Whether the decision of the constitutional bench in Konkan Rly

Corpn. Vs. Rani Construction (P) Ltd. and of the three-judge bench
in Konkan Rly. Corpn. Ltd. vs. Mehul Construction Co. is correct
where the court stated that the function is administrative and not
judicial or quasi-judicial?
Held:

a) + The power exercised by the CJ of the HC or the CJI u/ S. 11(6) is

not an administrative power. It is a judicial power.

 Once a statute creates an authority, confers on it power to adjudicate

and makes its decision final on matters to be decided by it, normally,
that decision cannot be said to be a purely administrative decisions
(S.11(7)). It is really a decision on its own jurisdiction for the exercise
of the power conferred by the statute or to perform the duties
imposed by the statute. Unless the authority satisfies itself that the
conditions for exercise of its power exist, it could not accede to a
request made to it for the exercise of the conferred power.

 U/S.11(6), a CJ or the person or institution designated by him, is

bound to decide whether he has jurisdiction, whether there is an
arbitration agreement, whether the applicant before him is a
party, whether the conditions for exercise of the power have
been fulfilled, and if an arbitrator is to be appointed, who is the
fit person, in terms of the provision. S.11(7) makes his decision on
the matters entrusted to him final.

 The decision of the CJ on the issue of jurisdiction and the existence of

a valid arbitration agreement would be binding on the parties when
the matter goes to the Arbitral Tribunal and at subsequent stages of the
proceeding except in an appeal in the SC in the case of the decision
being by the CJ of HC or by a Judge of the HC designated by him.
+
 In adopting S. 11 from Article 11 of the UNCITRAL Model Law,
framers of the statute must have been conscious of using the
word ‘Chief Justice’ instead of the word ‘Court’ as they did not
want the power to be conferred on PCC or HC exercising
original jurisdiction so that the highest judicial authority (CJ)
decides the matter and this brings greatest credibility the
process.

 If the judicial authority u/S. 8 can decide the jurisdictional issue

raised before it before making or declining to make a
reference then obviously the highest judicial authority has to
decide that question and his competence to decide cannot be
questioned.

 Where the jurisdictional issues are decided u/ S. 8 or 11 before

a reference is made to the tribunal u/S. 16 then S. 16 cannot be
held to empower the Arbitral Tribunal to ignore the decision
given by the Judicial authority or the CJ before the reference
to it was made.
+
b) The power is conferred on the Chief Justice u/S.11(6) not as
a persona designate. The power u/S. 11(6), in its entirety,
could be delegated, by the CJ of the HC only to another
Judge of that Court and by the CJI to another judge of the
SC. In case of such delegation, a judge of the HC or of the
SC, the power that is exercised by the designated Judge
would be that of the CJ as conferred by the statute.

c) The CJ or the designated Judge will have the right to decide

the preliminary aspects. These will be:

i. Ascertain his own jurisdiction to entertain the request;

ii. The existence of a valid arbitration agreement;

iii. The existence or otherwise of a live claim;

iv. The existence of the condition for the exercise of his power
and on the qualifications of the arbitrator(s).
d) The CJ or the designated Judge would be entitled to seek the
+ opinion of an institution in the matter of nominating an arbitrator
qualified in terms of S. 11(8) if the need arises but the order
appointing the arbitrator could only be that of the CJ or the
designated Judge.

e) Where a CJ designates not a Judge, but another person or an

institution to nominate an arbitral tribunal, that can be done only
after questions as to jurisdiction, existence of the agreement and
the like, are decided first by him or his nominee Judge and what is
left to be done is only to nominate the members for constituting the
arbitral tribunal.

f) Designation of a District Judge as the authority u/S. 11(6) by the

Chief Justice of the HC is not warranted on the scheme of the Act.

g) Once the matter reaches the Arbitral Tribunal, the HC would not
interfere with the order passed by the arbitrator during the course of
the arbitration proceedings and the parties could approach the
Court only in terms of S. 37 or S. 34.

h) Since an order passed by the CJ of HC or the designated Judge of

that Court is a judicial order, an appeal will lie against that order
only under Article 136 of the Constitution to the Supreme Court.
There can be no appeal against an order of the CJI or a Judge of the
SC designated by him while entertaining an application u/ S. 11(6).
 +
i) In a case where an Arbitral Tribunal has been constituted by the
parties without having recourse to S. 11(6) of the Act, the
Arbitral Tribunal will have the jurisdiction to decide all matters as
contemplated by S. 16.

j) Appointments of arbitrations made thus far, as guided by

Konkan Rly. Corpn. Ltd. vs. Rani Construction (P) Ltd. are to
be treated as valid, all objections being left to be decided u/S.
16.

k) From October 26, 2005 the position as adopted in SBP will

govern even pending applications u./S. 11(6).

l) Where District Judge had been designated by the CJ of HC

u/S.11(6), the appointment orders this far made by them will be
treated as valid; but applications if any pending before them as
on October 26, 2005 will stand transferred, to be dealt with by
the CJ of the HC concerned or a Judge of that Court designated
by the Chief Justice.

m) The decision in Konkan Rly. Corpn. Ltd. vs. Rani Construction

(P) Ltd. is overruled.
India Household & Healthcare Ltd. v. LG Household
+ (2007) (pre-amendment case)
 India Household filed an application under S.11(5) & (6) to
appoint arbitrator when LG failed in spite of notice dated
15/4/2005.

 There was an MoU between the parties dated 1/11/2003 and an

agreement, with the arbitration clause, dated 8/5/2004. The
arbitration clause stated that parties will appoint a common
arbitrator or two or more arbitrator where each party will appoint
one arbitrator.

 LG Household claims that the MoU and agreement is vitiated by

fraud committed by India Household who bribed two
representatives of LG Household who led to the agreements
between the parties. The two representative of LG Household
have been convicted under Korean Criminal law.

 Before this application was filed by India Household, LG

Household approached Madras HC and the court granted interim
injunction restraining India Household to act on the MoU or
agreement.
 +
Held:

 Fraud vitiates all solemn acts;

 Here it is ICA to which Part I and Section 16 is not applicable;

 The said dispute on fraud is pending before the Madras HC.

Therefore, this court while exercising its judicial function would
ordinarily not pass an order which would make one of the parties
to the lis violate a lawful order passed by another court;

 Reliefs claimed by the applicant are outside the scope of the

arbitration agreement. As stated in Sukanya Holdings, bifurcation
of subject-matter is not feasible;

 An application for appointment of an arbitrator is not

maintainable unless the procedure and mechanism agreed to by
and between parties is complied with;

 Application under S. 11 dismissed.

 National Insurance Company Ltd. vs. Boghara
+ Polyfab Pvt. Ltd. (2009) (pre-amendment case)
 Facts: Boghara obtained an insurance policy from Nat’l Insurance for
its goods for a period of one year. During this one year, Boghara
asked Nat’l to revise the sum insured thrice. One day, Boghara
reported loss to their stock due to heavy rains and flooding and
asked Nat’l for the insured amount. The dispute between the parties
over the amount of insurance as to whether the final revised amount
asked by Boghara shall be considered or the second revision will be
considered. While the claim and dispute was pending, Nat’l allegedly
forced Boghara to accept a lower claim otherwise no amount would
be released towards the claim. Being in a dire financial condition and
having no other alternative, Boghara yielded to the coercion and
pressure and signed the voucher.

 Later, Boghara sent Nat’l a legal notice seeking the balance amount
within 15 days, otherwise the notice be considered as notice
invoking arbitration. Nat’l in its reply rejected the claim and stated
the claim has been fully and finally accepted by Boghara and no
question of invoking arbitration arise.

 Boghara then filed an application u/S.11 for appointment of sole

arbitrator which was accepted by the Bombay HC which appointed
the arbitrator and let the question of coercion/ undue influence open
for decision by the arbitrator. This decision is now challenged in the
SC.
 +
 Issue: Whether the CJ u/S.11 can refuse to refer the dispute to
arbitration when the other party resists reference to arbitration
on the ground that the applicant has issued a full and final
settlement discharge voucher and the applicant contends that
he was constrained to issue it due to coercion, undue influence
and economic compulsion?

Held:

 In SBP, SC identified and segregated preliminary issues that

may arise for consideration in an application u/S. 11:

a) First category: Which the CJ/ his delegate will have to

decide are:
i. Whether the party making the application has
approached the appropriate HC?
ii. Whether there is an arbitration agreement and whether
the party who has applied u/S. 11 is a party to such an
agreement?
+
b) Second Category: Which the CJ/ his designate may
choose to decide or leave them to the decision of the
Arbitral Tribunal are:
i. Whether the claim is a dead (long-barred) claim or a live
claim;
ii. Whether the parties have concluded the contract/
transaction by recording satisfaction of their mutual rights
and obligation or by receiving the final payment without
objection.

c) Third Category: Which the CJ/ his designate should leave

exclusively to the Arbitral Tribunal are:
i. Whether a claim made falls within the arbitration clause (as
for example, a matter which is reserved for final decision of
a departmental authority and excepted or excluded from
arbitration).
ii. Merits or any claim involved in the arbitration.
 +General principles as to when arbitration agreements operate and when
they do not operate:

a) An arbitration clause is a collateral term of a contract distinguished from

its substantive terms; but none the less it is an integral part of it.

b) Howsoever comprehensive the terms of an arbitration clause may be, the

existence of the contract is a necessary condition for its operation; and the
arbitration clause perishes with the contract.

c) A contract may be non est in the sense that it never came legally into
existence or it was void ab initio. In that event, as the original
contract has no legal existence, the arbitration clause also cannot
operate, for along with the original contract, it is also void.

d) Though the contract was validly executed, the parties may put an end
to it as if it had never existed and substitute a new contract for it,
solely governing their rights and liabilities. In such an event, as the
original contract is extinguished by the substituted one, the
arbitration clause of the original contract perishes with it.

e) Between the two extremes referred to in paras (c) and (d), are the cases
where the contract may come to an end, on account of repudiation,
frustration, breach etc. In these cases, it is the performance of the
contract that has come to an end, but the contract is still in existence
for certain limited purposes, in respect of disputes arising under it or
in connection with it. When the contracts subsist for certain purposes,
the arbitration clauses in those contracts operate in respect of those
purposes.
 +
 Arbitration Agreement cannot be invoked to seek reference of any
dispute to arbitration, in the following circumstance, when the
contract is discharged on account of performance, or accord and
satisfaction, or mutual agreement, and the same is reduced to
writing and signed by both the parties or by the party seeking
arbitration:

i. Where the obligations under a contract are fully performed and

discharge of the contract by performance is acknowledged by a full
and final discharge voucher/ receipt, nothing survives in regard to
such discharged contract;

ii. Where the parties to the contract, by mutual agreement, accept

performance of altered, modified and substituted obligations and
confirm in writing the discharge of contract by performance of the
altered, modified or substituted obligations;

iii. Where the parties to a contract, by mutual agreement, absolve each

other from performance of their respective obligations, either on
account of frustration or otherwise, and consequently cancel the
agreement and confirm that there are no outstanding claims or
disputes.
 +
 Inthis case, HC examined the issue and found that prima
facie there was no accord and satisfaction or discharge
of the contract. Therefore, Boghara is still entitled to raise
the issue before the arbitrator and the arbitrator has to
decide whether the discharge was valid and binding on
the parties by way of accord and satisfaction.

 Hence, appointment of the arbitrator by the HC is

upheld.
 What is the time limit to make the request under
+ S. 11(6)?
Datar Switchgears Ltd. vs. Tata Finance Ltd.
(2000)
 Facts: Datar entered into a lease agreement with Tata Finance.
This deed had an arbitration clause which provided that if a
dispute arises then the lessor (Tata Finance) will nominate the
arbitrator whose decision shall be final and binding. On
5/8/1999, Tata sent a notice to Datar for payment of certain
amount within 14 days and stated that in case of failure to pay,
the notice to be treated as one under the arbitration clause.
Datar did not make the payment and no arbitrator was
appointed by Tata. On 26/10/1999 Tata filed an application
u/S.9. On 25/11/1999, Tata appointed X as the sole arbitrator
and issued a notice to Datar asking them to make appearance
before him on 13/2/2000. Datar filed an application u/S. 11
before CJ of Bombay HC praying appointment of another
arbitrator. Tata opposed this application and the court held in
its favor. Now that order is challenged before the SC.
 +
 Issue:

a) Whether there is any failure of mechanism provided under the lease

agreement?

b) Whether for S. 11(6), the party to whom a demand for appointment is

made, forfeits his right to do so if he does not appoint an arbitrator within
30 days?

 Held:

a) There is no failure in appointment as the arbitration agreement

envisaged appointment of a sole arbitrator by the lessor which was in
fact done in this case.

b) U/S.11(6) no time limit has been prescribed. Therefore, if the party does
not make an appointment of the arbitrator within 30 days the right to
appointment does not get automatically forfeited after expiry of 30 days.
If the opposite party makes an appointment even after 30 days of the
demand, but before the first party has moved to the court u/S.11 that
would be sufficient.

c) The court did not decided if 30 days period is mandatory for sub-
sections (4) and (5).
 + Indian Oil Corpn. Vs. Raja Transport Pvt. Ltd.
(2009) (pre-amendment case)
 Facts: On 28/2/2005 IOC appointed Raja Transport as its dealer for retail
sale of petroleum products but terminated the dealership on the
recommendation of the Vigilance dept. on 6/8/2005.

 The agreement between the parties had an arbitration clause whereby the
parties had decided that Director, Marketing of the Corp. or some officer of
the Corp. nominated by the Director shall be the sole arbitrator.

 When the contract was terminated, RT approached District Court for

injunction against IOC from stopping supply of products and IOC replied by
praying that matter be referred to arbitration which was allowed by the Court
stating that arbitration to be held in two months within which IOC should
continue to supply.

 Both parties challenged the order which was dismissed by District Court.
While the appeals were pending, RT issued notice to IOC referring that
appointment of Director cannot lead to fair treatment or justice and therefore
such an appointment was prejudicial to its interest. IOC protested that RT’s
request is contrary to the arbitration agreement and there cannot be an
outside arbitrator.

 RT filed application u/S.11(6) which was allowed by the Court and it

appointed a retired judge as the arbitrator. This order is now challenged.
 +
 Issues:

i. Whether the CJ was justified in assuming that when an

employee of one of the parties to the dispute is appointed
as an arbitrator, he will not act independently or
impartially?

ii. In what circumstance, the CJ or his designate can ignore

the appointment procedure or the named arbitrator in the
arbitration agreement, to appoint an arbitrator of his
choice?

iii. Whether RT had taken necessary steps for the appointment

of an arbitrator in terms of the agreement, and IOC had
failed to act in terms of the agreed procedure, by not
referring the dispute to its Director (Marketing) for
arbitration?
 +
 Held:

i. Arbitration agreements in government contracts providing that an

employee of the Department will be the arbitrator are neither void
nor unenforceable. There is no such bar provided for in the Act. S.
11(2) gives liberty to the parties to agree upon a procedure for
appointment of arbitrators. S. 12 requires arbitrator to be
independent and impartial and S. 18 requires the arbitrator to treat
the parties with equality.

ii. If the arbitration agreement provides for arbitration by a named

arbitrator, the courts should normally give effect to the provisions
of the arbitration agreement. But where there is a reasonable
apprehension that the person mentioned in the arbitration
agreement is not likely to act independently or impartially or if he
is unavailable, then CJ/ his designate may, after recording reasons
for not following the agreed procedure of referring the dispute to
the named arbitrator, appoint an independent arbitration
according to S. 11(8).

iii. RT had failed to act in terms of the agreed procedure in seeking

reference to arbitration.

IOC succeeds, and Director (Marketing) is appointed as the sole

arbitrator to decide the disputes between the parties.
+
Duro Felguera S.A. vs. Gangavaram Port Ltd.
(2017)
post-amendment

 GPL invited tenders for the expansion its facilities and Duro Felguera and its
Indian subsidiary (FGI) were considered by GPL and Duro Felguera and FGI
were selected as "the Contractors" for the work. After discussion between
the parties, Original Package No. 4 TD was divided into five different and
separate Packages dated 10.05.2012, namely, New Package No. 4-F.O.B.
Supply of Bulk Material Handling Equipments (awarded to foreign
company-M/s. Duro Felguera), Package No. 6-design, manufacture, supply,
installation, erection, testing, commissioning of Bulk Material Handling
Equipments and all other activities related therewith; Package No. 7-Civil
Works and all other activities related therewith; Package No. 8-International
Transportation of Bulk Material Handling Equipments and parts through sea
including insurance and all related activities; Package No. 9-Installation,
Testing and Commissioning of Ship Unloaders and all other activities
related therewith (Packages No. 6 to 9 awarded to Indian subsidiary- FG I).
Separate Letters of Award (dated 17.03.2012) for five different Packages
were issued to Duro Felguera and FGI for the above said work respectively.

 When the disputes arose in 2016, GPL contends that reference of disputes to
be made to a composite tribunal whereas Duro and FGI claim that separate
tribunal to be constituted under each contract.
 +
Issues:

 Whether GPL is right in contending that MoU dated 11.08.2012

and Original Package No. 4 Tender Document and Corporate
Guarantee dated 17.03.2012 executed by Duro Felguera covers
all the five split-up Packages awarded to Duro Felguera and FGI
and whether there has to be a composite reference/single arbitral
tribunal for "International Commercial Arbitration“ covering all
the five different Packages and also the Corporate Guarantee
executed by Duro Felguera? or

 Whether there have to be 'multiple arbitral tribunals' for each of

the five different Packages of Work awarded to the foreign
company-Duro Felguera and Indian Subsidiary-FGI (one
International Commercial Arbitral Tribunal plus four Domestic
Arbitral Tribunals) and one arbitral tribunal for 'international
commercial arbitration' under Corporate Guarantee (17.03.2012)
executed by the foreign company-Duro Felguera?

 What is the effect of the change introduced by the 2015

Amendment Act with particular reference to Section 11(6) and
the newly added Section 11(6A)?
 +
The scope and intent of Section 7(5) of the Act:

 An arbitration Clause in another document, would get incorporated

into a contract by reference, if the following conditions are fulfilled:

i. the contract should contain a clear reference to the documents

containing arbitration clause,

ii. the reference to the other document should clearly indicate an

intention to incorporate the arbitration Clause into the contract,

iii. the arbitration Clause should be appropriate, that is capable of

application in respect of disputes under the contract and should
not be repugnant to any term of the contract.

 When the parties enter into a contract making a general reference to

another contract, such general reference would not have the effect of
incorporating the arbitration clause from the referred document into
the contract between the parties. The arbitration Clause from another
contract can be incorporated into the contract (where such reference
is made), only by a specific reference to arbitration clause.
+
 Where a contract between the parties provides that the execution or
performance of that contract shall be in terms of another contract
(which contains the terms and conditions relating to performance
and a provision for settlement of disputes by arbitration), then, the
terms of the referred contract in regard to execution/performance
alone will apply, and not the arbitration agreement in the referred
contract, unless there is special reference to the arbitration Clause
also.

 Where the contract provides that the standard form of terms and
conditions of an independent trade or professional institution will
bind them or apply to the contract, such standard form of terms and
conditions including any provision for arbitration in such standard
terms and conditions, shall be deemed to be incorporated by
reference.

 Where the contract between the parties stipulates that the conditions
of contract of one of the parties to the contract shall form a part of
their contract (as for example the general conditions of contract of
the Government where the Government is a party), the arbitration
Clause forming part of such general conditions of contract will apply
to the contract between the parties.
 +
 In the MoU, Original Package No. 4 Tender Document is merely referred
only to have more clarity on technical and execution related matters and
the parties agreed that the works shall be carried out as per the priority
of the documents indicated thereon. Mere reference to Original Package
No. 4 Tender Document in the sequence of priority of documents (as
serial No. 4) indicates that the documents Original Package No. 4 TD
containing arbitration Clause was not intended to be incorporated in its
entirety but only to have clarity in priority of the documents in execution
of the work. It is pertinent to note that MoU dated 11.08.2012 itself does
not contain an arbitration clause.

 Therefore, the MoU does not incorporate an arbitration clause.

 From a reading of Section 11(6A), the intention of the legislature is

crystal clear i.e. the Court should and need only look into one aspect-the
existence of an arbitration agreement. The resolution to that is simple-it
needs to be seen if the agreement contains a clause which provides for
arbitration pertaining to the disputes which have arisen between the
parties to the agreement.

 As per the amended provision of S.11(6A), the power of the court is only
to examine the existence of arbitration agreement. When there are five
separate contracts each having independent existence with separate
arbitration clauses there cannot be a single arbitral tribunal for ICA. All
preliminary issues are left to be decided by the arbitral tribunal.
 + Malaysian Airlines System Bhd (II) vs. Stic
Travels (P) Ltd. (2000)
pre-amendment and pre-SBP
 Malaysian Airlines made an application under S.11(5) seeking reference of
dispute to arbitration.

 Issue: Whether, in the case of an international arbitration agreement, where

one of the parties is an Indian national, it is not permissible to appoint an
arbitrator of Indian nationality?

 In several countries where the UNCITRAL model is adopted which in Article 6(4)
only speaks of "taking into account" the nationality as one of factors, it has been
held that it is not impermissible to appoint an arbitrator of a nationality of one of
the parties to arbitration. Therefore the word 'may' in Section 11(9) is not intended
to be read as 'must' or 'shall'. The provision is not mandatory.

 While nationality of the Arbitration is a matter to be kept in view, it does not follow
from Section 11(9) that the proposed arbitrator is necessarily disqualified because
he belongs to the nationality of one of the parties. In case the party who belongs
to a nationality other than that of the proposed arbitrator, has no objection, the
Chief Justice of India (or his nominee) can appoint an arbitrator belonging to a
nationality of one of the parties. In case, there is objection by one party to the
appointment of an arbitrator belonging to the nationality of the opposite party, the
Chief Justice of India (or his nominee) can certainly consider the objection and
see if an arbitrator not belonging to the nationality of either parties can be
appointed. While taking that decision, the Chief Justice of India (or his nominee)
can also keep in mind, in cases where the parties have agreed that the law
applicable to the case is the law of a country to which one of the parties belongs,
whether there will be an overriding advantage
+ Section 11A: Power of the CG to amend Fourth
Schedule
 Fourth Schedule provides a model feel structure that can be
followed by the court, as stated in S.11(14).

 If expedient, the CG can amend the schedule by notification in

the Official Gazette.

 The copy of notification in draft has to be laid before each house

of the Parliament. If Houses agree in disapproving the issue of
notification or agree to make some modifications, the notification
shall not be issued or, as the case may be, shall be issued only in
such modified form as may be agreed upon by both Houses of
the Parliament.
 + Section 12: Grounds for Challenge
 Provisions of S. 12 are not subject to party autonomy,
therefore, the parties by agreement cannot derogate from
the mandate of these provisions.

 The appointment of the arbitrator can be challenged

only on two grounds [S.12(3)]:

i. The existence of such circumstances which may give rise

to justifiable doubts as to the independence or impartiality
of the arbitrators: such as the existence either direct or
indirect, of any past or present relationship with or interest
in any of the parties or in relation to the subject-matter in
dispute, whether financial, business, professional or other
kind.

ii. Lack of qualifications as agreed to by the parties.


+Disclosure by Arbitrator:
i. Pre-appointment stage: S. 12 imposes an imperative duty on the
prospective arbitrator to disclose in writing any circumstances:
 that may likely lead to doubts to his independence or impartiality; and
 that are likely to affect his ability to devote sufficient time to the arbitration
and in particular his ability to complete the entire arbitration within a period
of 12 months.
Disclosure shall be made in the form specified in Sixth Schedule. [S.12(1)]

ii. During the course of arbitral proceedings: If any circumstance is likely

to give rise to justifiable doubts as to his independence or impartiality
or affect his ability to devote time to arbitration that comes into
existence, the arbitrator should, without delay, disclose the
circumstances in writing to the parties unless they have already been
informed of them by him. [S.12(2)]

 Consequences of Non-disclosure:

i. At the first stage: Will vitiate the appointment, and invalidate the entire
proceedings and the resulting award.

ii. At the second stage: Will vitiate the proceedings subsequent to the
coming into existence of the circumstances likely to give rise to
justifiable doubts as to the independence or impartiality of the
arbitrator. The award will be invalid and liable to be set aside.
+
Grounds to determine Independence or Impartiality:
Fifth Schedule [S.12(1)]:

 Arbitrator's relationship with the parties or counsel;

 Relationship of the arbitrator to the dispute;

 Arbitrator’s direct or indirect interest in the dispute;

 Previous services for one of the parties or other involvement in

the case;

 Relationship between an arbitrator and another arbitrator or

counsel;

 Relationship between arbitrator and party and others involved

in the arbitration

 Other circumstances
+
 Prior Knowledge: A party who appointed an arbitrator, or
participated in the appointment, whose lack of qualifications
or impartiality the party was aware of, prior to the
appointment, is later precluded from challenging the
appointment of the arbitrator on these grounds. Otherwise, he
can challenge the appointment. [S.11(4)]
 Waiver: Where the arbitrator has made the disclosure as
required of him, and a party does not take objection as to the
independence or impartiality of the arbitrator after such
disclosure, he would be deemed to have waived his right to
raise such an objection. [S.4]
 Grounds for Absolute Ineligibility of the arbitrator
[S.12(5)]:
 Categories specified in the Seventh Schedule; Exception:
Explanation 3.
 Grounds apply notwithstanding any prior agreement to the
contrary unless subsequent to dispute having arisen, the parties
waive the applicability of this sub-section by an express
agreement in writing.
 Voestalpine Schienen GmbH vs. Delhi Metro
+ Rail Corporation Ltd. (2017)
 As per the contract entered into between the parties on August 12, 2013, following
procedure was agreed to be followed: Three arbitrators are to constitute the arbitral
tribunal. DMRC would make out a panel of engineers with the requisite qualifications
and professional experience, which panel will be of serving or retired engineers of
government departments or public sector undertakings. From this panel, the DMRC has
to give a list of five engineers to VSG and both the parties are required to choose one
arbitrator each from the said list. The two arbitrators so chosen have to choose the third
arbitrator from that very list, who shall act as the presiding arbitrator.

 VSG stated that appointment of the arbitral tribunal as per the aforesaid Clause, if
followed, would lead to appointment of 'ineligible persons' being appointed as
arbitrators, in view of Section 12(5) of the Act read with Clause 1 of Seventh Schedule.
Thus, it nominated a retired judge of the Court as a sole arbitrator and requested DMRC
for its consent.

 DMRC stuck to the procedure as prescribed for the arbitration Clause and asked VSG
to nominate an arbitrator from the panel of five persons which it forwarded to them.

 On August 17, 2016 application U/S.11 was filed by VSG for constitution of the arbitral
tribunal by this Court with the prayer that the arbitrator nominated by VSG (i.e. a
former Judge of this Court) should be appointed as the sole arbitrator if DMRC
consents to it or any impartial and independent sole arbitrator if appointment of VSG’s
nominee is objected to by DMRC. Alternate prayer is made for appointment of an
independent and impartial arbitral tribunal comprising of three members u/S.11(6)
read with S.11(8) for adjudication of the disputes between the parties.

+Issue: Whether panel of arbitrators prepared by the DMRC violates the
amended provisions of Section 12?

 There are certain minimum levels of independence and impartiality that

should be required of the arbitral process regardless of the parties' apparent
agreement. A sensible law cannot, for instance, permit appointment of an
arbitrator who is himself a party to the dispute, or who is employed by (or
similarly dependent on) one party, even if this is what the parties agreed.

 In fact, when the party appointing an adjudicator is the State, the duty to
appoint an impartial and independent adjudicator is that much more onerous
and the right to natural justice cannot be said to have been waived only on
the basis of a "prior" agreement between the parties at the time of the
contract and before arising of the disputes.

 In the case of contracts between government corporations/State-owned

companies with private parties/contractors, the terms of the agreement are
usually drawn by the government company or public sector undertakings.
Government contracts have broadly two kinds of arbitration clauses, first
where a named officer is to act as sole arbitrator; and second, where a senior
officer like a Managing Director, nominates a designated officer to act as the
sole arbitrator. No doubt, such clauses which give the Government a
dominant position to constitute the Arbitral Tribunal are held to be valid. At
the same time, it also casts an onerous and responsible duty upon the
persona designata to appoint such persons/officers as the arbitrators who
are not only able to function independently and impartially, but are in a
position to devote adequate time in conducting the arbitration.
 +Entry No. 1, as argued by VSG, provides that where the arbitrator is an
employee, consultant, advisor or has any other past or present business
relationship with the party, would not act as an arbitrator. VSG argues that
the panel of arbitrators drawn by the DMRC consists of those persons who
are government employees or ex-government employees. However, that by
itself may not make such persons ineligible as the panel indicates that
these are the persons who have worked in the railways under the Central
Government or Central Public Works Department or public sector
undertakings. They cannot be treated as employee or consultant or advisor
of the DMRC. If this contention of the Petitioner is accepted, then no person
who had earlier worked in any capacity with the Central Government or
other autonomous or public sector undertakings, would be eligible to act
as an arbitrator even when he is not even remotely connected with the
party in question, like DMRC in this case. The amended provision puts an
embargo on a person to act as an arbitrator, who is the employee of the
party to the dispute. It also deprives a person to act as an arbitrator if he
had been the consultant or the advisor or had any past or present business
relationship with DMRC. No such case is made out by the Petitioner. A
comprehensive list is enumerated in Schedule 5 and Schedule 7 and
admittedly the persons empaneled by DMRC are not covered by any of the
items in the said list.

 Therefore, the Court dismissed the application u/S.11 but asked DMRC to
prepare a broad list of panel, including persons from other fields.
 + Section 13: Challenge Procedure
 Party Autonomy: Parties are free to agree on a procedure to be
adopted for challenging an arbitrator [S.13(1)];

 Default Procedure: If parties have not decided the challenge

process, then the party which intends to challenge an arbitrator, shall
within 15 days after he becomes aware of the constitution of the arbitral
tribunal or after becoming aware of the existence of circumstances that
give rise to justifiable doubts as to the independence, impartiality or
lack of the qualification agreed to by the parties [S.12(3)], send a
written statement of the reasons for challenge to the arbitral tribunal.
[S.13(2)]

 Unless, the challenged arbitrator withdraws from office or the other

party agrees to the challenge, the arbitral tribunal shall decide on the
challenge. [S.13(3)]

 Restrictions on Party Autonomy:

i. If the challenge according the procedure agreed by the parties or

the default procedure is not successful, the arbitral tribunal shall
continue the arbitral proceedings, and make an award. [S.13(4)]

ii. Where the award is made as the challenge procedure was

unsuccessful, the party can still challenge the arbitrator by making
an application u/S. 34 to set aside the award. [S.13(5)]
 +
 Non-appealable: Order of the arbitral tribunal under
S. 13(4) is not appealable. There is no provision to
challenge the arbitral tribunal in appeal before the
court at the pre-award stage.

 Court Intervention: Where the challenge becomes

unsuccessful and award is made by such arbitral
tribunal, it can be challenged by making an
application u/S. 34(2).

 Fee: If
the challenge is successful, and the arbitrator is
removed from his office, or the award of the arbitral
tribunal rejecting the challenge is set aside by the
court under S. 34, then the court under S. 13(6) has the
discretion to decide as to whether the such arbitrator
is entitled to any fees on the principle of quantum
meruit or otherwise.
 Section 14: Failure or Impossibility to Act
+
Section 15: Termination of Mandate and Substitution of
Arbitrator
 Following are the grounds for the Termination of the Mandate of the
Arbitrator:

a) Automatic termination of the mandate of the arbitrator:

i. Death of arbitrator: There is no express provision in the Act but since
the mandate of the arbitrator is personal, it automatically terminates on
his death.
ii. Inability to perform his functions: Three situations are stated in S.
14(1)(a) in which the mandate of an arbitrator, shall terminate.
- De jure inability: It refers to arbitrator’s legal inability to perform his
functions. It can cover a variety of situations: incapacity, bankruptcy,
conviction for a criminal offence, not making an award within
prescribed time etc.
- De facto inability: It refers to arbitrator’s inability to perform his
functions due to factual situations in which the arbitrator is physically
unable to perform his functions, like: illness, some physical disability
etc.
- Fails to act without undue delay for other reasons: It would include the
inability to function efficiently and expeditiously, or any special
competence of technical qualifications required of the arbitrator by the
agreement of the parties.
 +
b) Termination by the arbitrator:
i. Resignation/ Withdrawal from office: U/S. 13(3), an
arbitrator may resign from his office when challenged
under S. 13.
Also, u/S. 14(1)(a)&(b) if an arbitrator, de jure or de
facto, is unable to perform his functions or for other
reasons fails to act without undue delay, he may
withdraw from his office.
It is open to the arbitrator to withdraw by resigning
from his office for any reason. (S.15(1)(a))
ii. Failure of parties to deposit advance for cost of
arbitration: U/S. 38(2) second proviso, the tribunal may
terminate the arbitral proceedings if the parties fail to
deposit the amount fixed by the arbitrator towards the costs
of the arbitration in respect of the claim or counter-claim.
iii. Unnecessary or Impossible: Where the Tribunal finds the
continuation of proceedings for any reason has become
unnecessary or impossible.(S. 32(2)(c))
 +
c) Termination by the parties:
i. Unopposed challenge by a party/ Agreement
of the parties: If an arbitrator is challenged by
a party, and the other party agrees to the
challenge, the mandate of the arbitrator is
terminated as provided u/S. 13(3), 14(1)(b),
14(3), 15(1)(b), 32(2)(b).
ii. Withdrawal of the claim: The arbitral
proceedings stand terminated when the
claimant withdraws his claim, unless the
respondent objects to such order. (S.32(2)(a))
 +
d. Termination by the order of the tribunal: Where
the appointment of the arbitrator is challenged
before the arbitral tribunal and the challenge is
successful, then it will terminate the mandate of the
arbitrator u/S. 13(3).

e. Removal of the arbitrator by order of the court:

U/S. 14(2), if on the grounds given under S.
14(1)(a), the arbitrator does not withdraw despite
the challenge and the parties do not come to an
agreement to terminate his mandate, the
controversy remains then either the parties can
agree on a procedure to resolve such a situation
or apply to the Court to decide on the termination
of the mandate.
 +
 Mandate Does Not Terminate on: Death of a party

 Withdrawal does not imply admission of guilt: S. 14(3)

provides that of an arbitrator withdraws from his office or party
agrees to the termination of the mandate of the arbitrator either
u/S. 13(3) or S.14(1)(b), it shall not imply that he accepts the
validity of such grounds:

a) Where the arbitrator is challenged for existence of

circumstances giving rise to justifiable doubts as to his
independence or impartiality or lack of qualifications agreed to
by the parties and the other party agrees to the challenge u/S.
13(3);

b) De jure or de facto inability to perform his functions, or for

other reasons failure to act without undue delay as u/S.
14(1)(a);

c) Withdraws from arbitration for any reason other than the

aforesaid reasons u/S.15(1)(a).
+
 Substitute Arbitrator: According to S. 15(2), where the mandate
of an arbitrator terminates, a substitute arbitrator shall be
appointed according to the rules applicable for the appointment
of the original arbitrator.

 Consequently, the freedom of the parties to choose a procedure

under S. 11(2), would apply to the appointment of a substitute
arbitrator under S. 15(2) as well; of course, this has to be read
along with the default procedure contained in S. 11(4), (5) and
(6).

 Previous Hearings: S.15(3) confers autonomy on the parties to

agree on the question as to whether after replacement, the newly
appointed tribunal should continue with the proceedings from
the stage where the mandate of the original arbitrator terminated,
or commence the proceedings de novo.

 In absence of such agreement, S.15(3) leaves the discretion to the

substitute arbitrator/ tribunal to order any hearings to be
repeated, as may be warranted by the circumstances of the case.
+
 Order made Prior to the Replacement: S. 15(4)
provides that the parties may by agreement, decide
as to whether they would like to be bound by any
orders or rulings of the arbitral tribunal made prior
to the replacement of the arbitrator.

 Inabsence of such agreement, an order or ruling of

the arbitrator shall not be invalid solely because
there has been a change in the composition of the
arbitral tribunal.