Supreme Court of India
M/S. ETHIOPIAN AIRLINESversusM/S. STIC TRAVELS (P) LTD.
- Citation
- 2001 INSC 290
- Decided
- 11 July 2001
- Disposal
- Dismissed
- Bench
- AJAY PRAKASH MISRA
Holding
The appointment of the third arbitrator as Chairman falls under Section 10(2) of the Arbitration Act, 1940, and the arbitrator is not merely an umpire.
Summary
Ethiopian Airlines terminated its agreement with STIC Travels and the dispute was referred to arbitration under a clause that the tribunal would consist of three arbitrators, each party appointing one and the two appointed arbitrators selecting a third who would act as Chairman. After the death of the appellant's original nominee arbitrator and subsequent replacements, the parties disagreed whether the third arbitrator was an umpire under Section 10(1) of the Arbitration Act, 1940 (and thus could not participate) or a Chairman under Section 10(2) (and could vote as a member). The Delhi High Court held that the clause expressly made the third arbitrator the Chairman, thereby falling under Section 10(2), and the Supreme Court affirmed this interpretation. The Court also ruled that substitution of a nominee does not give the parties a fresh right to appoint a new Chairman and that the appellant’s long‑standing participation before the three‑member tribunal barred any later challenge on the ground of acquiescence. Consequently, the appeal was dismissed and the High Court’s order confirming the third arbitrator as Chairman was upheld.
Issues considered
- The correct interpretation of Section 10(1) versus Section 10(2) of the Arbitration Act, 1940 in relation to an arbitration clause that designates the third arbitrator as Chairman.
- Whether the death or substitution of a party‑appointed arbitrator entitles the parties to appoint a new Chairman.
- Whether the appellant’s acquiescence to the three‑member tribunal precludes a challenge to its constitution.
Legislation cited
- Arbitration Act, 1940s. 10(1), s. 10(2), s. 20
Subjects
ArbitrationArbitral TribunalThird arbitratorChairmanUmpireSection 10 of Arbitration Act 1940Statutory interpretationAppointment of arbitratorsSubstitution of arbitratorAcquiescence
Judgment
A MIS. ETHIOPIAN AIRLINES
v.
MIS. STIC TRA VEyS (P) LTD.
JULYII,2001
B [A.P. MISRA AND DORAISWAMY RAJU, JJ.]
Arbitration Act, 1940-S. I 0(1) and (2)
Arbitration-Arbitral Tribunal-Third Arbitrator-Status of-Whether
C a Chairman or only an umpire-Arbitration agreement stipulating
appointment of one Arbitrator each by parties-Nominee Arbitrators lo
apf)Oint the third Arbitrator to dct as Chairman-Intention of parties clear
that the dispute to be resolved by thi;ee Arbitrators-High Court holding that
the appointment of third Arbitratjor would fall under sub-section (2) who
D would continue to act as Chairman-Held, justified.
Arbitration-Ar6iitral Tribunal consisting of one nominee Arbitrator of
each party-Nominee Arbitrators to appoint third Arbitrator as Chairman-
Death of one of the nomi1~ee Arbitrator-Appointment of fresh nominee l
Arbitrator-Held, would not give fres~ right to parties to appoint a fresh
E Chairman.
Interpretation of statutes
Arbitration statute-Interpretation of-Held, if there are two possible
interpretations, 1the one which leans to satisfj, the desired agreement between
F the parties should be accepted. -.<
Appellant-Airlines appointed respondent as its General Sales Agent
. under certain agreemen_t. Subsequently, the appointment of respondent was
terminated which led to a dispute between the· parties. The dispute was r~ferred
to Arbitration. The Arbitration agreement provided that in the event of dispute
G over appointment of sole Arbitrator, the Arbitral Tribunal would consist of
three Arbitrators, one each to be appointed by parties and the two Arbitrat~rs
so nominated would appoint the third A1·bitratm· who would act as Chairman.
Accordingly, both the parties nominated one Arbitrator each and those two
nominee Arbitrators appointed the third Arbitrator.~ppellant's nominee died
and a fresh Arbitrator was appointed who later resigned. Again a fresh
H ' 882
1;T1JIOPl/\N /\IRLINES v. STIC TR/\ Vl~LS (P) LTD. ·ss3
nominee of appellant was appointed as Arbitrator. Thereupon, counsel for the A
appellant wrote a letter for fresh appointment of the third Arbitrator vi::..
Chairman. Dispute arose between the parties regarding the status of,third
Arbitrator. According to the appellant, the appointment of third Arbitrator
would fall under sub-section (1) of section IO of the Arbitration Act,'1940
and he would only be an umpire who could not partic\pate in the arbitration B
proceedings. However, High Court rejecting the said contention held that
appointment of third Arbitrator would fall under sub-section (2) of Section
-
I 0 of the Act and the third Arbitrator would continue to function as Chairman.
Hence the present appeal.
On behalf of the appellant it was contended that in view of the relevant C
arbitration clause in the agreement and the language of Section 10(1) of!he
Act stipulating that when a reference was to three Arbitrators, one to be
appointed by each party and the third by the two appointed Arbitrators, then
the third Arbitrator so appointed would be deemed to be an umpire and not a
third Arbitrator.
On behalf of the respondent it was contended that in order to find out in D
which of the two fields, viz., of sub-section (1) or (2) of Section 10 the case
would fall the clear intent of the parties as incorporated in the arbitration
clause had to be read and in the instant case the intention of the parties was
very clear that the dispute was to be resolved by the three Arbitrators and the
third Arbitrator would act as Chairman, and thus, the case would not fall E
under sub-section (1) but would fall under sub-section (2); that the appellant
acquiesced by presenting itself before the three members Tribunal on a large
number of dates for a period of three years and hence was stopped from raising
any dispute regarding validity to constitution of Arbitral Tribunal.
Dismissing the appeal, the Court F
HELD: 1.1. High Court was justified in holding that the appointment of
the third Arbitrator would fall under sub-section (2) of Section JO of the
Arbitration Act, 1940 and would continue as Chairman of the Arbitral
Tribunal. 1899-A; 887-BI
1.2. The field ofoperatioh of both sub-sections (1) and (2) of Section 10
G
of the Act are separate and exclusive. Sub-section (1) is applicable in a case:
(a) where an arbitration agreement provides that a reference is to the three
arbitrators; (b) one to be appointed by each party and the third by the two
appointed arbitrators. If the case falls in this field, it further engraves a
deeming clause that such appointed third arbitrator to be an umpire. While H
\
884 SUPREfVIE COURT REPORTS [200 I] 3 S.C.R.
A the field of sub-section (2) is in a case, (a) where an arbitration agreement
provides for a reference to three arbitrators to be appointed otherwise than
as mentioned in sub-section (1 ), then the award of the majority shall prevail
unless the arbitration agreement otherwise provide. Thus, a conjoint reading
of both the said two. sub-sections, makes it clear, where an arbitration
B agreement provides simpliciter for a reference to an Arbitral Tribunal
consisting of three Arbitrators one each appointed by parties and the third by
such appointed Arbitrators, then the appointment of such third Arbitrator is
to be treated as an umpire but where parties intentions are clear, to be spelt
out from the agreement that the parties intend their dispute to be decided by
three Arbitrators by majority, by such words such as that the arbitrator is to
C be the Chairman of such Tribunal, then the appointment of such third members
is to be construed to be an appointment otherwise than as mentioned under
sub-section. (1). 1890-H; 891-A-B; 896-C-DJ
1.3. In the instant case, clause 3 of the Article XVI of the agreement
provides that the Arbitral Tribunal shall consist of three Arbitrators. Each
D party to appoint one of the three Arbitrators and two Arbitrators so appointed
shall appoint the third who shall act as Chairman. When parties referred to
third Arbitrator to act as Chairman the intention is very clear that the
Chairman means who chairs a Tribunal or who heads the Tribunal and not an
umpire. The function of umpire only comes into play when there is difference
t
E between two Arbitrators. On the other hand, Chairman has to chair every
meeting of the Tribunal over which he has to chair. In the present case, he
has to chair, the Arbitral Tribunal. The words "who shall act as a Chairman"
gives clear intention of the parties. Thus, the appointment of the third
Arbitrator is an appointment, otherwise than as mentioned in sub-section (1).
Th us, the instant case would fall under sub-section (2) of Section 10.
F 1896-E-F-G; 897-BI ~
Ghasilal Todi v. Bi~wanath Kerwal and Ors .. AIR (1964) Cal. 466,
disapproved.
G Merinos and Frangos ltd. v. Dulien Steel Products Inc. oi Washington,
(1961) 2 Lloyd's Rep. 192, referred to.
2. If the Tribunal consisted of three members, so as to fall under sub-
of
section (2) Section to, then even if one of the arbitrators nominated by the ' -
party is incapacitated or dies and is later substituted, would not give fresh
H right to such two arbitrators appointed by the parties, to appoint a fresh
ETHIOPIAN AIRLINES v. STIC TR/\ VELS (P) LTD. 885
Chairman. Appointed Chairman by the said two Arbitrators does not fall A
because of the substitution of one of the nominated arbitrators on account of
death or incapacitation of one of the nominated arbitrators. 1898-F-G I
3. It is not necessary to adjudicate on the plea of acquiescence since
the relevant arbitration clause as interpreted would indicate that the parties
intended that their dispute be referred to the Arbitral Tribunal consisting of B
three Arbitrators. Besides, he conduct of the parties indicates to the same
effect when they proceeded to appear before the three member Tribunal for a
long period without raising any objection. 1898-D-EI
Neelakantan & Bros. Cont. v. Suptd. Engineers, 119981 4 SCC 462;
Mis. Construction India v. Secreta1y, Works Dept., (19981 2 SCC 89; MK C
Shah Engineers & Contractors v. State of MP., (19991 2 SCC 594; Prasun
Roy v. Calcutta MDA, 119871 4 SCC 217; Karna/ Improvement Trust v.
Parkashwanti, (19951 5 SCC 159 and Sha Mulchand Co. v. Jawahar Mi/ls
Ltd., (19531 SCR 351, referred to.
4. Arbitration proceedings sprouts out of an agreement, under-standing D
or consent of the contesting parties. It also lays down as to who shall arbiter
over their dispute. It is their desire, explicitly or implicitly expressed in the
agreement, which the courts have to guard and interpret so. The statute steps
in, in aid of this agreement not in derogation of it. It is only when agreement
is silent, against the public policy, or any person does not perform its obligation E
under such agreement, the statute steps in to fill up such gaps and issues
directions where necessary, for doing an act which is also in aid of such
agreement. Thus, while interpreting any arbitration statue, if there be two
possible interpretations, the one which leans to satisfy the desired agreement
should be accepted. (886-D-E-FI
F
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4051 of2001.
From the Judgment and Order dated 8.11.2000 of the Delhi High
Court in O.M.P. No. 133of1999.
F.S. Nariman, Lalit Bhasin, Ms. Naina Gupta, Uday Gupta, Ms. Jaya G
Srivastava, Ms. Arpita Mahajan, Ms. Sushma Sharma and Vineet Kumar for
--- the Appellants.
·-----< K.K. Venugopal, R.K. Chadha, Ms. Meenakshi Singh, Prof. Shim Singh,
Ms. Yasmi.oe Tarapore and Janendra Lal for Mis. Janendra l:;al & Co., for the
Responderits_...'~ H
886 SUPREME COURT REPORTS [200 I] 3 S.C.R.
A The Judgment of the Court was delivered by
MISRA, J. Leave granted.
H~ad learned counsel for the parties.
i
B Since long, both the legislature through its enactment and the courts
through its interpretation have been battling to cut short the traditional
procedures in Courts to dispense quick justice by taking recourse through the
.. arbitration proceedings. The laudable objectives and great expectations in
spite ofbest efforts have never reached the desired results. To reach it, time
and again 9omprehensive review of the :6i-rbitration Act through amendments
C and re-e~1 1actment has been made. Every words of any statutes· having
stretchable meaning gives fertility to the Bar to interpret it such, as to suit
the exigency of his client by finding loopholes in a statute in spite of the best
attempt by the legislature to conclude the disputes at the earliest, by raising
various objections thus frustrating its very objectives. It is here courts have
D to play an important role of taking recourse to such interpretation which
subserve the objective and defeat any attempt to flout it.
Arbitration proceedings sprouts out of,,an agreement, understanding or
consent of the contesting pa1ties. It also lays down as to who shall arbiter
over their dispute. It is their desire, explicitly or implicitly expressed in the
E agreements, which the courts have to guard and interpret so. The statute
steps in, in aid of this agreement not in derogation of it. It is only when
agreement is silent, against the public policy, or any person does not perform
its obligation under such agreement, the statute steps in to fill up such gaps
and issub directions where necessary, for doing an act which is also in aid
of such agreement. Thus while interpreting any arbitrator statute, if there be
F two possible interpretation, the one which leans to satisfy the desired
agreement should be accepted.
The present case is one of such illustration, where the suit is filed in
the year 1994 under Section 20 of the Arbitration Act, 1940, for the appointment
of arbitrators, yet ti II th is date, the challenge to the constitution of the Arbitra!
G Tribunal has yet to be resolved. Placed in such situations, the courts have
to rise, to give such interpretation, which fulfills its objectives, cut short the
procedure and lend support to the true intention of the parties as infused 111 ---
the arbitration clause of their agreement.
The question raised is of the interpretation of Section 10 of the
H Arbitration Act 1940 (hereinafter referred to as 'the aforesaid Act') and the
ETI I IOPIAN AIRLINES v. STIC TRA YELS (P) LTD. [MISRA, .I.] 887
interpretation of Article XVI, the arbitration claused of the agreement between A
the parties. The present appeal is directed against the judgment and 'order
dated 8th November, 2000 passed in O.M.P. No. 133 of 1999 by the Delhi, High
Court through which the said O.M.P. has been allowed, holdi°ng Justice
Avadh Behari Rohatgi to be the Chairman of the Arbitral Tribunal along with
Justice H.L. Anand (Retd.) and Mr. C.S. Aggarwal, Advocate. The High Court
while interpreting the aforesaid arbitration clause held it to fall under. sub- B
section (2) of Section 10 of the aforesaid Act. The submission is the High
Court erred in interpreting the arbitration clause to ma_ke it fall under sub-
section (2) of Section 10, in fact, it falls under sub-section (1) of Section 10.
In order to appreciate the controversies and the issues involved, it is necessary
to dwell on to the necessary facts. So hereunder we are giving short matrix C
of facts.
The respondent was appointed as the General Sales Agent of the
appellant Airlines for various territories. In pursuance to the same, .two
agreements dated 1.7.1987 and 5.1.1980 were executed between the appellant
and the respondent. However, the engagement of the respondent was D
terminated by the appellant w.e.f. 20th December, 1994. This led into the
dispute and for resolving it, the respondent filed a suit under Section 20 of
the aforesaid Act. During pendency of this proceeding, late Justice G.C. Jain
was appointed as the nominee arbitrator of the appellant airlines and Mr. C.S.
Aggarwal, Advocate was appointed as the nominee arbitrator for, the
respondent and in turn thes~ two nominee arbitrators appointed Justice Avadh E
Behari Rohatgi to be the Chairman of the Arbitral Tribunal. Thereafter,' the
proceedings before this Tribunal commenced from 16th September, 1995.
After the unfortunate demise of Justice G.C. Jain, the appellant nominated
Mr. O.P. Yaish, Senior Advocate as its nominee arbitrator on 18th May, 1998
">- but who later resigned and shortly thereafter Mr. Justice H.L. Anand (Retd.) F
was appointed ·as the nominee arbitrator by the appellant. The case of the
appellant is that no formal proceedings took plac~ during the tenure of Mr.
O.P. Yaish. After stepping in of Justice H.L. Anand, he suggested to Mr. C.S.
Aggarwal that further steps in the proceedings should be taken only after
considering the request contained in the letter dated 28th December, 1998 G
written by the counsel for the appellant which desired the two arbitrators, to
nominate afresh a Chairman. This according to the respondent triggered a
fresh dispute thus thwarting the smooth flow of the arbitration proceedings
before the said three arbitrators.
The dispute further has arisen 111 this case. aforesaid, on account of H
888 SUPREME COURT REPORTS [2001] 3 S.C.R.
A different interpretation given by Mr. Justice H.L. Anand and Mr. Justice
A-1adh Behari Rohatgi regarding the status of Justice Rohatgi. In case Section
I 0( I) is applicable he could only be an umpire, therefore, cannot participate
in the arbitration proceedings and if Section I 0(2) applies he can continue as
a Chairman of the Arbitral Tribunal and participate i~ the same. The view of
Justice H.L. Anand is contained in a letter dated 12th March, 1999 to Justice
B Rohatgi that the matter could only be heard by the nominee arbitrators and
not by the three member Tribunal as it happened in the past. Another ancillary
C
issue which arises as a result of the aforesaid view of Mr. Justice H.L. Anand
is, whe.ther Justice Anand and Mr. C.S. Aggarwal would have to go through
the exercise of appointing a third arbitrator/Umpire. The appellant in fact filed
an application (I.A. No. 5676 of 1999) for clarification, however, the same
-
could not be listed for hearing as the court file could not be traced. The
respondent in the meanwhile filed the aforesaid O.M.P. No. 133 of 1999 taking
a stand.that Section 10(1) had no application on the facts of the present case.
The Delhi High Court through its impugned judgment has held that Justice
Rohatgi would continue to be the chairman of the Arbitral Tribunal and the
D decision of the majority shall prevail. This is so as both the nominee arbitrators
of the appellant and the respondent appointed the aforesaid Justice A vadh
Behari Rohatgi to act as the Chairman of the Arbitral Tribunal.
On 16th September, 1995 the Arbitral Tribunal consisting of the aforesaid
E three persons passed an order that both the counsels should seek instructions
from their respective clients and state on the next <'late of hearing, whether
they were prepared to refer their disputes arising under the agreements to this
Arbitral Tribunal. On I st June, 1996 counsels statement were recorded that
their clients were agreeable to refer the disputes to this Arbitral Tribunal.
After the appointment of Justice H.L. Anand on 30th December, 1998, he sent
F a fax to Mr. C.S. Aggarwal for a meeting on 6th February, 1999 to consider
the question of appointing ~n Umpire or appointing the third arbitrator.
During this period on the 8th March, 1999 Justice Rohatgi through letter
desired to convene a meeting of the Arbitrators for 20th March, 1999. Before
that date, Justice Anand wrote a letter dated 12th March, 1999 to Justice
G Rohatgi that according to his opinion the matter could only be heard by the
nominee arbitrators and not by the three member Tribunal as had happened
in the past. Justice Anand made request through this letter to Justice Rohatgi
H
to cancel the proceedings fixed for 20th March, 1999 and it to remain stayed
until the question of law raised is determined by the Court. On 13th March,
1999 Justice Rohatgi rejected the said request of Justice Anand as he was of
the opinion that there was no conflict between Section I 0( I) and Section
-
r-
ETHIOPIAN AIRLINES v. STIC TRAVELS (P) LTD. !MISRA, J.] 889
10(2). He opined, in view of his appointment as Chairman there is no question A
of third arbitrator being an Umpire. This dispute as aforesaid, was decided by
the Delhi High Court by holding Section I 0(2) to be applicable and not
Section I 0( I) in view Qf the language of the aforesaid arbitration clause.
Mr. F.S. Nariman, learned senior counsel for the appellant submits with.
vehemence, with reference to the arbitration clause that Section I 0(1) wou Id B
be applicable in view of the deemed clause incorporated in it and the High
Cou11 erred in placing it under Section I 0(2). The submission is that language
of Section I 0(1) is very clear which stipulates, when a reference is to three ,
arbitrators, one to be appointed by each party and the third by the two
appointed arbitrators, then such appointed third arbitrator would be deemed · C
to be an umpire and not a third arbitrator. In the present case, admittedly both
the appellant and the respondent nominated their respective arbitrators and
such nominated arbitrators appointed Mr. Justice Rohatgi as the third arbitrator.
Thus submission is in view of the deeming clause, Mr. Justice Rohatgi's
appoint1nent cannot be construed as a third arbitrator but only as an umpire.
On the other hand, learned senior counsel for respondent Mr. K.K. Venugopal D
submits that the language used in the arbitration clause makes it abundantly
clear that the parties intended to have their dispute resolved through reference
.~ -r to the Arbitral Tribunal consisting of three arbitrators. In view of this the
reference of dispute would fall under sub-section (2) of Section of Sec.tion 10
and not under Section I 0(1 ). The submission is il1 order to find in which of E
the two fields, viz., of sub-sections (I) and (2) this case falls, the clear intent
of the parties as incorporated in the arbitration clause has to be read and if
the intention of the parties, as in the present case, is clear that the dispute
is to be resolved by the three arbitrators then the case would not fall under
sub-section (I) but would fall under sub-section (2) and thus High Court
committed no error in concluding the same. F
In order to further appreciate and adjudicate the issue involved we are
herewith reproducing below both Section I 0 of the aforesaisJ Act and Article
XVI of the arbitration clause of the aforesaid two agreements.
Section I 0 : G
"Provisions as to appointment of three or more arbitrators.--( I)
Where an arbitration agreement provides that a reference shall be to
·three arbitrators, one to be appointed by each party and the third by
the two appointed arbitrators, the agreement shall have effect as if it
provided for the appointment of an umpire, and not for the appointment H
890 SUPREME COURT REPORTS [200 I] 3 S.C.R.
A of a third arbitrator, by the two arbitrators appointed by the parties.
(2) Where an arbitration agreement provides that a reference shall ---\
be to three arbitrators to be appointed otherwise than <l;S mentioned
in sub-section ( 1), the award of the majority shall, unless the arbitration
agreement otherwise provides, prevail.
B
(3) Where an arbitration agreement provides for the appointment
of more arbitrators than three, the award of the majority, or if the
arbitrators are equally divided in their opinions, the. award of the
umpire shall, unless the arbitration agreement otherwise provides,
prevail."
c
Article XVI
"I. In the event of any dispute concerning the interpretation or
application of this Agreement, or concerning any rights or obligations
based on or relating to the Agreement, such disputes shall be referred
D to and finally settled by an arbitral tribunal.
2. If the parties agree to the appointment of a single ar~itrator the
arbitral tribunal shall consist of him alone.
3. If they do not so agree the arbitral tribunal shall consist of three
E arbitrators. Each party shall within a reasonable time appoint one of
the three arbitrators, and the two arbitrators so appointed shall appoint
the thi;d, who shall act as Chairman. Both parties shall do all in their
powers to expedite the arbitral process.
4. When the arbitral tribunal consists of more than one arbitrator
F its decision shall be given by a majority vote.
5. The arbitral tribunal shall settle its own procedure and if
necessary shall decide the law to be applied. The award shall include
directions concerning allocation of costs and expenses of and or
incidental to arbitration, including arbitrators' fees.
G
6. The award shall be final and conclusively binding upon the
parties."
We find that the field of operation of both sub-sections ( 1) and (2) of ~.,.
Section I 0 are separate and exclusive. Sub-section ( 1) is applicable in a case:
H (a) where an arbitration agreement provides that a reference is to the three
\ .
ETHIOPIAN AIRLINES v. STIC TRAVELS (P) LTD. [MISRA, J.] 891
arbitrators; (b) one to be appointed by each party and the third by the two A
. appointed arbitrators. If the case falls in this field, it further engraves a
deeming clause that such· appointed third arbitrator to be an umpire.
While the field of sub-section (2) is in a case, (a) where an arbitration
agreement provides for a reference to three arbitrators to be appointed
otherwise than as mentioned in sub-section (I), then the award of the majority ·B
shall prevail unless the arbitration agreement otherwise provide. Both these
two sub-sections speak about reference to three arbitrators. In order to find,
whether case falls under sub-section (I) or sub-section (2) it has to be found,
whether the appointment of the three arbitrators cou Id be said to be otherwise
than as mentioned in sub-section (I). The submission on behalfofthe appella.nt C
by Mr. Nariman is, the words, "otherwise than as mentioned in sub-section
(I)" refers to the method of appointment while submission for respondent by
Mr. Venugopal is, such an appointment in the present case is ~rwise than
as provided in sub-section (1), as appointment of the third umpire, namely,
Mr. Rohatgi was as an chairman, indicating the parties intended that the third
arbitrator could not be an umpire. D
Strong reliance is placed for the appellant in Ghasilal Tod(v. Biswanath
Kerwal & Ors., AIR ( 1964) Cal. 466. The submission is, the arbitration clause
in this case is similar to the one in the present case. For ready reference
relevant portion is reproduced below :
E
"That in case of any dispute arising out of this agreement or
during the continuance of this partnership business' b~tween the
parties the same will be decided by arbitration, each party will nominate
one persona and the persons so nominated will elect a third person
·as Chairman and the decision of the majority will be binding on the F
parties. The venue of the arbitration would be at the business office
or at any convenient place as may be agreement upon."
While interpreting sub-section (I) of Section IO the Court held:
"In the instant case the third arbitrator i.e., the Chairman is in law G
deemed to be the unpire. He will have tile same power and function
as that of an umpire. Law does not empower the parties to direct the
third arbitrator appointed in the manner indicated in Section IO(l) to
act as other than an umpire. He will have powers and functions as that
of an umpire. In that view of the matter, if the arbitration clause
provides for the appointment of a third arbitrator by the two arbitrators H'
892 SUPR.EME COURT REPORTS [200 I] 3 S.C.R.
A appointed by the parties, he, in law, is incompetent to sit along with "
the two others as a member of the board or arbitrators and decide the
disputes by a majority. He is the umpire, in law, and comes in the
picture only when the two arbitrators do not agree. The provision in
the contract that the majority will decide and that their decision is to
be final is contrary to the provisions of Section I 0(1) which is a
B mandatory provision and not merely directory ..... ".
In that case the Court was mainly called upon to decide, whether the
award by single arbitrator, in view of the aforesaid arbitration clause was valid
or not. Under the said arbitration clause, one party appointed an arbitrator
C while the other party could not appoint within the stipulated period and thus
question of appointment of third arbitrator never arose. The Court held award
by the single arbitrator would be valid. For this the Court relied in the case
of Merinos and Frangos ltd. v. Dulien Steel Products Inc. of Washington
reported in (I 961) 2 Lloyd's Rep 192. The aforesaid decision of Ghasilal
(supra) was not a case where two appointed arbitrators appointed the third
D arbitrator as in the present case and there no question was raised, whether
third appointed arbitrator could sit as a member of the Arbitral Tribunal along
with the other two arbitrators as that situation has not airsen. There it was
a case where only one arbitrator was appointed by one of the parties and the
limited question raised was, whether on the failure to appoint the arbitrator
E by the other party, in view of the said arbitration clause, could the award by
single arbitrator would be valid. In our considered opinion this decision could
in no way be ·said to be the decision deciding the periphery of the two fields
of sub-sections ( 1) and (2) in which the aforesaid two sub-sections operates.
This decision merely considered, whether award by one ·of the appointed
arbitrator would be valid. The question, whether the third appointed arbitrator
F would be an umpire or not was not in issue thus adjudication if any could
not be by the ratio decision of this case.
Reliance by the Calcutta High Court in the aforesaid case on the Marinos
& Frangos ltd. (supra) is also of no avial as there also issue was limited to
the question, whether the award by the single arbitrator could be valid in view
9 of similar arbitration clause. Within this limitation the court did interprets
Section 9 of the English Arbitration Act, 1950 (hereinafter referred to as "the
1950 Act") which is pari materia to Section I 0 of the aforesaid 1940 Act.
Hence we proceed to examine this case also in extenso. This case interpreted
clause 35 of the arbitration clause incorporated in the agreement between the
H parties with reference to Sections 7 and 9 of the 1950 Act. Clause 35 is quoted
.(
ETlllOl'IAN AIRLINES v. STIC TRAVELS(!') LTD. (MISRA, .I.] 893
hereunder : A
"35. Any and all differences and disputes ·of whatsoever nature
arising out of this charter shall be put to arbitration in the City of
London pursuant to the laws relating to arbitration there in force,
before a board of three persons consisting of one arbitrator, to be
appointed by the owners, one by the charterers and one by the two B
so chosen. The decision of any two of the three on any appoint or
points shall be final."
Sections 7 and 9 of the 1950 Act are also quoted hereunder :
"7. Where an arbitration agreement provides that the reference C
shall be to two arbitrators, one to be appointed by each party, then,
unless a contrary intention is expressed therein-
(a) if either of the appointed arbitrators refuses to act, or is
incapable of acting, or dies, the party who appointed him may appoint D
a new arbitrator in his place;
(b) if, on such a reference, one party fails to appoint an arbitrator,
either originally, or by way of substitution as aforesaid, either originally,
or by way of substitution as aforesaid, for seven clear days after the
other party, having appointed his arbitrator, has served the party E
making default with notice to make the appointment, !he party who
has appointed an arbitrator may appoint that arbitrator to act as sole
arbitrator in the reference and his award shall be binding on both
parties as if he had been appointed by consent.. ..
9. (I) Where an arbitration agreement provides that the reference F
shall be to three arbitrators, one to be appointed by each party and
the third to be appointed by the two appointed by the parties, the
agreement shall have effect as if it provided for the appointment of
an umpire, and not for the appointment of a third arbitrator, by the two
arbitrators appointed by the parties." G
We may first record here, this arbitration clause 35 is different than the
arbitration clause XVI in the present case. Clause 35 does neither contain that
the appointed third arbitrator to be the chairman nor it contains the condition
that the decision of such Arbitral Tribunal shall be by inajority vote. The
Queen's Bench held : H
894 SUPREME COURT REPORTS [200 I] 3 S.C.R.
A "Sect. 9( I) was mandatory and provided that where there was an
apparent reference to three arbitrators, the third was to. be treated as
an umpire, that the last sentence of Clause 35 was accordingly
overridden; that Clause 9( I) had the effect of bringing the agreement
back into Sect. 7 (as an arbitration agreement that the reference should
be to two arbitrators); and. that, when charterers failed to appoint a
B substitute arbitrator, S. had jurisdiction to act as sole arbitrator-
Order of Master reversed, shipowners being at liberty to enter judgment
in terms of award in their favour."
It is significant to refer to Section 8 also of the aforesaid 1950 Act which
C gives clear statutory intent of keeping in mind the arbitration agreement while
interpreting such provisions. Section 8 is quoted hereunder :
"8. (I) Unless a contrary intention is expressed therein, every
arbitration agreement shall, where the reference is to two arbitrators,
be deemed to include a provision that the two arbitrators shall appoint
D an umpire immediately after they are themselves appointed.
(2) Unless a contrary intention is expressed therein, every
arbitration agreement shall, where such a provision is applicable to
the reference, be deemed to include a provision that if the arbitrators
have delivered to any party to the arbitration have delivered to any
E party to the arbitration agreement, or to the umpire, a notice in writing
stating that they cannot agree, the umpire may forthwith enter on the
referen'ce in lieu of the arbitrators."
Section 8 starts \Mith the words "Unless a contrary intention is expressed
therein (in tl:1e arbitration agreement)'', so in the absence ·of any contrary
F intention in the agreement, where the reference is to the two arbitrators and
the two arbitrators appoint a third arbitrator _by virtue of the deeming clause
the third such appointed arbitration is to be the_umpire.
Firstly this statute takes care and gives precedence to the agreement of
G the parties by incorporating the words, "unless a c'?ntrary intention is
expressed therein" but the Court interpreted the provisions without examining
whether any contrary intention exists in the agreement, as it was neither
raised nor was a case there. This was also a case, where the two appointed
arbitrators of the parties did not appoint the third arbitrator and further after
one of the arbitrator died the party concerned did not renominate the arbitrator,
H hepce the question was, whether the award by the sole arbitrator is valid?.
ETHIOPIAN AIRLINES v. STIC TRAVELS (P) LTD. [MISRA, J.] 895
This case thus have no relevance nor has adjudicated the issue involved in A
the present case. The CalCutta High Court has merely relied on this decision
to uphold the award by the sole arbitrator to be valid.
One of the submissions on behalf of the respondent is that oot only
arbitration clause clearly reveals that parties intended that the dispute be
referred to the three arbitrators but the conduct of parties also reveals to the B
same effect. The proceedings went on before three arbitrators without
objection been raised. Reliance is placed on the order dated 16th September,
1995 when the aforesaid three member Tribunal directed both the parties to
obtain instructions from their respective clients and to state on the next date"
of hearing, whether they were prepared to refer the dispute to this Tribunal C
(three member Tribunal). And on the next date, i.e l st June, 1996 the said
Tribunal recorded the statements of the counsels for the parties which
consented for referring all the disputes to the said three member Tribunal. Not
only this consent is recorded, the parties continued to appear before the said
three member Tribunal right from 1995 till April 1998. In fact, the first objection
for the first time was raised after the appointment of Mr. Justice Anand in the D
year 1998. However, the submission for the appellant is that though the
proceedings continue but there was no effective proceeding except one effective
hearing on 17th January, 199.8 when affidavit dated 23.6.1997 of respondent
was treated as examination in-chief and he was cross examined. The submission
is that the plea of acquiescence is not sustainable because estoppel and E
acquiescence do not confer jurisdiction. Reliance is placed on Karna/
Improvement Trust v. Parkashwanti, (1995] 5 SCC 1559 at p. 172 para 22.
The submission of Mr. Nariman, in his usu3l eloquence as he does at
the first flash is impressive and attractive but on deeper examination it leads
to a different result. There could be no dispute, as submitted by him, in a case F
where two arbitrators are appointed by the two parties separately and the
third being appointed by the said two appQinted arbitrators the third arbitrator
in view of sub-section (I) of Section I 0 is to be construed as an umpire. But
the question still is, whether the arbitration clause in the present case, stipulates
appointment of third arbitrator as in sub-section (I) or his appointment could G
be said to be otherwise than as mentioned under sub-section (I) in terms of
•.
sub-section (2). In order to decipher and carve out separate field of the said
two sub-sections, the interpretation of arbitration clause is very significant.
If the appointment arbitrators under Section 10 (I) is an appointment simpliciter
~s contained in sub-section (I) then the appointment of third arbitrator is to
be read as an umpire but in a case where arbitration clause is clear and intends H
...
896 SUPREME COURT REPORTS [2001) 3 S.C.R. ,
A explicitly or implicitly, for reference of the dispute to the three arbitrators of
whom the third is to be the Chairman and award to be by majority, then this
clear intention is it to be place-d to fall under sub-section (2) and not under
sub-section (1). A deeming clause is introduced in sub-section (I) where
intention of the parties to the contrary are not clear then a third arbitrator is
deemed to be an umpire. It is because of this sub-section (2) refers to " .... the
B award of the majoriiy shalf' and further the words, "unless the arbitration
agreement otherwise provides" gives significant focus on intent of the
contracting parties which is the foundation of arbitration proceedings. This
is to satisfy the desired understanding of the agreement of the ,parties, who
0
desired to refer their dispute for adjudication to the desired arbitration tribunal.
C Thus a conjoint reading of both the said two sub-sections, makes it clear,
where an arbitration agreement provides simpliciter for a reference to an
arbitral tribunal consisting of three arbitrators one each appointed by parties
and the third by such appointed arbitrators then the appointment of such
third arbi~rator is to be treated as an umpire but where parties intentions are
clear, to be spelt out from the agreement that the parties intends their dispute
D to be decided by three arbitrators by majority, by such words such as that
the arbitrator is to be the chairman of such Tribunal, then the appointment
of such third members is to be construed to be an appointment otherwise than
as mentioned under sub-section (1 ). We find in the present case the clause
3 of the Article XVI of the agreement provides that the arbitral tribunal shall
E consist of three arbitrators. Each party to appoint one of the three arbitrators
and two arbitrators so appointed shall appoint the third who shall act as
Chairman.
When parties referred to third arbitrator to act as Chairman the intention
are very clear the chairman means who chairs a. Tribunal or who heads the
F Tribunal and not as an umpire. The function of u~pire only comes into play
when there is difference between two arbitrators. When there is no difference
umpire does not play any role. On the other hand, Chairman has to chair every
meeting of the Tribunal over which he has to chair. In the present case, he
has to chair the arbitral tribunal. In such a case could it be said that the
G appointment of the third arbitrator was simpliciter appointment of the third
arbitrator as contemplated under sub-section (I) of Section IO? In the present
case the words "who shall act as a Chairn1an" gives clear intention of the
pai1ies. The submission of Mr. Nariman mere change of nomenclature would.
make no difference cannot be accepted. It has to be examined by picking up )..__-
the intention of the parties out of totality of the words in the arbitration
H clause. Once parties clearly intends which could be culled out from the
.;i
-I.
' ETHIOPIAN AIRLINES v. STIC TRAVELS (P) LTD. LMISRA . .l.J 897
arbitration clause that the appointment of the third arbitrator is to function A
and chair the Tribunal tlien such chairman, the third appointed arbitrator is
to be interpreted to fall under sub-section (2). This intention in the said
arbitration clause is further reinforced by clause 4 of the aforesaid Article XVI,
where it gives clear intention of the parties where it provides, in a case arbitral
tribunal consists of more than one arbitrator its decision shall be given by
a majority vote. This word 'majority' is to be found in sub-section (2) and not B
in sub-section (I). Thus after considering the submission on behalf of both
the parties, we have no hesitation to come to the conclusion that the
appointment of the third arbitrator in the present case is an appointment,
otherwise than as mentioned in sub-section (1). Thus the present case would
falls under sub-section (2) of Section I 0. C
Mr. Nariman further submits, so long the arbitration clause in an
agreement is not superseded by a fresh agreement, the statutory consequences
provided in Section 10 (1) would continue to flow notwithstanding the consent
of the parties, as recorded on the I st June, 1996. He submits it is not even
the respondent case of any supersession of the arbitration clause in view of D
what is recorded by the arbitrators on the 1st June, 1996. To reinforce this
he referred to the various extensions sought by the parties for making an
award within time even after I st June, 1996 based on the extension of time
for the Tribunal constituted in the year 1995. The submission to this extend
cannot be discredited that parties accepted the continuance of originally E
constituted Tribunal and no fresh Tribunal came into existence on the 1st
June, 1996. This submission need not take us long to decide as learned
counsel for the respondent very clearly accepted that he is not relying on
what is recorded on the I st June, 1996 to be a fresh agreement. Submission
for the respondent is, what is recorded on the I st June, 1996 by the respective
counsels is in consonance with the stand taken by the respondent, viz., both F
the parties understood Clause XVI of ·the agreement to be that that the
reference to the arbitral Tribunal is to be one which consists of three arbitrators
and not that the third arbitrator to be an umpire. This submission has .merit
and would make no difference even if the submission of Mr. Nariman is
accepted. None of the paities understood the constitution ,C>f fresh Tribunal G
from I st June, 1996. It is not in doubt that since the constitution of the three-
member tribunal in the year 1995 till about April, 1998 including the proceeding
on 17th January, 1998, when the appellant cross-examined the deponent who
sworn the affidavit dated 23rd June, 1997 for the respondent, the proceedings
continued before the three-member tribunal. Every date all the three members
sat. This is without entering into the dispute, whether any effective date, H
898 SUPREME COURT REPORTS [200 I] 3 S.C.R.
A except the aforesaid one date, was there or not. It can be said, even for the
miscellaneous purposes the parties were appearing on the various dates
before the three-member tribunal without raising any objections.
One of the submissions for respondent is that the appellant acquiesced
by presenting itself before the three-member tribunal on large number of date
B for a period of three years hence is stopped from raising any such dispute ·
that constitutionof Tribunal was not valid. Reliance is placed in Neelakantdan
& Bros. Cohst; v. Suptd. Engineers, [1998] 4 SCC 462; Mis. Construction
India v. Secreta1y, Works Dept., [1998] 2 SCC 89; M.K. Shah Engineers &
Contractors v. State of M.P., [1999] 2 sec 594 and f>raszm Roy V. Calcutta"
C MDA, [ 1987] 4 SCC 217. The first three cases are where objection is raised
after making o( the award. The last case is where objection is prior to the
making of an award, based on allegation of bias of the arbitrator. On the other
"·hand Mr. Nariman submits that the plea of acquiescence is not sustainable
because estoppel and acquiesc'ence do not confer jurisdiction reliance is on
Karna! Improvement Trust v. Parkashwanti, [ 1995] 5 SCC 159 at 172 para T2.
D He further submits acquiescene cannot bring in a change of legal status
relying on Sha Mulchand Co. v. Jawahar Mills ltd., [l 953] SCR 351. Having
considered this submissions on this point, we feel, it is not necessary for us
to adjudicate it as we have already concluded by interpreting the arbitration
clause that the parties intended that their dispute be referred to the arbitral
E tribunal consisting of three arbitrators. We have also held that the conduct
of the parties also indicates to the same effect which is also indicated by their
conduct when they proceeded to appear before the three-member tribunal for
a long p~riod without raising any objection.
··in-view-of the aforesaid finding,_the ancillary question raised through
F letter dated 25th December, 1998 by the,counsel for the appellant, regarding
appointment of a fresh chairman after the appointment of Mr. Justice H.L.
Anand has no merit for acceptance. If the Tribunal consisted of three member,
as we have interpreted it so.as to fall under sub-section (2) of Section 10, then
even if one of the arbitrators nominated by the party is incapacitated or dies
G and. is later substituted, would not give fresh right to such two arbitrators
appointed by the partie~, to appoint a fresh chairman. Appointed chairman ·
by the said two arbitrators does not fall because of the substitution of 01ie
of the nominated arbitrator on account of death or incapacitation of one of
the such nominated arbitrator. We may record here, Justice H,L. Anand opinion
about the validity of the Arbitral Tribunal consisting of three members, -in
H view of Section 10 (I), did require consideration. However, in view of the
ETHIOPl/\N AIRLINES v. STIC TRAYlcLS (P) LTD. jMISRA • .1.J 899
findings recorded by us this controversy stands settled. A
For the aforesaid reasons, we have no hesitation to uphold the impugned
judgment and order of the High Cou11 which holds arbitral tribunal consists
of three members Justice Avadh Behari Rohatgi to be the chairman along with
Mr. Justice H.L. Anand (Retd.) and Mr. C.S. Aggarwal, Advocate as other two
members. The High Court further rightly held while interpreting arbitration B
clause XVI contained in the aforesaid two agreements that it falls under sub-
section (2) of Section I 0. For the aforesaid reasons we dismiss the present
appeal with costs on the parties.
S.VK Appeal dismissed. C
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