Kerala High Court: Devan Ramachandran, J., held that parties to arbitration cannot nominate the arbitrator even if the Arbitration Agreement provides so.
Syllogistic Scope of Sections 11(5) and 11(6) of Arbitration Act
The instant Arbitration Request dealt with certain novel, but interpretationally germane legal aspects appertaining Sections 11(2), 11(5) and 11(6) of the Arbitration and Conciliation Act, 1996. The focus was on the interplay of Sections 11(5) and 11(6) of the Act, since both of them deal with appointment of a sole Arbitrator, albeit, in two subtly distinct scenarios. It was this distinction which was ingenuously grabbed by the respondent to resist the petitioner’s Arbitration Request.
The petitioner, a private limited Company had approached the Court under Section 11(6) of the Act, praying that the Court appoint a sole Arbitrator, in terms of Clause 27 of the Agreement – which the petitioner asserted was a lease agreement entered between the parties. Clause 27 provided ways to adjudicate and decide certain disputes, which warranted resolution only through the mechanism of arbitration.
Issue Raised
The respondent argued that the Arbitration Request was not maintainable because the grounds raised by the petitioner ineluctably disclose that they had, in fact, approached the Court under Section 11(5) of the Act, though styling it as being under Section 11(6) thereof; hence, unless thirty days pass after they had made demand to the client for appointment of Arbitrator, the Arbitration Request would be premature and hence, not maintainable. Additionally, the respondent contended that the issue was not arbitrable as it fell within the jurisdictional realm of the Rent Control Act.
Stand taken by the Petitioner
The petitioners contested that they had invoked Section 11(6) of the Act and hence were not obligated to wait for thirty days after demand had been made on the respondent. It was contended that Section 11(5) of the Act is called in only when the agreement does not contain a procedure for appointing an Arbitrator, or when the parties have not agreed on such. However, Clause 27 of agreement expressly disclosed the procedure agreed upon by the parties to appoint an Arbitrator; and, therefore, they had rightly invoked Section 11(6) which concedes no pre-conditional Stipulations.
Clause 27 of agreement provided for Arbitration between the parties in case of disputes, since it reads as under:
“27 If any dispute or difference arises between the lessor and lessee during the period of lease or upon the expiry of the said lease both parties shall seek to resolve by mutual discussions. If such discussions are unsuccessful the same shall be referred to arbitration in accordance with the provisions of the Arbitration and conciliation Act, 1996 for the time being in force. Arbitration shall be by a sole arbitrator if parties can agree upon one and failing that the disputes shall be referred to an arbitrator to be selected by the lessor.”
Statutory Mandate
Section 11(2) Subject to sub-section(6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
Section 11(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree [the appointment shall be made on an application of the party in accordance with the provisions contained in sub-section (4)].
Section 11(6) Where, under an appointment procedure agreed upon by the parties,-
- a party fails to act as required under that procedure;
…[the appointment shall be made, on an application of the party, by the arbitral institution designated by the Supreme Court, in case of international commercial arbitration, or by the High Court, in case of arbitrations other than international commercial arbitration, as the case may be] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. 21.
Yardsticks of Sections 11(5) and 11(6)
Noticeably, provisions would limpidly reveal that Section 11(5) of the Act would become attracted only in the cases where an agreement as to the procedure for appointment of an Arbitrator, as referred to in Section 11(2), between the parties has failed. As far as section 11(2) was concerned, the parties were given liberty to enter into an agreement for procedure to appoint an Arbitrator, in which event, Section 11(6) alone would apply and the mandate of the provisions therein will guide the appointment.
Observing that Clause 27 crystally provided for a specific procedure – which had been agreed between the parties – as regards appointment of an Arbitrator, the Bench held that the mandate of Section 11(2) of the Act had been satisfied by the stipulations in that Clause; and Section 11(5) could not come into play because, as was evident from its phraseology, the procedure therein is attracted only “failing any agreement referred to in subsection (2)”.
Hence, the Bench rejected the argument that the petition was vitiated for the reason of non-compliance of the rigour of Section 11(5). On the same parity of reasoning, the Bench stated,
“Even if the petitioner has projected grounds in this Arbitration Request, under a mistaken notion that the mandate of Section 11(5) is to followed or has been satisfied, it would be of no real consequence, since it is the duty of this Court to affirmatively and conclusively determine if there is an agreement between the parties regarding the procedure for appointment of an Arbitrator and then to apply the correct and applicable sub-section of Section 11 of the Act.”
Can a Party to dispute Nominate the Arbitrator?
On perusal of Clause 27 of the agreement as to how the parties must initiate and proceed to arbitration, the Bench stated that the said Clause made an adscititious provision that if parties do not reach consensus regarding arbitrator, an Arbitrator shall be appointed by the lessor.
Subsequent to the amendments to the Act in the year 2016 through which sub-section (5) was inserted into Section 12, notwithstanding any agreement to the contrary, any person whose relationship with the parties falls under any of the categories in the seventh Schedule of the Act, is rendered ineligible to be appointed as an Arbitrator. The Supreme Court considered the effect of Section 12(5) of the Act in TRF limited v. Engineering projects Ltd., (2017) 8 SCC 377, and had unreservedly declared that, neither a party to the disputes nor a person nominated by it can be appointed as an Arbitrator. Hence, the Bench disregarded the stipulations of Clause 27 extent to it allowed the lessor to nominate the Arbitrator when the parties fail to arrive at a consensus nominee.
Decision
In the light of the above, the Bench rejected the contention that the dispute fell within the jurisdictional realm of the Rent Control Act, stating that it is well established that under the sanction of Section 16 of the Act that the Arbitrator himself had to decide whether he has the competence to adjudicate; and to rule appropriately on his jurisdiction as regards all or any of the disputes, under the “kompetenz-kompetenz” doctrine, which is expressly incorporated into the Act.
Accordingly, the Bench nominated Mr. D.Pappachan as the sole Arbitrator to adjudicate and resolve the disputes and differences between the parties to the case arising from the agreement.[Tulsi Developers India Pvt. Ltd., v. Appu Benny Thomas, Ar. No. 105 of 2020, decided on 08-07-2021]
Kamini Sharma, Editorial Assistant has reported this brief.
Appearance by:
For the Petitioner: Advocate Praveen K. Joy
For the Respondent: Advocate G.Sreekumar