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Standard Corrosion Controls (P) Ltd. v. Sarku Engg. Services Sdn Bhd
Factual and Procedural Background
The applicant, a company registered in India, was shortlisted by the respondent—a Malaysian company awarded a contract by ONGC—for a painting work-scope package. An agreement dated 21-2-2006 contained Article X, stipulating that disputes be resolved “by arbitration to be held at Mumbai, India applying the Arbitration Rules of the International Chamber of Commerce (ICC) by a single arbitrator.”
When the respondent invoked Article VII (suspension and termination) on 8-9-2006 for the applicant’s alleged failure to furnish a bank guarantee, the applicant treated this as a dispute. Letters dated 14-4-2007 and 11-10-2007 were sent by the applicant proposing arbitrators and warning that court intervention would be sought if the respondent failed to respond. The respondent’s e-mail of 16-10-2007 reiterated that arbitration must proceed under ICC Rules.
Without first submitting a request to the ICC Secretariat—as required by those Rules—the applicant filed the present application before the Supreme Court under Section 11(5) of the Arbitration and Conciliation Act, 1996, seeking appointment of a sole arbitrator.
Legal Issues Presented
- Whether the Supreme Court can appoint an arbitrator under Section 11(5) of the Arbitration and Conciliation Act, 1996 when the parties have expressly agreed, in Article X of their contract, to follow the ICC Arbitration Rules for appointment of the sole arbitrator.
- Whether the applicant’s failure to initiate the arbitral process by approaching the ICC Secretariat renders the Section 11(5) application non-maintainable.
Arguments of the Parties
Applicant's Arguments
- The contractual stipulation to apply ICC Arbitration Rules cannot override the statutory provisions of the Arbitration and Conciliation Act, 1996.
- Article IX of the contract, which states that Indian law governs the contract, implicitly entitles recourse to Indian courts for appointment of an arbitrator.
Respondent's Arguments
- Article X unequivocally requires that any arbitration be conducted under ICC Rules, with the appointment process triggered by a request to the ICC Secretariat.
- Because the applicant never made such a request, the pre-condition for court intervention under Section 11(6) is not met; therefore, the application is not maintainable.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Iron & Steel Co. Ltd. v. Tiwari Road Lines (2007) 5 SCC 703 | An application for appointment of an arbitrator is not maintainable when the parties have agreed on an alternative procedure and that procedure has not been exhausted. | Relied upon to hold that approaching the court without first following the agreed ICC procedure is impermissible. |
| Rite Approach Group Ltd. v. Rosoboronexport (2006) 1 SCC 206 | Court intervention is barred where the contractual mechanism for constituting the tribunal has not been triggered. | Used to reinforce the conclusion that the present Section 11(5) application must be dismissed. |
Court's Reasoning and Analysis
The Court first noted that under Section 11(2) of the Arbitration and Conciliation Act, parties are free to agree on a procedure for appointing an arbitrator, subject to Section 11(6). Because Article X provides such a procedure—inclusive of the ICC Rules—the statutory default mechanism does not apply unless the agreed-upon procedure fails.
Examining the ICC Rules annexed to the counter-affidavit, the Court observed that the arbitral process commences only when a party submits a request for arbitration to the ICC Secretariat. The applicant admittedly never made this request. Consequently, the contractual mechanism had not failed and the conditions of Section 11(6) permitting court intervention were not satisfied.
The Court rejected the applicant’s reliance on Article IX, explaining that while the contract is governed by Indian law, Article IX does not regulate the procedure for appointing an arbitrator; that role is fulfilled exclusively by Article X.
The Court further held that statutory supremacy does not come into play because the Act itself, through Section 11(2), gives primacy to party autonomy in procedural matters. Consistent with prior Supreme Court precedents, the Court concluded that the application was premature and legally untenable.
Holding and Implications
Application Dismissed.
The Supreme Court held that a petition under Section 11(5) is not maintainable where the parties have contractually agreed to a specific procedure—in this case, initiation through the ICC Secretariat—for appointing an arbitrator, and that procedure has not been invoked. The immediate effect is that the applicant must now follow the ICC Arbitration Rules to constitute the tribunal. The decision reinforces the principle of party autonomy in arbitration agreements and does not create new precedent but reaffirms existing jurisprudence on contractual procedures governing arbitrator appointments.
Markandey Katju, J.— By means of this arbitration application the applicant has prayed for appointment of an arbitrator under Section 11(5) of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “the Act”) for resolution of the disputes between the parties arising out of the agreement dated 21-2-2006.
2. Heard learned counsel for the parties and perused the record.
3. The applicant is a company registered under the Companies Act, having its registered office at Thane, Maharashtra. The respondent is a company incorporated under the law of Malaysia having its registered office at Miri, Sarawak, Malaysia. The respondent had been awarded a contract of 26 well unmanned platforms by the Oil and Natural Gas Corporation (in short “ONGC”).
4. The applicant had been shortlisted as one of the potential sub-contractors for painting workscope package and was requested to submit its quotations. On going through the quotation of the applicant, the respondent issued a contract dated 21-2-2006. Copy of the agreement is at Annexure A-4 to this application.
5. Subsequently, the applicant received a letter dated 8-9-2006 from the respondent stating that they had no choice but to exercise Article VII, the suspension and termination clause, of the contract agreement with immediate effect on the alleged plea that the respondent (sic applicant) was unable to furnish bank guarantee and feedback confirmation of the applicant's readiness for work. This resulted in a dispute between the parties and the applicant wrote a letter dated 14-4-2007 invoking the arbitration clause in the agreement between the parties, being Article X.
6. The applicant called upon the respondent to send a panel of eminent persons to be selected to act as a sole arbitrator. The applicant also mentioned in the said letter that in the event the respondent fails to send the list as required by the applicant, the applicant shall approach the High Court to appoint the sole arbitrator for resolving the dispute.
7. When the respondent did not send any reply, the applicant wrote a letter dated 11-10-2007 to the respondent and had proposed the names of eminent prospective arbitrators and asked the respondent to select one of them as the sole arbitrator to adjudicate the dispute. The applicant also mentioned in the letter dated 11-10-2007 that if the respondent fails to do so, the applicant will then approach the Supreme Court for getting the arbitral forum constituted.
8. The respondent replied by e-mail dated 16-10-2007 and stated that in Article X of the arbitration it was mentioned that in case of any dispute or difference between the parties regarding the contract, the matter should be settled, as far as possible, by mutual consultation and consent, failing which by arbitration to be held at Mumbai, applying the Arbitration Rules of the International Chamber of Commerce (hereinafter referred to as “the ICC”).
Article X states as follows:
Article X—Arbitration
Any dispute or difference in view regarding this contract shall be settled, insofar as is possible, by mutual consultation and consent, failing which by arbitration to be held at Mumbai, India applying the Arbitration Rules of the International Chamber of Commerce by a single arbitrator.”
9. Since the parties could not agree, the applicant applied to this Court under Section 11(5) of the Act for appointment of an arbitrator. A counter-affidavit has been filed by the respondent and I have perused the same. The respondent has relied on Article X of the agreement dated 21-2-2006 between the parties and has urged that the arbitration has to be held at Mumbai but by applying the Arbitration Rules of the ICC.
10. As per the Rules of Arbitration of ICC, the party who wishes to have recourse to arbitration under the said Rules is required to request for arbitration to the ICC Secretariat. The respondent submitted that the applicant has not followed that procedure for appointment of an arbitrator because it has not submitted any request to the ICC Secretariat. Instead, the applicant has rushed to this Court without following the procedure mentioned in Article X of the arbitration agreement.
11. Annexed to the counter-affidavit are the Rules of the ICC and I have perused the same. Admittedly, the applicant has not made any request for arbitration to the ICC Secretariat. Hence, in my opinion, this application is not maintainable at all.
12. There is no dispute that the applicant had, with open eyes, signed the contract dated 21-2-2006, which contains Article X, quoted above.
13. Learned counsel for the applicant submitted that the Arbitration Rules of the ICC cannot prevail over the parliamentary law, which is the Arbitration and Conciliation Act, 1996. In my opinion, it is true that a statute overrides the contract, but it has to be noticed that Section 11(2) of the Act states that subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Admittedly, the conditions mentioned in sub-section (6) of Section 11 are not attracted in this case. Hence, the procedure to appoint an arbitrator agreed upon by the parties will be applicable.
14. As already stated above, the parties had agreed that any dispute between them shall be settled as far as possible by mutual consultation and consent, failing which by arbitration to be held at Mumbai applying the Arbitration Rules of the ICC. In my opinion, the applicant has to apply to the Secretariat of the ICC, as mentioned in the Arbitration Rules of the ICC, and it cannot approach this Court for appointment of an arbitrator. No doubt, the arbitration will have to be held at Mumbai, but the entire procedure of appointment of the arbitrator has to be in accordance with the Arbitration Rules of the ICC, which requires that first a request has to be made to the Secretariat of the ICC. Admittedly, the applicant has not approached the ICC Secretariat. Hence, in my opinion, the application filed by the applicant herein, is not maintainable at all. This Court in a series of decisions has held that such an application/petition without approaching the authority nominated and agreed upon by the parties is not maintainable vide Iron & Steel Co. Ltd. v. Tiwari Road Lines (2007) 5 SCC 703, Rite Approach Group Ltd. v. Rosoboronexport (2006) 1 SCC 206, etc.
15. The scheme of the Act is that under Section 11(2), the parties are free to agree on a procedure for appointing an arbitrator subject to the provisions of Section 11(6). A petition under Section 11(5) of the Act would not lie if there is any agreement between the parties providing for the procedure for appointment of an arbitrator. In the present case there is Article X of the agreement (quoted above).
16. Learned counsel for the applicant has relied upon Article IX of the agreement, which states:
Article IX
This contract shall be governed by the laws of India. The contractor shall be responsible to keep itself informed and comply with all laws, rules, regulations, standards, codes and the like applicable to the works, contractors and its sub-contractors and contractor shall protect, indemnify and hold ongc, sarku, their affiliates and associated companies and their stockholders, directors, agents, employees, and representative of each of the aforementioned parties harmless from and against all liabilities for any breach thereof attributable to contractor or its sub-contractors.”
In my opinion, Article IX has no relevance to the controversy in this case as it only says that the contract shall be governed by the laws of India. The laws of India would mean the Contract Act, the Limitation Act, the Specific Relief Act, etc. Article/Clause IX does not deal with the procedure by which the arbitrator has to be appointed. That is governed by Clause X.
17. In view of the above, this arbitration application is not maintainable and it is accordingly dismissed.
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