| The Petitioner and the Respondents
entered into a shareholder’s agreement dt.31/8/1999
which contains an arbitration clause providing for adjudication
of disputes by three arbitrators. After disputes arose between
the parties, the Petitioner addressed a fax message to the
Respondents informing them that they have nominated Mr. K.B.Verma,
IAS(Retd.) as an arbitrator and called upon the Respondents
to nominate their arbitrator for arbitration of the disputes.
The Respondents nominated Mr. Donald F. Donovan, resident
of New York, as their arbitrator and informed the same to
the Petitioner by fax. Later, Mr. Donald F. Donovan sent a
fax message to M/s Amarchand & Mangaldas & Suresh
A.Shroff & Co., New Delhi and the Company Secretary, Grid
Corpn. of Orissa Ltd., Bhubaneshwar informing them that pursuant
to the authority available under Section 11(3) of the Act
of 1996 he and the said Mr. K.B.Verma have appointed David
A.R.Williams, Q.C. of New Zealand, as the presiding arbitrator
in the dispute.
The Petitioner made enquiries from Mr. Verma and came to know
that there was no written communication from Mr. Verma agreeing
to the appointment of the aforesaid third arbitrator. There
were only telephonic conversations between Mr. Verma and Mr.
Donald regarding the appointment of the third arbitrator;
that it appears that Mr. Verma was led by Mr. Donald into
forming an impression and believing that the appointment of
an Indian national as the presiding arbitrator was not permissible
in law; and that Mr. Donald had telephonically communicated
to Mr. Verma about the consent of Mr. David Williams having
agreed to act as the presiding arbitrator and also sent a
letter dt. 23/1/2002 to Mr. Verma that effect. Mr. Verma sent
a letter dt.24/1/2002 to Mr. Donald, endorsing copies thereof
to both the parties, stating that on further reading of provisions
of the Act of 1996 he found that there is no bar to the appointment
of an Indian as the presiding arbitrator and therefore he
requested Mr. Donald to agree for appointment of a retired
Judge of Orissa High Court or of the Supreme Court of India
as presiding arbitrator in the place of Mr. Williams.
Mr. Donald declined the request of Mr. Verma stating that
the appointment of Mr. Williams as the presiding arbitrator
was effective upon their agreement and the same has been notified
to the parties also. As such, the three of them are a validly
constitutional tribunal and it would not be possible to rescind
the appointment of Mr. Williams now. In view of the controversy,
Mr. Verma withdrew from the arbitration of the dispute. On
1-2-2002, the Petitioner appointed Justice S.C.Mohapatra,
retired Judge of Orissa High Court as their arbitrator in
place of Mr. Verma. Justice Mohapatra addressed a communication
to Mr. Donald requesting him to agree for appointment of a
former Judge of the Supreme Court of India to be the third
arbitrator. It was also stated that if Mr. Donald was not
agreeable then the Petitioner would move the Chief Justice
of India under Section 11 of the Act of 1996 for appointment
of a third arbitrator. Copy of this communication was endorsed
to Mr. Williams also.
Mr. Williams, the third arbitrator, in his fax message dt.5/2/2002
addressed to both the parties and the two arbitrators, stated
that he was not agreeable to the suggestion of withdrawing
himself as presiding arbitrator. He also stated that the Arbitral
Tribunal consisting of himself as presiding arbitrator and
Justice Mohapatra and Mr. Donald as two arbitrators, had come
into existence and it was not legally permissible under the
Act of 1996 for him to withdraw.
The Supreme Court observed that it is not necessary within
the meaning of Section 11(3) that the presiding arbitrator
must be appointed by the two appointed arbitrators in writing
nor is it necessary that the two appointed arbitrators must
necessarily sit at one place, deliberate jointly and take
a decision in the presence of each other in regard to the
appointment of the presiding arbitrator. It is enough if they
have actually consulted or conferred with each other and if
both or any of them communicates to the parties the appointment
of the presiding arbitrator as having taken place by the joint
deliberation of the two arbitrators. It is clearly spelled
out from the correspondence between the two arbitrators that
the arbitrators had agreed on the principle that the third
arbitrator shall be of a nationality different from the one
to which either of the parties belongs. The two arbitrators
had also agreed upon the appointment of Mr. Williams as the
presiding arbitrator. The communication of such appointment
though made by Mr. Donald, arbitrator, is on behalf of himself
and Mr. Verma, the other arbitrator. The correctness of such
consultation having preceded the appointment of Mr. Williams
is not doubted in the correspondence and has also not been
disputed by the Petitioner. When an effective consultation
can be achieved by resort to electronic media and remote conferencing
it is not necessary that the two arbitrators should sit together
at one place unless it is the requirement of the law or of
the ruling contract between the parties. The appointment of
the third arbitrator need not necessarily be by a writing
signed by the two arbitrators.. The requirement of law is
satisfied if the appointment (i) has been actually made (ii)
is preceded by such consultation as to amount to appointment
by the two and (iii) is communicated.
A constitutional bench of the Supreme Court in Konkan Railway
Corpn. Ltd. Vs. Rani Construction Pvt. Ltd. held that inspite
of an appointment having been made by the Chief Justice or
his designate, an objection as to the constitution of the
Arbitral Tribunal being improper or without jurisdiction is
capable of being raised before the Arbitral Tribunal itself
under Section of the Act of 1996, for an objection not only
as to width of jurisdiction but also one going to the very
root of its jurisdiction is entertainable by the Arbitral
Tribunal under Section 16. That being so, it is open for the
Petitioner to raise the objection before the Arbitral Tribunal
itself under Section 16. The Supreme Court held that in the
given facts and circumstances of the case there is no deficiency
in the constitution of the Arbitral Tribunal and there is
no occasion for filing a request petition under Section 11(6)
of the Act of 1996. The Petition was dismissed.
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