Bombay High Court: Even if party Forfeiture its Right to Appoint, Court is Empowered to Appoint Arbitral Tribunal

Bombay High Court: Even if party Forfeiture its Right to Appoint, Court is Empowered to Appoint Arbitral Tribunal

The Bombay High Court by its single judge Justice Manish Pitale observed that even if a party's right to appoint its nominee in the Arbitral Tribunal as per the arbitration clause, is forfeited because it failed to exercise its right within the statutory period after receiving the notice invoking arbitration, it would not render the Court powerless to appoint an appropriate Arbitral Tribunal, after considering the nature of the disputes.

While dealing with a petition filed under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C) in the matter of PSP Projects Limited vs. Bhiwandi Nizampur City Municipal Corporation, seeking appointment of a Sole Arbitrator, the Court recorded that the respondent had forfeited its right to appoint its nominee as per the Arbitration Clause, which specified a three- member Arbitral Tribunal.

The petitioner is a company engaged in the business of construction and was a successful bidder in a tender floated by the respondent. Subsequently certain disputes arose between the petitioner and the respondent, on the 30th July, 2021, the Petitioner issued notice to the Respondent- Corporation stating its grievances, thereby raising disputes and it invoked the Arbitration Clause of the Tender Document read with Work Order and the Agreement executed between the parties.

The Petitioner proposed the name of a former Chief Justice of this Court as a sole Arbitrator for resolution of disputes between the parties. On 11th August, 2021, the Respondent – Corporation sent its reply through Advocate to the invocation notice of the Petitioner. The Respondent – Corporation denied the claims made in the said notice and specifically stated that the Petitioner, by proposing the name of a sole Arbitrator, was seeking to deviate from procedure agreed between the parties for appointment of an Arbitral Tribunal.

In this backdrop the petitioner filed a petition before the High Court and argued that the Arbitration Clause contained in the Contract violated Section 12 (5), read with the Seventh Schedule of the A&C Act.

The petitioner vehemently asserted that as per the arbitration agreement between the parties, the respondent corporation is required to forward a panel of five Arbitrators, from which the petitioner and the respondent would each choose one Arbitrator. The said two Arbitrators would thereafter choose the third Arbitrator.

The Court after recording the submissions put forth by both the parties, reached to the conclusion that that the Petitioner could have invoked the Arbitration Clause in the light of the disputes arising between the parties in pursuance of show cause notice dated 8th June, 2021, issued by the Respondent – Corporation through its Commissioner, it was required to examine as to whether the Arbitration clause and the procedure prescribed therein is hit by Section 12(5) read with the Seventh Schedule to the said A&C Act.

For this, the Court placed reliance on the decision passed by the Supreme Court in the case of Perkins Eastman Architects DPC and another vs. HSCC (India) Limited (2019), the Court took note that the Supreme Court has held that if one party has the authority to appoint a Sole Arbitrator, such unilateral appointment would vitiate the arbitration clause. However, if two parties had a right to nominate an Arbitrator each, and the two Arbitrators then appointed a third Arbitrator, the unilateral nature of the arbitration clause ceased, as in such a case the rights of both the parties stood counterbalanced.

In the present case, the Court was of the view that as per the law laid down by the Apex Court, once notice invoking Arbitration is issued by a party, and a period of thirty days lapses, after which the first party files a petition under Section 11 before the Court, the other party's right to appoint its nominee on the Arbitral Tribunal as per the procedure agreed under the Arbitration Clause, would stand relinquished.

The Court observed, "although it can be held that the Respondent – Corporation forfeited its right, but it would not ipso facto lead to a conclusion that even the Court must necessarily appoint only a Sole Arbitrator on the insistence of the Petitioner. In other words, the forfeiture of the right of the respondent would not render this Court powerless to appoint an appropriate Arbitral Tribunal, in the interest of justice."

"Considering the nature of disputes raised between the parties in the context of the contract concerning construction of Dwelling Units, necessarily involving technical matters, this Court is of the opinion that an Arbitral Tribunal of three members ought to be constituted," further the Court added.

Thus, the petition was partly allowed and two Arbitrators were appointed, as a nominee of the petitioner and the respondent, respectively, directing the two Arbitrators to appoint the third Arbitrator.