Arbitration – Section 11 – Parties agreed for arbitral institution which insists for its membership – Important question whether arbitral institution can insist for such membership
EPC Agreement dated 16.11.2017 between the parties for the work of rehabilitation and upgradation of 2-lane of NH-94 for Rs.149.67 crores as per the bids invited by the Ministry of Road Transport and Highway.
Clause 26.1 provides for Dispute Resolution. Clause 26.3 (I) provides for Arbitration that any dispute which is not resolved amicably by conciliation shall be finally settled by Arbitration in accordance with the Rules of Arbitration of the Society for Affordable Redressal of Disputes (SAROD).
After failure of the conciliation, the petitioner sought arbitration disputes resolution vide letter dated 15.2.2023 and proposed for three-member Arbitral Tribunal as per the Arbitration Act, 1996.
The petitioner did not opt for the Institutional Arbitration of SAROD as per clause 26.3(i) of the Contract on the ground that it is not primary member of SAROD, is not desirous to become member and is not entitled to invoke arbitration under the said Rules. Thus, the said arbitration mechanism has become unworkable.
The respondent insisted that the petitioner must invoke arbitration rules of SAROD.
As a result, the petitioner filed section 11 petition in the High Court of Delhi.
SAROD informed the High Court that in the absence of petitioner taking its membership it is not willing to give its panel.
HELD that an agreement between the parties for arbitration as per the rules of a particular arbitral institution cannot be construed as subsuming within it an additional obligation to become its member. Becoming a member of an arbitral institution – society registered under the Societies Registration Act, 1860, carries additional obligations which have nothing to do with agreement between the parties to arbitrate. Such an obligation cannot be insisted as a pre-requisite for taking course to arbitration.
However, in the present case, insistence of SAROD for parties to take its membership as a pre-condition to constitute arbitral tribunal as per its rules impinges on the validity of appointment procedure, amounts to failure to perform the function by the concerned institute. Consequently, section 11(6)(c) is attracted for the High Court to constitute arbitral tribunal.
Since the parties have not arrived at an agreement for three-member tribunal and since number of arbitrators is not determined, it is incumbent to appoint a sole arbitrator.
Rani Construction Pvt Ltd Vs. Union of India – Judgment dated 22.3.2024 in Arb.P.No.1011 of 2023 (Delhi HIgh Court)
