Agreement Providing For Exclusive Appointment Of Party’s Nominee As Arbitrator, Conditional Acceptance; A Case Of Non-Survival Of Arbitration Clause: Delhi High Court

The Delhi High Court has ruled where the Arbitration Agreement unambiguously provides that in case the stipulated person cannot act as an Arbitrator, the dispute is not to be referred to Arbitration at all, the same reflected the conditional acceptance of Arbitration by the party.

The bench of Justice Navin Chawla was dealing with an arbitration clause in a petition filed under Section 11 of the Arbitration and Conciliation, 1996 (A&C Act), which contained the condition that no person other than a person appointed by the Head of the Transmission Business Group (TBG) of the respondent, Bharat Heavy Electricals Ltd (BHEL), should act as the Arbitrator. The Arbitration Clause contained the stipulation that if for any reason that is not possible, the matter is not to be referred to Arbitration at all.

The court held that in the absence of an express waiver by the opposite party, and in view of the judgment of the Supreme Court in Perkins Eastman Architects DPC and Anr. vs. HSCC (India) Ltd., (2020) 20 SCC 760, the Head TBG of BHEL or his nominee cannot be appointed as an Arbitrator. Consequently, the Arbitration Agreement would cease to operate in terms of the Agreement itself, and the parties would have to be relegated to their ordinary civil remedies. The bench added that the dispute represented a case of non-survival of the Arbitration Clause itself, since the agreed upon procedure to appoint an arbitrator had failed.

The court further remarked that it cannot be said that the said condition stipulated in the subsequent part of the Arbitration Agreement is severable, in view of the express provision contained in the Agreement regarding its non-enforceability.

The petitioner, M/s Vindhya Vasini Construction Co, filed a petition under Section 11(6) of the A&C Act before the Delhi High Court seeking appointment of an Arbitrator for adjudicating the disputes between the parties in relation to the Work Order issued by the respondent, M/s Bharat Heavy Electricals Ltd (BHEL).

BHEL submitted before the court that as per the Arbitration Agreement between the parties, only the Head TBG of BHEL or his nominee can act as an Arbitrator. As per the Agreement, no person other than a person appointed by the Head TBG should act as an Arbitrator. If for any reason that is not possible, the matter is not to be referred to Arbitration at all. Thus, BHEL claimed that the Arbitration Agreement would cease to operate in case the Head TBG or his nominee cannot be appointed as an Arbitrator.

On the other hand, the petitioner, Vindhya Vasini, contended that the Arbitration Agreement is severable from the latter part of the Agreement, which provides that in case the Head TBG or a person nominated by him cannot act as an Arbitrator, the matter shall not be referred to Arbitration.

The petitioner claimed that, though in view of the judgments of the Supreme Court in TRF Limited vs. Energo Engineering Projects Limited, (2017) 8 SCC 377 and Perkins Eastman Architects (2020), the Head TBG cannot act as an Arbitrator. However, being severable in nature, the Arbitration Agreement would still survive.

The court remarked that party autonomy is virtually the backbone of arbitration, as well as the brooding and guiding spirit in arbitration. “The parties while agreeing to Arbitration may also stipulate conditions necessary for their reference. They may also agree that this consent/agreement for Arbitration would not bind them in case one or other circumstance exists or for one or more nature of disputes. It need only be emphasized: without an arbitration agreement, party cannot be compelled to arbitration,” the bench said.

Referring to the arbitration clause contained in the work order, the court observed that it specifically provides that no person other than a person appointed by such Head TBG should act as the Arbitrator, and “if for any reason that is not possible, the matter is not to be referred to Arbitration at all.”

The court concluded that the same reflected the conditional acceptance of Arbitration by the respondent.

“In absence of an express waiver by the petitioner and in view of the judgment of the Supreme Court in Perkins Eastman Architects DPC (supra), the Head TBG of the respondent or his nominee cannot be appointed as an Arbitrator. In that view, the Arbitration Agreement would cease to operate in terms of the Agreement itself, and the parties would have to be relegated to their ordinary civil remedies in case of a dispute,” the court said.

The bench added that the dispute represented a case of non-survival of the Arbitration Clause itself, since the agreed upon procedure to appoint an arbitrator had failed. It concluded that the Arbitration Agreement expressly ceased to operate in case the nominee of the Head TBG cannot act as an Arbitrator. The court further remarked that it cannot be said that the said condition stipulated in the subsequent part of the Arbitration Agreement is severable, in view of the express stipulation regarding the non-enforceability of the Arbitration Agreement once the said condition exists.

The bench rejected the contention of the petitioner that since the dominant intention of the parties was to have their disputes resolved through Arbitration, therefore, such intent must not be defeated by the subsequent portion of the Arbitration Clause.

The petitioner, Vindhya Vasini, further contended before the court that the condition stipulated in the Arbitration Agreement was an unreasonable and unconscionable bargain which was incorporated in the Agreement only because of the disproportionate bargaining position that the respondent, BHEL, enjoyed. Thus, the same was unenforceable.

Dismissing the plea of the petitioner, the court said, “As noted hereinabove, arbitration is by the consent of the parties. It provides for an alternate dispute resolution mechanism. The parties in fact voluntarily agreed to have their disputes resolved through a mechanism other than the one provided by the State in form of Courts of Law. There is no mandate on the parties to necessarily have their matters resolved through Arbitration in case they do not wish to provide for the same in their Agreement.”

Noting that the remedy to have the disputes resolved through the mechanism of ordinary Civil Courts was still open to the petitioner, the court said that the petitioner was not left remediless by the stipulation contained in the Clause.

The court thus dismissed the petition.

Case Title: M/s Vindhya Vasini Construction Co vs M/s Bharat Heavy Electricals Ltd

Citation: 2023 LiveLaw (Del) 444

Dated: 10.05.2023

Counsel for the Petitioner: Mr. Somiran Sharma, Mr. Dhrubajit Saikiaand Mr. Tabarak Husain

Counsel for the Defendant: Mr. Himanshu Gupta, Mr. Aditya Sikka, Ms. Padamja Sharma & Ms. Vasudha Vijaysheel

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