C.M.C. LTD. versus UNIT TRUST OF INDIA & ORS.

P.K. BALASUBRAMANY AN, J. Leave granted.

p. 470, margin A

The appellant and respondent No. I entered into an agreement 23.10.1992 for a Technology Upgrade Project of the latter. The said agreement contained an arbitration clause. The same read: "20. In the event of any dispute or difference relating interpretation or application of any of the provision Agreement or as to the performance of any obligation by party shall be settled by arbitration. Each party shall appoint arbitrator and the arbitrators so appointed shall appoint an to whom the matter on which the arbitrators disagree referred. The decision of the arbitrators and in the event being disagreement between the arbitrators, the decision umpire shall be final, conclusive and binding on the parties respect to the matter referred to arbitration. The decision arbitrators or the umpire as the case may be shall constitute arbitrators award for the purpose of Indian Arbitration Act, The arbitration proceedings shall be conducted in accordance with the rules prescribed by the Indian Council of Arbitration."

p. 470, margin B

Disputes arose between the parties. On 16.5.2002, respondent issued a notice invoking the arbitration clause and calling upon the appellant to refer the dispute and differences to be settled through arbitration of the arbitration agreement. Respondent No. I named an arbitrator suggestion that he may be accepted as the sole arbitrator. But, if the appellant was not willing to treat him as such, it was stated that the arbitrator by respondent No. I may be treated as the one appointed by it in terms the arbitration agreement and in that event, the appellant was called name its arbitrator and the said two arbitrators can then appoint a Presiding arbitrator. The appellant replied stating that the parties have agreed to the Rules prescribed by the Indian Council of Arbitration by incorporating said Rules by reference in the arbitration clause and since respondent had not acted in terms of the said Rules, the appellant regretted its to accept the stand of respondent No. I or to appoint an arbitrator of the arbitration agreement. The appellant regretted its inability to act basis of the notice issued by respondent No. I.

pp. 470–471, margin E

Respondent No. I thereupon moved the Chief Justice of the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996. Respondent No. I contended that the appellant had failed to act in terms of the procedure for appointment of an arbitrator and hence the Chief Justice or his Judge designate, may appoint an arbitrator to act along with the arbitrator named by respondent No. I and direct the two arbitrators to appoint the third, a Presiding Arbitrator, within the time fixed and to refer all disputes and differences between respondent No. I and the appellant arising out of or in connection with the Technology Upgrade Agreement as per the provisions of the Act. The appellant resisted the application essentially plei.ding that the Rules of the Indian Council of Arbitration and the mandate thereof had not been complied with by the applicant before the Chief Justice and that the arbitration clause had not been properly invoked and there is no failure on the part of the appellant herein to act in accordance with the procedure accepted by the parties. No occasion had therefore arisen for the Chief Justice to appoint an arbitrator in terms of Section 11(6) of the Act. It is said that the appellant as directed by the court had named an arbitrator without prejudice to its contentions and it is common ground before us that the said two arbitrators have also named the Presiding Arbitrator and an Arbitral Tribunal had come into existence, but subject to the decision in this appeal filed by the appellant.

p. 471, margin A

The learned designated Judge of the High Court held that on a true construction of clause 20 of the Agreement which is the arbitration agreement, the right or duty to appoint or name an arbitrator each, rested with the parties to the contract and what was provided for in the arbitration agreement was only regarding the following of the procedure of the Rules of the Indian Council of Arbitration. The arbitration agreement did not contemplate the appointment of the arbitrator to be as per the Rules of the Indian Council of Arbitration or only from the panel of arbitrators maintained by the Council. Thus, on a construction of the arbitration agreement in the light of the decisions brought to his notice, the designated Judge, noticing that the appellant had also named an arbitrator without prejudice to its contentions and that the two arbitrators had nominated a Presiding Arbitrator and that Tribunal can proceed to arbitrate on the dispute allowed the application and constituted the Tribunal as chosen by the parties. The designated Judge also noticed that the question about the jurisdiction of the Arbitral Tribunal could be decided by the Tribunal itself.

p. 471, margin E

It may be noted that his decision was rendered spoke on the nature of the jurisdiction of the Chief Justice Judge in SBP & CO. v. PATEL ENGINEERING LTD. 618 and held it as a judicial function. The appellant therefore, under Article 226 of the Constitution of India challenging designated Judge, on the basis that the said order was order. The Division Bench held that in view of the restricted the court had in such matters and in the absence of to the appellant, there was no reason to interfere with designated Judge merely because a writ petition was maintainable the same. The Petition for Special Leave to appeal challenging the decision of the Division Bench in subsequent to the decision in SBP & Company (supra), permitted to convert the Petition for Special Leave to Appeal the order of the designated Judge and pursue its challenge this Court. Thus, this appeal challenges the decision of interpreting the arbitration clause quoted above and retained the right to nominate the respective arbitrators obligation on any of the parties to choose only an arbitrator of Arbitration of the Indian Council of Arbitration or to of those Rules for appointment of an arbitrator.

p. 472, margin A

It is settled that getting resolution of a dispute matter of contract between the parties. So long as militate against the provisions of the Arbitration Act, the arbitration agreement between the parties being What is contended by learned counsel for the appellant agreement clearly specifies that "the arbitration proceedings in accordance with the Rules prescribed by the Indian and this would mean that the procedure for appointment of making a claim for arbitration must all be in terms of Council of Arbitration. Learned counsel points out that party wishing to commence arbitration proceedings Council had to give a notice of the request for arbitration Indian Council of Arbitration and to the opposite party procedure laid down in those Rules. Learned counsel of the Indian Council of Arbitration had been incorporated agreement by the parties and any mode of exercise of arbitration clause other than the one prescribed by the would be futile. Therefore, the notice issued on behalf of respondent intimating the appellant of the appointment of an arbitrator and calling upon the appellant to appoint an arbitrator, would not amount to a proper invocation of the arbitration agreement and there is no failure on the part of the appellant to follow the procedure agreed to between the parties for appointment of an arbitrator resulting in conferment of jurisdiction on the Chief Justice to appoint an arbitrator in terms of Section 11(6) of the Act. In this context, we may specifically record that the learned counsel for the appellant agreed that the arbitration was governed by the Arbitration and Conciliation Act, 1996. Respondent No. I had, of course, invoked that very Act.

pp. 472–473, margin A

Even going by the Rules of arbitration of the Indian Council of Arbitration, it is seen that the parties are not precluded from having a different procedure for appointment of an arbitrator. The Rules, even at the inception, suggests the incorporation by the parties of an arbitration clause in writing in their contracts in the following terms: "Any dispute or difference whatsoever arising between the parties out of or relating to the construction, meaning, scope operation or effect of this contract or the validity or the breach thereof shall be settled by arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties." Rule 4( c) which is relevant reads: "In case the parties have provided a different procedure for appointment of arbitrator or schedule of cost including the arbitrator's fee, the Council shall not be bound to process the case unless both the parties agree to follow entire procedure or arbitration under Rules of Arbitration of the Council." It is clear from the comparison of the arbitration agreement suggested by the council and the arbitration agreement between the parties, that the arbitration agreement between the parties substantially differs from the one suggested by the Indian Council of Arbitration. Secondly, Rule 4(c) is specific that case the parties had provided a different procedure for appointment of an arbitrator, the Council was not bound to process the case unless both the parties agreed to follow the entire procedure or Arbitration Rules of the Council. Obviously, a different procedure for appointment of an arbitrator or arbitrators had been agreed to by the parties and respondent No. I had obviously not agreed to follow the entire procedure or have an arbitration under the Rules of the Council. Therefore, even Rules, it. is difficult to accept the argument that to invoke the Rules of the Council to put in for arbitration.

pp. 473–474, margin B

Learned counsel has referred to the decisions of India v. Indian Council of Arbitration & Ors., Gesellschafl Fur Biotechnologische Forchun GMBH Ltd. & Anr .. , [2004] 13 S.C.C. 630 in support of No. I was bound to proceed in terms of the Rules scrutiny of those decisions, it is clear that the cases were substantially in conformity with prescribed by the Council as quoted earlier and Court observed that the Rules of the Council appointment of the Arbitral Tribunal was to be in this case, it is clear that the arbitration clause agreements involved in those cases and the parties right to appoint the arbitrators. Hence, those for the purpose of non-suiting respondent No.

p. 474, margin F

The argument that there is an incorporation Council in the arbitration agreement and hence effect to fully, does not take the appellant far in of the arbitration agreement, what we find themselves the right to name an arbitrator of their name a Presiding Arbitrator so as to constitute power to appoint has not been ceded to the Once the appointments are made and the Arbitral the parties have also agreed that the arbitration in accordance with the Rules prescribed by the The provision that the proceedings shall be conducted Rules prescribed by the Indian Council of Arbitration militate against the retention of the power by arbitrator or constituting an Arbitral Tribunal. inconsistency between the two provisions undertake the existence of reading down one or inconsistent and giving effect to the other. difficulty in reconciling both the clauses in the have noticed, resolution of disputes by way agreement between the parties. If while contemplating disputes they also retain in themselves the power to constitute an Arbitral A - Tribunal, it cannot be said that there is anything wrong in such a provision or that the same cannot be given effect to. Therefore, the power retained by the parties to name an arbitrator each, does not militate either against the provisions of the Act or against the Rules of the Indian Council of Arbitration. That Arbitral Tribunal once constituted in terms of the Act, may have to follow the Rules of Indian Council of Arbitration in that behalf. But as rightly B pointed out by the learned Additional Solicitor General who appeared on behalf of respondent No. I, when an Arbitral Tribunal of persons well versed in law is constituted, surely, a proper procedure will be followed by them and there is no reason to insist on a particular procedure to be followed. But obviously, it is not a matter on which we need pronounce now. Suffice it to C say, that we find no infinnity in the interpretation of the arbitration agreement by the designated Judge and in the constitution of the Arbitral Tribunal as presently constituted. We are also inclined to think that no prejudice is caused to the appellant and no injustice is involved in the constitution of the Arbitral Tribunal. We therefore affinn the order of the designated Judge and dismiss this appeal. We expect the Arbitral Tribunal to enter upon the reference D without any further delay and pronounce its award within nine months of its entering upon the reference.

pp. 474–475, margin D

The appeal is thus dismissed with the above expectation. The parties are directed to suffer their respective costs. E N.J. Appeal dismissed. ,..

p. 475