REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
SPECIAL LEAVE PETITION (C) NO. 17689 OF 2012
ACC Limited … Petitioner
(Formerly known as the Associated Cement Co. Ltd).
Versus
Global Cements Ltd. …Respondent
J U D G M E N T
K.S. Radhakrishnan, J.
1. The question that falls for consideration in this case is whether on
the death of a named arbitrator, the arbitration agreement survives or not.
2. At the very outset, let us refer to the relevant arbitration clause
in the agreement dated 16.12.1989, which reads as follows:
“21. If any question or difference or dispute shall arise between
the parties hereto or their representatives at any time in
relation to or with -
respect to the meaning or effect of these presents or with
respect to the rights and liabilities of the parties hereto then
such question or dispute shall be referred either to Mr. N.A.
Palkhivala or Mr. D.S. Seth, whose decision in the matter shall
be final and binding on both the parties.” (emphasis added)
3. The petitioner submits that both Shri N.A. Palkhivala and Shri D.S.
Seth are no more and therefore the arbitration clause in the agreement does
not survive. It was pointed out that Shri N.A. Palkhivala was named in the
agreement since he was the Chairman of the petitioner company and Shri D.S.
Seth was named in the agreement since he was the Director of the company.
Both of them were nominated as arbitrators since they were closely
associated with the company and also due to their eminence, impartiality
and familiarity in all commercial transactions and the corporate laws. The
petitioner submits that since the arbitrators are no more, the arbitration
clause in the agreement has no life and hence there is no question of
entertaining the application preferred under Section 11 of the Arbitration
and Conciliation Act, 1996 (for short ‘the Act’) filed by the respondent.
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4. The respondent, (applicant before the High Court), refuted those
contentions and submitted before the High Court that the arbitration clause
in the agreement would survive even after the death of the named
arbitrators and the parties can still resolve their difference or dispute
by referring them to another arbitrator or move the court for appointing a
substitute arbitrator whose decision would be final and binding on both the
parties.
5. Bombay High Court entertained the application preferred by the
respondent under Section 11 of the Act. The Court took the view that
clause 21 of the Agreement did constitute an agreement to refer disputes to
arbitration and also took the view that in the absence of any prohibition
or debarment, there is no reason for the court to presume an intent on the
part of the parties to the effect that a vacancy that arises on account of
a failure or inability of a named arbitrator to act cannot be supplied by
the court under Section 11. The court took the view unless the parties
have expressly precluded such a course being followed, give effect to the
policy of the law, which is to promote the efficacy of arbitration and the
efficacy of commercial arbitration must be preserved -
particularly when business dealings are based on an agreement which
provides recourse to arbitration. The designated Judge of the High Court
appointed Mr. Justice S.N. Variava, former Judge of this Court as an
arbitrator to adjudicate the dispute and difference between the parties.
Legality of that order is under challenge before us.
6. Mr. S. Ganesh, Senior Advocate appearing for the petitioner explained
the circumstance under which Shri N.A. Palkhivala as well as Shri D.S. Seth
was nominated as arbitrators in the arbitration clause of the Agreement
dated 16.12.1989. Learned senior advocate pointed out that Shri N.A.
Palkhivala was an eminent jurist of high reputation and he was the former
Chairman of the applicant’s company and the parties had specifically named
him as an arbitrator because of his familiarity and in-depth knowledge of
arbitration law as well as corporate law. Learned senior counsel also
pointed out that Shri D.S. Seth was appointed since he was the former
Director of the applicant’s company and was familiar with the commercial
transactions and he was also instrumental in dealing with the various
issues between the parties. -
Learned counsel pointed out because of the special nature of the
appointment of both Shri N.A. Palkhivala and Shri D.S. Seth, the parties
wanted their difference or dispute to be resolved only by those named
arbitrators and on their death, the arbitration clause in the agreement
would not survive. Learned counsel pointed out that that was the intention
of the parties and the same is clearly discernable from the facts of the
case and the terms of the arbitration Clause in the agreement. Parties, it
was pointed out, never intended to refer the dispute to any other
arbitrator except the named arbitrator and such an inference can be drawn
from Clause 21 and the facts of the case. Learned counsel also pointed
out that in the above circumstances, Section 15(2) of the Act has no
application and the High Court has committed an error in entertaining the
application under Section 11 appointing a substitute arbitrator.
FACTS
7. The petitioner by way of Agreement dated 16.12.1989 transferred land
admeasuring 53 acres 33 Gunthas and land admeasuring 100 acres 01 Gunthas
with buildings and Mining -
Leases granted by the Government of Gujarat in or under lands admeasuring
423.22 hectares, 21.121 hectares and 4.7551 hectares to the respondent. By
Orders dated 24.01.2002 and 03.02.2003, the Collector, Porbander as well as
Secretary (Appeals), Revenue Department, State of Gujarat held that the
petitioner had committed breach of condition Nos. 3, 4 and 5 of the order
of 1993 and condition Nos. 8 & 11 of Lease Agreement dated 15.03.1982 and
that the said lands were transferred to the respondent without prior
permission of the Collector and as such the petitioner had committed breach
of the conditions of order/lease agreement. The Collector, therefore,
resumed possession of the aforesaid lands. Aggrieved by those orders, the
petitioner had filed Special Civil Applications bearing Nos. 1975 of 2003
and 1972 of 2003 inter alia challenging the orders passed by the Collector,
Porbander and Secretary (Appeals) before the High Court of Gujarat. The
respondents were made parties in the above proceedings, the predecessor in
title of the respondent neither initiated any proceedings against the
petitioner nor challenged those orders of the Collector, Porbander or the
Secretary (Appeals). Therefore, the Special Civil Applications were
dismissed by the High Court on -
15.12.2009 and appeals were not preferred against the said judgment and no
proceedings were initiated by the respondent as well.
8. The respondent later sent a lawyer notice to the petitioner seeking
reference of the dispute to an arbitrator involving Clause 21 of the
Agreement. By a letter dated 08.10.2011, the respondent sought to propose
the names for appointment as a Sole Arbitrator on the ground that the two
nominated arbitrators under clause 21 had expired.
9. The petitioner through their lawyer replied vide letter dated
07.12.2011 objecting to the appointment of a substitute arbitrator on the
ground that the arbitration clause 21 of the Agreement did not provide for
the appointment of any other arbitrator and that was the intention of the
parties. It was pointed out that on the death of the two named
arbitrators, the arbitration clause itself would come to an end and there
is no question of appointing another arbitrator to resolve the question or
dispute or difference between the parties.
10. We have examined closely arbitration clause 21 of the Agreement dated
16.12.1989 as well as various letters exchanged between the parties and
ascertained the intention of the parties from the facts.
REASONING AND CONCLUSION:
11. Clause 21 of the Agreement indisputably is an arbitration agreement
which falls under Section 7 of the Act. The intention of the parties to
enter into an arbitration agreement can therefore clearly be gathered from
clause 21 of the Agreement. Clause 21 clearly indicates an agreement on
the part of the parties to refer the disputes to the named arbitrators in
the Agreement.
12. This Court in Jagdish Chander v. Ramesh Chander [(2007) 5 SCC 719] in
a clear exposition of law has laid down the principles to be borne in mind
while interpreting an arbitration agreement under Clause 7 of the Act.
Existence of an agreement is not in dispute, the question is about its
enforceability on the death of the -
named arbitrators. Facts clearly indicate that the parties in this case
have contemplated that if any question or difference or dispute arises
between them, in relation to or with respect to the meaning or effect of
the contract or with respect to their rights and liabilities, the same
would be referred to one of the two named arbitrators named in the
arbitration clause. The question is whether Clause 21 would outlive the
lives of the named arbitrators.
13. Section 14 of the Arbitration and Conciliation Act, 1996 provides for
the circumstances in which the mandate of the arbitrator is to terminate.
It says that the mandate of an arbitrator will end when it becomes
impossible for him to perform his functions de facto or de jure or for some
other reasons he fails to act without undue delay or withdraws from office
or the parties agree to terminate his mandate.
14. Section 15(2) of the Act provides that where a substitute arbitrator
has to be appointed due to termination of the mandate of the previous
arbitrator, the appointment must be made according to the rules that were
applicable to the appointment of the arbitrator -
being replaced. No further application for appointment of an independent
arbitrator under Section 11 will lie where there has been compliance with
the procedure for appointment of a substitute arbitrator. On appointment
of the substitute arbitrator in the same manner as the first, no
application for appointment of independent arbitrator under Section 11
could be filed. Of course, the procedure agreed upon by the parties for
the appointment of the original arbitrator is equally applicable to the
appointment of a substitute arbitrator, even if the agreement does not
specifically say so. Reference may be made to the judgment of this Court
in Yashwitha Constructions (P.) Ltd. v. Simplex Concrete Piles India Ltd.,
(2006) 6 SCC 204.
15. Sections 14 and 15 provide the grounds for termination of the mandate
of the arbitrator on the ground of incapability of the arbitrator to act or
if he withdraws from his office or when the parties agree to the
termination of the mandate of the arbitrator. Section 15(2) states that a
substitute arbitrator shall be appointed as per the rules that were
applicable to the appointment of the arbitrator being replaced. Section
15(2), therefore, has to be given -
a liberal interpretation so as to apply to all possible circumstances under
which the mandate may be terminated.
16. The scope of Sections 11(6) and 15 came up for consideration before
the learned designate of the Chief Justice of India in San-A Trading
Company Ltd. v. IC Textiles Ltd. [(2006) Arb.LR 11] and the learned Judge
held as follows:
“…..It therefore follows that in case where the arbitration
clause provides for appointment of a sole arbitrator and he had
refused to act, then the agreement clause stands exhausted and
then the provisions of Section 15 would be attracted and it
would be for the court under Section 11(6) to appoint an
arbitrator on the procedure laid down in Section 11(6) being
followed unless there is an agreement in the contract where the
parties specifically debar appointment of any other arbitrator
in case the named arbitrator refuses to act.”
17. Section 11(6) would not apply only if it is established that parties
had intended not to supply the vacancy occurred due to the inability of the
arbitrator to resolve the dispute or due to whatever reasons but that
intention should be clearly spelt out from the terms of the arbitration
clause in the Agreement.
18. The legislative policy embodied in Sections 14 and 15 of the Act is
to facilitate the parties to resolve the dispute by way of arbitration.
The arbitration clause if clearly spells out any prohibition or debarment,
the court has to keep its hands off and there is no question of persuading
or pressurising the parties to resolve the dispute by a substitute
arbitrator. Generally, this stands out as an exception and that should be
discernible from the language of the arbitration clause and the intention
of the parties. In the absence of such debarment or prohibition of
appointment of a substitute arbitrator, the court’s duty is to give effect
to the policy of law that is to promote efficacy of arbitration.
19. We are of the view that the time factor mentioned in the arbitration
clause “at any time” is a clear indication of the intention of the parties
and is used in various statutory provisions as well and the meaning of the
same has been interpreted by this Court in various judgments. In Situ Sahu
and Others v. State of Jharkhand and Others [(2004) 8 SCC 340], this Court
dealt with Sections 71-A and 71-B of the Chota Nagpur Tenancy Act, 1908
wherein the power was given to the Deputy Commissioner to restore -
possession of “raiyat” belonging to Scheduled Tribes transferred in
contravention of the provisions of the Act or fraudulently. Section 71-A
provides that “if at any time it comes to the notice of the Deputy
Commissioner that transfer of land belonging to a raiyat……. who is a member
of the Scheduled Tribes has taken plea in contravention of……….. any other
provisions of this Act or by any fraudulent method…..” This Court took
the view that the words “at any time” in Section 71-A is evidence of the
legislative intent to give sufficient flexibility to the Deputy
Commissioner to implement the socio-economic policy of the Act, namely to
prevent inroads upon the rights of the ignorant, illiterate and backward
citizens. Certainly, the expression of the words “at any time” used in
Clause 21 of the Arbitration Agreement is to give effect to the policy of
the Act which is to promote efficacy of arbitration.
20. In Ibrahimpatnam Taluk Vyavasaya Coolie Sanghem v. K. Suresh Reddy
and Others AIR [2003 SC 3592], this Court examined the scope of Section 50-
B of the Andhra Pradesh (Talangana Area) Tenancy and Agricultural Lands
Act, 1950. The Court, while interpreting the words “at any time”, took the
view that -
the use of the words “at any time” in sub-section (4) of Section 50-B of
the Act cannot be rigidly read letter by letter. It must be read and
construed contextually and reasonably. The Court also opined that the
words “at any time” must be understood as within a reasonable time
depending on the facts and circumstances of each case in the absence of
prescribed period of limitation. In New Delhi Municipal Committee v. Life
Insurance Corporation of India and Others (1977) 4 SCC 84, this Court was
interpreting the expression of the words “at any time” which finds its
place in Section 67 of the Punjab Municipal Act, 1911 read with Section 68A
which gave power to the Municipal authorities to amend the assessment list.
The Court held that the term “at any time” implies that the list may be
amended retrospectively. Stating otherwise would amount to denying to the
expression “at any time” even its plain, grammatical meaning, quite apart
from ignoring the context in which it occurs and the beneficent purpose of
its incorporation. The Court held that the expression must be given its
full force and effect, which requires the recognition of the committee’s
power to amend an assessment list even after the expiry of the year
following the one in which the list was finalized by due authentication.
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These decisions are, therefore, to the effect that the expression “at any
time” has to be interpreted contextually and reasonably taking note of the
intention of the parties.
21. We have carefully gone through the arbitration clause in the
Agreement dated 16.12.1989 and, in our view, the words “at any time” which
appear in Clause 21, is of considerable importance. “At any time”
expresses a time when an event takes place expressing a particular state or
condition that is when the dispute or difference arises. The arbitration
clause 21 has no nexus with the life time of the named arbitrator. The
expression “at any time” used in the arbitration clause has nexus only to
the time frame within which the question or dispute or difference arises
between the parties be resolved. Those disputes and differences could be
resolved during the life time of the named arbitrators or beyond their life
time. The incident of the death of the named arbitrators has no nexus or
linkage with the expression “at any time” used in clause 21 of the
Agreement. The time factor mentioned therein is the time within which the
question or dispute or difference between the parties is resolved as per
the Agreement. Arbitration clause would have life -
so long as any question or dispute or difference between the parties exists
unless the language of the clause clearly expresses an intention to the
contrary. The question may also arise in a given case that the named
arbitrators may refuse to arbitrate disputes, in such a situation also, it
is possible for the parties to appoint a substitute arbitrator unless the
clause provides to the contrary. Objection can be raised by the parties
only if there is a clear prohibition or debarment in resolving the question
or dispute or difference between the parties in case of death of the named
arbitrator or their non-availability, by a substitute arbitrator.
22. We are of the view clause 21 does not prohibit or debar the parties
in appointing a substitute arbitrator in place of the named arbitrators
and, in the absence of any prohibition or debarment, parties can persuade
the court for appointment of an arbitrator under clause 21 of the
agreement.
23. The High Court in our view was justified in entertaining such an
application and appointing a former Judge of this Court as a -
sole arbitrator under the Arbitration and Conciliation Act, 1996 to
adjudicate the dispute and difference between the parties.
24. In view of the above mentioned reasons, we find no reason to grant
leave to appeal and issue notice on the petition for special leave to
appeal and the petition is dismissed.
……………………………..J.
(K.S. Radhakrishnan)
……………………………..J.
(Jagdish Singh Khehar)
New Delhi
June 11, 2012
