Walter Bau AG v. Municipal Corporation of Greater Mumbai & Anr.

## [2015] 2 S.C.R. 37 WALTER BAU AG, LEGAL SUCCESSOR, OF THE A ORIGINAL CONTRACTOR, DYCKERHOFF & WIDMANN AG v. MUNICIPAL CORPORATION OF GREATER MUMBAI & ANR. B (Arbitration Case (Civil) No. 35 Of 2014) JANUARY20, 2015 ## **[RANJAN GOGOi, J.]** c _Arbitration and Conciliation Act, 1996- s. 11 (6)_ - _Petition under- Maintainability of-Arbitration clause -Agreed upon procedure contemplated appointment of the arbitrator by the second party within 30 days of receipt of notice from the first party- Upon failure by second party to appoint arbitrator on_ o _its behalf as per the agreement, matter referred to International Centre for Alternative Disputes Resolution (ICADR) for appointment of Arbitrator on behalf of the second party-Appointment of second arbitrator by ICADR- Petition u/s. 11(6) challenging the appointment made by ICADR on_ E _the ground that the same was not as per procedure contemplated uls_ 5 _and 35 of ICADR Rules_ - _Maintainability of the petition challenged_ - _Held: Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jwisdiction uls. 11 (6), acceptance of such_ F _appointment as a fait accompli to debar the jurisdiction u/s. 11 (6) cannot be countenanced in law_ - _Appointment of the second arbitrator being contrary to the Rules, was not valid and hence non-est in law- Such appointment, therefore, will not inhibit exercise of jurisdiction u/s 11 (6) and the petition is_ G _maintainable -Arbitrator appointed on behalf of the second party_ - _International Centre for Alternative Disputes Redressal Rules, 1996_ - _rr._ 5 _and 35._ H 37 38 SUPREME COURT REPORTS [2015] 2 S.C.R. ## A Disposing of the petition, the Court HELD: Unless the appointment of the arbitrator is ex facie valid and such appointment satisfies the Court exercising jurisdiction under Section 11(6) of the 8[Arbitration Act, 1996 acceptance ][of ][such appointment ] as a _fait accomplito_ debar the jurisdiction under Section 11 (6) cannot be countenanced in law. In the present case, the appointment of the arbitrator on behalf of the respondent-Corporation is clearly contrary to the c provisions of the Rules governing the appointment of Arbitrators by ICADR, which the parties had agreed to abide in the matter of such appointment. The option given to the respondent-Corporation to go beyond the panel submitted by the ICADR and to appoint any person D of its choice was clearly not in the contemplation of the parties. Thus, the appointment of the arbitrator, by the respondent-Corporation, is _non-est_ in law. Such an appointment, therefore, will not inhibit the exercise of jurisdiction by this Court under Section 11 (6) of the E Arbitration Act. It cannot, therefore, be held that the present proceeding is not maintainable in law. Consequently, the present petition is allowed and Shri Justice S.R. Sathe, a retired judge of the Bombay High Court is appointed as the Arbitrator on behalf of the F respondent-Corporation. [paras 9 and 10] [49-8-C, E-H; 50-D] G H _Antrix Corporation Limited versus Devas Multimedia Private Limited_ 2013 (6) SCR 453 = (2014) 11 SCC 560; _Pricol Limited versus Johnson Controls Enterprise Ltd._ & _Ors._ 2014 (14) SCALE 74; _Deep Trading Company versus Indian Oil Corporation and others_ 2013 (2) SCR 470 = (2013) 4 sec 35 - distinguished. _Datar Switchgears Ltd. Versus Tata Finance_ WALTER BAU AG. v. MUNICIPAL CORP. OF GREATER 39 MUMBAI _Ltd. and another_ **(2000) 8 sec 151 - referred to.** ## **Case Law Reference** **2013 (2) SCR 470 distinguished para 7 2013 (6) SCR 453 distinguished para 8** B **2014 (14) SCALE 74 distinguished para 8 (2000) s sec 151 referred to para 9** CIVIL ORIGINAL JURISDICTION :Arbitration Petition c (Civil) No. 35 of 2014 Shamik Sanjanwala, Kailash Pandey, Ranjeet Singh, K. V. Sreekumar, for the Appellant. Mukul Rohatgi,AG, Dhruv Mehta, J. J. Xavier,Ashish Wad, D Anshuman Srivastava, Jayashree Wad (For J. S. Wad & Co.), for the Respondents. The Judgment of the Court was delivered by **RANJAN GOGOi, J.** : 1. A works contract No.3AAA E dated 20[1] h December, 2000 was executed by and between the petitioner and the Municipal Corporation of Greater Mumbai (respondent No.1 herein) for execution of city tunnel rehabilitation works for the purposes of transporting the city's sewage. Disputes and differences having arisen between the F parties under the said contract, the petitioner invoked the arbitration clause contained therein and by letter, dated 24[1] h February, 2014, nominated one Shri R.G. Kulkarni as its Arbitrator. By the said communication, the petitioner called upon the respondent No.1 to appoint its Arbitrator within 30 days of G the receipt of the aforesaid letter/notice. 2. The arbitration clause in the agreement between the parties would require to be specifically noticed and, therefore, is being extracted herein below: H 40 SUPREME COURT REPORTS [2015] 2 S.C.R. |"Modified Sub-Clause 67.3|"Modified Sub-Clause 67.3| |---|---| |Arbitration<br>Sub-clause67.3 is modified to read as<br>follows:<br>Anydispute,inrespectofwhichthe<br>Recommendation(s), ifany,of the Board has not<br>become final and binding pursuant to Sub-clause<br>67.1, shall be finally settled by arbitration as set<br>forth below. The Arbitral Tribunal shall have full<br>powertoopen-up,reviewandreviseany<br>decision, opinion, instruction, determination,<br>certificate or valuation of the Engineer and any<br>Recommendation(s) of the Board related to the<br>dispute:|| |I)|A dispute with and Indian contractor shall<br>befinallysettledbyarbitrationin<br>accordance with the Indian Arbitration and<br>Conciliation Act, 1996 oranystatutory<br>amendment thereof. The Arbitral Tribunal<br>shall consist of 3 Arbitrators, one each to<br>be appointed by the Employer and the<br>Contractor. The third arbitrator shall be<br>chosen by two arbitrators so appointed by<br>theparties and shall act asPresiding<br>Arbitrator.Incaseoffailureofthe two<br>arbitrators, appointed by the parties to<br>reach upon a consensus within a period of<br>30daysfromtheappointmentofthe<br>arbitratorappointedsubsequently,the<br>presiding arbitrator shall be appointed by<br>the International CentreforAlternative| WALTER BAU AG. v. MUNICIPAL CORP. OF GREATER 41 MUMBAI [RANJAN GOGOi, J.] ||Dispute ResolutioninIndia. For the purpose<br>ofthisSub-Clause,theterm"Indian<br>Contractor" means acontractorwho is<br>registeredinIndia and is a juridical person<br>created under Indian Law as well as a Joint<br>Venture between such a Contractor and a<br>Foreign Contractor.| |---|---| |II.|Incase of a dispute with a foreign Contractor,<br>thedisputeshallbefinallysettledin<br>accordance with the provisions of UNCITRAL<br>Arbitration Rules. The arbitral tribunal shall<br>consistof3 Arbitrators one each to be<br>appointedbytheEmployerandth.e<br>Contractor. The third arbitrator shallbechosen<br>by the two arbitratorssoappointed by the<br>parties, and shall actaspresiding arbitrator.<br>Incase of the failure of the two arbitrators<br>appointed by the parties to reach upon a<br>consensus within a period of 30 days from<br>the appointment of the arbitrator appointed<br>subsequently, the presiding arbitrator shallbe<br>appointed by the International Centre for<br>Alternative Dispute ResolutioninIndia. For<br>the purposesofthis clause 67, the term<br>"Foreign Contractor" means a contractor who<br>is not registeredinIndia andisnon juridical<br>person created under IndiaLaw.| |Ill.|Neitherpartyshallbelimitedinthe<br>proceedings before such tribunals to the<br>evidence nor did arguments already put<br>before the Engineer or the Board, as the<br>case may be, for the purposeofobtaining| 42 SUPREME COURT REPORTS [2015] 2 S.C.R. ||its/his said Recommendations/ decision.<br>No such Recommendations/decision shall<br>disqualifytheEngineeroranyofthe<br>members of the Board,asthe case maybe,<br>from being called as a witness and giving<br>evidencebefore thearbitratorsorany<br>matter whatsoever relevant to the dispute.| |---|---| |IV)|Arbitration maybecommenced prior to or<br>after completion of the works, provided always<br>that the obligations of the Employer, the<br>Engineer, the contractor and the Board shall<br>not be altered by reason of the arbitration<br>being conducted during the progress of the<br>works.| |V)<br>VI)|If oneofthe parties fails to appoint its<br>arbitratorinpursuance of Sub-clause(i)and<br>(ii) above, within30days after receipt of the<br>notice of the appointment of its arbitrator by<br>the otherparty,then the International Centre<br>for Alternative Dispute ResolutioninIndia,<br>bothincases of foreign contractors as well<br>as Indian Contractors, shall appoint an<br>arbitrator. A certified copy of the order of the<br>International Centre for Alternative Dispute<br>ResolutioninIndiamakingsuchand<br>appointment shallbefurnishedtoeach of the<br>parties.| ||Arbitration proceeding s shall be held at<br>Mumbai, India, and the language of the<br>arbitrationproceedingsandthatofall| ## WALTER BAU AG. v. MUNICIPAL CORP. OF GREATER 43 MUMBAI [RANJAN GOGOi, J.] ||documentsandcommunicationsbetweenthe|A| |---|---|---| ||partiesshallbeEnglish.|| |\Ill|Thedecision ofthemajority ofthearbitrators|| ||shallbefinalandbindinguponbothparties.<br>Thecostandthe expenses of arbitration|B| ||proceedingswillbepaidasdeterminedby|| ||thearbitral tribunal.However,theexpenses|| ||incurredbyeachpartyinconnectionwiththe|| ||preparation, presentation,etc.ofitscaseas<br>also the feesandexpenses paidtothe|c| ||arbitrator appointedbysuchparty oronits|| ||behalfshallbebornebyeachparty itself."|| |3.A reading<br>agreement|A readingofthe aforesaid clauseofthe<br>agreementwouldgotoshowthat afteroneoftheparties|D| |thereto invokes the arbitration clause; appoints its||| |arbitrator|arbitratorandthereafter give noticetothe other party|| |appoint|appointitsarbitrator, if the sameisnot done within|| |days or if thetwoarbitrators appointedbyboth sides||E| |tonominate a third arbitrator, the matteristobe||| |referred to the International Centre for Alternative|referred to the International Centre for Alternative|| |Dispute ResolutioninIndia (for short "ICADR"). For||| |appointment of the Arbitrator|appointment of the Arbitratoronbehalf ofoneofthe|| |parties whohasfailedtosoact or for appointment of||F| 3. A reading of the aforesaid clause of the agreement would go to show that after one of the parties thereto invokes the arbitration clause; appoints its arbitrator and thereafter give notice to the other party to appoint its arbitrator, if the same is not done within 30 days or if the two arbitrators appointed by both sides fail to nominate a third arbitrator, the matter is to be referred to the International Centre for Alternative Dispute Resolution in India (for short "ICADR"). For appointment of the Arbitrator on behalf of one of the parties who has failed to so act or for appointment of the third arbitrator, as may be, ICADR is governed by certain norms contained in Rules 5 and 35 of the ICADR Rules, 1996 governing the procedure for appointment of Arbitrators. The same rules may be usefully extracted herein below: G 5. Appointment of arbitrators.- (1) Unless otherwise agreed by the parties, a person of any nationality may be an arbitrator. H SUPREME COURT REPORTS 44 [2015] 2 S.C.R. |A||| |---|---|---| ||(2)|Where the arbitration agreement provides| |||that each party shall appoint one arbitrator,| |||andthetwoappointedarbitratorsshall| |||appoint the presiding arbitrator, and - a) a| |B||party fails to appoint an arbitrator within| |||thirty days from the receiptofa request to| |||do so from the other party; or| ||(b)|(b)<br>the appointed arbitrators fail to agree on the| |c||presiding arbitrator within thirty days from<br>thedateoftheirappointment,the| |||appointmentshall be made, upon request| |||ofa party, by the ICADR.| ||(3)|(3)<br>In an arbitration with a sole arbitrator,ifthe| |D||parties fail to agree on the arbitrator within| |||thirty days from receipt of a request by one| |||party from the other party to so agree, the| |||appointmentshall be made, upon request| |||ofa party, by the ICADR.| |E||| ||(4)|(4)<br>AdecisionbytheICADRon amatter| |||entrusted to it by sub-rule (2) or sub rule (3)| |||will be final and binding on the parties.| |F|(5)|(5)<br>Upon receipt of a request under sub-rule (2)<br>or sub-rule (3), the ICADR will-| ||(a)|(a)<br>maketheappointmentaspromptlyas| |||possible,| |G|(b)|(b)<br>follow the procedure specified in rule 35,| ||(c) have regard to-|(c) have regard to-| ||(i)|any qualifications requiredofthe arbitrator| |||by the agreementofthe parties| |H||| WALTER BAU AG. v. MUNICIPAL CORP. OF GREATER 45 MUMBAI [RANJAN GOGOi, J.] |(ii)|such considerations as are likely to secure|A| |---|---|---| ||the appointmentofan independent and|| ||impartial arbitrator; and|| |(iii)|inthe -case of appointment of a sole or<br>presidingarbitratorin aninternational|B| ||commercial arbitration, the advisability of|| ||appointing a personofa nationality other|| ||than the nationalitiesoftheparties.|| |35. Services as appointing authority.-|35. Services as appointing authority.- (1)On|C| ||receiptofa request to appoint an arbitrator|| ||inpursuantofrule 5(2) or 5(3), the ICADR|| ||will follow the following procedure-|| |(i)|the ICADR will communicate to each party|D| ||a list containing the names, addresses,|| ||nationalitiesandadescriptionof|| ||qualifications and experienceofat least|| ||threeindividualsfromthepanelof|| ||arbitrators;|E| |(ii)|within thirty days following the receipt of the|| ||list, a party may delete any name to which|| ||he objects andafterre-numbering the|| ||namesinthe order of his preference, return|F| ||the list to the ICADR;|| |(iii)|(iii)<br>onreceiptofthe list returned by the party,|| ||the ICADR will appoint the arbitrator from|| ||the list taking into account the order of|G| ||preference indicated by the parties;|| |(iv)|if for any reason the appointment cannotbe|| ||made according to the procedure specified|| ||inclauses (i) to (iii), the ICADR may appoint|H| SUPREME COURT REPORTS [2015] 2 S.C.R. 46 |A||the arbitrator from the panel of arbitrators.| |---|---|---| ||(2)|Inappointinganarbitrator the ICADR will| |||have regardtothe matters referredtoinrule| |||5(5)(c) and will carefully consider the nature| |B||ofthe disputeinorder to include in the list,| |||persons having appropriate professional or| |||businiess experience, language ability and| |||nationality.| |c|(3)|All appointmentsonbehalf of the ICADR will| |||be made by the Secretary-General and in| |||hisabsencebysuchmemberofthe| |||Governing Council as is designated by the| |D||Chairperson:| |||Provided that where the Secretary-General| |||is to be appointed as the arbitrator, the| |||appointmentwillbemadebythe| |||Chairperson.| |E||| 4. The respondent Corporation having failed to respond to the notice dated 24th February, 2014 of the petitioner, an approach was made to the ICADR by the petitioner on 19th F May, 2014. On the basis thereof, the ICADR by its letter dated 3rd June, 2014 called upon the respondent Corporation to make appointment of an Arbitrator from a panel of three names that was furnished to the respondent Corporation or to independently appoint an arbitrator. The G respondent Corporation pursuant to the said communication of the ICADR appointed Mr. Justice (Retd.) A.O. Mane as its arbitrator by communication dated 3rd July, 2014. Thereafter, this application/petition under Section 11 (6) of the Arbitration and Conciliation Act, 1996 (for short "the H Arbitration Act") was filed on 21st August, 2014. ## WALTERBAUAG. v.MUNICIPALCORP.OFGREATER 47 MUMBAI [RANJAN GOGOi, J.] 5. Mr. Shamik Sanjanwala, learned counsel appearing A for the petitioner has submitted that the arbitration clause in the agreement read with Rules 5 and 35 of the ICADR Rules embody a procedure that was agreed upon by the parties with regard to appointment of the arbitrator(s). B Clearly and evidently, the appointment of Mr. Justice A.O. Mane by the respondent Corporation is contrary to the procedure agreed upon inasmuch as under the relevant Rules governing the ICADR, the said Body was required to communicate the respondent Corporation a panel of C three names and it is from the said panel that the respondent Corporation was required to name its Arbitrator. The Rules do not contemplate an alternative procedure giving the respondent Corporation liberty to appoint an Arbitrator of his choice once the respondent D Corporation failed to appoint its arbitrator within the agreed upon period of thirty days from the receipt of the notice from the petitioner. The appointment of Mr. Justice A.O. Mane as Arbitrator is, therefore, non-est, leaving it E open for this Court to exercise its powers under Section 11 (6) of the Act to appoint an Arbitrator on behalf of the respondent Corporation. It is also pointed out that the petitioner has a serious basis to question the impartiality and independence of the arbitrator purported to be F appointed by the respondent Corporation. 6. Mr. Mukul Rohatgi, learned Attorney General, appearing for the the respondent Corporation, on the other hand, has submitted that the present petition G would not be maintainable inasmuch as an Arbitrator has already been appointed and any exercise of power under Section 11 (6) of the Arbitration Act, at this stage, would operate as an ouster of the said Arbitrator. It is H 48 SUPREME COURT REPORTS [2015] 2 S.C.R. - A submitted that the remedy of the petitioner, if any, lies elsewhere and under different provisions of the Arbitration Act and not by way of an application under Section 11 (6) thereof. Reliance has been placed on the decision of this Court in _**Antrix Corporation Limited**_ versus _**Devas**_ - 8 _**Multimedia Private Limited**_ [(2014) 11 SCC 560] and another recent pronouncement of this Court dated 16[1] h December, 2014 in _**Pricol Limited**_ versus _**Johnson**_ • - _**Controls Enterprise Ltd.**_ **&** _**Ors.**_ [Arbitration Case (Civil) - C N0.30 of 2014]. 7. Alternatively, it has been urged by Mr.Rohatgi that as the appointment of Mr. Justice A.O. Mane was made before the present application/petition was filed in this Court, the said D appointment would be valid in law. It is submitted that the requirement of appointment within 30 days of receipt of a notice is only in cases covered under Section 11 (4) and 11 (5) of the Arbitration Act, whereas in cases falling under Section 11 (2) read with Section 11 (6) of the Arbitration Act, so long the E appointment is made before the concerned aggrieved party moves the Court under Section 11 (6), such appointment will not be invalidated. In this regard, reliance has been placed on _**Datar Switchgears Ltd.**_ Versus _**Tata Finance Ltd. and another**_ F [(2000) 8 sec 151] and _**Deep Trading Company**_ versus _**Indian Oil Corporation and others**_ [(2013) 4 SCC 35]. 8. While it is correct that in Antrix (supra) and Pricol Limited (supra), it was opined by this Court that after G appointment of an Arbitrator is made, the remedy of the aggrieved party is not under Section 11 (6) but such remedy lies elsewhere and under different provisions of the Arbitration Act (Sections 12 and 13), the context in which the aforesaid view was expressed cannot be lost H sight of. In Antrix (supra), appointment of the Arbitrator, WALTER BAU AG. v. MUNICIPAL CORP. OF GREATER MUMBAI [RANJAN GOGOi, J.] as per ICC Rules, was as per the alternative procedure A agreed upon, whereas in Pricol Limited (supra), the party which had filed the application under Section 11 (6) of the Arbitration Act had already submitted to the jurisdiction of the Arbitrator. In the present case, the situation is otherwise. 9. Unless the appointment of the arbitrator is _ex facie_ valid and such appointment satisfies the Court exercising jurisdiction under Section 11 (6) of the Arbitration Act, acceptance of such appointment as a _fait accomplito_ debar C the jurisdiction under Section 11 (6) cannot be countenanced in law. In the present case, the agreed upon procedure between the parties contemplated the appointment of the arbitrator by second party within 30 days of receipt of a notice from the first party. While the decision in _Datar_ D _Switchgears Ltd._ (supra) may have introduced some flexibility in the time frame agreed upon by the parties by extending it till a point of time anterior to the filing of the application under Section 11 (6) of the Arbitration Act, it cannot be lost sight of that in the present case the E appointment of Shri Justice AD. Mane is clearly contrary to the provisions of the Rules governing the appointment of Arbitrators by ICADR, which the parties had agreed to abide in the matter of such appointment. The option given to the F respondent Corporation to go beyond the panel submitted by the ICADR and to appoint any person of its choice was clearly not in the contemplation of the parties. 1f that be so, obviously, the appointment of Shri Justice AD. Mane is nonest in law. Such an appointment, therefore, will not inhibit G the exercise of jurisdiction by this Court under Section 11 (6) of the Arbitration Act. It cannot, therefore, be held that the present proceeding is not maintainable in law. The appointment of Shri Justice AD. Mane made beyond 30 H 50 SUPREME COURT REPORTS [2015] 2 S.C.R. - A days of the receipt of notice by the petitioner, though may appear to be in conformity with the law laid down in _Datar Switchgears Ltd._ (supra), is clearly contrary to the agreed procedure which required the appointment made by the - 8[respondent Corporation to ][be ][from the panel submitted by ] the ICADR. The said appointment, therefore, is clearly invalid in law. 10. Consequently, we allow the present petition and C appoint Shri Justice S.R. Sathe, a retired judge of the Bo'mbay High Court as the Arbitrator on behalf of the respondent Corporation. Both the Arbitrators shall now name the third Arbitrator forthwith whereafter the arbitration proceedings will be held and concluded as expeditiously D as possible. The terms of appointment of Shri Justice S.R. Sathe as the Arbitrator on behalf of the respondent Corporation will be settled in consultation with the respondent Corporation. E 11. The arbitration petition is disposed of in the above terms. Kalpana K. Tripathy Petition disposed of