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PETITIONER: MMTC LIMITED

       Vs.

RESPONDENT: STERLITE INDUSTRIES (INDIA) LTD.

DATE OF JUDGMENT:       18/11/1996

BENCH: J.S. VERMA, B.N. KIRPAL

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T      J.S. VERMA,J.:      The point  involved for  decision is, the effect of The Arbitration and Conciliation Acts 1996 (for short "New Act") in the  present case on the arbitration agreement made prior to the  commencement of  the New  Act.  Clause  VII  of  the agreement dated December 14, 1993 between the parties is, as under:      "VII. In  the event of any question      or dispute  arising under or out of      or relations  to the  construction,      meaning and  operation or effect of      this agreement  or breach  thereof,      the  matter  in  dispute  shall  be      referred to  arbitrator.  Both  the      parties    shall    nominate    one      Arbitrator each and the arbitrators      shall  appoint   an  umpire  before      proceeding with  the reference. The      decision of  arbitrators or  in the      event of  their  not  agreeing  the      decision  of  the  umpire  will  be      final and  binding on  the parties.      The  provisions   of   the   Indian      Arbitration  Act   and  Rules  made      thereunder    shall    apply    for      proceedings. The arbitrators or the      umpire, as  the case  may, shall be      entitled with  the consent  of  the      parties to  enlarge the  time, from      time to time, for making the award.      The arbitrators/umpire shall give a      reasoned award.  The venue  of  the      arbitration shall be Bombay."           (Emphasis supplied)      Sterlite Industries (India) Ltd., - respondent, claimed that it  had not  received certain  dues under  the contract from the  appellant -  MMTC Ltd.  and, therefore, it invoked the above  arbitration clause  in the agreement between them by a  letter dated January 19,1996 which was received by the

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MMTC Ltd.  on January  31, 1996  On  February  7,  1996  the respondent appointed  Shri M.N.  Chandurkar, a  former Chief Justice of  Madras High  Court, as  its arbitrator. The MMTC Ltd. claimed  that arbitration could not be resorted to and, therefore, it  did not  name its  arbitrator.  The  Sterlite Industries (India)  Ltd. filed  an application in the Bombay High Court  for appointing  an arbitrator in accordance with the New Act.      Before the  High Courts  learned counsel  for the  MMTC Ltd..  contended   that  the   arbitration  clause  was  not attracted  but   this  objection  was  rejected.  The  other contention  on   behalf  of  the  MMTC  Ltd.  was  that  the arbitration agreement  provided for  the appointment  of two arbitrators while  Section 10  (l) of  the New  Act does not envisage the  appointment of  an even number of arbitrators. The High  Court by  its order  dated 28.6.1996  rejected the contention and  gave time to the MMTC Ltd. till July 5, 1996 to appoint  an arbitrator. It further held that in the event of the  MMTC  Ltd.  failing  to  name  its  arbitrator,  the arbitrator appointed  by Sterlite  Industries  (India)  Ltd. would be  the sole arbitrator under Section 10 (2) read with Section ll  (5) of  the New Act. Time for appointment of the arbitrator was  later extended.  The MMTC  Ltd. has  in  the meantime appointed  Shri S.N.  Sapra. a  former Judge of the Delhi High  Court as  its arbitrator.  Hence this  appeal by special leave.      The contention  of  the  learned  Attorney  General  on behalf of  the appellant  is that  an arbitration  agreement providing  for   the  appointment   of  an  even  number  of arbitrators is  not a  valid agreement  because  of  Section 10(1) of  the New  Act; and,  therefore   the only remedy in such a  case is  by a  suit and not by arbitration. For this reason, he  urged, that sub-section (2) of Section 10 is not attracted since there is no failure to deter-mine the number of arbitrators according to sub-section (1) Another argument of the  learned Attorney  General was  that Section  10 is a departure  from   para  2  of  the  First  Schedule  of  the Arbitration Act,  1940 (for  short 1940 Act), which reads as under:      "2. If  the reference is to an even      number    of     arbitrators    the      arbitrators shall appoint an umpire      not later  than one  month from the      latest  date  of  their  respective      appointments."      In reply  Shri Dave, learned counsel for the respondent contended  that  there  is  no  such  inconsistency  between Section 10  of the  New Act and  the corresponding provision in the  1940 Act, both being substantially the same. Learned counsel contended that the provisions of the New Act must be construed to  promote the  object of implementing the scheme of alternative dispute reso- lution; and the New Act must be construed  to   enable  the   enforcement  of   the  earlier arbitration agreements.  It  was  urged  that  each  of  the parties  having   nominated  its   arbitrator,   the   third arbitrator was required to be appointed according to Section 11 (3)  and the  failure to do so attracts the consequential results under  the New  Act. Learned  counsel contended that the provision  for number  of  arbitrators  is  a  machinery prevision  and   does  not   affect  the   validity  of  the arbitration agreement which is to be determined according to Section 7 of the New Act.      Some provisions  of the  New Act  may now  be referred. Section 2 (b) defines the ’arbitration agreement’ to mean an agreement referred  to in  section 7.  Section 7  deals with

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arbitration  agreement,   Section  10  with  the  number  of arbitrators  and   Section  11   with  the   appointment  of arbitrators. Sections  7, 10  and the  relevant part  of the Section 11 are as under:      Section 7:      "7. Arbitration  agreement.- (1) In      this Part,  "arbitration agreement"      means an  agreement by  the parties      to submit  to  arbitration  all  or      certain disputes  which have arisen      or which  may arise between them in      respect   of    a   defined   legal      relationship,  whether  contractual      or not."      (2) An arbitration agreement may be      in  the   form  of  an  arbitration      clause in a contract or in the form      of a separate agreements.      (3) An  arbitration agreement shall      be in writing.      (4) An  arbitration agreement is in      writing if it is contained in -      (a)  a   document  signed   by  the      parties;      (b) an  exchange of letters, telex,      telegrams   or   other   means   of      telecommunication which  provide  a      record of the agreement; or      (c) an  exchange of  statements  of      claim  and  defence  in  which  the      existence  of   the  agreement   is      alleged by one party and not denied      by the other.      (5) The  reference in a contract to      a    document     containing     an      arbitration clause  constitutes  an      arbitration   agreement    if   the      contract  is  in  writing  and  the      reference is  such as  to make that      arbitration  clause   part  of  the      contract."      Section 10:      "10. Number of arbitrators.-(1) The      parties are  free to  determine the      number  of   arbitrators,  provided      that such  number shall  not he  an      even number.      (2)   Failing   the   determination      referred to in sub-section (1), the      arbitral tribunal  shall consist of      a sole arbitrator."      Section 11:      "Appointment of  arbitrators,-(1) A      person of any nationality may be an      arbitrator, unless otherwise agreed      by the parties.      (2) Subject to sub-section (6), the      parties are  free  to  agree  on  a      procedure   for    appointing   the      arbitrator or arbitrators.      (3) Failing any  agreement referred      to  in   sub-section  (2),   in  an      arbitration with three arbitrators,      each  party   Shall   appoint   one      arbitrator, and  the two  appointed

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    arbitrators shall appoint the third      arbitrator who  shall  act  as  the      presiding arbitrator.      (4) If the appointment procedure in      sub-section (3) applies and-      (a) a  party fails  to  appoint  an      arbitrator within  thirty days form      the receipt  of a  request to do so      from the other party; or      (b) The  two appointed  arbitrators      fail  to   agree   on   the   third      arbitrator within  thirty days from      the date of their appointment,      the appointment shall be made, upon      request of  a party,  by the  Chief      Justice   or    any    person    or      institution designated by him.      (5) Failing  any agreement referred      to  in   sub-section  (2),   in  an      arbitration with a sole arbitrator,      if the parties fail to agree on the      arbitrator within  thirty days from      receipt of  a request  by one party      from the  other party  to so  agree      the appointment shall be made, upon      request of  a party,  by the  Chief      Justice   or    any    person    or      institution designated by him.      (6)  Where,  under  an  appointment      procedure  agreed   upon   by   the      parties,-      (a)  a   party  fails   to  act  as      required under that procedure; or      (b)  the   parties,  or   the   two      appointed  arbitrators,   fail   to      reach an agreement expected of them      under that procedure; or      (c)   a    person,   including   an      institution, fails  to perform  any      function entrusted  to  him  or  it      under that procedure,      a  party   may  request  the  Chief      Justice   or    any    person    or      institution designated  by  him  to      take the  necessary measure, unless      the agreement  on  the  appointment      procedure provides  other means for      securing the appointment.      (7)  A   decision   on   a   matter      entrusted  by  sub-section  (4)  or      sub-section (5)  or sub-section (6)      to the Chief Justice or      the    person     or    institution      designated by him is final.      xxx          xxx               xxx"      Chapter II  of the  New Act  contains Sections  7 to  9 under the heading "Arbitration Agreement"  Chapter III under the heading  "Composition  of  Arbitral  Tribunal"  contains Sections 10 to 15.      Sub-section (3)  of Section  7 requires  an arbitration agreement to  be in writing and sub-section (4) describe the kind of  that writing.  There is  nothings in  Section 7  to indicate the  requirement of  the number of arbitrators as a part of  the arbitration  agreement. Thus the validity of an arbitration agreement  does not  depend  on  the  number  of

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arbitrators specified  therein. The number of arbitrators is dealt with  separately in  Section 10  which is  a  part  of machinery provision  for  the  working  of  the  arbitration agreement.  It  is,  therefore  clear  that  an  arbitration agreement specifying an even number of arbitrators cannot be a ground  to render  the arbitration agreement invalid under the New Act as contended by the learned Attorney General.      Section 10  deals with  the number of arbitrators. Sub- section (1)  says that the parties are free to determine the number of  arbitrators, provided  that such number shall not be an  even number.  Sub-section (2)  then says that failing the  determination  referred  to  in  sub-section  (1),  the arbitral  tribunal  shall  consist  of  a  sole  arbitrator. Section 11  provides for appointment of arbitrators. This is how arbitral tribunal is constituted.      The arbitration  clause provides  that each party shall nominate one  arbitrator and  the two arbitrators shall then appoint an  umpire before proceeding with the reference. The arbitration  agreement   is  valid   as  it   satisfies  the requirement of  Section 7  of the  New Act  . Section 11 (3) requires the two arbitrators to appoint the third arbitrator or the  umpire. There  can be  no doubt that the arbitration agreement in  the present  case  accords  with  the  implied condition contained  in para  2 of the First Schedule to the Arbitration Act,  1940 requiring  the two  arbitrators,  one each appointed  by the  two sides, to appoint. an umpire not later  than   one  month  from  the  latest  date  of  their respective appointments.      The question  is: whether  there is anything in the New Act to  make such an agreement unenforceable? We do not find any such indication in the New Act. There is no dispute that the arbitral  proceeding in the present case commenced after the New  Act came  into force  and, therefore,  the New  Act applies. In  view of  the term  in the arbitration agreement that the  two arbitrators  would appoint  the umpire  or the third arbitrator  before proceeding  with the reference, the requirement of  Sub-section (1)  of Section  10 is satisfied and sub-section  (2) thereof  hes no application. As earlier stated the  agreement satisfies the requirement of Section 7 of the  Act and therefore, is a valid arbitration agreement. The appointment  of arbitrators must, therefore, be governed by Section 11 of the New Act.      In view  of the  fact that each of the two parties have appointed  their   own  arbitrators,  namely,  Justice  M.N. Chandurkar (Retd.), and Justice S.P Sapra (Retd.) Section 11 (3) was  attracted and  the two  appointed arbitrators  were required to  appoint  a  third  arbitrator  to  act  as  the presiding arbitrator  failing which the Chief Justice of the High Court  or any  person or  institution designated by him would  be  required  to  appoint  the  third  arbitrator  at required by  section 11  (4)(b) of  the New  Act  Since  the procedure prescribed in Section 11 (3) his not been followed the further consequences Provided in section 11 must follow.      Accordingly, we  direct that  the Chief  Justice of the High Court  is to appoint the third arbitrator under Section (4)(b) of  the New  Act in  view of  the failure  of the two appointed arbitrators to appoint the third arbitrator within thirty days  from the  date of their appointments. Direction given by  the Chief Justice of the High Court is substituted to this effect.      The appeal is disposed of accordingly. No costs.