A Game of Even – Odd Numbers
Vedang Mishra, Research Associate
The Arbitration and Conciliation Act, 1996 (the Act), which is based on the UNCITRAL Model Law, has brought drastic changes in the law of arbitration and conciliation as was then prevalent in India. The purpose of parties choosing arbitration as against the ordinary court litigation is that the hand- picked expert tribunal would be able to resolve their disputes more proficiently, economically, expeditiously than ordinary court litigation. The parties, therefore, has been given maximum freedom of for not only choosing their arbitrators but also deciding their numbers.
The UNICITRAL Model Law
Article 10 of the UNICITRAL Model Law grants to the parties the greatest possible freedom in choosing the number of arbitrators. The parties may choose any number of arbitrators, including even numbers, which can possibly cause a tribunal deadlock if a simple majority cannot be reached. In the absence of the agreement between the parties, the default number is three arbitrators.
Indian Law
Chapter III of the Arbitration and conciliation Act, 1996 deals with the composition of Arbitral Tribunals under the said act. This chapter comprises five sections dealing with various aspects of an arbitrator i.e. number of arbitrators ((The Arbitration and Conciliation Act, 1996, section 10)); appointment ((Ibid section 11)); grounds for challenging the award ((Ibid section 12)); challenge procedure ((Ibid section 13)); and termination of mandate and substitution of arbitrator ((Ibid section 14 and 15)). The expression ‘Arbitration Tribunal’ under this act has been defined to mean “a sole arbitrator or a panel of arbitrators ((Ibid section 2 (d).)).”
Though section 10 of 1996 act is by and large modeled on article 10 of UNICITRAL Model Law, 1995 but, it departs from its model on some aspects. Section 10 of the 1996 act provides for the number of arbitrators. Firstly, it provides that the parties are free to determine the number of arbitrators provided that such number is not an even number. Secondly, it provides that, if the parties have failed to provide for the number of arbitrators, in that case the arbitral tribunal shall consist of a sole arbitrator while in article 10 of the Model Law, the default number of arbitrators is three. The object of the Parliament for providing odd number of arbitrators is to avoid tribunal deadlock in decision- making ((Redfern and Hunter, Law and Practice of International Commercial Arbitration, 4th Ed 2004)). This is also consistence with the mainstream of ‘international commercial arbitration’.
Even Number of Arbitrators
Appointing an even number of arbitrators is an exception to rule and a rarity in practice. In India, section 10 (1) of 1996 act expressly prohibits parties for appointing even number of arbitrators. Provision restricting the appointment of an even number of arbitrators has been made for the simple and significant reason that in case of even number of arbitrators they may differ at the end. In such a case, the parties would then be left remediless and would have to start a fresh litigation or arbitration all over again, which would consequently result in a sheer waste of time, money and energy. In Sri Venkateshwara Construction Company v. Union of India ((Sri Venkateshwara Construction Company v. Union of India, AIR 2001 AP 284)), a single Judge of the Andhra Pradesh High court annulled the arbitration clause which provided for the matter in dispute shall be referred to two arbitrators and held that the arbitral tribunal cannot consist of two arbitrators.
However, despite this clear and unequivocal mandate of statute, a three judge bench of the Supreme Court in Narayan Prasad Lohia v. Nikunj Kumar Lohia ((Narayan Prasad Lohia v. Nikunj Kumar Lohia (2002) 3 SCC 572)), held that the provisions of section 10 (1) of 1996 act are derogable, therefore, the requirement of section 10 (1) that the number of arbitrators comprising the arbitral tribunal ‘shall not be an even number’ is not mandatory and the parties can derogate from it and appoint an even number of arbitrators as well. Here the Appellant and the Respondents are family members who had disputes and differences in respect of the family businesses and properties. Each party appointed one arbitrator and then took part in the arbitration process consisting of these two arbitrators. Later, the award was made by these two persons was challenged by the Respondent before the single Judge of Calcutta High Court by way of an application to set aside this award. It was contended that arbitration by two arbitrators was against the statutory provision of the said Act and therefore void and invalid. The High Court accepted this contention and set aside the award. But, the judgment of High Court was overruled by the Supreme Court in this case.
This judgment of Supreme Court was criticized very much as it suffered from many theoretical and technical defects. The effect of this decision is that it annuls the statutory provisions of section 10 (1) barring the appointment of an even number of arbitrators. It amounts to rewriting the statute, instead of giving effects to its object, which defeats the very purpose of this provision.
Does provision for the number of Arbitrators affects the validity of an arbitration agreement?
The Apex Court answered this question in MMTC Ltd. v. Sterlite Industries India Pvt. Ltd ((MMTC Ltd. v. Sterlite Industries India Pvt. Ltd, 1996 (2) ARBLR 705 SC)), Here, a contract between both the parties provided that in the event of any question or dispute, the matter in dispute shall be referred to arbitrator. Both the parties shall nominate one Arbitrator each and the arbitrators shall appoint an umpire before proceeding with the reference. The decision of arbitrators or in the event of their not agreeing the decision of the umpire will be final and binding on the parties. The question before the Court was whether there was anything in the act of 1996 to make such an agreement unenforceable, because the number of arbitrators to be appointed by both the sides in terms of the arbitration clause was even and the 1996 act expressly prohibits the appointment of an even no. of arbitrators. However the court held that there is nothing in Section 7 to indicate the requirement of the number of arbitrators as a part of the arbitration agreement. Thus the validity of an arbitration agreement does not depend on the number of arbitrators specified therein. The number of arbitrators is dealt with separately in Section 10 which is a part of machinery provision for the working of the arbitration agreement. The arbitration agreement is valid as it satisfies the requirement of Section 7 of the New Act.
English Law
The English law also draws a lot from the UNCITRAL Model but with some modifications. Section 15 of the English Arbitration Act, 1996 gives freedom to the parties to appoint any number of arbitrators and also to decide whether there is to chairman or umpire. Unless otherwise agreed by the parties, an agreement that the number of arbitrators shall be two or any other even number shall be understood as requiring the appointment of an additional arbitrator as chairman of the tribunal. If there is no agreement as to the number of arbitrators, then like Indian law, their tribunal would consist of a sole arbitrator. While the English Law retains the institution of a chairman or umpire, Indian law abolished the office of the ‘umpire’ in the 1940 Act. Thus, in the 1996 act the legislature is heavily pressing on having an odd number of arbitrators to prevent any kind of deadlock.
Procedure for Appointment of Arbitrators
Section 11 of 1996 act contains provisions regarding the procedure for appointment of arbitrators. A person of any nationality may be an arbitrator, unless otherwise agreed by the parties ((The Arbitration and Conciliation Act, 1996 section 11 (1).)). The parties are free to agree on a procedure for appointing the arbitrator or arbitrators ((Ibid section 11 (2).)).
Failing any agreement, in arbitration with three arbitrators, each party will be entitled to appoint one arbitrator, and those two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding arbitrator. If a party fails to appoint an arbitrator within 30 days from the receipt of a request to do so from the other party; or the appointed arbitrators fail to agree on the their arbitrator within 30 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 ((Ibid sections 11 (3) and 11 (4).)).
Appointment of Arbitrators by the Chief Justice
In case, the appointment procedure in an arbitration agreement fails, a party may request the Chief Justice or any other person or institution designated by him to take the necessary measures. The 1996 act provides considerable improvement in the nature of the formation of arbitral tribunal by Chief Justice which undertakes the task of selecting an arbitrator by courts outside the litigation process and makes it an administrative act. It is only when there is difference between parties on appointment that the court’s intervention becomes necessary.
There has been a controversy in the Indian Courts whether the power under section 11 to appoint an arbitrator is judicial or administrative. The Supreme Court in Konkan Railway Corporation Ltd. & anr. v. Rani Construction Pvt. Ltd ((Konkan Railway Corporation Ltd. & anr. v. Rani Construction Pvt. Ltd (2000) 8 SCC 159))had interpreted the power under section 11 to be purely administrative and the Chief Justice of India or any other person designated by him for this purpose could not perform any judicial function. This controversy has been finally decided by the Supreme Court in SBP & Co. v. Patel Engineering Ltd ((SBP & Co. v. Patel Engineering Ltd (2005) 8 SCC 618)), wherein it was held that the power exercised by the Chief Justice of High Court or Chief Justice of India for the appointment of arbitrator is not an administrative power but judicial power.
After the above discussion appointing an even number of arbitrators seems to be a highly disputable issue. The judgment in Lohia case ((Supra 9))creates a grey area in statutory limitation in appointing an even number of arbitrators. This judgment suggests that an agreement between the parties can override the mandated statutory requirement. English law in this point is more dynamic and clear which gives the options to the parties to either choose a chairman or an umpire. Therefore, this judgment is not free from doubt and certainly needs reconsideration.