Whether it is permissible for the High Court to appoint third party or an independent Arbitrator when the parties have mutually agreed for the procedure to appoint the designated arbitrator?

High Court cannot appoint an independent arbitrator without resorting to the procedure for appointment of an arbitrator which has been prescribed / inbuilt under the contract or agreement under as agreed by the parties.

The Hon’ble Supreme Court in the matter of Union of India vs. Parmar Construction Company, Civil Appeal No(s). 3303 – 3319 of 2019, considered the question whether it is permissible for the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 (prior to the Amendment Act, 2015) to appoint third party or an independent Arbitrator when the parties have mutually agreed for the procedure to appoint the designated arbitrator?

Clause (c) of sub­-section (6) of Section 11 relates to failure to perform any function entrusted to a person including an institution and also failure to act under the procedure agreed upon by the parties. Clause(a) refers to the party failing to act as required under that procedure; clause(b) refers to the agreement where the parties fails to reach to an agreement expected of them under that procedure and clause (c) relates to a person which may not be a party to the agreement but has given his consent to the agreement and what further transpires is that before any other alternative is resorted to, agreed procedure has to be given its precedence and the terms of the agreement has to be given its due effect as agreed by the parties to the extent possible. The corrective measures have to be taken first and the Court is the last resort.  It is also to be noticed that by appointing an arbitrator in terms of sub­-section (8) of Section 11 of Act, 1996, due regard has to be given to the qualification required for the arbitrator by the agreement of the parties and also the other considerations such as to secure an independent and impartial arbitrator. To fulfill the object with terms and conditions which are cumulative in nature, it is advisable for the Court to ensure that the remedy provided as agreed between the parties in terms of the contract is first exhausted.

The Court put emphasis to act on the agreed terms and to first resort to the procedure as prescribed and open for the parties to the agreement to settle differences/disputes arising under the terms of the contract through appointment of a designated arbitrator although the name in the arbitration agreement is not mandatory or must but emphasis should always be on the terms of the arbitration agreement to be adhered to or given effect as closely as possible.

In the given circumstances, it was the duty of the High Court to first resort to the mechanism in appointment of an arbitrator as per the terms of contract as agreed by the parties and the default procedure was opened to be resorted to if the arbitrator appointed in terms of the agreement failed to discharge its obligations or to arbitrate the dispute which was not the case set up by either of the parties.

The Court concluded that the High Court was not justified in appointing an independent arbitrator without resorting to the procedure for appointment of an arbitrator which has been prescribed under clause 64(3) of the contract under the inbuilt mechanism as agreed by the parties.