In ACC Limited v. Global Cements (MANU/SC/0489/2012), the Supreme Court considered the issue as to whether the arbitration clause would remain valid if the arbitrator named in the arbitration clause was no more.
The arbitration clause in question stated:
"21. If any question or difference or dispute shall arise between the parties hereto or their representatives at any time in relation to or with respect to the meaning or effect of these presents or with respect to the rights and liabilities of the parties hereto then such question or dispute shall be referred either to Mr. N.A. Palkhivala or Mr. D.S. Seth, whose decision in the matter shall be final and binding on both the parties."
The agreement containing the arbitration clause was entered into in 1989. Arbitration was invoked in 2011. By that time, the arbitrators named in the arbitration clause had died. One of the parties had approached the High Court under Section 11. The High Court had held that since there was no indication that parties intended that arbitration clause would cease to be in existence. The court held that it was the policy of law to promote the efficacy of arbitration and therefore the efficacy of commercial arbitration must be preserved when dealings are based on agreement providing for recourse to arbitration when disputes arise. Consequently, the court appointed a retired Supreme Court judge as arbitrator.
A petition for Special Leave was filed in the Supreme Court challenging the order of the High Court. In the said petition, the petitioner argued that the arbitration clause specifically named two persons as arbitrators considering their connection with ACC Limited. Therefore, the argument was, on the death of the arbitrators, the arbitration clause ceased to exist.
Not convinced with the argument, the court held that an application would lie under Section 11 unless there is an agreement in the contract where parties specifically debar appointment of any other arbitrator in case it is not possible for the named arbitrator to so act. The court’s view was that the objective behind Sections 14 and 15 of the Act was to facilitate arbitration and therefore unless a specific agreement by parties, Sections 14 and 15 had to be interpreted “to promote efficacy of arbitration”.
The court opined that the phrase “at any time” expressed the intent of the parties that so long as any dispute arose between the parties, the same would be referred to arbitration. The court clarified:
“Objection can be raised by the parties only if there is a clear prohibition or debarment in resolving the question or dispute or difference between the parties in case of death of the named arbitrator or their non-availability, by a substitute arbitrator.”
Since the arbitration clause does not prohibit the parties from appointing a substitute arbitrator, the court refused to grant leave to appeal and dismiss the same.
The position under the Old Act also appears to be similar [See, for instance, Prabhat General Agencies v. Union of India (1971) 1 SCC 79; Bijoy Kumar Swaika v. Shyamsundar Swaika AIR 1976 Cal 448; Amrik Singh Bhandari v. Uttam Singh Duggal AIR 1979 Del 81].
The judgement can be accessed from here.