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.