LAW FOR ALL

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

-----------------------
59

Service matter - post retirement benefits to retired high court judges - A.P. State Govt. passed a G.O. - By G.O.Ms.No. 28 dated 16.03.2012 issued by Law Department,Government of Andhra Pradesh sanctioned an amount of Rs.14,000/- per month to the retired Chief Justices of the High Court of Andhra Pradesh and an amount of Rs.12,000/- per month to the retired Judges of the High Court of Andhra Pradesh for defraying the services of an orderly, driver, security guard etc. and for meeting expenses incurred towards secretarial assistance on contract basis and a residential telephone free of cost with number of free calls to the extent of 1500 per month over and above the number of free calls per month allowed by the telephone authorities to both the retired Chief Justices and Judges of the High Court of Andhra Pradesh w.e.f. 01.04.2012.= P. Ramakrishnam Raju .... Petitioner (s) Versus Union of India & Ors. .... Respondent(s) = 2014 (March. Part ) judis.nic.in/supremecourt/filename=41365

Service matter - post retirement benefits to retired high court judges - A.P. State Govt. passed a G.O. - By G.O.Ms.No. 28 dated 16.03.2012 issued by Law Department,Government of Andhra Pradesh sanctioned an amount of Rs.14,000/- per month to the retired Chief Justices of the High Court of Andhra Pradesh and an amount of Rs.12,000/- per month to the retired Judges of the High Court of Andhra Pradesh for defraying the services of an orderly, driver, security guard etc. and for meeting expenses incurred towards secretarial assistance on contract basis and a residential telephone free of cost with number of free calls to the extent of 1500 per month over and above the number of free calls per month allowed by the telephone authorities to both the retired Chief Justices and Judges of the High Court of Andhra Pradesh w.e.f. 01.04.2012.=

whether High
Court Judges, who are appointed from the Bar under Article 217(2)(b) of the
Constitution of India, on retirement, are entitled for an addition of 10
years to their service for the purposes of their pension? =

With reference to the above claim and the order of the High Court, in
the Conference of Chief Ministers and Chief Justices of the High Courts
held on 18.09.2004, the following Resolution was passed:

“18. Augmenting of post-retiral benefits of Judges.

Xxx xxxxx

[vi] As regards post-retiral benefits to the retired Judges of the
High Courts, the scheme sanctioned by the State of Andhra Pradesh be
adopted and followed in all the States, except where better benefits
are already available.”

33) It is brought to our notice that in pursuance of the said Resolution,
most of the States in the country have extended various post-retiral
benefits to the retired Chief Justices and retired Judges of the respective
High Courts. By G.O.Ms.No. 28 dated 16.03.2012 issued by Law Department,
Government of Andhra Pradesh sanctioned an amount of Rs.14,000/- per month
to the retired Chief Justices of the High Court of Andhra Pradesh and an
amount of Rs.12,000/- per month to the retired Judges of the High Court of
Andhra Pradesh for defraying the services of an orderly, driver, security
guard etc. and for meeting expenses incurred towards secretarial assistance
on contract basis and a residential telephone free of cost with number of
free calls to the extent of 1500 per month over and above the number of
free calls per month allowed by the telephone authorities to both the
retired Chief Justices and Judges of the High Court of Andhra Pradesh
w.e.f. 01.04.2012.

34) While appreciating the steps taken by the Government of Andhra
Pradesh and other States who have already formulated such scheme, by this
order, we hope and trust that the States who have not so far framed such
scheme will formulate the same, depending on the local conditions, for the
benefit of the retired Chief Justices and retired Judges of the respective
High Courts as early as possible preferably within a period of six months
from the date of receipt of copy of this order.

35) All the Writ Petitions and the appeals are disposed of on the above
terms. In view of the disposal of the writ petitions, no orders are
required in the intervention application.
2014 (March. Part ) judis.nic.in/supremecourt/filename=41365
P SATHASIVAM, RANJAN GOGOI, N.V. RAMANA

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

1 WRIT PETITION (CIVIL) NO. 521 OF 2002

P. Ramakrishnam Raju .... Petitioner (s)

Versus

Union of India & Ors. .... Respondent(s)

2

3 WITH

4

5 WRIT PETITION (CIVIL) NO. 523 OF 2002

6 WRIT PETITION (CIVIL) NO. 524 OF 2002

7 WRIT PETITION (CIVIL) NO. 37 OF 2003

8 WRIT PETITION (CIVIL) NO. 38 OF 2003

9 WRIT PETITION (CIVIL) NO. 465 OF 2005

10 AND

11 CIVIL APPEAL NOS.4248-4249 OF 2014

(Arising out of S.L.P. (C) Nos. 9558-9559 of 2010)

J U D G M E N T

P.Sathasivam, CJI.

1) The main question which arises for consideration is whether High
Court Judges, who are appointed from the Bar under Article 217(2)(b) of the
Constitution of India, on retirement, are entitled for an addition of 10
years to their service for the purposes of their pension?

2) The above petitions have been filed by former Judges of the various
High Courts of the country as well as by the Association of the Retired
Judges of the Supreme Court and the High Courts elevated from the Bar.

3) The petitioners have prayed that the number of years practiced as an
advocate shall be taken into account and shall be added to the service as a
Judge of the High Court for the purpose of determining the maximum pension
permissible under Part-I of the First Schedule to the High Court Judges
(Salaries and Conditions of Service) Act, 1954 (in short ‘the HCJ Act’).
It was further stated that in respect of Part-III of the First Schedule,
which deals with the Judges elevated from the State Judicial Service,
almost all the Judges get full pension even if they have worked as a Judge
of the High Court for 2 or 3 years and their entire service is added to
their service as a Judge of the High Court for computing pension under this
Part. For this reason, the members of the subordinate judiciary get more
pension than the Judges elevated from the Bar on retirement.

4) In view of the above, the petitioners prayed that though Part-I and
Part-III Judges hold equivalent posts, they are not similarly situated in
regard to pension and retirement benefits which is breach of Articles 14
and 21 of the Constitution of India and one rank one pension must be the
norm in respect of a constitutional office. It is further prayed that the
retired Judges of the High Courts should also be given enhanced allowance
for domestic help/peon/driver, telephone expenses and other secretarial
assistance.

5) We have heard the arguments advanced by learned counsel for the
parties and perused the records.

6) The Constitution of India provides for three-tier judicial system.
The Union Judiciary-Establishment and Constitution of Supreme Court of
India (Articles 124 to 147); The High Courts in the States (Articles 214 to
231) and Subordinate Courts (Article 233 to 237). The Constitution of
India also provides for appointment of Judges from amongst the members of
the Bar at all the three levels.

7) The appointment of the Judges of the Supreme Court is governed by
Article 124(3),(a), (b) and (c) of the Constitution. It envisages
appointment from three sources: (i) from amongst the Judges of the High
Court having service of at least five years; (ii) the members of the Bar
having a standing of not less than 10 years; and (iii) any person, who is,
in the opinion of the President, is a distinguished jurist.

8) The appointment of a Judge of the High Court is governed by Article
217(2)(a) and (b) of the Constitution which envisages appointments from two
different sources: (a) from amongst the Judicial officers who have held the
office for at least 10 years; and (b) the members of the Bar, who have been
Advocates of a High Court for at least 10 years.

9) The appointment of District Judges is governed by Article 233(2) of
the Constitution which provides that a person not already in the service of
the Union or of the State shall only be eligible to be appointed as a
district judge if he has been for not less than seven years an advocate or
a pleader and is recommended by the High Court for appointment.

10) The Supreme Court Judges (Salaries & Conditions of Service) Act,
1958, (in short ‘the SCJ Act’), the HCJ Act and the Rules made thereunder,
regulate their salary and conditions of service. The provisions under both
the Acts were similar prior to the Amendment Act, 2005. The service
conditions of the Judges of the subordinate courts are governed by the
Service Rules made under Article 309 of the Constitution of India.
11) Section 13 of the SCJ Act read with Clause 2 of Part-I of the
Schedule deals with the pension payable to the retired Judges of the
Supreme Court. Similarly, Section 14 of the HCJ Act read with Clause 2 of
Part-I of the First Schedule deals with the pension payable to the retired
Judges of the High Courts. The provisions under both the Acts were similar
prior to the Amendment Act, 2005. Relevant portion of Section 14 of the
HCJ Act reads as follows:

“14. Pension payable to Judges.- Subject to the provisions of this
Act, every Judge shall, on his retirement, be paid a pension in
accordance with the scale and provisions in Part 1 of the First
Schedule:

Provided that no such pension shall be payable to a Judge unless-

a) he has completed not less than twelve years of service for pension;
or

b) he has attained the age of sixty-two years; or

c) his retirement is medically certified to be necessitated by ill-
health;”

12) Clause 2 of Part-I to the First Schedule of the said Act deals with
the pension for the retired Judges of the High Court, who are directly
appointed from the Bar, which reads as under:-

“2. Subject to the other provisions of this part, the pension payable
to a Judge, to whom this part apply and who has completed not less
than 7 years of service for pension shall be

(a) for service as Chief Justice in any High Court, Rs.43,890/- per
annum for each completed year of service; (b) for service as any other
Judge in any High Court Rs.34,350/- per annum for each completed year
of service.

Provided that the pension under this paragraph shall in no case exceed
Rs.5,40,000/- per annum in the case of Chief Justice and Rs.4,80,000/-
per annum in case of any other Judges.”

13) The above-noted Clause (2) of Part I of the First Schedule implies
that no pension is payable to the Judges having less than 7 years of
service as a Judge. The above Section further shows that for a Judge of
the High Court to receive full pension benefits, he should have completed
12 years of service as a Judge of the High Court. It is submitted that
when members of the Bar are offered the post of High Court Judges, they are
generally at the age of about 50 years or above and at the prime of their
practice, which they have to give up to serve the system. Therefore, many
of them are reluctant to accept the offer as the post-retirement benefits
are not attractive enough.
14) Section 13 and Clause 2 of the Schedule to the SCJ Act earlier
contained similar prohibition with regard to the eligibility of pension to
the Judges appointed from the Bar as contained in the HCJ Act. Both the
Acts provide that no pension shall be payable to a Judge who has less than
7 years of service.

15) In Kuldip Singh vs. Union of India, (2002) 9 SCC 218, the petitioner
therein, who was appointed as a Judge of the Supreme Court from the Bar, on
his retirement was denied the benefit of pension as he did not fulfill the
requisite conditions. Consequently, he filed a Writ Petition before this
Court praying, inter alia, (a) to take into account 10 years of practice at
the Bar in addition to his service for the purposes of pension. (b) In the
alternative, prayed for a direction to treat the appointees under Article
124(3)(b) for the purposes of pension at par with the appointees under
Article 124(3)(a). On 24.09.2002, while issuing notice, this Court passed
the following order:-

“1. In this writ petition, the question which arises for consideration
relates to pension which is payable to a Judge who retires from this
Court after having been appointed directly from the Bar. Similar
question also arises with regard to Bar appointees to the High Courts.

2. Experience has shown that the Bar appointees especially, if they
are appointed at the age of 50 years and above, get lesser pension
than the Service Judge appointees. It is to be seen that as far as the
Constitution of India is concerned, it stipulates the manner of
appointment of the Judges and provides what may be termed as the
qualification required for their appointment. The Constitution
contemplates appointment to the High Courts from amongst members of
the Bar as well as from amongst the judicial officers. The
Constitution does not provide for any specific quota. Till a few years
ago in practice 66 2/3% of vacancies were filled from amongst members
of the Bar and 33 1/3% from the judicial services. It is only in the
Conference of 4-12-1993 of the Chief Ministers and the Chief Justices
that it was decided that the number of vacancies from amongst the
judicial officers “might go up to 40%”. The decision of 4-12-1993,
cannot mean that the number of Judges from the services has to be 40%.
The normal practice which has been followed was 2/3rds and 1/3rd from
amongst members of the Bar and judicial services respectively and it
is only on a rare occasion that the Chief Justice of a High Court can
propose more Service Judges being appointed if suitable members of the
Bar are not available. But this cannot be more than 40% in any case.
It may here also be noted that in the Chief Justices’ Conference held
in 1999, it was unanimously resolved that the quota should normally be
66 2/3% and 33 1/3% and it is on this basis the Government should
determine the likely number of Bar Judges and then consider whether
the High Court Judges who are appointed from amongst the members of
the Bar should not be given the same weightage as is now sought to be
given to the members of the Bar who are appointed to this Court as far
as pension is concerned.”
(Emphasis supplied)

16) The Government, vide Amendment Act, 2005 (46/2005), added Section 13A
to the SCJ Act which reads as under:

“Subject to the provision of this Act, a period of ten years shall be
added to the service of a Judge for the purpose of his pension, who
qualified for appointment as such Judge under sub-clause (b) of Clause
(3) of Article 124 of the Constitution.”

Therefore, the condition of minimum 7 years of service as a Judge to become
eligible for pension was omitted from the Section as well as from Clause 2
of its Schedule. In view of the amendment, the said writ petition was
dismissed as withdrawn on 06.12.2005. However, petitioner’s writ petition
and other connected matters remained pending.

17) In Govt. of NCT of Delhi & Ors. vs. All India Young Lawyers’
Association (Registered) And Another, (2009) 14 SCC 49, a Lawyers’
Association filed a writ petition in the High Court of Delhi praying
therein that the benefit of 15 years addition of service be given to the
Judge, who is directly appointed from the Bar to the Higher Judicial
Service for the purposes of pension. The writ petition was allowed and
Rule 26B was ordered to be added to the Delhi Higher Judicial Service
Rules, 1970. The Govt. of NCT, Delhi challenged the said judgment and
order and this Court upheld the validity of Rule 26B, however, the period
to be added to the service for the purposes of pension, was reduced to 10
years or actual practice at the Bar whichever is less.

18) In the three-tier judicial system provided by the Constitution,
members of the Bar, who join the Higher Judicial Service at the District
Judges level, on retirement, get the benefit of 10 years addition to their
service for the purposes of pension (Rule 26B of the DHJS Rules). Judges
of the Supreme Court, who are appointed from the Bar given a period of 10
years to their service for the purposes of pension (Section 13A of the
Amendment Act, 2005). However, the benefit of 10 years addition to their
service for the purposes of pension is being denied to the Judges of the
High court appointed from the Bar, which is arbitrary and violative of
Article 14 of the Constitution of India.

19) The Explanation (aa) appended to Article 217(2) of the Constitution
of India envisages that, “in computing the period during which a person has
been an advocate of a High Court, there shall be included any period during
which the person has held judicial office or the office of a member of a
tribunal or any post, under the Union or a State, requiring special
knowledge of law after he became an advocate.” The explanation thus treats
the experience of an Advocate at the Bar and the period of judicial office
held by him at par.

20) The Judges, who are appointed under Article 217(2)(a) being members
of the Judicial Service, even if they serve as a Judge of the High Court
for only one or two years, get full pension benefits because of the
applicability of Rule 26B or because of their earlier entry into judicial
service. However, the Judges of the High Court, who are appointed from the
Bar do not get similar benefit of full pension, which is arbitrary and
discriminatory.
21) Section 14 of the HCJ Act and Clause 2 of Part I of the First
Schedule which governs the pension payable to Judges gives rise to unequal
consequences. The existing scheme treats unequally the equals, which is
violative of Articles 14 and 21 of the Constitution of India.

22) To remove the above discrimination, in the Chief Justices Conference
held on April 5 and 6, 2013, it was, inter alia, resolved that, “for
pensionary benefits, ten years’ practice as an advocate be added as a
qualifying service, for Judges elevated from the Bar.” (Resolution No.18
(viii). It fully supports the petitioner’s submission.

23) The ratio of the decision cited by the respondent in Union of India
vs. Devki Nandan Agarwal, AIR 1992 SC 196 is not applicable because the
reliefs prayed therein were entirely different and also because it is per
incuriam in view of the subsequent decisions of this Court of equal
strength in All India Judges Association vs. Union of India, AIR 1992 SC
165; and All India Judges Association vs. Union of India, AIR 1993 SC 2493
wherein the requirement of independence of the judiciary have been
underlined as also two decisions cited above i.e. Kuldip Singh (supra) and
All India Young Lawyers’ Association (supra).

24) When persons who occupied the Constitutional Office of Judge, High
Court retire, there should not be any discrimination with regard to the
fixation of their pension. Irrespective of the source from where the
Judges are drawn, they must be paid the same pension just as they have been
paid same salaries and allowances and perks as serving Judges. Only
practicing Advocates who have attained eminence are invited to accept
Judgeship of the High Court. Because of the status of the office of High
Court Judge, the responsibilities and duties attached to the office, hardly
any advocate of distinction declines the offer. Though it may be a great
financial sacrifice to a successful lawyer to accept Judgeship, it is the
desire to serve the society and the high prestige attached to the office
and the respect the office commands that propel a successful lawyer to
accept Judgeship. The experience and knowledge gained by a successful
lawyer at the Bar can never be considered to be less important from any
point of view vis-a-vis the experience gained by a judicial officer. If
the service of a judicial officer is counted for fixation of pension, there
is no valid reason as to why the experience at Bar cannot be treated as
equivalent for the same purpose.

25) The fixation of higher pension to the Judges drawn from the
Subordinate Judiciary who have served for shorter period in
contradistinction to Judges drawn from the Bar who have served for longer
period with less pension is highly discriminatory and breach of Article 14
of the Constitution. The classification itself is unreasonable without any
legally acceptable nexus with the object sought to be achieved.

26) The meager pension for Judges drawn from the Bar and served for less
than 12 years on the Bench adversely affects the image of the Judiciary.
When pensions are meager because of the shorter service, lawyers who attain
distinction in the profession may not, because of this anomaly, accept the
office of Judgeship. When capable lawyers do not show inclination towards
Judgeship, the quality of justice declines.

27) In most of the States, the Judgeship of the High Court is offered to
advocates who are in the age group of 50-55 years, since pre-eminence at
the Bar is achieved normally at that age. After remaining at the top for a
few years, a successful lawyer may show inclination to accept Judgeship,
since that is the culmination of the desire and objective of most of the
lawyers. When persons holding constitutional office retire from service,
making discrimination in the fixation of their pensions depending upon the
source from which they were appointed is in breach of Articles 14 and 16(1)
of the Constitution. One rank one pension must be the norm in respect of a
Constitutional Office.

28) When a Civil Servant retires from service, the family pension is
fixed at a higher rate whereas in the case of Judges of the High Court, it
is fixed at a lower rate. No discrimination can be made in the matter of
payment of family pension. The expenditure for pension to the High Court
Judges is charged on the Consolidated Fund of India under Article
112(3)(d)(iii) of the Constitution.

29) In the light of what is discussed, we accept the petitioners’ claim
and declare that for pensionary benefits, ten years’ practice as an
advocate be added as a qualifying service for Judges elevated from the Bar.
Further, in order to remove arbitrariness in the matter of pension of the
Judges of the High Courts elevated from the Bar, the reliefs, as mentioned
above are to be reckoned from 01.04.2004, the date on which Section 13A was
inserted by the High Court and Supreme Court Judges (Salaries and
Conditions of Service) Amendment Act, 2005 (46 of 2005). Requisite
amendment be carried out in the High Court Judges Rules, 1956 with regard
to post-retiral benefits as has been done in relation to the retired Judges
of the Supreme Court in terms of amendment carried out by Rule 3B of the
Supreme Court Judges Rules, 1959.

Civil Appeal Nos.4248-4249 of 2014
(Arising out of S.L.P. (C) Nos. 9558-9559 of 2010

30) Leave granted.

31) At the instance of the Association of retired Judges of the Supreme
Court and High Courts, the Division Bench of the High Court of Rajasthan at
Jaipur directed the State Government to pay a sum of Rs.9,000/- per month
to a retired Chief Justice of the High Court to meet expenses of domestic
help/peon/driver/telephone expenses and secretarial assistance etc. and Rs.
7,500/- per month to a retired Judge of the High Court for the same
purposes. The said order shall be effective from 01.02.2010. Questioning
the same, the State of Rajasthan has filed the above appeal.

32) With reference to the above claim and the order of the High Court, in
the Conference of Chief Ministers and Chief Justices of the High Courts
held on 18.09.2004, the following Resolution was passed:

“18. Augmenting of post-retiral benefits of Judges.

Xxx xxxxx

[vi] As regards post-retiral benefits to the retired Judges of the
High Courts, the scheme sanctioned by the State of Andhra Pradesh be
adopted and followed in all the States, except where better benefits
are already available.”

33) It is brought to our notice that in pursuance of the said Resolution,
most of the States in the country have extended various post-retiral
benefits to the retired Chief Justices and retired Judges of the respective
High Courts. By G.O.Ms.No. 28 dated 16.03.2012 issued by Law Department,
Government of Andhra Pradesh sanctioned an amount of Rs.14,000/- per month
to the retired Chief Justices of the High Court of Andhra Pradesh and an
amount of Rs.12,000/- per month to the retired Judges of the High Court of
Andhra Pradesh for defraying the services of an orderly, driver, security
guard etc. and for meeting expenses incurred towards secretarial assistance
on contract basis and a residential telephone free of cost with number of
free calls to the extent of 1500 per month over and above the number of
free calls per month allowed by the telephone authorities to both the
retired Chief Justices and Judges of the High Court of Andhra Pradesh
w.e.f. 01.04.2012.

34) While appreciating the steps taken by the Government of Andhra
Pradesh and other States who have already formulated such scheme, by this
order, we hope and trust that the States who have not so far framed such
scheme will formulate the same, depending on the local conditions, for the
benefit of the retired Chief Justices and retired Judges of the respective
High Courts as early as possible preferably within a period of six months
from the date of receipt of copy of this order.

35) All the Writ Petitions and the appeals are disposed of on the above
terms. In view of the disposal of the writ petitions, no orders are
required in the intervention application.

.…….…………………………CJI.

(P. SATHASIVAM)

………….…………………………J.

(RANJAN GOGOI)

………….…………………………J.

(N.V. RAMANA)

NEW DELHI;
MARCH 31, 2014.
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17

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Tuesday, April 1, 2014