In an important ruling on arbitration law, which might affect the corporate sector, the Supreme Court has held that the Arbitration Act does not prohibit substitution of an arbitrator in a contract between parties on the death of the incumbent.
Defining the process of appointing of arbitrators the agreements between the parties entering into a contract, to resolve any of their disputes arising out of it during the course of the business, the top court said on the death of an arbitrator a substitution could be made and his position would be the same as was that of the incumbent.
A bench of Justices K.S. Radhakrishnan and J.S. Khehar gave the ruling in the Associated Cement Company’s 550 hectare land dispute case with Global Cement Limited in Gujarat arising out of the 1989 agreement in which noted lawyer Nani Palkhivala was appointed the arbitrator by them.
As a protracted litigation arose from the agreement between the two companies, the issue was complicated further with the death of Palkhiwala on December 11, 2002.
As the matter went to the Bombay high court on the issue of arbitrator’s substitution, it upheld as right the appointment of former Supreme Court Judge S.N. Variava with the same conditions and powers as were envisaged in the original agreement of 1989.
While resolving the issue on an appeal coming before the top court on the important question of law, the bench in a verdict pronounced this week and made available to media on Friday, said there was nothing in “clause-21” of the agreement between contracting parties that ran contrary to the provision of section 7 of the Arbitration Act, which lays the procedure for the appointment of arbitrator.
“We are of the view that clause 21 does not prohibit or debar the parties in appointing a substitute arbitrator in place of the named arbitrators and, in the absence of any prohibition, parties can persuade the court for appointment of an arbitrator under clause 21 of the agreement,” the top court said.
“Clause 21 of the agreement indisputably is an arbitration agreement which falls under Section 7 of the Act. The intention of the parties to enter into an arbitration agreement can, therefore, clearly be gathered from clause 21 of the agreement,” the top court said while dismissing the appeal of ACC challenging the substitution of Palkhiwala by Justice Variava, approved by the HC.