One Party Cannot Appoint 2/3rd Of The Arbitral Tribunal: Delhi High Court

The bench of Justice Dinesh Kumar Sharma also held that a petition under Section 11 cannot be dismissed on ground of non-service of Section 21 notice if the earlier petition under Section 11 was disposed of with directions to treat that petition as Section 21 notice itself.

The Court also reiterated that mere illegality of the appointment procedure would not make the entire arbitration clause invalid as the illegal portion can be severed with the remaining portion of the clause being enforced.

Facts

The parties entered into an agreement dated 29.11.2011 wherein certain construction work was awarded to the petitioner. Clause 73 of the agreement provided for resolution of dispute. It contained a multi-tier dispute resolution mechanism providing for conciliation as first step and upon failure thereof, arbitration could be invoked.

The project work could not be completed on time, resulting in a dispute between the parties. Accordingly, the petitioner invoked the arbitration clause and approached the Court for appointment of the arbitrator. The Court observed that notice under Section 21 was not served on the respondent, ergo, it disposed of the petition with directions to treat that petition as Section 21 notice itself.

Thereafter, the petitioner again invoked the dispute resolution clause and the parties were referred to conciliation. The conciliation failed on 17.12.2020 and the notice of arbitration was served on the respondent on 20.04.2021 and upon the failure of the parties to mutually appoint an arbitrator, the petition under Section 11 was filed on 01.02.2023.

Contention of the Parties

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

• That the petitioner has not strictly followed Clause 73 which provided for invocation of arbitration only within 60 days from the failure of conciliation, therefore, the invocation is belated.
• That the notice dated 20.04.2021 cannot be treated a notice of arbitration as it lacks the essentials of a notice invoking arbitration.
• That due to the illegality of the appointment procedure contained in the arbitration agreement, the entire clause becomes invalid and cannot be enforced in parts.

The respondent made the following counter-submissions:

• That the requirement of invoking arbitration within 60 days was not followed due to the onset of Covid-19 and the initiation of insolvency proceedings against the petitioner which led to resignation by various employees including the head for the subject project work.
• Even if it is assumed that notice dated 20.04.2021 was not valid, the Court had directed the earlier petitioner under Section 11 to be treated as notice under Section 21 only, ergo, the requirement of Section 21 stands satisfied.
• Illegal portion of the clause can be severed without affecting the remaining clause.

Analysis by the Court

The Court observed that the delay in invoking arbitration was well explained by the petitioner and the Court had recorded its satisfaction with the explanation. Moreover, the coordinate bench in an earlier Section 11 petition had directed the respondent to treat that petition as notice under Section 21 itself.

The Court held that a petition under Section 11 cannot be dismissed on ground of non-service of Section 21 notice if the earlier petition under Section 11 was disposed of with directions to treat that petition as Section 21 notice itself.

The Court also observed that Clause 73 of the agreement provides for appointment of the arbitrators from the panel of 3 arbitrators to be forwarded by the respondent with the petitioner having the power to appoint only 1 name and the remaining two arbitrators being appointed by the respondents.

The Court held that a panel consisting of 3 names with the employer empowered to appoint 2/3^rd members of would be violates of principles of neutrality, counter-balancing and broad-based representation.

Next, the Court dealt with the objection regarding rendering of the entire arbitration clause illegal due to illegality of the appointment procedure. It held that mere illegality of the appointment procedure would not make the entire arbitration clause invalid as the illegal portion can be severed with the remaining portion of the clause being enforced.

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

Case Title: Apex Buldsys Limited v. IRCON International Ltd

Citation: 2024 LiveLaw (Del) 341

Date: 15.03.2024

Counsel for the Petitioner: Mr. Suhail Sehgal, Mr. Rakesh Kumar, Mr. Chandan, Advs.

Counsel for the Respondent: Mr. Chandan Kumar, Ms. Kirti Atri, Advs.

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