Facts in Brief

The present case dealt with the issue concerning the composition of an arbitral tribunal. The Appellant contended that Section 10 of the Arbitration and Conciliation Act, 1996 was a mandatory provision which could not be derogated from. Sub-section (1) of Section 10 provided that the parties were free to determine the number of arbitrators, provided that such number should not be an even number. Sub-section (2) provided that in case the parties failed to determine the number of arbitrators, the arbitral tribunal shall consist of a sole arbitrator.

It was pointed out that even though the parties were free to determine the number of arbitrators, such number could not be an even number. It was also submitted that any agreement which permitted the parties to appoint an even number of arbitrators would be contrary to the mandatory provision of the Act.

Arguments

It was argued that such an agreement would be invalid and void, as the Arbitral Tribunal would not have been validly constituted. The Appellant therefore submitted that in such circumstances — the composition of the Arbitral Tribunal itself being invalid — the proceedings and any award, even if one were passed, would be invalid and unenforceable.

On the other hand, it was argued on behalf of the Respondents that Sections 4, 10 and 16, being part of the integrated scheme provided in the said Act, had to be read in a manner whereby there was no conflict between any of them, or by which any provision was not rendered nugatory. It was pointed out that Section 10 began with the words, “The parties are free to determine the number of arbitrators.” It was therefore submitted that arbitration was a matter of agreement between the parties, and as such, the parties were free to determine the number of arbitrators and the procedure.

It was further argued on behalf of the Respondents that: (a) the parties were free to agree upon an even number of arbitrators; (b) even after a party had agreed to an even number of arbitrators, it could still have objected to the composition of the Arbitral Tribunal; (c) such an objection could be taken even though the parties had appointed, or participated in the appointment of, the arbitrator under Section 16(2); and (d) the wording of Section 16 was wide enough to cover even an objection to the composition of the Arbitral Tribunal.

It was submitted that an award could be challenged on the ground of the composition of the Arbitral Tribunal only provided that an objection was first taken before the Arbitral Tribunal under Section 16, and the Arbitral Tribunal had rejected such an objection. In other words, it was necessary that such a challenge be made as soon as possible before the Arbitral Tribunal.

In fact, it was also contended on behalf of the Respondents that Section 34(2)(a)(v) did not permit the setting aside of an award on the ground of the composition of the Arbitral Tribunal if the composition was in accordance with the agreement of the parties. In the case under consideration, it was claimed that the composition was in accordance with the agreement of the parties.

Judgment

The Apex Court observed that a conjoint reading of Sections 10 and 16 of the Act showed that an objection to the composition of the Arbitral Tribunal was a matter which was derogable, because a party was free not to object within the time prescribed in Section 16(2). The Court held that Section 10 had to be read along with Section 16, and was therefore a derogable provision. The Court also observed that such a challenge could be taken even though the party may have participated in the appointment of the arbitrator, and/or may have himself appointed the arbitrator.

The Supreme Court also refused to accept the Appellant’s argument that, as a matter of public policy, Section 10 should be held to be non-derogable. In the opinion of the Supreme Court, arbitration being a creature of agreement between the parties, it would be impossible for the Legislature to cover all aspects.

For the Common Man

Going against the spirit of the text of the enactment, the law which stands today is that parties are free to appoint an even number of arbitrators, and if any objection on that score has to be taken, it should be done by the concerned parties, as soon as possible, before the Arbitral Tribunal itself. Thus, after the decision of the Court, despite the proviso in the Section, the law has been restated by the Supreme Court as to be holding what the text states.