Three-Arbitrator Tribunal To Become Sole Arbitrator Tribunal On Failure Of Party To Appoint Its Arbitrator- Delhi High Court To Examine

The bench of Justice C. Hari Shankar, while dismissing the petitions filed under Section 14(2) read with Section 14(1) seeking termination of the arbitral tribunal's mandate, held that the arbitration clause in the GCC and the one under consideration in the line of judgments following Perkins Eastman being significantly different requires consideration.

Clause 39.2 of the GCC stipulates the establishment of a tribunal comprising three arbitrators; one nominated by the Contractor, and one nominated by the Employer. The third arbitrator has to be appointed by both the arbitrators in accordance with the A&C Act. If either of the party fail to nominate their arbitrator within sixty days of the Section 21 notice, then the arbitrator appointed by the party sending the Section 21 notice shall become the sole arbitrator.

Facts:

The dispute originated from three contract agreements dated 21 May 2010 and 25 February 2010, executed between the petitioner and a Joint Venture (JV) of SPIC-SMO and Aster Teleservices Pvt Ltd. Clauses 38 and 39 of the GCC, pertains to the resolution of disputes between the parties, initially by an attempt at settlement, and if that fails, by arbitration. The respondent sent a notice dated 28 November 2016 under Clause 38 of the GCC dated 25 February 2010, to the petitioner. The said notice was succeeded by a notice dated 13 May 2024 sent by the respondent concerning all three GCCs. The petitioner responded by contending that there cannot be a composite arbitration for all three packages, the claims raised were time-barred, the invocation was bad in law, the remedy of an appeal to the Project Manager, in the event of a conciliation failing, had not been exhausted. Following that, on July 26, 2024, the respondent wrote to the petitioner once more to notify it that, as per Clause 39 of the GCC, the arbitrator appointed by the respondent in its Section 21 notice dated May 13, 2024, would serve as the sole arbitrator, as the petitioner failed to appoint its arbitrator. On 11 August 2024, the learned arbitrator accepted the appointment and scheduled the hearing for 31 August 2024. The arbitral proceedings are continuing before the arbitrator.

Submissions by the Parties:

The petitioner made the following submissions:

• The arbitrator was appointed unilaterally and clearly violated the law laid down in Perkins Eastman Architects, Bharat Broadband Network, Haryana Space Application Centre, etc.

The respondent made the following submissions:

• Clause 39.2 of the GCC substantially differs from the clause considered before the Supreme Court in Perkins's line of cases. The clause does not confer an absolute power to unilaterally appoint an arbitrator, which would violate Section 12(5) of the Act read with the dictum laid down in Perkins.
• The clause envisages one of the parties appointing an arbitrator and writing to the other party to do the same. Should the second party fails to appoint their arbitrator, the clause envisages the arbitrator appointed by the first party to function as the sole arbitrator.
• The arbitrator appointed by the respondent performing as the sole arbitrator is not due to the respondent exercising its right to appoint an arbitrator unilaterally without the petitioner having any role in the appointment procedure. The petitioner, having failed to nominate its arbitrator in response to the Section 21 notice, consented to the respondent's arbitrator serving as the sole arbitrator. By such appointment, the law laid down by Perkins is not violated.

Analysis of the Court:

The Bench observed that the argument concerning the susceptibility of Clause 39.2 of the GCC to violate Perkins and subsequent judgment deserves careful consideration. A decisive view cannot be taken by the court without hearing the opposite side regarding the structural difference between Clause 39.2 of GCC and the clause which formed the subject matter for consideration in the Perkins line of decisions.

Clause 39.2 of GCC gave liberty to the parties to communicate with the opposite party and propose an arbitrator's name. No party was given the right to unilaterally appoint an arbitrator without the consent of the other. When one party nominates the arbitrator, the other had to respond by nominating their arbitrator. It is only when the second party defaults in appointing their arbitrator does the arbitrator appointed by the first party function as a sole arbitrator. Therefore, one could argue that the petitioner gave its implied consent to the respondent's arbitrator functioning as the sole arbitrator by defaulting to proposing the name of their arbitrator in reply to the respondent's Section 21 notice.

The court followed the law laid down in SBI General Insurance Co Ltd v. Krish Spinning and observed that the court can only examine whether there is a valid arbitration agreement between the parties and whether the Section 11 application has been filed within three years of issuance of Section 21 notice. The arbitrability of the dispute and the issue of claims being barred have to be adjudicated by the arbitral tribunal at the section 16 stage.

No argument other the one based on Perkins could make out a case of the arbitrator being de jure incapable of functioning. Therefore, the court dismissed the Section 14 application while keeping the issue regarding the arbitral clause being hit by Perkins open for consideration.

The case is listed for disposal on 23 October 2024, before Justice C. Hari Shankar's bench.

Case Title: Power Grid Corporation of India Ltd. v. Mirador Commercial Pvt Ltd

Citation: 2024 LiveLaw (Del) 1090

Case Number: O.M.P. (T) (COMM.) 88/2024 & CAV 431/2024, I.A. 38190/2024,

Counsel for the Petitioner: Mr. Sudhir Nandrajog, Senior Advocate with Mr. Suriti Chowdhary, Mr. Anuj Bhave, Mr. Pritam Raman Giriya, Mr. Sudhanshu Sharma and Ms. Devna Arora, Advocates.

Counsel for the Respondent: Ms. Beenashaw N. Soni, Advocate. with Mr. Rajesh Mahendra, Mr. Gaurav Kejriwal, Mr. Ankit Kohli, Ms. Sejal Jain and Mr. Naresh Balodia, Advocates.