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Tuesday, April 1, 2014

Sec.11 of Arbitration and conciliation Act - dispute over the appointment of third arbitrator - Apex court appointed Honourable James Spigelman AC QC, former Chief Justice and Lieutenant Governor of New South Wales, Australia as the third Arbitrator who shall act as the Chairman of the Arbitral Tribunal - discarding the apprehensions that a foreigner not known to India laws = Reliance Industries Ltd. & Ors. …Petitioners Versus Union of India ….Respondent= 2014 (March. Part ) judis.nic.in/supremecourt/filename=41367

     Sec.11 of Arbitration and conciliation Act - dispute over the appointment of third arbitrator - Apex court appointed Honourable James Spigelman AC QC, former Chief Justice and Lieutenant Governor  of  New  South Wales, Australia as the third  Arbitrator  who  shall  act  as  the Chairman of the Arbitral Tribunal - discarding the apprehensions that a foreigner not known to India laws  =

 under Section 11(6) of the Arbitration
        Act, 1996, with a prayer for  appointment  of  the  third  and  the
        presiding arbitrator, as  the  two  arbitrators  nominated  by  the
        parties have failed to reach a consensus on the appointment of  the
        third arbitrator.=
 The Arbitration Agreement in the PSC is contained
        in Article 33.  Relevant facts thereof, is in the following words:
           “ARTICLE 33
           SOLE EXPERT, CONCILIATION AND ARBITRATION
           33.1 * * *


           33.2 * * *


           33.3 Subject to the provisions of  this  Contract,  the  Parties
           hereby agree that any controversy, difference,  disagreement  or
           claim for damages, compensation  or  otherwise  (hereinafter  in
           this Clause referred to as  a  "dispute")  arising  between  the
           Parties, which cannot be settled  amicably  within  ninety  (90)
           days after the dispute arises, may (except for those referred to
           in Article 33.2, which may be referred  to  a  sole  expert)  be
           submitted  to  an  arbitral  tribunal  for  final  decision   as
           hereinafter provided.


           33.4 The arbitral tribunal shall consist of  three  arbitrators.
           Each Party to the dispute shall appoint one arbitrator  and  the
           Party or Parties shall so advise the  other  Parties.   The  two
           arbitrators appointed by the Parties  shall  appoint  the  third
           arbitrator.


           33.5 Any Party may, after appointing an arbitrator, request  the
           other Party(ies) in writing to appoint the second arbitrator. If
           such other Party fails to appoint an  arbitrator  within  thirty
           (30) days of receipt of the  written  request  to  do  so,  such
           arbitrator may, at the request of the first Party, be  appointed
           by the Chief Justice of India or by a person authorised  by  him
           within thirty (30) days of the date of receipt of such  request,
           from amongst persons who are not nationals of the country of any
           of the Parties to the arbitration proceedings.


           33.6 If the two arbitrators appointed by or  on  behalf  of  the
           Parties fail to agree on the appointment of the third arbitrator
           within thirty  (30)  days  of  the  appointment  of  the  second
           arbitrator and if the Parties do not  otherwise  agree,  at  the
           request of either Party, the third arbitrator shall be appointed
           in accordance with Arbitration and Conciliation Act, 1996.


           x --------------- x ---------------x ------------x -----------x


           33.12 The venue of the sole expert, conciliation or  arbitration
           proceedings pursuant to this Article, unless the  Parties  agree
           otherwise, shall be New Delhi, India and shall be  conducted  in
           the English language. Insofar as practicable, the Parties  shall
           continue to implement the terms of this Contract notwithstanding
           the initiation of arbitral proceedings  before  a  sole  expert,
           conciliator or  arbitral  tribunal  and  any  pending  claim  or
           dispute.


           33.13 * * *”
 It appears  that  in  the  financial  year  2010-2011,  differences
        relating to the scope and interpretation of the provisions  of  the
        PSC  arose  between  the  Petitioners  and  Respondent  after   the
        publication of some media reports 

Upon due consideration, I hereby appoint Honourable James Spigelman
        AC QC, former Chief Justice and Lieutenant Governor  of  New  South
        Wales, Australia as the third  Arbitrator  who  shall  act  as  the
        Chairman of the Arbitral Tribunal. The   E-mail address  which  has
        been supplied to this Court is as follows :
           spigel@bigpond.net.au
    82. In view  of  the  considerable  delay,  the  Arbitral  Tribunal  is
        requested to enter upon the reference at the earliest and to render
        the award as expeditiously as possible.




    83. The Arbitration Petition is allowed in  the  aforesaid  terms.   No
        costs.

2014 (March. Part ) judis.nic.in/supremecourt/filename=41367
  SURINDER SINGH NIJJAR
                                                     REPORTABLE


                        IN THE SUPREME COURT OF INDIA
                         CIVIL ORIGINAL JURISDICTION


                     ARBITRATION PETITION NO. 27 OF 2013
      Reliance Industries Ltd. & Ors.                    …Petitioners
      Versus
      Union of India                                     ….Respondent
                               J U D G M E N T


      SURINDER SINGH NIJJAR,J.
     1. This petition has been filed under Section 11(6) of the Arbitration
        Act, 1996, with a prayer for  appointment  of  the  third  and  the
        presiding arbitrator, as  the  two  arbitrators  nominated  by  the
        parties have failed to reach a consensus on the appointment of  the
        third arbitrator.

     2. Petitioner No.1 is a company incorporated and registered under  the
        provisions of the Companies Act, 1956; Petitioner No.2 is a company
        incorporated in Cayman Islands, British Virgin Islands;  Petitioner
        No.3 is a company incorporated according to the laws of  England  &
        Wales.  The  Respondent  herein  is  Union  of  India  (hereinafter
        referred to as “UOI”), represented by the Joint Secretary, Ministry
        of Petroleum and Natural Gas.


     3. Briefly stated, the relevant facts are as under:
     4. In 1999, UOI  announced  a  policy-New  Exploration  and  Licensing
        Policy (hereinafter referred to as  “NELP”).  Under  NELP,  certain
        blocks  of  hydrocarbon  reserves  were  offered  for  exploration,
        development  and  production  to  private  contractors  under   the
        agreements which were in the nature of Production Sharing Contract.
        One of the said blocks was Block KG-DWN-98/3 (“Block  KG-D6”).  The
        joint bid made by the Petitioners No.1 and 2 for  the  Block  KG-D6
        was accepted by the UOI. Thereafter on 12th April, 2000, Production
        Sharing Contract (hereinafter referred to as  ‘PSC’)  was  executed
        between the Petitioners No.1 and 2 as Contractor on  one  side  and
        UOI on the other. The Arbitration Agreement in the PSC is contained
        in Article 33.  Relevant facts thereof, is in the following words:
           “ARTICLE 33
           SOLE EXPERT, CONCILIATION AND ARBITRATION
           33.1 * * *


           33.2 * * *


           33.3 Subject to the provisions of  this  Contract,  the  Parties
           hereby agree that any controversy, difference,  disagreement  or
           claim for damages, compensation  or  otherwise  (hereinafter  in
           this Clause referred to as  a  "dispute")  arising  between  the
           Parties, which cannot be settled  amicably  within  ninety  (90)
           days after the dispute arises, may (except for those referred to
           in Article 33.2, which may be referred  to  a  sole  expert)  be
           submitted  to  an  arbitral  tribunal  for  final  decision   as
           hereinafter provided.


           33.4 The arbitral tribunal shall consist of  three  arbitrators.
           Each Party to the dispute shall appoint one arbitrator  and  the
           Party or Parties shall so advise the  other  Parties.   The  two
           arbitrators appointed by the Parties  shall  appoint  the  third
           arbitrator.


           33.5 Any Party may, after appointing an arbitrator, request  the
           other Party(ies) in writing to appoint the second arbitrator. If
           such other Party fails to appoint an  arbitrator  within  thirty
           (30) days of receipt of the  written  request  to  do  so,  such
           arbitrator may, at the request of the first Party, be  appointed
           by the Chief Justice of India or by a person authorised  by  him
           within thirty (30) days of the date of receipt of such  request,
           from amongst persons who are not nationals of the country of any
           of the Parties to the arbitration proceedings.


           33.6 If the two arbitrators appointed by or  on  behalf  of  the
           Parties fail to agree on the appointment of the third arbitrator
           within thirty  (30)  days  of  the  appointment  of  the  second
           arbitrator and if the Parties do not  otherwise  agree,  at  the
           request of either Party, the third arbitrator shall be appointed
           in accordance with Arbitration and Conciliation Act, 1996.


           x --------------- x ---------------x ------------x -----------x


           33.12 The venue of the sole expert, conciliation or  arbitration
           proceedings pursuant to this Article, unless the  Parties  agree
           otherwise, shall be New Delhi, India and shall be  conducted  in
           the English language. Insofar as practicable, the Parties  shall
           continue to implement the terms of this Contract notwithstanding
           the initiation of arbitral proceedings  before  a  sole  expert,
           conciliator or  arbitral  tribunal  and  any  pending  claim  or
           dispute.


           33.13 * * *”

     5. On 8th August, 2011, UOI granted its  approval  to  the  Petitioner
        No.1 to assign 30% of its participating interest in the  Block  KG-
        D6, under the PSC to Petitioner No.3. On the same  date,  i.e.  8th
        August, 2011, Petitioner No. 3 also entered into PSC  as  a  party.
        Further, Petitioner No.1 was appointed as the ‘Operator’ for  Block
        KG-D6, both under the terms of the PSC,  and  the  Joint  Operating
        Agreement  that  was  executed  between  Petitioner   No.   1   and
        Petitioners No. 2 & 3.


     6. It appears  that  in  the  financial  year  2010-2011,  differences
        relating to the scope and interpretation of the provisions  of  the
        PSC  arose  between  the  Petitioners  and  Respondent  after   the
        publication of some media reports. These reports, according to  the
        Petitioners, suggested that the Respondent was planning to disallow
        cost recovery of the expenditures incurred by the Contractor  since
        the productions levels from the gas fields had fallen  drastically.
        According to the Petitioners, all the disagreements and differences
        that have arisen between them  and  UOI  will  inevitably  lead  to
        serious problems in  the  working  of  the  PSC.  To  resolve  this
        dispute, lengthy correspondence ensued between Petitioner No.1  and
        the officers/representatives of Respondent No.1.

     7. On 16th  September,  2011,  RIL  (Petitioner  no.1)  wrote  to  the
        Respondent and pointed out that  any  attempt  to  disallow  or  to
        restrict cost recovery of expenditures incurred by  the  Contractor
        since the production levels from gas fields had  fallen,  would  be
        contrary to the provisions of the PSC and, requested that  no  such
        action should be taken. There was  no  response  to  the  aforesaid
        letter from the Respondent.
     8.  On  23rd  November,  2011,  Petitioner  No.1  (RIL),  through  its
        Advocates,  served  upon   the   Respondent   a   notice   invoking
        arbitration, in accordance with the arbitration agreement contained
        in Article 33 of the PSC. In  this  letter,  Petitioner  no.1  also
        nominated Mr. Justice S.P. Bharucha, former Chief Justice of India,
        as its arbitrator and called upon the Respondent  to  nominate  its
        arbitrator within 30 days of the receipt of this letter. Respondent
        replied to this letter              on  21st  December,  2011,  and
        intimated Petitioner No.1 that the matter  is  under  consideration
        and that “the Ministry needs more time to respond and would  do  so
        by 31st January, 2012.” In its letter dated 2nd January, 2012,  the
        Petitioners pointed out to  the  Respondent  that,  “the  PSC,  the
        UNCITRAL Rules and the Indian  Arbitration  and  Conciliation  Act,
        1996 – set a period of thirty days for your making  appointment  of
        an Arbitrator.” Nevertheless, as a matter of good faith,  time  for
        nomination of an arbitrator by the Respondent  was  extended  until
        31st January, 2012.


     9. The Respondent, however, by  a  letter  dated  25th  January,  2012
        addressed to Petitioner No.1 called upon the Petitioner to withdraw
        the  Notice  of  Arbitration  on  the  ground  that  the  same  was
        premature, “for the reason that no ‘dispute’ has arisen between the
        parties to the Production Sharing Contract.” It is noteworthy  that
        no objection was taken with regard to  Petitioner  No.1  being  the
        only party under the PSC that seems to be raising the disputes.

    10. Thereafter on 2nd February, 2012, Petitioner No.1  replied  to  the
        Respondent, by a letter  through  its  advocates,  wherein  it  was
        reiterated that  there  have  been  a  long  standing  controversy,
        differences and/or disagreement  as  to  whether  the  contractor’s
        right to recover its contract cost is capable of being  limited  by
        the Government, in the manner and on the grounds as is sought to be
        done under the PSC. It was also stated that: “Our client treats and
        construes your letter under reply as your refusal  and  failure  to
        appoint an arbitrator.”

    11. On 17th February, 2012, Respondent wrote  a  letter  to  Petitioner
        No.1, wherein it was reiterated that no dispute concerning the cost
        recovery under the PSC has arisen between the parties to  the  PSC.
        The Respondent once again called upon the Petitioners  to  withdraw
        the notice of arbitration dated 23rd November, 2011.

    12. In response to the aforesaid letter, Petitioner No.1,  through  its
        Advocates,  addressed  a  letter  dated  9th  March,  2012  to  the
        Respondent, wherein the demand made in the  notice  of  arbitration
        dated 23rd November, 2011 was reiterated.  The  letter  inter  alia
        stated as under:
           “We are instructed to state that the assertion that disputes and
           differences have not  arisen  between  the  Government  and  the
           Contractor  overlooks  the  previous  correspondence  that   the
           ensured (sic: ensued) between the parties”
                      * * *
           “The underlying reason for all this appears to be disputes  that
           have arisen between the Contractor and the DGH…”
                           * * *
           “The DGH, on its part has disagreed with  the  contractor  inter
           alia on whether the factual; assertion  that  drilling  of  more
           wells would not augment the rate of production”

      Annexure-I to the aforesaid letter listed  some  of  the  issues  that
have already arisen between the parties; which are as under:
      (I)         Whether the FDP implies a commitment of the contractor  to
      produce particular or at a particular rate?
      (II)        Whether the FDP implies a commitment of the contractor  to
      do a series of development activities even if there is a difference of
      opinion between the Government and the Contractor as to  the  efficacy
      of these activities?
      (III)       Whether the FDP is revised pro tanto by WP & B’s from time
      to time approved by MC?
      (IV)  Whether the variation between the costs proposed in the FDP  and
      the actual cost can be a basis for disallowing Capex?
      (V)   Is the recovery of cost related in any manner to  the  estimates
      of production even if the costs are within the sanctioned budgets?
      (VI)        Is the recovery of  costs  of  facilities  in  any  manner
      related to the attainment of production estimates of the  FDP  or  the
      estimates of deposits or reservoir characteristics?
      (VII)       Whether the FDP was a representation by the contractor  to
      produce at a particular rate or to produce a particular quantity for a
      defined period, which by conduct became a binding contract between the
      parties?
      (VIII) Would the drilling of  additional  wells  result  in  increased
      production rates/volumes.
      (IX)  Did the approval of the WP & B’s [FY 2009-10  (RE)  and  2010-11
      (BE)] result in a modification of FDP?
      (X)   Were the reasons given by the MoPNG/DGH for  declining  approval
      to the WP & B’s for FY 2010-11(RE) and 2011-12 valid?
      (XI)  If the answer to (IX) and (X) is in the negative,  what  is  the
      consequence?”


    13. On 16th  April,  2012,  Petitioners  No.1  &  2  filed  Arbitration
        Petition No. 8 of 2012 under Section 11(6) of the Arbitration  Act,
        1996   before   this   Court   (hereinafter    referred    to    as
        “A.P. No. 8”), seeking constitution of Arbitral Tribunal  in  terms
        of Article  33.5  of  the  PSC.  After  filing  of  this  petition,
        correspondence ensued between the Petitioners and  the  Respondent,
        wherein the subject matter related to cost recovery of  expenditure
        incurred by the Contractor for the years 2010-2011  was  discussed.
        This was done through letters/notice dated 2nd May, 2012; 4th  May,
        2012 and          8th June, 2012. In  the  letter  dated  2nd  May,
        2012, the Respondent makes a reference to the PSC dated 12th April,
        2000 in the following terms:
           “We write with reference  to  the  Production  Sharing  Contract
           (“PSC”) dated April 12, 2000 between Ministry of  Petroleum  and
           Natural Gas (“Government”), Reliance Industries  Limited  (being
           the  operator)  and   Niko   Resources   Limited   (collectively
           “Contractor”), in relation to block KG-DWN-98-3. The expressions
           used and not defined herein and defined in the PSC,  shall  have
           the meaning ascribed thereto in the PSC.”


           The letter claims that the Petitioners have failed:  “to  fulfil
      your obligations and to adhere to the terms of  the  PSC  and  are  in
      deliberate and wilful breach of PSC and have  thereby  caused  immense
      loss and prejudice to the Government. You have also repeatedly  failed
      to  meet  your  targets  under  the  PSC.”   Thereafter  the  specific
      instances of the breach have been highlighted in detail.  Finally,  it
      is recorded as under:-
           “In this regard, we have been instructed to state that any  such
           purported  attempt  to  unilaterally  adjust  any   amounts   as
           threatened  or  otherwise  would  be  completely   illegal   and
           constitute a serious breach of the provisions  of  the  PSC  and
           that our client reserves  all  its  right  under  the  PSC,  the
           Arbitration Act, and  the  UNCITRAL  Arbitration  Rules  if  the
           Government  attempts  to  proceed  to  implement  the  purported
           decision threatened or otherwise.”


    14. The Petitioners by an equally detailed  letter  denied  the  claims
        made by the Respondent on 8th June, 2012. In paragraph  31  of  the
        aforesaid letter, the Petitioners again called upon the  Respondent
        to appoint an  arbitrator  forthwith  (without  raising  any  other
        procedural issues designed to delay the dispute resolution process)
        so that the vital project undertaken by the parties is not  put  in
        jeopardy on account of the continuing uncertainty.


    15. In its  letter  dated  5th  July,  2012,  the  Respondent  makes  a
        reference  to  the  letter  dated  2nd  May,  2012   addressed   to
        Contractors of the block KG-DWN-98/3 and to the  letter  dated  8th
        June, 2012 written by the Solicitors on behalf of  Petitioner  No.1
        and stated that the Ministry had nominated Mr.  Justice  V.N.Khare,
        former Chief Justice of India as the arbitrator on  behalf  of  the
        Government of India. The letter also called upon the Petitioners to
        withdraw the A.P. No. 8.  On  16th  July,  2012,  the  Petitioners,
        through its advocates, addressed a letter to the Registrar of  this
        Court, wherein it was requested that the A.P. No. 8 may be disposed
        of. Accordingly, the A.P. No. 8 was disposed of by this Court by an
        order dated 7th August, 2012. It would  be  appropriate  to  notice
        here the relevant extract of the order:
           “Both the parties have no objection to the Arbitrators nominated
           by each other. Under the arbitration clause, the  two  nominated
           Arbitrators are to nominate the third Arbitrator. In view of the
            above,  in  my  opinion,  no  further  orders  are required  to
           be passed in this Arbitration Petition. The Arbitration Petition
           is disposed of as such.”


    16. On 12th July, 2013, Petitioner  No.1  addressed  a  letter  to  Mr.
        Justice S.P. Bharucha and Mr. Justice V.N. Khare,  requesting  them
        to nominate the third arbitrator.                  On  1st  August,
        2013, Mr. Justice Bharucha wrote a letter to Petitioner No.1, inter
        alia, as follows :
           “Undoubtedly, there has been a delay in  the  appointment  of  a
           third  arbitrator.  I  had  made  a  suggestion  to  my   fellow
           arbitrator, which was not acceptable to him. I asked him to make
           a counter suggestion which he said he would do. I have not heard
           any counter suggestion as yet.


           In the circumstances, you must consider whether the court should
           be approached for the appointment of a third arbitrator.”


    17. It was in these circumstances that the present arbitration petition
        came to be filed under Section 11(6) of the Arbitration Act, 1996.


      Submissions:
    18.  I  have  heard  elaborate  arguments,  and  perused  the   written
        submissions submitted by the learned senior counsel  appearing  for
        the parties.


    19. Mr. Harish N. Salve, learned  senior  counsel,  appearing  for  the
        Petitioners has made the following submissions:


      I. Re: International Commercial Arbitration
    20. It was submitted that the present arbitral proceedings relate to an
        International Commercial Arbitration, as defined  under  Section  2
        (1) (f) of the Arbitration Act, 1996. Ld.  senior  counsel  pointed
        out that two out of the four parties to the  arbitration  agreement
        are based outside India;  Petitioner  No.  2  being  a  U.K.  based
        company and Petitioner No.3 being based in  Canada.  Substantiating
        this submission, it was pointed out by   Mr. Salve that each of the
        Petitioners is a party to the PSC, as defined under Article 28.1 of
        PSC; and each of the Petitioners  comprise  a  “Contractor”,  under
        Article 2 of PSC.


    21. It was  also  submitted  that  Petitioner  No.  1,  as  “Operator,”
        performs each and every function of the Contractor under the PSC on
        behalf of all the constituents of the Contractor, as defined  under
        Articles 7.1 and 7.3 of the  PSC.  Mr.  Salve  mentioned  that  the
        Appendix ‘C’ to the PSC  provides  accounting  procedure  which  is
        required to be followed  by  the  Contractor  and  the  Government.
        Learned senior counsel also brought to our attention the accounting
        procedure that is required to be followed by the contractor and the
        Government. Sections 1.4.2 and 1.4.4 of Appendix  ‘C’  to  the  PSC
        indicate that the accounts are to be maintained by the Operator  on
        behalf of the Contractors. On the basis of  the  aforesaid  it  was
        submitted that for the purpose of cost recovery, only  one  set  of
        accounts,  as  opposed  to  three  sets  of  accounts,  has  to  be
        maintained. Thus, according  to  the  submission,  the  award  will
        affect the cost recovery under the PSC and impact all the  parties,
        particularly Petitioners, equally. In the light of  the  aforesaid,
        it was submitted that the Operator was, therefore, obliged to raise
        a dispute on behalf of all the parties/Petitioners. This  was  also
        made clear in the A.P. No. 8


    22. Lastly it is submitted by Mr. Salve that the Respondent itself  has
        always understood and accepted that the substance of the dispute is
        related to and has implications for all the parties to PSC. It  was
        also pointed out that the Notice dated 2nd May, 2012 was  addressed
        by the UOI to all the three Petitioners and that the nomination  of
        the Arbitrator by the UOI was with reference to  notice  dated  2nd
        May, 2012.


      II. Re: Jurisdiction of the Supreme Court:
    23. Mr. Salve submitted that the parties cannot confer jurisdiction  on
        the Supreme Court,  it  flows  from  the  fact  that  there  is  an
        international arbitration. He submits that the stand of the UOI  is
        inconsistent.  On the one hand it has accepted that this court  has
        the jurisdiction to entertain the petition, and on the  other  hand
        it  questions  the  assertion  that  this  petition   concerns   an
        international arbitration. It is further submitted by him that A.P.
        No. 8 was filed in 2012 on the premise that the arbitration between
        the Petitioner and the UOI  was  an  international  arbitration  on
        account of the fact that Petitioner No.2 is a company  incorporated
        outside India. It was pointed  out  that  no  dispute,  as  to  the
        maintainability of the petition, was raised at that time.  A.P. No.
        8 was disposed of by this Court on merits and not for the  want  of
        jurisdiction. No dispute was raised to the effect that  this  Court
        has no jurisdiction to entertain  the  petition,  which  was  filed
        under Section 11(6) of the Arbitration Act, 1996.  On the basis  of
        the above,  he  submits  that  the  objection  was  raised  by  the
        Respondents that Petitioner No.1 is the only party raising disputes
        in relation to PSC, and claiming reference  to  arbitration  is  an
        afterthought.
    24. Mr. Salve further submits that the contention of the UOI that  this
        Court has no jurisdiction to entertain the present petition in view
        of Section 11(2) of the Arbitration Act, 1996, is misconceived.  It
        is also submitted that Sub-section (2) of Section  11  is  subject,
        expressly, to subsection (6) thereof. Section 11(6)  provides  that
        in case the appointment procedure agreed upon by the parties is not
        complied with, a party may request the Chief Justice  to  take  the
        necessary  measures.   The  expression  “Chief  Justice”  has  been
        defined under              sub-section (12)(a) of Section 11 as the
        Chief Justice of India, in the case of an international  commercial
        arbitration.            In   other   arbitrations   under   Section
        11(12)(b), it would be the Chief Justice of the High Court. It  was
        then submitted that a  procedure  agreed  to  by  the  parties  for
        appointment of arbitrator(s) is  subject  to  Sub-section  (6);  it
        cannot override sub-section (6) and provide that in  respect  of  a
        domestic arbitration, not-withstanding sub-section(12), the parties
        would only move the Chief Justice of India, or vice  versa  in  the
        case  of  an  international  arbitration.  On  the  basis  of   the
        aforesaid, it was submitted that the contention  of  the  UOI  that
        this Court has no jurisdiction  to  entertain  the  petition  under
        Section 11(6) is misconceived.


      III. Re: Notice :
    25. Further, it was stated that the Joint Operating Agreement  entitles
        the Operator to initiate litigation on behalf of all  the  parties.
        It was also submitted that it is significant to note that there  is
        inconsistency in the stand taken by  the  Respondent.  On  the  one
        hand, Respondent claims that the  arbitral  award  would  bind  not
        merely Petitioner No.1 but also Petitioners   No. 2 and 3;  however
        on the other hand, the  Respondent  insists  that  the  arbitration
        proceedings are only between Petitioner No. 1 and UOI.  This  stand
        of the Respondents  has  been  submitted  to  be  contrary  to  the
        established jurisprudence that an arbitral award is binding only on
        the parties to the arbitration.


      IV. Re: Arbitrator of Neutral Nationality
    26. Mr. Salve submitted that since the arbitration is an  international
        one, this court, in accordance with the  established  international
        practise, should consider appointing an arbitrator of a nationality
        other than the nationalities of the parties. In  this  context,  it
        was pointed out that the statute expressly obligates the  Court  to
        examine the issue of nationality of the  arbitrator  vis-à-vis  the
        nationality of the parties. It was asserted that Article  33(5)  of
        the PSC is conclusive on this issue. It provides that if one of the
        parties fails to appoint its arbitrator, the Court would appoint an
        arbitrator of a nationality  other  than  that  of  the  defaulting
        party. It was submitted that this clause indicates the significance
        that  the  parties  have  attached  to  the   neutrality   of   the
        arbitrators.  A fortiori, the chairman/presiding arbitrator  should
        be of a nationality other than Indian.  The contention of  the  UOI
        that absence of  a  provision  similar  to  Article  33(5)  of  the
        Arbitration Agreement in relation to the appointment of  the  third
        arbitrator suggests that the presiding arbitrator could  be  Indian
        has been submitted by Mr. Salve to be misconceived.


    27. It was also brought to our notice that the UNCITRAL Rules, in force
        at the time when the PSC was drafted and entered  into,  recognised
        that while the appointing authority could appoint an arbitrator  of
        the same nationality as that of the defaulting party (in the  event
        where a party fails to nominate its arbitrator), but the  presiding
        arbitrator that has to be appointed would  be  of  the  nationality
        other than that of the parties. The Petitioners states that the PSC
        provides for even a greater degree of neutrality than the  UNCITRAL
        by provisioning that in case one of the parties makes a default  in
        nominating its arbitrator then the arbitrator has to  be  appointed
        from a neutral nationality.  It was then submitted that  there  was
        no need of  a  similar  provision  in  relation  to  the  presiding
        arbitrator since the arbitration  was  to  be  in  accordance  with
        UNCITRAL Rules.  In this context,  learned  senior  counsel  relied
        upon  the  law  laid  in  Antrix  Corporation  Limited  Vs.   Devas
        Multimedia Private Ltd[1], wherein it was inter alia held that  the
        reference to such rules  (ICC  in  that  case)  would  include  the
        process of constitution of a tribunal.
    28. Mr. Salve also referred to the submission of  the  Respondent  that
        the PSC being governed by the Indian law or/and  that  it  involves
        the issues of public policy for India as irrelevant. The fact  that
        a party nominee had to be from a neutral country  establishes  that
        the parties did not consider the governing law of the  contract  to
        be of any relevance to the nationality of the  arbitrator.  It  was
        also submitted that the trend of  appointing  presiding  arbitrator
        from a “neutral nationality”  is  now  universally  accepted  under
        various arbitration rules as well as  under  the  Arbitration  Act,
        1996.


    29. Mr. Salve also pointed out that Article 33 (9) of  the  PSC  adopts
        the UNCITRAL Rules for the arbitration Agreement and  that  at  the
        time of signing the Arbitration Agreement the UNCITRAL Rules,  1976
        were in force. Mr. Salve also referred to  Article  6  of  UNCITRAL
        Rules, 1976. He laid particular stress on Article 6 (4).


    30. It was further mentioned that the UNCITRAL Rules of 2010 are now at
        par with the procedure under Article 33.5,  even  with  respect  to
        appointment of second arbitrator.
    31. Relying upon  the  judgment  of  this  Court  in  Northern  Railway
        Administration,  Ministry  of  Railway,   New   Delhi   Vs.   Patel
        Engineering Company Limited[2], it was submitted that the scheme of
        Section 11 emphasises that the terms of  an  Arbitration  Agreement
        should be given effect as closely as possible.


    32. Lastly, it was submitted that the Respondents had lost their  right
        to  nominate  the  second  arbitrator  in  the  earlier  round   of
        litigation, i.e. A.P. No. 8 and hence, the Petitioners  could  have
        insisted under Article 33.5 that the Tribunal must  be  constituted
        of  two  non-Indian  Arbitrators  in  addition  to  the  arbitrator
        appointed by the Petitioner. It is, therefore, imperative that  the
        third arbitrator should have a neutral nationality.


      Respondent’s Submissions
    33. Mr. Anil B. Divan and Mr. Dushyant A. Dave, learned senior counsel,
        appeared for the Respondents.  At the outset, it  was  pointed  out
        that the present arbitration petition has been filed under Sections
        11(6) and 11(9) of the Arbitration Act,  1996,  read  with  Article
        33.6 of the PSC. It was then submitted that the Article 33.6 of the
        PSC, unlike Article 33.5, does not require that the  arbitrator  to
        be appointed should be  a  foreign  national.  The  learned  senior
        counsel suggested that the aforesaid omission  is  both  deliberate
        and significant. It was further submitted that the Petitioners,  by
        choosing not to object to  the  appointment  of  Mr.  Justice  V.N.
        Khare, have waived of the requirement that a  foreign  national  be
        appointed as an arbitrator by the parties, under  Article  33.5  of
        the PSC. It was further submitted that  this  waiver  also  becomes
        clear from the letter dated 16th July,  2012,  which  was  sent  on
        behalf of the Petitioners to the Respondent, wherein the nomination
        of Mr. Justice Khare was  accepted  without  any  reservation.  The
        Petitioners  are,  therefore,  as  stated  by  the  learned  senior
        counsel, estopped from insisting  upon  appointment  of  a  foreign
        arbitrator.


    34. Next, learned senior counsel submitted that that the PSC is one  of
        the most valued, crucial and sensitive contracts for the nation, in
        as much as it deals with the PSC in offshore areas;  and  it  deals
        inter alia with License and Exploration, Discovery, Development and
        Production of the most valuable natural resources,  viz.  petroleum
        products, including  crude  oil  and/or  natural  gas.  Propounding
        further, it was submitted that these  products  are  vital  to  the
        survival of the nation.             UOI entered into the  PSC  with
        Petitioners No. 1 and 2, with avowed objective  of  exploiting  the
        aforesaid natural resources(s) in the  most  efficient,  productive
        manner and in a timely  fashion.  The  PSC,  therefore,  has  great
        significance for the nation. It was also submitted that the  entire
        subject matter of the contract is situated in India and hence,  the
        applicable law is the Indian law for both the substantive  contract
        and the Arbitration Agreement.


    35. Placing strong reliance on the factual situation, it was  submitted
        that  the  PSC,  its  interpretation,  and  its  execution  involve
        intricate and complex questions of law and facts relating to Indian
        conditions and Indian laws.  It was further  submitted  that  since
        the parties were aware about the  aforesaid  nature  of  PSC,  they
        consciously refrained from having the requirement  that  the  third
        arbitrator should be a foreign national. Thus, it was submitted  by
        the  learned  senior  counsel,  that  the  issue  relating  to  the
        appointment of the third arbitrator has been left squarely  to  the
        two nominated arbitrators, and that the two arbitrators are not  to
        be influenced by any requirement that the third  arbitrator  should
        be a foreign national.


    36. In the support of the aforesaid submission, learned counsel  relied
        upon the letter dated 12th July, 2013 written by the Petitioner  to
        the two arbitrators, wherein a request was  made  to  complete  the
        constitution of the arbitral tribunal. The  following  excerpt  has
        been relied upon:


               “While it is understood that it is sometimes a time consuming
               exercise, Your Honour will appreciate that the  issues  which
               are subject matter of  the  arbitration  proceedings  are  of
               significant importance to the Claimants.


                 Accordingly, on behalf of our clients we  humbly    request
               Your  Honour  to  complete  the  constitution        of   the
               Arbitral     Tribunal at your earliest   convenience.”


    37. Learned senior counsel  also  relied  upon  the  letter  dated  1st
        August, 2013 written by Mr. Justice Bharucha to submit  that  there
        is not even a suggestion that the third  arbitrator  has  to  be  a
        foreign national.


    38. The next submission of the Respondent is that Petitioners No 2  and
        3 have not raised any dispute under the PSC at  any  stage.  It  is
        only the Petitioner alone that has  raised  the  dispute  and  come
        forward  as  the  Claimant.  To   substantiate   the   submissions,
        Respondents rely upon the following documents:
              i) Letter dated 23.11.2011;
             ii) Notice of Arbitration dated 23.11.2011;
            iii) Letter dated 02.01.2011 on behalf of Petitioner      No.  1
                 by its solicitors.
             iv) Letter dated 02.02.2011, on behalf of Petitioner     No.  1
                 by its solicitors.
              v) Letter dated 05.07.2012 of the Respondent to the Solicitors
                 of RIL.
             vi) Letter dated 1st August, 2013 of Mr. Justice  Bharucha,  as
                 per the Respondent shows that the arbitration  was  between
                 Reliance Industries Limited and the Government of India.


    39. It was also emphasised that all the communications annexed with the
        present    petition     identify     the     claimant     to     be
        Petitioner No. 1.  It was also highlighted that the contents of the
        letter dated 2nd May, 2012 written by the Respondents, which inter-
        alia deals with inadmissibility of recovery of costs has  not  been
        disputed by Petitioners No. 2 and 3. Learned  senior  counsel  also
        relies upon the letter dated 12th July, 2013,  sent  on  behalf  of
        Petitioner No.1 by its Solicitors to the Arbitrators.  This  letter
        was sent after the order                    dated 7th  August  2012
        was passed by this Court in A.P. No. 8 of 2012.  According  to  the
        Respondents this letter also shows that the dispute is only between
        RIL and the Respondent.


    40. Mr. Divan also submitted that Petitioners No.  2  and  3  have  not
        conformed to Article 33 of the PSC, for the  purposes  of  invoking
        arbitration. Such non-compliance cannot be considered as merely  an
        omission. In the light of the  aforesaid,  it  was  submitted  that
        Petitioner No.1, an Indian  Company,  is  the  only  party  to  the
        dispute with the Respondents and therefore, there  is  no  need  to
        appoint a foreign arbitrator. Further, it was submitted even if  it
        is assumed that Petitioners No. 2 and 3 have raised the disputes in
        terms of Article 33.6, there is no question  of  appointment  of  a
        foreign arbitrator as the dispute raised is only between two Indian
        parties, viz. Petitioner No.1 and the Respondents.


    41. The next submission of Mr. Divan  is  that  Section  11(1)  of  the
        Arbitration Act, 1996 provides that an arbitrator  can  be  of  any
        nationality,  unless  otherwise  agreed  by  the  parties.  It  was
        submitted that since the parties did not choose to have  a  foreign
        national to be appointed as the third arbitrator in  Article  33.6,
        the parties did not choose to  make  Section  11(1)  applicable  to
        them.  Learned senior counsel also pointed  out  that  the  parties
        instead agreed to proceed under Section 11(2)  as  they  agreed  to
        appoint an arbitrator without requiring him to be  of  any  foreign
        nationality.


    42.  Mr.  Divan  then  points  out  that   Section   11(9)   has   been
        authoritatively interpreted in Malaysian Airlines  Systems  BHD  II
        Vs. STIC Travels (P) Ltd.[3] and MSA Nederland B.V.  Vs.  Larsen  &
        Toubro Ltd.[4]  According to the learned senior  counsel,  UNCITRAL
        Rules cannot override Sections 11(1) & (2), read with Article 33.6,
        nor can these Rules aid in  interpreting  Section  11(9).   It  was
        further submitted that the  appointment  of  the  third  arbitrator
        under Article 33.6 of PSC has to  be  made  under  Arbitration  and
        Conciliation Act, 1996. The UNCITRAL Rules will come into play only
        after the Arbitral Tribunal  has  been  constituted.  According  to
        learned senior counsel, following factors negate the application of
        UNCITRAL Rules in making the appointment of the arbitrators:
           (a)   The law governing the arbitration agreement is Indian Law;


           (b)   The seat of the arbitration is in India  which  makes  the
                 curial law of the arbitration as Indian law.
           (c)   The governing law of the contract is the Indian law.
           (d)   All these factors would show  that  UNCITRAL  Rules  would
                 become relevant only after the Arbitral Tribunal  has  been
                 constituted.


    43. Lastly, it was submitted that the appointment of a foreign national
        as the third arbitrator is not only  legally  untenable,  but  also
        undesirable, in the facts and circumstances of the present case. To
        substantiate this, it was submitted that both Petitioners No. 2 and
        3 are  multi-national  companies,  with  Petitioner  No.  3  having
        presence/business  connections  in  about   80   countries.   These
        countries include the countries whose nationals are  sought  to  be
        nominated  by  the  Petitioners.  It  was  further  submitted  that
        unravelling all the countries in which Petitioner No. 3 may have  a
        connection would be difficult, if not impossible.  Thus,  the  very
        object  of  neutrality,  impartiality  and  independence  will   be
        defeated by appointing a foreign national as the third  arbitrator.
        On the contrary, it was submitted, appointment of a former judge of
        this Court would be the most suitable arrangement.


    44. In response, Mr. Salve submitted that: (i) The reliance  placed  by
        the Respondents upon the law laid in Malaysian Airlines Systems BHD
        II Vs. STIC Travels (P) Ltd. (supra) and  MSA  Nederland  B.V.  Vs.
        Larsen & Toubro Ltd.  (supra)  is  misplaced  as  these  cases  are
        inapplicable in the present case. (ii) The contention  of  the  UOI
        that nationals of the 80 countries in which Petitioner  No.  3  has
        operations would become ineligible to be appointed  as  arbitrators
        is misconceived.  In  this  context,  it  was  submitted  that  the
        Arbitration Act, 1996 and the related international practices takes
        into account nationality but not area of operation. This submission
        of the Respondent, according to Mr. Salve, is not  tenable  because
        it confuses the question  of  independence  and  impartiality  with
        neutrality. The aspect of neutrality is dealt with in Section 11(8)
        and Section 12; whereas,  nationality  is  considered  in  Sections
        11(1) & (9) of Arbitration Act, 1996.  Further,  it  was  submitted
        that  these  two  provisions  would  be  rendered  otiose  if   the
        submission of the UOI is accepted.


    45. Before parting with submissions made on behalf of the  parties,  it
        must also be noticed  that  the  learned  senior  counsel  for  the
        parties  have  submitted  a   list   each   of   proposed/suggested
        arbitrators; which according to them would satisfy the requirements
        of the arbitration agreement contained in PSC.


    46. I have considered  the  submissions  made  by  the  learned  senior
        counsel for the parties.


    47. I am not inclined to accept the submissions made by       Mr.  Anil
        B. Divan, learned senior counsel appearing on behalf  of  the  UOI.
        Initially,  Arbitration  Petition  No.8  was  filed   by   Reliance
        Industries Limited– RIL  (Petitioner  No.1)  and  Niko  (Petitioner
        No.2).   In  paragraph  6  of  the  arbitration  petition,  it  was
        specifically averred as follows:-
           “The Respondent by its letter dated 8th  August,  2011,  granted
           its  approval  to  Petitioner  No.1  to  assign   30%   of   its
           Participating Interest under the PSC to BP, thereby also  making
           BP a partner in the Block KG-D6. …….”


           Therefore, it is apparent that reference to arbitration was
      sought on behalf of the three partners to the PSC.


    48. The Arbitration Petition was disposed of as both the parties had no
        objection to the arbitrator nominated by each other. Therefore, the
        matter was left to  the  two  arbitrators  to  nominate  the  third
        arbitrator who shall be the  Chairman  of  the  Arbitral  Tribunal.
        However, by letter dated 1st August,  2013,  Mr.  Justice  Bharucha
        pointed out that the two arbitrators have not been able to agree on
        the third arbitrator.  Therefore, the Petitioners had  to  approach
        this  court  for  appointment  of  a  third  arbitrator.  In  these
        circumstances, the present Petition came to be filed under  Section
        11(6).


    49. There is an additional reason for not accepting the submission made
        by Mr. Anil Divan, learned senior counsel, that the  Petitioner  is
        not acting on behalf of all the three Contractors.  The notice  was
        served by RIL in the capacity of Operator, which included  all  the
        three Contractors, i.e., RIL, Niko and British Petroleum (BP).

    50. A perusal of some of the correspondence reproduced earlier  clearly
        indicates that the Respondent recognised that the  Petitioner  No.1
        is the Operator on behalf of all the Contractors, namely, Reliance,
        Niko and BP.


    51. I find much substance in the  submission  of  Mr.  Salve  that  the
        contentions   raised   in   the   counter   affidavit   reflect   a
        misunderstanding of:-
           (i)   the terms of the PSC;
           (ii)  reality of the Parties’ commercial relationship;
           (iii)      application of the Arbitration and Conciliation  Act,
                 1996; and
           (iv)  UNCITRAL Arbitration Rules and the practise of large scale
                 arbitrations involving foreign parties.


    52. It is also not possible to accept the submission  of            Mr.
        Anil Divan that Niko and BP are not operators under  the  PSC  and,
        therefore, have forfeited any right to operations under the PSC. It
        is also not possible to accept the submission that Niko and BP  are
        not the parties to the dispute with the Respondent.  I  am  of  the
        considered  opinion  that  the  provisions  of  the   PSC   clearly
        identified the parties to the PSC.  The disputes that  have  arisen
        between  the  parties  are   also   clearly   identified   in   the
        correspondence exchanged between  the  parties.   The  three  named
        contractors   are,   in   fact,   frequently   mentioned   in   the
        correspondence  between  the  parties.  It   has   been   correctly
        highlighted by Mr. Salve that the terms  of  the  PSC  have  to  be
        considered in the light of the fact that the  Respondent  expressly
        consented,  after  detailed   inquiry,   to   the   assignment   of
        participation interests in the PSC to BP. It is a matter of  record
        that Niko  has  been  a  party  to  the  PSC  from  the  beginning.
        Therefore, at-least at this stage, it  would  not  be  possible  to
        accept the submission of  Mr.  Divan  that  BP  and  Niko  are  not
        “operating” under the PSC.


    53. I am also unable to accept the submission of Mr. Divan  that  given
        the nature  of  operations  under  the  PSC,  the  issues  involved
        thereunder are of public law and public policy.       Mr. Divan, on
        the basis of the aforesaid submission, has insisted that the  third
        arbitrator ought to be from India. It was pointed out by Mr.  Divan
        that even if it  is  accepted  that  the  disputes  raised  by  the
        Petitioner would also include the disputes of Petitioner Nos. 2 and
        3, the arbitration still essentially remains an Indian arbitration.
        Such a submission cannot be accepted as the Respondents have not at
        any stage earlier raised an objection that the  disputes  had  been
        raised by Petitioner No.1 only on its own behalf and did not relate
        to the disputes of Petitioner No.2 and 3 also.


    54. In my opinion, the submission is misconceived  and  proceeds  on  a
        misunderstanding of the PSC, RIL, Niko and BP are  all  parties  to
        the PSC. They are all contractors under the PSC. The PSC recognizes
        that the operator would  act  on  behalf  of  the  contractor.  All
        investments are funded by not just the Petitioner No.1 but also  by
        the other parties, and they  are  equally  entitled  to  the  costs
        recovered and the profits  earned.  For  the  sake  of  operational
        efficiency, the Operator acts  for  and  on  behalf  of  the  other
        parties. Therefore, I find substance in the submission of Mr. Salve
        that the disputes have been raised in the correspondence  addressed
        by Petitioner No.1 not just on its own behalf but on behalf of  all
        the parties. During the course of his submissions, Mr.  Anil  Divan
        had, in fact, submitted that Niko and BP will be  affected  by  the
        arbitral award and it would be binding upon them too. Therefore, if
        the Petitioner No.1 was to succeed in the  arbitration,  the  award
        would enure not only to the benefit of Petitioner No.1 but  to  all
        the parties to the PSC. Conversely, if the Government of India were
        to succeed before the tribunal, again the award would  have  to  be
        enforced against all the parties.  In  other  words,  each  of  the
        Contractors would have to perform the obligations cast  upon  them.
        In that view of the matter,  it  is  not  possible  to  accept  the
        submission of   Mr. Divan that the arbitration in the present  case
        is not an international arbitration.


    55. It is equally not possible to accept the  contention  of        Mr.
        Divan that Niko and BP have not raised any arbitrable dispute  with
        Union of India.  A perusal of some of the provisions of  PSC  would
        make it clear that all three entities are parties to the  PSC.  All
        three entities have rights  and  obligations  under  the  PSC  [see
        Article 28.1(a)], including with respect  to  the  Cost  Petroleum,
        Profit Petroleum and Contract Costs (see Article 2.2), all of which
        are fundamental issues in the underlying dispute.  Where  RIL  acts
        under the PSC, including by commencing arbitration, it does so  not
        only on behalf of itself, but also “on behalf of  all  constituents
        of the contractors” including Niko and BP.  I am inclined to accept
        the submission of Mr. Salve that there is a significant  and  broad
        ranging dispute between RIL, Niko and BP on the one  hand  and  the
        UOI on the  other  hand,  that  goes  to  the  heart  of  the  main
        contractual rights and obligations under the PSC.  Furthermore,  it
        is a matter of record that in the  correspondence  leading  to  the
        filing of the earlier petition being  A.P.No.8  of  2012,  no  such
        objection about Niko and BP not being a party to  the  dispute  had
        been taken. In fact, the  petition  was  disposed  of  on  a  joint
        request made by  the  parties  that  two  arbitrators  having  been
        nominated, no further orders were required. Therefore, there  seems
        to be substance in the submission  of  Mr.  Salve  that  all  these
        objections  about  Niko  and  BP  not  being  the  parties  are  an
        afterthought.  Such  objections,  at  this  stage,   can   not   be
        countenanced as the commencement of arbitration  has  already  been
        much delayed.


    56. Both the parties had brought to the  attention  of  the  Court  the
        correspondence from their own perspective.  Having  considered  the
        aforesaid correspondence,  relevant  extract  of  which  have  been
        noticed earlier, it is not possible to hold that the correspondence
        is only on behalf of the RIL.  I,  therefore,  do  not  accept  the
        submission of Mr. Anil Divan that this is  an  arbitration  between
        the two Indian parties only.


    57. Further more the accounting procedure (Appendix C to  PSC)  clearly
        provides that RIL shall keep the accounts for the purposes of  cost
        recovery statement. Therefore, it cannot be said  that  the  claims
        made by the Petitioner  are  only  on  behalf  of  RIL.  The  joint
        operating agreement  expressly  provides  that   the  operator  “to
        initiate litigation on behalf of all the parties.” The  fallacy  of
        the stand taken by UOI is patent. On the one hand,  the  Respondent
        claims that the arbitral award would bind not only Petitioner  No.1
        but also Petitioner Nos. 2  and  3,  but  on  the  other  hand,  is
        insisting  that  the  arbitration  proceedings  are  only   between
        Petitioner No.1 and UOI.


    58. This now brings me to the major divergence  of  views  between  Mr.
        Salve and Mr. Divan on the interpretation to be placed on  Articles
        33.5 and 33.6 of the PSC. Both the learned  senior  counsel  accept
        that when exercising power under Section 11(6) of  the  Arbitration
        Act, the ‘Chief Justice of India or the person or  the  institution
        designated  by  him’  (hereinafter  referred  to   as   “CJI”   for
        convenience) is required to appoint the 2nd Arbitrator from amongst
        persons who are not nationals of the country of any of the  parties
        to the arbitration proceedings. Thereafter, both the learned senior
        counsel have expressed divergent views. According to Mr. Salve, the
        provisions contained in Article  33.5  indicates  the  significance
        that  the  parties  have  attached  to  the   neutrality   of   the
        arbitrators.   Therefore,   necessarily   the    Chairman/Presiding
        Arbitrator would have to be of  a  nationality  other  than  India.
        According to him, appointment of an Indian Arbitrator under Article
        33.6 would not be an option open to the CJI. On the other hand, Mr.
        Divan emphasised that there is no requirement in Article  33.6  for
        appointment of a foreign arbitrator, identical or  similar  to  the
        provision in Article 33.5. His view is that the absence of  such  a
        requirement is deliberate and significant.  According  to  him,  it
        clearly signifies that only an Indian National can be appointed  as
        the third arbitrator. I am of the opinion  that  both  the  learned
        senior counsel are only partially correct. Both sides have  adopted
        extreme positions on the pendulum. I accept the  interpretation  of
        both the learned senior counsel with regard to Article 33.5 as  the
        request will go to the Chief Justice of India for appointment of an
        arbitrator, “from amongst persons who  are  not  nationals  of  the
        country of any of the parties to the arbitration  proceedings”.  In
        exercise of the jurisdiction under Section  11(6),  the  CJI  would
        usually  appoint  the  third  arbitrator  in  accordance  with  the
        request. I have no hesitation in accepting the  submission  of  Mr.
        Divan that even the third arbitrator  is  an  Indian  National,  it
        would not be contrary to Article 33.6. But it would not be possible
        for me to accept the extreme views expressed by Mr. Divan that only
        an Indian National can be appointed, as there is an  absence  of  a
        requirement  of  appointing  a  foreign  national  as   the   third
        arbitrator. In my opinion, Article 33.6 virtually leaves it to  the
        Chief Justice of India to appoint the third arbitrator who would be
        neutral, impartial and  independent  from  anywhere  in  the  world
        including India. Just as India cannot be excluded,  similarly,  the
        countries where British Petroleum and Niko  are  domiciled,  as  an
        option from where the third arbitrator could be  appointed,  cannot
        be ruled out. Having said this, it must be pointed out that this is
        the purely legal position. This would be a very  pedantic  view  to
        take whereas international arbitration problems necessarily have to
        be viewed pragmatically. Fortunately,  Arbitration  Act,  1996  has
        made express provision for adopting a pragmatic approach.  When the
        CJI exercises his jurisdiction under Section  11(6)  he  is  to  be
        guided by the provisions contained in the Arbitration Act, 1996 and
        generally   accepted   practices   in   the   other   international
        jurisdictions. CJI would also be anxious to ensure that  no  doubts
        are cast on the neutrality, impartially  and  independence  of  the
        Arbitral Tribunal. In international arbitration, the surest  method
        of ensuring atleast  the  appearance  of  neutrality  would  be  to
        appoint the sole or the third  arbitrator  from  nationality  other
        than the parties to the arbitration. This view of  mine  will  find
        support from numerous internationally renowned commentators on  the
        practice  of  international  arbitration  as   well   as   judicial
        precedents.


    59. At this stage, it would  be  appropriate  to  take  notice  of  the
        observations made by two such commentators.


    60. Redfern and Hunter  on  International  Arbitration,  Fifth  Edition
        (2009) Para  4.59  expresses  similar  views  with  regard  to  the
        importance of the nationality of the sole or the  third  arbitrator
        being from a country different from that  of  the  parties  to  the
        arbitration. The opinion of the learned authors is as follows:-
           “In an ideal world, the country  in  which  the  arbitrator  was
           born,  or  the  passport  carried,  should  be  irrelevant.  The
           qualifications, experience,  and  integrity  of  the  arbitrator
           should be the essential criteria. It ought  to  be  possible  to
           proceed in the spirit of the Model Law  which,  addressing  this
           question, provides simply: ‘No  person  shall  be  precluded  by
           reason of his nationality from acting as an  arbitrator,  unless
           otherwise agreed by the parties.’ Nevertheless, as stated above,
           the usual practice in international commercial arbitration is to
           appoint a sole arbitrator  (or  a  presiding  arbitrator)  of  a
           different nationality from that of the parties to the dispute.”


    61. Gary B. Born in  International  Commercial  Arbitration,  Volume  I
        (2009) has an elaborate discussion on the impact  of  the  UNCITRAL
        Model Laws as well as UNCITRAL Rules on the appointment of the sole
        or the third  arbitrator.  He  points  out  that  some  arbitration
        legislations contain different nationality provisions,  similar  to
        those applicable under leading  institutional  rules,  which  apply
        when a national court acts in its default  capacity  to  select  an
        arbitrator (in limited circumstances).


    62. Article 11(5) of the UNCITRAL Model Law reads as under:-
           “A decision on a matter entrusted by paragraph  (3)  or  (4)  of
           this Article to  the  court  or  other  authority  specified  in
           Article 6 shall be subject to no  appeal.  The  court  or  other
           authority, in appointing an arbitrator, shall have due regard to
           any qualifications required of the arbitrator by  the  agreement
           of the parties and to  such  considerations  as  are  likely  to
           secure  the  appointment  of  an   independent   and   impartial
           arbitrator and, in the case of a sole or third arbitrator, shall
           take into account as well  the  advisability  of  appointing  an
           arbitrator of a nationality other than those of the parties.”


    63. Article 6(4) of UNCITRAL Rules,  1976  in  almost  identical  terms
        reads as under :-
           “In making the appointment, the appointing authority shall  have
           regard to such  considerations  as  are  likely  to  secure  the
           appointment of an independent and impartial arbitrator and shall
           take  into  account  as  well  advisability  of  appointing   an
           arbitrator of a nationality other than the nationalities of  the
           parties.”


    64. Taking note of the aforesaid two Articles, it is  observed  by  the
        learned author as follows :
           “Article 11(5) does not restrict the parties’ autonomy to select
           arbitrators of whatever nationality they wish. It merely affects
           the actions of national courts, when  acting  in  their  default
           roles of appointing arbitrators after the parties’ efforts to do
           so have failed. Article 11(5) does not forbid the appointment of
           foreign nationals as arbitrators, but on the contrary encourages
           the selection of an internationally-neutral tribunal.


           Far from resembling national law  prohibitions  against  foreign
           arbitrators, Article 11(5) aims at exactly the opposite  result.
           Indeed, Article 11(1) of the UNCITRAL Model Law  also  provides,
           like the  European  and  Inter-American  Conventions,  that  “no
           person shall be precluded by  reason  of  his  nationality  from
           acting as an arbitrator, unless otherwise agreed by the parties.
           That properly reflects the international consensus, embraced  by
           the European, Inter-American  and  New  York  Conventions,  that
           mandatory nationality prohibitions  are  incompatible  with  the
           basic premises of international arbitration.”




    65. Earlier in the same volume  at  page  1431,  while  discussing  the
        “Criteria for Judicial Selection of the Arbitrator”,  he  re-states
        the general practice adopted in appointment of an  independent  and
        impartial arbitrator. The opinion  of  the  learned  author  is  as
        follows :
           “National arbitration legislation provides only limited guidance
           for courts actually to make  the  selection  of  arbitrators  in
           international arbitrations. Article 11(5) of the UNCITRAL  Model
           Law provides that “in  appointing  an  arbitrator,  [the  court]
           shall have due regard to  any  qualifications  required  of  the
           arbitrator  by  the  agreement  of  the  parties  and  to   such
           considerations as are likely to secure  the  appointment  of  an
           independent  and  impartial  arbitrator,”  the  same   provision
           requires the  court  to  “take  into  account  as  well  as  the
           advisability of appointing an arbitrator of a nationality  other
           than those of the parties.” This  language  requires  courts  to
           have  “due  regard”  to  the  parties’  contractually  specified
           requirements for arbitrators-which very  arguably  accords  such
           requirements inadequate weight, given the  importance  of  party
           autonomy in the arbitrator selection process. Similarly,  it  is
           doubtful that it is sufficient for courts merely to  “take  [the
           arbitrator’s  nationality]  into  account”,  rather  it   should
           generally be essential that  the  presiding  arbitrator  have  a
           neutral nationality.”


    66. Redfern and Hunter  on  International  Arbitration,  Fifth  Edition
        (2009) at Page 263, expresses a similar opinion, after taking  into
        consideration the UNCITRAL Rules; ICC Rules; LCIA  Rules  and  ICDR
        Rules, which is as follows :-
           “The fact that the arbitrator is of a neutral nationality is  no
           guarantee  of  independence  or   impartiality.   However,   the
           appearance is better and thus it is a practice that is generally
           followed”.


    67. Section 11 of the Arbitration Act, 1996 uses similar phraseology as
        Article 11 of the UNCITRAL Model Law. Therefore, it  would  not  be
        possible to accept the submission  of  Mr.  Divan  that  the  Court
        cannot look to Model Laws or the UNCITRAL Laws as  legitimate  aids
        in giving the appropriate   interpretation  to  the  provisions  of
        Section 11, including Section 11(6).


    68. In any event, the neutrality of an arbitrator is assured by Section
        11(1) of the Arbitration Act, 1996, which provides that a person of
        any nationality may be an arbitrator, unless  otherwise  agreed  by
        the parties. There is no agreement between the parties in this case
        that  even  a  third  arbitrator  must  necessarily  be  an  Indian
        national. In fact, Section  11(9)  of  the  Arbitration  Act,  1996
        specifically empowers  the  CJI  to  appoint  an  arbitrator  of  a
        nationality other than the nationality of the parties  involved  in
        the litigation. Therefore, I am unable to accept the submission  of
        Mr.  Anil  Divan  that  it  would  not  be  permissible  under  the
        Arbitration Act, 1996  to  appoint  the  third  arbitrator  of  any
        nationality other than Indian. Merely because the  two  arbitrators
        nominated by the parties are Indian would not    ipso facto lead to
        the conclusion that the parties had ruled out  the  appointment  of
        the third arbitrator from a neutral  nationality.   In  this  case,
        both the arbitrators had been appointed by the parties,  therefore,
        the condition precedent for appointing an arbitrator, from  amongst
        persons, who are not nationals of the country of any of the parties
        to the arbitration proceedings, had not even arisen.


    69. I also do not find merit in the submission made  by       Mr.  Anil
        Divan on the basis of Articles 33.5 of the PSC. A bare  perusal  of
        Article 33.5, PSC would show that it deals only with the  situation
        where the other party fails to appoint an arbitrator and a  request
        is made to the Chief Justice of India or a person authorised by him
        to appoint the second arbitrator. In such a  situation,  the  Chief
        Justice is required to choose the second  arbitrator  from  amongst
        the persons who are not nationals  of  a  country  of  any  of  the
        parties to the arbitrator proceedings. Article 33.6 is invoked when
        the two arbitrators appointed by the parties fail to  nominate  the
        third arbitrator. In such circumstances, the Chief Justice  or  the
        nominees of the Chief Justice is  required  to  appoint  the  third
        arbitrator in accordance with the Arbitration and Conciliation Act,
        1996. At that stage, Section 11(9) of  the  Arbitration  Act,  1996
        would become relevant. It would be necessary for the Chief  Justice
        of India  to  take  into  consideration  the  will  of  the  Indian
        Parliament expressed in Section 11(9). It appears to  me  that  the
        submission made by the Petitioners cannot be said to be without any
        merit.  I am unable to read into Article 33.6, an  embargo  on  the
        appointment of a  foreign  national  as  the  third  arbitrator  as
        submitted  by  Mr.  Divan.   It  is  not  possible  to  accept  the
        submission that the parties have specifically  decided  to  exclude
        the appointment of a foreign arbitrator under Article 33.6,  as  no
        specific provision was made para materia to Article 33.5.  Even  in
        the absence of a specific provision, the appointment of  the  third
        arbitrator under Article 33.6  would  have  to  be  guided  by  the
        provisions contained under Section 11(9) of the Arbitration Act.


    70. I am also unable to accept the submission of Mr. Divan  that  since
        the provision contained in Section 11(9) of  the  Arbitration  Act,
        1996 is not  mandatory;  the  Court  ought  to  appoint  the  third
        arbitrator, who is an Indian National.  This Court, in the case  of
        Malaysian Airlines Systems BHD  II  (supra),  interpreting  Section
        11(9) after taking into consideration the position  in  some  other
        countries where the UNCITRAL Model Law is adopted, has come to  the
        following conclusions:-
           “25. It is, therefore, clear that in several countries where the
           UNCITRAL Model is adopted, it has  been  held  that  it  is  not
           impermissible to appoint an arbitrator of a nationality  of  one
           of the parties to arbitration.


           26. In the light of the above rules  in  various  countries  and
           rulings of the court and also in view of the fact that the  1996
           Act is based on UNCITRAL Model Law which in  Article  6(4)  only
           speaks of “taking into account” the nationality as  one  of  the
           factors, I am of the view that the word “may” in  Section  11(9)
           of the Act is not intended to be read as “must” or “shall”.


           27. I am, therefore, of the view that while nationality  of  the
           arbitrator is a matter to be kept in view, it  does  not  follow
           from Section 11(9) that the proposed arbitrator  is  necessarily
           disqualified because he belongs to the nationality of one of the
           parties. The word “may” is not used in the sense of “shall”. The
           provision is not mandatory. In case the party who belongs  to  a
           nationality other than that of the proposed arbitrator,  has  no
           objection, the Chief Justice  of  India  (or  his  nominee)  can
           appoint an arbitrator belonging to a nationality of one  of  the
           parties. In case,  there  is  objection  by  one  party  to  the
           appointment of an arbitrator belonging to the nationality of the
           opposite party, the Chief Justice of India (or his nominee)  can
           certainly consider the objection and see if  an  arbitrator  not
           belonging to the nationality of either parties can be appointed.
           While taking that decision, the Chief Justice of India  (or  his
           nominee) can also keep in mind, in cases where the parties  have
           agreed that the law applicable to the  case  is  the  law  of  a
           country to which one of the parties belong, whether  there  will
           be an overriding advantage to both the parties if an  arbitrator
           having knowledge of the applicable law is appointed.


           28. In the result, I am of the view that under Section 11(9)  of
           the Act it  is  not  mandatory  for  the  court  to  appoint  an
           arbitrator not belonging to the nationality  of  either  of  the
           parties to the dispute.”


    71. The aforesaid ratio of law in Malaysian  Airlines  Systems  BHD  II
        (supra) has been reiterated by this Court  in  MSA  Nederland  B.V.
        (supra) in the following words:-
           “3. The learned counsel appearing for  the  petitioner  drew  my
           attention to the fact that the petitioner Company is  a  company
           incorporated in the Netherlands while the respondent Company  is
           a company incorporated in India. He prayed that in view  of  the
           provisions of Sections 11(9) of the Arbitration and Conciliation
           Act, an arbitrator having a neutral  nationality  be  appointed,
           meaning thereby that the sole arbitrator  should  neither  be  a
           Dutch national nor be  an  Indian  national.  Section  11(9)  is
           reproduced as under:


                 “11. (9) In the  case  of  appointment  of  sole  or  third
                 arbitrator in an international commercial arbitration,  the
                 Chief  Justice  of  India  or  the  person  or  institution
                 designated  by  him  may  appoint  an   arbitrator   of   a
                 nationality other than the  nationalities  of  the  parties
                 where the parties belong to different nationalities.”


           The key word in the above provision  is  “may”  which  leaves  a
           discretion in the Chief Justice or his nominee  in  this  behalf
           and it is not mandatory that the sole arbitrator should be of  a
           nationality other than the nationalities of the parties  to  the
           agreement.”


    72. But the ratio in the aforesaid cases can not be read to  mean  that
        in all circumstances, it is not possible to appoint  an  arbitrator
        of a nationality other than the parties involved in the litigation.
         It is a matter of record that Clause 33.5 of the PSC provides that
        on failure of the second party  to  nominate  its  arbitrator,  the
        Chief Justice of India may  be  requested  to  appoint  the  second
        arbitrator from amongst  persons  who  are  not  nationals  of  the
        country of any of  the  parties  to  the  arbitration  proceedings.
        Therefore, in principle, it becomes apparent that  the  Respondents
        have accepted the appointment  of  the  second  arbitrator  from  a
        neutral country.  Merely because, the seat  of  arbitration  is  in
        India, the applicable  law  is  Indian  Law;  it  does  not  become
        incumbent on the Court to appoint the third arbitrator, who  is  an
        Indian national.  The concern of the Court is to ensure neutrality,
        impartiality and independence of the third arbitrator.   Choice  of
        the parties has little, if anything, to do with the choice  of  the
        Chief Justice of India or  his  nominee  in  appointing  the  third
        arbitrator.  It is true that even at the stage  of  exercising  its
        jurisdiction under Section 11(6) at  the  final  stage,  the  Chief
        Justice of India or his nominee can informally  enquire  about  the
        preference of the parties.  But  it  is  entirely  upto  the  Chief
        Justice of India, whether to accept any of the  preferences  or  to
        appoint the third arbitrator not mentioned by any of  the  parties.
        In making such a choice, the Chief Justice of India will be  guided
        by the  relevant  provisions  contained  in  the  Arbitration  Act,
        UNCITRAL Model Laws and the UNCITRAL Rules, where the parties  have
        included the applicability  of  the  UNCITRAL  Model  Laws/UNCITRAL
        Rules by choice.


    73.  I  must   emphasise   here   that   the   trend   of   the   third
        arbitrator/presiding  officer  of  a  neutral   nationality   being
        appointed is now  more  or  less  universally  accepted  under  the
        Arbitration Acts and Arbitration Rules in different jurisdictions.


    74. In the present case, Article 33(9) of the PSC adopts  the  UNCITRAL
        Rules for the arbitration agreement under         Article 39.   The
        applicable  UNCITRAL  Rules  at  the  time  when  the   arbitration
        agreement was signed were the 1976 Rules.


    75. The aforesaid Rules have  been  literally  paraphrased  in  Section
        11(9) of the Arbitration Act, 1996.  Rule 4 of UNCITRAL states that
        in making the appointment,  the  appointing  authority  shall  have
        regard to such consideration as are likely to secure appointment of
        an independent and impartial arbitrator.  Superimposed on those two
        conditions is a provision that the appointing authority shall  take
        into  account,  as  well,  the  advisability  of  arbitrator  of  a
        nationality other than the  nationalities  of  the  parties.  These
        rules in my opinion are almost parallel to  Article  33(5)  of  the
        PSC.


    76. Mr. Anil Divan  had,  however,  raised  serious  doubts  about  the
        impartiality of the third arbitrator due  to  the  omnipresence  of
        British Petroleum all over  the  world.  I  am  of  the  considered
        opinion that the  apprehension  expressed  by  the  learned  senior
        counsel is  imaginary  and  illusory.  Such  a  proposition  cannot
        possibly be accepted as a general practice for the  appointment  of
        Chairman/Presiding Officer/Third Arbitrator guided by the principle
        consideration that there must  not  only  be  the  neutrality,  but
        appearance of neutrality of the third arbitrator. In that  view  of
        the matter, I have no hesitation in rejecting  this  submission  of
        Mr. Divan that only an Indian National  can  be  appointed  as  the
        third arbitrator.


    77. This apart, I must notice here the judgment of this  Court  in  the
        case of Northern Railway Administration, Ministry of  Railway,  New
        Delhi (supra), whilst considering the contingencies under  which  a
        party may request the Chief Justice or any  person  or  institution
        designated by him under Section 11 to take necessary measures  held
        as follows:-
           “11. The crucial expression in sub-section (6) is “a  party  may
           request  the  Chief  Justice  or  any  person   or   institution
           designated by him to take the necessary measure” (underlined for
           emphasis*).  This  expression  has  to  be   read   along   with
           requirement in sub-section (8) that the  Chief  Justice  or  the
           person or an institution designated  by  him  in  appointing  an
           arbitrator  shall  have  “due  regard”  to  the  two  cumulative
           conditions relating to qualifications and  other  considerations
           as are likely to secure the appointment of  an  independent  and
           impartial arbitrator.


           12. A bare reading of the scheme of Section 11  shows  that  the
           emphasis is on the terms  of  the  agreement  being  adhered  to
           and/or given effect as closely as possible. In other words,  the
           Court may ask to do what has not been done. The Court must first
           ensure that the remedies provided for are exhausted. It is  true
           as contended by Mr Desai, that it is not mandatory for the Chief
           Justice or any  person  or  institution  designated  by  him  to
           appoint the named arbitrator or arbitrators.  But  at  the  same
           time, due regard has to be given to the qualifications  required
           by the agreement and other considerations.


           13. The expression “due regard” means that proper  attention  to
           several  circumstances  have  been   focused.   The   expression
           “necessary” as a general rule can be broadly stated to be  those
           things which are reasonably  required  to  be  done  or  legally
           ancillary to the accomplishment of the intended  act.  Necessary
           measures can be stated to be the reasonable steps required to be
           taken.”




    78. Keeping in view the  aforesaid  principles,  I  have  examined  the
        submissions of Mr. Divan and Mr. Salve on the issue with regard  to
        the  neutrality,  impartiality  and  independence  of   the   third
        arbitrator.  As held earlier, the  apprehension  expressed  by  the
        Respondent Union of India  seems  to  be  imaginary  and  illusory.
        Whatever is being said  about  the  influence/presence  of  British
        Petroleum in other jurisdictions would apply equally to  the  Union
        of India, if the third arbitrator is an Indian national, within the
        Indian jurisdiction.


    79. The apprehension expressed by Mr. Divan that if a foreign  national
        is appointed as a third arbitrator, the  Tribunal  would  be  at  a
        disadvantage as all applicable laws  are  Indian,  in  my  opinion,
        overlooks the fact that the two arbitrators already  appointed  are
        Former Chief Justices of India and can be very safely  relied  upon
        to advise the third arbitrator of  any  legal  position,  which  is
        peculiar to India.


    80. At this stage, normally the matter ought to be remitted back to the
        two arbitrators appointed  by  the  parties  to  choose  the  third
        arbitrator on the basis of the observations made in  the  judgment.
        However, given the sharp difference  of  opinion  between  the  two
        arbitrators,  I  deem  it  appropriate  to  perform  the  task   of
        appointing the third arbitrator in this Court itself. Therefore,  I
        had requested the learned senior counsel for the parties to  supply
        a list of eminent individuals one of whom could be appointed as the
        third arbitrator. Although two lists have been duly supplied by the
        learned counsel for the parties,  I  am  of  the  opinion,  in  the
        peculiar  facts  and  circumstances  of  this  case,  it  would  be
        appropriate if an individual not named by any  of  the  parties  is
        appointed as the third arbitrator. I have  discretely  conducted  a
        survey to find a suitable third arbitrator who is not a National of
        any of the parties involved in the dispute.


    81. Upon due consideration, I hereby appoint Honourable James Spigelman
        AC QC, former Chief Justice and Lieutenant Governor  of  New  South
        Wales, Australia as the third  Arbitrator  who  shall  act  as  the
        Chairman of the Arbitral Tribunal. The   E-mail address  which  has
        been supplied to this Court is as follows :
           spigel@bigpond.net.au
    82. In view  of  the  considerable  delay,  the  Arbitral  Tribunal  is
        requested to enter upon the reference at the earliest and to render
        the award as expeditiously as possible.




    83. The Arbitration Petition is allowed in  the  aforesaid  terms.   No
        costs.




                                        ……………………………J.
                                        [Surinder Singh Nijjar]

      New Delhi;
      March 31, 2014.




         [pic]
  ITEM NO.1A          COURT NO.6             SECTION XVIA


              S U P R E M E   C O U R T   O F   I N D I A
                           RECORD OF PROCEEDINGS


           ARBITRATION PETITION NO. 27 OF 2013


  RELIANCE INDUSTRIES LTD. & ORS.       Petitioner(s)


                   VERSUS


  U.O.I.                                 Respondent(s)


  Date: 31/03/2014  This  Petition  was  called  on  for  pronouncement  of
  judgment today.




  For Petitioner(s)
                      M/S. Parekh & Co., Advs.




  For Respondent(s)
                      Mr. Shailendra Swarup, Adv.




      Hon'ble Mr. Justice Surinder Singh Nijjar pronounced the judgment.
      The petition is allowed in terms of the signed reportable judgment.






       [Nidhi Ahuja]               [Indu Bala Kapur]
       Court Master                        Court Master


             [Signed reportable judgment is placed on the file.]
                           -----------------------
[1]    2013 (7) SCALE 216 (Para 34)
[2]    (2008) 10 SCC 240
[3]    (2001) 1 SCC 509
[4]    (2005) 13 SCC 719

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   59


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