1993 (10) TMI 360 - SC - Companies Law

Summary

Issues Involved:
1. Whether the refusal of an arbitrator to resign while not accepting the joint request of the parties to extend time for arbitration amounts to refusal to act under Section 8(i)(b) of the Arbitration Act.
2. Whether the power to appoint the next arbitrator vests in the Court or has to be in accordance with the procedure provided in the Agreement.

Detailed Analysis:

Issue 1: Refusal to Act by the Arbitrator
The primary question is whether the arbitrator's refusal to resign and not extending the arbitration time constitutes a refusal to act under Section 8(i)(b) of the Arbitration Act. The arbitrator, appointed by the Chief Engineer as per Clause 25 of the agreement, decided not to extend the arbitration time despite 59 sittings and applications from the Appellant. The arbitrator stated that there was no misconduct but acknowledged a delay and loss of confidence from the Respondent. He directed that further extension of time would not be allowed and left it to the parties to decide their future course of action.

The Respondent approached the Chief Engineer for a new arbitrator, but the request was denied. Subsequently, the Respondent sought court intervention under Section 12(2) of the Act, which was granted. The trial court and subsequent appellate court inferred that the arbitrator had refused to act. The Supreme Court upheld this inference, stating that refusal to act can be both express and implied. In this case, the arbitrator's actions and the subsequent loss of confidence from the Respondent constituted an implied refusal to act.

Issue 2: Power to Appoint the Next Arbitrator
The second issue concerns whether the power to appoint the next arbitrator lies with the Court or must follow the procedure in the Agreement. The Court examined Section 8(i)(b) of the Arbitration Act, which allows the Court to appoint a new arbitrator if the original arbitrator refuses to act and the arbitration agreement does not explicitly show that the vacancy should not be filled.

The Court noted that the arbitration clause in the agreement did not indicate that the parties did not intend to supply the vacancy. Therefore, the Court had the jurisdiction to appoint another arbitrator. The Court emphasized that the agreement clause is rendered inoperative once the appointed arbitrator refuses to act. The refusal by the arbitrator results in the exhaustion of the agreement clause, necessitating court intervention to appoint a new arbitrator.

The Court also addressed the argument that the Chief Engineer could nominate another arbitrator if the initial nominee refused to act. The Court clarified that the nominee of the sole arbitrator stands in the same position as the arbitrator who nominated him. Therefore, once the nominee refuses to act, it is deemed that the original arbitrator has refused to act, and the clause ceases to operate. The appointment of the next arbitrator must be in accordance with Section 8(1)(b) of the Act.

Conclusion
The Supreme Court dismissed the appeal, affirming the lower courts' decisions. The refusal of the arbitrator to extend the arbitration time and the subsequent loss of confidence from the Respondent constituted a refusal to act under Section 8(i)(b) of the Arbitration Act. Consequently, the Court had the jurisdiction to appoint a new arbitrator, as the arbitration agreement did not explicitly show that the vacancy should not be filled. The appeal was dismissed with costs.