Supreme Court of India
RELIANCE INDUSTRIES LTD. & ORS.versusUNION OF INDIA
- Citation
- 2014 INSC 235
- Decided
- 31 March 2014
- Disposal
- Case Allowed
- Bench
- S S NIJJAR
Holding
Because the dispute involves foreign parties and the operator acts on behalf of all contractors, the arbitration is an international commercial arbitration, and under Section 11(9) the Chief Justice may appoint a neutral third arbitrator, which the Court did.
Summary
Reliance Industries Ltd., Niko Resources Ltd. and British Petroleum entered into a Production Sharing Contract (PSC) with the Union of India. When a dispute arose over cost recovery, Reliance, acting as the operator, invoked the arbitration clause in Article 33 of the PSC and nominated an arbitrator. Two arbitrators, both former Chief Justices of India, were appointed but could not agree on a third arbitrator, prompting a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996. The Supreme Court held that the arbitration is an international commercial arbitration because two of the four parties are foreign, and that under Section 11(9) the Chief Justice may appoint a neutral third arbitrator, though not mandatorily. Emphasising neutrality, impartiality and independence, the Court appointed a third arbitrator of a neutral nationality, ultimately naming Michael Hudson McHugh. The petition was allowed and no costs were awarded.
Issues considered
- The nature of the arbitration: whether it constitutes an international commercial arbitration within the ambit of Section 11(6).
- The jurisdiction of the Supreme Court to entertain the petition for appointment of a third arbitrator.
- Whether the third arbitrator must be of a neutral (non‑Indian) nationality under Section 11(9) and PSC Article 33.6.
- The effect of the parties’ conduct on any implied waiver of the requirement for a foreign third arbitrator.
- The scope of the Chief Justice’s discretion to appoint a third arbitrator not named by the parties.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11(1), s. 11(6), s. 11(9)
Subjects
ArbitrationInternational Commercial ArbitrationSection 11(6)Third ArbitratorNeutralityProduction Sharing ContractUNCITRAL Model LawChief Justice of IndiaAppointment of Arbitrator
Judgment
[2014] 14 S.C.R. 187.
RELIANCE INDUSTRIES LTD. & ORS.
A
v.
UNION OF INDIA
(Arbitration Petition No. 27 of2013)
MARCH 31, 2014
B
[SURINDER SINGH NIJJAR, J.]
Arbitration and Conciliation Act, 1996:
s. 11(6) - Petition under - For appointment of third
arbitrator- Maintainability of- Contract between one Indian
and two foreign companies on one side and Government of c
India on the other side - The Indian company acted as
· 'Operator' on behalf of the two foreign companies - Initiation
of arbitral proceedings by the Indian Company - Whether
the arbitration would amount to an arbitration between two
Indian parties or whether it was an International Commercial . D
Arbitration - Held: The arbitration was an International
Commercial Arbitration because two of the four parties to the
arbitration were not based in India and the initiation of arbitral
proceedings by the Indian company was also on behalf of
the foreign companies. E
ss. 11(1), 11(6) and 11(9) - Appointment of third
Arbitrator - Criteria for - Held: The appointment of the third
arbitrator has to be guide'1 by the provisions contained u/s.
11(9) - The concern of the Court is to ensure neutrality
impartiality and independence - It is entirely upto the Chief F .
Justice of India or his nominee to accept any of the
preferences of the parties for appointment of third arbitrator
- In making such choice, the Chief Justice shall be guided
by the relevant provisions of the Act, UNCITRAL Model Laws
and UNCITRAL Rules - *In the peculiar facts of the case, G
*By order dated 2.4.2014, the Court observed that the third arbitrator i.e.
Hon'ble James Spingcharan ACQC. former Chief Justice and Lieutenant
General of New South Wales, Australia happened to be on the list of
arbitrators submitted by the petitioner. Thereafter, by order dated
29.4.2014, Hon'ble Michael Hudson McHugh, ACQC, former Judge of the
High Court of Australia and former non-permanent Justice of the Court of H
Final Appeal, in Hong Kong was appointed as third arbitrator.
187
188 SUPREME COURT REPORTS [2014] 14 S.C.R.
A such an individual is appointed as third arbitrator; whose
name has not been proposed by either of the parties.
Petitioner No. 1 (an Indian Company) and petitioner
Nos. 2 and 3 (the foreign companies), on one side,
entered into an agreement with the respondent (Union
B of India), which was in the nature of Production Sharing
Contract (PSC). Article 33 of the Contract was the
Arbitration Agreement. .After some differences relating
to the scope and interpretation of the provisions of the
contract arose between ,the petitioners and the
C respondent, Petitioner No. 1 sent a notice to the
respondent Invoking arbitration. In the cou.rse of
correspondence with the respondent, petitioner No.1 .
also informed the respondent th~t it has nominated Mr..
Justice S.P. Bharucha, former Chief Justice of India as
D · their arbitrator. Despite the request of the petitioners, .
when the respondent did not appoint any arbitrator,
petitioner Nos. 1 and 2 filed Arbitration Petition No. 8 of
2012 u/s. 11(6) of Arbitration Act, for app_ointment of
second arbitrator in terms of Article 33.5 of the contract.
' I; : \" •
E Subsequent thereto, the respondent nominated .Mr.
Justice V.N. Khare, the former Chief Justice of India as
second arbitrator. In view thereof, the arbitration petition
was disposed of. Thereafter, when the two arqitrators
nominated on behalf of both the parties, Were not able
F to reach a consensus as regards the name of the third
arbitrator, the present arbitration petition u/s. 11 (6) and ·
11(9) of the Act was filed seeking appointment of third
arbitrator.
' ..
The petitioner took the plea that the arbitral
G proceedings related to an International Commercial
Arbitration, as two of the four parties to the arbitration
were based outside India; that petitioner No.1 as
'operator' as stated in the Joint Operating Agreement was
entitled to initiate the arbitration proceedings on.behalf
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 189
of all the constituents of the contract; that the Supreme A
Court has jurisdiction to entertain the petition; and that
the third arbitrator should be from the neutral nationality.
·Allowing the Arbitration Petition, the Court
HELD: 1.1. Initially, Arbitration Petition for B
appointment of second arbitrator was filed by Petitioner
Nos.1 and 2. Therefore, it is apparent that reference to
arbitration was sought on behalf of the three partners to
the Production Sharing Contract (PSC). The Arbitration
Petition was disposed of as both the parties had no c
objection to the arbitrator nominated by each other.
Therefore, the matter was left to the two arbitrators to
nominate the third arbitrator who shall be the Chairman
of the Arbitral Tribunal. [Paras 47 and 48][211!-A-D]
1.2. The other reason for not accepting the plea D
that the Petitioner is not acting on behalf of all the three
Contractors, is that the notice was served by petitioner
No. 1 in the capacity of Operator, which included all the
three Contractors. The correspondence between the
parties clearly indicates that the' Respondent recognised E
that the Petitioner No.1 is the Operator on behalf of all
the Contractors. The provisions of the PSC clearly
identified the parties to the PSC. The disputes that have
arisen between the parties are also clearly identified in
the correspondence exchanged between the parties. It F
is not correct to say that the two foreign companies are
not operators under the PSC and, therefore, have
forfeited any right to operations under the PSC. [Paras
49 50 and 52][216-F-H; 217-D-F]
1.3. It cannot be said that even if it is accepted that G
the disputes raised by the Petitioner would also include
the disputes of Petitioner Nos. 2 and 3, the arbitration
still essentially remains an Indian arbitration. The
Respondents have not at any stage earlier raised an
H
190 SUPREME COURT REPORTS (2014] 14 S.C.R.
A objection that the disputes had been raised by Petitioner
. No.1 only on its own behalf and did not relate to the
disputes of Petitioner No.2 and 3 also. The three
petitioners are all parties to the PSC. They are all
contractors under the PSC. The PSC recognizes that the
B operator would act on behalf of the contractor. All
investments are funded by not just the Petitioner No.1
but also by the other parties, and they are equally entitled
to the c~sts recovered and the profits earned. ·For the
sake of ope~ational efficiency, the Operator acts for and
C on behalf of the other ·parties. Therefore, the disputes
raised in the correspondence addressed by Petitioner
lilo.1 not just on its own behalf but on behalf of all the
parties. Therefore, ifthe Petitioner No.1 was to succeed
in the arbitration, the award would enure not only to the
o benefit of Petitioner No.1, but to all the parties to the PSC.
Conversely, if the Government of India were to succeed
before the tribunal, ag·ain the· award would have to be
enforced against all the parties. In other words, each of
the Contractors would have to perform the obligations
i: cast upon them. Thus.lit cannot be·said that the
arbitration in the present case is not an international
arbitration. [Paras 53 and 54][217-G, H; 218-A-F]
1.4. It also cannot be said that petitioner Nos. 2
and 3 have not rai~ed any arbitrable dispute with Union
F of India. A perusal of some of the provisions of PSC
1il1ould make it cleilr that all three entities are part.ies to
the PSC. All three entities have rights and obligations
under_ the PSC. Where petitioner No. 1 acts under the
PSC, including by commencing arbitration, it does so
G not only on behalf of itself, but also "on behalf of all
constituents of the contractors" including petitioner
Nos. 2 and 3. There is a significant and broad ranging
dispute between petitioner Nos. 1, 2 and 3 on the one
hand and the uo1'·on the other hand, that goes to the
H heart of the main contractual rights and obligations
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 191
under the PSC. Therefore, it cannot be said that this is A
an arbitration between the two Indian parties only.
[Paras 55 and 56][218-G, H; 219-A-C & F]
1.5. The accounting procedure clearly provides that
petitioner No. 1 shall keep the accounts for the purposes
of cost recovery statement. Therefore, it cannot be said B
that the claims made by the Petitioner are only on behalf
of petitioner No.1. The Joint Operating Agreement
expressly provides that the operator "to initiate litigation
on behalf of all the parties." The fallacy of the stand taken
by UOI is patent. On the one hand, the respondent claims C
that the arbitral award would bind not only Petitioner No.1
but also Petitioner Nos. 2 and 3, but on the other hand,
is insisting that the arbitration proceedings are only
between Petitioner No.1 and UOI. [Para 57][219-G, H;
220-A] D
2.1. In exercise of the jurisdiction under Section
11 (6), the CJI would usually appoint the third arbitrator
in accordance with the request. Even ifthe third arbitrator
is an Indian National, it would not be contrary to Article E
33.6 (arbitration Clause) of PSC. But it would not be
possible to say that only an Indian National can be
appointed, as there is an absence of a requirement of
appointing a foreign national as the third arbitrator.
Article 33.6 virtually leaves it to the Chief Justice of India F
to appoint the third arbitrator who would be neutral,
impartial and independent from anywhere in the world
including India. Just as India cannot be exCluded,
similarly, the countries where petitioner Nos. 2 and 3 are
domiciled, as an option from where the third arbitrator G
could be appointed, cannot be ruled out. [Para 58]
[220-H; 221-A-C]
· 2.2. When the CJI exercises his jurisdiction under
Section 11 (6) he is to be guided by the provisions
·contained in the Arbitration Act, 1996 and generally H
192 SUPREME COURT REPORTS [2014] 14 S.C.R.
A accepted practices in the other international jurisdictions.
CJI would also be anxious to ensure that no doubts are
cast on the neutrality, impartially and independence of
· the Arbitral Tribunal. In international arbitration, the
surest method of ensuring at/east the appearance of
. B neutrality would be to appoint the sole or the third
arbitrator from nationality other than the parties to the
arbitration. [Para 58)(221-D-F]
2.3. Section 11 of the Arbitration Act, 1996 uses
similar phraseology as Article 11 of the UNCITRAL Model
C Law. Therefore, it would not be possible to say that the
Court cannot look to Model Laws or the UNCITRAL Laws
as legitimate aids in giving the appropriate interpretation
to the provisions of Section 11, including Section 11(6).
[Para 67)(225-A-B]
D
2.4. The neutrality of an arbitrator is assured by
Section 11 (1) of the Arbitration Act, 1996, which provides
that a person of any nationality may be an arbitrator,
unless otherwise agreed by· the parties. There is no
agreement between the parties in the present case that
E even a third arbitrator must 'necessarily be an Indian
national. In fact, Section 11(9) of the Arbitration Act, 1996
specifically empowers the CJI to appoint an arbitrator of
a nationality other than the nationality of the parties
F involved in the litigation. Therefore, it is not correct to.
say that it would not be permissible under the Arbitration
Act, 1996 to appoint the third arbitrator of any nationality
other than Indian. Merely because the two arbitrators
nominated by the parties are Indian, would not . ipso
facto lead to the conclusion that the parties had ruled
G out the appointment of the third arbitrator from a neutral
. nationality. In the present case, both the arbitrators had
. been appointed by the parties, therefore, the condition
precedent for appointing an arbitrator, from amongst
persons, who are not nationals of the country of any of
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 193
the parties to the arbitration proceedings, had not even A
arisen. [Para 68][225-C-F]
2,5. A perusal of Article 33.5, PSC would also show
that it deals only with the situation where the other party
fails to appoint an arbitrator and a request is made to
the Chief Justice of India or a person authorised by him B
to appoint the second arbitrator. In such a situation, the
Chief Justice is required to choose the second arbitrator
from amongst the persons who are not nationals of a
country of any of. the parties to the arbitrator
proceedings. Article 33.6 is invoked when the two C
arbitrators appointed by the parties fail to nominate the
third arbitrator. In such circumstances, the Chief Justice
or the nominees of the Chief Justice is required to
appoint the third arbitrator in accordance with the
Arbitration and Conciliation Act, 1996. At t_hat stage, D
Section 11(9) of the Arbitration Act, 1996 would become
relevant. It would be necessary for the Chief Justice of
India to take into consideration the will of the Indian
Parliament expressed in Section ~1(9). The submission·
made by the Petitioners cannot be said to be without E
any merit. The Court is unable to read into Article, 33.6,
an embargo on the appointment of a foreign national as
the third arbitrator. It is not possible to say thatthe parties
have specifically decided to exclude the appointment of
a foreign arbitrator under Article 33.6, as no specific F
provision was made para materia to Article 33.5. Even in
the absence of a specific provision, the appointment of
the third arbitrator under Article 33.6 would have to be
guided by the provisions contained under Section 11(9)
of the Arbitration Act. [Para 69][225-G-H; 226-A~E] G
Malaysian Airlines Systems BHD II vs. ST/C
Travels (P) Ltd. (2001) 1 sec 509; MSA
Necferland B. V. vs. Larsen & Toubro Ltd. (2005)
13 sec 719- referred to.
H
194 SUPREME COURT REPORTS [2014] 14 S.C.R.
A 2.6. Clause 33.5 of the PSC provides that on failure
of the second party to nominate its arbitrator, the Chief
Justice of India may be requested to appoint the second
arbitrator from amongst persons who· are not nationals
of the country of any of the parties to the arbitration
B proceeding.s. Therefore, in "principle, it becomes
apparent that the Respondents have accepted the
appointment of the second arbitrator from a neutral
country. Merely because, the seat of arbitration is in
India, the applicable law is Indian Law; it does not
C become incumbent on the Court to appoint the third
arbitrator, who is an Indian natio.nal. The concern of the
Court is to ensure neutrality, impartiality and
independence of the third arbitrator. Choice of the parties
has little, if anything, to do with the choice of the Chief
Justice of India or his nominee in appointing the third
0 arbitrator. [Para 72][228-F-H; 229-A-B]
2.7. Even atthe stage of exercising its jurisdiction
under Section 11 (6) at the final stage, the Chief Justice
of India or his nominee can informally enquire about the
E preference of the parties. But it is entirely upto the Chief
J.ustice of India, whether to accept any of the preferences
or to appoint the third arbitrator not mentioned by any
of the parties. In making such a choice, the Chief Justice
of India will be guided by the relevant provisions
contained in the Arbitration Act, UNCITRAL Model Laws
F and the UNCITRAL Rules, where the parties have
included the applicability of the UNCITRAL Model Laws/
UNCITRAL Rules by choice.[Para 72][229-C-D] .
2.8. The trend of the third arbitrator/presiding officer
G of a neutral nationality being appointed is now more or
less universally accepted under the Arbitration Acts
and Arbitration Rules in different jurisdictions.
[Para 73][229-E]
2.9. In the present case, Article 33(9) of the PSC
H adopts the UNCITRAL Rules for the arbitration
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 195
agreement under Article 39. The applicable UNCITRAL A
Rules at the time when the arbitration agreement was
signed, were the 1976 Rules. The aforesaid Rules have
been literally paraphrased in Section 11(9) of the
Arbitration Act, 1996. Rule 4 of UNCITRAL states that in
making the appointment, the appointing authority shall B
have regard to such consideration as are likely to secure
appointment of an independent and impartial arbitrator.
Superimposed on those two conditions is a provision
that the appointing authority shall take into account, as
well, the advisability of arbitrator of a nationality other C
than the nationalities of the parties. These rules are
almost parallel to Article 33(5) of the PSC. [Paras 74and
75][229-F-H; 230-A]
2.10. The apprehension of the respondent about
the impartiality of the third arbitrator due to the D
omnipresence of British Petroleum all over the world is
imaginary and illusory. Such a proposition cannot
possibly be accepted as a general practice for the
appointment of Chairman/Presiding Officer/Third
Arbitrator guided by the principle consideration that there E
must not only be the neutrality, but appearance of
neutrality of the third arbitrator. In that view of the matter,
it is not correct that only an Indian National can be
appointed as the third arbitrator. The apprehension
about the influence/presence of British Petroleum in F
other jurisdictions would apply equally to the Union of
India, if the third arbitrator is an Indian national, within
the Indian jurisdiction.[Paras 76 and 78][230-B-C; 231-E]
2.11. The other apprehension of the respondentthat
if a foreign national is appointed as a third arbitrator, the G
Tribunal would be at a disadvantage as all applicable
laws are Indian, is also misplaced. The two arbitrators
already appointed are Former Chief Justices of India and
can be very safely relied upon to advise the third
H
196 SUPREME COURT REPORTS [2014] 14 S.C.R.
A arbitrator of any legal position, which is peculiar to India.
[Para 79][231-F-G]
2.12. In the peculiar facts and circumstances of the
present case, it would be appropriate if an individual not
named by any of the parties is appointed as the third
B arbitrator. Honourable James Spigelman AC QC, former
Chief Justice and Lieutenant Governor of New South
Wales, Australia is appointed as the third Arbitrator who
shall act as the Chairman of the Arbitral Tribunal who is
. '
not a National of any of the parties involved in the dispute.
C [Paras 8.0 and 81][232-B-D] ·
Northern Railway Administration, Ministry of
Railway, New Delhi vs. Patel Engineering
Company Limited (2008) 10 SCC 240 - relied
D on.
Antrix Corporation Limited vs. Devas Multimedia ·
Private Ltd. 2013 (7) SCALE 216 - referred to.
Redfern and Hunter on International Afbitration,
Fifth Edition (2009) Para 4.59; Gary 8. Born in
E International Commercial Arbitration, Volume I
(2009); Redfern and Hunter on International
Arbitration, Fifth Edition (2009) at Page 263 -
referred to.
F CASE LAW REFERENCE
2013 (7) SCALE 216 referred to Para 27 ·
'"(2001) 1 sec 509 referred to ·•Para 71
(2005) 13 sec 719 referred to Para 71
G (2008) 10 sec 240 relied on Para 77
CIVIL ORIGINAL JURISDICTION: Arbitration Petition No.
27bf2013)
Harish N. Salve and Milin Sathe, Sr.Advocates, Sameer
H Parekh, Ms. Sonali Basu Parekh, Lalit S. Chauhan, Nitin
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 197
Thukral and Utsav Trivedi (for Mis Parekh &Co.),Advs.forthe A
Petitioners.
Anil B. Divan and DushyantA. Dave, Sr. Advocates, Ms.
Bindu Saxena, Shailendra Swarup, Ms. Aparajit Swarup,
Ran11ir Singh and K. K. Patra, Advs. for the Respondent.
B
The Judgment and Orders of the Court were
delivered by ·
SURINDER SINGH NIJJAR, J. 1. This petition has
been filed under Section 11 (6) of the Arbitration Act, 1996,
with a prayer for appointment of the third and the presiding C
arbitrator, as the two arbitrators nominated by the parties have
failed to reach a consensus on the appointment of the third
arbitrator.
2. Petition.er No.1 is a company incorporated and
registered under the provisions of the Companies Act, 1956; D
·Petitioner No.2 is a company incorporated in Cayman Islands,
British Virgin Islands; Petitioner No.3 is a company
incorporated according to the laws of England & Wales. The ·
Respondent herein is Union of India (hereinafter referred to
as "UOI"), represented by the Joint Secretary, Ministry of E
Petroleum and Natural Gas.
3. Briefly stated, the relevant facts are as under:
4. In 1999, UOI announced a policy-New Exploration and
Licensing Policy (hereinafter referred to as "NELP"). Under F
NELP, certain blocks of hydrocarbon reserves were .offered
for exploration, development and production to private
contractors under the agreements which were in the nature of
Production Sharing Contract. One of the said blocks was Block
KG-DWN-98/3 ("Block Kq-D6"). The joint bid made by the . G
Petitioners Nci.1 and 2 for the Block KG-D6 was accepted by ·
the UOI. Thereafter on 12'" April, 2000, Production Sharing
Contract (hereinafter referred to as 'PSC') was executed
between the Petitioners No.1 and 2 as Contractor on one side
and UOI on the other. The Arbitration Agre~ment in the PSC is H
198 SUPREME COURT REPORTS [2014] 14 S.C.R.
A contained in Article 33. Relevant facts thereof, is in the
following words:
"ARTICLE33
SOLE EXPERT, CONCILIATIONANDARBITRATION
B 33.1 * * *
33.2 * * *
33.3 Subject to the provisions of this Contract, the Parties
hereby agree that any cont~9versy, difference,
c disagreement or claim for damages, compensation or
otherwise (hereinafter in this Clause referred to as a
"dispute") arising between the Parties, which cannot be
settled amicably within ninety (90) days afterthe dispute
arises, may (except for those referred to in Article 33.2,
D "which may be referred to a sole expert) be submitted to
an arbitral tribunal for final decision as hereinafter
provided.·
33.4 The arbitral tribunal shall consist of three arbitrators.
Each Party to the dispute shall appoint one arbitrator and
E: the Party or Parties shall so advise the other Parties.
The two arbitrators appointed by the Parties shall appoint
the third arbitrator.
33.SAny Party may, after appointing an arbitrator, request
the other Party(ies) in writing to appoint the second·
F
arbitrator. If such other Parfy fails to appoint an arbitrator
within thirty (30) days of receipt of the written request to
do so, such arbitrator may, atthe request of the first Party,
be appointed by the Chief Justice of India or by a person
authorised by him within thirty (30) .days of the date of
G receipt of such request, from amongst persons who are
not nationals of the country of any of the Parties to the
arbitration proceedings.
33.6 If the two arbitrators appointed by or on behalf of
H the Parties fail to agree on the appointment of the third
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 199
[SURINDER SINGH NIJJAR, J.]
arbitrator within thirty (30) days of the appointment of the A
second arbitrator and if the Parties do not otherwise
agree, at the request of either Party, the third arbitrator
shall be appointed in accordance with Arbitration and
Conciliation Act, 1996.
33.12 The venue of the sole expert, conciliation or
arbitration proceedings pursuant to this Article, unless
the Parties agree otherwise, sha11 be New Delhi, India
and shall be conducted in the English language. Insofar c
as practicable, the Parties shall continue to implement
the terms of this Contract notwithstanding the initiation
of arbitral proceedings before a sole expert, conciliator
or arbitral tribunal and any pending claim or dispute.
33.13 * * *" D
5. On 8'h August, 2011, UOI granted its approval to the
Petitioner No.1 to assign 30% of its participating interest in
the Block KG-06, under the PSC to Petitioner No.3. On the
same date, i.e. 8'h August, 2011, Petitioner No. 3 also entered
into PSC as a party. Further, Petitioner No.1 was appointed E
as the' Operator' tor Block KG-D6, both under the terms of the
PSC, and the Joint Operating Agreement that was executed
between Petitioner No. 1 and Petitioners No. 2 & 3.
6. It appears that in the financial year 2010-2011, F
differences relating to the scope and interpretation of the
provisions of the PSC arose between the Petitioners and
Respondent after the publication of some media reports.
These reports, according to the Petitioners, suggested that
the Respondent was planning tci disallow cost recovery of the G
expenditures incurred by the Contractorsince the productions
levels from the gas fields had fallen drastically. According to
the Petitioners, all the disagreements and differences that have
arisen between them and UOI will inevitably lead to serious
problems in the working of the PSC. To resolve this dispute, H
200 SUPREME COURT REPORTS [2014] 14S.C.R.
'A lengthy correspondence ensued between Petitioner No. 1 and
the officers/representatives of Respondent No.1.
7. On 16th September, 2011. RIL (Petitioner no, 1) wrote
to the Respondent and pointed out that any attempt to disallow
or to restrict cost recovery of expenditures incurred by the ' ·
8 Contractor since the production levels from .gas fields had
fallen, would be contrary to.the provisions of the PSC and,
requested that no such action should be taken. There was no
response to the aforesaid letter from the Respondent.
,,
c 8. On 23"' November, 2011, Petitioner No.1 {RIL), through
its Advocates, served upon the Respondent a notice invoking
arbitration, in accordance with the arbitration agreement
contained in Article 33 of the PSC. In this letter, Petitioner no.1
also nominated Mr. Justice S. P. Bharucha, former Chief Justice
0 of India, as its arbitrator and called upon the Respondent to
nominate its arbitrator within 30 days of the receipt of this letter.
Respondent replied tci this letter on 21st December, 2011, and
intimated Petitioner NoJ. that the matter is under consideration
and that "the Ministry needs more time to respond and would
E do so by 31st January, 2012." In its letter dated 2nd January,
2012, thePetitioners pointed out to the Respondentthat, "the
PSC, the UNCITRAL Rules and the Indian Arbitration and
Conciliation Act, 1996 - .set a period of thirty days for your
making appointment of an Arbitrator." Nevertheless, as a matter.
F of good faith, time for nomination of an arbitrator by the ·
Respondent was extended until 31st January, 2012.
9. The Respondent, however, by a letter dated 25th
January, 2012 addressed to Petitioner No.1 called upon the
Petitioner to withdraw the Notice of Arbitration on the ground
G that the same was premature, "for the reason that no 'dispute'
has arisen between the parties to the Production Sharing
Contract." It is noteworthy that no objection was taken with
regard to Petitioner No.1 being the only party under thePSC
that seems to be.raising the disputes.
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 201
[SURINDER SINGH NIJJAR, J.]
10. Thereafter on znd February, 2012, Petitioner No.1 A
replied to the Respondent, by a letter through its advocates,
wherein it was reiterated that .there have been a long standing
controversy, differences and/or disagreement as to whether
the contractor's right to recover its contract cost is capable of
being limited by the Government, in the manner and on the B
. grounds as is sought to be done under the PSC. It was also
stated that: "Our client treats and construes your letter under
reply as your refusal and failure to appoint an arbitrator."
11. On 17'" February, 2012, Respondent wrote a letter to
Petitioner No.1, wherein it was reiterated that no dispute C
concerning the cost recovery under the PSC has arisen
between the parties to the PSC. The Respondent once again
called upon the Petitioners to withdraw the notice of arbitration
dated 23rd November, 2011.
D
12. In response to the aforesaid letter, Petitioner No.1,
· through its Advocates, addr~ssed a letter dated 9'h March,
. 2012 to the Respondent, wherein the demand made in the.
notice of arbitration dated 23"' November, 2011 was reiterated.
The letter inter alia stated as under:
E
"We are instructed to state that the assertion that disputes
and differences have not arisen between the Government
and the Contractor overlooks the previous
correspondence that the ensured (sic: ensued) between
the parties" F
•••
"The underlying reason for all this appears to be disputes
that have arisen between the Contractor and the DGH ... "
••• G
"The DGH, on its part has disagreed with the contractor
inter alia on whether the factual; assertion that drilling of
more wells would not augment the rate of production"
H
202 SUPREME COURT REPORTS (2014] 14 S.C.R.
A Annexure-1 to the aforesaid letter listed some of the issues
that have already arisen between the parties; which are as
under:
(I) Whether tlie FDP implies a commitment of the
contractor to produce particular or at a particular rat~?
B
(II) Whether the FDP implies a commitment of the
contractor to do a series of development activities even
if there is a difference of opinion between the
Government and the Contractor as to the efficacy of
c these activities?
(Ill) Whether the FDP is revised pro tanto by WP & B's
from time to time approved by MC?
(IV) Whether the variation between.the costs proposed
in the FDP and the actual cost can be a basis for
D disallowing Capex?
(V) Is the recovery of cos't related in any manner to the
. estimates of production even if the costs are within
the sanctioned budgets?
E (VI) Is the recovery of costs of facilities in any manner
related to the attainment of production estimates of
the FDP or the estimates of deposits or reservoir
characteristics?
(VII) Whether the FDP was a representation by the
F
contractor to produce at a particular rate or to produce
a particular quantity for a defined period, which by
conduct became a binding contract between the
parties?
G (VIII) Would the drilling of additional wells result in
increased production rates/volumes.
(IX) Did the approval of the WP & B's [FY 2009-10 (RE)
and 2010-11 (BE)] result in a modification of FDP?
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 203
[SURINDER SINGH NIJJAR, J.]
(X) Were the reasons given by the MoPNG/DGH for A
declining approval to the WP &B's for FY 2010-11 (RE)
and 2011-12 valid?
(XI) If the answer to (IX) and (X) is in the negative, what is
the consequence?"
B
13. On 16th April, 2012, Petitioners No.1 & 2 filed
Arbitration Petition No. 8 of 2012 under Section 11 (6) of the
Arbitration Act, 1996 before this Court (hereinafter referred to
as "AP. No. 8'), seeking 9onstitution of Arbitral Tribunal in terms
of Article 33.5 of the PSC. After filing of this petition, c
corresponqence ensued between the Petitioners and the
Respondent, wherein the subject matter related to cost recovery
of expenditure incurred by the Contractor for the years 2010-
2011 was discussed. This was done through letters/notice
dated 2nd May, 2012; 4th May, 2012 and 81hJune, 2012. In the D
letter dated 2°0 May, 2012, the Respondent makes a reference
to the PSC dated 12th April, 2000 in the following terms:
"We write with reference to the Production Sharing
Contract ("PSC") dated April 12, 2000 between Ministry
of Petroleum and Natural Gas ("Government"), Reliance E
Industries Limited (being the operator) and Niko
Resources Limited (collectively "Contractor"), in relation
to block KG-DWN-98-3. The expressions used and not
defined herf:!in and defined in the PSC, shall have the
meaning ascribed thereto in the PSC." F
The letter claims that the Petitioners have failed: "to fulfil
your obligations and to adhere to the terms of the PSC and
. are in deliberate and wilful breach of PSC and have thereby
caused immense loss and prejudice to the Government. You
have also repeatedly failed to meet your targets under the G
PSC." Thereafter the specific instances of the breach have
been highlighted in detail. Finally, it is recorded as under:-
"ln this regard, we have been instructed to state that any
such purported attempt to unilaterally adjust any amounts H
204 SUPREME COURT REPORTS [2014] 14 S.C.R.
A as threatened or otherwise would be completely illegal -
and constitute a serious breach of the provisions of the
PSC and that our client reserves all its right under the
PSC, the Arbitration Act, and the UNCITRALArbitration
Rules if the Government attempts_ to proceed to
B implement the purported decision threatened or
otherwise."
14. The Petitioners by an equally detailed letter denied
the claims made by the Respondent on 8th June, 2012. In
paragraph 31 of the aforesaid letter, ttie Petitioners again
C called upon the Respondent to appoint an arbitrator forthwith
(without raising ariy other procedural issues designed to delay
the dispute resolution process) so that the vital project
undertaken by the parties is not put in jeopardy on account of
the continuing uncertainty. '
D
15. In its letter dated 5th July, 2012, the Respondent
makes a reference to the letter dated 2"d May, 2012 addressed
to Coritractors of the block KG-DWN-98/3 and to the l~tter ·
dated 8th June, 2012 written by the Solicitors ori behalf of
E Petitioner No.1 and stated that the Ministry had nominated Mr.
Justice V.N.Khare, former Chief Justice of India as the
arbitrator on behalf of the Government of India. The letter also
called upon the Petitioners to withdraw theA.P. No. 8. On 16th
July, 2012, the Petitioners, through its advocates, addressed
F a letter to the Registrar of this Court, wherein it was requested
. that theA.P: No. 8 may be disposed of. Accordingly, theA.P.
No. 8 was disposed of by this Court by an order dated 7th
August, 2012. It would be appropriate to notice here the
relevant extract of the order:
G "Both the parties have no objection to the Arbitrators
nominated by each other. Under the arbitration clause,
the two nominated Arbitrators are to nominate the third
Arbitrator. In view of the above, in my opinion, no
further orders are required to be passed in this
H Arbitration Petition. The Arbitration Petition is disposed
of as such."
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 205
[SURINDER SINGH NIJJAR, J.]
16. On 12'h July, 2013, PetitionerNo.1 addressed a letter A
· to Mr. Justice S.P. Bharucha and Mr. Justice V.N. Khare,
requesting them to nominate the third arbitrator. On 1••August,
2013, Mr. Justice Bharucha wrote a.letter to Petitioner No.1,
inter alia, as follows :
"Undoubtedly, there has been a delay in the appointment B
of a third arbitrator. I had made a suggestion to my fellow
arbitrator, which was not acceptable to him. I asked him
to make a counter suggestion which he said he would
do. I have not heard any counter suggestion as yet.
c
In the circumstances, you must consider whether the court
should be approached for the appointment of a third
arbitrator."
17. It was in these circumstances that the present
arbitration petition came to be filed under Section 11 (6) of the D
Arbitration Act, 1996.
Submissions:
18. I have heard elaborate arguments, and perused the
written submissions submitted by the learned senior counsel E
appearing for the parties.
19. Mr. Harish N. Salve, learned senior counsel,
appearing for the Petitioners has made the following
submissions:
F
!- Re: International Commercial Arbitration·
20. It was submitted that the present arbitral proceedings
relate to an International Commercial Arbitration, as defined
under Section 2 (1) (f) of the Arbitration Act, 1996. Ld. senior
counsel pointed out that two out of the four parties to the G
arbitration agreement are based outside India; Petitioner No.
2·being a U.K. based company and Petitioner No.3 being
based in Canada. Substantiating this submission, it was
pointed out by Mr. Salve that each of the Petitioners is a party
H
206 SUPREME COURT REPORTS [2014] 14 S.C.R.
A to the PSC, as defined under Article 28.1 of PSC; and each of
the Petitioners comprise a "Contractor", under Article 2 of PSC.
21. It was also submitted that Petitioner No. 1, as
"Operator," performs each and every function of the Contractor
under the PSC on behalf of all the constituents of the Contractor,
8 as defined under Articles 7.1 and 7.3 of the PSC. Mr. Salve
mentioned that the Appendix 'C' to the PSC provides
accounting procedure which is required to be followed by the
Contractor and the Government. Learned senior counsel also
brought to our attention the accounting procedure that is
C required to be followed by the contractor and the Government.
Sections 1.4.2 and 1.4.4 of Appendix 'C' to the PSC indicate
that the accounts are to be maintained by the Operator on behalf
of the Contractors. On the basis of the aforesaid it was
submitted that for the purpose of cost recovery, only one set of
D accounts, as opposed to three sets of accounts, has to be
maintained. Thus, according to the submission, the award will
affect the cost recovery under the PSC and impact all the
parties, particularly Petitioners, equal!y. In the light of the
aforesaid, it WC!S submitted thatthe Operator was, therefore,
E obliged to raise a dispute on behalf of all the parties/Petitioners.
This was also made clear in theA.P. No. 8
22. Lastly it is submitted by Mr. Salve that the Respondent
itself has always understood and accepted that the substance
F of the dispute is related to and has implications for all the
parties to PSC. It was also pointed out that the Notice dated
2n' May, 2012 was addressed by the UOI to all the three
Petitioners and thatthe nomination of the Arbitrator by the UOI
was with reference to notice dated 2n' May, 2012.
G !1 Re: Jurisdiction of the Supreme Court:
23. Mr. Salve submitted that the parties cannot confe.r
jurisdiction on the Supreme Court, it flows from the fact that
there is an international arbitration. He submits that the stand
of the UOI is inconsistent. On the one hand it has accepted
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 207
[SURINDER SINGH NIJJAR, J.]
that this court has the jurisdiction to entertain the petition, and A
on the other hand it questions the assertion that this petition
concerns an international arbitration. It is further submitted by
him that A. P. No. 8 was filed in 2012 on the premise that the
arbitration between the Petitioner and the UOI was an
international arbitration on account of the fact that Petition'er B
No.2 is a company incorporated outside India. It was pointed
out that no dispute, as to the maintainability of the petition,
was raised at that time. A.P. No. 8 was disposed of by this
Court on merits and not for the want of jurisdiction. No dispute
was raised to the effect that this Court has no jurisdiction to C
entertain the petition, which was filed under Sei:tion 11 (6) of
theArbitrationAct, 1996. On the basis of the above, he submits
that the objection was raised by the Respondents that Petitioner
No.1 is the only party raising disputes in relation to PSC, and
claiming reference to arbitration is an afterthought. D
24. Mr. Salve further submits that the contention of the
UOI that this Court has no jurisdiction to entertain the present
petition in view of Section 11 (2) oftheArbitration Act, 1996, is
misconceived. It is also submitted that Sub-section (2) qf
Section 11 is subject, expressly, to subsection (6) thereof. E
Section 11 (6) provides that in case the appointment procedure
agreed upon by the parties is not complied with, a party may
request the Chief Justice to take the necessary measures. The
expression "Chief Justice" has been defined under sub-section
(12)(a) of Section 11 as the Chief Justice of India, in the case F
of an international commercial arbitration. In other arbitrations
under Section 11 (12)(b), it would be the Chief Justice of the
High Court. It was then submitted that a procedure agreed to
by the parties for appointment of arbitrator(s) is subjectto Sub-
section (6); it cannot override sub-section (6) and provide that G
in respect of a domestic arbitration, not-withstanding sub-
section(12), the parties would only move the Chief Justice of
India, or vice versa in the case of an international arbitration.
On the basis of the aforesaid, it was submitted that the
H
208 SUPREME COURT REPORTS [2014] 14 S.C.R. .
A contention of the UOI that this Court has no jurisdiction to
entertain the petition under Section 11 (6) is misconceived.
!!1. Re: Notice :
. 25. Further, it was stated that the Joint Operating
B Agreement entitles the Operatorto initiate litigation on behalf
of all the parties. It was also submitted that it is significant to
note that there is inconsistency in the stand taken by the
Respondent. On the one hand, Respondent claims that the
arbitral award would bind not merely Petitioner No.1 but also
c Petitioners No. 2 and 3; however on the other hand, the
Respondent insists that the arbitration proceedings are only
between Petitioner No. 1 and UOI. This stand of the
Respondents has been submitted to be contrary to the
established jurisprudence that an arbitral award is binding only
0 on the parties to the arbitration.
IV. Re: Arbitrator of Neutral Nationality
26. Mr. Salve submitted that since the arbitration is an
international one, this court, in accordance with the established
international practise, should consider appointing an arbitrator
E of a nationality other than the nationalities of the parties. In this
context, it was pointed out that the statute expressly obligates
the Court to examine the issue of nationality of the arbitrator
vis-a-vis the nationality of the parties. It was asserted that Article
33(5) of the PSC is conclusive on this issue. It provides that if
F one of the parties fails to appoint its arbitrator, the Court would
appoint an arbitrator of a nationality other than that of the
defaulting party. It was submitted that this clause indicates the
significance that the parties have attached to the neutrality of
the arbitrators. A fortiori, the chairman/presiding arbitrator
G should be of a nationality other than Indian. The contention of
the UOI that absence of a provision similar to Article 33(5) of
the Arbitration Agreement in relation to the appointment of the
third arbitrator suggests that the presiding arbitrator could be
Indian has been submitted by Mr. Salve to be misconceived.
H
RELIANCE INDUSTRIES LTD.v. UNION OF INDIA 209
[SURINDER SINGH NIJJAR, J.]
27. It was also brought to our notice thatthe UNCITRAL A
Rules, in force at the time when the PSC was drafted and
entered into, recognised that while the appointing authority
could appoint an arbitrator of the same nationality as that of
ttie defaulting party (in the event where a party fails to nominate
its arbitrator), but the presiding arbitrator that has to. be B
appointed would be of the nationality other than that of the
parties. The Petitioners states that the PSC provides for even
a greater degree of neutrality than the UNCITRAL by
provisioning that in case one of the parties makes a default in
nominating its arbitrator then the arbitrator has to be appointed c
from a neutral nationality. It was then submitted that there was
no need of a similar provision in relation to the presiding
arbitrator since the arbitration was to be in accordance with
UNCITRAL Rules. In this context, learned senior counsel relied
upon the law laid in Antrix Corporation Limited Vs. Devas o
Multimedia Private Ltd 1, wherein it was inter alia held that
the reference to such rules (ICC in that case) would include
the process of constitution of a tribunal.
28. Mr. Salve also referred to the submission of the
Respondent that the PSC being governed by the Indian law E
or/and that it involves the issues of public policy for India as
irrelevant. The fact that a party nominee had to be from a neutral
· country establishes that the parties did not consider the
governing law of the contract to be of any relevance to the
nationality of the arbitrator. It was also submitted that the trend F
of appointing presiding arbitrator from a "neutral nationality" is
now universally accepted under various arbitration rules as well
as under the Arbitration Act, 1996.
29. Mr. Salve also pointed out that Article 33 (9) of the
PSC adopts the UNCITRAL Rules for the arbitration Agreement G
and that at the time of signing the Arbitration Agreement the
UNCITRAL Rules, 1976 were in force. Mr. Salve also referred
to Article 6 of UNCITRAL Rules, 1976. He laid particular stress
on Article 6 (4).
1
2013 (7) SCALE 216 (Para 34) H
210 SUPREME COURT REPORTS [2014] 14 S.C.R.
A 30. It was further mentioned that the UNCITRAL Rules of
2010 are now at par with the procedure under Article 33.5,
even with respect to appointment of second arbitrator.
31. Relying upon the judgment of this Court in Northern
Railway Adtnihistratioh, Ministry of Railway, New Delhi
B Vs. Patel Englheering Company Limited 2 , it was submitted
that the scheme of Section 11 emphasises that the terms of
an Arbitration Agreement should be given effect as closely as ·
possible.
32. Lastly, it was submitted that the Respondents had
C lost their right to nominate the second arbitrator in the earlier
round of litigation, i.e. A.P. No.·8 and hence, the Petitioners
could have insisted under Article 33.5 that the Tribunal must
be constituted of two non-Indian Arbitrators in addition to the
arbitrator appointed by the Petitioner. It is, therefore, imperative
D that the third arbitrator should have a neutral nationality.
Respondent's Submissions
33. Mr. Anil B. Divan and Mr. DushyantA. Dave, learned
senior counsel, appeared for the Respondents. At the outset,
E it was pointed out that the present arbitration petition has been
filed under Sections 11 (6) and 11 (9) of the Arbitration Act, 1996,
read with Article 33.6 of the PSC. It was then submitted that
the Article 33.6 of the PSC, unlike Article 33.5,-does not require
that the arbitrator to be appointed should be a foreign national.
F The learned senior counsel suggested that the aforesaid
omission is both deliberate and significant. It was further
submitted that the Petitioners, by choosing not to object to the
appointment of Mr. Justice V.N. Khare, have waived of the
requirement that a foreign national be appointed as an arbitrator
by the parties, under Article 33.5 of the PSC. It was further
G submitted that this waiver also becomes clear from the letter
dated 16'" July, 2012, which was sent on behalf of the
Petitioners to the Respondent, wherein the nomination of Mr.
Justice Khare was accepted without any reservation. The
H '(200SJ 1osec240
RELIANCE iNDUSTRIES LTD. v. UNION OF lNDIA 211
[SURINDER SINGH NIJJAR, J.]
Petitioners are, therefore, as stated by the learned senior A
counsel, estopped from insisting upon appointment of a
foreign arbitrator.
34. Next, learned senior counsel submitted that that the
PSC is one of the most valued, crucial and sensitive contracts
for the nation, in as much as it deals with the PSC in offshore B
areas; and it deals inter alia with License and Exploration,
Discovery, Development and Production of the most valuable
natural resources, viz. petroleum products, including crude oil
and/or natural gas. Propounding further, it was submitted that
these products are vital to the survival of the nation. UOI entered C
into the PSC with Petitioners No. 1 and 2, with avowed
objective of exploiting the aforesaid.natural resources(s) in the
most efficient, productive manner and in a timely fashion. The
PSC, therefore, has great significance for the nation. lt was
also submitted that the entire subject matter of the contract is D
situated in India and hence, the applicable law is the Indian
law for both the substantive contract and the Arbitration
Agreement.
35. Placing strong reliance on the factual situation, it was
submitted that the PSC, its interpretation, and its execution E
involve intricate and complex questions of law and facts'
relating to Indian conditions; arid Indian laws. It was further
. submitted that since the pifrties were aware about the
aforesaid nature of PSC, th~y consciously refrained from
having the requirement tharthe third arbitrator should be a F
foreign nati1'nal. Thus, it was·submitted by the learned senior
counsel, that the issue relating to the appointment of the third
arbitrator has been left squarely to the two nominated
arbitrators, and that the two C\rbitrators are not to be influenced
by any requirement that the third arbitrator should be a foreign G
national. ··
36. In the support of the aforesaid submission, learned
counsel relied upon the letterdated 12'h July, 2013 written by
·.... .'
H
212 SUPREME COURT REPORTS [2014] 14 S.C.R.
A the Petitioner to the two arbitrators, wherein a request was
made to complete the constitution of the arbitral tribunal. The
following excerpt has been relied upon:
"While it is understood that it is sometimes a time
consuming exercise, Your Honour will appreciate that the
B issues which are subject matter of the arbitration
proceedings are of significant importance to the
Claimants.
Accordingly, on behalf of our clients we humbly request
c Your Honour to complete the constitution of the Arbitral
Tribunal at your earliest convenience,"
37. Learned senior counsel also relied upon the letter
dated 1''August,2013 written by Mr. Justice Bharucha to submit
that there is not even a suggestion that the third arbitrator has
D to be a foreign national.
38. The next submission of the Respondent is that
Petitioners No2 and 3 have not raised any dispute under the
PSC at any stage. It is only the Petitioner alone that has raised
the dispute and come forward as the Claimant. To substantiate
E the submissions, Respondents rely upon the following
documents:
(i) Letter dated 23.11.2011;
(ii) Notice of Arbitration dated 23.11.2011;
F
(iii) Letter dated 02.01.2011 on behalf of Petitioner No.
1 by its solicitors.
(iv) Letter dated 02.02.2011, on behalf of Petitioner No.
1 by its solicitors.
G (v) Letter dated 05.07.2012 of the Respondent to the
Solicitors of RI L.
(vi) Letter dated 1''August, 2013 of Mr. Justice Bharucha,
as per the Respondent shows that the arbitration was
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 213
[SURINDER SINGH NIJJAR, J.]
between Reliance Industries Limited and the A
Government of India.
39. It was also emphasised that all the communications
annexed with the present petition identify the claimant to be
Petitioner No. 1. It was also highlighted that the contents of
the letter dated 2nd May, 2012 written by the Respondents, which B
inter-a/ia deals with inadmissibility of recovery of costs has
not been disputed by Petitioners No. 2 and 3. Learned senior
counsel also relies upon the letter dated 12'h July, 2013, sent
on behalf of Petitioner No.1 by its Solicitors to the Arbitrators.
This letter was sent after the order dated 7'h August 2012 was C
passed by this Court in A.P. No. 8 of 2012. According to the
Respondents this letter also shows that the dispute is only
between RIL and the Respondent.
40. Mr. Divan also submitted that Petitioners No. 2 and D
3 have not conformed to Article 33 of the PSC, for the purposes
of invoking arbitration. Such non-compliance cannot be
considered as merely an omission. In the light of the aforesaid,
it was submitted that Petitioner No.1, an Indian Company, is
the only party to the dispute with the Respondents and therefore, E
there is no need to appoint a foreign arbitrator. Fµrther, it was
submitted even if it is assumed that Petitioners No. 2 and 3
have raised the dispufes in terms of Article 33.6, there is no
question of appointment of a foreign arbitrator as the dispute
raised is only between two Indian parties, viz. Petitioner No.1
F,
and the Respondents.
41. The next submission of Mr. Divan is that Section 11 (1)
of the Arbitration Act, 1996 provides that an arbitrator can be
of any nationality, unless otherwise agreed by the parties. It
was submitted that since the parties did not choose to have a G
foreign national to be appointed as the third arbitrator in Article
33.6, the parties did not choose to make Section 11(1)
applicable to them. Learned senior counsel also pointed out
that the parties instead agreed to proceed under Section 11 (2)
H
214 SUPREME COURT REPORTS [2014] 14 S.C.R.
A as they agreed to appoint an arbitrator without requiring him
to be of any foreign nationality.
42. Mr. Divan then points out that Section 11 (9) has been
authoritatively interpreted in Malaysian Airlines Systems
BHD II Vs. STIC Travels (P) Ltd. 3 and MSANederland B.V.
B Vs. Larsen & Toubro Ltd.4 According to the learned senior
counsel, UNCITRAL Rules cannot override Sections 11(1) &
(2), read with Article 33.6, nor can these Rules aid in
interpreting Section 11 (9). It was further submitted that the
appointment of the third arbitrator under Article 33.6 of PSC
C has to be made under Arbitration and Conciliation Act, 1996.
The UNCITRAL Rules will come into play only aftertheArbitral
Tribunal has been constituted. According to learned senior
counsel, following factors negate the application of UNCITRAL
Rules in making the appointment of the arbitrators:
D
(a) The law governing the arbitration agreement is Indian
Law;
(b) The seat of the arbitration is in India which makes the
curial law of the arbitration as Indian law.
E (c) The governing law of the contract is the Indian law.
(d) All these factors would show that UNCITRAL Rules
would become relevant only after theArbitralTribunal
has been constituted .
.F 43. Lastly, it was submitted that the appointment of a
foreign national as the third arbitrator is not only legally
untenable, but also undesirable, in the facts and circumstances
of the present case. To substantiate this, it was submitted that
both Petitioners No. 2 and 3 are multi-national companies,
G with Petitioner No. 3 having presence/business connections
in about 80 countries. These countries include the countries
whose nationals are sought to be nominated by the Petitioners.
It was further submitted that unravelling all the countries in which
'(2001 l 1 sec 509
4
H (2005)13SCC719
RELIANCE INDUSTRIES LTD'. v. UNION OF INDIA 215
[SURINDER SINGH NIJJAR, J.]
Petitioner No. 3 may have a connection would be difficult, if A
not impossible. Thus, the very object of neutrality, impartiality
and independence will be defeated by appointing a foreign
national as the third arbitrator. On the contrary, it was submitted,
appointment of a former judge of this Court would fie the most
suitable arrangement. B
44. In response, Mr. Salve submitted that: (i) The reliance
placed by the Respondents upon the law laid in Malaysian
Airlines Systems BHD II Vs. STIC Travels (P) Ltd. (supra)
and MSA Nederland B.V. Vs. Larsen & Toubro Ltd. (supra)
is misplaced as these cases are inapplicable in the present C
case. (ii) The contention of the UOI that nationals of the 80
countries in which Petitioner No. 3 has operations would
beconie ineligible to be appointed as arbitrators is
misconceived. In this context, it was submitted that the
Arbitration Act, 1996 and the related international practices D
takes into account nationality but not area of operation. This
submission of the Respondent, according to Mr. Salve, is not
tenable because it confuses the question of independence
and impartiality with neutrality. The aspect of neutrality is dealt
with in Section 11 (8) and Section 12; whereas, nationality is E
considered in Sections 11 (1) & (9) of Arbitration Act, 1996.
Further, it was submitted that these two provisions would be
rendered otiose if the submission of the UOI is accepted.
45. Before parting with submissions made on behalf of F
the parties, it must also be noticed that the learned senior
counsel for the parties have submitted a list each of proposed/
suggested arbitrators; which according to them would satisfy
the requirements of the arbitration agreement contained in
PSC.
G
46. I have considered the submissions made by the
learned senior counsel for the parties.
47. I am not inclined to accept the submissions made by
Mr. Anil B. Divan, learned senior counsel appearing on behalf
H
216 SUPREME COURT REPORTS [2014] 14 S.C.R.
A of the UOI. Initially, Arbitration Petition No.8 was filed by
Reliance Industries Limited- RIL (Petitioner No.1) and Niko
(Petitioner No.2). In paragraph 6 of the arbitration petition, it
was specifically averred as follows:-
"The Respondent by its letter dated 81h August, 2011,
B granted its approval to Petitioner No.1 to assign 30% of
its Participating Interest under the PSC to BP, thereby
also making BP a partner in the Block KG-06 ........ "
Therefore, it is apparent that reference to arbitration was
c sought on behalf of the three partners to the PSC.
48. The Arbitration Petition was disposed of as both the
parties had no objection to the arbitrator nominated by each
other. Therefore, the matter was left to the two arbitrators to
nominate the third arbitrator who shall be the Chairman of the
D Arbitral Tribunal. However, by letter dated 1' 1 August, 2013,
Mr. Justice Bharucha pointed out that the two arbitrators have
not been able to agree on the third arbitrator. Therefore, the
Petitioners h<id to approach this court for appointment of a
third arbitrator. In these circumstances, the present Petition
E came to be filed under Section 11 (6).
49. There is an additional reason for not accepting the
submission made by Mr. Anil Divan, learned senior counsel,
that the Petitioner is not acting on behalf of all the three
Contractors. The notice was served by RIL in the capacity of
F Operator, which included all the three Contractors, i.e., RIL,
Niko and British Petroleum (BP).
50. A perusal of some of the correspondence reproduced
earlier clearly indicates that the Respondent recognised that
G the Petitioner No.1 is the Operator on behalf of all the
Contractors, namely, Reliance, Niko and BP.
51. I find much substance in the submission of Mr. Salve
that the contentions raised in the counter affidavit reflect a
misunderstanding of:-
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 217
[SURINDERSINGH NIJJAR, J.]
(i) the terms of the PSC; A
(ii) reality of the Parties' commercial relationship;
(iii) application of the Arbitration and Conciliation Act,
1996;and
(iv) UNCITRALArbitration Rules and the practise of large B
scale arbitrations involving foreign parties.
52. It is also not possible to accept the submission of
Mr. Anil Divan that Niko and BP are not operators under the
PSC and, therefore, have forfeited any rightto operations under C
the PSC. It is also not possible to accept the submission that
Niko and BP are not the parties to the dispute with the
Respondent. I am of the considered opinion that the provisions
of the PSC clearly identified the parties to the PSC. The
disputes that have arisen between the parties are also clearly D
identified in the correspondence exchanged between the
parties. The three named contractors are, in fact, frequently
mentioned in the correspondence between the parties. It has
been correctly highlighted by Mr. Salve that the terms of the
PSC have to be considered in the light of the fact that the
Respondent expressly consented, after detailed inquiry, to the E
assignment of participation interests in the PSC to BP. It is a
matter of record that Niko has been a party to the PSC from
the beginning. Therefore, at-least at this stage, it would not be
possible to accept the submission of Mr. Divan that BP and
Niko are not "operating" under the PSC. F
53. I am also unable to accept the submission of Mr. Divan
that given the nature of operations under the PSC, the issues
involved thereunder are of public law and public policy. Mr.
Divan, on the basis of the aforesaid submission, has insisted G
that the third arbitrator ought to be from India. It was pointed
out by Mr. Divan that even if it is accepted that the disputes
raised by the Petitioner would also include the disputes of
Petitioner Nos. 2 and 3, the arbitration still essentially remains
an Indian arbitration. Such a submission cannot be accepted H
218 SUPREME COURT REPORTS [2014] 14 S.C.R.
A as the Respondents have not at any stage earlier raised an
objection that the disputes had been raised by Petitioner No.1
only on its own behalf and did not relate to the disputes of
Petitioner No.2 and 3 also.
54. In my opinion, the submission is misconceived and
B proceeds on a misunderstanding of the PSC, RIL, Niko and·
BP are all parties to the PSC. They are all contractors under
the PSC. The PSC recognizes that the operatorwould act on
behalf of the contractor. All investments are funded by not just
the Petitioner No.1 but also by the other parties, and they are
C equally entitled to the costs recovered and the profits earned.
For the sake of operational efficiency, the Operator acts for
and on behalf of the other parties. Therefore, I find substance
in the submission of Mr. Salve that the disputes have been
raised in the correspondence addressed by Petitioner No.1
D not just on its own behalf but on behalf of all the parties. During
the course of his submissions, Mr. Anil Divan had, in fact,
submitted that Niko and BP will be affected by the arbitral award
and it would be binding upon them too. Therefore, if the
Petitioner No.1 was to succeed in the arbitration, the award
E would enure not only to the benefit of Petitioner No.1 but to all
the parties to the PSC. Conversely, ifthe Government of India
were to succeed before the tribunal, again the award would
have to be enforced against all the parties. In other words,·
each of the Contractors would have to perform the obligations
F cast upon them. In that view of the matter, it is not possible to
accept the submission of Mr. Divan that the arbitration in the
present case is not an international arbitration.
55. It is equally not possible to accept the contention of·
Mr. Divan that Niko and BP have not raised any arbitrable
G
dispute with Union of India. A perusal of some of the provisions
of PSC would make it clear that all three entities are parties to
the PSC. All three entities have rights and obligations under
the PSC [see Article 28.1 (a)], including with respect to the Cost
Petroleum, Profit Petroleum and Contract Costs (see Article
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 219
[SURINDER SINGH NIJJAR, J.]
2.2), all of which are fundamental issues in the underlying A
dispute. Whe_re RIL acts under the PSC, including by
commencing arbitration, it does so not only on behalf of itself,
but also "on behalf of all constituents of the contractors"
·including Niko and BP, I am inclined to acceptthe submission
of Mr. Salve that there is a significant and broad ranging dispute B
between RIL, Niko and BP on the one hand and the UOI on the
other hand, that goes to the heart of the main contractual rights
and obligations under the PSC. Furthermore, it is a matter of
record that in the correspondence leading to the filing of the
earlier petition beingA.P.No.8 of2012, no such objection about C
Niko and BP not being a party to the dispute had been taken.
In fact, the petition was disposed of on a joint request made
by the parties that two arbitrators having been nominated, no
further orders were required. Therefore, there seems to be
substance in the submission of Mr. Salve that all these D
objections about Niko and f!P not being the parties are an
afterthought. Such objections, at this stage, can not be
countenanced as the cpmmencement of arbitration has
already been much delayed.
56. Both the parties had brought to the attention of the E
Court the correspondence from their own perspective. Having
considered the aforesaid correspondence, relevant extract of
which have been noticed earlier, it is not possible to hold that
the correspondence is only on behalf of the Rll. I, therefore,
do not accept the submission of Mr. Anil Divan that this is an F
arbitration between the two Indian parties only.
57. Further more the accounting procedure (Appendix
C to PSC) clearly provides that RIL shall keep the accounts for
the purposes of cost recovery statement. Therefore, it cannot G
be said that the claims made by the Petitioner are only on
behalf of RIL. The joint operating agreement expressly provides
that the operator "to initiate litigation on behalf of all the parties."
The fallacy of the stand taken by UOI is patent. On the one
hand, the Respondent claims that the arbitral award would bind
H
220 SUPREME COURT REPORTS [2014) 14 S.C.R.
A not only Petitioner No.1 but also Petitioner Nos. 2 and 3, but
on the other hand, is insisting that the arbitration proceedings
are only between Petitioner No.1 and UOJ. -
58. This now brings me to the major divergence of views
between Mr. Salve and Mr. Divan on the interpretation to be ·
B placed on Articles 33.5 and 33.6 of the PSC. Both the learned
senior counsel accept that when exercising power under
Section 11 (6) of the Arbitration Act, the 'Chief Justice of India
or the person or the institution designated by him' (hereinafter
referred to as "CJI" for convenience) is required to appoint the
C 2nd Arbitrator from amongst persons who are not nationals of
the country of any of the parties to the arbitration proceedings.
Thereafter, both the learned senior counsel have expressed
divergent views. According to Mr. Salve, the provisions
contained in Article 33.5 indicates the significance that the
D parties have attached to the neutrality of the arbitrators.
Therefore, necessarily the Chairman/Presiding Arbitrator
would have to be of a nationality other than India. According
to him, appointment of an Indian Arbitrator under Article 33.6
would not be an option open to the CJI. On the other hand, Mr.
E Divan emphasised that there is no requirement in Article 33.6
for appointment of a foreign arbitrator, identical or similar to
the provision in Article 33.5. His view is that the absence of
such a requirement is deliberate and significant. According to
him, it clearly signifies that only an Indian National can be
F appointed as the third arbitrator. I am of the opinion that both
the learned senior counsel are only partially correct. Both sides
have adopted extreme positions on the pendulum. I accept
the interpretation of both the learned senior counsel with regard
to Article 33.5 as the request will go to the Chief Justice of
G India for appointment of an arbitrator, "from amongst persons
who are not nationals of the country of any of the parties to the
arbitration proceedings". Jn exercise of the jurisdiction under
Section 11 (6), the CJI would usually appoint the third arbitrator
in accordance with the request. I have no hesitation in accepting
H
RELIANCE INDUSTRIES LTD. v. UNION OF !NOIA 221
[SURINDER ~tN,GH
·.: ..·
NIJJAR, J.]
the submission of Mr. Divan t~~t even the third arbitrator is an A
Indian National, it would not be contrary to Article 33.6. But it
would not be possible for rr}e;to accept the extreme views
expressed by Mr. Divan that:only an Indian National can be
appointed, as there is an :~~sence of a requirement of
appointing a foreign national as the third arbitrator. In my B
opinion, Article 33.6 virtually.leaves it to the Chief Justice of
India to appoint the third arbitrator who would be neutral,
impartial and independent from anywhere in the world
including India. Just as India cannot be excluded, similarly,
the countri~s where British Petroleum and Niko are domiciled, c
as an option from where the third arbitrator could be appointed,
cannot be ruled out. Having said this, it must be pointed out
that this is the purely legal position. This would be a very
pedantic view to take whereas international arbitration
problems necessarily have to be viewed pragmatically. o
Fortunately, Arbitration Act, 1996 has made express provision
for adopting a pragmatic approach. When the CJI exercises
his jurisdiction under Section 11 (6) he is to be guided by the
provisions contained in the Arbitration Act, 1996 and generally
accepted practices in the other international juri_sdictions. CJI ., E
would also be anxious to ensure that no doubts are cast on the
. neutrality, impartially and independenc.e of the Arbitral
Tribunal. In international arbit~ation, the surest method of
ensuring at/east the appearance of~neutrality would be to
appoint the sole or the third arbitrator from nationality other F
than the parties to the arbitration. This view of mine will find
support from numerous internationally renowned
commentators on the practice of international arbitration as
well as judicial precedents.
59. At this stage, it would be appropriate to take notice G
of the observations made by two such commentators.
60. Redfern and Hunter on International Arbitration, Fifth
Edition (2009) Para 4.59 expresses similar views with regard
to the importance of the nationality of the sole or the third
H
222 SUPREME COURT REPORTS [2014] 14 S.C.R.
A arbitrator being from a country different from that of the parties
to the arbitration-. The opinion of the learned authors is as
follows:-
"In an ideal world, the country in which the arbitrator was
born, or the passport carried, should be irrelevant. The
B qualifications, experience, and integrity of the arbitrator
should be the essential criteria. It ought to be possible to
·proceed in the spirit of the Model Law which, addressing
·this question, provides simply: 'No person shall be
precluded by reason of his nationality from acting as an
c arbitrator,. unless otherwise agreed by the parties.'
Nevertheless, as stated above, the usual practice in
international commercial arbitration is to appoint a ~ole
.arbitrator (or a presiding arbitrator) of a different
nationality from that of the parties to the dispute."
D
61. Gary B. Born in International Commercial Arbitration,
Volume I (2009) has an elaborate discussion on the impact of
the UNCITRAL Model Laws aswell as UNCITRAL Rules on
the appointment of the sole or the third arbitrator. He points
E out that some arbitration legislations contain different nationality
··provisions, similar to those applicable u·nder leading
institutional rules, which apply when a national court acts in its
default capacity to select an arbitrator (in limited
cjrcumstances).
F 62. Article 11(5) of the UNCITRAL Model Law reads as
under:-
"A decision on a matter entrusted by paragraph (3) or
(4) of this Article to the court or other authority specified
in Article 6 shall be subject to'no appeal. The court or
G other authority, in appointing an arbitrator, shall have due
regard to any qu9lifications required of the arbitrator by
the agreement of the parties and to such considerations
as are likely to secure. the appointment of an independent
and impartial arbitrator and, in the case of a sole or third
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 223
[SURINDER SINGH NIJ.JAR, J.]
arbitrator, shall take into account as well the advisability A
of appointing an arbitrator of a nationality other than those
of the parties."
63. Article 6(4) of UNCITRAL Rules, 1976 in almost
identical terms reads as under:- ·
B
"In making the appointment the appointing authority shall
have regard to such considerations as are likely to secure
the appointment of an independent and impartial
arbitrator and shall take into account as well advisability
of appointing an arbitrator of a nationality other than the c
nationalities of the parties."
64. Taking note of the aforesaid two Articles, it is
observed by the learned author as follows :
"Article 11 (5) does not restrict the parties' autonomy to D
select arbitrators of whatever nationality they wish. It
merely affects the actions of national courts, when acting
in their default roles of appointing arbitrators after the
parties' efforts to do so have failed. Article 11 (5) does
not forbid the appointment of foreign nationals as
arbitrators, but on the contrary encourages the selection E
of an internationally-neutral tribunal.
Far from resembling national law prohibitions against
foreign arbitrators, Article 11 (5) aims at exactly the
opposite result. Indeed.Article 11 (1) of the UNCITRAL F
Model Law s:ilso provides, like the European and Inter-
American Conventions, that "no person sha·ll be
precluded by reason of his nationality from acting as an
arbitrator, unless otherwise agreed by the parties. That
properly reflects the international consensus, embraced G
by the European, Inter-American and New York
Conventions, that mandatory nationality prohibitions are
incompafible with the basic premises of international
arbitration."
H
224 SUPREME COURT REPORTS [2014] 14 S.C.R.
A 65. Earlier in the same volume at page 1431, while
discussing the "Criteria for Judicial Selection of the Arbitrator'',
he re-states the general practice adopted in appointment of
an independent and impartial arbitrator. The opinion of the
learned author is as follows :
B "National arbitration legislation provides only limited
guidance for courts actually to make the selection of
arbitrators in international arbitrations. Article 11 (5) of the
UNCITRAL Model Law provides that "in appointing an
arbitrator, [the court] shall have due regard to any
c qualifications required of the arbitrator by the agreement
of the parties and to such considerations as are likely to
secure the appointment of an independent and impartial
arbitrator," the same provision requires the court to "take
into account as well as the advisability of appointing an
D arbitrator of a nationality other than those of the parties."
This language requires courts to have "due regard" to
the parties' contractually specified requirements for
arbitrators-which very arguably accords such
requirements inadequate weight, given the importance
E of party autonomy in the arbitrator selection process.
Similarly, it is doubtful that it is sufficient for courts merely
to "take [the arbitrator's nationality] into account", rather
it. should generally be essential that the presiding
arbitrator have a neutral nationality."
F
66. Redfern and Hunter on International Arbitration, Fifth
Edition (2009) at Page 263, expresses a similar opinion, after
taking into consideration the UNCITRAL Rules; ICC Rules;
LCIA Rules and ICDR Rules, which is as follows:-
G "The fact that the arbitrator is of a neutral nationality is no ·
guarantee of independence or impartiality. However, the
appearance is better and thus it is a practice that is
generally followed".
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 225
[SURINDER SINGH NIJJAR, J.]
67. Section 11 of the Arbitration Act, 1996 uses similar A
phraseology as Article 11 of the UNCITRAL Model Law.
Therefore, it would not be possible to accept the submission
of Mr. Divan that the Court cannot look to Model Laws or the
UNCITRAL Laws as legitimate aids in giving the appropriate
interpretation to the provisions of Section 11, including Section B
11 (6).
68. In any event, the neutrality of an arbitrator is assured
by Section 11(1) of the Arbitration Act, 1996, which provides
that a person of any nationality may be an arbitrator, unless
otherwise agreed by.the parties. There is no agreement C
between the parties in this case that even a third arbitrator
must necessarily be an Indian national. In fact, Section 11 (9)
of the Arbitration Act, 1996 specifically empowers the CJI to
appoint an arbitrator of a nationality other than the nationality
of the parties involved in the litigation. Therefore, I am unable D
to accept the submission of Mr.Anil Divan that it would not be
permissible under the Arbitration Act, 1996 to appoint the third
arbitrator of any nationality other than Indian. Merely because ·
the two arbitrators nominated by the parties are Indian would
not ipso facto lead to the conclusion that the parties had ruled E
out the appointment of the third arbitrator from a neutral
nationality. In this case, both the arbitrators had been
appointed by the parties, therefore, the condition precedent
fo(appointing an arbitrator, from amongst persons, who are
not nationals of the country of any of the parties to the arbitration F
proceedings, had not even arisen.
69. I also do not find merit in the submission made by
Mr.Anil Divan on the basis of Articles 33.5 of the PSC.A~are
perusal of Article 33. 5, PSC would show that it deals only with
the situation where the other party fails to appoint an arbitrator G
and a request is made to the Chief Justice of India or a person
authorised by him to appoint the second arbitrator. In such a ·
situation, the Chief Justice is required to choose the second
arbitrator from amongst the persons who are not nationals of
H
226 SUPREME COURT REPORTS [2014] 14 S.C.R.
A a country of any of the parties to the arbitrator proceedings.
Article 33.6 is invoked when the two arbitrators appointed by
the parties fail to nominate the third arbitrator. In such
circumstances, the Chief Justice or the nominees of the Ghief
Justice is required to appoint the third arbitrator in accordance
B with the Arbitration and Conciliation Act, 1996. At that stage,
Section 11 (9) of the Arbitration Act, 1996 would become
relevant. It would be necessary for the Chief Justice of India to
take into consideration the will of the Indian Parliament
expressed in Section 11(9). It appears to me that the
C submission made by the Petitioners·cannot be said to be
without any merit. I am unable to read into Article 33.6, an
embargo on the appointment of a foreign national as the third
arbitrator as submitted by Mr. Divan. It is not possible to accept
th~ submission that the parties have specifically decided to
o exclude the appointment of a foreign arbitrator under Article
33.6, as no specific provision was made para materia to Article
33.5. Even in the absence of a specific provision, the
appointment of the third arbitrator under Article 33.6 would have
to be guide~ by the provisions contained under Section 11 (9)
E of the Arbitration Act.
70.1 am also unable to accept the submission of Mr. Divan
that since the provision contained in Section 11 (9) of the
Arbitration Act, 1996 is not mandatory; the Court ought to
appoint the third arbitrator, who is an Indian National. lhis
F Court, in the case of Malaysian Airlines Systems BHD II
(supra)L interpreting Section 11 (9) after taking into
consideration the position in some other countries where the
UNCITRAL Model Law is adopted, has come to the following
coriclusions:-
G "25. It is, therefore, clear that in several countries where
the UNCITRALModel.is adopted, it has been held that it
is not impermissible to appoint an arbitrator of a
nationality of one of the parties to arbitration.
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 227
[SURINDER SINGH NIJJAR, J.]
26. In the light of the above rules in various countries and A
rulings of the court and also in view of the fact that the
1996 Act is based on UNCITRAL Model Law which in
Article 6(4) only speaks of "taking into account" the
nationality as one of the factors, I am of the view that the
word "may" in Section 11 (9) of the Act is not intended to B
be read as "must" or "shall".
27. I am, therefore, of the view that while nationality of
the arbitrator is a matter to be kept in view, it does not
follow from Section 11 (9) that the proposed arbitrator is
necessarily disqualified because he belongs to the C
nationality of one of the parties. The word "may" is not
used in the sense of "shall". The provision is not
mandatory. In case the party who belongs to a nationality
other than that of the proposed arbitrator, has no
objection, the Chief Justice of India (or his nominee) can D
appoint an arbitrator belonging to a nationality of.one of
the parties. In case, there is objection by one party to the
appointment of an arbitrator belonging to the nationality
of the opposite party,-the Chief Justice of India (or his
nominee) can certainly consider the objection and see if E
an arbitrator not belonging to the nationality of either
. parties can be appointed. While taking that decision, the
Chief Justice of India (or his nominee) can also keep in
mind, in cases where the parties have agreed that the
law applicable to the case is the law of a country to which F ·
one of the parties belong, whether there will be an
overriding advantage to both the parties if an arbitrator
having knowledge of the applicable law is appointed.
28. In the result, I am of the view that under Section 11(9) G
of the Act it is not mandatory for the court to appoint an
arbitrator not belonging to the nationality of either of the
parties to the dispute."
H
228 SUPREME COURT REPORTS [2014] 14 S.C.R.
A 71. The aforesaid ratio of law in Malaysian Airlines
Systems BHD II (supra) has been reiterated by this Court in
MSA Nederland B.V. (supra) in the following words:-
"3. The learned counsel appearing for the petitioner drew
my attention to the fact that the petitioner Company is a
B company incorporated in the Netherlands while the
respondent Company is a company incorporated in India.
He prayed that in view of the provisions of Sections 11 (9)
of the Arbitration and Conciliation Act, an arbitrator having
a neutral nationality be appointed, meaning thereby that
c the sole arbitrator should neither be a Dutch national nor
be an Indian national. Sectio.n 11 (9) is reproduced as
under:
"11. (9) In the case of appointment of sole or third
arbitrator in an international commercial arbitration,
D
the Chief Justice of India or the person or institution
designated by him may appoint an arbitrator of a
nationality other than the nationa.lities of the parties
where the parties belorig to different nationalities."
E The key word in the above provision is "may" which leaves
a discretion in the Chief JUstice or his nominee in this
behalf and it is not mandatory that the sole arbitrator
should be of a nationality;Qlher than· the nationalities of
the parties to the agreem~.~t"
F 72. But the ratio in the aforesaid cases can not be read
to m_ean that in all circumstances·, it is not possible to appoint
an arbitrator of a nationality other than the parties involved in
the litigation .. It is a matter of record that Clause 33.5 of the
PSC provides that on failure of iti'e second party to nominate
G its arbitrator, the Chief Justice (Jf India may be requested to
appoint the secorid arbitrator froin amongst persons who are
not nationals of the country of an~;:of the parties to the arbitration
proceedings. Therefore, in principle, it becomes apparent that
the Respondents have accepted,J;tje appointment of the second
H .·····.
' '
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 229
[SURINDER SINGH NIJJAR, J.]
arbitrator from a neutral country. Merely because, the seat of A
arbitration is.in India, the applicable law is Indian Law; it does
not become incumbent on the Court to appoint the third
arbitrator, who is an Indian national. The concern of the Court
is to ensure neutrality, impartiality and independence of the
third arbitrator. Choice of the parties has little, if anything, to B
do with the choice of the Chief Justice of India or his nominee·
in appointing the third arbitrator. It is true that even at the stage
of exercising its jurisdiction under Section 11 (6) at the final
stage, the Chief Justice of India or his nominee can informally
enquire about the preference of the parties. But it is entirely c
upto the Chief Justice of India, whether to accept any of the
preferences or to appoint the third arbitrator not mentioned by
any of the parties. In making such a choice, the Chief Justice
of India will be guided by the relevant provisions contained in
theArbitrationAct, UNCITRAL Model Laws and the UNCITRAL D
Rules, where the parties have included the applicability of the
UNCITRAL Model LawslUNCITRAL Rules by ch·oice.
73. I must emphasise here that the trend of the third
arbitrator/presiding officer of a neutral nationality being
appointed is now more or less universally accepted under the E
Arbitration Acts and Arbitration Rules in different jurisdictions.
74. In the present case, Article 33(9) of the PSC adopts
the UNCITRAL Rules for the arbitration agreement under
Article 39. The applicable UNCITRAL Rules at the time when F
the arbitration agreement was signed were the 1976 Rules.
75. The aforesaid Rules have been literally paraphrased
in Section 11 (9) of the Arbitration Act, 1996. Rule 4 of
UNCITRAL states that in making the appointment, the
appointing authority shall have regard to such consideration G
as are likely to secure appointment of an independent and
impartiaf"arbitrator. Superimposed on those two conditions
is a provision that the appointing authority shall take into
account, as well, the advisability of arbitrator of a nationality
H
230 SUPREME COURT REPORTS [2014] 14 S.C.R.
A . other than the nationalities of the parties. Thes.e rules in my
opinion are almost parallel to Article 33(5) of the PSC.
76. Mr. Anil Divan had, however, raised serious doubts
about the impartiality of the third arbitrator due to the
omnipresence of British Petroleum all over the world. I am of
8 . the considered opinion that the apprehension expressed by
the learned senior counsel is imaginary and illusory. Such a
proposition cannot possibly be accepted as a general practice
for the appointment of Chairman/Presiding Offic;er/Third
Arbitrator guided by the principle consideration that there must
C not only be the neutrality, but appearance of neutrality of the
third atbitrator. In that view of the matter, I have no hesitation in
rejecting this submission of Mr. Divan that only an Indian
National can be appointed as the third arbitrator.
D 77. This apart, I must-notice here the judgment of this
Court in the case of Northern Railway Administration,
Ministry of Railway, New Delhi (supra), whilst considering
the contingencies under which a party may request the Chief
Justice or any person or institution designated by him under
E Section 11 to take necessary measures held as follows:-
"11. The crucial expression in sub-section (6) is "a party
may request the Chief Justice or any person or institution
designated by him to take the necessary measure"
(underlined for emphasis:). This expression has to be
F read along with requirement in sub-section (8) that the
Chief Justice or the person or an institution designated
by him. in appointing an arbitrator shall have "due regard"
to the two cumulative conditions relating to qualifications
and other considerations as are likely to secure the
G appointment of an independent and impartial arbitrator.
. 12. A bare reading of the scheme of Section ·11 shows
that the emphasis is on the terms of the agreement being
adhered to and/or given effect as closely as possible. In
other words, the Court may ask to do what has not been
H
RELIANCE INDUSTRIES LTD. v. UNION OF INDIA 231
[SURINDER SINGH NIJJAR, J.]
done. The Court must first ensure that the remedies A
provided for are exhausted. It is true as contended by Mr
Desai, that it is not mandatory for the Chief Justice or
any person or institution designated by him to appoint
the named arbitrator or arbitrators. But atthe same time,
due regard has to be given to the qualifications required B
by the agreement and other considerations.
13. The expression "due regard" means that proper
attention to several circumstances have been focused.
The expression "necessary" as a general rule can be
broadly stated to be those things which are reasonably C
·required to be done or legally ancillary to the
accomplishment of the intended act. Necessary
measures can be stated to be the reasonable steps
required to be taken."
D
78. Keeping in view the aforesaid principles, I have
examined the submissions of Mr. Divan and Mr. Salve on the
issue with regard to the neutrality, impartiality and
independence of the third arbitrator. As held earlier, the
apprehension expressed by the Respondent Union of India E
seems to be imaginary and illusory. Whatever is being said
about the influence/presence of British Petroleum in other
jurisdictions would apply equally to the Union of India, if the
third arbitrator is an Indian national, within the lndi.an jurisdiction.
79. The apprehension expressed by Mr. Divan that if a F
foreign national is appointed as a third arbitrator, the Tribunal
would be at a disadvantage as all applicable laws are Indian,
in my opinion, overlooks the fact that the two arbitrators already
appointed are Former Chief Justices.of India and can be very
safely relied upon to advise the third arbitrator of any legal G
position, which is peculiar to India.
80. At this stage, normally the matter ought to be remitted
back to the two arbitrators appointed by the parties to choose
t.he third arbitrator on the basis of the observations made in
H
232 'SUPREME COURT REPORTS [2014] 14 S.C.R.
A the judgment. However, given the sharp difference of opinion
between the two arbitrators, I deem it appropriate to perform
the task of appointing the third arbitrator in this Court itself.
Therefore, I had requested the learned senior counsel for the
parties to supply a list of eminent individuals one of whom could
B be appointed as the third arbitrator. Although two lists have
· been duly supplied by the learned counsel for the parties, I am
of the opinion, in the peculiar facts and circumstances of this
case, it would be appropriate if an individual not named by
any of the parties is appointed as the third arbitrator. I have
c discretely conducted a survey to find a suitable third arbitrator
who is not a National ?f any of the parties involved in the dispute.
81. Upon due consideration, I hereby appoint Honourable
James Spigelman AC QC, former Chief Justice and Lieutenant
Governor of New South Wales, Australia as the third Arbitrator
D who shall act as the Chairman oftheArbitralTribunal. The E-
mail address which has been supplied to this Court is as
follows:
spigel@bigpond.net.au
E 82. In view of the considerable delay, theArbitralTribunal
is requested to enter upon the reference at the earliest and to
render the award as expeditiously as possible.
83. The Arbitration Petition is allowed in the aforesaid
terms. No costs.
F
ORDER
It has been pointed out that, in judgment dated 31 ''
March, 2014 delivered in Arbitration Petition No.27 of 2013,
. in spite of my earlier observations that I shall not appoint an
Arbitrator from either of the list submitted by the parties, the
Arbitrator actually appointed happens to be on the list of the
petitioners.
RELIANCE INDUSTRIES LTD. v. UNION OF !NOIA 233
In that view of the matter, the aforesaid direction A
appointing Honourable James Spigelman AC QC, former
Chief Justice and Lieutenant Governor of New South Wales,
Australia as the third Arbitrator is hereby withdrawn. The
substitute Arbitrator shall be appointed subsequently by a
separate order. B
It is also made clear that all issues arising between the
parties are specifically kept open and the Arbitral Tribunal shall
proceed being wholly uninfluenced by any observation made
in the judgment.
c
ORDER
1. On 2nd April, 2014, this Court has passed the following
order:-
"It has been pointed out that, in judgment dated 31st
March, 2014 delivered in Arbitration Petition No. 27 of D
2013, in spite of my earlier observations that I shall not
appoint an Arbitrator from either of the list submitted by
the parties, the Arbitrator actually appointep happens to
be on the list of the petitioners.
E
In that view of the matter, the aforesaid direction
appointing Honourable James Spigelman AC QC,
former Chief Justice and Lieutenant Governor of New
South Wales, Australia as the third Arbitrator is hereby
withdrawn. The substitute Arbitrator shall be appointed F
subsequently by a separate order.
It is also made clea.r that all issues arising between the
parties are specifically kept open and theArbitral Tribunal
shall proceed being wholly uninfluenced by any
observation made in the judgment." G
2. In furtherance of the aforesaid order, I hereby appoint
Honourable Michael Hudson McHugh, AC QC, former Judge
of the High Court of Australia and former Non-permanent
H
234 SUPREME COURT REPORTS [2014] 14 S.C.R.
A Justice of the Court of Final Appeal in Hong Kong as the third
arbitrator, who shall act as the Chairman of theArbitral Tribunal.
· 3. The E-mail address of the aforesaid third arbitrator is
as follows :-
B mhmch@wentworthchambers.com.au
4. Let the orders dated 31st March, 2014, 2nd April, 2014
and 29th April, 2014 be stitched together.
Nidhi Jain Arbitration Petition allowed.
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