Appointment of Arbitrator-Emphasis should always be on Terms of Agreement- Supreme Court

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April 01, 2019

In the instant case, the Supreme Court has observed that the Court while appointing an Arbitrator has to first resort to the procedure as prescribed in the Agreement for appointment of arbitrator and emphasis should always be on the terms of the arbitration agreement to be adhered to or given effect as closely as possible.

Case name: Union of India v. Parmar Construction Company

In the instant case, the Apex Court whether it is permissible under Section 11(6) of the Arbitration and Conciliation Act, 1996 to appoint third party or an independent Arbitrator when the parties have mutually agreed for the procedure vis­à­vis the authority to appoint the designated arbitrator?

The Appellants, aggrieved by the High Court’s order averred that the Court in the case had committed error in appointing an independent arbitrator without resorting to the arbitrator which has been assigned to arbitrate the dispute as referred to under clause 64(3) of the Agreement between the parties.

Bench’s Verdict

The Two-Judge Bench of the Supreme Court in appeal set aside the High Court’s order and made the following observations in the case:

  • While pronouncing it’s verdict, the Supreme Court made reference to catena of cases wherein it has been opined to act on the agreed terms and to first resort to the procedure as prescribed and open for the parties to the agreement to settle differences/disputes arising under the terms of the contract through appointment of a designated arbitrator.
  • The Supreme Court while referring to the facts of the present case noted that though the name in the arbitration agreement is not mandatory or must but emphasis should always be on the terms of the arbitration agreement to be adhered to or given effect as closely as possible
  • While appreciating the facts of the instant case, the Supreme Court observed that it was the duty of the High Court to first resort to the mechanism in appointment of an arbitrator as per the terms of contract as agreed by the parties and the default procedure was opened to be resorted to if the arbitrator appointed in terms of the agreement failed to discharge its obligations or to arbitrate the dispute which was not the case set up by either of the parties.

Hence, the Supreme Court concluded in the case that the High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of an arbitrator which has been prescribed under clause 64(3) of the contract under the inbuilt mechanism as agreed by the parties.

The entire case can be accessed here.

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