Supreme Court of India
SHAILESH DHAIRYAWANversusMOHAN BALKRISHNA LULLA
- Citation
- 2015 INSC 796
- Decided
- 16 October 2015
- Disposal
- Dismissed
- Bench
- A K SIKRI
Holding
If an arbitration agreement does not expressly exclude replacement, Section 15(2) of the Arbitration and Conciliation Act, 1996 obliges the court to appoint a substitute arbitrator according to the rules applicable to the original appointment, and such appointment is valid.
Summary
The appeal arose from a dispute where the parties, after settling most issues in a suit, referred two remaining differences to arbitration before a retired Supreme Court judge. The arbitrator resigned, and the respondent sought a substitute arbitrator. The High Court appointed a retired judge as a substitute under Section 15(2) of the Arbitration and Conciliation Act, 1996. The appellant contended that Section 15(2) did not apply to a named arbitrator and that the court lacked jurisdiction, arguing that only Section 11 could be invoked. The Supreme Court held that when an arbitration agreement does not expressly bar replacement, Section 15(2) mandates the appointment of a substitute arbitrator according to the rules applicable to the original appointment, and the court may exercise that power. The Court interpreted "rules" to include the arbitration agreement itself and applied a purposive, liberal construction of the provision. Consequently, the High Court’s appointment was upheld and the appeal dismissed.
Issues considered
- Whether Section 15(2) of the Arbitration and Conciliation Act, 1996 applies to the appointment of a substitute arbitrator when a named arbitrator withdraws and the arbitration agreement is silent on substitution.
- Whether the High Court had jurisdiction to appoint a substitute arbitrator under Section 15(2) as opposed to invoking Section 11 of the Act.
- How the term "rules" in Section 15(2) should be interpreted – whether it includes the arbitration agreement itself.
- Whether purposive interpretation of the statute overrides a literal reading in this context.
Legislation cited
- Arbitration Act, 1940s. 8(1)(b), s. 8(2)
- Arbitration and Conciliation Act, 1996s. 11, s. 15(1)(a), s. 15(2), s. 15(3), s. 15(4), s. 8
- Code of Civil Procedure, 1908s. 89
Subjects
ArbitrationSubstitute arbitratorSection 15(2)Arbitration agreementStatutory interpretationPurposive constructionCPC Section 89Appointment of arbitrator
Judgment
[2015] 12 S.C.R. 70
A SHAILESH DHAIRYAWAN
v.
MOHAN BALKRISHNA LULLA
8 (CivilAppeal No. 8731 of2015)
OCTOBER 16, 2015
(A. K. SIKRI AND ROHINTON FALi NARIMAN, JJ.]
c Arbitration and Conciliation Act, 1996: s. 15(2) -
Alppointment of substitute arbitrator on resignation of named
arbitrator - Applicability of s. 15(2) when arbitrator to whom
the matter was referred earlier with the consent of the parties
Withdraws therefrom- Held: If arbitration agreement that was
0
arrived at between the parties did not specifically bar the
appointment of another arbitrator on the withdrawal of earlier
arbitrator appointed by the parties with mutual agreement,
s. 15(2) of the Act would be attracted and a substitute arbitrator
E could be appointed - Courts have the power to appoint
s1.1bstitute arbitrator, which power is given by s. 15(2) of the
Act as this provision is to be given liberal interpretation so
as to apply to all possible circumstances under which the
mandate of the earlier arbitrator may be terminated -
F Arbitration Act, 1940 - s. 8.
Interpretation of statutes: Purposive interpretation -
H¢1d: Though literal rule of interpretation, till some time ago,
was treated as the .'golden rule', it is now the doctrine of
G purposive interpretation which is predominant, particularly
in those cases where literal interpretation may not serve the
purpose or may lead to absurdity- If it brings about an end
which is at variance with the purpose of statute, that cannot
be countenanced.
H Dismissing the appeal, the Court
70
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 71
LULLA
HELD: PERR. F. NARIMAN, J.: 1. Under Section A
8(1 )(b) read with Section 8(2) if a situation arises in which
an arbitrator refuses to act, any party may serve the other
parties or the arbitrators, as the case may be, with a
written notice to concur in a fresh appointment, and if
such appointment is not made within 15 clear days after B
service of notice, the Court steps in to appoint such fresh
arbitrator who, by a deeming fiction, is to act as if he has
been appointed by the consent of all parties. This can
only be done where the arbitration agreement does not
show that it was intended that the vacancy caused be C
not supplied. However, under Section 15(2), where the
mandate of an arbitrator terminates, a substitute
arbitrator "shall" be appointed. Had Section 15(2) ended
there, it would be clear that in accordance with the object D
sought to be achieved by the Arbitration and Conciliation
Act, 1996 in all cases and for whatever reason the
mandate of an arbitrator terminates, a substitute
arbitrator is mandatorily to be appointed. The arbitration
agreement between the parties has now to be seen, and E
it is for this reason that unless it is clear that an arbitration
agreement on the facts of a particular case excludes
either expressly or by necessary implication the
substitution of an arbitrator, whether named or
otherwise, such a substitution must take place. In fact, F
sub-sections (3) and (4) of Section 15 also throw
considerable light on the correct construction of sub-
section (2). Under sub-section (3), when an arbitrator is
replaced, any hearings previously held by the replaced
arbitrator may or may not be repeated at the discretion G
of the newly appointed Tribunal, unless parties have
agreed otherwise. Equally, orders or rulings of the earlier
arbitral Tribunal are not to be invalid only because there
has been a change in the composition of the earlier
Tribunal, subject, of course, to. a contrary agreement by H
72 SUPREME COURT REPORTS [2015] 12 S.C.R.
A parities. This also indicates that the object of speedy
resolution of disputes by arbitration would best be sub-
served by a substitute arbitrator continuing at the point
at which the earlier arbitrator has left off. [Para 20) [93-
0-H; 94-A-E]
B
2. On the facts of the present case, it is clear that
there is nothing in clause 8 of the consent terms to show
that the resignation of the named arbitrator would lead
to her vacancy not being supplied. All that the parties
C have done by the said clause is to agree to refer their
disputes to the arbitration of an independent retired
Judge belonging to the higher Judiciary. There is no
personal qualification of the named arbitrator that is
required to decide the dispute between the parties. In
D faot, she belongs to a pool of independent retired High
Court and Supreme Court Judges, from which it is
always open to the appointing authority to choose a
substitute arbitrator. There is no expression such as
"011Jly" which would indicate that the confidence of the
E parties was in only the named arbitrator and in nobody
else. In fact, Section 89 of the CPC specifically provides
that a Court hearing a suit may formulate terms of
settlement between the parties and may either settle the
F same or refer the same for settlement by conciliation,
juqicial settlement, mediation or arbitration. On the facts
in the present case, following the mandate of Section
89~ the High Court disposed of the suit between the
patties by recording the settlement between the parties
G in clauses 1. to 7 of the consent terms and by referring
the remaining disputes to arbitration. Therefore, it is the
Bombay High Court that was the appointing authority
which had in fact appointed the named arbitrator in
terms of clause 8 of the consent terms. It is clear that
H the Bombay High Court applied its mind· to the consent
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 73
LULLA
terms as a whole and appointed the named arbitrator as A
arbitrator for the disputes that were left to be resolved
by the parties. The said appointing authority has been
approached by the respondent for appointment of a
substitute arbitrator, which was then done by the
impugned judgment. This would therefore be "according B
to the rules that were applicable to the appointment of
the arbitrator being replaced" in accordance with Section
15(2) of the Act. , The High Court correctly appointed
another independent retired Judge as substitute
arbitrator in terms of Section 15(2) of the Arbitration Act, C
1996. [Paras 21, 22] [94-F-H; 95-C, D-F, G-H; 96-A-C]
C.F. Angadi v. YS. Hirannayya (1972) 2 SCR
515- relied on.
D
Yashwith Constructions (P) Ltd. v. Simplex
Concrete Piles India Ltd. (2006) 6 SCC
204: 2006 (3) Suppl. SCR 96; SBP and Company
(2) v. Patel Engineering. Ltd. and Anr. (2009) 10
sec 293: 2009 (15) SCR 340; ACC Ltd. II. Global E
Cements Ltd. (2012) 7 SCC 71: 2012 (6)
SCR 215 - referred to.
PER A.K. SIKRI, J. (SUPPLEMENTING) : 1. The
statutory interpretation of a provision is never static but
is always dynamic. Dynamic statutory interpretation F
also persuades to take into consideration ethoes of
arbitration process, including the spirit behind Section
89 of the CPC. Once the said fundamental aspects of
the arbitration are kept in mind, the irresistible conclusion G
would be that whenever parties agree for mediation, and. '
even name a specific arbitrator with no specific provision
for appointment of another arbitrator on the recusal/
withdrawal of the said arbitrator, the said omission is
made up by Section 15(2) of the Act and unless H
74 SUPREME COURT REPORTS [2015] 12 S.C.R.
A arbitration agreement between the parties provides a
categorical prohibition or debarment in resolving a
question or dispute or difference between the parties by
a substitute arbitrator in case of death or the named
arbitrator or non-availability of the said arbitrator, Courts
B have the power to appoint substitute arbitrator, which ·
power is given by Section 15(2) of the Act as this
provision is to be given liberal interpretation so as to
apply to all possible circumstances under which the
mandate of the earlier arbitrator may be terminated.
C [Paras 11to13] [100-G-H; 101-C-F]
ACC Ltd. v. Global Cements Ltd. (2012) 7 SCC
71: 2012 (6) SCR 215; P Anand Gajapati
Raju & Ors. v. P VG. Raju (0) & Ors. (2000) 4 SCC
D 539 : 2000 (2) SCR 684 - referred to.
Case Law Reference
Per R.F. Nariman, J.
E 2006 (3 ) Suppl. SCR 96 referred to. Para 13
2009 (15) SCR 340 referred to. Para 14
2012 (6) SCR 215 referred to. Para 16
(1972) 2 SCR 515 relied on. Para 22
F Per A.K. Sikri, J.
2012 (6) SCR 215 referred to. Para 1
2000 (2) SCR 6~4 referred to. Para 3
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
G 8731 of2015
From the Judgment and Order dated 12.06.2015 of the
High Court of Judicature at Bombay in Arbitration Application
No. 252 of2014
H
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 75
LULLA
T. R. Andhyaru Jina, Viral Amin, Bhargava V. Desai, A
Sauinya Mehrotra, Shardul Singh for the Appellant.
Santosh Paul, Arvind Gupta, Raghav Shekhar, Ranjan
Kumar for the Respondent.
B
The Judgments of the Court were delivered by
R. F. NARIMAN, J. 1. Leave granted.
2. The respondent had filed a suit in the Bombay High
Court, being Suit No.1927 of 2007, against the appellant and C
some others seeking a declaration that a development
agreement dated 27 .12.2004 together with a Power of Attorney
of even date had stood terminated, and for certain other reliefs.
3. On 3.10.2008, the parties to the suit entered into D
consent terms largely settling the disputes between them.
However, with regard to two specific differences, the plaintiff
and defendant No.1 agreed to refer the said differences to the
arbitration of a retired Supreme Court Judge as follows:-
E
"8). The Plaintiff and the Defendant No.1 agree to and
hereby do refer to Arbitration of Mrs. Justice Sujata
Manohar (Retd.) the dispute as to (i) the difference in
carpet area of the 5 flats agreed to be allotted as per the
Development Agreement dated 27-12-2004 being F
Exhibit-B to the Plaint by Defendant No.1 to the Plaintiff
and his family members (i.e. 800 sq. ft. area) as provided
in the said Development Agreement dated 27-12-2004
and the actual carpet area of the said 5 flats hereby
allotted and handed over and (ii) the valuation of the G
deficient area if any, and the damages for the same. The
Learned Arbitrator to make an award with regard to the
compensation and the damages to be paid by Defendant
No.1 to the plaintiff for the deficient area, if any, Defendant
No.1 shall not raise any dispute as to the jurisdiction of H
76 SUPREME COURT REPORTS [2015] 12 S.C.R.
A the arbitrator. The Arbitrator shall decide the same as
expeditiously as possible in accordance with law and
under the provisions of the Arbitration & Conciliation Act,
. 1996."
B The said consent terms were taken on record by a Single
Judge of the Bombay High Court who passed an order dated
8.10.2008 disposing of the suit in the following terms:
"1. Pursuant to the suggestion given by this Court,
parties were exploring the possibility of settleme~t
c and therefore the matter was kept part heard.
2. Today, the parties are tendering Consent terms.
Consent terms are taken on record and marked
"X" for the purpose of identification. Consent Terms
D are signed by the Plaintiff, Defendant No.1,
Defendant No.3 and their respective Advocates.
Undertakings, if any, given in the Consent terms by
any of the parties is accepted. Decree is passed
in terms of the consent terms.
E
3. In respect of the dispute regarding
compensation, the matter by consent is referred to
Mrs. Justice Sujata Manohar (Retd.) for arbitration.
The issue regarding the allotment of parking spaces
F or plaintiffs returning the promissory note can also
be decided by the learned arbitrator. Plaintiff is
permitted to withdraw the amount which is
deposited by Defendant No.1 and which is lying in
the suspense account of Oriental Bank of
G Commerce, Khar Branch, Mumbai.
1. Plaintiff and Defendants are present in court.
2. Suit is disposed off in the aforesaid terms.
3. Refund of court fees be paid in accordance
H with the rules.
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 77
LULLA [R. F. NARIMAN, J.)
4. Since the suit itself is disposed of, Notice of A
motion if any, does not survive and the same is
also disposed of." ·
4. Nothing much seems to have materialised in the
arbitration, and despite several meetings held by the named B
arbitrator, the arbitration proceedings continued to drag on,
until by a letter dated 22.01.2011, the Arbitrator resigned as
arbitrator in the aforesaid matter.
5. The plaintiff-respondent then applied vide Notice of C
Motion No.2245 of 2012 in the disposed of suit No. 1927 of
2007 for appointment of a substitute arbitrator. This Notice of
Motion was dismissed by order dated 20.9.2013 stating that
an appointment can only be made for a substitute arbitrator
under Section 11 (5) of the Arbitration Act and not by a Notice 0
of Motion in a disposed of suit.
6. Pursuant to the dismissal of the said Notice of Motion,
the plaintiff moved the Bombay High Court under Section 11
by an application of January, 2014 for appointment of a E
substitute arbitrator. By the impugned judgment dated
12.6.2015, the Bombay High Court appointed a retired Judge
of the said High Court, namely Dr. Justice S. Radhakrishnan,
as substitute arbitrator.
7. Shri TR. Andhyarujina, learned senior advocate F
appearing on behalf of the appellant, has argued before us
that as this was the case of a named arbitrator, the arbitration
agreement contained in the consent terms in the Suit No. 1927
of 2007 spent its force when the named arbitrator resigned, it G
being clear that the said clause would only apply to the named
arbitrator and hobody else, parties having faith only in the
named arbitrator. He cited three decisions of this Court to
buttress his submission and further argued that under Section
15(2) of the Arbitration and Conciliation Act, 1996, where the H
78 SUPREME COURT REPORTS [2015] 12 S.C.R.
A mandate of a named arbitrator terminates, there being no rules
that would apply to the appointment of the arbitrator being
replaced, the said Section would, therefore, not apply and the
Hig~ Court having missed this vital fact is, therefore, wrong in
appointing a substitute arbitrator.
B
8. Shri Santosh Paul, learned advocate appearing on
behalf of the respondent has, however, supported the judgment
of the Bombay High Court and has argued thatthe mandate of
Section 89 of the Code of Civil Procedure (in short "CPC")
C requires a Court to attempt to either settle disputes raised in a
suit by the means outlined by the Section or refer them to
arbitration, in which case the arbitration shall be deemed as if
it is an arbitration commenced under the Arbitration and
Conciliation Act, 1996. He further argued that it is not correct
D to say that no rules were applicable to the appointment of the
arbitrator in the present case as the appointment was made
by the High Court and, therefore, when his client went back to
the self same High Court to appoint a substitute arbitrator, that
High Court would necessarily have jurisdiction to appoint
E another person in the place of the named arbitrator.
9. The Arbitration and Conciliation Act, 1996, replaced
three other Acts dealing with arbitration: the Arbitration
(Protocol and Convention) Act, 1937, the Arbitration Act, 1940,
F and the Foreign Awards (Recognition and Enforcement) Act,
1961.
10. Since we are concerned with a domestic arbitration
clause, it would be useful to extract Section 8( 1){b) and Section
G 20 of the old repealed 1940 Act to show what was the position
in law under the 1940Act on supplying vacancies created by
arbitrators neglecting, refusing or being incapable of acting,
or dying before or in the proceedings referred to arbitration.
These Sections read as under:-
H
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 79
LULLA [R. F. NARIMAN, J.]
"Section 8. Power of Court to appoint arbitrator or A
umpire.
(1) In any of the following cases-
(b) if any appointed arbitrator or umpire neglects or
refuses to act, or is incapable of acting, or dies, and the B
arbitration agreement does not show that it was intended
that the vacancy should not be supplied, and the parties
or the arbitrators, as the case may be, do not supply the
vacancy;
c
any party may serve the other parties or the arbitrators,
as the case may be, with the written notice to concur in
the appointment or appointments or in supplying the
vacancy.
(2) If the appointment is not made within fifteen clear D
days after the service of the said notice, the Court may,
on the application of the party who gave the notice and
after giving the other parties an opportunity of being
heard, appoint an arbitrator or arbitrators or umpire, as
the case may be, who shall have like power to act in the E
reference and to make an award as if he is or they had
been appointed by consent of all parties.
Section 20 .. Application to file in Court arbitration
agreement. F
(1) Where any persons have entered into an arbitration
agreement before the institution of any suit with respect
to the subject-matter of the agreement or any part of it,
and where a difference has arisen to which the
agreement applies, they or any of them, instead of G
proceeding under Chapter 11, may apply to a Court
having jurisdiction in the matter to which the agreement
relates, that the agreement be filed in Court.
(2) The application shall be in writing and shall be H
80 SUPREME COURT REPORTS [2015] 12 S.C.R.
A numbered and r-egistered as a suit between one or more
of the parties 5 interested or claiming to be interested
as plaintiff or plaintiffs and the remainder as defendant
or defendants, if the application has been presented by
all the parties, or, if otherwise, between the applicant as
B plaintiff and the other parties as defendants.
(3) On such application being made, the Court shall direct
notice thereof to be given to all parties to the agreement
other than the applicants, requiring them to show cause
C within the time specified in the notice why the agreement
should not be filed.
(4) Where no sufficient cause is shown, the Court shall
order the ag:eement to be filed, and shall make an order
o of reference to the arbitrator appointed by the parties,
whether in the agreement or otherwise, or, where the
parties cannot agree upon an arbitrator, to an arbitrator
appointed by the Court.
E (5) Thereafter the arbitration shall proceed in accordance
with, and shall be governed by, the other provisions of
this Act so far as they can be made applicable."
11. The law under the aforesaid repealed Sections was
F laid down in a judgment of this Court which has since then
been followed repeatedly. In Parbhat General Agencies v.
Union of India, (1971) 1 SCC 79, the arbitration clause in
.that case was set out as follows:-
"lf any question, difference or objection whatsoever shall
G arise in anyway connected with or arising out of this or
the meaning or operation of any part thereof or the rights,
dues or liabilities of either party, then save in so far as
the decision of any such matter is hereinbefore provided
for and has been so decided, every such matter including
H
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 81
LULLA [R. F. NARIMAN, J.]
whether its decision has been otherwise provided for and A
whether it has been finally decided accordingly or
whether the contract should be terminated or has been
rightly terminated and as regards the rights and
obligations of the parties as the result of such termination
shall be referred for arbitration to the Judicial B
Commissioner, Himachal Pradesh and his decision shall
be final and binding and where the matter involves a claim
for or the payment or recovery or deduction of money,
only the amount, if any, awarded in such arbitration shall
be recoverable in respect of the matter so referred." [at C
para 1]"
After referring to Section 8(1)(b) and Section 20, this
Court held:
D
"Section 20 is merely a machinery provision. The
substantive rights of the parties are found in Section·
8(1)(b). Before Section 8(1)(b) can come into operation
it must be shown that (1) there is an agreement between
the parties to refer the dispute to arbitration; (2) that they E
must have appointed an arbitrator or arbitrators or umpire
to resolve their dispute; (3) anyone or more of those
·arbitrators or umpire must have neglected or refused to
act or is incapable of acting or has died; (4) the arbitration
agreement must not show that it was intended that the F
vacancy should not be filled and (5) the parties or the
arbitrators as the case may be had not supplied the
vacancy.
In the cases before us it is admitted that there is an G
agreement to refer the dispute to arbitration. It is also admitted
· that the parties had designated the Judicial Commissioner of
Himachal Pradesh as the arbitrator for resolving any dispute
that may arise between them in respect of the agreement. The
Judicial Commissioner had refused to act as the arbitrator. H
82 SUPREME COURT REPORTS [2015] 12 S.C.R.
A The parties have not supplied that vacancy. Therefore the only
question is whether the agreement read as a whole shows
either explicitly or implicitly that the parties intended that the
vacancy should not be supplied. It may be noted that the
language of the provision is not "that the parties intended to
B supply the vacancy" but on the other hand it is that "the parties
did not intend to supply the vacancy". In other words if the
agreement is silent as regards supplying the vacancy, the law
presumes that the parties intended to supply the vacancy. To
take the case out of Section 8(1)(b) what is required is not the
C intention of the parties to supply the vacancy but their intention
not to supply the vacancy. We have now to see whether the
agreements before us indicate such an intention.
As mentioned earlier, the only relevant provision in the
D agreements before us is the provision relating to arbitration.
The other provisions in the agreements do not throw any light
as regards the intention of the parties. We have earlier
mentioned thatthe Judicial Commissioner, Himachal Pradesh,
could not have been appointed as the arbitrator for any
E specialised knowledge possessed by him relating to any
dispute that may arise under the agreement. What the Judicial
Commissioner could have competently done if he had acted
as an arbitrator could certainly be done by an independent
F and impartial person possessing adequate knowledge of law.
In our opinion the language of Section 8(1)(b) is plain and
unambiguous and the terms of the agreement before us do
not in the least show that the parties intended not to supply the
vacancy." [at paras 3, 4 & 5].
G 12. This was the state of the law in India until the 1996
Act repealed inter a/ia the 1940 Act. Since we are concerned
with the correct interpretation of Section 15 of this Act, it is set
out hereinbelow:-
H
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 83
LULLA [R. F. NARIMAN, J.]
"Section 15.Termination of mandate and A
substitution of arbitrator.- (1) In addition to the
circumstances referred to in section 13 or section 14,
the mandate of an arbitrator shall terminate--
(a) where he withdraws from office for any reason; or
8
(b) by or pursuant to agreement of the parties.
(2) Where the mandate of an arbitrator terminates, a
substitute arbitrator shall be appointed according to the
rules that were applicable to the appointment of the C
arbitrator being replaced.
(3) Unless otherwise agreed by the parties, where an
arbitrator is replaced under sub-section (2), any hearings
previously held may be repeated at the discretion of the
arbitral tribunal. D
(4) Unless otherwise agreed by the parties, an order or
ruling of the arbitral tribunal made prior to the replacement
of an arbitrator under this section shall not be invalid
solely because there has been a change in the E
composition of the arbitral tribunal."
The reason for the change in law under the 1996 Act is
because it was modeled on the Uncitral Model Law on
International Commercial Arbitration. The Statement of Objects
and Reasons for the 1996 Act makes this clear as follows: F
"2. The United Nations Commission on International
Trade Law (UNCITRAL) adopted in 1985 the Model Law
on International Commercial Arbitration. The General
Assembly of the United Nations has recommended that G
all countries give due consideration to the said Model
Law, in view of the desirability of uniformity of the law of
arbitral procedures and the specific needs of international
commercial arbitration practice. The UNCITRAL also
adopted in 1980 a set of Conciliation Rules. The General H
84 SUPREME COURT REPORTS [2015] 12 S.C.R.
A Assembly of the United Nations has recommended the
use of these Rules in cases where the disputes arise in
the context of international commercial relations and the
parties seek amicable settlement of their disputes by
recourse to conciliation. An important feature of the said
B UNCITRAL Model Law and Rules is that they have
harmonised concepts on arbitration and conciliation of
different legal systems of the world and thus contain
provisions which are designed for universal application.
c 3. Though the said UNCITRAL Model Law and Rules are
intended to deal with international commercial arbitration
and conciliation, they could, with appropriate
modifications, serve as a model for legislation on
domestic arbitration and conciliation. The present Bill
D seeks to consolidate and amend the law relating to
domestic arbitration, international commercial arbitration,
enforcement of foreign arbitral awards and to define the
law relating to conciliation, taking into account the said
UNCITRAL Model Law and Rules."
E
Article 15 of the Model Law, on which Section 15(2) is
based, reads as follows:
"Where the mandate of an arbitrator terminates under
article 13of14 or because of his withdrawal from office
F
for any other reason or because of the revocation of his
mandate by agreement of the parties or in any other case
of termination of his mandate, a substitute arbitrator shall
be appointed according to the rules that were applicable
G to the appointment of the arbitrator being replaced."
13. Three judgments of this Court have thrown
considerable light on the correct construction of Section 15(2)
of the Act. In Yashwith Constructions (P) Ltd. v. Simplex
H Concrete Piles India Ltd., (2006) 6 SCC 204, the arbitration
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 85
LULLA [R. F. NARIMAN, J.]
clause stated that the Managing Director of the respondent A
company was to appoint an arbitrator in terms of the said
clause. The appointed arbitrator resigned, after which the
Managing Director of the respondent company promptly
appointed another arbitrator. The correctness of the second
appointment was challenged in an application made by one B
of the parties under Section 11 (5) of the Act read with section
15(2) praying that the Chief Justice of the High Court may
appoint a substitute arbitrator to resolve the disputes between
the parties. This application under Section 11 was dismissed,
which dismissal was upheld by a Division Bench of the High C
Court. This Court agreeing with the Division Bench judgment
held as under:-
"ln our view, the learned Chief Justice and the Division
Bench have rightly understood the scope of Section 15 D
of the Act. When the arbitrator originally appointed in
terms of the arbitration agreement withdrew for health
reasons, the Managing Director, as authorised originally
by the arbitration agreement, promptly appointed a
substitute arbitrator. It is true that in the arbitration E
agreement there is no specific provision authorising the
Managing Director to appoint a substitute arbitrator if
the original appointment terminates or if the originally
appointed arbitrator withdraws from the arbitration. But,
this so-called omission in the arbitration agreement is F
made up by the specific provision contained in Section
15(2) of the Act. The withdrawal of an arbitrator from the
office for any reason is within the purview of Section
15(1)(a) of the Act. Obviously, therefore, Section 15(2) G
would be attracted and a substitute arbitrator has to be.
appointed according to the rules that are applicable for
the appointment of the arbitrator to be replaced.
Therefore, what Section 15(2) contemplates is an
appointment of the substituted arbitrator or the replacing H
86 SUPREME COURT REPORTS [2015] 12 S.C.R.
A of the arbitrator by another according to the rules that
were applicable to the appointment of the original
arbitrator who was being replaced. The term "rules" in
Section 15(2) obviously referred to the provision for
appointment contained in the arbitration agreement or
8 any rules of any institution under which the disputes were
referred to arbitration. There was no failure on the part of
the party concerned as per the arbitration agreement, to
fulfil his obligation in terms of Section 11 of the Act so as
to attract the jurisdiction of the Chief Justice under
c Section 11 (6) of the Act for appointing a substitute
arbitrator. Obviously, Section 11 (6) of the Act has
application only when a party or the person concerned
had failed to act in terms of the arbitration agreement.
When Section 15(2) says that a substitute arbitrator can
D
be appointed according to the rules that were applicable
for the appointment of the arbitrator originally, it is not
confined to an appointment under any statutory rule or
rule framed under the Act or under the scheme. It only
means that the appointment of the substitute arbitrator
must be done according to the original agreement or
provision applicable to the appointment of the arbitrator
at the initial stage. We are not in a position to agree with
the contrary view taken by some of the High Courts." [at
para 4]
14. In SBP and Company (2) v. Patel Engineering.
Ltd. and Anr., (2009) 10 SCC 293, this Court had to construe
Section 15(2) in the light of the arbitration clause in that case.
G The arbitration clause read as follows:-
" 19. During the continuance of this piece-work
agreement/contract or at any time after the termination
thereof, if any difference or dispute shall arise between
the parties hereto in regard to the interpretation of any of
H the provisions herein contained or act or thing in relation
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 87
LULLA [R. F. NARIMAN, J.]
to this agreement/contract, such difference or dispute A
shall be forthwith referred to two arbitrators for arbitration
in Bombay, one to be appointed by each party with liberty
to the arbitrators in case of differences or their failure to
reach an agreement within one month of the appointment,
to appoint an umpire residing in Bombay and the award B
which shall be made by two arbitrators or umpire as the
case may be shall be final, conclusive and binding on
the parties hereto.
If either party to the difference or dispute shall fail to c
appoint an arbitrator within 30 calendar days after notice
in writing having been given by the parties or shall
appoint an arbitrator who shall refuse to act then the
arbitrator appointed by the other party shall be entitled
to proceed with the reference as a sole arbitrator and to D
make final decision on such difference or dispute and
the award made as a result of such arbitration shall be
a condition precedent to any right of action against any
two parties hereto in respect of any such difference and
dispute." [at para 7] E
15. On the facts in that case, two arbitrators were
appointed by each of the parties. The arbitrator appointed by
respondent No.1 declined to arbitrate in the matter for the
reasons stated by him. Thereafter, respondent No.1 requested F
another person to act as arbitrator on its behalf, which person
communicated his consent. However, respondent No.2, who
was the arbitrator appointed by the petitioner, sent a letter
informing the parties that in view of respondent No. 1's
arbitrator refusing to act, he had become the sole arbitrator in G
the case as per the arbitration clause between the parties. It
is at this stage that respondent No.1 filed an arbitration
application under Section 11 for appointment of a third
arbitrator by asserting that the second person nominated by it
had agreed to be a substitute arbitrator and that, therefore, H
88 SUPREME COURT REPORTS [2015] 12 S.C.R.
A the third a.rbitrator should be appointed by the Court under
Section 11. This very matter travelled all the way up to this
Court which in a 7-Judge Bench ultimately decided that the
power exercised by the Chief Justice of the High Court under
Section 11 of the Act is not an administrative power but is a
B judicial power. The matter, on facts, having been reverted to a
Division Bench of this Court, this Court was then asked to
decide as to whether the appointment of the substitute
arbitrator by respondent No.1 was correct in law. After setting
out the various provisions of the Arbitration Act, this Court held:
c
"Section 15 specifies additional circumstances in which
the mandate of an arbitrator shall terminate and also
provides for substitution of an arbitrator. Sub-section ( 1)
of this section lays down that in addition to the
D circumstances referred to in Sections 13 and 14, the
mandate of an arbitrator shall terminate where he
withdraws from office for any reason or pursuant to
agreement of the parties. Sub-section (2) of Section 15
postulates appointment of a· substitute arbitrator in
accordance with the rules that were applicable to the
appointment of the original arbitrator.
What is significant to be noticed in the aforementioned
provisions is that the legislature has repeatedly laid
F emphasis on the necessity of adherence to the terms of
agreement between the parties in the matter of
appointment of arbitrators and procedure to be followed
for such appointment. Even Section 15(2), which
regulates appointment of a substitute arbitrator, requires
G that such an appointment shall be made according to
the rules which were applicable to the appointment of an
original arbitrator. The term "rules" used in this sub-section
is not confined to statutory rules or the rules framed by
the competent authority in exercise of the power of
H
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 89
LULLA [R. F. NARIMAN, J.]
delegated legislation but also ·includes the terms of A
agreement entered into between the parties.
There is nothing in Clause 19 from which it can be inferred
that in the event of refusal of an arbitrator to accept the
appointment or arbitrate in the matter, the party B
appointing such arbitrator has an implicit right to appoint
a substitute arbitrator. Thus, in terms of the agreement
entered into between the parties, Respondent 1 could
not appoint Shri S.L. Jain as a substitute arbitrator simply
because Shri S.N. Huddar declined to accept the c
appointment as an arbitrator. The only consequence of
Shri S.N. Huddar's refusal to act as an arbitrator on behalf
·of Respondent 1 was that Respondent 2 who was
appointed as an arbitrator by the appellants became the
sole arbitrator for deciding the disputes or differences D
between the parties.
At the cost of repetition, we consider it necessary to
observe that the agreements entered into between the
appellant and Respondent 1 do not contain a provision
E
for_ appointment of a substitute arbitrator in case the
arbitrator appointed by either party was to decline to
accept appointment or refuse to arbitrate in the matter.
Therefore, Respondent 1 cannot draw support from the
ratio of the judgment in Yashwith Constructions (P) F
Ltd. v. Simplex Concrete Piles India Ltd. [(2006) 6 SCC
204]." [at paras 30, 31, 40 and 48]
16. In ACC Ltd. v. Global Cements Ltd., (2012) 7 SCC
71, the arbitration clause with which this Court was confronted G
read as follows:-
"21. If any question or difference or dispute shall arise
between the parties hereto or their representatives at
any time in relation to or with respect to the meaning or
effect of these presents or with respect to the rights and H
90 SUPREME COURT REPORTS [2015] 12 S.C.R.
A liabilities of the parties hereto then such question or
dispute shall be referred either to Mr. N.A. Palkhivala or
Mr. D.S. Seth, whose decision in the matter shall be final
and binding on both the parties." [at para 2]
8 17. As both Shri Palkhivala and Shri Seth had died, it
was contended by the petitioner before this Court that the
arbitration clause would not survive as the two named
arbitrators were the only persons who the parties had reposed
their faith in. In arriving at the conclusion that substitute
c arbitrators could be appointed, this Court held:
"Section 15(2) of the Act provides that where a substitute
arbitrator has to be appointed due to termination of the
mandate of the previous arb~rator, the appointment must
be made according to the rules that were applicable to
D
. the appointment of the arbitrator being replaced. No
further application for appointment of an independent
arbitrator under Section 11 will lie where there has been
compliance with the procedure for appointment of a
E substitute arbitrator. On appointment cif the substitute
arbitrator in the same manner as the first, oo application
for appointment of independent arbitrator under Section
11 could be filed. Of course. the procedure agreed upon
by the parties for the appointment of the original arbitrator
F is equally applicable to the appointment of a substitute
arbitrator, even if the agreement does not specifically say
so. Reference may be made to the judgment of this Court
in Yashwith Constructions (P) Ltd. v. Simplex Concrete
Piles India Ltd. [(2006) 6 SCC 204].
G Sections 14 and 15 provide the grounds for termination
of the mandate of the arbitrator on the ground of
incapability of the arbitrator to act or if he withdraws from
his office or when the parties agree to the termination of
the mandate of the arbitrator. Section 15(2) states that a
H
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 91
LULLA [R. F. NARIMAN, J.]
substitute arbitrator shall be appointed as per the rules A
that were applicable to the appointment of the arbitrator
being replaced. Section 15(2), therefore, has to be given
a liberal interpretation so as to apply to all possible
circumstances under which the .mandate may be
terminated. B
The legislative policy embodied in Sections 14 and 15
of the Act is to facilitate the parties to resolve the dispute
by way of arbitration. The arbitration clause if clearly spells
out any prohibition or debarment, the court has to keep c
its hands off and there is no question of persuading or
pressurising the parties to resolve the dispute by a
· substitute arbitrator. Generally, this stands out as an
exception and that should be discernible from the
language of the arbitration clause and the intention of D
the parties. In the absence of such debarment or
prohibition of appointment of a substitute arbitrator, the
court's duty is to give effect to the policy of law that is to
promote efficacy of arbitration.
The incident of the death of the named arbitrators has E
no nexus or linkage with the expression "at any time" used
in Clause 21 of the agreement. The time factor
mentioned therein is the time within which the question
or dispute or difference between the parties is resolved F
as per the agreement. The arbitration clause would have
life so long as any question or dispute or difference
. between the parties exists unless the language of the
clause clearly expresses an intention to the contrary.
The question may also arise in a given case that the G
named arbitrators may refuse to arbitrate disputes; in
such a situation also, it is possible for the parties to
appoint a substitute arbitrator unless the clause provides
to the contrary. Objection can be raised by the parties H
92 SUPREME COURT REPORTS [2015] 12 S.C.R.
A only if there is a clear prohibition or debarment· in
•
resolving the question or dispute or difference between
the parties in case of death of the named arbitrator or
their non-availability, by a substitute arbitrator.
·B 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 or debarment, parties can persuade the
court for appointment of an arbitrator under Clause 21 of
C the agreement." [at paras 17, 18, 21, 28- 30]
18. Thus, it will be seen that in the Yashwith
Constructions case this Court construed Section 15(2)
liberally and held that the expression "the rules" that were
D applicable to the appointment of the arbitrator would include
the arbitration clause or agreement itself, apart from any
institutional rules or other rules which may apply. Since it was
clear that the Managing Director in the aforesaid case was
the appointing authority for a particular arbitrator, in case the
8 said arbitrator appointed refuses to act, the Managing Director
was stated to be the authority under the arbitration agreement
that could always appoint a substitute arbitrator in terms of
Section 15(2). Similar is the case in the ACC Ltd. judgment
where this Court held that despite two named arbitrators having
P died, substitute arbitrators could be appointed in terms of the
said clause unless there is a clear prohibition or debarment
that could be read on a true construction of the arbitration
agreement. It found that the expression "at any time" clearly
showed that the arbitration clause had no nexus with the lifetime
G of the named arbitrator and therefore no such prohibition could
be read. It also held that the procedure agreed upon by the
parties for the appointment of the original arbitrator is equally
applicable to the appointment of a substitute arbitrator, even if
H the agreement does not specifically say so, as this is the
mandate of Section 15(2) of the Act.
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 93
LULLA [R. F. NARIMAN, J.]
19. On the other hand, in the SBP and Company case, A
the arbitration clause itself indicated that one of two appointed
arbitrators who refused to act would not be liable to be
substituted by another arbitrator as the other appointed
arbitrator would then continue with the reference as sole
arbitrator. This Court, therefore, held that since Section 15(2) B
referred to the arbitration agreement, the arbitration agreement
had to be strictly followed which would on the facts of that case -
indicate that no substitute arbitrator is to be appointed in the
place of the arbitrator who refused to act but the other
appointed arbitrator would continue as the sole arbitrator. C
20. The scheme of Section 8 of the 1940 Act and the
scheme of Section 15(2) of the 1996 Act now needs to be
appreciated. Under Section 8(1)(b) read with Section 8(2) if a
situation arises in which an arbitrator refuses to act, any party D
may serve the other parties or the arbitrators, as the case may
be, with a written notice to concur in a fresh appointment, and
if such appointment is not made within 15 clear days after
service of notice, the Court steps in to appoint such fresh
arbitrator who, by a deeming fiction, is to act as if he has been E
appointed by the consent of all parties. This can only be done
where the arbitration agreement does not show that it was
intended that the vacancy caused be not supplied. However,
under Section 15(2), where the mandate of an arbitrator F
terminates, a substitute arbitrator "shall" be appointed. Had
Section 15(2) ended there, it would be clear that in accordance
with the object sought to be achieved by the Arbitration and
Conciliation Act, 1996 in all cases and for whatever reason
the mandate of an arbitrator terminates, a substitute arbitrator G
is mandatorily to be appointed. This Court, however, in the
judgments noticed above, has interpreted the latter part of the
Section as including a reference to the arbitration agreement
or arbitration clause which would then be "the rules" applicable
to.the appointment of the arbitrator being replaced. It is in this H
94 SUPREME COURT REPORTS [2015] 12 S.C.R.
A manner that the scheme of the repealed Section 8 is
resurrected while construing Section 15(2). The arbitration
agreement between the parties has now to be seen, and it is
for this reason that unless it is clear that an arbitration
a
agreement on the facts of particular case excludes either
B expressly or by necessary implication the substitution of an
arbitrator, whether named or otherwise, such a substitution must
take place. In fact, sub-sections (3) and (4) of Section 15
also throw considerable light on the correct construction of sub-
section (2). Under sub-section (3), when an arbitrator is
C replaced, any hearings previously held by the replaced
arbitrator may or may not be repeated at the discretion of the
newly appointed Tribunal, unless parties have agreed
otherwise. Equally, orders or rulings of the earlier arbitral
Tribunal are not to be invalid only because there has been a
0
.change in the composition of the earlier Tribunal, subject, of
course, to a contrary agreement by parties. This also indicates
that the object of speedy resolution of disputes by arbitration
would best be sub-served by a substitute arbitrator continuing
E at the point at which the earlier arbitrator has left off.
21. On the facts of the present case, it is clear that there
is nothing in clause 8 of the consent terms extracted above to
show that the resignation of Justice Sujata Manoharwould lead
F to her vacancy not being supplied. All that the parties have
done by the said clause is to agree to refer their disputes to
the arbitration of an independent retired Judge belonging to
the higher Judiciary. There is no personal qualification of Mrs.
Justice Sujata Manoharthat is required to decide the dispute
G between the parties: In fact, she belongs to a pool of
independent retired High Court and Supreme Court Judges,
from which it is always open to the appointing authority to
choose a substitute arbitrator. One example will suffice to show
that clause 8 in the present case cannot be construed to either
H expressly or by necessary implication exclude the appointment
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 95
LULLA [R. F. NARI MAN, J.]
of a substitute arbitrator. Take the case of a family dispute in A
which the arbitration clause clearly specifies that a particular
grand uncle of a joint family is the only person in whom all
members of the family have confidence as a result of which he
has been appointed arbitrator to resolve their disputes. In the
case of resignation or death of such grand uncle, it could B
possibly be contended that by necessary implication no other
person was competent to arbitrate disputes betweer. the family
members and that, therefore, on such resignation or death,
the arbitration clause would spend its force. In the present
case, as has been noted above, we do not have any such C
factual scenario.nor do we have expressions such as "only"
which would indicate that the confidence of the parties was in
only the named arbitrator and in nobody else.
22. In fact, as has correctly been pointed out by learned D
counsel for the respondent, Section 89 of the CPC specifically
provides that a Court hearing a suit may formulate terms of
settlement between the parties and may either settle the same
or refer the same for settlemerli by conciliation, judicial
settlement, mediation or arbitration. On the facts in the present E
case, it is clear that following the mandate of Section 89, the
Bombay High Court disposed of the suit between the parties
by recording the settlement between the parties in clauses 1
to 7 of the consent terms and by referring the remaining F
disputes to arbitration. In the present case therefore it is clear
that it is the Bombay High Court that was the appointing
authority which had in fact appointed Mrs. Justice Sujata
Manohar as arbitrator in terms of clause 8 of the consent terms.
We must remember, as was held in C.F. Angadi v. Y.S. G
Hirannayya, [1972] 2 S.C.R. 515 at 523 that an order by
consent is not a mere contract between the parties but is
something more because there is super-added to it the
command of a Judge, On the facts of the present case, it is
clear that the Bombay High Court applied its mind to the H
96 SUPREME COURT REPORTS [2015) 12 S.C.R.
A· con$ent terms as a whole and appointed Mrs. Justice Sujata
Manohar as arbitrator for the disputes that were left to be
resolved by the parties. The said appointing authority has been
approached by the respondent for appointment of a substitute
arbitrator, which was then done by the impugned judgment.
B This would therefore be "according to the rules that were
applicable to the appointment of the arbitrator being replaced"
in accordance with Section 15(2) of the Act. We, therefore,
find that the High Court correctly appointed another
ind(lpendent retired Judge as substitute arbitrator in terms of
C Seation. 15(2) of the Arbitration Act, 1996. The appeal is,
the~efore, dismissed.
A. K. SIKRI, J. 1. I am entirely in agreement with the
conclusion arrived at by my learned Brother R.F. Nariman, J.
D in his accompanying judgment on the interpretation of Section
15(2) oftheArbitration and ConciliationAct, 1996 (hereinafter
referred to as the 'Act'). It is held by my learned Brother that
sinc:e arbitration agreement that was arriveEI at between the
parties herein did not specifically bar the appointment of
E another arbitrator on the recusal/withdrawal of the earlier
arbitrator appointed by the parties with mutual agreement,
Sec:tion 15(2) of the Act would be attracted and a substitute
arbitrator could be appointed according to 'Rules' that govern
F the field. In the instant case, it was the agreement between
the parties which is treated as 'Rules' for the purposes of
Section 15(2) of the Act. My learned Brother has given cogent
reasons while interpreting the said provision of law in the
aforesaid manner, which, inter alia, includes reliance upon the
G earlier judgment of this Court in ACC Ltd. v. Global Cements
Ltd. 1
2. While concurring with the judgment authored by my
learned Brother, I would like to give some additional reasons
H 1
c2012i 1sec11
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 97
LULLA [R. F. NARIMAN, J.]
in support, which are as under: A
Section 15(2) of the Act is also to be interpreted
keeping in mind the ethos of the arbitration generally and also
in the light of the spirit behind Section 89 of the Code of Civil
Procedure, 1908 (for short, 'CPC') in particular. No doubt, in B
the instant case, there was no arbitration agreement between
the parties when the suit was filed by the respondent herein.
However, in the said suit which was filed, parties arrived at an
agreement whereby it was agreed between them that the
matter be decided through arbitration and not by the court of C
law.
3. It was held in P. Anand Gajapati Raju &Ors. v. P. V.G
Raju (D) & Ors. 2 that the Arbitration Act governs the case
where arbitration is agreed upon before a pending suit by all D
parties. This Act, however, does not contemplate a situation
as in Section 89 of the CPC where the Court asks the parties
to choose one or the other ADR methods, including arbitration,.
and the parties choose arbitration as their option. At the same
time, once the parties agree for arbitration under the Act and E
the matter is referred to arbitration, thereafter the situation is
almost at par with what is contemplated in Section 89 of the
CPC, to which aspect we shall advert little later. What is
emphasized at this stage is that in a suit which is filed in the
Court, when the parties agree for deciding the disputes by F
means of arbitration, they have obviously agreed that the court
of law may stay its hands of such a dispute as the parties have
chosen alternate method, namely, one of the forms of ADR.
4. It. hardly needs to be emphasized that the parties G
choose arbitration as a dispute resolution mechanism keeping
in view that it offers a timely, private, less formal and cost
effective approach for the binding determination of disputes.
It provides the parties with greater control of the process than
2
c2000) 4 sec 539
H
98 SUPREME COURT REPORTS [2015) 12 S.C.R.
A a Qourt hearing. The non-judicial nature of arbitration makes it
both attractive and effective for several reasons. Apart from it
being cost effective and speedier method of settling the
disputes when compared with court adjudicatory method, the
confidentiality of the arbitration process may appeal to those
B wl;lo do not wish the terms of settlement to be known. Therefore,
first thing that has to be kept in mind, when in a pending suit
the parties agree for reference to arbitration, though there was
no arbitration agreement when the suit was filed, is that they
have consciously preferred arbitration rather than the court
C process. It, thus, follows that the intention is to settle the
disputes through arbitration and not the Court.
5. Secondly, in such a situation, Section 89 of the CPC
also springs into action, which provides for 'settlement of
D disputes outside the Court'. As per this provision, where it
appears to the Court that there exists elements of a settlement
which may be acceptable to the parties, the Court shall
formulate the terms of settlement and give them to the parties
fo,r their observ~tions and after receiving the observations of
E the parties, the Court may re-formulate the terms of a possible
settlement and refer the same for -
a) arbitration;
b) conciliation;
F c) judicial settlement, including settlement through /ok
adalat; or
d) mediation.
6. It has been noticed by this Court in some earlier
G judgments that Section 89 of the CPC is not very happily
worded. Be that as it may, Section 89 provides for alternate
methods of dispute resolution, i.e. those methods which are
alternate to the Court and are outside the adjudicatory function
of the Court. One of them with which we are concerned is the
H settlement of dispute through arbitration. Insofar as reference
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 99
LULLA [R. F. NARIMAN, J.]
of dispute to arbitration is concerned, it has been interpreted A
by this Court that resort to arbitration in a pending suit by the
orders of the Court would be only when parties agree for
settlement of their dispute through arbitration, in contra-
distinction to the Alternate Dispute Mechanism (for short, 'ADR')
through the process of mediation where the Judge has the B
discretion to send the parties for mediation, without even
obtaining the consent of the parties. Thus, reference to
arbitration is by means of agreement between the parties. It
is not in dispute that there was an agreement between the
parties for reference of dispute to the arbitration and it was so C
referred.
7. On making such an application based on arbitration
agreement between the parties, order is passed in terms of
Section 89 of the CPC referring the matter to arbitration. The D
purpose for enacting Section 89 is to encourage the parties
to the dispute to settle their dispute by adopting one of the four
methods provided therein. Not only that it results in lessening
the burden of the court, experience has shown that many cases
which come to the Court can be resolved more suitably and E
with better outcomes if the methods of ADR prescribed in
Section 89 of the CPC are resorted to. It is here that depending
upon the nature of dispute and relationship between the parties
etc., the Court may suggest a particular form of ADR, whether
arbitration or mediation etc. can be chosen. Therefore, what F
is to be kepf in mind is that once arbitration agreement was
entered into between the parties, that too in a pending suit,
tl)e intention of the parties was to settle the matter through
arbitration and not to come back to the Court again for decision
of the same dispute by court adjudicatory process. G
8. It is in this backdrop we have to decide the applicability
of Section 15(2) of the Act when the arbitrator to whom the
matter was referred earlier with the consent of the parties
withdraws therefrom. · H
100 SUPREME COURT REPORTS [2015] 12 S.C.R.
A 9. The aforesaid two reasons given by me, in addition to
the reasons already indicated in the judgment of my learned
Brother, would clearly demonstrate that provisions of Section
15(2) of the Act require purposive interpretation so that the
aforesaid objective/ purpose of such a provision is achieved
B thereby. The principle of 'purposive interpretation' or 'purposive
construction' is based on the understanding that the Court is
supposed to attach that meaning to the provisions which serve
the 'p1J1rpose' behind such a provision. The basic approach is
to ascertain what is it designed to accomplish? To put it
C otherwise, by interpretative process the Court is supposed to
realise the goal that the legal text is designed to realise. As
Aharan Barak puts it:
"Purposive interpretation is based on three components:
D f~nguage, purpose, and discretion. Language shapes
the range of semantic possibilities within which the
interpreter acts as a linguist. Once the interpreter defines
the range, he or she chooses the legal meaning of the
text from among the (express or implied) semantic
E possibilities. The semantic component thus sets the limits
of interpretation by restricting the interpreter to a legal
meaning that the text can bear in its (public or private)
language. "3
F 10. Of the aforesaid three components, namely, language,
purpose and discretion 'of the Court', insofar as purposive
component is concerned, this is the ratio juris, the purpose at
the core of the text. This purpose is the values, goals, interests,
policies and aims that the text is designed to actualize. ft is
G the function that the text is designed to fulfil.
11. We may also emphasize that the statutory
interpretation of a provision is never static but is always
dynamic. Though literal rule of interpretation, tiff some time
ago, was treated as the 'golden rule', it is now the doctrine of
H 3 Aharan Barak- Purposive Interpretation in Law
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 101
LULLA [R. F. NARIMAN, J.]
purposive interpretation which is predominant, particularly in A
those cases where literal interpretation may not serve the
purpose or may lead to absurdity. If it brings about an end which
is at variance with the purpose of statute, that cannot be
countenanced. Not only legal process thinkers such as Hart
and Sacks rejected intentionalism as a grand strategy for B
statutory interpretation, and in its place they offered
purposivism, this principle is now widely applied by the Courts
not only in this country but in many other legal systems as well.
12. Dynamic statutory interpretation also persuades us C
to take into consideration ethoes of arbitration process,
including the spirit behind Section 89 of the CPC.
13. Once we keep in mind the aforesaid fundamental
aspects of the arbitration, the irresistible conclusion would be
that whenever parties agree for mediation, and even name a D
specific arbitrator with no specific provision for appointment
of another arbitrator on the recusal/withdrawa.1 of the said
arbitrator, the said omission is made up by Section 15(2) of
the Act and unless arbitration agreement between the parties
provides a categorical prohibition or debarment in resolving a E
question or dispute or difference bet:Ween the parties by a
substitute arbitrator in case of death or the named arbitrator
or non-availability of the said arbitrator, Courts have the power
to appoint substitute arbitrator, which power is given by Section F
15(2) of the Act as this provision is to be given liberal
interpretation so as to apply to all possible circumstances
under which the mandate of the earlier arbitrator may be
terminated.
14. The aforesaid are my additional grounds to support G
the view taken by my learned Brother, thus, dismissing the
appeal of the appellant herein.
Devika Gujral Appeal dismissed.
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