Judgement Name: Perkins Eastman Architects dpc & another v. HSCC (india) ltd.
Citation: AIR 2020 SC 59
Coram: Justice Uday Umesh Lalit and Justice Indu Malhotra
Date: 26th November 2019
Overview and Ratio: This decision clarifies , that a person who is ineligible to act as an arbitrator cannot also appoint an arbitrator. Secondly, the Court has the power to intervene under S. 11 unless the appointment on the face of it is valid . Lastly, an unincorporated consortium with the lead member, or the member with determining voice being controlled and managed in a country other than India would come within the scope of S. 2 (1) (f)(iii) an will thus be an International Arbitration.
- The applicants in this case, namely, Perkins Eastman and Edifice Consultants are architectural firms based in New York and Mumbai. They were declared successful bidders for the respondent, HSCC. Thereafter, a contract was commissioned for the same that contained a Clause 24 that provided that the chairman and managing director of the respondent company shall appoint a sole arbitrator to adjudicate the disputed between the parties.
- Within 6 days of the contract, the respondent alleged failure on part of the applicants which followed a notice to stop construction work. Later a termination notice was issued as well, alleging noncompliance with the contractual obligations that the applicants denied. Thereafter, a notice was issues by the Advocate for the Applicants invoking the dispute resolution clause. As per section 24, a prior notice was to be taken within one month, but a communication was issued by the Respondent after a period of 30 days intimating that a reply to the notice would be sent within 30 days
- An appeal was filed by the applicants to the Director of engineering in terms of clause 24 , however the director refused to discharge the obligations under the same. Soon after a letter was addressed the applicants, the chief managing director of the Respondents were called upon to appoint a sole arbitrator. The same was not adhered to for 30 days but a month after the Chief General Manager of the Respondent, appointed one Major General K.T Gajria as the sole arbitrator.
- Aggrieved by the same, the Applicants filed an application under Section 11(6) read with Section 11(12)(a) of the Act, before the honourable Supreme Court seeking the appointment of a sole arbitrator in accordance with terms of the contract.
- Whether the arbitration in the present case is an International Commercial Arbitration?
- Whether a case had been made out for the exercise of power by the court to appoint an arbitrator?
Section 11 of Arbitration and Conciliation Act, 1996
Section 2(1)(f) of Arbitration and Conciliation Act, 1996
- The arbitration was held to be an international commercial arbitration as one of the applicants were a foreign party having registration office in New-York. This made them suitable for the requirements under Section 2((1)(f) of the Arbitration and Conciliation Act, 1996. The court also held that it could not have dealt with the application under Section 11(6) read with Section 11(12)(1) of the Act if the arbitration was not an International Commercial Arbitration.
- Relying on TRF Limited, the court said that where only one party has a right to appoint a sole arbitrator, its choice will always have an element of exclusivity in determining or charting the course for dispute resolution. Further, the person who has an interest in the outcome of the decision of the dispute must not have the power to appoint a sole arbitrator and that must be taken as the essence of the amendments brought in by the Arbitration and Conciliation (Amendment) Act, 2015 (Act 3 of 2016) and recognised by the decision of this court in TRF Limited.
- Using the case of Indian Oil Corporation v. Raja Transport, the court ruled that if there are justifiable doubts as to the independence and impartiality of the person nominated as an arbitrator, and if other circumstances warrant appointment of an independent arbitrator by ignoring the procedure prescribed, such appointment can be made by the competent court in order to necessitate the importance and independence of an arbitrator.
- It was held that unless the appointment of an arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the Act, acceptance of such appointment as a fair accompli to debar the jurisdiction under Section 11(6) cannot be accepted.
- Appointment of an arbitrator is supposed to be subject to mandatory declaration under the amend section 12 of the Act with respect to independence and impartiality and the ability to devote sufficient time to complete the arbitration within the period as per Section 29A of the Act.
- Appeal allowed and letters by Respondent for appointment of Arbitrator were annulled.
- The court appointed Dr. Justice A,K Sikri, former judge of this court as the sole arbitrator to settle all disputes arising from the contract.