Entire Arbitration Not Invalid By Illegality Of Appointment Procedure: Delhi High Court Reiterates

The bench of Justice Sachin Datta held that the procedure for appointment of an arbitrator is clearly distinct and separable from the agreement to refer disputes to arbitration, even if these are contained in the same arbitration clause.

Facts

Three petitions were filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of a Sole Arbitrator to settle disputes between the parties.

In the first case, ARB.P. 740/2023, the disagreement stemmed from a contract for "Execution and Handing over of Civil Works for 400 Kv Bay Extension At Karaikudi In Tamil Nadu." This work was awarded to the petitioner by the respondent, leading to a Work Order on 06.01.2014, followed by a Contract Agreement on 21.04.2014.

In ARB.P. 738/2023, the dispute arose from a contract involving "Execution and Handing Over of Civil Works for Land Development and Boundary work for 400/110 KV Switchyard at Thappagundu in Tamil Nadu." The petitioner received a Work Order on 01.03.2014, resulting in a Contract Agreement on 16.05.2014.

The third case, ARB.P. 737/2023, involved a contract for "Execution and Handing over of Balance Civil Works of 400/11 OKV Switchyard at Thappagundu in Tamil Nadu." The petitioner was awarded the work, receiving a Work Order on 26.09.2016, and a Contract Agreement on 25.10.2016.

Disputes emerged between the parties regarding these contracts. The petitioner, citing a violation of the arbitration clause, sent letters invoking arbitration and requested the appointment of an independent sole arbitrator. Despite these requests, there was no response from the respondent.

Contention of the Parties

The respondent objected to the maintainability of the petitions on the following grounds:

• That the arbitration clause between the parties is conditional in nature, as it provided that only the respondent could appoint the arbitrator and if that eventuality is rendered impossible, there would be no arbitration.
• That the respondent can no longer appoint the arbitrator due to the illegality of the unilateral appointment, the arbitration clause does not survive and the dispute cannot be referred to arbitration.

The petitioner made the following counter-submissions:

• That since the procedure for the appointment of the arbitrator is illegal, the Court would appoint the arbitrator.
• The entire arbitration clause does not disappear merely because a part of it is illegal.
• The illegal part can be severed by the Court to retain the remaining portion of the clause.

Analysis by the Court

The Court rejected the objection raised by the respondent. It held that an arbitration clause does not become illegal by mere illegality of the appointment procedure provided therein.

The Court held that the procedure for appointment of an arbitrator is clearly distinct and separable from the agreement to refer disputes to arbitration, even if these are contained in the same arbitration clause.

The Court reiterated that the Court exercising powers under Section 11 of the A&C Act can sever such an illegal portion of the award to give effect to the remaining valid clause and the intention of the parties to refer the dispute to arbitration.

Accordingly, the Court allowed the petitions and appointed the arbitrator.

Case Title: S.K. Engineering & Construction Company India, ARB. P. 737 of 2023

Citation: 2023 LiveLaw (Del) 1217

Counsel for the Petitioner: Mr. Adarsh Ramanujan, Mr. Lzafeer Ahmed, Mr. Skanda Shekhar and Mr. Rajdeep Saral, Advs.

Counsel for the Respondent: Mr. Himanshu Gupta, Mr. P. Sharma and Mr. Aditya Sikka, Advs.

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