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Sec.11 of Arbitration and conciliation Act – dispute over the appointment of third arbitrator – Apex court appointed Honourable James Spigelman AC QC, former Chief Justice and Lieutenant Governor of New South Wales, Australia as the third Arbitrator who shall act as the Chairman of the Arbitral Tribunal – discarding the apprehensions that a foreigner not known to India laws = Reliance Industries Ltd. & Ors. …Petitioners Versus Union of India ….Respondent= 2014 (March. Part ) judis.nic.in/supremecourt/filename=41367

Sec.11 of Arbitration and conciliation Act – dispute over the appointment of third arbitrator – Apex court appointed Honourable James Spigelman AC QC, former Chief Justice and Lieutenant Governor  of  New  South Wales, Australia as the third  Arbitrator  who  shall  act  as  the Chairman of the Arbitral Tribunal – discarding the apprehensions that a foreigner not known to India laws  =

 

 under Section 11(6) of the Arbitration

        Act, 1996, with a prayer for  appointment  of  the  third  and  the

        presiding arbitrator, as  the  two  arbitrators  nominated  by  the

        parties have failed to reach a consensus on the appointment of  the

        third arbitrator.=

 The Arbitration Agreement in the PSC is contained

        in Article 33.  Relevant facts thereof, is in the following words:

           “ARTICLE 33

           SOLE EXPERT, CONCILIATION AND ARBITRATION

           33.1 * * *

 

 

           33.2 * * *

 

 

           33.3 Subject to the provisions of  this  Contract,  the  Parties

           hereby agree that any controversy, difference,  disagreement  or

           claim for damages, compensation  or  otherwise  (hereinafter  in

           this Clause referred to as  a  “dispute”)  arising  between  the

           Parties, which cannot be settled  amicably  within  ninety  (90)

           days after the dispute arises, may (except for those referred to

           in Article 33.2, which may be referred  to  a  sole  expert)  be

           submitted  to  an  arbitral  tribunal  for  final  decision   as

           hereinafter provided.

 

 

           33.4 The arbitral tribunal shall consist of  three  arbitrators.

           Each Party to the dispute shall appoint one arbitrator  and  the

           Party or Parties shall so advise the  other  Parties.   The  two

           arbitrators appointed by the Parties  shall  appoint  the  third

           arbitrator.

 

 

           33.5 Any Party may, after appointing an arbitrator, request  the

           other Party(ies) in writing to appoint the second arbitrator. If

           such other Party fails to appoint an  arbitrator  within  thirty

           (30) days of receipt of the  written  request  to  do  so,  such

           arbitrator may, at the request of the first Party, be  appointed

           by the Chief Justice of India or by a person authorised  by  him

           within thirty (30) days of the date of receipt of such  request,

           from amongst persons who are not nationals of the country of any

           of the Parties to the arbitration proceedings.

 

 

           33.6 If the two arbitrators appointed by or  on  behalf  of  the

           Parties fail to agree on the appointment of the third arbitrator

           within thirty  (30)  days  of  the  appointment  of  the  second

           arbitrator and if the Parties do not  otherwise  agree,  at  the

           request of either Party, the third arbitrator shall be appointed

           in accordance with Arbitration and Conciliation Act, 1996.

 

 

           x ————— x —————x ————x ———–x

 

 

           33.12 The venue of the sole expert, conciliation or  arbitration

           proceedings pursuant to this Article, unless the  Parties  agree

           otherwise, shall be New Delhi, India and shall be  conducted  in

           the English language. Insofar as practicable, the Parties  shall

           continue to implement the terms of this Contract notwithstanding

           the initiation of arbitral proceedings  before  a  sole  expert,

           conciliator or  arbitral  tribunal  and  any  pending  claim  or

           dispute.

 

 

           33.13 * * *”

 It appears  that  in  the  financial  year  2010-2011,  differences

        relating to the scope and interpretation of the provisions  of  the

        PSC  arose  between  the  Petitioners  and  Respondent  after   the

        publication of some media reports 

 

Upon due consideration, I hereby appoint Honourable James Spigelman

        AC QC, former Chief Justice and Lieutenant Governor  of  New  South

        Wales, Australia as the third  Arbitrator  who  shall  act  as  the

        Chairman of the Arbitral Tribunal. The   E-mail address  which  has

        been supplied to this Court is as follows :

           spigel@bigpond.net.au

    82. In view  of  the  considerable  delay,  the  Arbitral  Tribunal  is

        requested to enter upon the reference at the earliest and to render

        the award as expeditiously as possible.

 

 

 

 

    83. The Arbitration Petition is allowed in  the  aforesaid  terms.   No

        costs.

 

2014 (March. Part ) judis.nic.in/supremecourt/filename=41367

SURINDER SINGH NIJJAR

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION
ARBITRATION PETITION NO. 27 OF 2013
Reliance Industries Ltd. & Ors. …Petitioners
Versus
Union of India ….Respondent
J U D G M E N T
SURINDER SINGH NIJJAR,J.
1. This petition has been filed under Section 11(6) of the Arbitration
Act, 1996, with a prayer for appointment of the third and the
presiding arbitrator, as the two arbitrators nominated by the
parties have failed to reach a consensus on the appointment of the
third arbitrator.

2. Petitioner No.1 is a company incorporated and registered under the
provisions of the Companies Act, 1956; Petitioner No.2 is a company
incorporated in Cayman Islands, British Virgin Islands; Petitioner
No.3 is a company incorporated according to the laws of England &
Wales. The Respondent herein is Union of India (hereinafter
referred to as “UOI”), represented by the Joint Secretary, Ministry
of Petroleum and Natural Gas.
3. Briefly stated, the relevant facts are as under:
4. In 1999, UOI announced a policy-New Exploration and Licensing
Policy (hereinafter referred to as “NELP”). Under NELP, certain
blocks of hydrocarbon reserves were offered for exploration,
development and production to private contractors under the
agreements which were in the nature of Production Sharing Contract.
One of the said blocks was Block KG-DWN-98/3 (“Block KG-D6”). The
joint bid made by the Petitioners No.1 and 2 for the Block KG-D6
was accepted by the UOI. Thereafter on 12th April, 2000, Production
Sharing Contract (hereinafter referred to as ‘PSC’) was executed
between the Petitioners No.1 and 2 as Contractor on one side and
UOI on the other. The Arbitration Agreement in the PSC is contained
in Article 33. Relevant facts thereof, is in the following words:
“ARTICLE 33
SOLE EXPERT, CONCILIATION AND ARBITRATION
33.1 * * *
33.2 * * *
33.3 Subject to the provisions of this Contract, the Parties
hereby agree that any controversy, difference, disagreement or
claim for damages, compensation or otherwise (hereinafter in
this Clause referred to as a “dispute”) arising between the
Parties, which cannot be settled amicably within ninety (90)
days after the dispute arises, may (except for those referred to
in Article 33.2, which may be referred to a sole expert) be
submitted to an arbitral tribunal for final decision as
hereinafter provided.
33.4 The arbitral tribunal shall consist of three arbitrators.
Each Party to the dispute shall appoint one arbitrator and the
Party or Parties shall so advise the other Parties. The two
arbitrators appointed by the Parties shall appoint the third
arbitrator.
33.5 Any Party may, after appointing an arbitrator, request the
other Party(ies) in writing to appoint the second arbitrator. If
such other Party fails to appoint an arbitrator within thirty
(30) days of receipt of the written request to do so, such
arbitrator may, at the request of the first Party, be appointed
by the Chief Justice of India or by a person authorised by him
within thirty (30) days of the date of receipt of such request,
from amongst persons who are not nationals of the country of any
of the Parties to the arbitration proceedings.
33.6 If the two arbitrators appointed by or on behalf of the
Parties fail to agree on the appointment of the third arbitrator
within thirty (30) days of the appointment of the second
arbitrator and if the Parties do not otherwise agree, at the
request of either Party, the third arbitrator shall be appointed
in accordance with Arbitration and Conciliation Act, 1996.
x ————— x —————x ————x ———–x
33.12 The venue of the sole expert, conciliation or arbitration
proceedings pursuant to this Article, unless the Parties agree
otherwise, shall be New Delhi, India and shall be conducted in
the English language. Insofar as practicable, the Parties shall
continue to implement the terms of this Contract notwithstanding
the initiation of arbitral proceedings before a sole expert,
conciliator or arbitral tribunal and any pending claim or
dispute.
33.13 * * *”

5. On 8th August, 2011, UOI granted its approval to the Petitioner
No.1 to assign 30% of its participating interest in the Block KG-
D6, under the PSC to Petitioner No.3. On the same date, i.e. 8th
August, 2011, Petitioner No. 3 also entered into PSC as a party.
Further, Petitioner No.1 was appointed as the ‘Operator’ for Block
KG-D6, both under the terms of the PSC, and the Joint Operating
Agreement that was executed between Petitioner No. 1 and
Petitioners No. 2 & 3.
6. It appears that in the financial year 2010-2011, differences
relating to the scope and interpretation of the provisions of the
PSC arose between the Petitioners and Respondent after the
publication of some media reports. These reports, according to the
Petitioners, suggested that the Respondent was planning to disallow
cost recovery of the expenditures incurred by the Contractor since
the productions levels from the gas fields had fallen drastically.
According to the Petitioners, all the disagreements and differences
that have arisen between them and UOI will inevitably lead to
serious problems in the working of the PSC. To resolve this
dispute, lengthy correspondence ensued between Petitioner No.1 and
the officers/representatives of Respondent No.1.

7. On 16th September, 2011, RIL (Petitioner no.1) wrote to the
Respondent and pointed out that any attempt to disallow or to
restrict cost recovery of expenditures incurred by the Contractor
since the production levels from gas fields had fallen, would be
contrary to the provisions of the PSC and, requested that no such
action should be taken. There was no response to the aforesaid
letter from the Respondent.
8. On 23rd November, 2011, Petitioner No.1 (RIL), through its
Advocates, served upon the Respondent a notice invoking
arbitration, in accordance with the arbitration agreement contained
in Article 33 of the PSC. In this letter, Petitioner no.1 also
nominated Mr. Justice S.P. Bharucha, former Chief Justice of India,
as its arbitrator and called upon the Respondent to nominate its
arbitrator within 30 days of the receipt of this letter. Respondent
replied to this letter on 21st December, 2011, and
intimated Petitioner No.1 that the matter is under consideration
and that “the Ministry needs more time to respond and would do so
by 31st January, 2012.” In its letter dated 2nd January, 2012, the
Petitioners pointed out to the Respondent that, “the PSC, the
UNCITRAL Rules and the Indian Arbitration and Conciliation Act,
1996 – set a period of thirty days for your making appointment of
an Arbitrator.” Nevertheless, as a matter of good faith, time for
nomination of an arbitrator by the Respondent was extended until
31st January, 2012.
9. The Respondent, however, by a letter dated 25th January, 2012
addressed to Petitioner No.1 called upon the Petitioner to withdraw
the Notice of Arbitration on the ground that the same was
premature, “for the reason that no ‘dispute’ has arisen between the
parties to the Production Sharing Contract.” It is noteworthy that
no objection was taken with regard to Petitioner No.1 being the
only party under the PSC that seems to be raising the disputes.

10. Thereafter on 2nd February, 2012, Petitioner No.1 replied to the
Respondent, by a letter through its advocates, wherein it was
reiterated that there have been a long standing controversy,
differences and/or disagreement as to whether the contractor’s
right to recover its contract cost is capable of being limited by
the Government, in the manner and on the grounds as is sought to be
done under the PSC. It was also stated that: “Our client treats and
construes your letter under reply as your refusal and failure to
appoint an arbitrator.”

11. On 17th February, 2012, Respondent wrote a letter to Petitioner
No.1, wherein it was reiterated that no dispute concerning the cost
recovery under the PSC has arisen between the parties to the PSC.
The Respondent once again called upon the Petitioners to withdraw
the notice of arbitration dated 23rd November, 2011.

12. In response to the aforesaid letter, Petitioner No.1, through its
Advocates, addressed a letter dated 9th March, 2012 to the
Respondent, wherein the demand made in the notice of arbitration
dated 23rd November, 2011 was reiterated. The letter inter alia
stated as under:
“We are instructed to state that the assertion that disputes and
differences have not arisen between the Government and the
Contractor overlooks the previous correspondence that the
ensured (sic: ensued) between the parties”
* * *
“The underlying reason for all this appears to be disputes that
have arisen between the Contractor and the DGH…”
* * *
“The DGH, on its part has disagreed with the contractor inter
alia on whether the factual; assertion that drilling of more
wells would not augment the rate of production”

Annexure-I to the aforesaid letter listed some of the issues that
have already arisen between the parties; which are as under:
(I) Whether the FDP implies a commitment of the contractor to
produce particular or at a particular rate?
(II) Whether the FDP implies a commitment of the contractor to
do a series of development activities even if there is a difference of
opinion between the Government and the Contractor as to the efficacy
of these activities?
(III) Whether the FDP is revised pro tanto by WP & B’s from time
to time approved by MC?
(IV) Whether the variation between the costs proposed in the FDP and
the actual cost can be a basis for disallowing Capex?
(V) Is the recovery of cost related in any manner to the estimates
of production even if the costs are within the sanctioned budgets?
(VI) Is the recovery of costs of facilities in any manner
related to the attainment of production estimates of the FDP or the
estimates of deposits or reservoir characteristics?
(VII) Whether the FDP was a representation by the contractor to
produce at a particular rate or to produce a particular quantity for a
defined period, which by conduct became a binding contract between the
parties?
(VIII) Would the drilling of additional wells result in increased
production rates/volumes.
(IX) Did the approval of the WP & B’s [FY 2009-10 (RE) and 2010-11
(BE)] result in a modification of FDP?
(X) Were the reasons given by the MoPNG/DGH for declining approval
to the WP & B’s for FY 2010-11(RE) and 2011-12 valid?
(XI) If the answer to (IX) and (X) is in the negative, what is the
consequence?”
13. On 16th April, 2012, Petitioners No.1 & 2 filed Arbitration
Petition No. 8 of 2012 under Section 11(6) of the Arbitration Act,
1996 before this Court (hereinafter referred to as
“A.P. No. 8”), seeking constitution of Arbitral Tribunal in terms
of Article 33.5 of the PSC. After filing of this petition,
correspondence ensued between the Petitioners and the Respondent,
wherein the subject matter related to cost recovery of expenditure
incurred by the Contractor for the years 2010-2011 was discussed.
This was done through letters/notice dated 2nd May, 2012; 4th May,
2012 and 8th June, 2012. In the letter dated 2nd May,
2012, the Respondent makes a reference to the PSC dated 12th April,
2000 in the following terms:
“We write with reference to the Production Sharing Contract
(“PSC”) dated April 12, 2000 between Ministry of Petroleum and
Natural Gas (“Government”), Reliance Industries Limited (being
the operator) and Niko Resources Limited (collectively
“Contractor”), in relation to block KG-DWN-98-3. The expressions
used and not defined herein and defined in the PSC, shall have
the meaning ascribed thereto in the PSC.”
The letter claims that the Petitioners have failed: “to fulfil
your obligations and to adhere to the terms of the PSC and are in
deliberate and wilful breach of PSC and have thereby caused immense
loss and prejudice to the Government. You have also repeatedly failed
to meet your targets under the PSC.” Thereafter the specific
instances of the breach have been highlighted in detail. Finally, it
is recorded as under:-
“In this regard, we have been instructed to state that any such
purported attempt to unilaterally adjust any amounts as
threatened or otherwise would be completely illegal and
constitute a serious breach of the provisions of the PSC and
that our client reserves all its right under the PSC, the
Arbitration Act, and the UNCITRAL Arbitration Rules if the
Government attempts to proceed to implement the purported
decision threatened or otherwise.”
14. The Petitioners by an equally detailed letter denied the claims
made by the Respondent on 8th June, 2012. In paragraph 31 of the
aforesaid letter, the Petitioners again called upon the Respondent
to appoint an arbitrator forthwith (without raising any other
procedural issues designed to delay the dispute resolution process)
so that the vital project undertaken by the parties is not put in
jeopardy on account of the continuing uncertainty.
15. In its letter dated 5th July, 2012, the Respondent makes a
reference to the letter dated 2nd May, 2012 addressed to
Contractors of the block KG-DWN-98/3 and to the letter dated 8th
June, 2012 written by the Solicitors on behalf of Petitioner No.1
and stated that the Ministry had nominated Mr. Justice V.N.Khare,
former Chief Justice of India as the arbitrator on behalf of the
Government of India. The letter also called upon the Petitioners to
withdraw the A.P. No. 8. On 16th July, 2012, the Petitioners,
through its advocates, addressed a letter to the Registrar of this
Court, wherein it was requested that the A.P. No. 8 may be disposed
of. Accordingly, the A.P. No. 8 was disposed of by this Court by an
order dated 7th August, 2012. It would be appropriate to notice
here the relevant extract of the order:
“Both the parties have no objection to the Arbitrators nominated
by each other. Under the arbitration clause, the two nominated
Arbitrators are to nominate the third Arbitrator. In view of the
above, in my opinion, no further orders are required to
be passed in this Arbitration Petition. The Arbitration Petition
is disposed of as such.”
16. On 12th July, 2013, Petitioner No.1 addressed a letter to Mr.
Justice S.P. Bharucha and Mr. Justice V.N. Khare, requesting them
to nominate the third arbitrator. On 1st August,
2013, Mr. Justice Bharucha wrote a letter to Petitioner No.1, inter
alia, as follows :
“Undoubtedly, there has been a delay in the appointment of a
third arbitrator. I had made a suggestion to my fellow
arbitrator, which was not acceptable to him. I asked him to make
a counter suggestion which he said he would do. I have not heard
any counter suggestion as yet.
In the circumstances, you must consider whether the court should
be approached for the appointment of a third arbitrator.”
17. It was in these circumstances that the present arbitration petition
came to be filed under Section 11(6) of the Arbitration Act, 1996.
Submissions:
18. I have heard elaborate arguments, and perused the written
submissions submitted by the learned senior counsel appearing for
the parties.
19. Mr. Harish N. Salve, learned senior counsel, appearing for the
Petitioners has made the following submissions:
I. Re: International Commercial Arbitration
20. It was submitted that the present arbitral proceedings relate to an
International Commercial Arbitration, as defined under Section 2
(1) (f) of the Arbitration Act, 1996. Ld. senior counsel pointed
out that two out of the four parties to the arbitration agreement
are based outside India; Petitioner No. 2 being a U.K. based
company and Petitioner No.3 being based in Canada. Substantiating
this submission, it was pointed out by Mr. Salve that each of the
Petitioners is a party to the PSC, as defined under Article 28.1 of
PSC; and each of the Petitioners comprise a “Contractor”, under
Article 2 of PSC.
21. It was also submitted that Petitioner No. 1, as “Operator,”
performs each and every function of the Contractor under the PSC on
behalf of all the constituents of the Contractor, as defined under
Articles 7.1 and 7.3 of the PSC. Mr. Salve mentioned that the
Appendix ‘C’ to the PSC provides accounting procedure which is
required to be followed by the Contractor and the Government.
Learned senior counsel also brought to our attention the accounting
procedure that is required to be followed by the contractor and the
Government. Sections 1.4.2 and 1.4.4 of Appendix ‘C’ to the PSC
indicate that the accounts are to be maintained by the Operator on
behalf of the Contractors. On the basis of the aforesaid it was
submitted that for the purpose of cost recovery, only one set of
accounts, as opposed to three sets of accounts, has to be
maintained. Thus, according to the submission, the award will
affect the cost recovery under the PSC and impact all the parties,
particularly Petitioners, equally. In the light of the aforesaid,
it was submitted that the Operator was, therefore, obliged to raise
a dispute on behalf of all the parties/Petitioners. This was also
made clear in the A.P. No. 8
22. Lastly it is submitted by Mr. Salve that the Respondent itself has
always understood and accepted that the substance of the dispute is
related to and has implications for all the parties to PSC. It was
also pointed out that the Notice dated 2nd May, 2012 was addressed
by the UOI to all the three Petitioners and that the nomination of
the Arbitrator by the UOI was with reference to notice dated 2nd
May, 2012.
II. Re: Jurisdiction of the Supreme Court:
23. Mr. Salve submitted that the parties cannot confer jurisdiction on
the Supreme Court, it flows from the fact that there is an
international arbitration. He submits that the stand of the UOI is
inconsistent. On the one hand it has accepted that this court has
the jurisdiction to entertain the petition, and on the other hand
it questions the assertion that this petition concerns an
international arbitration. It is further submitted by him that A.P.
No. 8 was filed in 2012 on the premise that the arbitration between
the Petitioner and the UOI was an international arbitration on
account of the fact that Petitioner No.2 is a company incorporated
outside India. It was pointed out that no dispute, as to the
maintainability of the petition, was raised at that time. A.P. No.
8 was disposed of by this Court on merits and not for the want of
jurisdiction. No dispute was raised to the effect that this Court
has no jurisdiction to entertain the petition, which was filed
under Section 11(6) of the Arbitration Act, 1996. On the basis of
the above, he submits that the objection was raised by the
Respondents that Petitioner No.1 is the only party raising disputes
in relation to PSC, and claiming reference to arbitration is an
afterthought.
24. Mr. Salve further submits that the contention of the UOI that this
Court has no jurisdiction to entertain the present petition in view
of Section 11(2) of the Arbitration Act, 1996, is misconceived. It
is also submitted that Sub-section (2) of Section 11 is subject,
expressly, to subsection (6) thereof. Section 11(6) provides that
in case the appointment procedure agreed upon by the parties is not
complied with, a party may request the Chief Justice to take the
necessary measures. The expression “Chief Justice” has been
defined under sub-section (12)(a) of Section 11 as the
Chief Justice of India, in the case of an international commercial
arbitration. In other arbitrations under Section
11(12)(b), it would be the Chief Justice of the High Court. It was
then submitted that a procedure agreed to by the parties for
appointment of arbitrator(s) is subject to Sub-section (6); it
cannot override sub-section (6) and provide that in respect of a
domestic arbitration, not-withstanding sub-section(12), the parties
would only move the Chief Justice of India, or vice versa in the
case of an international arbitration. On the basis of the
aforesaid, it was submitted that the contention of the UOI that
this Court has no jurisdiction to entertain the petition under
Section 11(6) is misconceived.
III. Re: Notice :
25. Further, it was stated that the Joint Operating Agreement entitles
the Operator to initiate litigation on behalf of all the parties.
It was also submitted that it is significant to note that there is
inconsistency in the stand taken by the Respondent. On the one
hand, Respondent claims that the arbitral award would bind not
merely Petitioner No.1 but also Petitioners No. 2 and 3; however
on the other hand, the Respondent insists that the arbitration
proceedings are only between Petitioner No. 1 and UOI. This stand
of the Respondents has been submitted to be contrary to the
established jurisprudence that an arbitral award is binding only on
the parties to the arbitration.
IV. Re: Arbitrator of Neutral Nationality
26. Mr. Salve submitted that since the arbitration is an international
one, this court, in accordance with the established international
practise, should consider appointing an arbitrator of a nationality
other than the nationalities of the parties. In this context, it
was pointed out that the statute expressly obligates the Court to
examine the issue of nationality of the arbitrator vis-à-vis the
nationality of the parties. It was asserted that Article 33(5) of
the PSC is conclusive on this issue. It provides that if one of the
parties fails to appoint its arbitrator, the Court would appoint an
arbitrator of a nationality other than that of the defaulting
party. It was submitted that this clause indicates the significance
that the parties have attached to the neutrality of the
arbitrators. A fortiori, the chairman/presiding arbitrator should
be of a nationality other than Indian. The contention of the UOI
that absence of a provision similar to Article 33(5) of the
Arbitration Agreement in relation to the appointment of the third
arbitrator suggests that the presiding arbitrator could be Indian
has been submitted by Mr. Salve to be misconceived.
27. It was also brought to our notice that the UNCITRAL Rules, in force
at the time when the PSC was drafted and entered into, recognised
that while the appointing authority could appoint an arbitrator of
the same nationality as that of the defaulting party (in the event
where a party fails to nominate its arbitrator), but the presiding
arbitrator that has to be appointed would be of the nationality
other than that of the parties. The Petitioners states that the PSC
provides for even a greater degree of neutrality than the UNCITRAL
by provisioning that in case one of the parties makes a default in
nominating its arbitrator then the arbitrator has to be appointed
from a neutral nationality. It was then submitted that there was
no need of a similar provision in relation to the presiding
arbitrator since the arbitration was to be in accordance with
UNCITRAL Rules. In this context, learned senior counsel relied
upon the law laid in Antrix Corporation Limited Vs. Devas
Multimedia Private Ltd[1], wherein it was inter alia held that the
reference to such rules (ICC in that case) would include the
process of constitution of a tribunal.
28. Mr. Salve also referred to the submission of the Respondent that
the PSC being governed by the Indian law or/and that it involves
the issues of public policy for India as irrelevant. The fact that
a party nominee had to be from a neutral country establishes that
the parties did not consider the governing law of the contract to
be of any relevance to the nationality of the arbitrator. It was
also submitted that the trend of appointing presiding arbitrator
from a “neutral nationality” is now universally accepted under
various arbitration rules as well as under the Arbitration Act,
1996.
29. Mr. Salve also pointed out that Article 33 (9) of the PSC adopts
the UNCITRAL Rules for the arbitration Agreement and that at the
time of signing the Arbitration Agreement the UNCITRAL Rules, 1976
were in force. Mr. Salve also referred to Article 6 of UNCITRAL
Rules, 1976. He laid particular stress on Article 6 (4).
30. It was further mentioned that the UNCITRAL Rules of 2010 are now at
par with the procedure under Article 33.5, even with respect to
appointment of second arbitrator.
31. Relying upon the judgment of this Court in Northern Railway
Administration, Ministry of Railway, New Delhi Vs. Patel
Engineering Company Limited[2], it was submitted that the scheme of
Section 11 emphasises that the terms of an Arbitration Agreement
should be given effect as closely as possible.
32. Lastly, it was submitted that the Respondents had lost their right
to nominate the second arbitrator in the earlier round of
litigation, i.e. A.P. No. 8 and hence, the Petitioners could have
insisted under Article 33.5 that the Tribunal must be constituted
of two non-Indian Arbitrators in addition to the arbitrator
appointed by the Petitioner. It is, therefore, imperative that the
third arbitrator should have a neutral nationality.
Respondent’s Submissions
33. Mr. Anil B. Divan and Mr. Dushyant A. Dave, learned senior counsel,
appeared for the Respondents. At the outset, it was pointed out
that the present arbitration petition has been filed under Sections
11(6) and 11(9) of the Arbitration Act, 1996, read with Article
33.6 of the PSC. It was then submitted that the Article 33.6 of the
PSC, unlike Article 33.5, does not require that the arbitrator to
be appointed should be a foreign national. The learned senior
counsel suggested that the aforesaid omission is both deliberate
and significant. It was further submitted that the Petitioners, by
choosing not to object to the appointment of Mr. Justice V.N.
Khare, have waived of the requirement that a foreign national be
appointed as an arbitrator by the parties, under Article 33.5 of
the PSC. It was further submitted that this waiver also becomes
clear from the letter dated 16th July, 2012, which was sent on
behalf of the Petitioners to the Respondent, wherein the nomination
of Mr. Justice Khare was accepted without any reservation. The
Petitioners are, therefore, as stated by the learned senior
counsel, estopped from insisting upon appointment of a foreign
arbitrator.
34. Next, learned senior counsel submitted that that the PSC is one of
the most valued, crucial and sensitive contracts for the nation, in
as much as it deals with the PSC in offshore areas; and it deals
inter alia with License and Exploration, Discovery, Development and
Production of the most valuable natural resources, viz. petroleum
products, including crude oil and/or natural gas. Propounding
further, it was submitted that these products are vital to the
survival of the nation. UOI entered into the PSC with
Petitioners No. 1 and 2, with avowed objective of exploiting the
aforesaid natural resources(s) in the most efficient, productive
manner and in a timely fashion. The PSC, therefore, has great
significance for the nation. It was also submitted that the entire
subject matter of the contract is situated in India and hence, the
applicable law is the Indian law for both the substantive contract
and the Arbitration Agreement.
35. Placing strong reliance on the factual situation, it was submitted
that the PSC, its interpretation, and its execution involve
intricate and complex questions of law and facts relating to Indian
conditions and Indian laws. It was further submitted that since
the parties were aware about the aforesaid nature of PSC, they
consciously refrained from having the requirement that the third
arbitrator should be a foreign national. Thus, it was submitted by
the learned senior counsel, that the issue relating to the
appointment of the third arbitrator has been left squarely to the
two nominated arbitrators, and that the two arbitrators are not to
be influenced by any requirement that the third arbitrator should
be a foreign national.
36. In the support of the aforesaid submission, learned counsel relied
upon the letter dated 12th July, 2013 written by the Petitioner to
the two arbitrators, wherein a request was made to complete the
constitution of the arbitral tribunal. The following excerpt has
been relied upon:
“While it is understood that it is sometimes a time consuming
exercise, Your Honour will appreciate that the issues which
are subject matter of the arbitration proceedings are of
significant importance to the Claimants.
Accordingly, on behalf of our clients we humbly request
Your Honour to complete the constitution of the
Arbitral Tribunal at your earliest convenience.”
37. Learned senior counsel also relied upon the letter dated 1st
August, 2013 written by Mr. Justice Bharucha to submit that there
is not even a suggestion that the third arbitrator has to be a
foreign national.
38. The next submission of the Respondent is that Petitioners No 2 and
3 have not raised any dispute under the PSC at any stage. It is
only the Petitioner alone that has raised the dispute and come
forward as the Claimant. To substantiate the submissions,
Respondents rely upon the following documents:
i) Letter dated 23.11.2011;
ii) Notice of Arbitration dated 23.11.2011;
iii) Letter dated 02.01.2011 on behalf of Petitioner No. 1
by its solicitors.
iv) Letter dated 02.02.2011, on behalf of Petitioner No. 1
by its solicitors.
v) Letter dated 05.07.2012 of the Respondent to the Solicitors
of RIL.
vi) Letter dated 1st August, 2013 of Mr. Justice Bharucha, as
per the Respondent shows that the arbitration was between
Reliance Industries Limited and the Government of India.
39. It was also emphasised that all the communications annexed with the
present petition identify the claimant to be
Petitioner No. 1. It was also highlighted that the contents of the
letter dated 2nd May, 2012 written by the Respondents, which inter-
alia deals with inadmissibility of recovery of costs has not been
disputed by Petitioners No. 2 and 3. Learned senior counsel also
relies upon the letter dated 12th July, 2013, sent on behalf of
Petitioner No.1 by its Solicitors to the Arbitrators. This letter
was sent after the order dated 7th August 2012
was passed by this Court in A.P. No. 8 of 2012. According to the
Respondents this letter also shows that the dispute is only between
RIL and the Respondent.
40. Mr. Divan also submitted that Petitioners No. 2 and 3 have not
conformed to Article 33 of the PSC, for the purposes of invoking
arbitration. Such non-compliance cannot be considered as merely an
omission. In the light of the aforesaid, it was submitted that
Petitioner No.1, an Indian Company, is the only party to the
dispute with the Respondents and therefore, there is no need to
appoint a foreign arbitrator. Further, it was submitted even if it
is assumed that Petitioners No. 2 and 3 have raised the disputes in
terms of Article 33.6, there is no question of appointment of a
foreign arbitrator as the dispute raised is only between two Indian
parties, viz. Petitioner No.1 and the Respondents.
41. The next submission of Mr. Divan is that Section 11(1) of the
Arbitration Act, 1996 provides that an arbitrator can be of any
nationality, unless otherwise agreed by the parties. It was
submitted that since the parties did not choose to have a foreign
national to be appointed as the third arbitrator in Article 33.6,
the parties did not choose to make Section 11(1) applicable to
them. Learned senior counsel also pointed out that the parties
instead agreed to proceed under Section 11(2) as they agreed to
appoint an arbitrator without requiring him to be of any foreign
nationality.
42. Mr. Divan then points out that Section 11(9) has been
authoritatively interpreted in Malaysian Airlines Systems BHD II
Vs. STIC Travels (P) Ltd.[3] and MSA Nederland B.V. Vs. Larsen &
Toubro Ltd.[4] According to the learned senior counsel, UNCITRAL
Rules cannot override Sections 11(1) & (2), read with Article 33.6,
nor can these Rules aid in interpreting Section 11(9). It was
further submitted that the appointment of the third arbitrator
under Article 33.6 of PSC has to be made under Arbitration and
Conciliation Act, 1996. The UNCITRAL Rules will come into play only
after the Arbitral Tribunal has been constituted. According to
learned senior counsel, following factors negate the application of
UNCITRAL Rules in making the appointment of the arbitrators:
(a) The law governing the arbitration agreement is Indian Law;
(b) The seat of the arbitration is in India which makes the
curial law of the arbitration as Indian law.
(c) The governing law of the contract is the Indian law.
(d) All these factors would show that UNCITRAL Rules would
become relevant only after the Arbitral Tribunal has been
constituted.
43. Lastly, it was submitted that the appointment of a foreign national
as the third arbitrator is not only legally untenable, but also
undesirable, in the facts and circumstances of the present case. To
substantiate this, it was submitted that both Petitioners No. 2 and
3 are multi-national companies, with Petitioner No. 3 having
presence/business connections in about 80 countries. These
countries include the countries whose nationals are sought to be
nominated by the Petitioners. It was further submitted that
unravelling all the countries in which Petitioner No. 3 may have a
connection would be difficult, if not impossible. Thus, the very
object of neutrality, impartiality and independence will be
defeated by appointing a foreign national as the third arbitrator.
On the contrary, it was submitted, appointment of a former judge of
this Court would be the most suitable arrangement.
44. In response, Mr. Salve submitted that: (i) The reliance placed by
the Respondents upon the law laid in Malaysian Airlines Systems BHD
II Vs. STIC Travels (P) Ltd. (supra) and MSA Nederland B.V. Vs.
Larsen & Toubro Ltd. (supra) is misplaced as these cases are
inapplicable in the present case. (ii) The contention of the UOI
that nationals of the 80 countries in which Petitioner No. 3 has
operations would become ineligible to be appointed as arbitrators
is misconceived. In this context, it was submitted that the
Arbitration Act, 1996 and the related international practices takes
into account nationality but not area of operation. This submission
of the Respondent, according to Mr. Salve, is not tenable because
it confuses the question of independence and impartiality with
neutrality. The aspect of neutrality is dealt with in Section 11(8)
and Section 12; whereas, nationality is considered in Sections
11(1) & (9) of Arbitration Act, 1996. Further, it was submitted
that these two provisions would be rendered otiose if the
submission of the UOI is accepted.
45. Before parting with submissions made on behalf of the parties, it
must also be noticed that the learned senior counsel for the
parties have submitted a list each of proposed/suggested
arbitrators; which according to them would satisfy the requirements
of the arbitration agreement contained in PSC.
46. I have considered the submissions made by the learned senior
counsel for the parties.
47. I am not inclined to accept the submissions made by Mr. Anil
B. Divan, learned senior counsel appearing on behalf of the UOI.
Initially, Arbitration Petition No.8 was filed by Reliance
Industries Limited– RIL (Petitioner No.1) and Niko (Petitioner
No.2). In paragraph 6 of the arbitration petition, it was
specifically averred as follows:-
“The Respondent by its letter dated 8th August, 2011, granted
its approval to Petitioner No.1 to assign 30% of its
Participating Interest under the PSC to BP, thereby also making
BP a partner in the Block KG-D6. …….”
Therefore, it is apparent that reference to arbitration was
sought on behalf of the three partners to the PSC.
48. The Arbitration Petition was disposed of as both the parties had no
objection to the arbitrator nominated by each other. Therefore, the
matter was left to the two arbitrators to nominate the third
arbitrator who shall be the Chairman of the Arbitral Tribunal.
However, by letter dated 1st August, 2013, Mr. Justice Bharucha
pointed out that the two arbitrators have not been able to agree on
the third arbitrator. Therefore, the Petitioners had to approach
this court for appointment of a third arbitrator. In these
circumstances, the present Petition came to be filed under Section
11(6).
49. There is an additional reason for not accepting the submission made
by Mr. Anil Divan, learned senior counsel, that the Petitioner is
not acting on behalf of all the three Contractors. The notice was
served by RIL in the capacity of Operator, which included all the
three Contractors, i.e., RIL, Niko and British Petroleum (BP).

50. A perusal of some of the correspondence reproduced earlier clearly
indicates that the Respondent recognised that the Petitioner No.1
is the Operator on behalf of all the Contractors, namely, Reliance,
Niko and BP.
51. I find much substance in the submission of Mr. Salve that the
contentions raised in the counter affidavit reflect a
misunderstanding of:-
(i) the terms of the PSC;
(ii) reality of the Parties’ commercial relationship;
(iii) application of the Arbitration and Conciliation Act,
1996; and
(iv) UNCITRAL Arbitration Rules and the practise of large scale
arbitrations involving foreign parties.
52. It is also not possible to accept the submission of Mr.
Anil Divan that Niko and BP are not operators under the PSC and,
therefore, have forfeited any right to operations under the PSC. It
is also not possible to accept the submission that Niko and BP are
not the parties to the dispute with the Respondent. I am of the
considered opinion that the provisions of the PSC clearly
identified the parties to the PSC. The disputes that have arisen
between the parties are also clearly identified in the
correspondence exchanged between the parties. The three named
contractors are, in fact, frequently mentioned in the
correspondence between the parties. It has been correctly
highlighted by Mr. Salve that the terms of the PSC have to be
considered in the light of the fact that the Respondent expressly
consented, after detailed inquiry, to the assignment of
participation interests in the PSC to BP. It is a matter of record
that Niko has been a party to the PSC from the beginning.
Therefore, at-least at this stage, it would not be possible to
accept the submission of Mr. Divan that BP and Niko are not
“operating” under the PSC.
53. I am also unable to accept the submission of Mr. Divan that given
the nature of operations under the PSC, the issues involved
thereunder are of public law and public policy. Mr. Divan, on
the basis of the aforesaid submission, has insisted that the third
arbitrator ought to be from India. It was pointed out by Mr. Divan
that even if it is accepted that the disputes raised by the
Petitioner would also include the disputes of Petitioner Nos. 2 and
3, the arbitration still essentially remains an Indian arbitration.
Such a submission cannot be accepted as the Respondents have not at
any stage earlier raised an objection that the disputes had been
raised by Petitioner No.1 only on its own behalf and did not relate
to the disputes of Petitioner No.2 and 3 also.
54. In my opinion, the submission is misconceived and proceeds on a
misunderstanding of the PSC, RIL, Niko and BP are all parties to
the PSC. They are all contractors under the PSC. The PSC recognizes
that the operator would act on behalf of the contractor. All
investments are funded by not just the Petitioner No.1 but also by
the other parties, and they are equally entitled to the costs
recovered and the profits earned. For the sake of operational
efficiency, the Operator acts for and on behalf of the other
parties. Therefore, I find substance in the submission of Mr. Salve
that the disputes have been raised in the correspondence addressed
by Petitioner No.1 not just on its own behalf but on behalf of all
the parties. During the course of his submissions, Mr. Anil Divan
had, in fact, submitted that Niko and BP will be affected by the
arbitral award and it would be binding upon them too. Therefore, if
the Petitioner No.1 was to succeed in the arbitration, the award
would enure not only to the benefit of Petitioner No.1 but to all
the parties to the PSC. Conversely, if the Government of India were
to succeed before the tribunal, again the award would have to be
enforced against all the parties. In other words, each of the
Contractors would have to perform the obligations cast upon them.
In that view of the matter, it is not possible to accept the
submission of Mr. Divan that the arbitration in the present case
is not an international arbitration.
55. It is equally not possible to accept the contention of Mr.
Divan that Niko and BP have not raised any arbitrable dispute with
Union of India. A perusal of some of the provisions of PSC would
make it clear that all three entities are parties to the PSC. All
three entities have rights and obligations under the PSC [see
Article 28.1(a)], including with respect to the Cost Petroleum,
Profit Petroleum and Contract Costs (see Article 2.2), all of which
are fundamental issues in the underlying dispute. Where RIL acts
under the PSC, including by commencing arbitration, it does so not
only on behalf of itself, but also “on behalf of all constituents
of the contractors” including Niko and BP. I am inclined to accept
the submission of Mr. Salve that there is a significant and broad
ranging dispute between RIL, Niko and BP on the one hand and the
UOI on the other hand, that goes to the heart of the main
contractual rights and obligations under the PSC. Furthermore, it
is a matter of record that in the correspondence leading to the
filing of the earlier petition being A.P.No.8 of 2012, no such
objection about Niko and BP not being a party to the dispute had
been taken. In fact, the petition was disposed of on a joint
request made by the parties that two arbitrators having been
nominated, no further orders were required. Therefore, there seems
to be substance in the submission of Mr. Salve that all these
objections about Niko and BP not being the parties are an
afterthought. Such objections, at this stage, can not be
countenanced as the commencement of arbitration has already been
much delayed.
56. Both the parties had brought to the attention of the Court the
correspondence from their own perspective. Having considered the
aforesaid correspondence, relevant extract of which have been
noticed earlier, it is not possible to hold that the correspondence
is only on behalf of the RIL. I, therefore, do not accept the
submission of Mr. Anil Divan that this is an arbitration between
the two Indian parties only.
57. Further more the accounting procedure (Appendix C to PSC) clearly
provides that RIL shall keep the accounts for the purposes of cost
recovery statement. Therefore, it cannot be said that the claims
made by the Petitioner are only on behalf of RIL. The joint
operating agreement expressly provides that the operator “to
initiate litigation on behalf of all the parties.” The fallacy of
the stand taken by UOI is patent. On the one hand, the Respondent
claims that the arbitral award would bind not only Petitioner No.1
but also Petitioner Nos. 2 and 3, but on the other hand, is
insisting that the arbitration proceedings are only between
Petitioner No.1 and UOI.
58. This now brings me to the major divergence of views between Mr.
Salve and Mr. Divan on the interpretation to be placed on Articles
33.5 and 33.6 of the PSC. Both the learned senior counsel accept
that when exercising power under Section 11(6) of the Arbitration
Act, the ‘Chief Justice of India or the person or the institution
designated by him’ (hereinafter referred to as “CJI” for
convenience) is required to appoint the 2nd Arbitrator from amongst
persons who are not nationals of the country of any of the parties
to the arbitration proceedings. Thereafter, both the learned senior
counsel have expressed divergent views. According to Mr. Salve, the
provisions contained in Article 33.5 indicates the significance
that the parties have attached to the neutrality of the
arbitrators. Therefore, necessarily the Chairman/Presiding
Arbitrator would have to be of a nationality other than India.
According to him, appointment of an Indian Arbitrator under Article
33.6 would not be an option open to the CJI. On the other hand, Mr.
Divan emphasised that there is no requirement in Article 33.6 for
appointment of a foreign arbitrator, identical or similar to the
provision in Article 33.5. His view is that the absence of such a
requirement is deliberate and significant. According to him, it
clearly signifies that only an Indian National can be appointed as
the third arbitrator. I am of the opinion that both the learned
senior counsel are only partially correct. Both sides have adopted
extreme positions on the pendulum. I accept the interpretation of
both the learned senior counsel with regard to Article 33.5 as the
request will go to the Chief Justice of India for appointment of an
arbitrator, “from amongst persons who are not nationals of the
country of any of the parties to the arbitration proceedings”. In
exercise of the jurisdiction under Section 11(6), the CJI would
usually appoint the third arbitrator in accordance with the
request. I have no hesitation in accepting the submission of Mr.
Divan that even the third arbitrator is an Indian National, it
would not be contrary to Article 33.6. But it would not be possible
for me to accept the extreme views expressed by Mr. Divan that only
an Indian National can be appointed, as there is an absence of a
requirement of appointing a foreign national as the third
arbitrator. In my opinion, Article 33.6 virtually leaves it to the
Chief Justice of India to appoint the third arbitrator who would be
neutral, impartial and independent from anywhere in the world
including India. Just as India cannot be excluded, similarly, the
countries where British Petroleum and Niko are domiciled, as an
option from where the third arbitrator could be appointed, cannot
be ruled out. Having said this, it must be pointed out that this is
the purely legal position. This would be a very pedantic view to
take whereas international arbitration problems necessarily have to
be viewed pragmatically. Fortunately, Arbitration Act, 1996 has
made express provision for adopting a pragmatic approach. When the
CJI exercises his jurisdiction under Section 11(6) he is to be
guided by the provisions contained in the Arbitration Act, 1996 and
generally accepted practices in the other international
jurisdictions. CJI would also be anxious to ensure that no doubts
are cast on the neutrality, impartially and independence of the
Arbitral Tribunal. In international arbitration, the surest method
of ensuring atleast the appearance of neutrality would be to
appoint the sole or the third arbitrator from nationality other
than the parties to the arbitration. This view of mine will find
support from numerous internationally renowned commentators on the
practice of international arbitration as well as judicial
precedents.
59. At this stage, it would be appropriate to take notice of the
observations made by two such commentators.
60. Redfern and Hunter on International Arbitration, Fifth Edition
(2009) Para 4.59 expresses similar views with regard to the
importance of the nationality of the sole or the third arbitrator
being from a country different from that of the parties to the
arbitration. The opinion of the learned authors is as follows:-
“In an ideal world, the country in which the arbitrator was
born, or the passport carried, should be irrelevant. The
qualifications, experience, and integrity of the arbitrator
should be the essential criteria. It ought to be possible to
proceed in the spirit of the Model Law which, addressing this
question, provides simply: ‘No person shall be precluded by
reason of his nationality from acting as an arbitrator, unless
otherwise agreed by the parties.’ Nevertheless, as stated above,
the usual practice in international commercial arbitration is to
appoint a sole arbitrator (or a presiding arbitrator) of a
different nationality from that of the parties to the dispute.”
61. Gary B. Born in International Commercial Arbitration, Volume I
(2009) has an elaborate discussion on the impact of the UNCITRAL
Model Laws as well as UNCITRAL Rules on the appointment of the sole
or the third arbitrator. He points out that some arbitration
legislations contain different nationality provisions, similar to
those applicable under leading institutional rules, which apply
when a national court acts in its default capacity to select an
arbitrator (in limited circumstances).
62. Article 11(5) of the UNCITRAL Model Law reads as under:-
“A decision on a matter entrusted by paragraph (3) or (4) of
this Article to the court or other authority specified in
Article 6 shall be subject to no appeal. The court or other
authority, in appointing an arbitrator, shall have due regard to
any qualifications required of the arbitrator by the agreement
of the parties and to such considerations as are likely to
secure the appointment of an independent and impartial
arbitrator and, in the case of a sole or third arbitrator, shall
take into account as well the advisability of appointing an
arbitrator of a nationality other than those of the parties.”
63. Article 6(4) of UNCITRAL Rules, 1976 in almost identical terms
reads as under :-
“In making the appointment, the appointing authority shall have
regard to such considerations as are likely to secure the
appointment of an independent and impartial arbitrator and shall
take into account as well advisability of appointing an
arbitrator of a nationality other than the nationalities of the
parties.”
64. Taking note of the aforesaid two Articles, it is observed by the
learned author as follows :
“Article 11(5) does not restrict the parties’ autonomy to select
arbitrators of whatever nationality they wish. It merely affects
the actions of national courts, when acting in their default
roles of appointing arbitrators after the parties’ efforts to do
so have failed. Article 11(5) does not forbid the appointment of
foreign nationals as arbitrators, but on the contrary encourages
the selection of an internationally-neutral tribunal.
Far from resembling national law prohibitions against foreign
arbitrators, Article 11(5) aims at exactly the opposite result.
Indeed, Article 11(1) of the UNCITRAL Model Law also provides,
like the European and Inter-American Conventions, that “no
person shall be precluded by reason of his nationality from
acting as an arbitrator, unless otherwise agreed by the parties.
That properly reflects the international consensus, embraced by
the European, Inter-American and New York Conventions, that
mandatory nationality prohibitions are incompatible with the
basic premises of international arbitration.”

 
65. Earlier in the same volume at page 1431, while discussing the
“Criteria for Judicial Selection of the Arbitrator”, he re-states
the general practice adopted in appointment of an independent and
impartial arbitrator. The opinion of the learned author is as
follows :
“National arbitration legislation provides only limited guidance
for courts actually to make the selection of arbitrators in
international arbitrations. Article 11(5) of the UNCITRAL Model
Law provides that “in appointing an arbitrator, [the court]
shall have due regard to any qualifications required of the
arbitrator by the agreement of the parties and to such
considerations as are likely to secure the appointment of an
independent and impartial arbitrator,” the same provision
requires the court to “take into account as well as the
advisability of appointing an arbitrator of a nationality other
than those of the parties.” This language requires courts to
have “due regard” to the parties’ contractually specified
requirements for arbitrators-which very arguably accords such
requirements inadequate weight, given the importance of party
autonomy in the arbitrator selection process. Similarly, it is
doubtful that it is sufficient for courts merely to “take [the
arbitrator’s nationality] into account”, rather it should
generally be essential that the presiding arbitrator have a
neutral nationality.”
66. Redfern and Hunter on International Arbitration, Fifth Edition
(2009) at Page 263, expresses a similar opinion, after taking into
consideration the UNCITRAL Rules; ICC Rules; LCIA Rules and ICDR
Rules, which is as follows :-
“The fact that the arbitrator is of a neutral nationality is no
guarantee of independence or impartiality. However, the
appearance is better and thus it is a practice that is generally
followed”.
67. Section 11 of the Arbitration Act, 1996 uses similar phraseology as
Article 11 of the UNCITRAL Model Law. Therefore, it would not be
possible to accept the submission of Mr. Divan that the Court
cannot look to Model Laws or the UNCITRAL Laws as legitimate aids
in giving the appropriate interpretation to the provisions of
Section 11, including Section 11(6).
68. In any event, the neutrality of an arbitrator is assured by Section
11(1) of the Arbitration Act, 1996, which provides that a person of
any nationality may be an arbitrator, unless otherwise agreed by
the parties. There is no agreement between the parties in this case
that even a third arbitrator must necessarily be an Indian
national. In fact, Section 11(9) of the Arbitration Act, 1996
specifically empowers the CJI to appoint an arbitrator of a
nationality other than the nationality of the parties involved in
the litigation. Therefore, I am unable to accept the submission of
Mr. Anil Divan that it would not be permissible under the
Arbitration Act, 1996 to appoint the third arbitrator of any
nationality other than Indian. Merely because the two arbitrators
nominated by the parties are Indian would not ipso facto lead to
the conclusion that the parties had ruled out the appointment of
the third arbitrator from a neutral nationality. In this case,
both the arbitrators had been appointed by the parties, therefore,
the condition precedent for appointing an arbitrator, from amongst
persons, who are not nationals of the country of any of the parties
to the arbitration proceedings, had not even arisen.
69. I also do not find merit in the submission made by Mr. Anil
Divan on the basis of Articles 33.5 of the PSC. A bare perusal of
Article 33.5, PSC would show that it deals only with the situation
where the other party fails to appoint an arbitrator and a request
is made to the Chief Justice of India or a person authorised by him
to appoint the second arbitrator. In such a situation, the Chief
Justice is required to choose the second arbitrator from amongst
the persons who are not nationals of a country of any of the
parties to the arbitrator proceedings. Article 33.6 is invoked when
the two arbitrators appointed by the parties fail to nominate the
third arbitrator. In such circumstances, the Chief Justice or the
nominees of the Chief Justice is required to appoint the third
arbitrator in accordance with the Arbitration and Conciliation Act,
1996. At that stage, Section 11(9) of the Arbitration Act, 1996
would become relevant. It would be necessary for the Chief Justice
of India to take into consideration the will of the Indian
Parliament expressed in Section 11(9). It appears to me that the
submission made by the Petitioners cannot be said to be without any
merit. I am unable to read into Article 33.6, an embargo on the
appointment of a foreign national as the third arbitrator as
submitted by Mr. Divan. It is not possible to accept the
submission that the parties have specifically decided to exclude
the appointment of a foreign arbitrator under Article 33.6, as no
specific provision was made para materia to Article 33.5. Even in
the absence of a specific provision, the appointment of the third
arbitrator under Article 33.6 would have to be guided by the
provisions contained under Section 11(9) of the Arbitration Act.
70. I am also unable to accept the submission of Mr. Divan that since
the provision contained in Section 11(9) of the Arbitration Act,
1996 is not mandatory; the Court ought to appoint the third
arbitrator, who is an Indian National. This Court, in the case of
Malaysian Airlines Systems BHD II (supra), interpreting Section
11(9) after taking into consideration the position in some other
countries where the UNCITRAL Model Law is adopted, has come to the
following conclusions:-
“25. It is, therefore, clear that in several countries where the
UNCITRAL Model is adopted, it has been held that it is not
impermissible to appoint an arbitrator of a nationality of one
of the parties to arbitration.
26. In the light of the above rules in various countries and
rulings of the court and also in view of the fact that the 1996
Act is based on UNCITRAL Model Law which in Article 6(4) only
speaks of “taking into account” the nationality as one of the
factors, I am of the view that the word “may” in Section 11(9)
of the Act is not intended to be read as “must” or “shall”.
27. I am, therefore, of the view that while nationality of the
arbitrator is a matter to be kept in view, it does not follow
from Section 11(9) that the proposed arbitrator is necessarily
disqualified because he belongs to the nationality of one of the
parties. The word “may” is not used in the sense of “shall”. The
provision is not mandatory. In case the party who belongs to a
nationality other than that of the proposed arbitrator, has no
objection, the Chief Justice of India (or his nominee) can
appoint an arbitrator belonging to a nationality of one of the
parties. In case, there is objection by one party to the
appointment of an arbitrator belonging to the nationality of the
opposite party, the Chief Justice of India (or his nominee) can
certainly consider the objection and see if an arbitrator not
belonging to the nationality of either parties can be appointed.
While taking that decision, the Chief Justice of India (or his
nominee) can also keep in mind, in cases where the parties have
agreed that the law applicable to the case is the law of a
country to which one of the parties belong, whether there will
be an overriding advantage to both the parties if an arbitrator
having knowledge of the applicable law is appointed.
28. In the result, I am of the view that under Section 11(9) of
the Act it is not mandatory for the court to appoint an
arbitrator not belonging to the nationality of either of the
parties to the dispute.”
71. The aforesaid ratio of law in Malaysian Airlines Systems BHD II
(supra) has been reiterated by this Court in MSA Nederland B.V.
(supra) in the following words:-
“3. The learned counsel appearing for the petitioner drew my
attention to the fact that the petitioner Company is a company
incorporated in the Netherlands while the respondent Company is
a company incorporated in India. He prayed that in view of the
provisions of Sections 11(9) of the Arbitration and Conciliation
Act, an arbitrator having a neutral nationality be appointed,
meaning thereby that the sole arbitrator should neither be a
Dutch national nor be an Indian national. Section 11(9) is
reproduced as under:
“11. (9) In the case of appointment of sole or third
arbitrator in an international commercial arbitration, the
Chief Justice of India or the person or institution
designated by him may appoint an arbitrator of a
nationality other than the nationalities of the parties
where the parties belong to different nationalities.”
The key word in the above provision is “may” which leaves a
discretion in the Chief Justice or his nominee in this behalf
and it is not mandatory that the sole arbitrator should be of a
nationality other than the nationalities of the parties to the
agreement.”
72. But the ratio in the aforesaid cases can not be read to mean that
in all circumstances, it is not possible to appoint an arbitrator
of a nationality other than the parties involved in the litigation.
It is a matter of record that Clause 33.5 of the PSC provides that
on failure of the second party to nominate its arbitrator, the
Chief Justice of India may be requested to appoint the second
arbitrator from amongst persons who are not nationals of the
country of any of the parties to the arbitration proceedings.
Therefore, in principle, it becomes apparent that the Respondents
have accepted the appointment of the second arbitrator from a
neutral country. Merely because, the seat of arbitration is in
India, the applicable law is Indian Law; it does not become
incumbent on the Court to appoint the third arbitrator, who is an
Indian national. The concern of the Court is to ensure neutrality,
impartiality and independence of the third arbitrator. Choice of
the parties has little, if anything, to do with the choice of the
Chief Justice of India or his nominee in appointing the third
arbitrator. It is true that even at the stage of exercising its
jurisdiction under Section 11(6) at the final stage, the Chief
Justice of India or his nominee can informally enquire about the
preference of the parties. But it is entirely upto the Chief
Justice of India, whether to accept any of the preferences or to
appoint the third arbitrator not mentioned by any of the parties.
In making such a choice, the Chief Justice of India will be guided
by the relevant provisions contained in the Arbitration Act,
UNCITRAL Model Laws and the UNCITRAL Rules, where the parties have
included the applicability of the UNCITRAL Model Laws/UNCITRAL
Rules by choice.
73. I must emphasise here that the trend of the third
arbitrator/presiding officer of a neutral nationality being
appointed is now more or less universally accepted under the
Arbitration Acts and Arbitration Rules in different jurisdictions.
74. In the present case, Article 33(9) of the PSC adopts the UNCITRAL
Rules for the arbitration agreement under Article 39. The
applicable UNCITRAL Rules at the time when the arbitration
agreement was signed were the 1976 Rules.
75. The aforesaid Rules have been literally paraphrased in Section
11(9) of the Arbitration Act, 1996. Rule 4 of UNCITRAL states that
in making the appointment, the appointing authority shall have
regard to such consideration as are likely to secure appointment of
an independent and impartial arbitrator. Superimposed on those two
conditions is a provision that the appointing authority shall take
into account, as well, the advisability of arbitrator of a
nationality other than the nationalities of the parties. These
rules in my opinion are almost parallel to Article 33(5) of the
PSC.
76. Mr. Anil Divan had, however, raised serious doubts about the
impartiality of the third arbitrator due to the omnipresence of
British Petroleum all over the world. I am of the considered
opinion that the apprehension expressed by the learned senior
counsel is imaginary and illusory. Such a proposition cannot
possibly be accepted as a general practice for the appointment of
Chairman/Presiding Officer/Third Arbitrator guided by the principle
consideration that there must not only be the neutrality, but
appearance of neutrality of the third arbitrator. In that view of
the matter, I have no hesitation in rejecting this submission of
Mr. Divan that only an Indian National can be appointed as the
third arbitrator.
77. This apart, I must notice here the judgment of this Court in the
case of Northern Railway Administration, Ministry of Railway, New
Delhi (supra), whilst considering the contingencies under which a
party may request the Chief Justice or any person or institution
designated by him under Section 11 to take necessary measures held
as follows:-
“11. The crucial expression in sub-section (6) is “a party may
request the Chief Justice or any person or institution
designated by him to take the necessary measure” (underlined for
emphasis*). This expression has to be read along with
requirement in sub-section (8) that the Chief Justice or the
person or an institution designated by him in appointing an
arbitrator shall have “due regard” to the two cumulative
conditions relating to qualifications and other considerations
as are likely to secure the appointment of an independent and
impartial arbitrator.
12. A bare reading of the scheme of Section 11 shows that the
emphasis is on the terms of the agreement being adhered to
and/or given effect as closely as possible. In other words, the
Court may ask to do what has not been done. The Court must first
ensure that the remedies provided for are exhausted. It is true
as contended by Mr Desai, that it is not mandatory for the Chief
Justice or any person or institution designated by him to
appoint the named arbitrator or arbitrators. But at the same
time, due regard has to be given to the qualifications required
by the agreement and other considerations.
13. The expression “due regard” means that proper attention to
several circumstances have been focused. The expression
“necessary” as a general rule can be broadly stated to be those
things which are reasonably required to be done or legally
ancillary to the accomplishment of the intended act. Necessary
measures can be stated to be the reasonable steps required to be
taken.”

 
78. Keeping in view the aforesaid principles, I have examined the
submissions of Mr. Divan and Mr. Salve on the issue with regard to
the neutrality, impartiality and independence of the third
arbitrator. As held earlier, the apprehension expressed by the
Respondent Union of India seems to be imaginary and illusory.
Whatever is being said about the influence/presence of British
Petroleum in other jurisdictions would apply equally to the Union
of India, if the third arbitrator is an Indian national, within the
Indian jurisdiction.
79. The apprehension expressed by Mr. Divan that if a foreign national
is appointed as a third arbitrator, the Tribunal would be at a
disadvantage as all applicable laws are Indian, in my opinion,
overlooks the fact that the two arbitrators already appointed are
Former Chief Justices of India and can be very safely relied upon
to advise the third arbitrator of any legal position, which is
peculiar to India.
80. At this stage, normally the matter ought to be remitted back to the
two arbitrators appointed by the parties to choose the third
arbitrator on the basis of the observations made in the judgment.
However, given the sharp difference of opinion between the two
arbitrators, I deem it appropriate to perform the task of
appointing the third arbitrator in this Court itself. Therefore, I
had requested the learned senior counsel for the parties to supply
a list of eminent individuals one of whom could be appointed as the
third arbitrator. Although two lists have been duly supplied by the
learned counsel for the parties, I am of the opinion, in the
peculiar facts and circumstances of this case, it would be
appropriate if an individual not named by any of the parties is
appointed as the third arbitrator. I have discretely conducted a
survey to find a suitable third arbitrator who is not a National of
any of the parties involved in the dispute.
81. Upon due consideration, I hereby appoint Honourable James Spigelman
AC QC, former Chief Justice and Lieutenant Governor of New South
Wales, Australia as the third Arbitrator who shall act as the
Chairman of the Arbitral Tribunal. The E-mail address which has
been supplied to this Court is as follows :
spigel@bigpond.net.au
82. In view of the considerable delay, the Arbitral Tribunal is
requested to enter upon the reference at the earliest and to render
the award as expeditiously as possible.

 
83. The Arbitration Petition is allowed in the aforesaid terms. No
costs.

 
……………………………J.
[Surinder Singh Nijjar]

New Delhi;
March 31, 2014.

 
[pic]
ITEM NO.1A COURT NO.6 SECTION XVIA
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
ARBITRATION PETITION NO. 27 OF 2013
RELIANCE INDUSTRIES LTD. & ORS. Petitioner(s)
VERSUS
U.O.I. Respondent(s)
Date: 31/03/2014 This Petition was called on for pronouncement of
judgment today.

 
For Petitioner(s)
M/S. Parekh & Co., Advs.

 
For Respondent(s)
Mr. Shailendra Swarup, Adv.

 
Hon’ble Mr. Justice Surinder Singh Nijjar pronounced the judgment.
The petition is allowed in terms of the signed reportable judgment.

 

 
[Nidhi Ahuja] [Indu Bala Kapur]
Court Master Court Master
[Signed reportable judgment is placed on the file.]
———————–
[1] 2013 (7) SCALE 216 (Para 34)
[2] (2008) 10 SCC 240
[3] (2001) 1 SCC 509
[4] (2005) 13 SCC 719

———————–
59

 

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