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2001 (7) TMI 1171 - SC - Companies Law


Issues Involved:
1. Interpretation of Section 10 of the Arbitration Act, 1940.
2. Interpretation of the arbitration clause (Article XVI) in the agreement.
3. Validity of the Arbitral Tribunal's constitution and the role of the third arbitrator.
4. Acquiescence and estoppel in arbitration proceedings.

Detailed Analysis:

1. Interpretation of Section 10 of the Arbitration Act, 1940:
The primary issue revolves around whether the arbitration clause falls under Section 10(1) or Section 10(2) of the Arbitration Act, 1940. Section 10(1) stipulates that if an arbitration agreement provides for the appointment of three arbitrators, one by each party and the third by the two appointed arbitrators, the third arbitrator is deemed to be an umpire. Section 10(2) applies when the arbitration agreement provides for the appointment of three arbitrators in a manner different from Section 10(1), in which case the award of the majority shall prevail.

The court concluded that the arbitration clause in question falls under Section 10(2) because the parties intended for the third arbitrator to act as the Chairman, indicating a clear intent for the dispute to be resolved by a majority decision of the three arbitrators. The court emphasized that the intention of the parties, as inferred from the arbitration clause, is crucial in determining the applicable subsection.

2. Interpretation of the Arbitration Clause (Article XVI) in the Agreement:
Article XVI of the agreement outlines the arbitration process, specifying that if the parties do not agree on a single arbitrator, the Arbitral Tribunal shall consist of three arbitrators, with each party appointing one and the two appointed arbitrators selecting the third, who shall act as Chairman. The clause further states that the decision of the Tribunal shall be by majority vote.

The court interpreted this clause to mean that the parties intended for the third arbitrator to be an active participant and the Chairman of the Tribunal, rather than an umpire. This interpretation aligns with Section 10(2) of the Act, as the arbitration clause explicitly provides for a majority decision by the three arbitrators.

3. Validity of the Arbitral Tribunal's Constitution and the Role of the Third Arbitrator:
The dispute arose when the appellant challenged the constitution of the Arbitral Tribunal, arguing that the third arbitrator, Justice Avadh Behari Rohatgi, should be deemed an umpire under Section 10(1) and not participate in the proceedings. The respondent contended that the arbitration clause clearly intended for the third arbitrator to be the Chairman, making Section 10(2) applicable.

The court upheld the respondent's interpretation, affirming that Justice Rohatgi was correctly appointed as the Chairman of the Arbitral Tribunal. The court noted that the parties' conduct, including their participation in proceedings before the three-member Tribunal for several years without objection, further supported this interpretation.

4. Acquiescence and Estoppel in Arbitration Proceedings:
The respondent argued that the appellant's prolonged participation in the arbitration proceedings without raising objections constituted acquiescence, preventing them from challenging the Tribunal's constitution. The appellant countered that estoppel and acquiescence could not confer jurisdiction.

The court acknowledged the appellant's argument but ultimately found that the parties' conduct supported the interpretation that the arbitration clause intended for the dispute to be resolved by a three-member Tribunal. The court did not base its decision solely on acquiescence but considered it as reinforcing the clear intent of the parties as expressed in the arbitration clause.

Conclusion:
The Supreme Court upheld the Delhi High Court's judgment, confirming that the Arbitral Tribunal was validly constituted with Justice Avadh Behari Rohatgi as the Chairman and that the arbitration clause fell under Section 10(2) of the Arbitration Act, 1940. The court dismissed the appeal with costs, emphasizing the importance of interpreting arbitration agreements in a manner that aligns with the parties' clear intent and supports the efficient resolution of disputes through arbitration.

 

 

 

 

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