Court Can Appoint Independent Arbitrator Only After Resorting To The Procedure In Arbitration Agreement: SC [Read Judgment]

One of the issue in a batch of appeals (Union Of India V. Parmar Construction Company) was whether it was permissible for the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (prior to the Amendment Act, 2015) to appoint third party or an independent Arbitrator when the parties have mutually agreed for the procedure vis-à-vis the authority to appoint the designated arbitrator.

The bench comprising Justice AM Khanwilkar and Justice Ajay Rastogi noted that, in the instant case, independence and impartiality of the arbitrator has never been doubted. The court said that the High Court should have probed whether the arbitrator appointed in terms of the agreement failed to discharge its obligations or arbitrated the dispute which was not the case set up by either of the parties. Referring to the relevant provisions of the Act, the bench observed:

"Where the impartiality of the arbitrator in terms of the arbitration agreement is in doubt or where the Arbitral Tribunal appointed in terms of the arbitration agreement has not functioned, or has failed to conclude the proceedings or to pass an award without assigning any reason and it became necessary to make a fresh appointment, Chief Justice or his designate in the given circumstances after assigning cogent reasons in appropriate cases may resort to an alternative arrangement to give effect to the appointment of independent arbitrator under Section 11(6) of the Act."

In this case, the bench said that the High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of an arbitrator which has been prescribed under clause 64(3) of the contract under the inbuilt mechanism as agreed by the parties.

On the question of applicability of the Amendment Act, 2015 which came into force, i.e. on 23rd October, 2015, the bench said that it shall not apply to the arbitral proceedings which has commenced in accordance with the provisions of Section 21 of the Principal Act, 1996 before the coming into force of Amendment Act, 2015, unless the parties otherwise agree. As per the contract in this case, the arbitrators shall be two gazetted railway officers. The High Court, had allowed the plea under 11(6), and appointed a retired Judge of the High Court as an independent sole arbitrator.

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