Holding

While Section 11(6) empowers the Chief Justice or a designated person to appoint an arbitrator when the agreed procedure fails, such appointment must be made with due regard to the qualifications required by the agreement and other considerations to secure an independent and impartial arbitrator; failure to do so renders the appointment vulnerable.

Summary

The Supreme Court examined the scope of Section 11(6) of the Arbitration and Conciliation Act, 1996 concerning the appointment of arbitrators when the parties' agreed procedure fails. It held that the Chief Justice (or a person/institution designated by him) may make the appointment, but must do so with "due regard" to the qualifications stipulated in the arbitration agreement and other considerations that ensure the arbitrator’s independence and impartiality, as required by Section 11(8). The Court clarified that the appointment of the arbitrator named in the agreement is not mandatory, provided the statutory conditions are satisfied. The High Court’s earlier appointments were set aside for not observing the "due regard" requirement, and the matters were remitted for fresh appointments. The appeals were consequently disposed of.

Issues considered

What is the proper scope and ambit of Section 11(6) of the Arbitration and Conciliation Act, 1996 regarding appointment of arbitrators when the agreed procedure fails?
Does the Chief Justice (or his designate) have to appoint the arbitrator named in the arbitration agreement?
What is the meaning and effect of the "due regard" requirement in Section 11(8) on the appointment process?

Legislation cited

Arbitration and Conciliation Act, 1996s. 11(2), s. 11(3), s. 11(4), s. 11(5), s. 11(6), s. 11(7), s. 11(8), s. 28(3), s. 34

Subjects

ArbitrationAppointment of arbitratorSection 11Due regardIndependent and impartial arbitratorSupreme Court of IndiaArbitration and Conciliation Act

Judgment

[2008] 12 S.C.R. 216

A NORTHERN RAILWAY ADMINISTRATION, MINISTRY OF T-
RAILWAY, NEW DELHI
v.
PATEL ENGINEERING COMPANY LTD.
(Civil Appeal No. 5067 of 2008)
B AUGUST 18, 2008
[DR. ARIJIT PASAYAT, P. SATHASIVA~ AND AFTAB ;__
ALAM, JJ.]
Ji
c Arbitration and Conciliation Act, 1996 - s. 11 and 11 (6) -
Appointment of arbitrators - Scope of - Held: Court has to
ensure first that the remedies provided are exhausted - It may
ask to do what has not been done - Terms of agreement has
to be given efj__ecJ - Chief Justice or: any person or institution
designated by him is to take necessary measures unless
D
agreement on appointment procedure provides other means
for securing appointment - It is not mandatory to appoint the . \
y
named arbitrator - Due regard is to be given to the qualifica-
tions required for arbitrator by the agreement and other con-
siderations to secure appointment of independent and impar-
E tial arbitrator, otherwise appointment would be vulnerable -
On facts, High Court did not consider the said requirement,
hence, the appointment set aside - Matters remitted back to
it, to make fresh appointments.

F With regard to the appointment of arbitrator under s.
11 (6) of the Arbitration and Conciliation Act, 1996, this t-
Court in Ace Pipeline Contracts (P) Ltd v Bharat Petroleum
Corpn. Ltd. 2007 (5) SCC 304 and the Union of India v Bharat
Battery Mgf. Co. (P) Ltd. 2007 (7) SCC 684, gave different
views. In Bharat Battery's case the earlier decision in Ace
G
Pipeline's case was not brought before the Bench, as such
there was some confusion. Thus, the present appeals -+-· .
have been referred to the larger bench.
Disposing of the appeals, the Court
H 216
NORTHERN RAILADMIN., MINISTRY OF RAIL, N. DELHI 217
v. PATEL ENGINEERING COMPANY LTD.
+ HELD: 1. With regard to the appointment of arbitra- A
tor, sub-sections (3) to (5) of section 11 of the Arbitration
and Conciliation Act, 1996 refer to cases where there is
no agreed procedure. Sub-section (2) provides that sub-
ject to sub-section (6) the parties are free to agree on a
procedure for appointing the arbitrator or arbitrators. Sub- B
section (6) sets out the contingencies when party may
,l request the Chief Justice or any person or institution des-
ignated by him to take necessary measures unless the
-1 agreement on the appointment procedure provides other
means for securing the appointment. The contingencies c
contemplated in sub-section (6) statutorily are (i) party
fails to act as required under agreed procedure or (ii) par-
ties or the two appointed arbitrators fail to reach an agree-
ment expected of them under that procedure or (iii) per-
son including an institution fails to perform any function
D
entrusted to him or it under the procedure. The third con-
~ . tingency does not relate to the parties to the agreement
't or the appointed arbitrators. [Para 9] [223,H; 224,A-C]
2. The crucial expression in sub-section (6) is "a party
may request the Chief Justice or any person or institu- E
tion designated by him to take the necessary measures".
This expression has to read alongwith requirement in
sub-section (8) that the Chief Justice or the person or an
institution designated by him in appointing an arbitrator
shall have "due regard" to the two cumulative conditions F
-1 relating to qualifications and other considerations as are
likely to secure the appointment of an independent and
impartial arbitrator. [Para 1OJ [224,D-E]
3. A bare reading of the scheme of Section 11 shows
that the emphasis is on the terms of the agreement being G
_,.._ \ adhered to ~nd/or given effect as closely as possible. In
other words, the Court may ask to do what has not been
done. The court must first ensure that the remedies pro-
vided for are exhausted. It is not mandatory for the Chief
Justice or any person or institution designated by him to H
218 SUPREME COURT REPORTS [2008] 12 S.C. R.

A appoint the named arbitrator or arbitrators. But at the +
same time, due regard has to be given to the qualifica-
tions required by the agreement and other consider-
ations. The expression 'due regard' means that proper
attention to several circumstances have been focussed.
s The expression .'necessary' as a general rule can be
broadly stated to be those things which are reasonably
required to be done or legally ancillary to the accomplish-
ment of the intended act. Necessary measures can be
stated to be the reasonable steps required to be taken.
c [Paras 11 and 12] [224,F-G; 225,A-B]
4. The High Court does not appear to have focussed
on the requirement to have due regard to the qualifica-
tions required by .the agreement or other considerations
necessary to secure the appointment of an independent
D and impartial arbitrator. Appointment of the arbitrator or
arbitrators named in the arbitration agreement is not a
must, but while making the appointment the twin require- . .
ments of sub-9ection (8) of Section 11 have to be kept in
view, considered and taken i'nto account. If it is not done,
E the appointment becomes vulnerable. In the circum-
stances, the appointment made in each case is set aside
and the matters are remitted to the High Court to make
fresh appointments keeping in view the parameters indi-
cated above. [Para 13] [225,B-D]
F Ace Pipeline Contracts (P) Ltd. v Bharat Petroleum
Corpn. Ltd. 2007 fs) SCC 304; Union of India v Bharat Bat- t-
tery Mgf. Co. (P) Ltd. 2007 (7) SCC 684 - referred to.
Case Law Reference
G 2001 (5) sec 304 Referred to. Para 2
2001 (7) sec 684 Referred to. Para 2
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5067
of 2008
H

J
NORTHERN RAILADMIN., MINISTRY OF RAIL, N. DELHI 219
v. PATEL ENGINEERING COMPANY LTD. [Dr. ARIJIT PASAYAT, J.]
... >+·
"'I"" From the final Judgment and Order dated 11.05.2006 of A
the High Court of Delhi at New Delhi in AA No. 189 of 2005
WITH
C.A. Nos. 5068, 5069, 5071-5076 & 5078-5085 of 2008
B. Dutta, Vikas Singh, ASGs., Narish N. Salve, N. Roy, B

,~
Asha G. Nair, Rajni Ohri, Anil Katiyar, Sunil Roy, D.S. Mahra,
Sanjay Kapur, Shuibhra Kapur, Rajiv Kapur, Arti Singh, Vivek

• Kishore, Ruchi Gaur Narula, Sangeeta Bharti, Arvind Kumar,
Rekha Pandey, Rakesh Gagr, V. Bhandari, M. Yunus Malik, D.S.
c
Mahra, A. Tarique for the Appellant.
Ashok Desai, P. Krishnamoorthy, Ratnakar Dash, Ashish
Dholakia, Adarsh Praiyadarshini, Sumita Hazarika, Wills
Mathews, G.K. Jose, D.K. Tiwari, M.K. Michael, P.K. Ghosh,
Amlan Ghosh, Ajit Kumar Panda, T.S. Ahuja, Arun Arora, K.G.
D
Bhagat, Vineet Bhagat, Manohar Saingh Bakshi, Manju Bhagat,
J . Ehraz Zafar, Debasis Misra and Ajit Kumar Pande for the Re-
~
spondents.
The Judgment of the Court was delivered by
Dr. ARIJIT PASAYAT, J. 1. Leave granted in all the Spe- E
cial Leave Petitions
2. Noticing two different views in two decisions of this Court in
Ace Pipeline Contracts (P) Ltd. v. Bharat Petroleum Corpn. Ltd.
(2007 (5) SCC 304) and Union of India v. Bharat Battery Mfg. Co. F
(P) Ltd. (2007 (7) SCC 684) the matter has been referred to a larger
Bench and that is how these cases are before us.

3. In both the decisions the question related to appoint-
ment of arbitrator under Section 11 (6) of the Arbitration and
Conciliation Act, 1996 (in short the 'Act'). In Bharat Battery's G
... t case (supra) the earlier decision in Ace Pipeline's case (su-
pra) was apparently not brought before the Bench as a result of
which there appears to be some confusion. As noted above,
the scope and ambit of Section 11 (6) of the Act relating to ap-
pointment of arbitrator falls for consideration in these cases. H
220 SUPREME COURT REPORTS [2008] 12 S.C.R.

A 4. The stand of Mr. Harish N Salve appearing for some of + +
'
the parties in these appeals and Mr. B. Dutta, Additional Solici-
tor General is that the true scope and ambit of Section 11 (6)
has to be considered in the background of Section 28(3) and
Section 34 of the Act. According to them, the agreed proce-
B dure referred to in sub-section (2) of Section 11 has an excep-
tion in sub-section (6) i.e. where the agreed procedure foils.
Where there is no agreed procedure, sub-sections (3), (4) and
(5) of Section 11 apply. It is pointed out that there are three
clauses in sub-section (6) of Section 11. Clause (c) relates to
c failure to perform function entrusted to a person including an
institution and also failure to act under the procedure agreed
upon by the parties. In other words, Clause (a) refers to parties
to the agreement. Clause (c) relates to a person who may not
be party to the agreement but has given consent to the agree-
D ment. It is also pointed out that there is a statutory mandate to
take necessary measures, unless the agreement on the appoint-
ment procedure provided other means for securing the appoint-
ment. It is, therefore, submitted that before the alternative is re-
sorted to agreed procedure has to be exhausted. The agree-
ment has to be given effect and the contract has to be adhered
E to as closely as possible. Corrective measures have to be taken
first and the Court is the last resort. It is also pointed out that
while appointing an Arbitrator in terms of sub-section (8) of
Section 11, the Court has to give due regard to any qualifica-
tion required for the Arbitrator by the agreement of the parties
F and other considerations as are likely to secure the appoint-
ment of an independent and impartial arbitrator. It is pointed
out that both these conditions are cumulative in nature. There-
fore, the Court should not directly make an appointment. It has
to ensure first that the provided remedy is exhausted and the
G Court may ask to do what has not been done.
5. In response, Mr. Ashok Desai, learned senior counsel f .....
appearing for some of the parties who have sought for appoint-
ment of Arbitrator submitted that the expression 'due regard'
relates to some of the factors which have to be considered and
H
NORTHERN RAILADMIN., MINISTRY OF RAIL, N. DELHI 221
v. PATEL ENGINEERING COMPANY LTD. [Dr. ARIJIT PASAYAT, J.]
.., + it is not mandatory that the qualifications and the considerations A
as referred to in sub-section (8) of Section 11 perforce have to
be applied. It is a question of degree of the parameters of con-
side ration.
6. With reference to the earlier scheme under the Arbitration
Act, 1940 {in short the 'Old Act') it is stated that the party is forced B
.A to move the Court because of request being refused to appoint

...
- named Arbitrator and, therefore, the Court in terms of sub-section
(8) of Section 11 is not constrained to appoint any arbitrator.
7. Section 11 reads as follows: c
"Appointment of arbitrators-
(1) A person of any nationality may be an arbitrator,
.unless otherwise agreed by the parties.
(2) Subject to sub-section (6), the parties are free to D
J agree on a procedure for appointing the arbitrator or
>i arbitrators.
(3) Failing any agreement referred to in sub-section (2),
in an arbitration with three arbitrators, each party
E
shall appoint one arbitrator, and the two appointed
arbitrators shall appoint the third arbitrator who shall
act as the presiding arbitrator.
(4) If the appointment procedure in sub-section (3)
applies and- F
(a) a party fails to appoint an arbitrator within thirty
days from the receipt 9f a request to do so from
the other party; or
(b) the two appointed arbitrators fail to agree on G

- \
the third arbitrator within thirty days from the
date of their appointment,
the appointment shall be made, upon request
of a party, by the Chief Justice or any person or
institution designated by him. H
222 SUPREME COURT REPORTS [2008] 12 S.C.R.

A (5) Failing any agreement referred to iri sub-section (2),
in an arbitration with a sole arbitrator, if the parties
fail to agree on the arbitrator within thirty days from
receipt of a request by one party from the other party
to so agree the appointment shall be made, upon
request of a party, by the Chief Justice or any person
B
or institution designated by him.
(6) Where, under an appointment procedure agreed

c
upon by the parties,-
(a) a party fails to act as required under that
procedure; or
•
i

(b) the parties, or the two appointed arbitrators,
fail to reach an agreement expected of them
under that procedure; or

D (c) a person, including an institution, fails to perform
any function entrusted to him or it under that
procedure,
a party may request the Chief Justice or any
person or institution designated by him to take
E the necessary measure, unless the agreement
on the appointment procedure provides other
means for securing the appointment.
(7) A decision on a matter entrusted by sub-section (4)
or sub-section (5) or subsection (6) to the Chief
F Justice or the person or institution designated by
him is final.
(8) The Chief Justice or the person or institution
designated by him, in appoi'nting an arbitrator, shall
have due regard to-
G
(a) any qualifications required of the arbitrator by
the agreement of the parties; and
(b) other considerations as are likely to secure the
appointment of an indep~ndent and impartial
H
arbitrator.
NORTHERN RAILADMIN., MINISTRY OF RAIL, N. DELHI 223
v. PATEL ENGINEERING COMPANY LTD. [Dr. ARIJIT PASAYAT, J.]
-t (9) In the case of appointment of sole or third arbitrator A
in an international commercial arbitration, the Chief
Justice of India or the person or institution designated
by him may appoint an arbitrator of a nationality other
than the nationalities of the parties where the parties
belong to different nationalities. 8
(10) The Chief Justice may make such scheme as he
A,
may deem appropriate for dealing with matters

• entrusted by sub-section (4) or sub-section (5) or
sub-section (6) to him.
( 11) Where more than one request has been made under
c
sub-section (4) or sub-section (5) or sub-section (6)
to the Chief Justices of different High Courts or their
designates, the Chief Justice or his designate to
whom the request has been first made under the
D
relevant sub-section shall alone be competent to
-" decide on the request.
....
(12) (a) Where the matters referred to in sub-sections
(4), (5), (6), (7), (8) and (10) arise in an international
commercial arbitration the referel'lce to "Chief Justice E
in those sub-sections shall be construed as a
reference to the "Chief Justice of India".
(b) Where the matters referred to in sub-sections
(4), (5), (6), (7), (8) and (10) arise in any other
arbitration, the reference to "Chief Justice" in those F
sub-sections shall be construed as a reference to,
the Chief Justice of the High Court within whose local
limits the principal Civil Court referred to in clause
(e) of sub-section (1) of section 2 is situate and,
where the High Court itself is the court referred to in G

- -\
that clause, to the Chief Justice of that High Court."
8. The crucial sub-sections are sub-sections (2), (3), (4),
(5) and (6).
9. Sub-sections (3) to (5) refer to cases where there is no H
224 SUPREME COURT REPORTS [2008] 12 S.C.R.

A agreed procedure. Sub-section (2) provides that subject to sub-
section (6) the parties are free to agree on a procedure for ap-
pointing the arbitrator or arbitrators. Sub-section (6)··sets out
the contingencies when party may request the Chief Justice or
<:my person or institution designated by him to take necessary
B measures unless the agreement on the appointment procedure
provides other means for securing the appointment. The con-
tingencies contemplated in sub-section (6) statutorily are (i) a
party fails to act as required under agreed procedure or (ii) the
parties or the two appointed arbitrators fail to reach an agree-
C ment expected of them under that procedure or (iii) a person
including an institution fails to perform any function er:ltrusted to
•
him or it under the procedure. In other words, the third contin-
gency does not relate to the parties to the agreement or the
appointed arbitrators.
D 10. The crucial expression in sub-section (6) is "a party
may request the Chief Justice or any person or institution des-
ignated by him to take the necessary measures" (underlined "'
for emphasis). This expression has to read alongwith require-
ment in sub-section (8) that the Chief Justice or the person or
E .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 appointment of an independent and impartial arbitrator.
11 . A bare reading of the scheme of Section 11 shows
F that the emphasis is on the terms of the agreement being ad-
hered to and/or given effect as closely as possible. In other
words, the Court may ask to do what has not been done. The
court must first ensure that the remedies provided for are ex-
hausted. It is true as contended by Mr. Desai, that it is not man-
G datory for the Chief Justice or any person or institution desig-
nated by him to appoint the named arbitrator or arbitrators. But t- --
at the same time, due regard has to be given to the qualifica-
tions required by the agreement and other considerations.
12. The expression 'due regard' means that prope·r atten-
H
NORTHERN RAILADMIN., MINISTRY OF RAIL, N. DELHI 225
v. PATEL ENGINEERING COMPANY LTD. [Dr. ARIJIT PASAYAT, J.]
-t tion to several circumstances have been focussed. The expres- A
sion 'necessary' as a general rule can be broadly stated to be
those things which are reasonably required to be done or le-
gally ancillary to the accomplishment of the intended act. Nec-
essary measures can be stated to be the reasonable steps re-
quired to be taken. B
13. In all these cases at hand the High Court does not
appear to have focussed on the requirement to have due re-
gard to the qualifications required by the agreement or other
considerations necessary to secure the appointment of an in-
dependent and impartial arbitrator. It needs no reiteration that C
appointment of the arbitrator or arbitrators named in the arbi-
tration agreement is not a must, but while making the appoint-
ment the twin requirements of sub-section (8) of Section 11 have
to be kept in view, considered and taken into account. If it is not
done, the appointment becomes vulnerable. In the circurri- 0
stances, we set aside the appointment made in each case, re-
mit the matters to the High Court to make fresh appointments
keeping in view the parameters indicated above.
14. The appeals are disposed of accordingly.
E
N.J. Appeals disposed of.