Party without notice of Section 11 Petition filed by other party is free to appoint Arbitrator

In the matter of M/s Durga Welding Works v Chief Engineer, Railway Electrification, Allahabad and Anr. [Civil Appeal No. 54 of 2022] decided by Hon’ble Supreme Court on 04.01.2022

Facts

A contract agreement was executed between the Appellant (M/s Durga Welding Works) and the Respondents (Chief Engineer, Railway Electrification) after the tender of the Appellant was accepted. Since there were claims which could not be settled, the Appellant served a legal notice dated 03.08.2009 for appointment of an Arbitrator and for settlement of claims.  The notice was duly served to the Respondents but the Respondents failed to appoint an arbitrator pursuant to notice sent by the Appellant. Therefore, the Appellant filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter referred as “the Act”) for appointment of an Arbitrator.

After filing of the arbitration petition, the Appellant has completely forgot of taking actions in furtherance thereto and no notice was served at any stage to the Respondents. Meanwhile, Respondents vide letter dated 28.01.2010 in response to the letter of the Appellant dated 03.08.2009 asked the appellant to select two names from a panel of four persons. Two officers from the panel suggested by the Respondents were selected by the appellant and therefore, Arbitration Tribunal was constituted by the Respondents. The Appellant appeared before the Tribunal and preferred statement of claim. The Appellant thereafter appeared before the Tribunal and submitted an application that the Tribunal has not been nominated within the stipulated time, therefore the constitution of Arbitral Tribunal is not valid. Since the Arbitral Tribunal was formed with consent of the appellant, the Tribunal proceeded with the arbitration proceedings and since Appellant failed to participate, an ex-parte award was passed on 21.06.2013 rejecting the claim of the Appellant.

After almost 3 years, notices were issued in the Arbitration Proceedings. The High Court taking note of such facts dismissed the Arbitration Petition with liberty to the Appellant to submit its obligation under Section 34 or 37 of the Act. Hence, this Appeal.

Observations

The Hon’ble Bench observed that the legal principles are well settled by the Supreme Court in Datar Switchgears Ltd. v Tata Finance Ltd. [2000 (8) SCC 151] followed by Punj Lloyd v Petronet MHB Ltd. [2006 (2) SCC 151] that once an application under Section 11(6) of the Act has been filed for appointment of an Arbitrator, the Respondents forfeited their right to appoint an Arbitrator and the High Court alone hold the jurisdiction to appoint an Arbitrator. However, the facts of the present matter would act as an exception to the well settled principle.

In the present matter, it is clear that the Appellant completely slept over the matter and the Respondents were not served notice of the Arbitration Petition in reasonable time. The notices were issued for the first time by the Hon’ble High Court in the Arbitration Petition after 3 years of passing of ex-parte award by the Arbitral Tribunal. Further, that when the Respondents called upon the Appellant to suggest and select two names from the Panel, the Appellant selected two officers. The Applicant also submitted its statement of claim in front of the Arbitral Tribunal.

Therefore, the Hon’ble Supreme Court opined that the High Court has not committed any error in dismissing the Petition filed under Section 11(6) of the Act for appointment of an Arbitrator. Hence, the appeal was accordingly dismissed.