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Msa Nederland B.V v. Larsen & Toubro Ltd. .
Factual and Procedural Background
The petitioner, a company incorporated in the Netherlands, and the respondent, a company incorporated in India, entered into an agreement that contained an arbitration clause. The clause provided for determination of any dispute by a sole arbitrator in accordance with the Arbitration and Conciliation Act, 1996, with the venue fixed at England (UK) and the proceedings in English.
After disputes arose, the parties could not reach consensus on the identity of the sole arbitrator. Consequently, the petitioner filed an application under Section 11 of the Arbitration and Conciliation Act, 1996 before the nominee of the Chief Justice of India seeking appointment of a sole arbitrator.
Legal Issues Presented
- Whether Section 11(9) of the Arbitration and Conciliation Act, 1996 makes it mandatory to appoint a sole arbitrator of a nationality other than those of the parties (i.e., a “neutral” nationality).
- Who should be appointed as the sole arbitrator in the absence of agreement between the parties.
Arguments of the Parties
Petitioner's Arguments
- Invoked Section 11(9) of the Arbitration and Conciliation Act, 1996, contending that because the petitioner is Dutch and the respondent is Indian, the sole arbitrator should be of a nationality other than Dutch or Indian (“neutral nationality”).
The opinion does not detail any arguments advanced by the respondent.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Malaysian Airlines Systems BHD (II) v. Stic Travels (P) Ltd., (2001) 1 SCC 509 | The word “may” in Section 11(9) confers discretion; appointment of a neutral-nationality arbitrator is not mandatory. | Relied upon to affirm that the provision is discretionary, not obligatory, permitting appointment of an arbitrator of either party’s nationality. |
| Grid Corpn. of Orissa Ltd. v. AES Corpn., (2002) 7 SCC 736 | Reaffirmed that Section 11(9) is not mandatory and the appointing authority retains discretion. | Cited to reinforce the conclusion that the court is not bound to appoint a neutral-nationality arbitrator. |
Court's Reasoning and Analysis
The court examined Section 11(9) of the Arbitration and Conciliation Act, 1996, emphasizing the legislative choice of the word “may,” which connotes discretion rather than obligation. Referencing the Supreme Court’s decisions in Malaysian Airlines Systems and Grid Corpn. of Orissa, the court held that an appointing authority is not compelled to select an arbitrator of a nationality different from the parties’. Recognising this discretionary power, the court determined that it was free to appoint an arbitrator of Indian nationality notwithstanding the petitioner’s request for a neutral national.
Holding and Implications
The court appointed Mr. Justice S.N. Variava, retired Judge of the Supreme Court of India, as the sole arbitrator and disposed of the petition.
Implications: The parties must now proceed with arbitration before Justice S.N. Variava, with the venue in England as stipulated in the agreement. The arbitrator will determine his remuneration and related costs. The decision reiterates, without creating new precedent, that Section 11(9) grants discretionary power rather than imposing a mandatory requirement for neutral-nationality arbitrators.
Order
1. This is an application under Section 11 of the Arbitration and Conciliation Act, 1996 praying for appointment of a sole arbitrator. The application has been placed before me as a nominee of the learned Chief Justice of India for necessary orders. The petitioner is a company incorporated under the laws of the Netherlands while the respondent is an Indian company. The parties had entered into an agreement regarding certain works to be executed by the petitioner. Disputes appeared to have arisen between the parties. The agreement between the parties admittedly contains an arbitration clause which runs as under:
“23. Arbitration.— Any dispute or claim arising out of or relating to the agreement, its breach or interpretation thereof, shall be determined by reference to a sole arbitrator to be in accordance with the Arbitration and Conciliation Act, 1996 and the Rules framed thereunder. The venue of the arbitration shall be at England (UK). The language to be used in the arbitration shall be the English language. This clause shall survive the expiration or termination of the agreement.”
2. As per the above agreement a sole arbitrator has to be appointed. Parties have been unable to agree as to who should be the sole arbitrator. This has led to the present application being filed for appointment of the sole arbitrator.
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.
4. I have the benefits of judgments of this Court on this aspect in Malaysian Airlines Systems BHD (II) v. Stic Travels (P) Ltd. (2001) 1 SCC 509 While dealing with the same provision this Court has held that the use of the word “may” indicated that this aspect may be kept in view while appointing the sole arbitrator but the provision is not mandatory. In this decision this Court considered similar provisions in the laws of various countries and held that the word “may” in Section 11(9) of the Act is not indicated to be read as “must” or “shall”. The said decision was followed by this Court in Grid Corpn. of Orissa Ltd. v. AES Corpn. (2002) 7 SCC 736 In view of this legal position it is clear that Section 11(9) of the Arbitration and Conciliation Act is not a mandatory provision. Accordingly, I am not bound to appoint a sole arbitrator having neutral nationality. I hereby appoint Mr Justice S.N Variava, a retired Judge of this Court, as the sole arbitrator in this case. The address of Justice Variava is 7-B, Rockside, 116, Walkeshwar Road, Mumbai 400 006. The remunera-tion of the arbitrator and the other costs that may be involved, particularly in view of the fact that the venue of arbitration as per the arbitration clause has to be in England (UK), shall be fixed by the arbitrator. The petition is disposed of accordingly.
5. A copy of this order be forwarded by the Registry of the Court to Mr Justice S.N Variava forthwith.
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