The Expression “Any” Member of Arbitral Tribunal Cannot Be Read As “All Members”: Delhi High Court

The Delhi High Court has ruled that the expression “any member” contained in a clause that lays down a mandatory qualification to be appointed as arbitrator, cannot be read as “all members” of the Arbitral Tribunal. The court said that the phrase “any member” must be interpreted in the context in which it is used.

The bench of Justice Yashwant Varma was dealing with an Arbitration Clause that required that “any member” of the Arbitration Tribunal shall be a “Graduate Engineer with experience in handling public works engineering contracts” at a level “not lower than Chief Engineer (Joint Secretary level of Government of India)”. The said Clause provided that the same was “a mandatory qualification to be appointed as arbitrator”.

The court read down the clause to mean that at least one or more of the members of the Arbitral Tribunal must possess the prescribed qualification. Thus, the said clause cannot be interpreted to require all members of the Arbitral Tribunal to possess the specified qualifications, the court said.

The bench remarked that if the expression “any” is interpreted as “all” members of the Arbitral Tribunal, as contended by the Union of India, then the claimant-contractor would also be held bound to appoint a Graduate Engineer. The court ruled that this would clearly deprive the contractor of its right to appoint a person of its choice having qualifications that it may deem appropriate and relevant. It would also clearly violate the fundamental precept of party autonomy on which the entire adjudicatory process itself is founded.

The court further read down the clause to mean a retired government employee, in order to sustain and uphold the clause insofar as it specified the arbitrator’s qualifications.

After certain disputes arose between the petitioner-contractor, Shapoorji Pallonji and Company Pvt Ltd, and the respondent, Union of India (UOI), under a contract, Shapoorji Pallonji invoked arbitration. Thereafter, it filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (A&C Act) before the Delhi High Court. The petitioner alleged that the UOI had failed to abide by the appointment procedure contained in the Arbitration Agreement and had failed to appoint its nominee arbitrator.

The court referred to the Dispute Resolution Clause contained in the contract, which provided for constitution of a three-member Arbitral Tribunal, where each party shall nominate an arbitrator. The two appointed arbitrators shall, in turn, appoint the third arbitrator who shall act as the presiding arbitrator.

As per the relevant clause, the UOI’s nominee arbitrator would be appointed by either the Central Public Works Department’s (CPWD) Chief Engineer (CE), the Additional Director General (ADG), or the Director General (DG).

Further, in the event either party to the contract failed to appoint the second arbitrator or the two nominated arbitrators failed to concur on a presiding arbitrator, the DG (CPWD) would be empowered to appoint the second or the presiding arbitrator, as the case may be.

Thus, the UOI claimed that the right of appointment of its nominee arbitrator stood reserved in favour of the DG (CPWD). Therefore, the relief sought by the petitioner, Shapoorji Pallonji, was not maintainable, it contended.

It further pointed out that the Arbitration Clause laid down a mandatory qualification to be appointed as arbitrator. The clause provided that, “any member of the Arbitration Tribunal shall be a Graduate Engineer with experience in handling public works engineering contracts at a level not lower than Chief Engineer (Joint Secretary level of Government of India)”.

Thus, the Union submitted that not only was the nominee arbitrator of the petitioner appointed in clear violation of the said provisions, even if an Arbitral Tribunal were to be ultimately constituted, the arbitrators would have to answer the prescribed qualifications.

At the outset, while considering the powers vested in the CE, ADG or the DG (CPWD) to appoint a second arbitrator or a presiding arbitrator, the court said that none of the three were qualified to act as an arbitrator in light of the provisions contained in the Seventh Schedule of the A&C Act. Accordingly, they were also ineligible to nominate a second or a presiding arbitrator in view of the Supreme Court’s decision in Perkins Eastman Architects DPC vs HSCC (India) Ltd, (2020) 20 SCC 760.

On the issue with respect to the qualifications that members of the Arbitral Tribunal were liable to possess, the UOI claimed that the word “any” is liable to be interpreted to mean “all” members of the Arbitral Tribunal. It also laid emphasis on the language of the clause which specified that the said prescription “shall be treated as a mandatory qualification to be appointed as arbitrator”.

The court however rejected the contention raised by the UOI. The bench observed that the said provision- while laying down the mandatory qualification for a person “to be appointed as arbitrator”- used the expression “any member”. Further, it did not specify or prescribe that “all members” of the Arbitral Tribunal must hold the prescribed qualifications. The court said that the phrase “any member” must be interpreted in the context in which it is used in the relevant clause.

The bench thus concluded, “The aforesaid stipulations as contained in Clause 25 must consequently be read down and understood to mean that at least one or more of the members of the Arbitral Tribunal must possess the qualifications as prescribed in Clause 25. However, Clause 25 cannot be interpreted to require all members of the Arbitral Tribunal to possess the qualifications as prescribed therein.”

The court further observed that the clause does not specify whether the nominated arbitrator could be drawn from departments or ministries other than those with which the respondent, CPWD, is affiliated.

Thus, the court said that in order to sustain and uphold the relevant clause insofar as it specifies the arbitrator’s qualifications, it would necessarily have to be read down to mean a retired government employee. “This would save the appointment of a person who holds those qualifications and who would not otherwise fall foul of the prohibitions contained in the Seventh Schedule of the Act,” the court added.

The bench also considered the contention of the UOI that the petitioner had invoked arbitration without exhausting the procedure prescribed in the Dispute Resolution Clause, which contemplated disputes being referred for settlement before the Dispute Redressal Committee (DRC) first.

The court remarked that the completion of proceedings before the DRC assumes significance since the rights of parties to nominate gets triggered only once the DRC takes a decision/ concludes proceedings upon a failure of the parties to reach a settlement.

Referring to the facts of the case, the court reckoned that since the DRC reported a failure of conciliation only on 2^nd May, 2023 and the petitioner proceeded to name its nominee arbitrator on 27^nd January, 2023, the nomination made by the petitioner was clearly premature. The court concluded that the right of both the petitioner-contractor and the UOI to nominate their respective arbitrators would spring into existence after 2^nd May, 2023.

The bench added that though at the time the petition was filed before the court, the UOI had failed to nominate an arbitrator; however, its right to do so cannot be said to have been forfeited since the DRC reported a failure of conciliation only on 2^nd May, 2023.

The court thus granted liberty to the parties to make a fresh nomination of its arbitrators.

Case Title: Shapoorji Pallonji and Company Private Limited vs Union of India

Citation: 2023 LiveLaw (Del) 484

Counsel for the Petitioner: Mr. Ciccu Mukhopadhyay, Sr. Adv. with Mr. Saurav Agrawal, Ms. Sonali Jaitley, Mr. Jaiyesh Bakshi, Mr. Ravi Tyagi, Mr. Mayank Mishra, Mr. Chirag Sharma, Ms. Mayuri Shukla and Ms. Sakshi Tibrewal, Advs.

Counsel for the Respondent: Mr. Apoorv Kurup, CGSC with Mr. Ajay Arjun Sharma, Advs. for UOI.

Click Here To Read/Download Judgment