04 September 2020, Friday

Once the agreed-procedure fails, the court can appoint the presiding arbitrator (Delhi High Court)

IRB Ahmedabad Vadodara Super Express Tollway Pvt. Ltd. v. National Highway Authority of India

Court: Delhi High Court | Case Number: ARB.P. 860 of 2019 & IA No.208 of 2020 | Citation: Not available currently | Bench: Rekha Palli J | Date: 27 August 2020

A single judge of the Delhi High Court appointed the presiding arbitrator to a 3-member tribunal after the nominee arbitrators of the parties could not agree on any name. While making the appointment, the court also considered the aspects of independence and impartiality.

A. The background

IRB Ahmedabad Vadodara Super Express Tollway Pvt. Ltd. (“IRB”) and National Highway Authority of India (“NHAI”) entered into an agreement in 2011 for converting a specified portion of NH8 between Ahmedabad and Vadodara into a 6-lane highway and improving the status of the existing expressway in the State of Gujarat. Two Supplementary Agreements were executed in June 2014.

Relevant to this update, in the second Supplementary Agreement, the arbitration clause was modified. Now, the clause:

  1. provided for arbitration under the Rules of the Society for Affordable Redressal of Disputes (“SAROD”);[1]; [1] A society set up by the NHAI under the Societies Registration Act, 1860. Show More
  2. specified that the tribunal will comprise of an odd number of arbitrators, where the parties’ nominee would appoint the presiding arbitrator in terms of Rule 11.2; and
  3. stated that the terms of the appointment of arbitrators “shall be governed by Rule 11.3 to Rule 11.5 ….”

Under the Rules of SAROD:

  1. Rule 11.2 to which the Supplementary Agreement referred to for appointment of the presiding arbitrator provided that the parties’ nominees shall appoint the presiding arbitrators.[2] [2] “11.2 In all cases of disputes claimed for 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 from amongst the panel maintained by SAROD. For deciding the Presiding Arbitrator, a draw of lots can be carried out from amongst the names suggested by the Arbitrators nominated by the Parties. The eligibility criteria for empanelment of Arbitrators will be decided by the Governing Body.” Show More
  2. Rule 11.5 to which the Supplementary Agreement referred to for appointment of the Arbitrators, gave the Governing Body of SAROD the power to appoint the arbitrator or the presiding arbitrator if the parties failed to do it.[3] [3] “11.5 In the event of any party failing to appoint Arbitrator within 30 days of receipt of the notice of Arbitration, the Governing Body shall appoint the Arbitrator or presiding Arbitrator as the case may be by a draw of lots.” Show More

Disputes arose, and IRB invoked arbitration. The parties’ nominee could not agree on the presiding arbitrator. Then, IRB applied Section 11(6)(b) of the Arbitration and Conciliation Act, 1996 (“ACA”) for the appointment.

B. The court’s decision

    B1. Appointment by the court independently or under Rule 11.5?

Firstly, Palli J observed that both the parties were ad idem that a petition under Section 11(6) ACA would be maintainable only if the agreed procedure to appoint the presiding arbitrator had failed, which was the case.

Then, secondly, Palli J addressed the argument as to how should the appointment be made, if by the court as IRB argued or under Rule 11.5 as NHAI argued? She ruled that the court must make the appointment because even though Rule 11.5 also applied to cases involving the selection of the presiding arbitrator,[4] [4] Palli J reasoned that the interpretation of these rules must be made pragmatically so that the implied power given to the Governing Body to appoint the presiding arbitrator is not rendered nugatory. She also said that merely because Rule 11.2 does not explicitly provide for such a situation or invoke Rule 11.5, it cannot be used to deny the power of the governing body to carry out such appointments. Show More the parties had referred to Rule 11.2 in the amended agreement specifically in the context of the appointment of the presiding arbitrator. This was a crucial point on which the facts of the case pivoted.

Referring to the original agreement and the amended agreement, Palli J observed that although it was not for her to comment on the reasons for the change, it was fairly obvious that the parties did not want such a crucial aspect (appointment of the presiding arbitrator) to be left to chance.[5] [5] SAROD’s governing body could simply conduct a draw of lots to appoint the presiding arbitrator. Show More

    B2. Application of the Voestalpine[6] principle [6] Voestalpine Schienen GMBH v. Delhi Metro Rail Corporation Limited, (2017) 4 SCC 665. Show More

Who should be appointed? This was the next question that Palli considered. IRB argued that once the agreed mechanism failed, there was no need to restrict the appointment to the panel maintained by SAROD. NHAI submitted that the clause which “strictly mandates” that the appointment be made from SAROD’s panel “shall still survive.” Palli J noted that the reason behind this argument was that SAROD’s fee structure for the arbitrators was much lower than ordinarily charged.

The court addressed this by first noting that since the time the dispute was referred to arbitration, SAROD constricted its broad-based panel of 177 arbitrators to 33 arbitrators out of which only 4 possessed prior legal training.

Palli J said she was unable to fathom the reason for this and referred to Voestalpine to note that the Supreme Court has emphasised the need to maintain a broad-based panel. She also referred to Bernard Ingenieure ZT GMBH v. IRCON International Ltd., 2018 SCC OnLine Del 7941 where another single judge of the Delhi High Court had “allowed the nomination of an arbitrator who was not on the DMRC panel.”

NHAI “sought to explain this reduction …as an ordinary consequence of the arbitrators’ failure to seek extension of their terms … on account of the ongoing pandemic” but Palli J found this was not convincing.[7]. [7] “Once the SAROD is discharging an important duty … it is incumbent for it to ensure the existence of a broad-based panel in accordance with the directions in Voestalpine”. Show More

Lastly, though Palli J said she was inclined to appoint an arbitrator who would be agreeable to SAROD’s fee schedule, the choice could not be limited to the present panel. She noted the apprehension of IRB that in case an arbitrator is appointed from the SAROD panel, they may not be impartial since the secretary and other office-bearers of the governing body of SAROD are serving employees of NHAI. She said this apprehension could be addressed by appointing a person from a legal background from the erstwhile panel. Thus, Justice (Retd.) Iqbal Ahmed Ansari was appointed.[8]. [8] Palli J did not deal with NHAI’s argument that a party cannot insist on the appointment of a person from a legal background. She said that that IRB did not make any such submission. Show More

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