Legal Blog: June 2012

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Monday, June 18, 2012

Death of Named Arbitrator : Effect on Arbitration Clause

Justice K.S. Radhakrishnan
Supreme Court of India
The Supreme Court in ACC Limited (Formerly Known As The Associated Cement Co. Ltd) Vs. Global Cements Ltd. was called upon to decide whether the arbitration agreement survives in case of the death of the named arbitrator? While deciding the question in the affirmative, it was held as under;

11. Clause 21 of the Agreement indisputably is an arbitration agreement which falls under Section 7 of the Act. The intention of the parties to enter into an arbitration agreement can therefore clearly be gathered from clause 21 of the Agreement. Clause 21 clearly indicates an agreement on the part of the parties to refer the disputes to the named arbitrators in the Agreement. 

12. This Court in Jagdish Chander v. Ramesh Chander [(2007) 5 SCC 719] in a clear exposition of law has laid down the principles to be borne in mind while interpreting an arbitration agreement under Clause 7 of the Act. Existence of an agreement is not in dispute, the question is about its enforceability on the death of the - named arbitrators. Facts clearly indicate that the parties in this case have contemplated that if any question or difference or dispute arises between them, in relation to or with respect to the meaning or effect of the contract or with respect to their rights and liabilities, the same would be referred to one of the two named arbitrators named in the arbitration clause. The question is whether Clause 21 would outlive the lives of the named arbitrators. 

13. Section 14 of the Arbitration and Conciliation Act, 1996 provides for the circumstances in which the mandate of the arbitrator is to terminate. It says that the mandate of an arbitrator will end when it becomes impossible for him to perform his functions de facto or de jure or for some other reasons he fails to act without undue delay or withdraws from office or the parties agree to terminate his mandate. 

14. Section 15(2) of the Act provides that where a substitute arbitrator has to be appointed due to termination of the mandate of the previous arbitrator, the appointment must be made according to the rules that were applicable to the appointment of the arbitrator - being replaced. No further application for appointment of an independent arbitrator under Section 11 will lie where there has been compliance with the procedure for appointment of a substitute arbitrator. On appointment of the substitute arbitrator in the same manner as the first, no application for appointment of independent arbitrator under Section 11 could be filed. Of course, the procedure agreed upon by the parties for the appointment of the original arbitrator is equally applicable to the appointment of a substitute arbitrator, even if the agreement does not specifically say so. Reference may be made to the judgment of this Court in Yashwitha Constructions (P.) Ltd. v. Simplex Concrete Piles India Ltd., (2006) 6 SCC 204. 

15. Sections 14 and 15 provide the grounds for termination of the mandate of the arbitrator on the ground of incapability of the arbitrator to act or if he withdraws from his office or when the parties agree to the termination of the mandate of the arbitrator. Section 15(2) states that a substitute arbitrator shall be appointed as per the rules that were applicable to the appointment of the arbitrator being replaced. Section 15(2), therefore, has to be given - a liberal interpretation so as to apply to all possible circumstances under which the mandate may be terminated. 

16. The scope of Sections 11(6) and 15 came up for consideration before the learned designate of the Chief Justice of India in San-A Trading Company Ltd. v. IC Textiles Ltd. [(2006) Arb.LR 11] and the learned Judge held as follows: 
“.....It therefore follows that in case where the arbitration clause provides for appointment of a sole arbitrator and he had refused to act, then the agreement clause stands exhausted and then the provisions of Section 15 would be attracted and it would be for the court under Section 11(6) to appoint an arbitrator on the procedure laid down in Section 11(6) being followed unless there is an agreement in the contract where the parties specifically debar appointment of any other arbitrator in case the named arbitrator refuses to act.” 
17. Section 11(6) would not apply only if it is established that parties had intended not to supply the vacancy occurred due to the inability of the arbitrator to resolve the dispute or due to whatever reasons but that intention should be clearly spelt out from the terms of the arbitration clause in the Agreement. 

18. The legislative policy embodied in Sections 14 and 15 of the Act is to facilitate the parties to resolve the dispute by way of arbitration. The arbitration clause if clearly spells out any prohibition or debarment, the court has to keep its hands off and there is no question of persuading or pressurising the parties to resolve the dispute by a substitute arbitrator. Generally, this stands out as an exception and that should be discernible from the language of the arbitration clause and the intention of the parties. In the absence of such debarment or prohibition of appointment of a substitute arbitrator, the court’s duty is to give effect to the policy of law that is to promote efficacy of arbitration. 

19. We are of the view that the time factor mentioned in the arbitration clause “at any time” is a clear indication of the intention of the parties and is used in various statutory provisions as well and the meaning of the same has been interpreted by this Court in various judgments. In Situ Sahu and Others v. State of Jharkhand and Others [(2004) 8 SCC 340], this Court dealt with Sections 71-A and 71-B of the Chota Nagpur Tenancy Act, 1908 wherein the power was given to the Deputy Commissioner to restore - possession of “raiyat” belonging to Scheduled Tribes transferred in contravention of the provisions of the Act or fraudulently. Section 71-A provides that “if at any time it comes to the notice of the Deputy Commissioner that transfer of land belonging to a raiyat....... who is a member of the Scheduled Tribes has taken plea in contravention of........... any other provisions of this Act or by any fraudulent method.....” This Court took the view that the words “at any time” in Section 71-A is evidence of the legislative intent to give sufficient flexibility to the Deputy Commissioner to implement the socio-economic policy of the Act, namely to prevent inroads upon the rights of the ignorant, illiterate and backward citizens. Certainly, the expression of the words “at any time” used in Clause 21 of the Arbitration Agreement is to give effect to the policy of the Act which is to promote efficacy of arbitration. 

20. In Ibrahimpatnam Taluk Vyavasaya Coolie Sanghem v. K. Suresh Reddy and Others AIR [2003 SC 3592], this Court examined the scope of Section 50- B of the Andhra Pradesh (Talangana Area) Tenancy and Agricultural Lands Act, 1950. The Court, while interpreting the words “at any time”, took the view that - the use of the words “at any time” in sub-section (4) of Section 50-B of the Act cannot be rigidly read letter by letter. It must be read and construed contextually and reasonably. The Court also opined that the words “at any time” must be understood as within a reasonable time depending on the facts and circumstances of each case in the absence of prescribed period of limitation. In New Delhi Municipal Committee v. Life Insurance Corporation of India and Others (1977) 4 SCC 84, this Court was interpreting the expression of the words “at any time” which finds its place in Section 67 of the Punjab Municipal Act, 1911 read with Section 68A which gave power to the Municipal authorities to amend the assessment list. The Court held that the term “at any time” implies that the list may be amended retrospectively. Stating otherwise would amount to denying to the expression “at any time” even its plain, grammatical meaning, quite apart from ignoring the context in which it occurs and the beneficent purpose of its incorporation. The Court held that the expression must be given its full force and effect, which requires the recognition of the committee’s power to amend an assessment list even after the expiry of the year following the one in which the list was finalized by due authentication. - These decisions are, therefore, to the effect that the expression “at any time” has to be interpreted contextually and reasonably taking note of the intention of the parties. 

21. We have carefully gone through the arbitration clause in the Agreement dated 16.12.1989 and, in our view, the words “at any time” which appear in Clause 21, is of considerable importance. “At any time” expresses a time when an event takes place expressing a particular state or condition that is when the dispute or difference arises. The arbitration clause 21 has no nexus with the life time of the named arbitrator. The expression “at any time” used in the arbitration clause has nexus only to the time frame within which the question or dispute or difference arises between the parties be resolved. Those disputes and differences could be resolved during the life time of the named arbitrators or beyond their life time. The incident of the death of the named arbitrators has no nexus or linkage with the expression “at any time” used in clause 21 of the Agreement. The time factor mentioned therein is the time within which the question or dispute or difference between the parties is resolved as per the Agreement. Arbitration clause would have life - so long as any question or dispute or difference between the parties exists unless the language of the clause clearly expresses an intention to the contrary. The question may also arise in a given case that the named arbitrators may refuse to arbitrate disputes, in such a situation also, it is possible for the parties to appoint a substitute arbitrator unless the clause provides to the contrary. Objection can be raised by the parties only if there is a clear prohibition or debarment in resolving the question or dispute or difference between the parties in case of death of the named arbitrator or their non-availability, by a substitute arbitrator. 

22. We are of the view clause 21 does not prohibit or debar the parties in appointing a substitute arbitrator in place of the named arbitrators and, in the absence of any prohibition or debarment, parties can persuade the court for appointment of an arbitrator under clause 21 of the agreement.
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