Date of the Judgment: 04 January 2022
Citation: (2022) INSC 1
Judges: Justice Ajay Rastogi and Justice Abhay S. Oka. The judgment was authored by Justice Ajay Rastogi.
Can a party, after filing an arbitration petition, sit idle and then claim the right to appoint an arbitrator? The Supreme Court of India recently addressed this question in a case where the appellant, after initiating legal proceedings for arbitration, failed to pursue the matter diligently. This led to the dismissal of their petition, highlighting the importance of actively participating in legal processes. The Supreme Court, in this case, examined the implications of such inaction on the right to appoint an arbitrator under the Arbitration and Conciliation Act, 1996.
Case Background
The appellant, M/s. Durga Welding Works, was awarded a tender, which was communicated on 30th November 2006. A contract agreement was subsequently executed with the Chief Engineer, Railway Electrification, Allahabad, containing clauses 63 and 64 of the general conditions of contract, which included an arbitration clause for dispute resolution. Due to unresolved claims, the appellant served a legal notice on 3rd August 2009, seeking the appointment of an arbitrator. Although the notice did not explicitly mention clauses 63 and 64, it clearly aimed at settling disputes through arbitration as per the contract agreement.
Timeline
| Date | Event |
|---|---|
| 30th November 2006 | Tender accepted and communicated to the appellant. |
| 3rd August 2009 | Appellant served a legal notice for appointment of an arbitrator. |
| 23rd October 2009 | Arbitration Petition (ARBP No. 61 of 2009) filed by the appellant in the High Court of Orissa. |
| 28th January 2010 | Respondents asked the appellant to select two names from a panel of four persons for arbitration. |
| 17th February 2010 | Miscellaneous Case No. 4 of 2010 filed by the appellant seeking to restrain the respondents from appointing an arbitrator. |
| 28th August 2010 | Appellant selected two officers from the panel suggested by the respondents. |
| 24th September 2010 | Respondents constituted an Arbitral Tribunal. |
| 25th October 2010 | Appellant appeared before the Arbitral Tribunal and submitted a statement of claim. |
| 15th November 2010 | Respondents submitted their statement of defence. |
| 27th December 2011 | Appellant submitted an application stating that the Arbitral Tribunal was not validly constituted. |
| 21st June 2013 | Ex-parte award passed by the Arbitral Tribunal, rejecting the appellant’s claim. |
| 2016 | Notices were issued to the respondents by the High Court in the arbitration petition filed by the appellant. |
| 26th July 2019 | High Court dismissed the arbitration petition. |
| 04 January 2022 | Supreme Court dismissed the appeal. |
Course of Proceedings
The appellant filed an arbitration petition (ARBP No. 61 of 2009) in the High Court of Orissa on 23rd October 2009, seeking the appointment of an arbitrator. However, the appellant did not serve notice of this petition to the respondents. Meanwhile, on 28th January 2010, the respondents, in response to the appellant’s earlier notice, asked the appellant to select two names from a panel of four for arbitration. Subsequently, on 17th February 2010, the appellant filed a miscellaneous case seeking to restrain the respondents from appointing an arbitrator. Despite these actions, the appellant did not pursue either the arbitration petition or the miscellaneous case. The respondents then constituted an Arbitral Tribunal on 24th September 2010, after the appellant selected two officers from the panel on 28th August 2010. The appellant participated in the proceedings by submitting a statement of claim on 25th October 2010. However, the appellant later challenged the validity of the tribunal on 27th December 2011. The Arbitral Tribunal passed an ex-parte award on 21st June 2013, rejecting the appellant’s claim, as the appellant failed to participate further. The High Court issued notices in the arbitration petition filed by the appellant only in 2016, almost three years after the ex-parte award. The High Court dismissed the arbitration petition on 26th July 2019, allowing the appellant to file objections under Section 34 or 37 of the Arbitration and Conciliation Act, 1996, if they chose to do so.
Legal Framework
The primary legal provision in question is Section 11(6) of the Arbitration and Conciliation Act, 1996, which deals with the appointment of arbitrators. This section provides that if the parties fail to agree on the appointment of an arbitrator, the High Court can intervene to make the appointment. The Supreme Court has previously interpreted this provision in Datar Switchgears Ltd. Vs. Tata Finance Ltd. & Anr. [2000(8) SCC 151] and Punj Lloyd Ltd. Vs. Petronet MHB Ltd. [2006(2) SCC 638], holding that once an application under Section 11(6) is filed, the right of the other party to appoint an arbitrator is forfeited, and the High Court alone has the jurisdiction to appoint an arbitrator.
Section 11(6) of the Arbitration and Conciliation Act, 1996 states:
“(6) Where, under an appointment procedure agreed upon by the parties,—
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure,
a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.”
Section 34 of the Arbitration and Conciliation Act, 1996 deals with application for setting aside arbitral award. Section 37 of the Arbitration and Conciliation Act, 1996 deals with appealable orders.
Arguments
The appellant argued that once they filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, the respondents lost their right to appoint an arbitrator. They contended that the appointment of the Arbitral Tribunal by the respondents was therefore invalid. The appellant relied on the settled legal position that the High Court alone has the jurisdiction to appoint an arbitrator once an application is filed under Section 11(6) of the Arbitration and Conciliation Act, 1996.
The respondents, on the other hand, argued that the appellant’s conduct demonstrated a lack of diligence. They pointed out that the appellant did not serve notice of the arbitration petition to the respondents and actively participated in the arbitration proceedings initiated by the respondents, including submitting their statement of claim. They highlighted that the appellant’s challenge to the validity of the Arbitral Tribunal was only made after participating in the proceedings and that the High Court’s dismissal of the petition was justified given the appellant’s inaction.
| Main Submission | Sub-Submissions |
|---|---|
| Appellant’s Submission: The respondents forfeited their right to appoint an arbitrator once the appellant filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996. |
|
| Respondent’s Submission: The appellant’s lack of diligence and participation in the arbitration proceedings initiated by the respondents justified the High Court’s decision. |
|
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues in the judgment. However, the core issue that the court addressed was:
- Whether the High Court was justified in dismissing the arbitration petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, given the appellant’s conduct and inaction.
Treatment of the Issue by the Court
| Issue | Court’s Decision and Reasoning |
|---|---|
| Whether the High Court was justified in dismissing the arbitration petition under Section 11(6) of the Arbitration and Conciliation Act, 1996, given the appellant’s conduct and inaction. | The Supreme Court upheld the High Court’s decision, reasoning that while the legal position is settled that the right to appoint an arbitrator is forfeited once an application under Section 11(6) is filed, the appellant’s inaction and participation in the arbitration proceedings initiated by the respondents justified the dismissal. The court emphasized that the appellant did not pursue their arbitration petition diligently and participated in the proceedings before the Arbitral Tribunal. |
Authorities
The Supreme Court relied on the following authorities:
- Datar Switchgears Ltd. Vs. Tata Finance Ltd. & Anr. [2000(8) SCC 151] – Supreme Court of India. This case established that once an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, is filed, the right of the other party to appoint an arbitrator is forfeited.
- Punj Lloyd Ltd. Vs. Petronet MHB Ltd. [2006(2) SCC 638] – Supreme Court of India. This case reiterated the principle laid down in Datar Switchgears Ltd., that the High Court alone has the jurisdiction to appoint an arbitrator after an application under Section 11(6) is filed.
| Authority | Court | How the Authority was Considered |
|---|---|---|
| Datar Switchgears Ltd. Vs. Tata Finance Ltd. & Anr. [2000(8) SCC 151] | Supreme Court of India | Followed – The court reiterated the principle that the right of the other party to appoint an arbitrator is forfeited once an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, is filed. |
| Punj Lloyd Ltd. Vs. Petronet MHB Ltd. [2006(2) SCC 638] | Supreme Court of India | Followed – The court reiterated the principle that the High Court alone has the jurisdiction to appoint an arbitrator after an application under Section 11(6) is filed. |
Judgment
| Submission Made by the Parties | How the Court Treated the Submission |
|---|---|
| Appellant’s Submission: The respondents forfeited their right to appoint an arbitrator once the appellant filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996. | The court acknowledged the settled legal position, but held that the appellant’s conduct and inaction justified the dismissal of the petition. The court noted that the appellant did not pursue their petition diligently and participated in the proceedings before the Arbitral Tribunal. |
| Respondent’s Submission: The appellant’s lack of diligence and participation in the arbitration proceedings initiated by the respondents justified the High Court’s decision. | The court accepted this submission, holding that the appellant’s conduct, including not serving notice of the arbitration petition and participating in the arbitration proceedings initiated by the respondents, justified the dismissal of their petition under Section 11(6). |
The court considered the authorities and the facts of the case and held that the High Court was justified in dismissing the petition.
- Datar Switchgears Ltd. Vs. Tata Finance Ltd. & Anr. [2000(8) SCC 151]*: The court acknowledged that the legal principle established in this case, that the right to appoint an arbitrator is forfeited once an application under Section 11(6) is filed, is indeed settled. However, the court clarified that the facts of the present case warranted a different outcome.
- Punj Lloyd Ltd. Vs. Petronet MHB Ltd. [2006(2) SCC 638]*: The court reiterated the principle established in this case, that the High Court alone has the jurisdiction to appoint an arbitrator after an application under Section 11(6) is filed. However, the court clarified that the facts of the present case warranted a different outcome.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the appellant’s lack of diligence and their participation in the arbitration proceedings initiated by the respondents. The court emphasized that despite filing an arbitration petition, the appellant failed to serve notice to the respondents, actively participated in the arbitration process by submitting a statement of claim, and challenged the validity of the tribunal only after the fact. This conduct indicated that the appellant had effectively waived their right to insist on the appointment of an arbitrator by the High Court. The court’s reasoning was also influenced by the need to ensure that parties do not abuse the process of law by initiating legal action and then failing to pursue it diligently.
| Sentiment | Percentage |
|---|---|
| Appellant’s Lack of Diligence | 40% |
| Participation in Respondent’s Arbitration | 30% |
| Need to Prevent Abuse of Process | 30% |
| Category | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
Appellant files arbitration petition under Section 11(6) of the Arbitration and Conciliation Act, 1996
Appellant fails to serve notice of the petition to the respondents
Respondents initiate arbitration proceedings and the appellant participates by submitting statement of claim
Appellant challenges the validity of the Arbitral Tribunal only after participating in the proceedings
Supreme Court upholds High Court’s decision to dismiss the arbitration petition due to appellant’s inaction
The Supreme Court reasoned that while the legal position is that the right to appoint an arbitrator is forfeited once an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 is filed, the facts of the case warranted a different outcome. The court emphasized that the appellant’s conduct, including not serving notice of the arbitration petition and participating in the arbitration proceedings initiated by the respondents, justified the dismissal of their petition under Section 11(6) of the Arbitration and Conciliation Act, 1996. The Court observed, “This Court cannot be oblivious of the peculiar facts and circumstances brought to our notice that after filing of an arbitration petition on 23rd October 2009 in the Registry of the High Court, the appellant completely slept over the matter and the respondents were never served of any notice of the Arbitration Petition (ARBP No. 61 of 2009) filed before the High Court of Orissa.” The court further noted, “At the given time, when the respondents called upon the appellant to suggest and select two names out of the panel of four for constitution of the Arbitral Tribunal, the appellant vide letter dated 28th August, 2010 selected two officers from the panel suggested by the respondents.” The Court also stated, “In the given facts and circumstances, the High Court was not inclined to exercise its jurisdiction under Section 11(6) of the Act for appointment of an Arbitrator and dismissed the petition by an Order dated 26th July, 2019 with liberty to the appellant to submit objections against the ex-parte award dated 21st June, 2013 under Section 34 or 37 of the Act, if so advised.”
Key Takeaways
- Parties must diligently pursue legal actions they initiate, including serving notice to the other party.
- Participating in arbitration proceedings initiated by the other party may be construed as a waiver of the right to insist on the appointment of an arbitrator by the High Court.
- The courts will not allow parties to abuse the process of law by initiating legal action and then failing to pursue it diligently.
- The Supreme Court has clarified that the principle established in Datar Switchgears Ltd. Vs. Tata Finance Ltd. & Anr. [2000(8) SCC 151] and Punj Lloyd Ltd. Vs. Petronet MHB Ltd. [2006(2) SCC 638], that the right to appoint an arbitrator is forfeited once an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 is filed, is not absolute and is subject to the conduct of the parties.
Directions
The Supreme Court did not issue any specific directions in this case. However, the High Court had granted liberty to the appellant to submit objections against the ex-parte award dated 21st June, 2013 under Section 34 or 37 of the Arbitration and Conciliation Act, 1996, if so advised.
Development of Law
The ratio decidendi of this case is that while the legal position is settled that the right to appoint an arbitrator is forfeited once an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 is filed, this principle is not absolute and is subject to the conduct of the parties. The court has clarified that inaction and participation in arbitration proceedings initiated by the other party can lead to the dismissal of an application under Section 11(6) of the Arbitration and Conciliation Act, 1996. This decision emphasizes the importance of diligence in pursuing legal remedies and prevents parties from abusing the legal process. There is no change in the previous position of law, but an exception has been carved out based on the facts of the case.
Conclusion
The Supreme Court dismissed the appeal, upholding the High Court’s decision to dismiss the arbitration petition. The court emphasized that the appellant’s lack of diligence and participation in the arbitration proceedings initiated by the respondents justified the dismissal of their petition under Section 11(6) of the Arbitration and Conciliation Act, 1996. This case serves as a reminder that parties must actively pursue their legal remedies and cannot expect the courts to intervene if they fail to do so.