- Bookmark
- Share
- CaseIQ
Dakshin Shelters Private Limited v. Geeta S. Johari .
Factual and Procedural Background
A development agreement-cum-general power of attorney dated 7 February 2006 governed the relationship between the parties. Disputes later arose, prompting the respondent on 10 December 2010 to invoke the arbitration clause and to nominate a retired High Court Judge (Justice P.L.N Sharma) as her arbitrator, while calling upon the petitioner to nominate its own arbitrator.
By reply dated 10 January 2011 the petitioner asserted that the agreement had been cancelled and that no arbitral dispute existed, thereby refusing to appoint an arbitrator. Consequently, the respondent moved an application under Section 11 of the Arbitration and Conciliation Act, 1996 before the High Court of Andhra Pradesh. On 9 September 2011 the Designate Judge appointed Mr D.V. Seetharama Murthy, Senior Advocate, as the petitioner’s arbitrator and directed the two arbitrators to appoint a third before entering upon the reference.
The petitioner filed the present Special Leave Petition (SLP) challenging the High Court’s order. On 16 December 2011 the Supreme Court issued limited notice confined to the petitioner’s request that a retired High Court Judge (stationed in Hyderabad) be substituted in place of the appointed Senior Advocate, subject to the petitioner depositing ₹1,00,000 towards the respondent’s costs and staying further arbitral proceedings in the interim.
The deposit was duly made; the respondent entered appearance and opposed any substitution of the arbitrator.
Legal Issues Presented
- Whether the petitioner’s failure to nominate an arbitrator within the time stipulated after receiving the notice dated 10 December 2010 extinguished its contractual right to do so under Section 11(4) of the Arbitration and Conciliation Act, 1996.
- Whether the Designate Judge of the High Court erred in directly appointing Mr D.V. Seetharama Murthy, Senior Advocate, as arbitrator on behalf of the petitioner.
- Whether the Supreme Court should substitute the appointed arbitrator with a retired High Court Judge at the petitioner’s request.
Arguments of the Parties
Petitioner’s Arguments
- The Designate Judge should first have afforded the petitioner an opportunity to nominate its own arbitrator rather than appointing one unilaterally.
- Because the petitioner believed the development agreement had been cancelled, no arbitral dispute existed; therefore it had not “failed” to appoint an arbitrator within the meaning of Section 11(4).
- Relied on National Highways Authority of India v. Bumihiway DDB Ltd. (JV), (2006) 10 SCC 763, especially paragraphs 37-38, to argue for a different approach to appointment.
Respondent’s Arguments
- Upon receiving the notice of 10 December 2010, the petitioner had thirty days to appoint an arbitrator; its refusal extinguished its contractual right under Section 11(4).
- Once an application under Section 11(6) was filed, any residual right of the petitioner to appoint an arbitrator was lost.
- Relied on Union of India v. Bharat Battery Mfg. Co. (P) Ltd., (2007) 7 SCC 684 to support the above proposition and opposed any substitution of the arbitrator appointed by the High Court.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Union of India v. Bharat Battery Mfg. Co. (P) Ltd., (2007) 7 SCC 684 | A party’s right to appoint an arbitrator ceases once the opposite party files a Section 11(6) application. | The Supreme Court held that the Designate Judge correctly applied this principle; the petitioner’s right extinguished upon its failure and the respondent’s Section 11 application. |
| National Highways Authority of India v. Bumihiway DDB Ltd. (JV), (2006) 10 SCC 763 | Addresses procedure for appointing arbitrators after resignation or termination of mandate. | The Court found this precedent inapplicable because the present matter concerned initial failure to appoint, not replacement of an existing arbitrator. |
Court's Reasoning and Analysis
The Court examined Clause 25 of the development agreement, confirming that each party was entitled to appoint one arbitrator and that the two nominees would thereafter appoint a third. Upon receipt of the notice dated 10 December 2010, the petitioner expressly refused to appoint its arbitrator, asserting that no arbitral dispute existed. This response constituted a failure to act under Section 11(4) of the Arbitration and Conciliation Act.
Relying on Bharat Battery, the Court reiterated that once a party fails to appoint within the contractual timeframe and the other party files a Section 11(6) petition, the defaulting party’s right stands extinguished. Consequently, the Designate Judge’s appointment of Mr D.V. Seetharama Murthy, Senior Advocate, was lawful and in consonance with statutory requirements.
The precedent cited by the petitioner (National Highways Authority) was distinguished as it dealt with replacement of arbitrators after resignation, not the initial appointment upon default. Therefore, it offered no assistance to the petitioner’s case.
Holding and Implications
Holding: The Special Leave Petition is dismissed with costs; the High Court’s order appointing Mr D.V. Seetharama Murthy, Senior Advocate, as arbitrator on behalf of the petitioner is affirmed. The deposited amount of ₹1,00,000 is to be released to the respondent.
Implications: The decision reinforces the principle that a party loses its contractual right to appoint an arbitrator once it fails to act within the notice period and the opposite party invokes Section 11(6). No new legal doctrine is created, but the judgment underscores strict adherence to statutory timelines for arbitration appointments.
R.M Lodha, J.— We have heard Mr Pallav Shishodia, learned Senior Counsel for the petitioner and Mr Shyam Divan, learned Senior Counsel for the respondent.
2. A development agreement-cum-general power of attorney (for short “the development agreement”) was executed between the parties on 7-2-2006. Certain disputes arose out of that agreement. On 10-12-2010, the respondent issued a notice to the petitioner invoking arbitration clause in the above agreement and nominated a former Judge of the High Court of Andhra Pradesh—Justice P.L.N Sharma—on her behalf and called upon the present petitioner to nominate its arbitrator.
3. By reply dated 10-1-2011, the petitioner communicated to the respondent that since the development agreement has been cancelled by her, there was no question for resolution of disputes between the parties by the arbitrator. The reply sent by the petitioner necessitated the invocation of Section 11 of the Arbitration and Conciliation Act, 1996 (for short “the Act”) by the respondent and an application was made before the High Court of Andhra Pradesh requesting the Chief Justice or the Designate Judge to appoint the arbitrator/arbitrators to decide the disputes arising out of the above agreement.
4. On hearing the parties, the Designate Judge by his order dated 9-9-2011 appointed Mr D.V Seetharama Murthy, Senior Advocate as an arbitrator on behalf of the petitioner (the respondent therein). It was further observed in the order that the arbitrator nominated by the applicant (the present respondent) and the arbitrator appointed by the Designate Judge on behalf of the petitioner (the respondent therein) are required to appoint the third arbitrator before entering into reference.
5. The order dated 9-9-2011 is under challenge in this special leave petition.
6. On 16-12-2011 (2012) 5 SCC 213, a limited notice was issued by this Court to the respondent. The order issuing notice reads as follows:
“Mr Pallav Shishodia, learned Senior Counsel for the petitioner submits that instead of Senior Advocate, who has been appointed as arbitrator by the Designate Judge, a retired High Court Judge, stationed in Hyderabad, may be appointed. He further submits that the petitioner is willing to bear the expenses, if limited notice is issued to the respondent.
Issue notice limited to the above, returnable in five weeks subject to deposit of rupees one lakh by the petitioner in the Registry towards costs.
In the meanwhile, further proceedings before the arbitrators shall remain stayed.”
In compliance with the above order, the petitioner has deposited Rs 1 lakh in the Registry of this Court towards the costs of the respondent.
7. After service, the respondent has entered appearance through Mr Y. Rajagopala Rao, Advocate-on-Record. Mr Shyam Divan, learned Senior Counsel appearing for the respondent, at the outset, submitted that the respondent was not agreeable to the substitution of the arbitrator appointed by the Designate Judge on behalf of the petitioner.
8. Mr Pallav Shishodia, learned Senior Counsel for the petitioner vehemently contended that the Designate Judge ought to have given an opportunity to the petitioner to nominate its arbitrator. He referred to the suit filed by the petitioner against the respondent challenging the cancellation of the development agreement. He also submitted that the respondent made an application under Section 8 of the Act but that came to be dismissed.
9. In the backdrop of these facts, Mr Pallav Shishodia submitted that when the petitioner received the notice dated 10-12-2010, it was communicated by the petitioner to the respondent in its reply dated 10-1-2011 that there was no question for appointment of arbitrator and the disputes between the parties could not be decided by the arbitrator. The learned Senior Counsel, thus, submitted that the petitioner had not failed to appoint the arbitrator as contemplated under Section 11(4) of the Act.
10. Mr Shyam Divan, learned Senior Counsel for the respondent, on the other hand, submitted that once an opportunity was given to the petitioner to nominate its arbitrator by notice dated 10-12-2010 and it failed to avail of the opportunity, it ceased to have any right to appoint the arbitrator in terms of the arbitration clause in the development agreement. In support of his submission, Mr Shyam Divan relied upon the decision of this Court in Union of India v. Bharat Battery Mfg. Co. (P) Ltd. (2007) 7 SCC 684
11. Mr Pallav Shishodia, learned Senior Counsel for the petitioner, in rejoinder, referred to the decision of this Court in National Highways Authority of India v. Bumihiway DDB Ltd. (JV) (2006) 10 SCC 763. He particularly referred to paras 37 and 38 of the above decision.
12. We must immediately observe that the judgment of this Court in National Highways Authority (2006) 10 SCC 763 relied upon by Mr Pallav Shishodia has no application to the controversy involved in the present matter. The main question in National Highways Authority (2006) 10 SCC 763 related to the process of appointment of arbitrator to be followed on resignation or termination of mandate of an arbitrator and one of the questions framed by this Court for determination was whether on resignation of one of the arbitrators, the statutory provision that comes into play was Section 15(2) or Section 11(6) of the Act. The other three questions noted in Para 20 of the Report also have no bearing on the question with which we are concerned in the present matter.
13. The arbitration clause in the development agreement between the parties reads as follows:
“25. Arbitration
25.1 Tribunal.—Disputes relating to this agreement or its interpretation shall be referred to the arbitration of an Arbitral Tribunal, consisting of three arbitrators (Tribunal), one each to be appointed by the parties hereto and the third to be appointed by the two arbitrators so appointed. The award of the Tribunal shall be final and binding on the parties. The arbitration proceedings will be held only in Secunderabad and the courts situated in Rangareddy District alone shall have the territorial jurisdiction to entertain the dispute. The provisions of the Arbitration and Conciliation Act shall comply with the arbitration procedures.
25.2 Powers of Tribunal.—The Tribunal shall be at liberty to (1) proceed summarily (2) avoid all rules, procedures and/or evidence that can be lawfully avoided by the mutual consent and/or directions by the parties and (3) award damages along with the final award against the party not complying with any interim award or order passed by the Tribunal. The Tribunal shall:
(a) Make the award in English and within four months from the date of appointment with the right to give extension of not more than one month at a time on emergent grounds but the total extensions shall not be more than four months.
(b) Conduct the proceedings from day-to-day and for about 5 hours per day save for initial sittings.
(c) Not grant to either of the parties any extension of time and/or adjournment except on grounds beyond their control and only for such periods as be of the absolute minimum.
(d) The Tribunal shall be entitled to pass interim award granting interim relief to the parties.
25.3 Mechanism and Procedure.—The procedure to be followed shall be decided by the Tribunal. The directions/award of the Tribunal shall be final and binding on the parties.”
14. On the disputes having arisen between the parties, the notice was sent by the respondent to the petitioner on 10-12-2010. Para 4 of the said notice reads as under:
“I do hereby invoke the arbitration clause in the agreement bearing Doc. No. 2778 of 2006 and appoint Hon'ble Mr Justice P.L.N Sharma, a retired Judge of the A.P High Court, r/o Gandhi Nagar, Hyderabad as arbitrator within a week from the date of receipt of this notice to adjudicate all claims, disputes, differences, restitutions, restorations whatsoever in law and in equity, in terms of the registered development agreement-cum-GPA document registered as Doc. No. 2778 of 2006, failing which I shall be constrained to initiate appropriate legal action under Section 11 of the Arbitration Act for appointment of arbitrator on your behalf as well as you shall be solely responsible for all costs and consequences.”
The petitioner did respond to the above notice within 30 days of its receipt by sending its reply on 10-1-2011.
15. Various pleas were raised in that reply and ultimately, the petitioner responded by stating
“it is stated that the question of appointment of arbitrator does not raise either from your side or from our side. There is no arbitral dispute to be decided by the arbitrator.”
From the above response, it is clear that the petitioner declined to appoint its arbitrator as according to it there was no question of appointment of arbitrator by either of the parties and there being no arbitral dispute, there was no occasion for resolution of dispute as provided in the development agreement. The stance of the petitioner amounted to failure on its part to appoint its arbitrator on receipt of the request to do so from the respondent.
16. In view of the above, it cannot be said that the Designate Judge committed any error in nominating Mr D.V Seetharama Murthy, Senior Advocate as an arbitrator on behalf of the petitioner. The order of the learned Single Judge is in conformity with the decision of this Court in Bharat Battery Mfg. Co. (P) Ltd. (2007) 7 SCC 684 wherein this Court stated as follows:
“12. … Once a party files an application under Section 11(6) of the Act, the other party extinguishes its right to appoint an arbitrator in terms of the clause of the agreement thereafter. The right to appoint arbitrator under the clause of agreement ceases after Section 11(6) petition has been filed by the other party before the court seeking appointment of an arbitrator.”
17. The petitioner's right to appoint its arbitrator in terms of Clause 25 of the development agreement got extinguished once it failed to appoint the arbitrator on receipt of the notice dated 10-12-2010. There is no merit in the submission of the learned Senior Counsel for the petitioner that the Designate Judge ought to have given an opportunity to the petitioner to nominate its arbitrator.
18. The order impugned in the present special leave petition does not suffer from any infirmity. The special leave petition is, accordingly, dismissed with costs. The amount of rupees one lakh deposited by the petitioner in the Registry of this Court shall be paid to the respondent.
Alert