TMI Blog2015 (10) TMI 2620X X X X Extracts X X X X X X X X Extracts X X X X ..... is made up by Section 15(2) of the Act and unless arbitration agreement between the parties provides a categorical prohibition or debarment in resolving a question or dispute or difference between the parties by a substitute arbitrator in case of death or the named arbitrator or non-availability of the said arbitrator, Courts have the power to appoint substitute arbitrator, which power is given by Section 15(2) of the Act as this provision is to be given liberal interpretation so as to apply to all possible circumstances under which the mandate of the earlier arbitrator may be terminated. - Civil Appeal No. 8731 of 2015 (Arising out of S.L.P. (Civil) No. 19617 of 2015) - - - Dated:- 16-10-2015 - A. K. Sikri And R. F. Nariman, JJ. For the Appellant : T. R. Andhyaru Jina, Viral Amin, Bhargava V. Desai, Saumya Mehrotra, Shardul Singh For the Respondent : Santosh Paul, Arvind Gupta, Raghav Shekhar, Ranjan Kumar JUDGMENT R. F. Nariman, J. Leave granted. 2. The respondent had filed a suit in the Bombay High Court, being Suit No. 1927 of 2007, against the appellant and some others seeking a declaration that a development agreement dated 27.12.2004 together wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitrator. Plaintiff is permitted to withdraw the amount which is deposited by Defendant No. 1 and which is lying in the suspense account of Oriental Bank of Commerce, Khar Branch, Mumbai. 1. Plaintiff and Defendants are present in court. 2. Suit is disposed off in the aforesaid terms. 3. Refund of court fees be paid in accordance with the rules. 4. Since the suit itself is disposed of, Notice of motion if any, does not survive and the same is also disposed of. 4. Nothing much seems to have materialised in the arbitration, and despite several meetings held by the named arbitrator, the arbitration proceedings continued to drag on, until by a letter dated 22.01.2011, the Arbitrator resigned as arbitrator in the aforesaid matter. 5. The plaintiff-respondent then applied vide Notice of Motion No. 2245 of 2012 in the disposed of suit No. 1927 of 2007 for appointment of a substitute arbitrator. This Notice of Motion was dismissed by order dated 20.9.2013 stating that an appointment can only be made for a substitute arbitrator under Section 11(5) of the Arbitration Act and not by a Notice of Motion in a disposed of suit. 6. Pursuant to the dismissal of the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce we are concerned with a domestic arbitration clause, it would be useful to extract Section 8(1)(b) and Section 20 of the old repealed 1940 Act to show what was the position in law under the 1940 Act on supplying vacancies created by arbitrators neglecting, refusing or being incapable of acting, or dying before or in the proceedings referred to arbitration. These Sections read as under :- Section 8. Power of Court to appoint arbitrator or umpire. (1) In any of the following cases - (b) if any appointed arbitrator or umpire neglects or refuses to act, or is incapable of acting, or dies, and the arbitration agreement does not show that it was intended that the vacancy should not be supplied, and the parties or the arbitrators, as the case may be, do not supply the vacancy; any party may serve the other parties or the arbitrators, as the case may be, with the written notice to concur in the appointment or appointments or in supplying the vacancy. (2) If the appointment is not made within fifteen clear days after the service of the said notice, the Court may, on the application of the party who gave the notice and after giving the other parties an opportun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereinbefore provided for and has been so decided, every such matter including whether its decision has been otherwise provided for and whether it has been finally decided accordingly or whether the contract should be terminated or has been rightly terminated and as regards the rights and obligations of the parties as the result of such termination shall be referred for arbitration to the Judicial Commissioner, Himachal Pradesh and his decision shall be final and binding and where the matter involves a claim for or the payment or recovery or deduction of money, only the amount, if any, awarded in such arbitration shall be recoverable in respect of the matter so referred. [at para 1] After referring to Section 8(1)(b) and Section 20, this Court held: Section 20 is merely a machinery provision. The substantive rights of the parties are found in Section 8(1)(b). Before Section 8(1)(b) can come into operation it must be shown that (1) there is an agreement between the parties to refer the dispute to arbitration; (2) that they must have appointed an arbitrator or arbitrators or umpire to resolve their dispute; (3) anyone or more of those arbitrators or umpire must have neglec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned with the correct interpretation of Section 15 of this Act, it is set out hereinbelow:- Section 15.Termination of mandate and substitution of arbitrator. - (1) In addition to the circumstances referred to in section 13 or section 14, the mandate of an arbitrator shall terminate - (a) where he withdraws from office for any reason; or (b) by or pursuant to agreement of the parties. (2) Where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. (3) Unless otherwise agreed by the parties, where an arbitrator is replaced under sub-section (2), any hearings previously held may be repeated at the discretion of the arbitral tribunal. (4) Unless otherwise agreed by the parties, an order or ruling of the arbitral tribunal made prior to the replacement of an arbitrator under this section shall not be invalid solely because there has been a change in the composition of the arbitral tribunal. The reason for the change in law under the 1996 Act is because it was modeled on the Uncitral Model Law on International Commercial Arbitr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause stated that the Managing Director of the respondent company was to appoint an arbitrator in terms of the said clause. The appointed arbitrator resigned, after which the Managing Director of the respondent company promptly appointed another arbitrator. The correctness of the second appointment was challenged in an application made by one of the parties under Section 11(5) of the Act read with section 15(2) praying that the Chief Justice of the High Court may appoint a substitute arbitrator to resolve the disputes between the parties. This application under Section 11 was dismissed, which dismissal was upheld by a Division Bench of the High Court. This Court agreeing with the Division Bench judgment held as under:- In our view, the learned Chief Justice and the Division Bench have rightly understood the scope of Section 15 of the Act. When the arbitrator originally appointed in terms of the arbitration agreement withdrew for health reasons, the Managing Director, as authorised originally by the arbitration agreement, promptly appointed a substitute arbitrator. It is true that in the arbitration agreement there is no specific provision authorising the Managing Director to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the termination thereof, if any difference or dispute shall arise between the parties hereto in regard to the interpretation of any of the provisions herein contained or act or thing in relation to this agreement/contract, such difference or dispute shall be forthwith referred to two arbitrators for arbitration in Bombay, one to be appointed by each party with liberty to the arbitrators in case of differences or their failure to reach an agreement within one month of the appointment, to appoint an umpire residing in Bombay and the award which shall be made by two arbitrators or umpire as the case may be shall be final, conclusive and binding on the parties hereto. If either party to the difference or dispute shall fail to appoint an arbitrator within 30 calendar days after notice in writing having been given by the parties or shall appoint an arbitrator who shall refuse to act then the arbitrator appointed by the other party shall be entitled to proceed with the reference as a sole arbitrator and to make final decision on such difference or dispute and the award made as a result of such arbitration shall be a condition precedent to any right of action against any two pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or such appointment. Even Section 15(2), which regulates appointment of a substitute arbitrator, requires that such an appointment shall be made according to the rules which were applicable to the appointment of an original arbitrator. The term rules used in this sub-section is not confined to statutory rules or the rules framed by the competent authority in exercise of the power of delegated legislation but also includes the terms of agreement entered into between the parties. There is nothing in Clause 19 from which it can be inferred that in the event of refusal of an arbitrator to accept the appointment or arbitrate in the matter, the party appointing such arbitrator has an implicit right to appoint a substitute arbitrator. Thus, in terms of the agreement entered into between the parties, Respondent 1 could not appoint Shri S.L. Jain as a substitute arbitrator simply because Shri S.N. Huddar declined to accept the appointment as an arbitrator. The only consequence of Shri S.N. Huddar's refusal to act as an arbitrator on behalf of Respondent 1 was that Respondent 2 who was appointed as an arbitrator by the appellants became the sole arbitrator for deciding the dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qually applicable to the appointment of a substitute arbitrator, even if the agreement does not specifically say so. Reference may be made to the judgment of this Court in Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. [2006(3) R.C.R.(Civil) 592 : 2007(4) Recent Apex Judgments (R.A.J.) 656 : (2006) 6 SCC 204] . Sections 14 and 15 provide the grounds for termination of the mandate of the arbitrator on the ground of incapability of the arbitrator to act or if he withdraws from his office or when the parties agree to the termination of the mandate of the arbitrator. Section 15(2) states that a substitute arbitrator shall be appointed as per the rules that were applicable to the appointment of the arbitrator being replaced. Section 15(2), therefore, has to be given a liberal interpretation so as to apply to all possible circumstances under which the mandate may be terminated. The legislative policy embodied in Sections 14 and 15 of the Act is to facilitate the parties to resolve the dispute by way of arbitration. The arbitration clause if clearly spells out any prohibition or debarment, the court has to keep its hands off and there is no question of per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bstitute arbitrator in terms of Section 15(2). Similar is the case in the ACC Ltd. judgment where this Court held that despite two named arbitrators having died, substitute arbitrators could be appointed in terms of the said clause unless there is a clear prohibition or debarment that could be read on a true construction of the arbitration agreement. It found that the expression at any time clearly showed that the arbitration clause had no nexus with the lifetime of the named arbitrator and therefore no such prohibition could be read. It also held that the procedure agreed upon by the parties for the appointment of the original arbitrator is equally applicable to the appointment of a substitute arbitrator, even if the agreement does not specifically say so, as this is the mandate of Section 15(2) of the Act. 19. On the other hand, in the SBP and Company case, the arbitration clause itself indicated that one of two appointed arbitrators who refused to act would not be liable to be substituted by another arbitrator as the other appointed arbitrator would then continue with the reference as sole arbitrator. This Court, therefore, held that since Section 15(2) referred to the arbi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peated at the discretion of the newly appointed Tribunal, unless parties have agreed otherwise. Equally, orders or rulings of the earlier arbitral Tribunal are not to be invalid only because there has been a change in the composition of the earlier Tribunal, subject, of course, to a contrary agreement by parties. This also indicates that the object of speedy resolution of disputes by arbitration would best be sub-served by a substitute arbitrator continuing at the point at which the earlier arbitrator has left off. 21. On the facts of the present case, it is clear that there is nothing in clause 8 of the consent terms extracted above to show that the resignation of Justice Sujata Manohar would lead to her vacancy not being supplied. All that the parties have done by the said clause is to agree to refer their disputes to the arbitration of an independent retired Judge belonging to the higher Judiciary. There is no personal qualification of Mrs. Justice Sujata Manohar that is required to decide the dispute between the parties. In fact, she belongs to a pool of independent retired High Court and Supreme Court Judges, from which it is always open to the appointing authority to choos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty has been approached by the respondent for appointment of a substitute arbitrator, which was then done by the impugned judgment. This would therefore be according to the rules that were applicable to the appointment of the arbitrator being replaced in accordance with Section 15(2) of the Act. We, therefore, find that the High Court correctly appointed another independent retired Judge as substitute arbitrator in terms of Section 15(2) of the Arbitration Act, 1996. The appeal is, therefore, dismissed. A.K. Sikri, J. I am entirely in agreement with the conclusion arrived at by my learned Brother R.F. Nariman, J. in his accompanying judgment on the interpretation of Section 15(2) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the 'Act'). It is held by my learned Brother that since arbitration agreement that was arrived at between the parties herein did not specifically bar the appointment of another arbitrator on the recusal/withdrawal of the earlier arbitrator appointed by the parties with mutual agreement, Section 15(2) of the Act would be attracted and a substitute arbitrator could be appointed according to 'Rules' that govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h greater control of the process than a court hearing. The non-judicial nature of arbitration makes it both attractive and effective for several reasons. Apart from it being cost effective and speedier method of settling the disputes when compared with court adjudicatory method, the confidentiality of the arbitration process may appeal to those who do not wish the terms of settlement to be known. Therefore, first thing that has to be kept in mind, when in a pending suit the parties agree for reference to arbitration, though there was no arbitration agreement when the suit was filed, is that they have consciously preferred arbitration rather than the court process. It, thus, follows that the intention is to settle the disputes through arbitration and not the Court. 5. Secondly, in such a situation, Section 89 of the CPC also springs into action, which provides for 'settlement of disputes outside the Court'. As per this provision, where it appears to the Court that there exists elements of a settlement which may be acceptable to the parties, the Court shall formulate the terms of settlement and give them to the parties for their observations and after receiving the observa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the same dispute by court adjudicatory process. 8. It is in this backdrop we have to decide the applicability of Section 15(2) of the Act when the arbitrator to whom the matter was referred earlier with the consent of the parties withdraws therefrom. 9. The aforesaid two reasons given by me, in addition to the reasons already indicated in the judgment of my learned Brother, would clearly demonstrate that provisions of Section 15(2) of the Act require purposive interpretation so that the aforesaid objective/purpose of such a provision is achieved thereby. The principle of 'purposive interpretation' or 'purposive construction' is based on the understanding that the Court is supposed to attach that meaning to the provisions which serve the 'purpose' behind such a provision. The basic approach is to ascertain what is it designed to accomplish? To put it otherwise, by interpretative process the Court is supposed to realise the goal that the legal text is designed to realise. As Aharan Barak puts it : Purposive interpretation is based on three components: language, purpose, and discretion. Language shapes the range of semantic possibilities ..... X X X X Extracts X X X X X X X X Extracts X X X X
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