Arbitration - Party Without Notice Of Section 11(6) Petition filed By Other Party Free To Appoint Arbitrator: Supreme Court

The Supreme Court has held that a party to the arbitration agreement can appoint an arbitrator even after an Arbitration Petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 has been filed by the other party before the High Court for appointment of an arbitrator if the party has not been given due notice of the same.

A bench comprising Justice Ajay Rastogi and Justice Abhay S. Oka dismissed an appeal filed to assail the order the Orissa High Court, which had dismissed an Arbitration Petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996 ("Act") for the appointment of an arbitrator, since the appellant himself had selected an arbitrator; filed its statement of claim and the Arbitral Tribunal had passed ex-parte arbitral award almost three years before the Respondents were put to notice of the Arbitration Petition filed before the High Court.

Factual Background

Pursuant to the acceptance of the tender of M/s. Durga Welding Works (appellant) vide letter dated 30.11.2006, a contract was executed, which contained clauses of arbitration for settlement of claims and/or disputes between the parties. In view of unsettled claims, the appellant served a legal notice for appointment of arbitrator on 03.08.2009. However, the respondents failed to appoint an arbitrator and the appellant filed an Arbitration Petition before the Orissa High Court for appointment of an Arbitrator under Section 11(6) of the Act, but the respondents were not notified of the same. Meanwhile, in response to the appellant's letter dated 03.08.2009, the respondents asked the appellant to select two names from a panel of four persons vide letter dated 28.01.2010. Thereafter, on 17.02.2010, the appellant filed another Arbitration Petition seeking order to restrain the respondents from appointing an Arbitrator and the application was kept at abeyance without any further action on the part of the appellant to pursue the same.

Interestingly, on 28.08.2010, the appellant selected two arbitrators from the panel and an Arbitral Tribunal was constituted. The appellant submitted its statement of claim on 25.10.2010 and the respondents its statement of defence on 15.11.2010. But, later on 27.12.2011, the appellant filed an application contesting the validity of the constitution of the Tribunal since it had not been nominated within the stipulated period of time. As the Tribunal was constituted by the consent of the appellant it went ahead and passed an ex-parte order on 21.06.2013. In the Arbitration Petition that was filed before the High Court, notices were issued in 2016.

However, considering the facts and circumstances of the case, the High Court dismissed the arbitration petition on 26.07.2019 with the liberty to the appellant to submit its objections under section 34 or 37 of the Act.

Analysis by the Supreme Court

Citing Datar Switchgears Ltd. v. Tata Finance Ltd. & Anr. (2000) 8 SCC 151, and Punj Lloyd Ltd. v. Petronet MHB Ltd. (2006) 2 SCC 638, the Court observed the trite law that "once an application under Section 11(6) of the Act has been filed for appointment of an Arbitrator before the High Court, the respondents forfeited their right to appoint an Arbitrator and the High Court alone holds jurisdiction to appoint an Arbitrator under Section 11(6) of the Act."

However, the Court noted that the facts and circumstances in the present case would act as an exception to the settled principle. When the appellant filed the Arbitration Petition the respondents were never served notice. Moreover, when the respondent called upon the appellant to suggest and select two names from a panel, the appellant selected two officers. Once the Arbitral Tribunal was constituted the appellant appeared before it and submitted its statement of claim. The notice in the Arbitration Petition was finally issued to the respondents in 2016, almost three years after the Arbitral Tribunal had passed the ex-parte award. Therefore, the Court opined that the High Court had not committed any error in dismissing the Arbitration Petition for appointment of an Arbitrator under Section 11(6) of the Act.

Case Name: M/s. Durga Welding Works v. Chief Engineer, Railway Electrification, Allahabad And Anr.

Citation: 2022 LiveLaw (SC) 9

Case No. and Date: Civil Appeal No. 54 of 2022 | 4 Jan 2022

Corum: Justices Ajay Rastogi and Abhay S. Oka

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