Arbitration Clause Valid Despite Even Number Of Arbitrators: Delhi High Court Allows Section 11(6) Petition

Section 10 of the Arbitration and Conciliation Act, 1996 states that the parties are free to determine the number of arbitrators, provided that such number shall not be an even number.

Brief Facts:

M/s Talbros Sealing Materials Pvt. Ltd. (“Petitioner') expressed interest in purchasing machinery from M/s Slach Hydratecs Equipments Pvt. Ltd. (“Respondent”). This led to the issuance of a Commercial Offer which included an arbitration clause. The Petitioner accepted the commercial offer and subsequently issued a purchase order for machinery valued at approximately ₹25 lakhs. Disputes subsequently arose between the parties and the Petitioner invoked the arbitration clause. The Petitioner approached the Delhi High Court (“High Court”) and filed a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”) for the appointment of an arbitrator.

The Respondent argued that the disputes stem from the purchase order dated 02.07.2020, which specified that the order shall be subject to jurisdiction in Faridabad, Haryana. It contended that both parties were located in Faridabad, Haryana, and the machinery was to be supplied there, thus the High Court lacked jurisdiction due to the exclusion clause. Furthermore, it argued that Clause 8 of the Agreement did not constitute a valid arbitration clause, as it anticipates the referral of disputes to two arbitrators.

The arbitration clause is reproduced below:

“Clause 8 Arbitration Clause - The order placed on us whether directly or through our branch offices shall in all respect be considered as an Indian Contract and all disputes and differences arising out of the contract or touching the same be referred to two arbitrators one to be appointed by each party for the decision. The venue of Arbitration shall be in Delhi and the award of the Arbitrators shall be filed in a competent court at Delhi. Provisions of Indian Arbitrators Act, 1940 shall govern the Contract. All disputes shall be subjected to Delhi Jurisdiction only.”

Observations by the High Court:

The High Court noted that the arbitration clause explicitly covered disputes arising out of "any orders," including those from the purchase orders. The clause also designated Delhi as the venue for arbitration. Consequently, the High Court held that it had territorial jurisdiction to entertain and adjudicate the petition.

The Respondent argued that the arbitration clause, which referred disputes to two arbitrators, contravened Section 10 of the Arbitration Act. The High Court, however, referred to the Supreme Court's judgment in Babanrao Rajaram Pund v. Samarth Builders & Developers and Another, [(2022) 9 SCC 691] and held it is the intention of the parties which is to be inferred and the endeavour of the courts should be to give meaning to the clear and true intention of the parties.

Section 10 reads as follows: “(1) The parties are free to determine the number of arbitrators, provided that such number shall not be an even number. (2) Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator.”

However, the High Court referred to the decision of the Supreme Court in M.M.T.C. Limited v. Sterlite Industries (India) Ltd., [(1996) 6 SCC 716], which clarified that the validity of an arbitration agreement does not depend on the number of arbitrators specified. It held that Section 10 is a machinery provision for the functioning of the arbitration agreement, and specifying an even number of arbitrators does not invalidate the agreement itself. The High Court also referred to the decisions in Narayan Prasad Lohia v. Nikunj Kumar Lohiaand Others, [(2002) 3 SCC 572], and Sara International Ltd. v. Arab Shipping Co. (P) Ltd., [2009 SCC OnLine Del 122], where it was held that an arbitration clause is not invalidated merely because it specifies an even number of arbitrators. The Supreme Court in the case of Narayan Prasad Lohiaheld that Section 10 is a derogable provision because a party is free not to object within the time prescribed in Section 16(2).

Therefore, the High Court held that the arbitration clause remained valid despite specifying two arbitrators. Consequently, the High Court appointed Ms. Monica Malhotra, Advocate, as the sole arbitrator to adjudicate the disputes between the parties.

Case Title: M/S Talbros Sealing Materials Pvt. Ltd. Vs M/S Slach Hydratecs Equipments Pvt. Ltd

Citation: 2024 LiveLaw (Del) 715

Case Number: ARB.P. 1306/2022 & I.A. 6153/2024

Advocate for the Petitioner: Mr Arjun Mahajan, Ms Neha Rai, Mr Rishabh Bhalla, Advs.

Advocate for the Respondent: Ms. Aanchal Budhraja, Ms. Sangeeta, Advs.

Date of Judgment: 06.05.2024

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