Court can appoint independent Arbitrator only after resorting to the procedure in Arbitration Agreement

The Supreme Court recently observed that the High Court(s) while dealing with an application under Section 11(6) of the Arbitration and Conciliation Act, seeking appointment of an ‘independent Arbitrator’, should first resort to the mechanism in appointment of an arbitrator as per the terms of contract as agreed by the parties.

The said ruling in the matter of Union of India Vs. Parmar Construction Company (Civil Appeals No. 3303 of 2019), decided on 30.03.2019.

Challenge

Broadly the issue in the present matter was whether it was permissible for the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (prior to the Amendment Act, 2015) to appoint third party or an independent Arbitrator when the parties have mutually agreed for the procedure vis-à-vis the authority to appoint the designated arbitrator.

Held

The Division Bench noted that as independence and impartiality of the arbitrator has never been doubted in the instant case, the High Court should have probed whether the arbitrator appointed in terms of the agreement failed to discharge its obligations, arbitrated the dispute which was not the case set up by either of the parties or passed an award without assigning any reason and it became necessary to make a fresh appointment, in such a case Chief Justice or his designate in the given circumstances after assigning cogent reasons in appropriate cases may resort to an alternative arrangement to give effect to the appointment of independent arbitrator under Section 11(6) of the Act.

The Bench finally held that the High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of an arbitrator which has been prescribed under clause 64(3) of the contract under the inbuilt mechanism as agreed by the parties.

On the question of applicability of the Amendment Act, 2015 which came into force, i.e. on 23rd October, 2015, the bench said that it shall not apply to the arbitral proceedings which have commenced in accordance with the provisions of Section 21 of the Principal Act, 1996 before the coming into force of Amendment Act, 2015, unless the parties otherwise agree.