Appointment of Arbitrator

In the ever-evolving arbitration jurisprudence of India another interesting case came to lime light. The controversy pertains to the appointment of arbitrator in a dispute between NHAI and IRB Ahemdabad Vadodara Expressway Tollway Pvt Ltd.

Facts of the case:

The parties entered into a Concession Agreement for conversion of 102 KM of NH-8 between Ahemdabad-Vadodara into a six lane highway. As per the terms of the concession agreement the disputes between the parties were required to be first sent for conciliation, failing which the same were to be adjudicated through arbitration decided by reference to arbitration by a Board of  three Arbitrators ( each  party to appoint one arbitrator and the two appointed arbitrators to appoint a third arbitrator ) and the arbitration shall be held as per the rules of arbitration of the International Center for Alternative Disputes. Subsequently, a supplementary agreement was executed for the purpose of substituting the International Center for Alternative Disputes Resolution with the Society for Affordable Redressal of Disputes (SAROD). The Concession Agreement was modified as under:-

“Any dispute/difference arising out of aforesaid Concession Agreement which is not resolved amicably as provided in clause 44.2 shall be finally settled by Arbitration as set forth below:-

  • The dispute shall be referred to SAROD for resolution by Arbitration in accordance with Rules of SAROD and Arbitration and Conciliation Act 1996 as amended from time to time (or which is pending with Arbitral Tribunal presided over by ……….. shall be referred to SAROD). The Arbitral Tribunal shall consist of Sole Arbitrator in case total claim of dispute is Rs. 3 crores or less and in case the disputed claim is more than Rs. 3 crores, the Tribunal shall consist of odd number of Arbitrators to be nominated by the parties. The Presiding Arbitrator shall be appointed by the Arbitrators nominated by the parties in terms of Rule11.2 of SAROD. Further, the terms of appointment of Arbitrators shall be governed by Rule 11.3 to Rule 11.5, 12.2 and 13 of SAROD.

Disputes regarding compensation claims and premium deferment arrangement arose and to resolve the Parties each appointed an arbitrator who were to agree upon the nomination a third arbitrator as per Rule 11.2 of the SAROD Rules. However, the nominated arbitrators failed to reach consensus with respect to the appointment of the Presiding Arbitrator. IRB Ahemdabad Vadodara Super Expressway Tollway Pvt. Ltd. (IRB) pleaded that in such an event only the Hon’ble High Court was empowered to appoint the Presiding Arbitrator in exercise of its power under section 11(6) of the Arbitration & Conciliation Act, 1996 considering the fact that SAROD Rule 11.5 addresses situations where the parties, and not their nominee arbitrators have failed to nominate the Presiding Arbitrators. Per contra, advocating a conjoint reading of SAROD Rules 11.2 and 11.5, it was urged by National Highway Authority of India (NHAI) that once the Procedure Rule 11.2 fails Rule 11.5 automatically kicks in wherein the Governing body is vested with the power to appoint the Presiding Arbitrator by draw of lots.

Observations by the Delhi High Court:

Although the IRB contended that the Rule 11.5 does not vest the Governing Body with the power to appoint the Presiding Arbitrator as it refers to only to the inability of the parties and not the nominee Arbitrators, the court was not persuaded by this argument and observed that Rule 11.5 does indeed apply to cases involving appointment of the Presiding Arbitrator as a General Rule.

However, the court went on to note that in the present case vide a supplementary agreement it was clearly decided between the parties that the Presiding Arbitrator shall be appointed by the Arbitrators nominated by the parties in terms of Rules 11.2 of SAROD. Further the terms of appointment of Arbitrators shall be governed by Rule 11.3 to 11.5, 12.2 and 1 of SAROD.” This second supplementary agreement shows the specific intent of the parties to limit the procedure of appointment of the Presiding Arbitrator exclusively to Rule 11.2. The court thus, found that no resort could be made to rule 11.5 and the court had jurisdiction to appoint the Presiding Arbitrator.

At this stage it was noted that IRB had also objected to the appointment of an arbitrator from the SAROD panel as SAROD is a society formed by NHAI along with National Highways Builder Federation and it was apprehended that an arbitrator appointed from the SAROD panel may not be impartial while adjudicating the disputes. On the other hand, Rule 11.4 of SAROD rules clearly provided that appointment shall only be made from within the panel of SAROD arbitrators. However, the Court observed that when these disputes came to be referred to arbitration at SAROD there were 177 empaneled arbitrators as opposed to only 33 as on 01.06.2020; out of which only 4 had received legal training. Following the ratio in the case of Voestalpine Schienen GMBH vs. Delhi Metro Rail Corporation Limited AIR 2017 SC 939-emphasising the need for a broad based panel of arbitrators,and the decision in the case of Bernard Ingenieure ZT-GMBH vs. IRCON International Ltd., 2018 SCC Online Delhi 7941 thisCourt thus, observed that the choice could not be restricted to the limited panel. The court was of the view that this apprehension of the Respondent could be addressed by appointing someone from the legal background from earstwhile panel of SAROD. The Court thus, appointed Justice (Retd.) Iqbal Ahmed Ansari as the Presiding Arbitrator who is an erstwhile member of the SAROD panel. It was directed that his fee would be governed by SAROD Rules. The present case answers some questions and raises some. The principles of free choice and party autonomy which are the lynchpin of arbitration- did court overstep while practicing its jurisdiction in appointing the arbitrator? If not, then was the court justified in appointing the presiding arbitrator from the erstwhile panel of SAROD?

Author:- Tejasvita Dhawan
The author is a Law Clerk with Justice Krishna Murari, Supreme Court of India

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