Supreme Court: The bench of AM Khanwilkar and Ajay Rastogi, JJ has held that the Chief Justice or his Designate, in exercise of power under Section 11(6) of the Arbitration and Conciliation Act, 1996, cannot directly make an appointment of an independent arbitrator without, in the first instance, resorting to ensure that the remedies provided under the arbitration agreement are exhausted.
Clause (c) of subsection (6) of Section 11 relates to failure to perform any function entrusted to a person including an institution and also failure to act under the procedure agreed upon by the parties. Noticing the intent behind the said clause, the Court explained the scheme of Section 11(6) and said,
“clause(a) refers to the party failing to act as required under that procedure; clause(b) refers to the agreement where the parties fails to reach to an agreement expected of them under that procedure and clause (c ) relates to a person which may not be a party to the agreement but has given his consent to the agreement and what further transpires is that before any other alternative is resorted to, agreed procedure has to be given its precedence and the terms of the agreement has to be given its due effect as agreed by the parties to the extent possible.“
The Court hence held that corrective measures have to be taken first and the Court is the last resort.
The Court also noticed that by appointing an arbitrator in terms of subsection (8) of Section 11 of Act, 1996, due regard has to be given to the qualification required for the arbitrator by the agreement of the parties and also the other considerations such as to secure an independent and impartial arbitrator.
The Court, hence, held,
“To fulfil the object with terms and conditions which are cumulative in nature, it is advisable for the Court to ensure that the remedy provided as agreed between the parties in terms of the contract is first exhausted.”
[Union of India v. Parmar Construction Company, 2019 SCC OnLine SC 442, decided on 29.03.2019]
