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2017 DIGILAW 72 (CAL)

Commercial Hydraulics India Private Limited v. Parker Hannifin India Private Limited

2017-01-12

SANJIB BANERJEE, SIDDHARTHA CHATTOPADHYAY

body2017
JUDGMENT : l. The respondent has not been called upon. 2. This is an appeal under section 37 of the Arbitration and Conciliation Act, 1996 from an order setting aside an arbitral award of August 30, 2011 on the ground that the constitution of the arbitral tribunal was in derogation of the arbitration agreement between the parties. 3. The arbitration clause in the distribution agreement between the parties dated July 1, 2003 was as follows : “This Distribution Agreement shall be construed in accordance with, and governed in all respects by the Indian Law. Should any controversy arise in regard to this agreement, the parties agree that it will be submitted, and the ruling accepted as final to an arbitration Board composed by three members, one appointed by the Distributor, one by Parker and one by the Chamber of Commerce of India. The Arbitration process should be governed by Indian Arbitration Act 1996/subsequent revision and the venue will be Parker Hannifin India Pvt. Ltd. Plot # EL-26, MIDC, Mahare, Navi Mumbai - 400701. 4. As would be evident from the said arbitration clause, it can be seen in three parts: that the parties would resolve their disputes pertaining to the agreement by way of arbitration; that each of the parties would identify their nominees on the arbitral tribunal and the third nominee would be selected by the Chamber of Commerce of India; and, that the arbitration would be governed by the provisions of the Act of 1996. 5. Upon disputes arising between the parties and the appellant herein perceiving the same to be covered by the arbitration agreement, a notice was issued for commencement of arbitration and a person was nominated on the tribunal on behalf of the appellant herein. Such choice of nominee was subsequently changed in circumstances that are not relevant for the present proceedings. What ultimately transpired was that the respondent nominated its arbitrator and the appellant had also named its nominee, but there was no third arbitrator to complete the constitution of the arbitral tribunal. 6. It is the appellant's case that there may not be any body in existence by the name of "the Chamber of Commerce of India." The appellant approached the Merchants Chamber of Commerce in Kolkata for naming the third arbitrator on the panel. 6. It is the appellant's case that there may not be any body in existence by the name of "the Chamber of Commerce of India." The appellant approached the Merchants Chamber of Commerce in Kolkata for naming the third arbitrator on the panel. At the request of the appellant, such Chamber nominated a person to be the third arbitrator on the tribunal. 7. Before the arbitral tribunal, the respondent carried a petition under section 16 of the said Act of 1996, inter alia, challenging the impleadment of the holding company of the respondent as a party to the reference, though such entity was not a party to the distribution agreement or the arbitration agreement; and, the composition of the arbitral tribunal. The respondent contended that since the third arbitrator on the panel was to be named or nominated by a body called the Chamber of Commerce of India, no other institution, not even the Merchants Chamber of Commerce, Kolkata could exercise such authority. 8. By an order dated May 9, 2007, the tribunal unanimously held against the respondent. In view of the changed scenario under the Act of 1996, notwithstanding such preliminary objection of a party to the reference being overruled, the reference continued on merits. In keeping with section 16 of the said Act of 1996, in course of the challenge to the final award dated August 30, 2011, the respondent questioned the propriety of the order dated May 9, 2007 by which its challenge on the ground of the constitution of the arbitral tribunal had been repelled by the tribunal. The District Judge in seisin of the petition challenging the award accepted the respondent's contention that the arbitral tribunal was improperly constituted. As a consequence, the award was set aside without any further reference to the merits of the disputes. It is such order of November 30, 2016 which has been challenged in the present appeal. 9. It is elementary that parties can go to arbitration only if they agree thereupon. This consensus of carrying their disputes to arbitration must be reflected in writing. Ordinarily, an arbitration clause is contained as one of the clauses in the agreement between the parties. It is also possible that an independent arbitration agreement is executed by the parties to the matrix contract to cover only such aspect of the matter. 10. This consensus of carrying their disputes to arbitration must be reflected in writing. Ordinarily, an arbitration clause is contained as one of the clauses in the agreement between the parties. It is also possible that an independent arbitration agreement is executed by the parties to the matrix contract to cover only such aspect of the matter. 10. An arbitration agreement must not be taken lightly since it has the effect of, virtually, overriding the ordinary authority of the civil courts to adjudicate upon the disputes between the parties. Typically, an arbitration agreement would first record the consensus between the parties to have their disputes resolved by way of arbitration; and, thereafter, in most cases, the mechanism for the constitution of the arbitral tribunal may also be reflected therein. However, even if the mechanism is not indicated or the arbitrator is not identified, the arbitration agreement cannot be questioned; for it is left open to the parties to agree on the composition of the arbitral tribunal upon disputes arising or for either party to the arbitration agreement to approach the relevant Chief Justice or his designate under section 11 of the said Act of 1996 upon a consensus as to the arbitrator or the arbitral tribunal not being reached by the parties. It is not always impossible for that part of the arbitration agreement pertaining to the identity of the arbitrator or the constitution of the arbitral tribunal to be delinked from the principal part of the arbitration agreement, which is that the disputes between the parties would be resolved only by arbitration. Indeed, the mechanism for the appointment of an arbitrator or the constitution of an arbitral tribunal is incidental to the primary object of an arbitration clause. When the parties agree to go to a forum of their choice, in preference over the ordinary sovereign forum under the judicial system in this country, and the identity of the forum is indicated, the authority conferred by them is to that forum and that forum alone unless the agreement permits the severance of the two parts. If the identity of an arbitrator cannot be severed from the arbitration agreement and the arbitrator is not available, the arbitration mechanism would also fail. The matter may be seen with an example. If the identity of an arbitrator cannot be severed from the arbitration agreement and the arbitrator is not available, the arbitration mechanism would also fail. The matter may be seen with an example. If two friends A and Benter into an agreement to refer their disputes to a third friend and indicate such third friend as the arbitrator in the arbitration clause, ordinarily it must be construed that A and B agreed to go to arbitration provided that it was a reference to third friend in whom both had confidence. In such a situation, it may be possible to say that upon the arbitrator not being available, the arbitration agreement itself may perish. 11. However, the situation is somewhat different in the present case. When an institution is named and there is no indication in the arbitration agreement that if the institution is not available there would be no arbitration at all, the primary object of the arbitration agreement has to be seen as the consensus to have the disputes resolved by arbitration; and, the secondary object would be the identity of the arbitrator or the arbitral tribunal. In this case the parties' nominees were to be on the arbitral tribunal. The third arbitrator was to come from an independent agency which is named and identified in the arbitration agreement itself. If such institution did not exist or had been wound up, it was open to the two nominees of the parties to agree upon the third arbitrator; or, it was open to the parties to agree on the third arbitrator and include him in the panel. With the appellant as the claimant in this case having the carriage of proceedings, upon either the appellant or both the parties recognising that there was no organisation or institution by the name of the Chamber of Commerce of India, it was incumbent on the appellant to forge a consensus with the respondent for the identification of the third arbitrator on the tribunal. If the appellant had taken steps in such regard and the respondent had either not replied thereto or thwarted the same, the appellant would have had due sanction to approach the appropriate Chief Justice or his designate under section 11 of the said Act of 1996 to supply the name of the third arbitrator. 12. If the appellant had taken steps in such regard and the respondent had either not replied thereto or thwarted the same, the appellant would have had due sanction to approach the appropriate Chief Justice or his designate under section 11 of the said Act of 1996 to supply the name of the third arbitrator. 12. Upon the appellant not having adopted such procedure, but having caused some other institution to nominate the third arbitrator, it was open to the respondent to either accept such nomination and proceed with the reference or object thereto. The objection of the respondent was one capable of being made under section 16 of the said Act of 1996. Such objection appears to have been duly made and rejected. In accordance with sub-section (6) of section 16 of the said Act, it was open to the respondent to apply for setting aside the final arbitral award on the ground of the challenge that had been taken before the arbitral tribunal and was repelled. 13. The appellant has relied on a judgment reported at (1976) 4 SCC 147 . In that case, a matter pertaining to a contract relating to food, the arbitration agreement required the Secretary in the Food and Agriculture Department to nominate the arbitrator. At the time that the disputes arose between the parties, the Food and Agriculture Department had been bifurcated and, thereafter, reunited with two Secretaries: one looking after the Food Department and the other looking after the Agriculture Department. The arbitrator was nominated by the Secretary looking after the Food Department. Upon the award being rendered in the reference, a challenge was launched on the ground that the arbitrator had been illegally nominated. The Supreme Court held that notwithstanding the arbitration agreement providing the definite article "the", since the nomination in that case had been made by the Secretary in the Food Department of the reunited Food and Agriculture Department, there was sufficient compliance with the arbitration agreement and the intention of the parties. The principle embodied in the judgment is of no relevence in the present context. Here, the institution named to nominate the third arbitrator did not exist. In such circumstances, the appellant could not have unilaterally approached an alternative institution, albeit such institution being another Chamber of Commerce, and foisted its nominee on the respondent. 14. The principle embodied in the judgment is of no relevence in the present context. Here, the institution named to nominate the third arbitrator did not exist. In such circumstances, the appellant could not have unilaterally approached an alternative institution, albeit such institution being another Chamber of Commerce, and foisted its nominee on the respondent. 14. Another judgment reported at (2009) 5 SCC 313 is placed for the passage at paragraph 28 thereof. In such passage, the Supreme Court has referred to the virtue of ascertaining the true intention of the parties to the contract to understand the effect of its terms. Such general principle, salutary as it is, cannot come to the assistance of the appellant in this case in any manner whatsoever. It is possible that there may not have been any institution by the name of Chamber of Commerce of India at the time the parties executed the agreement. There must have been several other Chambers of Commerce. Surely, when the parties did not indicate in the arbitration agreement that any Chamber of Commerce could be approached to supply the third arbitrator, it was not open to the appellant to approach any institution other than the one specifically named in the clause for such purpose. 15. For the reasons aforesaid, the order of the District Judge does not call for any interference. The judgment and order of November 30, 2016 stands affirmed. Nothing in this order or of that of the court below will preclude the appellant from pursuing its claims on merits in accordance with law. FMA 166 of 2017 and C.A.N. 39 of 2017 are dismissed with costs assessed at 300 GM. 16. Leave is given to Advocate-on-record for the appellant to put in the deficit Court fees within a week from date. In default of such deposit being made, the appellant will have no right to carry its substantive claim by way of a further reference or suit, as the case may be.