In order to ensure that
an arbitral proceeding is run smoothly, it is imperative to have the presence
of arbitrators. In some situations, arbitral proceedings may require the
presence of several arbitrators. However, there is also a possibility that, in some situations, the presence
of a single arbitrator may be sufficient for the conduct of arbitral
proceedings. Section 10 of the Arbitration and Conciliation Act, 1996
(“Arbitration”) provides that the number of such arbitrators shall not be in
even. Section 10(1) of the Arbitration Act reads as:
“…..The
parties are free to determine the number of arbitrators, provided that such number shall not be an even number.”
Given this situation,
will an arbitration agreement, providing for an even number of arbitrator, become
invalid? In this post, while focusing on the decisions of the Supreme Court
of India (“Supreme Court”), we will explain this issue pertaining to Section 10
of the Arbitration Act.
Comparison between
UNCITRAL Model Law and Arbitration Act, 1996
Section 10 of the
Arbitration Act is based on Article 10 of the 1985 UNCITRAL Model Law on International
Commercial Arbitration (“Model Law”).[1]Article
10(1) of the Model Law reads as:
“….The
parties are free to determine the number of arbitrators”
A difference can be
seen between Section 10 of the Arbitration Act and Article 10 of the Model Law.
While Model Law does not require the parties to provide for an odd number of
arbitrators, such requirement is present in Arbitration Act. If Parliament of
India (“Parliament”) has added such words, there must have been a reason behind
it. Did Parliament intend to render arbitration agreement, contrary to Section
10 of Arbitration Act, as invalid? Before arriving at any conclusion, it is
important to see the take of the Supreme Court on the issue.
Present Legal Position
of Section 10 in India
In Narayan Prasad Lohia v. Nikunj Kumar Lohia, it was held that, under
Arbitration Act, an objection against the composition of arbitral tribunal is a
derogable in nature.[2] Further,
it was held that an agreement does not become invalid merely because it
provides for the even number of arbitrators. For instance, where the agreement
provides for two arbitrators, third arbitrator can be appointed by the two
arbitrators under Section 11(3) of the Arbitration Act. It was held by the
Court that:
“….However, we see no reason, why
the two arbitrators cannot appoint a
third arbitrator at a later stage i.e. if and when they differ. This would
ensure that on a difference of opinion the arbitration proceedings are not
frustrated…………. Thus we do not see how there would be waste of time, money and
expense if a party, with open eyes, agrees to go to arbitration of two persons
and then participates in the proceedings….”
Even if it is assumed
that Section 10 of the Arbitration Act is a derogable provision, it would not
be correct to say that there will be no waste of time and money, if the third
arbitrator is appointed at a later stage. In such a situation, there is a
possibility that the newly appointed third arbitrator may want to go through
the evidence, contentions etc., which have already been adduced before the
other arbitrators. That being the case, it is hard to believe how both the time
and money will not be wasted, if such an appointment of third arbitrator is
carried out at a later stage when the two arbitrators differ.
In support of this,
Court made an analogy with Section 11 whereby no provision is present for a
situation when 5 or 7 or more arbitrators are to be appointment. This,
according the Court, would not imply that an agreement, providing for 5 or more
odd number of arbitrators, will be invalid. Rather, provisions under Section 11
can be applied mutatis mutandis. Similarly,
an arbitration agreement, providing for two arbitrators, will not be invalid
since, in such a situation, two arbitrators can appoint the third arbitrator under
Section 11(3) of the Arbitration Act.
There is a problem with
such reasoning. Section 11(3) provides for a situation when parties fail to agree
on the procedure for appointing arbitrators. However, we are concerned with a
situation when parties agree to provide for even number of arbitrators, for example, two. How, in such a
situation, can Section 11(3) be applied when the procedure has already been
agreed upon, i.e., there is no failure to reach an agreement under Section
11(2)? Or, was it the case that the Court intended to mean that the agreement under Section 11(2) should be in conformity with Section 10(1), otherwise in will not be in accordance with the Arbitration Act. And, in such a situation, Section 11(3) will become applicable. Though it may be the case, this is not very clear in the judgment. In any case, even such an interpretion would be very difficult.
The intention behind
the requirement of the odd number of arbitrator could have been to avoid any
such eventuality. In case only two arbitrators are provided in the agreement, a
more viable solution can the appointment of the third arbitrator at the beginning
itself. In this sense, it would both be in conformity with the Section 10 and would
not create any hardship at a later stage. If the intention of the Parliament
was to allow parties to have even number of arbitrators, then there was no need
to deviate from the language of Article 10 of Model Law.
At this juncture, let
us also look at Section sub-section (6) of Section 11 of Arbitration Act. Clause
(b) of sub-section (6) confers power on the Chief Justice to take necessary
measures if the two appointed arbitrators, fail
to reach an agreement expected of them under that procedure. The reason for providing two arbitrators
here should be related to constitution of arbitral tribunal, and should not be
related to the different in the opinion of the two arbitrators with regard to
the result/award. It is because arriving at different conclusions, with regard
to the result/award of arbitration, is always a possibility in arbitration.
Indeed, it is an integral part of arbitration that the appointed arbitrators
should act to arrive at a proper result/award.
Though Supreme Court, in
¶ 12 of Groupe Chimique Tunisien SA v.
Southern Petrochemicals Industries Corpn. Ltd.,[3] considered
Section 10 of the Arbitration Act for concluding that arbitral tribunal shall
consist of three members, no sound reasoning was provided for resolving the
conflict between even and odd number of arbitrators. Further, in Sime Darby Engg. SDN. BHD. v.
Engineers India Ltd.,[4]
Supreme Court held that:
“Section 10 deviates from Article 10 of the Uncitral Model Law only in the sense that Section 10(1) of
the Act provides that despite the freedom given to the parties to determine the
number of arbitrators such numbers shall
not be even number”(emphasis supplied)
These
two cases, though decided after Narayan
Lohia (supra), were quite specific to their factual situations. For the time
being, the law of the land is that an arbitration agreement, even with two
arbitrators, can be made.
[1] Sime Darby Engg. SDN. BHD. v.
Engineers India Ltd., (2009) 7 SCC 545, 550
[2] Narayan Prasad Lohia v. Nikunj Kumar
Lohia, (2002) 3 SCC 572 at page 582, 583
[3] Groupe Chimique Tunisien SA v.
Southern Petrochemicals Industries Corpn. Ltd., (2006) 5 SCC 275, 281
[4] Darby Engg. SDN. BHD. v.
Engineers India Ltd., (2009) 7 SCC 545 at page 550
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