Appointment of Independent Arbitrator When Named Arbitrator Fails

Introduction

The case of Deepa Galvanising Engineering Industries Pvt. Ltd. v. Government Of India And Anr., adjudicated by the Andhra Pradesh High Court on September 10, 1997, addresses critical issues surrounding arbitration clauses in contracts and the mechanisms available when designated arbitrators fail to perform their duties. This commentary explores the dynamics between the petitioner, a private engineering firm, and the respondents, representing the Government of India's Department of Telecommunications, highlighting the judicial reasoning and implications for future arbitration processes.

Summary of the Judgment

Deepa Galvanising Engineering Industries Pvt. Ltd. (the petitioner) entered into two contracts with the Department of Telecommunications (the respondents) for the supply of self-supporting microwave towers. Due to delays and alleged lapses on the part of the respondents, disputes arose regarding the execution of these contracts. The petitioner sought the appointment of an arbitrator as per the arbitration clause in the contracts. However, the named arbitrator, the Director General of Telecommunications, failed to act on these appointments. Consequently, the petitioner approached the Chief Justice of the High Court under Section 11(5) of the Arbitration and Conciliation Act, 1996, requesting the appointment of an independent arbitrator. The High Court, after thorough consideration, granted the appointment of an independent arbitrator, establishing important precedents regarding the appointment process when designated arbitrators are non-responsive.

Analysis

Precedents Cited

The judgment extensively references multiple Supreme Court and High Court decisions to substantiate its reasoning. Key precedents include:

• P.G. Agencies v. Union of India: Established that the non-response of a designated arbitrator does not preclude the appointment of another arbitrator by the court.
• Union of India v. Raghunath Singh & Co.: Reinforced that courts possess the authority to appoint arbitrators even when an arbitrator is named by designation.
• Nandyal Co-op. Spinning Mills Ltd. v. K. V. Mohan Rao: Asserted the court's jurisdiction to appoint an arbitrator if the designated individual fails to act within the stipulated timeframe.
• State of West Bengal v. M/s. National Builders: Highlighted that refusal by a named arbitrator necessitates the court to appoint an alternative arbitrator.
• Union of India v. Prahallad Moharana: Confirmed that non-response to arbitration appointment requests forfeits the right to have the named arbitrator, thereby allowing court-appointed arbitrators.

These precedents collectively reinforce the court's authority to intervene and appoint arbitrators when designated individuals fail to act, ensuring that arbitration as a dispute resolution mechanism remains viable.

Legal Reasoning

The court’s primary legal reasoning centered on interpreting the Arbitration and Conciliation Act, 1996, particularly Section 11(5), which empowers courts to appoint arbitrators when parties fail to agree. The arbitration clauses in the contracts specified the Director General of Telecommunications as the sole arbitrator. However, the Director General did not respond to multiple requests for arbitration, leading the court to determine whether this inaction forfeited the respondents' right to appoint him as arbitrator.

Drawing from precedents, the court concluded that a failure to act within a reasonable timeframe constituted a forfeiture of the right to have the named arbitrator. Accordingly, the court exercised its discretion under Section 11(5) to appoint an independent arbitrator of its choosing, thus facilitating the continuation of the arbitration process.

The judgment underscores that courts retain the authority to ensure the effectiveness of arbitration clauses, preventing parties from evading dispute resolution obligations by non-performance.

Impact

This judgment has significant implications for the field of arbitration in India. It clearly establishes that:

• Court intervention is permissible and necessary when designated arbitrators fail to act.
• The arbitral process is safeguarded against potential obstructions by non-responsive parties.
• Certain flexibility exists within arbitration clauses to adapt to unforeseen circumstances, ensuring that dispute resolution can proceed efficiently.

Consequently, parties entering into contracts with arbitration clauses can be more confident that the judiciary will support the arbitration process, maintaining its integrity and effectiveness.

Complex Concepts Simplified

To better understand the judgment, it is essential to clarify some legal terminologies and concepts:

• Arbitration Clause: A provision in a contract that requires the parties to resolve disputes through arbitration rather than through courts.
• Section 11(5) of the Arbitration and Conciliation Act, 1996: Empowers courts to appoint an arbitrator if the parties fail to agree on one within a specified period.
• Mandate of an Arbitrator: The authority given to an arbitrator to act and make decisions in a dispute.
• Forfeiture of Right: Losing a right due to failure to act or comply with conditions.
• Indemnity: Compensation for harm or loss.

In this context, the court determined that the respondents forfeited their right to have the Director General act as arbitrator due to his inaction, thereby necessitating the court’s appointment of an independent arbitrator.

Conclusion