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2018 DIGILAW 367 (AP)

Hemant B. Prasad v. Perfect Solutions

2018-06-08

RAMESH RANGANATHAN

body2018
ORDER : RAMESH RANGANATHAN, J. 1. The respondent herein is engaged in the business of assembling and manufacturing of power supply systems. The applicants herein entered into a partnership agreement with the respondent on 16.06.2006, with a view to carry on business of designing, developing, assembling, manufacturing and selling of uninterrupted power supply systems, inverters, power regulation devices etc. Pursuant to the partnership deed dated 16.06.2006, a Memorandum of Understanding was entered into on 02.12.2007 whereby the respondent took up the responsibility of undertaking research and development activities and design work of tools and dyes etc. The development activities and design works were to be completed by April, 2008. Certain disputes arose between the parties, resulting in the applicants issuing a legal notice on 18.09.2008 calling upon the respondent to return the unused cheques drawn on Development Credit Bank Limited, Abids, Hyderabad. The respondent issued a reply notice on 27.09.2008. As disputes arose between the parties, the applicants sent a notice, to the respondent on 13.10.2008, to refer the disputes to arbitration. On the ground that there was no response from the respondent, Arbitration Application No. 20 of 2010 was filed by the applicants before this Court seeking appointment of an arbitrator. 2. In its order, in Arbitration Application No. 20 of 2010 dated 23.08.2010, this Court observed that the parties to the application were parties to the partnership deed; from the pleadings it was evident that a dispute had arisen out of the partnership deed; such dispute necessitated reference to arbitration in view of Clause 22 of the partnership deed providing for such a recourse; pendency of O.S. No. 220 of 2010, filed by the respondent before the II Additional Chief Judge, City Civil Court, Hyderabad, for dissolution of the partnership and for rendition of accounts, did not create any impediment in appointing an arbitrator to resolve the disputes; the scope of enquiry under Section 11 was limited, and was confined only to whether there was an arbitration agreement in existence between the parties; whether the party, which had approached the Court seeking appointment of an Arbitrator, was a party to the said agreement; and whether the Court had jurisdiction to appoint the arbitrator; and, in such circumstances, the objection raised by the respondent, for appointment of an arbitrator, was unsustainable. Sri S. Ramakrishna Reddy, a retired District Judge, was appointed as the sole arbitrator. 3. Sri S. Ramakrishna Reddy, a retired District Judge, was appointed as the sole arbitrator. 3. The sole arbitrator issued notice to the parties. The applicants claim that they had filed their claims statement before the sole arbitrator, and the respondent had filed their objections/counter thereto. Aggrieved by the order of this Court in Arbitration Application No. 20 of 2010 dated 23.8.2010, appointing an arbitrator, the respondent approached the Supreme Court filing S.L.P.(C) No. 32581 of 2010. While stay of the order, in Arbitration Application No. 20 of 2010 dated 23.08.2010, was initially granted, the SLP was subsequently dismissed on 16.02.2016, and the earlier interim order was vacated. In its order in S.L.P.(C) No. 32581 of 2010 dated 16.02.2016, the Supreme Court, while condoning the delay in filing the counter-affidavit, observed that they were not inclined to interfere with the impugned order of the High Court. The SLP was dismissed, and all interim orders stood vacated. The applicants, thereafter, came to know that the sole arbitrator expired on 14.02.2016, and claim that the news of his demise was published in a Telugu Magazine. As a result of the order passed by the Supreme Court, dismissing the SLP preferred against the order in Arbitration Application No. 20 of 2010 dated 23.08.2010, the applicant and the respondents were required to resolve their disputes through arbitration. The fact, however, remains that, in the interregnum, the sole arbitrator appointed by this Court passed away. 4. The present Application is filed, under Section 15(2) of the Arbitration and Conciliation Act, 1996, (for short the "1996 Act"), seeking appointment of another arbitrator in the place of, and on the demise of, Sri S. Ramakrishna Reddy, a retired District Judge. The question which necessitates examination is whether the applicants can straightaway invoke the jurisdiction of this Court, under Section 15 read with Section 11(5) of the 1996 Act, or whether they are required to comply with the procedural requirements of issuing a notice afresh to the respondent seeking their consent to the appointment of a substitute arbitrator, before approaching this Court under Section 15(2) read with Section 11(5) of the 1996 Act. 5. 5. Sri P.S.P. Suresh Kumar, Learned Counsel for the applicants, would submit that, since the earlier arbitrator was appointed by this Court, it is only this Court which had jurisdiction to appoint a substitute arbitrator under Section 15(2) of the 1996 Act, on the demise of the earlier arbitrator, it is wholly unnecessary for the applicants to go through the needless formality of calling upon the respondent to give their consent to the appointment of a substitute arbitrator; issues regarding existence of an arbitration agreement cannot now be reopened; and since there is a binding arbitration agreement between the parties, and an arbitrator was earlier appointed by this Court which order was affirmed by the Supreme Court, a substitute arbitrator must also be appointed only by this Court under Section 15(2) of the 1996 Act. Learned counsel would rely on Shailesh Dhairyawan v. Mohan Balkrishna Lulla (2016) 3 SCC 619 and ACC Ltd. v. Global Cements Ltd. (2012) 7 SCC 71 : 2012 (6) ALT 35.1 (DN SC) in this regard. 6. On the other hand Sri B. Nalini Kumar, Learned Counsel for the respondent, would submit that Section 15(2) of the 1996 Act requires a substitute arbitrator to be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced; the rule, referred to in Section 15(2), is the arbitration clause in the partnership deed; the parties to the partnership deed are required to agree on an arbitrator; and it is only if the respondent, on intimation by the applicants, fails to agree to the appointment of an arbitrator, if any proposed by the applicants, would the applicants, thereafter, be justified in invoking the jurisdiction of this Court under Section 11 of the 1996 Act. 7. Clause 22 of the partnership deed dated 16.06.2006 stipulated that all disputes, touching the affairs of the partnership firm, shall be referred to arbitration in accordance with the provisions of the Indian Arbitration Act, and the award of such arbitrator shall be final and binding on the parties. 8. 7. Clause 22 of the partnership deed dated 16.06.2006 stipulated that all disputes, touching the affairs of the partnership firm, shall be referred to arbitration in accordance with the provisions of the Indian Arbitration Act, and the award of such arbitrator shall be final and binding on the parties. 8. Section 14(1) of the 1996 Act provides that the mandate of an arbitrator shall terminate, and he shall be substituted by another arbitrator, if (a) he becomes de-jure or de-facto unable to perform his functions or, for other reasons, fails to act without undue delay; and (b) he withdraws from his office, or the parties agree to the termination of his mandate. Section 15(1) of the 1996 Act stipulates that, in addition to the circumstances referred to in Section 13 and Section 14, the mandate of an arbitrator shall terminate (a) where he withdraws from office for any reason; or (b) by or pursuant to the agreement of the parties. Under Section 15(2), where the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. 9. The question which arises for consideration is what do the words, "rules that are applicable to the appointment of the arbitrator being replaced", used in Section 15(2) of the Act, mean? A party, who has entered into an arbitration with another, should not be permitted to resile therefrom. When the mandate of the arbitrator stands terminated, appointment of an arbitrator should, necessarily, be made in accordance with the arbitration clause of the agreement. (National Highways Authority of India v. Bumihiway DDB Ltd. (2006) 10 SCC 763 : 2007 (2) ALT 18 .1 (DN SC); Yashwitha Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. rep. by its Managing Director 2008 (4) ALT 266 ). Where the mandate of the arbitrator stands terminated for any reason, it fails within the purview of Section 15(1)(a) of the Act, and attracts Section 15(2) of the Act. (National Highways Authority of India (2006) 10 SCC 763 : 2007 (2) ALT 18 .1 (DN SC) (supra)). 10. by its Managing Director 2008 (4) ALT 266 ). Where the mandate of the arbitrator stands terminated for any reason, it fails within the purview of Section 15(1)(a) of the Act, and attracts Section 15(2) of the Act. (National Highways Authority of India (2006) 10 SCC 763 : 2007 (2) ALT 18 .1 (DN SC) (supra)). 10. Unless the arbitration agreement between the parties categorically prohibits or debars resolution of a dispute, or difference between the parties, by a substitute arbitrator, in the case of the death of the arbitrator appointed earlier, or non-availability of the said arbitrator, the power to appoint a substitute arbitrator is given by Section 15(2) of the Act which should be given liberal interpretation so as to apply to all possible circumstances under which the mandate of the earlier arbitrator may have been terminated. (SBP and Co. v. Patel Engg. Ltd. (5), (2005) 8 SCC 618 : 2005 (6) ALT 37 .1 (DN SO). Even if there is no specific provision, in the arbitration agreement, authorizing appointment of a substitute arbitrator on the termination of the original appointment, or when the originally appointed arbitrator withdraws from arbitration or is no more, this omission in the arbitration agreement is made up by the specific provision in Section 15(2) of the Act. (Yashwitha Constructions (P) Ltd. 2008 (4) ALT 266 ) (supra)). 11. Section 15(2), when it refers to the applicable rules, does not confine appointment of a substitute arbitrator to a statutory rule, or a rule framed under the Act, or under the scheme. It refers to the provision for appointment contained in the arbitration agreement, or any rules of any institution under which the disputes are to be referred to arbitration. Section 15(2) requires a substitute arbitrator to be appointed according to the original agreement or provision applicable to the appointment of the arbitrator at the initial stage. (Shailesh Dhairyawan (2016) 3 SCC 619 (supra); Yashwitha Constructions (P) Ltd. 2008 (4) ALT 266 ) (supra)). 12. As the rules referred to in Section 15(2) is the arbitration agreement, the procedure prescribed, for appointment of an arbitrator, in the arbitration agreement, are the rules which are applicable to the appointment of a substitute arbitrator also. (Shailesh Dhairyawan (2016) 3 SCC 619 (supra); Yashwitha Constructions (P) Ltd. 2008 (4) ALT 266 ) (supra)). 12. As the rules referred to in Section 15(2) is the arbitration agreement, the procedure prescribed, for appointment of an arbitrator, in the arbitration agreement, are the rules which are applicable to the appointment of a substitute arbitrator also. The arbitration agreement (i.e., Clause 22 of the partnership deed dated 16.06.2006) stipulates that all disputes, touching the affairs of the partnership firm, shall be referred to arbitration in accordance with the provisions of the Indian Arbitration Act. Section 10(1) of the 1996 Act stipulates that the parties are free to determine the number of arbitrators, provided that such number shall not be an even number. Section 10(2) provides that, failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator. Section 11 relates to the appointment of arbitrators and under sub-section (2) thereof, subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Section 11(5) stipulates that failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from the receipt of a request by one party from the other party to so agree, the appointment shall be made, upon the request of a party, by the High Court. 13. The procedure, to be followed in the appointment of a substitute arbitrator, is the same as the procedure relating to the initial appointment of the arbitrator i.e., in terms of Clause 22 of the partnership deed dated 16.06.2006. consequently it is only if the respondent, on being called upon to do so, refuses or fails to give its consent to the appointment of the substitute arbitrator suggested by the applicant within thirty days from the receipt of the request, could the applicant have thereafter invoked the jurisdiction of the High Court, under Section 15(2) read with Section 11(5) of the 1996 Act, seeking appointment of a substitute arbitrator. In the present case the applicant, instead of seeking the consent of the respondent to the appointment of the substitute arbitrator named by them, has straightaway invoked the jurisdiction of this Court, under Section 15(2) of the 1996 Act, seeking appointment of a substitute arbitrator. 14. In the present case the applicant, instead of seeking the consent of the respondent to the appointment of the substitute arbitrator named by them, has straightaway invoked the jurisdiction of this Court, under Section 15(2) of the 1996 Act, seeking appointment of a substitute arbitrator. 14. Primacy is given to the procedure agreed upon by the parties, to appoint an arbitrator, failing which alone does the Act permit judicial interference. The parties are, normally, bound by the arbitration clause, and are obliged to comply with the procedure laid down therein. (Datar Switchgears Ltd. v. Tata Finance Ltd. (6), 2000 (6) ALT 26 (SC) : (2000) 8 SCC 151 ). Since Section 15(2) requires a substitute arbitrator to be appointed in accordance with the arbitration agreement, the High Court cannot straightaway appoint a substitute arbitrator even before the applicant has sought the consent of the respondent to the appointment of the substitute arbitrator named by them. On a harmonious construction of Sections 11 and 15(2) if must be held that, on the mandate of an arbitrator being terminated and only if the respondent, in accordance with the arbitration agreement, fails to agree to the appointment of a substitute arbitrator, can the jurisdiction of the High Court be invoked under Section 11 of the Act. (Yashwitha Constructions (P) Ltd. 2008 (4) ALT 266 ) (supra)). 15. It is only if, on the termination of the mandate of the earlier arbitrator, the respondent has either refused, or has failed, to agree to the appointment of a substitute arbitrator, within 30 days of a specific request being made in this regard by the applicant, could the applicant have, thereafter, invoked the jurisdiction of the High Court under Section 11(5) read with Section 15(2) of the 1996 Act seeking appointment of a substitute arbitrator. As the applicant has failed to even call upon the respondent to agree to the appointment of a substitute arbitrator, Section 11(5) is not attracted. On a conjoint reading of Section 11(5) and Section 15(2) of the 1996 Act, the jurisdiction conferred on the High Court to appoint a substitute arbitrator, in the place of the arbitrator whose mandate stood terminated, is only if the parties fail to agree on the appointment of a substitute arbitrator within thirty days from the date of receipt of a request by one party from the other party to so agree. Consequently, the applicant is not entitled to invoke the jurisdiction of the High Court seeking appointment of an arbitrator in the place of the deceased arbitrator, even before requesting the respondent to convey their concurrence to the appointment of the substitute arbitrator proposed by them. 16. Is a different procedure required to be adopted in cases where failure of one of the parties to the arbitration agreement, to agree to the appointment of an arbitrator earlier, had resulted in an arbitrator being appointed by the High Court under Section 11(5) of the Act? The answer can only be in the negative. The very purpose of the Act, as is evident from the Statement of Objects and Reasons, is to minimize the supervisory role of Courts in the arbitral process i.e., from the commencement of arbitral proceedings under Section 21 of the Act. The present application, whereby a request is made for the appointment of a substitute arbitrator in the place of the deceased arbitrator, is filed on the erroneous premise that, since the respondent had failed to appoint an arbitrator on their behalf earlier, which resulted in this Court appointing an Arbitrator, the respondent had forfeited their right to mutually agree to the appointment of a substitute arbitrator for all times to come, and a substitute arbitrator could, therefore, only be appointed by the High Court. This premise is flawed for the reasons that (i) the 1996 Act gives primacy to the intention of the parties as is reflected in the arbitration clause of the agreement; and (ii) Section 5 of the 1996 Act prohibits judicial intervention except where explicitly provided under the Act, and there is no specific provision in the Act which requires the High Court to appoint a substitute arbitrator if it had earlier appointed the arbitrator whose mandate stood terminated. 17. Further, parties to the arbitration agreement have been statutorily conferred, by Section 11(5) of the 1996 Act, the freedom to mutually agree to appoint a substitute arbitrator of their choice. 17. Further, parties to the arbitration agreement have been statutorily conferred, by Section 11(5) of the 1996 Act, the freedom to mutually agree to appoint a substitute arbitrator of their choice. While a party, which had failed to exercise its right earlier to appoint an arbitrator in terms of the agreement, resulting in an arbitrator being appointed by the High Court, would not be entitled to seek substitution of such an arbitrator except on grounds specified in Sections 13, 14 and 15(1), and following the procedure prescribed in Section 15(2) of the Act, termination of the mandate of the earlier arbitrator, appointed either by the parties to the agreement or by the High Court, would result in the situation reverting back to the original position, and thereafter the procedure, prescribed for the appointment of the original arbitrator, would apply in the appointment of the substitute arbitrator also. Consequently it is only if, on a request made by the applicant, the respondent either refuses or fails to agree to the appointment of a substitute arbitrator, would the applicant then be entitled, that too after 30 days of conveying such a request to the respondent, to invoke the jurisdiction of the High Court seeking appointment of a substitute arbitrator. If, on the other hand, the respondent agrees to the appointment of a substitute arbitrator as proposed by the applicant and the vacancy caused, as a result of the mandate of the earlier arbitrator being terminated, is filled up, the High Court need not be called upon to fill up a non-existent vacancy. The mere fact that they had failed to agree to the appointment of an arbitrator earlier would not disable the respondent, for all times to come, either from exercising their right, under the arbitration agreement, or in mutually agreeing on the appointment of a substitute arbitrator in the place of the arbitrator whose mandate stood terminated under Sections 13, 14 and 15 of the Act (in the present case on the death of the earlier arbitrator). 18. It is only if the respondent fail to exercise their right to mutually agree with the applicant, on the appointment of a substitute arbitrator, can the jurisdiction of the High Court, under Section 11 of the Act, be invoked. 18. It is only if the respondent fail to exercise their right to mutually agree with the applicant, on the appointment of a substitute arbitrator, can the jurisdiction of the High Court, under Section 11 of the Act, be invoked. Section 5 of the Act permits judicial intervention only when specifically provided under Part-I of the Act; and there is no specific provision in Part-I of the Act, much less in Section 15 thereof, stipulating that, if the earlier arbitrator is appointed by the High Court, the substitute arbitrator must also be appointed only by the High Court, and not by the mutual consent of parties to the agreement. Since the very object of the Act is to minimize the supervisory role of Courts in the arbitral process, and to give primacy to the agreement between the parties, there is no justifiable reason why a party to the arbitration agreement should, forever, be denied his right to be consulted, by the other party, regarding appointment of a substitute arbitrator, on the mandate of the earlier arbitrator being terminated, merey because he had failed to exercise his right, to agree on the appointment of an arbitrator, earlier. 19. Let us now consider the judgments relied upon by the applicants in support of their contention that they are entitled to straightaway invoke the jurisdiction of this Court seeking appointment of a substitute arbitrator, even without requesting the respondent to convey their consent to the appointment of the substitute arbitrator suggested by the applicant. In ACC Ltd. (2012) 7 SCC 71 : 2012 (6) ALT 35.1 (DN SC) (supra) the arbitration agreement provided for reference of the disputes either to Sri N.A. Palkhivala or Sri D.S. Seth. As both the named arbitrators passed away, the jurisdiction of the Bombay High Court was invoked seeking appointment of a substitute arbitrator. In ACC Ltd. (2012) 7 SCC 71 : 2012 (6) ALT 35.1 (DN SC) (supra) the arbitration agreement provided for reference of the disputes either to Sri N.A. Palkhivala or Sri D.S. Seth. As both the named arbitrators passed away, the jurisdiction of the Bombay High Court was invoked seeking appointment of a substitute arbitrator. The Bombay High Court took the view that, since Clause 21 of the agreement constituted an agreement to refer the disputes to arbitration, and in the absence of any prohibition or debarment, there was no reason for the Court to presume an intent on the part of the parties to the effect that a vacancy that arose on account of the failure or inability of a named arbitrator to act could not be supplied by the Court under Section 11; and unless the parties had expressly precluded such a course being followed, the policy of the law, which was to promote the efficacy of arbitration and preservation of the efficacy of commercial arbitration, should be given effect to. The Bombay High Court had appointed a retired Judge of the Supreme Court, was that, because of the special nature of appointment of Sri N.A. Palkhivala and Sri D.S. Seth, the parties wanted their difference or dispute to be resolved only by those named arbitrators; on their death, the arbitration clause in the agreement did not survive; parties never intended to refer the dispute to any other arbitrator except the named arbitrators; and, therefore, Section 15(2) of the Act had no application. The question which fell for consideration before the Supreme Court was whether, on the death of the name arbitrators, the arbitration agreement survived or not? It is in this context that the Supreme Court observed: ".....The existence of an agreement is not in dispute, the question is about its enforceability on the death of the named arbitrators. Facts clearly indicate that the parties in this case have contemplated that if any question or difference or dispute arises between them, in relation to or with respect to the meaning or effect of the contract or with respect to their rights and liabilities, the same would be referred to one of the two named arbitrators named in the arbitration clause. The question is whether Clause 21 would outlive the lives of the named arbitrators. The question is whether Clause 21 would outlive the lives of the named arbitrators. Section 14 of the Arbitration and Conciliation Act, 1996 provides for the circumstances in which the mandate of the arbitrator is to terminate. It says that the mandate of an arbitrator will end when it becomes impossible for him to perform his functions de facto or de jure or for some other reasons he fails to act without undue delay or withdraws from office or the parties agree to terminate his mandate. Section 15(2) of the Act provides that where a substitute arbitrator has to be appointed due to termination of the mandate of the previous arbitrator, the appointment must be made according to the rules that were applicable to the appointment of the arbitrator being replaced. No further application for appointment of an independent arbitrator under Section 11 will lie where there has been compliance with the procedure for appointment of a substitute arbitrator. On appointment of the substitute arbitrator in the same manner as the first, no application for appointment of independent arbitrator under Section 11 could be filed. Of course, the procedure agreed upon by the parties for the appointment of the original arbitrator is equally applicable to the appointment of a substitute arbitrator, even if the agreement does not specifically say so. Reference may be made to the judgment of this Court in Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles India Ltd. (2006) 6 SCC 204 . Sections 14 and 15 provide the grounds for termination of the mandate of the arbitrator on the ground of incapability of the arbitrator to act or if he withdraws from his office or when the parties agree to the termination of the mandate of the arbitrator. Section 15(2) states that a substitute arbitrator shall be appointed as per the rules that were applicable to the appointment of the arbitrator being replaced. Section 15(2), therefore, has to be given a liberal interpretation so as to apply to all possible circumstances under which the mandate may be terminated....... ...........Section 11(6) would not apply only if it is established that parties had intended not to supply the vacancy occurred due to the inability of the arbitrator to resolve the dispute or due to whatever reasons but that intention should be clearly spelt out from the terms of the arbitration clause in the Agreement. ...........Section 11(6) would not apply only if it is established that parties had intended not to supply the vacancy occurred due to the inability of the arbitrator to resolve the dispute or due to whatever reasons but that intention should be clearly spelt out from the terms of the arbitration clause in the Agreement. The legislative policy embodied in Sections 14 and 15 of the Act is to facilitate the parties to resolve the dispute by way of arbitration. The arbitration clause if clearly spells out any prohibition of debarment, the court has to keep its hands off and there is no question of persuading or pressurizing the parties to resolve the dispute by a substitute arbitrator. Generally, this stands out as an exception and that should be discernible from the language of the arbitration clause and the intention of the parties. In the absence of such debarment or prohibition of appointment of a substitute arbitrator, the court's duty is to give effect to the policy of law that is to promote efficacy of arbitration..... .......The question may also arise in a given case that the named arbitrators may refuse to arbitrate disputes, in such a situation also, it is possible for the parties to appoint a substitute arbitrator unless the clause provides to the contrary. Objection can be raised by the parties only if there is a clear prohibition or debarment in resolving the question or dispute or difference between the parties in case of death of the named arbitrator or their non-availability, by a substitute arbitrator........." (emphasis supplied) 20. Objection can be raised by the parties only if there is a clear prohibition or debarment in resolving the question or dispute or difference between the parties in case of death of the named arbitrator or their non-availability, by a substitute arbitrator........." (emphasis supplied) 20. The law declared by the Supreme Court, in ACC Ltd. (2012) 7 SCC 71 : 2012 (6) ALT 35.1 (DN SC) (supra), is that, on the appointment of a substitute arbitrator in the same manner as the first, no application for appointment of an independent arbitrator under Section 11 can be filed; the procedure agreed upon by the parties, for the appointment of the original arbitrator, is equally applicable to the appointment of a substitute arbitrator, even if the agreement does not specifically say so; in the light of the judgment in Yashwith Constructions (P) Ltd. 2008 (4) ALT 266 ) (supra), Section 15(2) should be given a liberal interpretation so as to apply to all possible circumstances under which the mandate may be terminated; and, in the absence of debarment or prohibition in the agreement for appointment of a substitute arbitrator, the court's duty is to give effect to the policy of law that is to promote the efficacy of arbitration. As held by the Supreme Court, in A.C.C. Ltd. (2012) 7 SCC 71 : 2012 (6) ALT 35.1 (DN SC) (supra), the procedure agreed upon by the parties, for the appointment of the original arbitrator, is equally applicable to the appointment of a substitute arbitrator. Consequently, the applicant is again required to adhere to the procedure prescribed in Section 11(5), and seek the consent of the respondent for the appointment of a substitute arbitrator and, only on their failure or refusal, to approach this Court seeking appointment of a substitute arbitrator. 21. In Shailesh Dhairyawan (2016) 3 SCC 619 (supra) the respondent before the Supreme Court had filed a Suit before the Bombay High Court against the appellant seeking a declaration that the development agreement, together with the power of attorney, stood terminated. Parties to the Suit had entered into a compromise agreeing to refer the differences to the arbitration of a retired Supreme Court Judge Mrs. Justice Sujata Manohar; these consent terms were taken on record by a Single Judge of the Bombay High Court to dispose of the Suit by order dated 8.10.2008 referring the dispute, regarding compensation, to Mrs. Parties to the Suit had entered into a compromise agreeing to refer the differences to the arbitration of a retired Supreme Court Judge Mrs. Justice Sujata Manohar; these consent terms were taken on record by a Single Judge of the Bombay High Court to dispose of the Suit by order dated 8.10.2008 referring the dispute, regarding compensation, to Mrs. Justice Sujata Manohar for arbitration, in terms of the consent of the parties. The arbitrator resigned and, thereafter, the plaintiff-respondent filed an application for appointment of a substituted arbitrator. The Bombay High Court appointed a Retired Judge of the said High Court as a substitute arbitrator. Before the Supreme Court, it was contended on behalf of the appellant that, there being no rules that would apply to the appointment of the arbitrator being replaced, Section 15(2) would not apply; and the High Court had erred in appointing a substitute arbitrator. It is in this context that the Supreme Court observed: ".........In ACC Ltd. v. Global Cements Ltd., (2012) 7 SCC 71 , the arbitration clause with which this Court was confronted read as follows:- "21. If any question or difference or dispute shall arise between the parties hereto or their representatives at any time in relation to or with respect to the meaning or effect of these presents or with respect to the rights and liabilities of the parties hereto them such question or dispute shall be referred either to Mr. N.A. Palkhivala or Mr. D.S. Seth, whose decision in the matter shall be final and binding on both the parties." (emphasis in original) Thus, it will be seen that in the Yashwith Constitutions case this Court construed Section 15(2) liberally and held that the expression "the rules" that were applicable to the appointment of the arbitrator would include the arbitration clause or agreement itself, apart from any institutional rules or other rules which may apply. Since it was clear that the Managing Director in the aforesaid case was the appointing authority for a particular arbitrator, in case the said arbitrator appointed refuses to act, the Managing Director was stated to be the authority under the arbitration agreement that could always appoint a substitute arbitrator in terms of Section 15(2). Since it was clear that the Managing Director in the aforesaid case was the appointing authority for a particular arbitrator, in case the said arbitrator appointed refuses to act, the Managing Director was stated to be the authority under the arbitration agreement that could always appoint a substitute arbitrator in terms of Section 15(2). Similar is the case in the ACC Ltd. judgment where this Court held that despite two named arbitrators haying died, substitute arbitrators could be appointed in terms of the said clause unless there is a clear prohibition or debarment that could be read on a true construction of the arbitration agreement. It found that the expression "at any time" clearly showed that the arbitration clause had no nexus with the lifetime of the named arbitrator and therefore no such prohibition could be read. It also held that the procedure agreed upon by the parties for the appointment of the original arbitrator is equally applicable to the appointment of a substitute arbitrator, even if the agreement does not specifically say so, as this is the mandate of Section 15(2) of the Act. On the other hand, in the SBP and Company case, the arbitration clause itself indicated that one of two appointed arbitrators who refused to act would not be liable to be substituted by another arbitrator as the other appointed arbitrator would then continue with the reference as sole arbitrator. This Court, therefore, held that since Section 15(2) referred to the arbitration agreement, the arbitration agreement had to be strictly followed which would on the facts of that case indicate that no substitute arbitrator is to be appointed in the place of the arbitrator who refused to act but the other appointed arbitrator would continue as the sole arbitrator. The scheme of Section 8 of the 1940 Act and the scheme of Section 15(2) of the 1996 Act now needs to be appreciated. The scheme of Section 8 of the 1940 Act and the scheme of Section 15(2) of the 1996 Act now needs to be appreciated. Under Section 8(1)(b) read with Section 8(2) if a situation arises in which an arbitrator refuses to act, any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in a fresh appointment, and if such appointment is not made within 15 clear days after service of notice, the Court steps in to appoint such fresh arbitrator who, by a deeming fiction, is to act as if he has been appointed by the consent of all parties. This can only be done where the arbitration agreement does not show that it was intended that the vacancy caused be not supplied. However, under Section 15(2), where the mandate of an arbitrator terminates, a substitute arbitrator "shall" be appointed. Had Section 15(2) ended there, it would be clear that in accordance with the object sought to be achieved by the Arbitration and Conciliation Act, 1996 in all cases and for whatever reason the mandate of an arbitrator terminates, a substitute arbitrator is mandatorily to be appointed. This Court, however, in the judgments noticed above, has interpreted the letter part of the Section as including a reference to the arbitration agreement of arbitration clause which would then be "the rules" applicable to the appointment of the arbitrator being replaced. It is in this manner that the scheme of the repealed Section 8 is resurrected while construing Section 15(2). The arbitration agreement between the parties has now to be seen, and it is for this reason that unless it is clear that an arbitration agreement on the facts of a particular case excludes wither expressly or by necessary implication the substitution of an arbitrator, whether names or otherwise, such a substitution must take place. In fact, sub-sections (3) and (4) of Section 15 also throw considerable light on the correct construction of sub-section (2). Under sub-section (3), when an arbitrator is replaced, any hearings previously held by the replaced arbitrator may or may not be repeated at the discretion of the newly appointed Tribunal, unless parties have agreed otherwise. In fact, sub-sections (3) and (4) of Section 15 also throw considerable light on the correct construction of sub-section (2). Under sub-section (3), when an arbitrator is replaced, any hearings previously held by the replaced arbitrator may or may not be repeated at the discretion of the newly appointed Tribunal, unless parties have agreed otherwise. Equally, orders or rulings of the earlier arbitral tribunal are not to be invalid only because there has been a change in the composition of the earlier Tribunal, subject, of course, to a contrary agreement by parties. This also indicates that the object of speedy resolution of disputes by arbitration would best be sub-served by a substitute arbitrator continuing at the point at which the earlier arbitrator has left off. In fact, as has correctly been pointed out by learned counsel for the respondent, Section 89 of the CPC specifically provides that a Court hearing a suit may formulate terms of settlement between the parties and may either settle the same or refer the same for settlement by conciliation, judicial settlement, mediation or arbitration. On the facts in the present case, it is clear that following the mandate of Section 89, the Bombay High Court disposed of the suit between the parties by recording the settlement between the parties in clauses 1 to 7 of the consent terms and by referring the remaining disputes to arbitration. In the present case therefore it is clear that it is the Bombay High Court that was the appointing authority which had in fact appointed Mrs. Justice Sujata Manohar as arbitrator in terms of clause 8 of the consent terms. We must remember, as was held in C.F. Angadi v. Y.S. Hirannayya, 1972 (2) SCR 515 at 523 that an order by consent is not a mere contract between the parties but is something more because there is super-added to it the command of a Judge. On the facts of the present case, it is clear that the Bombay High Court applied its mind to the consent terms as a whole and appointed Mrs. Justice Sujata Manohar as arbitrator for the disputes that were left to be resolved by the parties. The said appointing authority has been approached by the respondent for appointment of a substitute arbitrator, which was then done by the impugned judgment. Justice Sujata Manohar as arbitrator for the disputes that were left to be resolved by the parties. The said appointing authority has been approached by the respondent for appointment of a substitute arbitrator, which was then done by the impugned judgment. This would therefore be "according to the rules that were applicable to the appointment of the arbitrator being replaced" in accordance with Section 15(2) of the Act. We, therefore, find that the High Court correctly appointed another independent retired Judge as substitute arbitrator in terms of Section 15(2) of the Arbitration Act, 1996. The appeal is, therefore, dismissed." 22. While concurring with the opinion of Justice R.F. Nariman, Dr. Justice A.K. Sikri, in his supplementing opinion, observed: ..........Section 15(2) of the Act is also to be interpreted keeping in mind the ethos of the arbitration generally and also in the light of the spirit behind Section 89 of the Code of Civil Procedure, 1908 (for short, 'CPC') in particular. No doubt, in the instant case, there was no arbitration agreement between the parties when the suit was filed by the respondent herein. However, in the said suit which was filed, parties arrived at an agreement whereby it was agreed between them that the matter be decided through arbitration and not by the court of law. Aforesaid two reasons given by me, in addition to the reasons already indicated in the judgment of my learned Brother, would clearly demonstrate that provisions of Section 15(2) of the Act require purposive interpretation so that the aforesaid objective/purpose of such a provision is achieved thereby. The principle of 'purposive interpretation' or 'purposive construction' is based on the understanding that the Count is supposed to attach that meaning to the provisions which serve the 'purpose' behind such a provision. The basic approach is to ascertain what is it designed to accomplish? To put it otherwise, by interpretative process the Court is supposed to realize the goal that the legal text is designed to realize. As Aharan Barak puts it: Purposive interpretation is based on three components: language, purpose, and discretion. Language shapes the range of semantic possibilities within which the interpreter acts as a linguist. Once the interpreter defines the range, he or she chooses the legal meaning of the text from among the (express or implied) semantic possibilities. As Aharan Barak puts it: Purposive interpretation is based on three components: language, purpose, and discretion. Language shapes the range of semantic possibilities within which the interpreter acts as a linguist. Once the interpreter defines the range, he or she chooses the legal meaning of the text from among the (express or implied) semantic possibilities. The semantic component thus sets the limits of interpretation by restricting the interpreter to a legal meaning that the text can bear in its (public or private) language." Once we keep in mind the aforesaid fundamental aspects of the arbitration, the irresistible conclusion would be that whenever parties agree for mediation, and even name a specific arbitrator with no specific provision for appointment of another arbitrator on the recusal/withdrawal of the said arbitrator, the said omission is made up by Section 15(2) of the Act and unless arbitration agreement between the parties provides a categorical prohibition or debarment in resolving a question or dispute or difference between the parties by a substitute arbitrator in case of death or the named arbitrator or non-availability of the said arbitrator, Courts have the power to appoint substitute arbitrator, which power is given by Section 15(2) of the Act as this provision is to be given liberal interpretation so as to apply to all possible circumstances under which the mandate of the earlier arbitrator may be terminated............." (emphasis supplied) 23. The law declared by the Supreme Court, in Shailesh Dhairyawan (2016) 3 SCC 619 (supra), is that Section 15(2) should be construed liberally, and the expression "the rules", applicable to the appointment of the arbitrator, would include the arbitration clause of the agreement itself, apart from any institutional rules or other rules which may apply; a substitute arbitrator can be appointed, in terms of the arbitration clause, unless there is a clear prohibition or debarment that could be read on a true construction of the arbitration agreement; the procedure agreed upon by the parties, for the appointment of the original arbitrator, is equally applicable to the appointment of a substitute arbitrator, even if the agreement does not specifically say so, as this is the mandate of Section 15(2) of the Act; sub-sections (3) and (4) of Section 15 also indicate that the object of speedy resolution of disputes by arbitration would best be subserved by a substitute arbitrator continuing at the point at which the earlier arbitrator had left off; the provisions of Section 15(2) of the Act require purposive interpretation so that the objective/purpose of such a provision is achieved thereby; Section 15(2) of the Act is also to be interpreted keeping in mind the ethos of the arbitration generally, and in the light of the spirit behind Section 89 of the Code of Civil Procedure, 1908 (for short, 'CPC;) in particular; whenever parties agree for mediation, and even name a specific arbitrator with no specific provision for appointment of another arbitrator on the recusal/withdrawal of the said arbitrator, the said omission is made up by Section 15(2) of the 1996 Act; and unless the arbitration agreement between the parties provides a categorical prohibition or debarment, in resolving a question or dispute or difference between the parties by a substitute arbitrator in case of death of the named arbitrator or non-availability of the said arbitrator, courts have the power to appoint a substitute arbitrator, which power is given by Section 15(2) of the Act as this provision is to be given liberal interpretation so as to apply to all possible circumstances under which the mandate of the earlier arbitrator may be terminated. 24. 24. On the facts of the case before it, the Supreme Court, in Shailesh Dhairyawan (2016) 3 SCC 619 (supra), observed that there was no arbitration agreement between the parties when the suit was filed by the respondent herein; however, in the said suit which was filed, the parties had arrived at an agreement whereby it was agreed between them that the matter be decided through arbitration, and not by the Court of law; following the mandate of Section 89 CPC, the Bombay High Court had disposed of the Suit between the parties recording the settlement between the parties in clauses 1 to 7 of the consent terms, and by referring the remaining disputes to arbitration; it was clear, therefore, that it was the Bombay High Court which was the appointing authority and had, in fact, appointed Mrs. Justice Sujata Manohar as an arbitrator in terms of clause 8 of the consent terms; an order, by consent, is not a mere contract between the parties but is something more because there is super-added to it the command of a Judge; the Bombay High Court had applied its mind to the consent terms as a whole, and had appointed Mrs. Justice Sujata Manohar as an arbitrator for the disputes that were left to be resolved by the parties; the said appointing authority (i.e. the Bombay High Court) had been approached by the respondent for appointment of a substitute arbitrator, which was then done by the impugned judgment; this would, therefore, be "according to the rules that were applicable to the appointment of the arbitrator being replaced" in accordance with Section 15(2) of the Act; and the Bombay High Court had correctly appointed another independent retired Judge as the substitute arbitrator in terms of Section 15(2) of the 1996 Act. 25. Unlike in Shailesh Dhairyawan (2016) 3 SCC 619 (supra), in the present case there exists an arbitration agreement and, since Section 11(5) requires parties to mutually agree on the appointment of an arbitrator and, only on failure or refusal to so agree, to approach the High Court, a similar procedure must be followed in the appointment of a substitute arbitrator also. 26. 26. As noted hereinabove, the respondent is entitled, in terms of Clause 22 of the agreement read with Sections 11(5) and 15(2) of the 1996 Act, to be consulted by the applicant in the appointment of a substitute arbitrator, even if they had failed to agree on the appointment of an arbitrator earlier. It is only if they refuse or fail to agree to the appointment of the person, suggested by the applicant, as the substitute arbitrator, within thirty days of receipt of such a request from the applicant, would the applicant then be entitled to invoke the jurisdiction of the High Court, under Section 11(5) read with Section 15(2) of the Act, requesting it to appoint a substitute arbitrator in the place of the deceased arbitrator. 27. The present application, filed even before the applicant has requested the respondent to agree to the appointment of a substitute arbitrator in the place of the deceased arbitrator, is therefore not maintainable. Needless to statue that this order shall not disable the applicant from requesting the respondent to convey their consent to the appointment of a substitute arbitrator, in the place of the deceased arbitrator, and if the respondent refuses or fails to convey its consent within thirty days of such a request being received, to then invoke the jurisdiction of the High Court seeking appointment of a substitute arbitrator. The application as filed is, accordingly, dismissed. The miscellaneous petitions pending, if any, shall stand closed. No costs.