Holding

Section 15(2) does not apply where an arbitrator merely refuses to act; the arbitrator's mandate is not terminated, so no substitute arbitrator can be appointed and the other party's arbitrator becomes the sole arbitrator.

Summary

The dispute arose from a subcontract for a hydroelectric project where the appellant sought payment from respondent No.1 and invoked an arbitration clause. The appellant appointed an arbitrator, while respondent No.1 appointed Huddar, who declined to act. Respondent No.1 then appointed a substitute arbitrator under Section 15(2) of the Arbitration and Conciliation Act, 1996, and the Designated Judge appointed a third arbitrator. The Supreme Court held that Huddar's refusal did not terminate his mandate, so Section 15(2) was inapplicable; the arbitrator appointed by the appellant became the sole arbitrator, and the Designated Judge erred in appointing a third arbitrator. Consequently, the orders appointing the third arbitrator were set aside and the appeal allowed.

Issues considered

Whether Section 15(2) of the Arbitration and Conciliation Act, 1996 applies when an arbitrator appointed by a party refuses to accept the appointment.
Whether the Designated Judge was empowered to appoint a third arbitrator under Section 11(6) in such circumstances.
Interpretation of the terms 'refuse' and 'withdraw' under Section 15(1) and their impact on the termination of an arbitrator's mandate.
Whether the parties' arbitration agreement (Clause 19) provides for the appointment of a substitute arbitrator upon refusal.
Whether the order appointing the third arbitrator is a judicial or administrative act.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11(6), s. 13, s. 14, s. 15(1), s. 15(2)

Subjects

ArbitrationSubstitute arbitratorSection 15Refusal vs withdrawalAppointment of arbitratorsDesignated JudgeJudicial vs administrative powerArbitration agreementSole arbitrator

Judgment

[2009] 15 (ADDL.) S.C.R. 340

~
A MIS. S.B.P. & CO.
v.
MIS. PATEL ENGINEERING LTD. & ANR.
(Civil Appeal No. 4168 of 2003 etc.) J.
OCTOBER 21, 2009
B
[G.S. SINGHVI AND DR. B.S. CHAUHAN, JJ.]
~-

Arbitration and Conciliation Act, 1996 - s. 15(2) -
Appointment of arbitrators by the respective parties to the
c dispute - Arbitrator appointed by one party refusing to act as
such - Party appointing substitute arbitrator in his place u/
s. 15(2) - Other party denying applicability of s. 15(2) and
~
claiming the case to be qecided by sole arbitrator -
Designate Judge appointing third arbitrator- On appeal, held,: f~
D Designated Judge was not correct in appointing third arbitrator
- Appointment of the substitute arbitrator was not in
accordance with law - s. 15(2) is not applicable as the
arbitrator 'refused' to act as arbitrator and had not 'withdrawn'
from the office of arbitrator - The arbitrator appointed by one
E of the parties, is entitled to act as sole arbitrator.
Words and Phrases:
~ ~

'Rules' - Meaning of

F 'Refuse' and 'Withdraw' - Meaning of and distinction
between.

State Government awarded a contract to respondent
No. 1 in respect of a project. Respondent No. 1 sub-
contracted a portion of that work to the appellant. The
G parties entered into sub-contract agreement and piece ~
work agreement.

After dispute between the parties to the main
contract, in arbitration proceedings, State Government
H 340
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING 341
LTD. & ANR.
was directed to pay an amount to respondent No. 1 and A
the same was paid by the Government.
- f

Appellant demanded respondent No. 1, to pay the
amount allegedly due to them, but the same was not
complied with by respondent No.1. Appellants invoked
8
arbitration clause and appointed respondent No. 2 as an
arbitrator on their behalf. Respondent No. 1 appointed 'H'
as an arbitrator on its behalf. 'H' denied to arbitrate in the
matter. Thereafter respondent No. 1 appointed another
-I'
person 'J' as an arbitrator and informed respondent No.
2 that a substitute arbitrator in place of 'H' was appointed
c
in terms of s. 15(2) of Arbitration and Conciliation Act,
1996. Appellant informed respondent No. 1 that
appointment of substitute arbitrator was contrary to the
terms of sub-contract agreement and piece work
agreement. 'J' sent letter to respondent No. 2 suggesting D
~
names, for appointment of Presiding (third) Arbitrator.
Respondent No. 2 claimed that s. 15(2) having no
application to the case, he was entitled to work as sole
arbitrator.
E
Respondent No. 1 filed application uls. 11 of the Act
for appointment of third arbitrator. High Court appointed

. ..,_
the third arbitrator. Writ petitions were filed challenging
the order of Designate Judge. Division Bench of High
Court, relying on Constitution Bench Judgment in Konkan F
- Railway case, held that writ petitions challenging order of
Designate Judge were not maintainable, the order being
administrative in nature. Hence the present appeals.

The appeals were referred to Seven Judges Bench
of this Court for reconsidering the Constitution Bench G
judgment in Konkan Railway case. Seven Judges Bench,
by majority, overruled the judgment in Konkar Railway
case, holding that the power exercised by the Chief
Justice of High Court or the Chief Justice of India u/s.
11 (6) is a judicial power and is not administrative in H
342 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A nature; and that such order can be challenged onl.y
under Article 136 of the Constitution of India. ~
-
The question for consideration in the present
appeals, after the judgment of Seven Judges Bench was,
B
whether the orders by Designate Judge appointing third .
Arbitrator was legally correct.

~llowing the appeals, the Court

HELD: 1. The legislature has repeatedly laid 'I-

c emphasis on the necessity of adherence to the terms of
agreement between the parties in the matter of
appointment of arbitrators and procedure· to be followed
for such appointment. Even Section 15(2) of Arbitration
and Conciliation Act, 1996, which regulates appointment
0 of a substitute arbitrator, requires that such an
..
appointment she1ll be made according to the rules which +...
were applicable to the appointment of an original
arbitrator. The term 'rules' used in this sub-section is not
confined to statutory rules or the rules framed by the
competent authority in exercise of the power of delegated
--
E
legislation but also includes the terms of agreement
entered into between the parties. [Para 16) [361-B-F]

Datar Switchgears Ltd. v. Tata Finance Ltd. and Anr.
(2000) 8 SCC 151; Northern Railway Admn., Ministry of
., ~

F Railway, New Delhi v. Patel Engineering Company Ltd. 2008
-
(11) SCALE 500; Union of India v. Mis. Singh Builders
Syndicate 2009(4) SCALE 491, relied on

ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum
Corpn. Ltd. (2007) 5 SCC 304; Union of India v. Bharat
G
Battery Mfg. Co. (P) Ltd. 2007 (7) SCC 684, referred to.

2. There is nothing in the arbitral clause of piece
work agreement from which it can be inferred that in the
event of refusal of an arbitrator to accept the appointment
H
MIS. S.B.P. & CO. v. MIS. PATEL ENGINEERING 343
LTD. & ANR.
or arbitrate in the matter, the party appointing such A

- arbitrator has an implicit right to appoint a substitute·
arbitrator. Thus, in terms of the agreement entered into
between the parties, respondent No.1 could n~t appoint
a substitute arbitrator simply because the person earlier
appointed as arbitrator declined to accept the B
appointment as an arbitrator. The only consequence of
his refusal to act as an arbitrator on behalf of respondent
No.1 was that respondent No.2 who was appointed as an
arbitrator by the appellants became the Sole Arbitrator for
deciding the disputes or differences between the parties. c
[Para 20] (367-A-C]

3. The Designate Judge appointed the third arbitrator

- because he was of the view that in terms of Section 15(2),
a substitute arbitrator could be appointed where the
mandate of an already appointed arbitrator terminates. In D
taking that view, the Designate Judge failed to notice that
Section 15(1) provides for termination of the mandate of
arbitrator where he withdraws from office for any reason
or by or pursuant to agreement of the parties and not
where the arbitrator appointed by either party declines to E
accept the appointment or refuses to act as such and that
the term 'rules' appearing in Section 15(2) takes within its
fold not only the statutory rules, but also the terms of .

-
agreement entered into between the parties. [Para 21]
(367-D-F] F

4. The meanings of the two words i.e. 'refuse' and
'withdraw' bring out sharp distinction between them.
While the word 'refuse' denotes a situation before
acceptance of an invitation, offer, office, position, privilege G
and the like, the word 'withdraw' means to retract, retire
or retreat from a place, position or situation after
acceptance thereof. Therefore, Section 15(2) of the Act
does not per se apply to a case where an arbitrator
appointed by a party to the agreement declines to accept H
344 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A the appointment or refuses to arbitrate in the matter. In a
given case, refusal to act on the arbitrator's part can be
inferred after he has entered upon arbitration. by giving
consent to the nomination made by either party to the
- \

agreement. [Para 23] [368-0-F]
B
P. Ramanatha Aiyar's Advanced Law Lexicon (Third
Edition 2005); Century Dictionary; New Oxford Illustrated
Dictionary, Volume II, p.1421 The Law Lexicon (Third
Edition, 2005); Black's Law Dictionary (Eighth Edition, ....
p.1632); New Oxford Illustrated Dictionary (Volume II,
c p.1894), referred to.

5. In the present case, the arbitrator appointed by
respondent No.1, declined to accept the appointment/
arbitrate in the matter, on the ground that in his capacity·
D as Superintending Engineer and Chief Engineer, he was
associated with the project in question, implying thereby t-
that he may not be able to objectively examine the claims
-
of the parties or the other party may question his
impartiality. He did not enter upon the arbitration.
E Therefore, there was no question of his withdrawing from
the office of arbitrator so as to enable respondent No.1
to appoint a substitute arbitrator. In any case, in the
absence of a clear stipulation to that effect in the
agreements, respondent No.1 could not have appointed -~. I
F a substitute arbitrator and the Designate Judge gravely
F
erred in appointing the third arbitrator by presuming that
,\
the appointment of' J' was in accordance with law. [Para
24] (368-G-H; 369-A-B] >---

Yashwith Constructions (P) Ltd. v. Simplex Concrete •
G Piles India Ltd. (2006) 6 SCC 204, held inapplicable.
Case Law Reference : ~· ...
(2005) 8 sec 618 Referred to. Para 16

H (2006) s sec 204 Relied on. Para 16
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING 345
LTD. & ANR.

(2000) 8 sec 151 Relied on. Para 17 A

2008 (11) SCALE 500 Relied on. Para 18

(2007) s sec 304 Referred to. Para 18

(2001) 1 sec 684 Referred to. Para 18 B
2009(4) SCALE 491 Relied on. Para 19

(2006) 6 sec 204 Held inapplicable. Para 25
-f
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
4168 of 2003. c
From the Judgment and order dated 03.02.2003 of the
High Court of Judicature at Bombay in Writ Petition No. 21 of
2003.
D
-~ WITH

Civil Appeal No. 4169 of 2003.

K.K. Venugopat, Amit Sharma, Suchit Mohanty, Ankur T.
and Anupam Lal Das, for the Appellant. E
Dushyant Dave, Mustafa D., Banoo Kapadia, Surekha
Raman and Angely Anid (for K.J. John & Co.), for the
..., " Respondents .

The Judgment of the Court was delivered by F

G.S. SINGHVI, J. 1. In compliance of the direction given
by seven-Judge Bench in S.B.P. & Company v. Patel
Engineering Ltd. and another (2005) 8 SCC 618, these
appeals have been listed for disposal in the light of the G
principles laid down in that judgment.

2. In the special leave petitions, out of which these appeals
arise, the appellants had challenged orders dated 3.2.2003
passed by the Division Bench of the Bombay High Court
H
346 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A whereby it held that the writ petitions filed against the orders
passed by the learned designated Judge of that Court ~
appointing Shri Justice M.N. Chandurkar (Retired) as the third
arbitrator for resolution of the disputes between the appellants
and respondent No.1 are not maintainable. For this purpose,
,•
8 the Division Bench relied upon the judgment of this Court in
Konkan Railway Corporation Ltd. and others v. Mehul
Construction Company (2000) 7 SCC 201, which was
subsequently approved by a Constitution Bench in Konkan
Railway Corporation Ltd. and another v. Rani Construction 1-

c Pvt. Ltd. (2002) 2 SCC 388. The ratio of the Constitution Bench
judgment was that the power exercised by the Chief Justice or
any person or institution designated by him under Section 11 (6)
of the Arbitration and Conciliation Act, 1996 (for short, 'the Act')
is purely administrative and the measures taken under that
section are not open to be challenged by the aggrieved party
D
by resorting to intermediary proceedings. The judgment of the ~-
Constitution Bench was overruled by the seven-Judge Bench
in S.B.P. & Company v. Patel Engineering Ltd. and another
(supra) and it was held that the power exercised by the Chief
Justice of the High Court or the Chief Justice of India under
E Section 11 (6) of the Act is a judicial power and not an
administrative power and further that an order passed by the
Chief Justice of the High Court or by the designated Judge of
that Court can be challenged only under Article 136 of the
Constitution. " ,,..
F
3. After the judgment of the larger Bench, the appellants
filed I.A. Nos. 1 and 2 of 2006 for leave to amend· the
memorandums of appeal so as to enable them to make a
prayer for setting aside orders dated 18.11.2002 passed by
G the learned designated Judge of the High Court in Arbitration
Application Nos. 114 of 2002 and 90 of 2002. At the
commencement of hearing of the appeals on 6.10.2009, the ~-
prayer of the appellants was granted.

4. In the light of the above, we shall now consider whether
H
•
"

MIS. S.B.P. & CO. v. MIS. PATEL ENGINEERING 347
LTD. & ANR. [G.S. SINGHVI, J.]
orders dated 18.11.2002 passed by the learned designated A
1 Judge of the Bombay High Court under Section 11 (6) of the
Act appointing Shri Justice M.N. Chandurkar (Retired) as third
arbitrator is legally correct.

Background facts
8
5. In March, 1992, the Government of Maharashtra
. awarded contract to respondent No.1 for execution of works
relating to Stage IV of the Koyna Hydroelectric Project.
-y
Respondent No.1 sub-contracted a portion of that work i.e.,
construction of civil works from Lake Intake to Emergency c
Valve Tunnel- K.H.E.P. Stage IV-1.C.B. No.1 to the appellant
and Mis. 8.T. Patil & Sons (Construction) Ltd., Belgaum (herein
after de.scribed as "B.T. Patil & Sons"). For this purpose, the
parties entered into two agreements on 15.10.1992 viz., sub-
contract agreement and piece work agreement. Both the D
-~ agreements contained identical clauses for resolution of
disputes and differences between the parties by arbitration. For
the sake of convenient reference, Clause 19 of the piece work
agreement is reproduced below:
E
"The continuance of this piece work agreement I contract
or at any time after the termination thereof, any difference
or dispute shall arise between the parties hereto in regard
...... .. to the interpretation of any of the provisions herein
contained or act or thing in relation to this agreement I
contract, such diffe·rence or dispute shall be forthwith F
referred to two Arbitrators for Arbitration in Bombay one
to be appointed by each party with liberty to the Arbitrators
in case of differences or their failure to reach an
agreement within one. month of the appointment, to appoint
an umpire residing in Bombay and the award which shall G
be made by two Arbitr21tors or umpire as the case may be
. --,1
shall be final, conclusive and binding on the parties hereto .

If either party to the difference or dispute shall fail to appoint
an arbitrator within 30 calendar days after notice in writing H
348 SUPREME COURT REPORTS (2009] 15 (ADDL.) S.C.R.

A having been given by the parties or shall appoint an
arbitrator who shall refuse to act then the arbitrator
appointed by the other party shall be entitled to proceed \
with the reference as a Sole Arbitrator and to make final
decision on such difference or dispute and the award
B made as a result of such arbitration shall be a condition
precedent to any right of action against any two parties
hereto in respect of any such difference and dispute."

(emphasis added)
y
c , 6. In October 1996, _some disputes and differences arose
between the Government of Maharashtra and respondent No.1
with regard to contract dated 10.3.1992. The panel of three
arbitrators appointed by the parties passed unanimous awards
on 11.2.2000 requiring the State Government to pay
D Rs.24,09,25,965/- to respondent No.1. The State Government
challenged those awards but, later on, withdrew its challenge ,_
and paid the amount to respondent No.1.

7. On 3.7.2001, the appellants through their power of
attorney holder, Balasaheb B. Patil served a notice upon
E
respondent No.1 requiring it to pay the amount allegedly due
to them, but the latter did not comply with their demand. After
three months, the appellants invoked the arbitration clauses
enshrined in the sub-contract agreement and piece work ,..
\
agreement and issued .letter dated 3.10.2001 appointing Shri
F T.G. Radhakrishna (retired Chief Engineer) (respondent No.2
herein) as an arbitrator on their behalf. In its response dated
1.11 ·.2001, respondent No.1 denie.d the claim of the appellants
and; at the same time, appoint~d Shri S.N. Huddar, Joint
Secretary, Irrigation Department, Government of Maharashtra
G as an arbitrator on its behalf. However, vide letter dated
1.2.2002, Shri Huddar declined to arbitrate in the matter by
stating that he had remained associated with Kyona Project as ~
J

Superintending Engineer and Chief Engineer. Thereafter,
respondent No.1 sent letter dated 26.2.2002 to Shri S.L. Jain
H of S & S Consultants, Bhopal with the request to act as an
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING 349
LTD. & ANR. [G.S. SINGHVI, J.]
,, arbitrator on its behalf. Shri Jain communicated his consent A
vide letter dated 27.2.2002. On the same day, respondent No.1
informed respondent No.2 that in terms of Section 15(2) of the
Act, it was entitled to appoint a substitute in place of Shri S.N.
Huddar and had, in fact, appointed Shri S.L. Jain as an
arbitrator and the latter had consent~d to such an appointment. B
On 7.3.2002, the power of attorney holder of the appellants
informed respondent No.1 that appointment of Shri S.L. Jain
~r
as replac.ement arbitrator is contrary to the terms of sub-contract
agreement and piece work agreement.

8. In the meanwhile, power of attorney holder of the
c
appellants sent letter dated 22.1.2002 to respondent No.2 and
Shri S.N. Huddar requesting them to appoint the third arbitrator.
On his part, respondent No.2 suo motu sent letter dated
~-\ 21.2.2002 informing the parties that in view of Shri Huddar's
refusal to act as an arbitrator on behalf of respondent No.1, he D
had become the Sole Arbitrator and asked them to appear at
Mumbai for a preliminary meeting.

9. After his appointment as an arbitrator on behalf of
respondent No.1, Shri S.L. Jain sent letter dated 11.3.2002 to E
respondent No.2 and suggested the names of three retired
,.., 1
Bombay High Court judges for appointment as Presiding
Arbitrator. In his reply dated 25.3.2002, respondent No.2
claimed that Section 15(2) of the Act has no application in the
case and that in terms of Clause 18 of the sub-contract F
agreement and Clause 19 of the piece work agreement, he was
entitled to act as the Sole Arbitrator.

10. At that stage, respondent No.1 filed Arbitration
Application Nos.114 of 2002 and 90 of 2002 under Section 11
of the Act for appointment of the third arbitrator by asserting G
~
that in view of refusal of Shri S.N. Huddar to act as an arbitrator,
it had appointed Shri S. L. Jain as a substitute arbitrator in
terms of Section 15(2) of the Act and in that view of the matter
respondent No.2 was not entitled to act as the Sole Arbitrator.
The designated Judge of the Bombay High Court allowed both H
f
L

350 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A the applications and appointed Shri Justice M.N. Chandurkar
(Retired) as the third arbitrator. The learned designated Judge "
noticed the arguments made on behalf of the parties, the
provisions of Section 15 of the Act and observed:-

"Section 15 is a new provision. Sub-section (1) and (2)
B
thereof correspond to Article 155 of the UNCITRAL model
Law. Sub-section (2) of section 15 provides that where the
mandate of arbitrator is terminated, a substitute arbitrator y
shall be appointed according to the rules that were
applicable to the appointment of the arbitrator being
c replaced. Thus the Legislature clearly intended that upon
termination of the mandate of an arbitrator, a substitute
arbitrator shall be appointed in accordance with the same
rules as were applicable to the appointment of the original
arbitrator. Therefore the arbitrator appointed by the other +~
D party is not entitled to act as the sole arbitrator in view of
this clear language of section 15(2). This can be
compared to the old provision of section 9 of the 1940 Act
providing that unless a different intention is expressed in
the agreement the court has power to appoint a new
E arbitrator. The words used in sub-section (2) of section 15
do not admit of any such exception.
b-
,,..
The decisions relied upon by Dr. Tulzapurkar have no ~

application to the facts of the present case. In Datar
F Switchgears Ltd. v. Tata Finance Ltd. and Anr. while
construing section 11 (6) of the 1996 Act, the court held that
if one party demands the opposite party to appoint an
arbitrator and the opposite party does not make an
appointment within 30 days of demand being made by the
other party, the right to make the appointment does not get
G
automatically forfeited after expiry of 30 days. If the
\---
opposite party makes an appointment even after 30 days
of the demand, but before the first party has moved the
court under section 11, that would be sufficient. Only then
the right of the opposite party ceases. It is in this context
H
M/S. S.B.P. & CO. v. M/S. PATEL ENGINEERING 351
~I LTD. & ANR. [G.S. SINGHVI, J.]

--1 that the court observed in para 23 that "when parties have A
entered into a contract and settled on a procedure, due
-<. importance has to be given to such procedure even though
rigor of the doctrine of ·Freedom of contract' has been
whittled down by various labour and special welfare
legislation, still the court has to respect the terms of the B
contract entered into by parties and endeavour to give
importance and effect to it When the party has not disputed
,,.. -t the arbitration clause, normally he is bound by it and
obliged to comply with the procedure laid down under the
said clause". This case has no bearing on the issue c
involved in the instant case.
""'
The other case cited by Dr. Tulzapurkar in Open"S~a
Maritimes Inc. v. R. Pyarelal International Pvt. Ltd. is
distinguishable on facts. In that case respondents had failed
-- ~
to make appointment of an arbitrator even after the notice D
period. The court held that if the party fails to appoint an
arbitrator even after the notice then the Arbitrator
appointed by the other party can act a sole arbitrator and
pass the award. The court referred to clause 24 of the
agreement between the parties which provide that if the E
other party fails to appoint an arbitrator in spite of the
notice, the arbitrator appointed shall be entitled to act as
~
t the sole arbitrator as such procedure was agreed upon
'
between the parties. The case before Patankar J. was
under Part II of the Act. In the instant case, in view of the F
provisions contained in section 15(2) of the Act, upon
withdrawal of the arbitrator Shri Huddar the petitioners had
right to appoint a new arbitrator as per the Rules that were
• applicable to appointment of arbitrator."
G
11. The appellants challenged the orders of the learned
'"''-1 designated Judge in two separate writ petitions, but could not
persuade the Division Bench of the High Court to entertain their
prayer for nullifying the appointment of Shri Justice M.N.
Chandurkar as the third arbitrator. The Division Bench referred
H
352 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A to the judgments of this Court in Konkan Railway Corporation
1-
Ltd. and others v. Mehul Construction Company (supra) and
Konkan Railway Corporation Ltd. and another. v. Rani
Construction Pvt. Ltd. (supra), and held that the writ petitions
are not maintainable against the orders passed by the
B designated Judge, which were administrative in nature.
However, liberty was given to the appellants to raise the issue
relating to appointment of the third arbitrator before the Arbitral
Tribunal.
" ....
12. The Constitution Bench, which heard the special leave
c petitions filed by the appellants against the orders of the High
Court, opined that the judgment rendered by an earlier
Constitution Bench in Konkan Railway Corporation Ltd. and
another v. Rani Construction Pvt. Ltd. (supra), may require
reconsideration and directed that the matter be placed before
D 1~
a larger Bench. Thereafter, the cases were heard by a seven-
Judge Bench. By majority judgment, the larger Bench overruled
the Constitution Bench judgment in Konkan Railway
Corporation Ltd. v. Rani Construction Pvt. Ltd. (supra), and
held that the power exercised by the Chief Justice of the High
E Court or the Chief Justice of India under Section 11 (6) of the
Act is a judicial power and not an administrative power and that
I.
an order passed by the Chief Justice of the High Court or by
the designated Judge of that High Cou~ is appealable under ·t ....
Article 136 of the Constitution. The conclusions of the majority
F are contained iri paragraph 47 of the judgment, the .relevant
portions of which are extracted below:

"47. We, therefore, sum up our conclusions as follows:

(i) The power exercised by the Chief Justice of the High
G .Court or the Chief Justice of India under Section 11 (6) of
the Act is not an administrative power. It is a judicial ~
,.
power. 1--

(ii) .The power under Section 11 (6) of the Act, in its entirety,
H could be delegated, by the Chief Justice of the High Court
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING 353
LTD. & ANR. [G.S. SINGHVI, J.]

only to another Judge of that Court and by the Chief A
-+
Justice of India to another Judge of the Supreme Court.

(iii) In case of designation of a Judge of the High Court or
of the Supreme Court, the power that is exercised by the
designated Judge would be that of the Chief Justice as
B
conferred by the statute.

(iv) The Chief Justice or the designated Judge will have
/' "f the right to decide the preliminary aspects as indicated in
the earlier part of this judgment. These will be his own
jurisdiction to entertain the request, the existence of a valid c
arbitration agreement, the existence or otherwise of a live
claim, the existence of the condition for the exercise of his
power and on the qualifications of the arbitrator or
arbitrators. The Chief Justice or the designated Judge
,,.._ t would be entitled to seek the opinion of an institution in the D
matter of nominating an arbitrator qualified in terms of
Section 11 (8) of the Act if the need arises but the order
appointing the arbitrator could only be that of the Chief
Justice or the designated Judge.
E
(v) xxxx xxxx xxxx

(vi) Once the matter reaches the Arbitral Tribunal or the
,., 1
sole arbitrator, the High Court would not interfere with the
orders passed by the arbitrator or the· Arbitral Tribunal
during the course of the arbitration proceedings and the F
parties could approach the Court only in terms of Section
37 of the Act or in terms of Section 34 of the Act.

(vii) Since an order passed by the Chief Justice of the High
Court or by the designated Judge of that Court is a judicial G
order, an appeal will lie against that order only under Article
.... ~ 136 of the Constitution to the Supreme Court.

(viii). xxxx xxxx xxxx

(ix) In a case where an Arbitral Tribunal has been H
354 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A constituted by the parties without having recourse to
Section 11 (6) of the Act, the Arbitral Tribunal will have the
jurisdiction to decide all matters as contemplated by
Section 16 of the Act.

B
(x) xxxx xxxx xxxx

(xi) xxxx xxxx xxxx
--
~

\
(xii) The decision in Konkan Rly. Corpn. Ltd. v. Rani
Construction (P) Ltd. is overruled."
,. ' '
)Ill
c Arguments
'
1
~

13. Shri K.K. Venugopal, learned senior counsel
appearing for the appellants argued that the arbitration clauses
contained in the two agreements are binding on the parties and
D in view of refusal of Shri S.N. Huddar to act as an arbitrator on -1 ~ '•
behalf of respondent No.1, the arbitrator appointed by the
appellants i.e., respondent No.2 became the Sole Arbitrator
and as such the learned designated Judge did not have the
jurisdiction, power or authority to appoint the third arbitrator.
E Shri Venugopal emphasized that the appointment of Shri S.L.
Jain as a substitute arbitrator was legally impermissible
because there is no provision in the arbitration clauses for
appointment of a substitute arbitrator. Learned senior counsel
argued that the provision contained in Section 15(2) of the Act
F can be invoked for appointment of a substitute arbitrator only
if the mandate of an arbitrator gets terminated on account of
his withdrawal from office or by or pursuant to an agreement
of the parties and not in a case where the arbitrator appointed C"
v
I
by either party refuses to act as such and, in any case, the
G provision contained in that section cannot be invoked for
nullifying the agreement between the parties which does not
provide for appointment of a substitute arbitrator. In support of
his arguments, Shri Venugopal relied upon the judgments in
S.B.P. & Company v. Patel Engineering Limited and another
H (supra), ACE Pipeline Contracts (P) Ltd. v. Bharat Petroleum
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING 355
LTD. & ANR. [G.S. SINGHVI, J.]
Corpn. Ltd. (2007) 5 SCC 304, Northern Railway Admn., A
....,.,. --t Ministry of Railway, New Delhi v. Patel Engineering Company
Ltd. 2008 (11) SCALE 500 and Union of India v. Mis. Singh
Builders Syndicate 2009(4) SCALE 491.

14. Shri Dushyant Dave, learned senior counsel appearing
B
for respondent No.1, invited our attention to letter dated
1.2.2002 written by Shri S.N. Huddar expressing his inability
to act as an arbitrator and argued that his client did not commit
. ,,, '1 any illegality by appointing Shri S.L. Jain as a substitute
arbitrator. Shri Dave submitted that the appointment of an
arbitrator becomes effective only after he consents for the same
c
and if he refuses to accept the appointment, the party
appointing such person as an arbitrator has the freedom to
appoint another arbitrator, even though there may not be any
express provision to that effect in the agreement. In support of
this argument, Shri Dave relied upon the judgment of this Court D
- ~
in Yashwith Constructions (P) Ltd. v. Simplex Concrete Piles
India Ltd. (2006) 6 SCC 204. Shri Dave further argued that in
~-
view of the plain language of Section 15, respondent No.1 had
the right to appoint a substitute arbitrator and respondent No.2
could not act as the Sole Arbitrator merely because Shri S.N. E
Huddar who was originally appointed as an arbitrator on behalf
of respondent No.1 refused to accept the appointment. Shri
~
Dave submitted that learned designated Judge of the High
Court did not commit any error by appointing the third arbitrator
because respondent No.2 did not agree to the suggestion of F
Shri S.L. Jain to appoint third arbitrator from the panel of three
retired Judges of the High Court.

Relevant ~rovisions of the Act and their anal~sis

11. Appointment of arbitrators.- (1) A person of any G
nationality may be an arbitrator, unless otherwise agreed
.......; by the parties.

(2) Subject to sub-section (6), the parties are free to agree
on a procedure for appointing the arbitrator or arbitrators. H
356 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A (3) Failing any agreement referred to in sub-section (2),
in an arbitration with three arbitrators, each party shall "l- -..
appoint one arbitrator, and the two appointed arbitrators
shall appoint the third arbitrator who shall act as the
presiding arbitrator. \
B
(4) If the appointment procedure in sub-section (3) applies
and-

(a) a party fails to appoint an arbitrator within thirty
· days from the receipt of a request to do so from the'· """'
c other party; or

(b) the two appointed arbitrators fail to agree on the
third arbitrator within thirty days from the date of
their appointment,
D the appointment shall be made, upon request of a -+-
party, by the Chief Justice or any person or
institution designated by him. . "
(5) Failing any agreement referred to in sub-section (2),
E in an arbitration with a sole arbitrator, if the parties fail to
agree on the arbitrator within thirty days from receipt of a
request by one party from the other party to so agree the
appointment shall be made, upon request of a party, by ~
....
the Chief Justice or any person or institution designated
F by him.

(6) Where, under an appointment procedure-agreed upon
by the parties,-

(a) a party fails to act as required under that procedure;
G or

(b) the parties, or the two appointed arbitrators, fail to y-...
reach an agreement expected of them under that
procedure; or
H
MIS. S.B.P. & CO. v. MIS. PATEL ENGINEERING 357
LTD. & ANR. [G.S. SINGHVI, J.]
(c) a person, including an institution, fails to perform any A
,....... -1 function entrusted to him or it under that procedure,

a party may request the Chief Justice or any person or
institution designated by him to take the necessary
measure, unless the agreement on the appointment
8
procedure provides other means for securing the
appointment.

(7) xxx xxx xxx

(8) The Chief Justice or the person or institution designated C
by him, in appointing an arbitrator, shall have due regard
to-

(a) any qualifications required of the arbitrator by
the agreement of the parties; and
D
(b) other considerations as are likely to secure the
appointment of an independent and impartial
arbitrator.

(9) to (12) xxx E
xxx xxx
12. Grounds for challenge.-

(1) and (2) xxx xxx xxx
F
(3) An arbitrator may be challenged
only if-

(a) circumstances exist that give rise to justifiable
doubts as to his independence or impartiality, or
G
(b) he does not possess the qualifications agreed
to by the parties.

(4)xxx xxx xxx
H
358 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A 13. Challenge procedure.-
~- "-'f--
(1) and (2) xxx xxx xxx
(3) Unless the arbitrator challenged under sub-section (2)
withdraws from his office or the other party agrees to the
challenge, the arbitral tribunal shall decide on the challenge.
B
(4) to (6) xxx xxx xxx
14. Failure or impossibility to act.- (1) The mandate of
an arbitrator shall terminate if- ,.- ...
(a) he becomes de jure or de facto unable to perform his
c 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.
D (2) If a controversy remain concerning any of the grounds --+ ...
referred to in clause (a) of sub-section (1), a party may,
unless otherwise agreed by the parties, apply to the Court
to decide on the termination of the mandate.
(3) If, under this section or sub-section (3) of section 13,
.)

E an arbitrator withdraws from his office or a party agrees to
the termination of the mandate of an arbitrator, it shall not
imply acceptance of the validity of any ground referred to
in this section or sub-section (3) of section 12. -~ ~

15. Termination of mandate and substitution of arbitrator.
F - (1) In addition to the circumstances referred to in section
·13 or section 14, the mandate of an arbitrator shall
terminate-
(a) where he withdraws from office for any reason; or
G (b) by or pursuant to agreement of the parties.

(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.
H
c

mr·
~I
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING 359
LTD. & ANR. [G.S. SINGHVI, J.]
(3) Unless otherwise agreed by the parties, where an A
-·-f' arbitrator is replaced under sub-section (2), any hearings
previously held may be repeated at the discretion of the
arbitral tribunal.
(4) Unless otherwise agreed by the parties, an order or B
ruling of the arbitral tribunal made prior to the replacement
of an arbitrator under this section shall not be invaHd solely
because there has been a change in the composition of
; " the arbitral tribunal.

15. An analysis of the scheme of Section 11 which relates c
to appointment of arbitrators shows that in terms of sub-section
(1) thereof, a person of any nationality can be appointed as an
arbitrator unless there is a contra agreement between the
parties. Sub-section (2) lays down that the parties are free to
agree on a procedure for appointing the arbitrator or arbitrators. D
- >
This is subject to the provision contained in sub-section (6).
Sub-section (3) lays down that if there is no agreement between
.IC
the parties in an arbitration with three arbitrators, each party
shall appoint one arbitrator, and the two arbitrators appointed
by the parties shall appoint the third arbitrator who shall act as E
the Presiding Arbitrator. Sub-section (4) lays down that if a party
fails to appoint an arbitrator within 30 days from the date of
.. 1
receipt of request to do so from the other party or the two
arbitrators fail to agree on the third arbitrator within 30 days from
the date of their appointment, then the Chief Justice or any F
person or institution designated by him can be approached for
appointing an arbitrator or the third arbitrator, as the case may
be. The procedure prescribed in sub-section (4) also applies
to a case involving appointment of a sole ~rbitrator. Sub-section
(6) enumerates the contingencies in which a party may request
G
the Chief Justice or any person or institution designated by him

-.• to take necessary measure unless the agreement on the
appointment procedure provides other means for securing the
appointment. The contingencies contemplated in sub-section
(6) are: (i) if a party fails to act as required under the agreed
H
360 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R. ,.
r
/
A procedure or, (ii) th~}?arties or the two appointed arbitrators
fail to reach an ag·reem'ent e>q)ected of them under such
i- -
procedure, or. (iii)' al 6ersJW including an institution fails to
perform any function entrusted to him or it under the procedure.
Sub-section (8) requires that in appointing an arbitrator, the
8- Chief Justice or any person or instit(.!tiop designated by him
shall have que regard to any qualification required of the
arbitrator by the agreement of the parties and other ..
considerations a_s are likely to s~cure the appointment of an .
independent and impartial arbitrator. Sections 14 and 15
~--
c enumerate the circumstances in which the mandate of an
arbitrator shall terminate. Sub-section (1) of Section 14 lays
down that the mandate of an arbitrator shall terminate if he
becomes de jure or de facto unable to perform his functions
or for other reasons fails to act without undue delay and he
withdraws from his office or the parties agree to terminate his
D
mandate. Sub-section (2) lays down that if there is any
controversy between the parties in relation to any of the grounds
~ -
referred to in Clause (a) of sub-section (1) and there is no other
provision in the agreement between the parties, either party can
apply to the Court for termination of the mandate of an arbitrator
E unless the parties agree otherwise. By sub-section (3) of
Section 14 it has been clarified that if an arbitrator withdraws
from his office under sub-section (1) of Section 14 or sub-
section (3) of Section 13 or a party agrees to the termination
of the. mandate of an arbitrator, same shall not be construed
.,.
•
F as an acceptance of the validity of any of the grounds referred
to in Section 14 or sub-section (3) of Section 12 which speaks
of the grounds of challenge to the appointment of an arbitrator.
Section 15 specifies additional circumstances in which the
mandate of an arbitrator shall terminate and also provides for
G substitution of an arbitrator. Sub-section (1) of this section lays
down that in addition to the circumstances referred to in
Sections 13 and 14, the mandate of an arbitrator shall terminate ...~
~
where he withdraws from office for any reason or pursuant to
agreement of th.e parties. Sub-section (2) of Section 15
H
M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING 361
• LTD. & ANR. [G.S. SINGHVI, J.]
postulates appointment of a substitute arbitrator in accordance A
with the rules that were applicable to the appointment of the
original arbitrator.

16. What is significant to be noticed in the aforementioned
provisions is that the legislature has repeatedly laid emphasis 8
. on .the necessity of adherence to the terms of agreement .I
between the parties in the matter of appointment of arbitrators
and procedure to be followed for such appointment. Even
Section 15(2), which regulates appointment of a substitute
arbitrator, requires that such an appointment shall be made
according to the rules which were applicable to the appointment C
of an original arbitrator. The term 'rules' used in this sub-section
is not confined to statutory rules or the rules framed by the
competent authority in exercise of the power of delegated
legislation but also includes the terms of agreement entered into
between the parties. In Yashwith Constructions (P) Ltd. v. D
Simplex Concrete Piles India Ltd. (supra), this Court was called
upon to examine the scope of Section 15 of the Act in the
backdrop of the fact that after resignation of the arbitrator
appointed by the Managing Director of the respondent-
Company, another arbitrator was appointed by him in E
accordance with the arbitration agreement. At that stage, the
petitioner filed an application under Section 11 (5) read with
Section 15(2) of the Act and prayed that the Chief Justice of
the High Court may appoint a substitute arbitrator to resolve the
disputes between the parties. The learned Chief Justice F
dismissed the application and held that Section 15(2) refers not
only to statutory rules framed for regulating appointment of
arbitrators but also to contractual provisions for such
appointment. The Division Bench of the High Court which heard
the writ petition filed by the petitioners noted that in view of the G
judgment of the larger Bench in S.B.P. & Company v. Patel
Engineering Ltd. and another (supra), a writ petition would not
lie against an order made by the Chief Justice under Section
11 of the Act and an appeal could be filed only under Article
136 of the Constitution but proceeded to consider the issue H
362 SUPREME COURT REPORTS [2009) 15 (ADDL.) S.C.R.

A raised by the writ petitioners on merits on the premise that
appointments made on or before the judgment of the larger
Bench had been saved. The Division Bench then observed that
.. ....,

in terms of Section 15(2) of the Act, the Managing Director
could, by relying upon the arbitration agreement, appoint
B another arbitrator because the original arbitrator had resigned.
The Division Bench held that Section 15(2) of the Act is
applicable not only to the cases of appointments under the
statutory rules or rules framed under the Act but also the
agreement between the parties for appointment of an arbitrator. )C ~

c While approving the decision of the High Court, this Court held:

" ........The term "rules" in Section 15(2) obviously referred
to the provision for appointment contained in the
arbitration agreement or any rules of any institution under
which the disputes were referred to arbitration. There was
D no failure on the part of the party concerned as per the
arbitration agreement, to fulfil his obligation in terms of
·~ -
Section 11 of the Act so as to attract the jurisdiction of the
Chief Justice under Section 11 (6) of the Act for appointing
a substitute arbitrator. Obviously, Section 11 (6) of the Act
E has application only when a party or the person concerned
had failed to act in terms of the arbitration agreement.
When Sectio·n 15(2) says that a substitute arbitrator can
be appointed according to the rules that were applicable
~
,.
for the appointment of the arbitrator originally, it is not
F confined to an appointment under any statutory rule or rule
framed under the Act or under the scheme. It only means
that the appointment of the substitute arbitrator must be
done according to the original agreement or provision
applicable to the appointment of the arbitrator at the initial
G stage. We are not in a position to agree with the contrary
view taken by some of the High Courts.

Since here, the power of the Managing Director of
the respondent is saved by Section 15(2) of the Act and
he has exercised that power on the terms of the arbitration
H
MIS. S.B.P. & CO. v. MIS. PATEL ENGINEERING 363
LTD. & ANR. [GS. SINGHVI, J.]

agreement, we see no infirmity either in the decision of the A
-f<
learned Chief Justice or in that of the Division Bench ..... n
--,;
17. The need for adherence to the terms of agreement
which provide for resolution of differences or disputes by
arbitration was highlighted in Datar Switchgears ltd. v. Tata 8
Finance Ltd. and another (2000) 8 sec 151. In that case the

.
appellant had filed an application under Section 11 of the Act
for appointment of an arbitrator by contending that despite clear
'(
30 days notice, the first respondent failed to appoint an
arbitrator in accordance with the terms of lease agreement. The c
Chief Justice of the High Court rejected the appellant's prayer
by observing that respondent No.1 had appointed an arbitrator
before filing of the application. In the appeal, it was argued that
in view of the respondent's failure to appoint an arbitrator within

' - ;.
30 days, the Chief Justice of the High Court was bound to
exercise power under Section 11(6) of the Act and appoint an
D
arbitrator. This Court referred to the arbitration clause contained
in the agreement entered into between the parties, some of the
judicial precedents on the subject and held that failure of
respondent No.1 to appoint an arbitrator within 30 days of the
receipt of the notice did not have the effect of forfeiting his right E
to do so and that the said right could be exercised till the filing
of an application under Section 11 by the otherside. The Court
>- ;~
then proceeded to observe:

"When parties have entered into a contract and settled F
on a procedure, due importance has to be given to such
procedure. Even though rigor of the doctrine of "freedom
of contract" has been whittled down by various labour and
social welfare legislation, still the court has to respect the
terms of the contract entered into by parties and G
.. '""(
endeavour to give importance and effect to it. When the
party has not disputed the arbitration clause, normally he
is bound by it and obliged to comply with the procedure
laid down under the said clause."
H
364 SUPREME. COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A (emphasis· supplied)

18. In Northern Railway Administration, Ministry of ··- ;
Railway, New Delhi v. Patel Engineering Company Ltd.
(supra), a three-Judge Bench considered apparently divergent
opinions expressed in Ace Pipeline Contracts (P) Ltd. v.
B
Bharat Petroleum Corpn. Ltd. (supra) and Union of India v.
Bharat Battery Mfg. Co. (P) Ltd. (2007) .7 SCC 684, referred

c
to Section 11 of the Act and observed:

"Sub-sections (3) to (5) refer to cases where there is no
)': .
agreed procedure. Sub-section (2) provides that subject
to sub-section (6) the parties are free to agree on a
procedure for appointing the arbitrator or arbitrators. Sub-
section (6) sets out the contingencies when party may
request the Chief Justice or any person or institution
D designated by him to take necessary measures unless the
agreement on the appointment procedure provides other .;.
. -
means for securing the appointment. The contingencies
contemplated in sub-section (6) statutorily are (i) a party
fails to act as required under agreed procedure or (ii) the
E parties or the two appointed arbitrators fail to reach an
agreement expected of them under that procedure or (iii)
a person including an institution fails to perform any function
entrusted to him or it under the procedure .. ln other words,
the third contingency does not relate to the parties to the _, ;..

agreement or the appointed arbitrators.
F
The crucial expression in sub-section (6) is "a party may
request the Chief Justice or any person or institution
designated by him to take the necessary measures"
(underlined for emphasis). This expression has to read
G alongwith requirement in sub-section (8) that the Chief
Justice or the person or an institution designated by him
~_.
in appointing an arbitrator shall have "due regard" to the
two cumulative conditions relating to qualifications and
other considerations as are likely to secure the
H

I
MIS. S.B.P. & CO. v. MIS. PATEL ENGINEERING 365
LTD. & ANR. [G.S. SINGHVI, J.]
appointment of an independent and impartial arbitrator. A
, 't
A bare reading of the scheme of Section 11 shows that
the emphasis is on the terms of the agreement being
adhered to and/or given effect as closely as possible. In
other words, the Court may ask to do what has not been B
done. The court must first ensure that the remedies
provided for are exhausted. It is true as contended by Mr.
Desai, that it is not mandatory for the Chief Justice or any
,. 'I
person or institution designated by him to appoint the
named arbitrator or arbitrators. But at the same time, due
regard has to be given to the qualifications required by the
c
·agreement and other considerations."

(emphasis supplied)

... 1'
19. The aforementioned judgment was followed in Union D
of India v. Mis. Singh Builders Syndicate (supra). In that case
it was found that the Arbitral Tribunal constituted in accordance
with Clause 64 of the agreement, could not function due to
frequent transfer of the incumbent of the post of General
Manager who was appointed as one of the members of the E
Tribunal and, therefore, on a petition filed by the respondent,
the High Court appointed a retired Judge as an arbitrator. This
,.. Court noted that the dispute was pending for nearly 10 years
from the date when the demand for arbitration was first made
and declined to interfere with the order of the High Court.
F
Paragraphs 14 and 15 of the judgment which have bearing on
this case are extracted below:-

14. It was further held in Northern Railway Administration,
Ministry of Railway, New Delhi v. Patel Engineering
Company Ltd. that the Chief Justice or his designate G
should first ensure that the remedies provided under the
.. 'f
ar~!Lration agr.eement are exhausted, but at the same time
--- ---.-..ais.Q ensure that the twin requirements of sub-section (8)
of Section 11 of the Act are kept in view. This would mean
that invariably the court should first appoint the arbitrators H
366 SUPREME COURT REPORTS [2009] 15 (ADDL.) S.C.R.

A in the manner provided for in the arbitration agreement. But
where the independence and impartiality of. the ·•:-. ''
arbitrator(s) appointed/nominated in terms of the arbitration
agreement is in doubt, or where the Arbitral Tribunal
appointed in the manner provided in the arbitration
./
B agreement has not functioned and it becomes necessary
to make fresh appointment, the Chief Justice or his
designate is not powerless to make appropriate
alternative arrangements to give effect to the provision for
arbitration. )( _,
c 15. The object of the alternative dispute resolution process
of arbitration is to have expeditious and effective disposal
of the disputes through a private forum of the parties'
choice. If the Arbitral Tribunal consists of serving officers
of one of the parties to the dispute, as members in terms
D of the arbitration agreement, and such tribunal is made
non-functional on account of the action or inaction or delay "-
of such party, either by frequent transfers of such members
of the Arbitral Tribunal or by failing to take steps
expeditiously to replace the arbitrators in terms of the
E arbitration agreement; the Chief Justice· or his designate,
required to exercise power under Section 11 of the Act,
can step in and pass appropriate orders.

20. We may now advert to the scope of Clause 19 of piece .. A

F work agreement, which provides for appointment of two
·arbitrators, one by each party, with liberty to the arbitrators to
appoint an Umpire, in case of difference or their failure to reach
an agreement within one month of their appointment. The award
made by two arbitrators or Umpire, as the case may be, is
G treated as final, conclusive and binding on the parties. This
clause also specifies tKe·consequence of failure of either party
to the difference or dispute to appoint an arbitrator within 30 y-"
calendar days counted from the date of notice in writing given
by the other side or refusal of the arbitrator appointed by either
party to accept such appointment or act upon the same. In that
.H
(
f

M/S. S.B.P. & CO. v. M/S. PATEL ENGINEERING 367
LTD. & ANR. [G.S. SINGHVI, J.]
event, the arbitrator appointed by the other party becomes A
·~ entitled to proceed with the reference as the Sole Arbitrator and
make an award. There is nothing in Clause 19 from which it
can be inferred that in the event of refusal of an arbitrator to
accept the appointment or arbitrate in the matter, the party
appointing such arbitrator has an implicit right to appoint a 8
substitute arbitrator. Thus, in terms of the agreement entered
into between the parties, respondent No.1 could not appoint
Shri S.L. Jain as a substitute arbitrator simply because Shri
~ ;\
S.N. Huddar declined to accept the appointment as an

<J
arbitrator. The only consequence of Shri S.N. Huddar's refusal c
to act as an arbitrator on behalf of respondent No.1 was that
respondent No.2 who was appointed as an arbitrator by the
appellants became the Sole Arbitrator for deciding the disputes
or differences between the parties.
.... 'I 21. The learned designated Judge appointed the third D
arbitrator because he was of the view that in terms of Section
15(2), a substitute arbitrator could be appointed where the
mandate of an already appointed arbitrator terminates. In taking
that view, the learned designated Judge failed to notice that
Section 15(1) provides for termination of the mandate of E
arbitrator where he withdraws from office for any reason or by
or pursuant to agreement of the parties and not where the
~ arbitrator appointed by either party declines to accept the
appointment or refuses to act as such and that the term 'rules'
appearing in Section 15(2) takes within its fold not only the F
statutory rules, but also the terms of agreement entered into
between the parties.

22. The words 'refuse' and 'withdraw' have not been
defined in the Act. Therefore, we may usefully refer to dictionary
G
meanings of these words. [\.s per P. Ramanatha Aiyar's
._ 'f Advanced Law Lexicon (Third Edition 2005), the word 'refuse'
means to decline positively; to express or show a determination
not to do something. As per Century Dictionary, the word
'refuse' means to deny, as a request, demand or invitation; to
H
368 SUPREME COURT REPORTS [2009) 15 (ADDL.) S.C.R.

A· decline to accept; to reject, as to refuse an offer. As per New
Oxford Illustrated Dictionary, Volume II, p.1421, the word 'refuse'
means -:- say or convey by action that one will not accept,
submit to, give, grant, gratify consent The dictionary meanings
of the word 'withdraw' are as follows:
B
_1. The Law Lexicon (Third Edition, 2005)-:- to take back
or away something that has been given, e1llowed,
possessed, experienced or enjoyed; to draw away.
"- ~
2. Black's Law Dictionary (Eighth Edition, p.1632) -
c the act of taking back or away, removal; the act of
retreating from a place, position or situation.

- 3. New Oxford Illustrated Dictionary (Volume II, p.1894)
- pull aside or back, take away, remove, retract; retire from
presence or place, go aside or apart.
D ""-
23. The above extracted meanings of two. words bring out
sharp distinction between them. While the word 'refuse'
denotes a situation before acceptance of an invitation, offer,
office, position, privilege and the like, the word 'withdraw'
E means to retract, retire or retreat from a place, position or
situation after acceptance thereof. Therefore, Section 15(2) of
the Act does not per se apply to a case where an arbitrator
appointed by a party to the agreement declines to accept the
appointment or refuses to arbitrate in the matter. Of course in
F a given case, refusal to act on the arbitrator's part can be
inferred after he has entered upon arbitration by giving consent
to the nomination made by either party to the agreement.

24. Insofar as this case is concerned, we find that the
G arbitrator appointed by respondent No.1, namely, Shri S.N.
Huddar declined to accept the appointmenUarbitrate in the
matter on the ground that in his capacity as Superintending
Engineer and Chief Engineer, he was associated with Koyna
Hydel Project implying thereby that he ·may not be.able to
H objectively examine the claims of the parties or the other party

L
·M/S. S.B.P. & CO. v. MIS. PATEL ENGINEERING 369
LTD. & ANR. [GS. SINGHVI, J.)
.... -; may question his impartiality. To put it differently, Shri S.N. A
Huddar did not e~ter upon the arbitration. Therefore, there was
no question of his withdrawing from the office of arbitrator so
as to enable respondent No.1 to appoint a substitute arbitrator.
In any case, in the absence of a clear stipulation to that effect
in the agreements, respondent No.1 could not have appointed B
a substitute arbitrator and the learned designated Judge
gravely erred in appointing the third arbitrator by presuming that
I- "I the appointment of Shri S.L. Jain was in accordance with law.
25. The decision in Yashwith Constructions (P) Ltd. v.
Simplex Concrete Piles India Ltd. (supra) on which reliance
c
has been placed by Shri Dave does not help the cause of
respondent No.1. A careful reading of that judgment shows that
immediately after the arbitrator appointed by the Managing
'
.. ~ Director of the respondent-Company resigned, another
arbitrator was appointed in accordance with arbitration D
agreement. The permissibility of appointment of another
arbitrator by the Managing Director of the respondent-Company
is clearly evinced from the following extracts of paragraphs 2
and 3 of the judgment:
E
"2. On a dispute having arisen, the Managing Director of
the respondent Company appointed an arbitrator in terms
.. of the arbitration clause. The arbitrator resigned.
--1 Thereupon, the Managing Director of the respondent
Company, in view of the mandate in the arbitration F
agreement promptly appointed another arbitrator.......
3 ......... The Division Bench held that the position
obtaining under Section 8( 1) of the Arbitration Act of 1940

.
differed from that available under the present Act especially
in the context of Section 15 thereof and that· in terms of G
..;
Section 15(2) of the Act, the Managing Director could, on
the basis of the arbitration agreement, appoint another
arbitrator when the originally appointed arbitrator resigned,
thus attracting Section 15(1)(a) of the Act.. .... "
H
370 SUPREME COURT REPORTS ~2009] 15 (ADDL.) S:C.R.

A Although, the language of paragraph 4 of the judgment
gives an impression that the Court decided the m~tter by
presuming that the agreement between the parties did not
contain a provision for appointment of a substitute arbitrator if
the original appointment terminates or if the original arbitrator
B withdraws from the arbitration and this omission is supplied by
Section 15(2) of the Act, if that paragraph is read in conjunction
with paragraphs 2 and 3 it becomes clear that the arbitration
agreement did provi9e for appointment of anothei\arbitrator in )': ..
the event originally appointed arbitrator was to resign and there
c was no plausible reason for the Court to presume. that there is
an omission in the, agreement on the issue of appointment of
a substitute arbitrator. In any case, the judgment cannot be re~d
as laying down a proposition oflaw that in the absence of a
specific provision in the arbitration clause, either party to· the ·
agreement· can appoint a substitute arbitrator in the event of )( -.
D
the originally appointed arbitrator refusing to act. ·

26. At the cost of repetition, we consider it necessary to
observe that the agreements entered, into between the
appellant and respondent No.1 do not contain a provision for
E appointment of a substitute arbitrator in case arbitrator
appointed by either.party was to decline to accept appointment'
or refuse to arbitrate in the matter. Therefore, respondent No.1 ·
cannot dra\N support from the ratio of the judgment in Ya_shwith ··
. "'·
Constructions (P) Ltd. v .. Simplex Concrete Piles India· Ltd.
_,. ' I' • ,,

F (supra). -
27. In the .result the ~ppeals are alloweq and the orders of
the learned designated ~udge of the Higti Court appointing Shri
Justice M.N. Chandurkar as the third arbitrator are set aside.
Respondent No.2 shall now proceed with the matter as the Sole
G
Arbitrator an"d pass appropriate award in accordance with law 'r _.
within a period of three months from the date of receipt/
production of copy of this order.
..
K.K.T. . Appeals allowed.
H