# MIS. S.B.P. & CO. ~ v. MIS. PATEL ENGINEERING LTD. & ANR

- **Citation:** [2009] 15 S.C.R. 340
- **Court:** Supreme Court of India
- **Decided:** 2009-10-21
- **Case number:** Civil Appeal No. 4168 of 2003
- **Bench:** G.S. Singhvi, Dr. B.S. Chauhan
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mis-s-b-p-co-v-mis-patel-engineering-ltd-anr-25327
- **Pages:** 31

## Headnote

~-
Arbitration and Conciliation Act, 1996 -
s. 15(2) -
Appointment of arbitrators by the respective parties to the
c dispute - Arbitrator appointed by one party refusing to act as
such - Party appointing substitute arbitrator in his place u/
s. 15(2) - Other party denying applicability of s. 15(2) and
claiming the case to be qecided by sole arbitrator -
~
Designate Judge appointing third arbitrator- On appeal, held,:
f ~
D Designated Judge was not correct in appointing third arbitrator
- Appointment of the substitute arbitrator was not in
accordance with law -
s. 15(2) is not applicable as the
arbitrator 'refused' to act as arbitrator and had not 'withdrawn'
from the office of arbitrator - The arbitrator appointed by one
E of the parties, is entitled to act as sole arbitrator.
Words and Phrases:
~ ~
'Rules' - Meaning of
F
'Refuse' and 'Withdraw' - Meaning of and distinction
between.
State Government awarded a contract to respondent
No. 1 in respect of a project. Respondent No. 1 subG
contracted a portion of that work to the appellant. The
parties entered into sub-contract agreement and piece
~
work agreement.
After dispute between the parties to the main
contract, in arbitration proceedings, State Government
H
340
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING
341
LTD. & ANR.
was directed to pay an amount to respondent No. 1 and
A
-
f
the same was paid by the Government.
Appellant demanded respondent No. 1, to pay the
amount allegedly due to them, but the same was not
complied with by respondent No.1. Appellants invoked 8
arbitration clause and appointed respondent No. 2 as an
arbitrator on their behalf. Respondent No. 1 appointed 'H'
as an arbitrator on its behalf. 'H' denied to arbitrate in the
matter. Thereafter respondent No. 1 appointed another
-I'
person 'J' as an arbitrator and informed respondent No.
2 that a substitute arbitrator in place of 'H' was appointed c
in terms of s. 15(2) of Arbitration and Conciliation Act,
1996. Appellant informed respondent No. 1 that
appointment of substitute arbitrator was contrary to the
terms of sub-contract agreement and piece work
D
agreement. 'J' sent letter to respondent No. 2 suggesting
~
names, for appointment of Presiding (third) Arbitrator.
Respondent No. 2 claimed that s. 15(2) having no
application to the case, he was entitled to work as sole
arbitrator.
E
Respondent No. 1 filed application uls. 11 of the Act
for appointment of third arbitrator. High Court appointed
the third arbitrator. Writ petitions were filed challenging
.
..,_
the order of Designate Judge. Division Bench of High
Court, relying on Constitution Bench Judgment in Konkan
F
-
Railway case, held that writ petitions challenging order of
Designate Judge were not maintainable, the order being
administrative in nature. Hence the present appeals.
The appeals were referred to Seven Judges Bench
G
of this Court for reconsidering the Constitution Bench
judgment in Konkan Railway case. Seven Judges Bench,
by majority, overruled the judgment in Konkar Railway
case, holding that the power exercised by the Chief
Justice of High Court or the Chief Justice of India u/s.
11 (6) is a judicial power and is not administrative in H
342
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A
nature; and that such order can be challenged onl.y
under Article 136 of the Constitution of India.
~ -
The question for consideration in the present
appeals, after the judgment of Seven Judges Bench was,
B whether the orders by Designate Judge appointing third
..
Arbitrator was legally correct.
~llowing the appeals, the Court
HELD: 1. The legislature has repeatedly laid
'Ic emphasis on the necessity of adherence to the terms of
agreement between the parties in the matter of
appointment of arbitrators and procedure· to be followed
for such appointment. Even Section 15(2) of Arbitration
and Conciliation Act, 1996, which regulates appointment
of a substitute arbitrator, requires that such an
..
0
appointment she1ll be made according to the rules which

## Text

_Characters 0–39,980 of 60,249. This is a partial read: ask again with offset=39980 for what follows._

[2009] 15 (ADDL.) S.C.R. 340
A
MIS. S.B.P. & CO.
~
v.
MIS. PATEL ENGINEERING LTD. & ANR.
(Civil Appeal No. 4168 of 2003 etc.)
J.
B
OCTOBER 21, 2009
[G.S. SINGHVI AND DR. B.S. CHAUHAN, JJ.]
~-
Arbitration and Conciliation Act, 1996 -
s. 15(2) -
Appointment of arbitrators by the respective parties to the
c dispute - Arbitrator appointed by one party refusing to act as
such - Party appointing substitute arbitrator in his place u/
s. 15(2) - Other party denying applicability of s. 15(2) and
claiming the case to be qecided by sole arbitrator -
~
Designate Judge appointing third arbitrator- On appeal, held,:
f ~
D Designated Judge was not correct in appointing third arbitrator
- Appointment of the substitute arbitrator was not in
accordance with law -
s. 15(2) is not applicable as the
arbitrator 'refused' to act as arbitrator and had not 'withdrawn'
from the office of arbitrator - The arbitrator appointed by one
E of the parties, is entitled to act as sole arbitrator.
Words and Phrases:
~ ~
'Rules' - Meaning of
F
'Refuse' and 'Withdraw' - Meaning of and distinction
between.
State Government awarded a contract to respondent
No. 1 in respect of a project. Respondent No. 1 subG
contracted a portion of that work to the appellant. The
parties entered into sub-contract agreement and piece
~
work agreement.
After dispute between the parties to the main
contract, in arbitration proceedings, State Government
H
340
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING
341
LTD. & ANR.
was directed to pay an amount to respondent No. 1 and
A
-
f
the same was paid by the Government.
Appellant demanded respondent No. 1, to pay the
amount allegedly due to them, but the same was not
complied with by respondent No.1. Appellants invoked 8
arbitration clause and appointed respondent No. 2 as an
arbitrator on their behalf. Respondent No. 1 appointed 'H'
as an arbitrator on its behalf. 'H' denied to arbitrate in the
matter. Thereafter respondent No. 1 appointed another
-I'
person 'J' as an arbitrator and informed respondent No.
2 that a substitute arbitrator in place of 'H' was appointed c
in terms of s. 15(2) of Arbitration and Conciliation Act,
1996. Appellant informed respondent No. 1 that
appointment of substitute arbitrator was contrary to the
terms of sub-contract agreement and piece work
D
agreement. 'J' sent letter to respondent No. 2 suggesting
~
names, for appointment of Presiding (third) Arbitrator.
Respondent No. 2 claimed that s. 15(2) having no
application to the case, he was entitled to work as sole
arbitrator.
E
Respondent No. 1 filed application uls. 11 of the Act
for appointment of third arbitrator. High Court appointed
the third arbitrator. Writ petitions were filed challenging
.
..,_
the order of Designate Judge. Division Bench of High
Court, relying on Constitution Bench Judgment in Konkan
F
-
Railway case, held that writ petitions challenging order of
Designate Judge were not maintainable, the order being
administrative in nature. Hence the present appeals.
The appeals were referred to Seven Judges Bench
G
of this Court for reconsidering the Constitution Bench
judgment in Konkan Railway case. Seven Judges Bench,
by majority, overruled the judgment in Konkar Railway
case, holding that the power exercised by the Chief
Justice of High Court or the Chief Justice of India u/s.
11 (6) is a judicial power and is not administrative in H
342
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A
nature; and that such order can be challenged onl.y
under Article 136 of the Constitution of India.
~ -
The question for consideration in the present
appeals, after the judgment of Seven Judges Bench was,
B whether the orders by Designate Judge appointing third
..
Arbitrator was legally correct.
~llowing the appeals, the Court
HELD: 1. The legislature has repeatedly laid
'Ic emphasis on the necessity of adherence to the terms of
agreement between the parties in the matter of
appointment of arbitrators and procedure· to be followed
for such appointment. Even Section 15(2) of Arbitration
and Conciliation Act, 1996, which regulates appointment
of a substitute arbitrator, requires that such an
..
0
appointment she1ll be made according to the rules which
+...
were applicable to the appointment of an original
arbitrator. The term 'rules' used in this sub-section is not
--
confined to statutory rules or the rules framed by the
E competent authority in exercise of the power of delegated
legislation but also includes the terms of agreement
entered into between the parties. [Para 16) [361-B-F]
Datar Switchgears Ltd. v. Tata Finance Ltd. and Anr.
(2000) 8 SCC 151; Northern Railway Admn., Ministry of
.,
~
F
Railway, New Delhi v. Patel Engineering Company Ltd. 2008
-
(11) SCALE 500; Union of India v. Mis. Singh Builders
Syndicate 2009(4) SCALE 491, relied on
ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum
G
Corpn. Ltd. (2007) 5 SCC 304; Union of India v. Bharat
Battery Mfg. Co. (P) Ltd. 2007 (7) SCC 684, referred to.
2. There is nothing in the arbitral clause of piece
work agreement from which it can be inferred that in the
event of refusal of an arbitrator to accept the appointment
H
-
-
-
MIS. S.B.P. & CO. v. MIS. PATEL ENGINEERING
343
LTD. & ANR.
or arbitrate in the matter, the party appointing such A
arbitrator has an implicit right to appoint a substitute·
arbitrator. Thus, in terms of the agreement entered into
between the parties, respondent No.1 could n~t appoint
a substitute arbitrator simply because the person earlier
appointed as arbitrator declined to accept the B
appointment as an arbitrator. The only consequence of
his refusal to act as an arbitrator on behalf of respondent
No.1 was that respondent No.2 who was appointed as an
arbitrator by the appellants became the Sole Arbitrator for
deciding the disputes or differences between the parties. c
[Para 20] (367-A-C]
3. The Designate Judge appointed the third arbitrator
because he was of the view that in terms of Section 15(2),
a substitute arbitrator could be appointed where the
mandate of an already appointed arbitrator terminates. In D
taking that view, the Designate Judge failed to notice that
Section 15(1) provides for termination of the mandate of
arbitrator where he withdraws from office for any reason
or by or pursuant to agreement of the parties and not
where the arbitrator appointed by either party declines to E
accept the appointment or refuses to act as such and that
the term 'rules' appearing in Section 15(2) takes within its
fold not only the statutory rules, but also the terms of .
agreement entered into between the parties. [Para 21]
(367-D-F]
F
4. The meanings of the two words i.e. 'refuse' and
'withdraw' bring out sharp distinction between them.
While the word 'refuse' denotes a situation before
acceptance of an invitation, offer, office, position, privilege G
and the like, the word 'withdraw' means to retract, retire
or retreat from a place, position or situation after
acceptance thereof. Therefore, Section 15(2) of the Act
does not per se apply to a case where an arbitrator
appointed by a party to the agreement declines to accept H
344
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A the appointment or refuses to arbitrate in the matter. In a
given case, refusal to act on the arbitrator's part can be -
\
inferred after he has entered upon arbitration. by giving
consent to the nomination made by either party to the
agreement. [Para 23] [368-0-F]
B
P. Ramanatha Aiyar's Advanced Law Lexicon (Third
Edition 2005); Century Dictionary; New Oxford Illustrated
Dictionary, Volume II, p.1421 The Law Lexicon (Third
Edition, 2005); Black's Law Dictionary (Eighth Edition,
....
c
p.1632); New Oxford Illustrated Dictionary (Volume II,
p.1894), referred to.
5. In the present case, the arbitrator appointed by
respondent No.1, declined to accept the appointment/
arbitrate in the matter, on the ground that in his capacity· -
D as Superintending Engineer and Chief Engineer, he was
tassociated with the project in question, implying thereby
that he may not be able to objectively examine the claims
of the parties or the other party may question his
impartiality. He did not enter upon the arbitration.
E Therefore, there was no question of his withdrawing from
the office of arbitrator so as to enable respondent No.1
to appoint a substitute arbitrator. In any case, in the
absence of a clear stipulation to that effect in the
agreements, respondent No.1 could not have appointed
-~.
I
F
a substitute arbitrator and the Designate Judge gravely
F
erred in appointing the third arbitrator by presuming that
,\
the appointment of' J' was in accordance with law. [Para
24] (368-G-H; 369-A-B]
>---
Yashwith Constructions (P) Ltd. v. Simplex Concrete
•
G Piles India Ltd. (2006) 6 SCC 204, held inapplicable.
Case Law Reference :
~· ...
(2005) 8 sec 618
Referred to.
Para 16
H
(2006) s sec 204
Relied on.
Para 16
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING
345
LTD. & ANR.
(2000) 8 sec 151
Relied on.
Para 17
A
2008 (11) SCALE 500
Relied on.
Para 18
(2007) s sec 304
Referred to.
Para 18
(2001) 1 sec 684
Referred to.
Para 18
B
2009(4) SCALE 491
Relied on.
Para 19
(2006) 6 sec 204
Held inapplicable. Para 25
-f
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
4168 of 2003.
c
From the Judgment and order dated 03.02.2003 of the
High Court of Judicature at Bombay in Writ Petition No. 21 of
2003.
-~
WITH
D
Civil Appeal No. 4169 of 2003.
K.K. Venugopat, Amit Sharma, Suchit Mohanty, Ankur T.
and Anupam Lal Das, for the Appellant.
E
Dushyant Dave, Mustafa D., Banoo Kapadia, Surekha
Raman and Angely Anid (for K.J. John & Co.), for the
..., "
Respondents .
The Judgment of the Court was delivered by
F
G.S. SINGHVI, J. 1. In compliance of the direction given
by seven-Judge Bench in S.B.P. & Company v. Patel
Engineering Ltd. and another (2005) 8 SCC 618, these
appeals have been listed for disposal in the light of the
principles laid down in that judgment.
G
2. In the special leave petitions, out of which these appeals
arise, the appellants had challenged orders dated 3.2.2003
passed by the Division Bench of the Bombay High Court
H
346
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A whereby it held that the writ petitions filed against the orders
passed by the learned designated Judge of that Court
~
appointing Shri Justice M.N. Chandurkar (Retired) as the third
arbitrator for resolution of the disputes between the appellants
and respondent No.1 are not maintainable. For this purpose,
8
the Division Bench relied upon the judgment of this Court in
,•
Konkan Railway Corporation Ltd. and others v. Mehul
Construction Company (2000) 7 SCC 201, which was
subsequently approved by a Constitution Bench in Konkan
Railway Corporation Ltd. and another v. Rani Construction
1c Pvt. Ltd. (2002) 2 SCC 388. The ratio of the Constitution Bench
judgment was that the power exercised by the Chief Justice or
any person or institution designated by him under Section 11 (6)
of the Arbitration and Conciliation Act, 1996 (for short, 'the Act')
is purely administrative and the measures taken under that
D section are not open to be challenged by the aggrieved party
by resorting to intermediary proceedings. The judgment of the
~-
Constitution Bench was overruled by the seven-Judge Bench
in S.B.P. & Company v. Patel Engineering Ltd. and another
(supra) and it was held that the power exercised by the Chief
E Justice of the High Court or the Chief Justice of India under
Section 11 (6) of the Act is a judicial power and not an
administrative power and further that an order passed by the
Chief Justice of the High Court or by the designated Judge of
that Court can be challenged only under Article 136 of the
" ,,..
Constitution.
F
3. After the judgment of the larger Bench, the appellants
filed I.A. Nos. 1 and 2 of 2006 for leave to amend· the
memorandums of appeal so as to enable them to make a
prayer for setting aside orders dated 18.11.2002 passed by
G the learned designated Judge of the High Court in Arbitration
Application Nos. 114 of 2002 and 90 of 2002. At the
commencement of hearing of the appeals on 6.10.2009, the
~-
prayer of the appellants was granted.
H
4. In the light of the above, we shall now consider whether
•
"
MIS. S.B.P. & CO. v. MIS. PATEL ENGINEERING
347
LTD. & ANR. [G.S. SINGHVI, J.]
orders dated 18.11.2002 passed by the learned designated A
1
Judge of the Bombay High Court under Section 11 (6) of the
Act appointing Shri Justice M.N. Chandurkar (Retired) as third
arbitrator is legally correct.
Background facts
8
5. In March, 1992, the Government of Maharashtra
. awarded contract to respondent No.1 for execution of works
relating to Stage IV of the Koyna Hydroelectric Project.
-y
Respondent No.1 sub-contracted a portion of that work i.e.,
construction of civil works from Lake Intake to Emergency c
Valve Tunnel- K.H.E.P. Stage IV-1.C.B. No.1 to the appellant
and Mis. 8.T. Patil & Sons (Construction) Ltd., Belgaum (herein
after de.scribed as "B.T. Patil & Sons"). For this purpose, the
parties entered into two agreements on 15.10.1992 viz., subcontract agreement and piece work agreement. Both the D
-~
agreements contained identical clauses for resolution of
disputes and differences between the parties by arbitration. For
the sake of convenient reference, Clause 19 of the piece work
agreement is reproduced below:
"The continuance of this piece work agreement I contract E
or at any time after the termination thereof, any difference
or dispute shall arise between the parties hereto in regard
......
..
to the interpretation of any of the provisions herein
contained or act or thing in relation to this agreement I
F
contract, such diffe·rence or dispute shall be forthwith
referred to two Arbitrators for Arbitration in Bombay one
to be appointed by each party with liberty to the Arbitrators
in case of differences or their failure to reach an
agreement within one. month of the appointment, to appoint
G
an umpire residing in Bombay and the award which shall
be made by two Arbitr21tors or umpire as the case may be
. --,1
shall be final, conclusive and binding on the parties hereto .
If either party to the difference or dispute shall fail to appoint
an arbitrator within 30 calendar days after notice in writing
H
348
SUPREME COURT REPORTS (2009] 15 (ADDL.) S.C.R.
A
having been given by the parties or shall appoint an
arbitrator who shall refuse to act then the arbitrator
appointed by the other party shall be entitled to proceed
\
with the reference as a Sole Arbitrator and to make final
decision on such difference or dispute and the award
B
made as a result of such arbitration shall be a condition
precedent to any right of action against any two parties
hereto in respect of any such difference and dispute."
(emphasis added)
y
c
, 6. In October 1996, _some disputes and differences arose
between the Government of Maharashtra and respondent No.1
with regard to contract dated 10.3.1992. The panel of three
arbitrators appointed by the parties passed unanimous awards
on 11.2.2000 requiring the State Government to pay
D
Rs.24,09,25,965/- to respondent No.1. The State Government
challenged those awards but, later on, withdrew its challenge
,_
and paid the amount to respondent No.1.
7. On 3.7.2001, the appellants through their power of
E
attorney holder, Balasaheb B. Patil served a notice upon
respondent No.1 requiring it to pay the amount allegedly due
to them, but the latter did not comply with their demand. After
three months, the appellants invoked the arbitration clauses
enshrined in the sub-contract agreement and piece work
agreement and issued .letter dated 3.10.2001 appointing Shri
\
,..
F
T.G. Radhakrishna (retired Chief Engineer) (respondent No.2
herein) as an arbitrator on their behalf. In its response dated
1.11 ·.2001, respondent No.1 denie.d the claim of the appellants
and; at the same time, appoint~d Shri S.N. Huddar, Joint
Secretary, Irrigation Department, Government of Maharashtra
G
as an arbitrator on its behalf. However, vide letter dated
1.2.2002, Shri Huddar declined to arbitrate in the matter by
stating that he had remained associated with Kyona Project as
~
Superintending Engineer and Chief Engineer. Thereafter,
J
respondent No.1 sent letter dated 26.2.2002 to Shri S.L. Jain
H
of S & S Consultants, Bhopal with the request to act as an
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING
349
LTD. & ANR. [G.S. SINGHVI, J.]
,,
arbitrator on its behalf. Shri Jain communicated his consent A
vide letter dated 27.2.2002. On the same day, respondent No.1
informed respondent No.2 that in terms of Section 15(2) of the
Act, it was entitled to appoint a substitute in place of Shri S.N.
Huddar and had, in fact, appointed Shri S.L. Jain as an
arbitrator and the latter had consent~d to such an appointment.
B
On 7.3.2002, the power of attorney holder of the appellants
informed respondent No.1 that appointment of Shri S.L. Jain
~r
as replac.ement arbitrator is contrary to the terms of sub-contract
agreement and piece work agreement.
8. In the meanwhile, power of attorney holder of the c
appellants sent letter dated 22.1.2002 to respondent No.2 and
Shri S.N. Huddar requesting them to appoint the third arbitrator.
On his part, respondent No.2 suo motu sent letter dated
~-\
21.2.2002 informing the parties that in view of Shri Huddar's
refusal to act as an arbitrator on behalf of respondent No.1, he D
had become the Sole Arbitrator and asked them to appear at
Mumbai for a preliminary meeting.
9. After his appointment as an arbitrator on behalf of
respondent No.1, Shri S.L. Jain sent letter dated 11.3.2002 to
E
respondent No.2 and suggested the names of three retired
,..,
1
Bombay High Court judges for appointment as Presiding
Arbitrator. In his reply dated 25.3.2002, respondent No.2
claimed that Section 15(2) of the Act has no application in the
case and that in terms of Clause 18 of the sub-contract F
agreement and Clause 19 of the piece work agreement, he was
entitled to act as the Sole Arbitrator.
10. At that stage, respondent No.1 filed Arbitration
Application Nos.114 of 2002 and 90 of 2002 under Section 11
G
of the Act for appointment of the third arbitrator by asserting
~
that in view of refusal of Shri S.N. Huddar to act as an arbitrator,
it had appointed Shri S. L. Jain as a substitute arbitrator in
terms of Section 15(2) of the Act and in that view of the matter
respondent No.2 was not entitled to act as the Sole Arbitrator.
The designated Judge of the Bombay High Court allowed both
H
f
L
350
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A
the applications and appointed Shri Justice M.N. Chandurkar "
(Retired) as the third arbitrator. The learned designated Judge
noticed the arguments made on behalf of the parties, the
provisions of Section 15 of the Act and observed:-
B
"Section 15 is a new provision. Sub-section (1) and (2)
thereof correspond to Article 155 of the UNCITRAL model
Law. Sub-section (2) of section 15 provides that where the
mandate of arbitrator is terminated, a substitute arbitrator
y
shall be appointed according to the rules that were
c
applicable to the appointment of the arbitrator being
replaced. Thus the Legislature clearly intended that upon
termination of the mandate of an arbitrator, a substitute
arbitrator shall be appointed in accordance with the same
rules as were applicable to the appointment of the original
D
arbitrator. Therefore the arbitrator appointed by the other
+~
party is not entitled to act as the sole arbitrator in view of
this clear language of section 15(2). This can be
compared to the old provision of section 9 of the 1940 Act
providing that unless a different intention is expressed in
the agreement the court has power to appoint a new
E
arbitrator. The words used in sub-section (2) of section 15
do not admit of any such exception.
bThe decisions relied upon by Dr. Tulzapurkar have no
~
,,..
application to the facts of the present case. In Datar
F
Switchgears Ltd. v. Tata Finance Ltd. and Anr. while
construing section 11 (6) of the 1996 Act, the court held that
if one party demands the opposite party to appoint an
arbitrator and the opposite party does not make an
appointment within 30 days of demand being made by the
G
other party, the right to make the 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 the
court under section 11, that would be sufficient. Only then
H
the right of the opposite party ceases. It is in this context
M/S. S.B.P. & CO. v. M/S. PATEL ENGINEERING
351
~
LTD. & ANR. [G.S. SINGHVI, J.]
I
--1
that the court observed in para 23 that "when parties have A
entered into a contract and settled on a procedure, due
-<.
importance has to be given to such procedure even though
rigor of the doctrine of ·Freedom of contract' has been
whittled down by various labour and special welfare
legislation, still the court has to respect the terms of the B
contract entered into by parties and endeavour to give
importance and effect to it When the party has not disputed
,,.. -t
the arbitration clause, normally he is bound by it and
obliged to comply with the procedure laid down under the
said clause". This case has no bearing on the issue c
involved in the instant case.
""'
The other case cited by Dr. Tulzapurkar in Open"S~a
Maritimes Inc. v. R. Pyarelal International Pvt. Ltd. is
--
~
distinguishable on facts. In that case respondents had failed
D
to make appointment of an arbitrator even after the notice
period. The court held that if the party fails to appoint an
arbitrator even after the notice then the Arbitrator
appointed by the other party can act a sole arbitrator and
pass the award. The court referred to clause 24 of the
agreement between the parties which provide that if the E
other party fails to appoint an arbitrator in spite of the
notice, the arbitrator appointed shall be entitled to act as
~
t
the sole arbitrator as such procedure was agreed upon
'
between the parties. The case before Patankar J. was
under Part II of the Act. In the instant case, in view of the
F
provisions contained in section 15(2) of the Act, upon
withdrawal of the arbitrator Shri Huddar the petitioners had
right to appoint a new arbitrator as per the Rules that were
•
applicable to appointment of arbitrator."
11. The appellants challenged the orders of the learned G
'"''-1
designated Judge in two separate writ petitions, but could not
persuade the Division Bench of the High Court to entertain their
prayer for nullifying the appointment of Shri Justice M.N.
Chandurkar as the third arbitrator. The Division Bench referred H
352
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A
to the judgments of this Court in Konkan Railway Corporation
1Ltd. and others v. Mehul Construction Company (supra) and
Konkan Railway Corporation Ltd. and another. v. Rani
Construction Pvt. Ltd. (supra), and held that the writ petitions
are not maintainable against the orders passed by the
B
designated Judge, which were administrative in nature.
However, liberty was given to the appellants to raise the issue
relating to appointment of the third arbitrator before the Arbitral
Tribunal.
" ....
c
12. The Constitution Bench, which heard the special leave
petitions filed by the appellants against the orders of the High
Court, opined that the judgment rendered by an earlier
Constitution Bench in Konkan Railway Corporation Ltd. and
another v. Rani Construction Pvt. Ltd. (supra), may require
D
reconsideration and directed that the matter be placed before
a larger Bench. Thereafter, the cases were heard by a seven1~
Judge Bench. By majority judgment, the larger Bench overruled
the Constitution Bench judgment in Konkan Railway
Corporation Ltd. v. Rani Construction Pvt. Ltd. (supra), and
held that the power exercised by the Chief Justice of the High
E
Court or the Chief Justice of India under Section 11 (6) of the
Act is a judicial power and not an administrative power and that
an order passed by the Chief Justice of the High Court or by
I.
the designated Judge of that High Cou~ is appealable under
·t
....
Article 136 of the Constitution. The conclusions of the majority
F
are contained iri paragraph 47 of the judgment, the .relevant
portions of which are extracted below:
"47. We, therefore, sum up our conclusions as follows:
(i) The power exercised by the Chief Justice of the High
G
. Court or the Chief Justice of India under Section 11 (6) of
the Act is not an administrative power. It is a judicial
~ ,.
power.
1--
(ii) .The power under Section 11 (6) of the Act, in its entirety,
H
could be delegated, by the Chief Justice of the High Court
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING
353
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only to another Judge of that Court and by the Chief A
-+
Justice of India to another Judge of the Supreme Court.
(iii) In case of designation of a Judge of the High Court or
of the Supreme Court, the power that is exercised by the
designated Judge would be that of the Chief Justice as
B
conferred by the statute.
(iv) The Chief Justice or the designated Judge will have
/' "f
the right to decide the preliminary aspects as indicated in
the earlier part of this judgment. These will be his own
jurisdiction to entertain the request, the existence of a valid c
arbitration agreement, the existence or otherwise of a live
claim, the existence of the condition for the exercise of his
power and on the qualifications of the arbitrator or
arbitrators. The Chief Justice or the designated Judge
,,.._ t
would be entitled to seek the opinion of an institution in the
D
matter of nominating an arbitrator qualified in terms of
Section 11 (8) of the Act if the need arises but the order
appointing the arbitrator could only be that of the Chief
Justice or the designated Judge.
(v) xxxx xxxx xxxx
E
(vi) Once the matter reaches the Arbitral Tribunal or the
,.,
1
sole arbitrator, the High Court would not interfere with the
orders passed by the arbitrator or the· Arbitral Tribunal
during the course of the arbitration proceedings and the
F
parties could approach the Court only in terms of Section
37 of the Act or in terms of Section 34 of the Act.
(vii) Since an order passed by the Chief Justice of the High
Court or by the designated Judge of that Court is a judicial G
order, an appeal will lie against that order only under Article
.... ~
136 of the Constitution to the Supreme Court.
(viii). xxxx xxxx xxxx
(ix) In a case where an Arbitral Tribunal has been
H
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c
354
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
constituted by the parties without having recourse to
Section 11 (6) of the Act, the Arbitral Tribunal will have the
jurisdiction to decide all matters as contemplated by
Section 16 of the Act.
(x) xxxx xxxx xxxx
(xi) xxxx xxxx xxxx
(xii) The decision in Konkan Rly. Corpn. Ltd. v. Rani
Construction (P) Ltd. is overruled."
Arguments
13. Shri K.K. Venugopal, learned senior counsel
appearing for the appellants argued that the arbitration clauses
contained in the two agreements are binding on the parties and
D
in view of refusal of Shri S.N. Huddar to act as an arbitrator on
behalf of respondent No.1, the arbitrator appointed by the
appellants i.e., respondent No.2 became the Sole Arbitrator
and as such the learned designated Judge did not have the
jurisdiction, power or authority to appoint the third arbitrator.
E
Shri Venugopal emphasized that the appointment of Shri S.L.
Jain as a substitute arbitrator was legally impermissible
because there is no provision in the arbitration clauses for
appointment of a substitute arbitrator. Learned senior counsel
argued that the provision contained in Section 15(2) of the Act
F
can be invoked for appointment of a substitute arbitrator only
if the mandate of an arbitrator gets terminated on account of
his withdrawal from office or by or pursuant to an agreement
of the parties and not in a case where the arbitrator appointed
by either party refuses to act as such and, in any case, the
G
provision contained in that section cannot be invoked for
nullifying the agreement between the parties which does not
provide for appointment of a substitute arbitrator. In support of
his arguments, Shri Venugopal relied upon the judgments in
S.B.P. & Company v. Patel Engineering Limited and another
H
(supra), ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum
--
~
\
,. '
'
)Ill
'
1
~
-1 ~ ' •
C"
v
I
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING
355
LTD. & ANR. [G.S. SINGHVI, J.]
Corpn. Ltd. (2007) 5 SCC 304, Northern Railway Admn.,
A
...,.,. --t
Ministry of Railway, New Delhi v. Patel Engineering Company
Ltd. 2008 (11) SCALE 500 and Union of India v. Mis. Singh
Builders Syndicate 2009(4) SCALE 491.
14. Shri Dushyant Dave, learned senior counsel appearing
B
for respondent No.1, invited our attention to letter dated
1.2.2002 written by Shri S.N. Huddar expressing his inability
to act as an arbitrator and argued that his client did not commit
. ,,, '1
any illegality by appointing Shri S.L. Jain as a substitute
arbitrator. Shri Dave submitted that the appointment of an c
arbitrator becomes effective only after he consents for the same
and if he refuses to accept the appointment, the party
appointing such person as an arbitrator has the freedom to
appoint another arbitrator, even though there may not be any
express provision to that effect in the agreement. In support of
D
- ~
this argument, Shri Dave relied upon the judgment of this Court
in Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles
India Ltd. (2006) 6 SCC 204. Shri Dave further argued that in
~-
view of the plain language of Section 15, respondent No.1 had
the right to appoint a substitute arbitrator and respondent No.2
could not act as the Sole Arbitrator merely because Shri S.N.
E
Huddar who was originally appointed as an arbitrator on behalf
of respondent No.1 refused to accept the appointment. Shri
~
Dave submitted that learned designated Judge of the High
Court did not commit any error by appointing the third arbitrator
because respondent No.2 did not agree to the suggestion of F
Shri S.L. Jain to appoint third arbitrator from the panel of three
retired Judges of the High Court.
Relevant ~rovisions of the Act and their anal~sis
11. Appointment of arbitrators.- (1) A person of any G
nationality may be an arbitrator, unless otherwise agreed
... ....;
by the parties.
(2) Subject to sub-section (6), the parties are free to agree
on a procedure for appointing the arbitrator or arbitrators.
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356
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A
(3) Failing any agreement referred to in sub-section (2),
in an arbitration with three arbitrators, each party shall
"l- -..
appoint one arbitrator, and the two appointed arbitrators
shall appoint the third arbitrator who shall act as the
presiding arbitrator.
\
B
(4) If the appointment procedure in sub-section (3) applies
and-
(a) a party fails to appoint an arbitrator within thirty
"""'
· days from the receipt of a request to do so from the'·
c
other party; or
(b) the two appointed arbitrators fail to agree on the
third arbitrator within thirty days from the date of
their appointment,
D
the appointment shall be made, upon request of a
-+-
party, by the Chief Justice or any person or
institution designated by him.
. "
(5) Failing any agreement referred to in sub-section (2),
E
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, upon request of a party, by
the Chief Justice or any person or institution designated
~
....
F
by him.
(6) Where, under an appointment procedure-agreed upon
by the parties,-
(a) a party fails to act as required under that procedure;
G
or
(b) the parties, or the two appointed arbitrators, fail to
y-...
reach an agreement expected of them under that
procedure; or
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MIS. S.B.P. & CO. v. MIS. PATEL ENGINEERING
357
LTD. & ANR. [G.S. SINGHVI, J.]
(c) a person, including an institution, fails to perform any
A
,....... -1
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 8
procedure provides other means for securing the
appointment.
(7) xxx xxx xxx
(8) The Chief Justice or the person or institution designated
C
by him, in 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 as are likely to secure the
appointment of an independent and impartial
arbitrator.
(9) to (12)
xxx
xxx
xxx
12. Grounds for challenge.-
(1) and (2) xxx xxx xxx
(3)
only ifAn arbitrator may be challenged
(a) circumstances exist that give rise to justifiable
doubts as to his independence or impartiality, or
(b) he does not possess the qualifications agreed
to by the parties.
(4)xxx xxx xxx
D
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F
G
H
358
SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
A
13. Challenge procedure.-
(1) and (2) xxx xxx xxx
~- "-'f-
(3) Unless the arbitrator challenged under sub-section (2)
withdraws from his office or the other party agrees to the
B
challenge, the arbitral tribunal shall decide on the challenge.
(4) to (6) xxx xxx xxx
14. Failure or impossibility to act.- (1) The mandate of
an arbitrator shall terminate if-
,.- ...
c
(a) he becomes de jure or de facto unable to perform his
functions or for other reasons fails· to act without undue
delay; and
(b) he withdraws from his office or the parties agree to the
termination of his mandate.
D
(2) If a controversy remain concerning any of the grounds
--+ ...
referred to in clause (a) of sub-section (1), a party may,
unless otherwise agreed by the parties, apply to the Court
to decide on the termination of the mandate.
(3) If, under this section or sub-section (3) of section 13,
E
.)
an arbitrator withdraws from his office or a party agrees to
the termination of the mandate of an arbitrator, it shall not
imply acceptance of the validity of any ground referred to
in this section or sub-section (3) of section 12.
-~
~
F
15. Termination of mandate and substitution of arbitrator.
-
(1) In addition to the circumstances referred to in section
·13 or section 14, the mandate of an arbitrator shall
terminate-
(a) where he withdraws from office for any reason; or
G
(b) by or pursuant to agreement of the parties.
(2) Where the mandate of an arbitrator terminates, a "".
substitute arbitrator shall be appointed according to the
rules that were applicable to the appointment of the_
H
arbitrator being replaced.
c
mr·
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING
359
~I
LTD. & ANR. [G.S. SINGHVI, J.]
(3) Unless otherwise agreed by the parties, where an A
-·-f'
arbitrator is replaced under sub-section (2), any hearings
previously held may be repeated at the discretion of the
arbitral tribunal.
(4) Unless otherwise agreed by the parties, an order or B
ruling of the arbitral tribunal made prior to the replacement
of an arbitrator under this section shall not be invaHd solely
because there has been a change in the composition of
; "
the arbitral tribunal.
15. An analysis of the scheme of Section 11 which relates c
to appointment of arbitrators shows that in terms of sub-section
(1) thereof, a person of any nationality can be appointed as an
arbitrator unless there is a contra agreement between the
parties. Sub-section (2) lays down that the parties are free to
-
>
agree on a procedure for appointing the arbitrator or arbitrators. D
This is subject to the provision contained in sub-section (6).
Sub-section (3) lays down that if there is no agreement between
.IC
the parties in an arbitration with three arbitrators, each party
shall appoint one arbitrator, and the two arbitrators appointed
by the parties shall appoint the third arbitrator who shall act as
E
the Presiding Arbitrator. Sub-section (4) lays down that if a party
fails to appoint an arbitrator within 30 days from the date of
receipt of request to do so from the other party or the two
..
1
arbitrators fail to agree on the third arbitrator within 30 days from
the date of their appointment, then the Chief Justice or any F
person or institution designated by him can be approached for
appointing an arbitrator or the third arbitrator, as the case may
be. The procedure prescribed in sub-section (4) also applies
to a case involving appointment of a sole ~rbitrator. Sub-section
(6) enumerates the contingencies in which a party may request G
the Chief Justice or any person or institution designated by him
-.•
to take necessary measure unless the agreement on the
appointment procedure provides other means for securing the
appointment. The contingencies contemplated in sub-section
(6) are: (i) if a party fails to act as required under the agreed
H
360 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.
,.
r
/
A procedure or, (ii) th~}?arties or the two appointed arbitrators
fail to reach an ag·reem'ent e>q)ected of them under such
i- -
procedure, or. (iii)' al 6ersJW including an institution fails to
perform any function entrusted to him or it under the procedure.
Sub-section (8) requires that in appointing an arbitrator, the
8- Chief Justice or any person or instit(.!tiop designated by him
shall have que regard to any qualification required of the
arbitrator by the agreement of the parties and other ..
considerations a_s are likely to s~cure the appointment of an .
independent and impartial arbitrator. Sections 14 and 15
~--
c enumerate the circumstances in which the mandate of an
arbitrator shall terminate. Sub-section (1) of Section 14 lays
down that the mandate of an arbitrator shall terminate if he
becomes de jure or de facto unable to perform his functions
or for other reasons fails to act without undue delay and he
D withdraws from his office or the parties agree to terminate his
mandate. Sub-section (2) lays down that if there is any
~ -
controversy between the parties in relation to any of the grounds
referred to in Clause (a) of sub-section (1) and there is no other
provision in the agreement between the parties, either party can
E
apply to the Court for termination of the mandate of an arbitrator
unless the parties agree otherwise. By sub-section (3) of
Section 14 it has been clarified that if an arbitrator withdraws
from his office under sub-section (1) of Section 14 or subsection (3) of Section 13 or a party agrees to the termination
•
of the. mandate of an arbitrator, same shall not be construed
.,.
F as an acceptance of the validity of any of the grounds referred
to in Section 14 or sub-section (3) of Section 12 which speaks
of the grounds of challenge to the appointment of an arbitrator.
Section 15 specifies additional circumstances in which the
mandate of an arbitrator shall terminate and also provides for
G substitution of an arbitrator. Sub-section (1) of this section lays
down that in addition to the circumstances referred to in
Sections 13 and 14, the mandate of an arbitrator shall terminate
~ ... ~
where he withdraws from office for any reason or pursuant to
agreement of th.e parties. Sub-section (2) of Section 15
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361
LTD. & ANR. [G.S. SINGHVI, J.]
postulates appointment of a substitute arbitrator in accordance A
with the rules that were applicable to the appointment of the
original arbitrator.
16. What is significant to be noticed in the aforementioned
provisions is that the legislature has repeatedly laid emphasis
8
. on the necessity of adherence to the terms of agreement
.
. I
between the parties in the matter of appointment of arbitrators
and procedure to be followed for such appointment. Even
Section 15(2), which regulates appointment of a substitute
arbitrator, requires that such an appointment shall be made
according to the rules which were applicable to the appointment C
of an original arbitrator.