The Supreme Court in Union of India v Besco Ltd answered the questions of whether the chief justice of a high court or any person or institution designated by the chief justice, while exercising power under section 11(6) of the Arbitration and Conciliation Act, 1996, is bound to nominate an arbitrator as specified in the agreement for arbitration and whether deviations are permissible.
The special leave petition was filed on the grounds that Delhi High Court could not have nominated an independent arbitrator upon the claimants’ failure to appoint one within the time frame permitted under the arbitration agreement and outside of the provisions of the arbitration agreement.
The petitioner contended that the high court was “bound to nominate a person as stipulated in the agreement for arbitration” only, and relied on the Supreme Court’s decisions in Union of India and another v MP Gupta (2004) and Union of India and others v Master Construction Company (2011), where strict adherence to the terms was mandated.
The respondent argued that once the right of a party to nominate an arbitrator is forfeited, the high court under section 11(6) is free to nominate any qualified person as arbitrator, and that the high court is not bound to nominate the arbitrator as specified in the agreement. The respondent relied on the Supreme Court judgments in Northern Railway Administration, Ministry of Railways, New Delhi v Patel Engineering Company Limited (2008) and North Eastern Railway and others v Tripple Engineering Works (2014).
The Supreme Court noted that it was a well-settled principle that the high court or designated judge is free to deviate from the arbitration agreement and nominate an independent. Further, it was clarified that, as detailed in the Patel Engineering and Tripple Engineering cases, in making the appointment due regard ought to be given to the qualifications prescribed in the arbitration agreement, as required under section 11(8) of the act.
Moreover, the observations of the Supreme Court in Indian Oil Corporation & Ors v Raja Transport Private Limited (2009) that certain circumstances may warrant the appointment of an arbitrator overlooking the procedure as prescribed under the arbitration agreement were found to be crucial.
Accordingly, the Supreme Court was of the opinion that the appointment of an independent arbitrator was within the scope of Delhi High Court’s powers.
It is noteworthy that in the present case, there was no stipulation for appointment of a specific person or a person with a specific qualification only, and hence it was obvious that any independent person could be appointed. Accordingly, the Supreme Court held that “Though an arbitrator is specified in the agreement for arbitration, if circumstances so warrant, the Chief Justice or the designated Judge is free to appoint an independent arbitrator, having due regard to the qualification, if any, and other aspects as required under Section 11(8) of the Act.” The Supreme Court also found that since the high court had exercised its powers in terms of the arbitration agreement by nominating an independent arbitrator, there was no reason to interfere with the appointment made by the high court.
Additionally, the Supreme Court distinguished the facts of the case from the facts in the MP Gupta case. Unlike in the present case, parties in the MP Gupta case had agreed by way of the arbitration agreement that on the claimants’ failure to appoint an arbitrator, the parties would not refer their disputes to arbitration.
Further, although it was not argued, it is essential to note that in the facts and circumstances of the present case, where the arbitration agreement is silent on the procedure to be followed when parties are not in accord, it is the role of the Supreme Court to pass the orders needed to do complete justice between the parties (as provided for under article 142 of the constitution of India). This is exactly what the Supreme Court did in the present case.