REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

ARBITRATION APPLICATION NO. 6 OF 2008

Standard Corrosion Controls Pvt. Ltd. .. Applicant

-versus-

Sarku Engineering Services SDN BHD .. Respondent

J U D G M E N T

MARKANDEY KATJU, J  .   

1. By means of this Arbitration Application the applicant has prayed for

appointment  of  an  arbitrator  under  Section  11(5)  of  the  Arbitration  and

Conciliation Act, 1996 (hereinafter referred to as the Act) for resolution of

the  disputes  between  the  parties  arising  out  of  the  agreement  dated

21.2.2006.

2. Heard learned counsel for the parties and perused the record.

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3. The applicant is a company registered under the Indian Companies

Act, having its registered office at Thane, Maharashtra.  The respondent is a

company incorporated under the law of Malaysia having its registered office

at Miri, Sarawak, Malaysia.  The respondent had been awarded a contract of

26 Well  Unmanned Platforms by the  Oil  & Natural  Gas Corporation  (in

short ‘ONGC’).  The applicant had been short-listed as one of the potential

sub-contractors  for  painting  workscope  package  and  was  requested  to

submit its quotations.  On going through the quotation of the applicant, the

respondent issued a contract dated 21.2.2006. Copy of the agreement is at

Annexure A-4 to this application.

4. Subsequently, the applicant received a letter dated 8.9.2006 from the

respondent stating that they had no choice but to exercise Article VII, the

Suspension  and  Termination  Clause,  of  the  Contract  Agreement  with

immediate  effect  on  the  alleged  plea  that  the  respondent  was  unable  to

furnish  bank  guarantee  and  feedback  confirmation  of  the  applicant’s

readiness for work.  This resulted in a dispute between the parties and the

applicant wrote a letter dated 14.4.2007 invoking the arbitration clause in

the agreement between the parties, being Article X.  The applicant called

upon the respondent to send a panel of eminent persons to be selected to act

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as a Sole Arbitrator.  The applicant also mentioned in the said letter that in

the event the respondent fails to send the list as required by the applicant,

the applicant shall approach the High Court to appoint the Sole Arbitrator

for resolving the dispute.  When the respondent did not send any reply, the

applicant  wrote  a  letter  dated  11.10.2007  to  the  respondent  and  had

proposed  the  names  of  eminent  prospective  arbitrators  and  asked  the

respondent  to select  one of them as the Sole Arbitrator  to adjudicate  the

dispute.  The applicant also mentioned in the letter dated 11.10.2007 that if

the respondent fails to do so, the applicant will then approach the Supreme

Court for getting the arbitral forum constituted.

5. The respondent replied by email dated 16.10.2007 and stated that in

Article X of the Arbitration it was mentioned that in case of any dispute or

difference between the parties regarding the contract, the matter should be

settled, as far as possible, by mutual consultation and consent, failing which

by arbitration to be held at Mumbai, applying the Arbitration Rules of the

International  Chamber of Commerce (hereinafter  referred to as the ICC).

Article X states as follows :

“Article X Arbitration

Any dispute  or difference in view regarding this CONTRACT shall be settled, in so far as is possible, by

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mutual  consultation  and  consent,  failing  which  by arbitration  to  be  held  at  Mumbai,  India  applying  the Arbitration  Rules  of  the  International  Chamber  of Commerce by a single arbitrator.”

6. Since the parties could not agree, the applicant applied to this Court

under Section 11(5) of the Act for appointment of an Arbitrator.

7. A  counter-affidavit  has  been  filed  by  the  respondent  and  I  have

perused the same.  The respondent has relied on Article X of the Agreement

dated 21.2.2006 between the parties and has urged that the arbitration has to

be held at Mumbai but by applying the Arbitration Rules of the ICC.  As per

the Rules of Arbitration of ICC, the party who wishes to have recourse to

arbitration under the said Rules is required to request for arbitration to the

ICC  Secretariat.   The  respondent  submitted  that  the  applicant  has  not

followed that procedure for appointment of an Arbitrator because it has not

submitted  any request  to  the  ICC Secretariat.   Instead,  the  applicant  has

rushed to this Court without following the procedure mentioned in Article X

of the Arbitration Agreement.

8. Annexed to the counter-affidavit is the Rules of the ICC and I have

perused the same.  Admittedly, the applicant has not made any request for

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arbitration to the ICC Secretariat.  Hence, in my opinion, this application is

not maintainable at all.

9. There is no dispute that the applicant had, with open eyes, signed the

contract dated 21.2.2006, which contains Article X, quoted above.

10. Learned counsel for the applicant submitted that the Arbitration Rules

of  the  ICC  cannot  prevail  over  the  Parliamentary  law,  which  is  the

Arbitration  and  Conciliation  Act,  1996.   In  my opinion,  it  is  true  that  a

statute overrides the contract, but it has to be noticed that Section 11(2) of

the Act states that subject to sub-section (6), the parties are free to agree on

a  procedure  for  appointing  the  arbitrator  or  arbitrators.   Admittedly,  the

conditions mentioned in sub-section (6) of Section 11 are not attracted in

this case.  Hence, the procedure to appoint an arbitrator agreed upon by the

parties will be applicable.

11. As  already  stated  above,  the  parties  had  agreed  that  any  dispute

between them shall be settled as far as possible by mutual consultation and

consent,  failing  which  by arbitration  to  be  held  at  Mumbai  applying  the

Arbitration Rules of the ICC.  In my opinion, the applicant has to apply to

the Secretariat of the ICC, as mentioned in the Arbitration Rules of the ICC,

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and it  cannot  approach this  Court  for  appointment  of  an Arbitrator.   No

doubt,  the  arbitration  will  have  to  be  held  at  Mumbai,  but  the  entire

procedure of appointment of the Arbitrator has to be in accordance with the

Arbitration Rules of the ICC, which requires that first a request has to be

made  to  the  Secretariat  of  the  ICC.   Admittedly,  the  applicant  has  not

approached the ICC Secretariat.  Hence, in my opinion, the application filed

by the applicant herein, is not maintainable at all.

12. This  Court  in  a  series  of  decisions  has  held  that  such  an

application/petition  without  approaching  the  authority  nominated  and

agreed upon by the parties is not maintainable vide Iron & Steel Co. Ltd. vs.

Tiwari  Road  Lines 2007(5)  SCC  703,  Rite  Approach  Group  Ltd.  vs.

Rosoboronexport 2006(1) SCC 206 etc.

13. The scheme of the Act is that under Section 11(2), the parties are free

to  agree  on  a  procedure  for  appointing  an  Arbitrator  subject  to  the

provisions  of  Section  11(6).   A petition  under  Section  11(5)  of  the  Act

would not lie if there is any agreement between the parties providing for the

procedure  for  appointment  of  an  arbitrator.   In  the  present  case  there  is

Article X of the agreement (quoted above).

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14. Learned counsel for the applicant has relied upon Article IX of the

Agreement, which states :

“ Article IX  

This CONTRACT shall be governed by the laws of India.   The CONTRACTOR shall  be responsible  to keep  itself  informed  and  comply  with  all  laws,  rules, regulations,  standards,  codes and the like applicable  to the  WORKS,  CONTRACTORS and  its  subcontractors and CONTRACTOR shall  protect,  indemnify and hold ONGC,  SARKU,  their  AFFILIATES  and  associated companies  and  their  stockholders,  directors,  agents, employees,  and  representative  of  each  of  the aforementioned  parties  harmless  from  and  against  all liabilities  for  any  breach  thereof  attributable  to CONTRACTOR or its subcontractors.”

15. In my opinion, Article IX has no relevance to the controversy in this

case as it only says that the contract shall be governed by the laws of India.

The laws of India would mean the Contract Act, Limitation Act, Specific

Relief Act etc.  Article/Clause IX does not deal with the procedure by which

the arbitrator has to be appointed.  That is governed by Clause X.

16. In view of the above, this Arbitration Application is not maintainable

and it is accordingly dismissed.

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………………………….J. (Markandey Katju)     

New Delhi; 11 November, 2008

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