Beg To Differ - The Judgement Of Bombay High Court In Haresh Chinnubhai Shah Vs. Rajesh Prabhakar Jhaveri And Anr.

Introduction :


1.         In a recent judgement the Bombay High Court in Haresh Chinnubhai Shah Vs. Rajesh Prabhakar Jhaveri and Anr. (decided on 04.11.2003) 2004 (1) Arb. LR 536 (Bombay): 2004(1) Mh LJ 1109 : (2004) 10 CLA-BL Supp (Snr.) 34 (Bom) held (in para 11) that “wrong composition of the Arbitral Tribunal is a ground for setting aside of an award.  In the present case, it is shown that the composition of the Arbitral Tribunal was not in accordance with law; not in accordance with section 10 of the Act; not in accordance with the directions and order under section 11 of the Act passed by the designate of Hon’ble Chief Justice.  The award is, therefore, liable to be set aside and is accordingly, set aside.”   It is respectfully submitted that the point of law decided in the judgement does not appear to be correct for the reasons detailed below.


1.1       The brief facts and background of the case are given in para 9  of the judgement which reads thus : “There is however a greater lapse on the part of the Arbitrators.  Section 10 of the Act lays down that the parties are free to determine the number of Arbitrators provided that such number shall not be an even number.  Thus, Arbitral Tribunal cannot consist of an even number of Arbitrators.  The first order dated 10th August, 2001 passed by the designate of the Chief Justice under Section 11 of the Arbitration Act appointed two Arbitrators with a direction that they shall be free to appoint a  presiding Arbitrator.  Implicit in the order was that the two Arbitrators would appoint the third presiding Arbitrator and would not act unless they appointed the presiding Arbitrator.  The second order dated 21st December, 2001 by the designate of Chief Justice is more explicit and says that Mr. Mehta and Mr. Dave shall choose the presiding Arbitrator and proceed with the Arbitration.  It clearly mandates that the two Arbitrators had to choose the presiding Arbitrator before they chose to proceed further.  This direction was in consonance with Section 10 of the Act.  It is nobodys case that the two Arbitrators appointed a presiding Arbitrator.  Presiding Arbitrator was never appointed and the Arbitral Tribunal consisted of only even number of members contrary to the provision of Section 10 of the Act and contrary to the orders passed by the designate of the Hon’ble Chief Justice under Section 11 of the Act.  Two Arbitrators, therefore, could not have proceeded with the Arbitration, much less could have proceeded ex-parte.”


2.         A three judge bench of Supreme Court in Bhatia International V. Bulk Trading S A and another [2002]47 CLA-BL SUPP 63 (SC) observed that the very object of the Arbitration and Conciliation Act of 1996 (hereinafter `the Act’), was to establish a uniform legal framework for the fair and efficient settlement of disputes arising in international commercial arbitration. The following principles are compiled from this judgement 


Court has to choose that interpretation which represents true intention of legislature.


2.1       The conventional way of interpreting a statute is to seek the intention of its makers.  If a statutory provision is open to more than one interpretation then the court has to choose that interpretation which represents the true intention of the Legislature. This task often is not an easy one and several difficulties arise on account of a variety of reasons, but at the same time, it must be borne in mind that it is impossible even for the most imaginative Legislature to forestal exhaustively situations and circumstances that may emerge after enacting a statute where its application may be called for.  It is in such a situation that the Courts’ duty to expound arises with a caution that the court should not try to legislate.


Rules of interpretation of a Statute


2.2.      If a language used is capable of bearing more than one construction, in selecting the true meaning, regard must be had to the consequences, resulting from adopting the alternative constructions.  A construction that results in hardship, serious inconvenience, injustice, absurdity or anomaly or which leads to inconsistency or uncertainty and friction in the system which the statue purports to regulate has to be rejected and preference should be given to that construction which avoids such results.  (see Johnson v. Moreton [1978] 3 All ER 37 and Stock v. Frank Jones (Tripton) Ltd. [1978] 1 All ER 984). In selection out of different interpretations the court will adopt that which is just reasonable and sensible rather than that which is none of those things, as it may be presumed that the Legislature should have used the word in that interpretation which least offends our sense of justice.  


2.3       Even though the said Act is now an integrated law on the subject of arbitration, it cannot and does not provide for all contingencies.  An arbitration being a creature of agreement between the parties, it would be impossible for the Legislature to cover all aspects.


2.4.    The Supreme Court further observed (in para 35) “Lastly, it must be stated that the said Act does not appear to be a well drafted legislation.  Therefore, the High Courts of Orissa, Bombay, Madras, Delhi and Calcutta cannot be faulted for interpreting it in the manner indicated above”.


3.         Now an humble attempt is made by me to discuss the  principles declared by the Supreme Court in Narayan Prasad Lohia v. Nikunj Kumar Lohia and others [2002] 5 CLA-BL-Supp I (SC) : 2002 Arb. W.L.J. 425 (SC)  (decided on 20th February, 2002)


A party can challenge the composition of arbitral tribunal before the arbitral tribunal itself


3.1       It has been held by a Constitution Bench of the Supreme Court, in the case of Konkan Rly. Corporation Ltd.  v. Rani Construction (P) ltd. [2002] 2 SCC 388 that section 16 enables the arbitral tribunal to rule on its own jurisdiction.  It has been held that under section 16 the arbitral tribunal can rule on any objection with respect to existence or validity of the arbitration agreement.  It is held that the arbitral tribunal’s authority under section 16 is not confined to the width of its jurisdiction but goes also to the root of its jurisdiction.


3.2       A three judge bench of Supreme Court in Narayan Prasad Lohia case (supra) held that Section 16(2) makes it clear that a challenge to the composition of arbitral tribunal can be taken even though the party may have participated in the appointment of the arbitrator and/or may have himself appointed the arbitrator.  Needless to state a party would be free, if it so chooses, not to raise such a challenge. Thus a conjoint reading of sections 10 and 16 shows that an objection to the composition of the arbitral tribunal is a matter which is derogable.  It is derogable because a party is free not to object within the time prescribed in section 16(2).  If a party chooses not to so object, there will be a deemed waiver under section 4 (italicized supplied).



Parties can determine even number of arbitrators


4.         The Supreme Court in Narayan Prasad Lohia case (supra) further held that even if parties provide for appointment of only 2 arbitrators, that does not mean that the agreement becomes invalid. Under section 11(3) the two arbitrators should then appoint a third arbitrator who shall act as the presiding arbitrator.  Such an appointment should preferably be made at the beginning.  However, we see no reason, why the two arbitrators cannot appoint a third arbitrator at a later stage, i.e., if and when they differ. This would ensure that on a difference of opinion the arbitration proceedings are not frustrated. But if the two arbitrators agree and give a common award there is no frustration of the proceedings.  In such a case their common opinion would have prevailed, even if the third arbitrator, presuming there was one, had differed. Thus, we do not see how there would be waste of time, money and expense if a party, with open eyes, agrees to go to arbitration of two persons and then participates in the proceedings.


5.         Article 141 of Constitution of India   :           The law declared by the Supreme Court shall be binding on all courts within the territory of India.


5.1       Binding force of Supreme Court decisions  :  All Courts in India are bound to follow  the decision of the Supreme Court even though they are contrary to decisions of the House of Lords (I.T. Commr. V. Shrinibbai, A. 1965 Bom. 586; Punjabi v. Shamrao, A. 1955 Nag. 293) or the Privy Council (Dwarka Das v. Sholapur Spinning Co., A. 1954 S.C. 119)


5.2       `Law declared’ : In case of conflict between decisions of the Supreme Court itself, it is the latest pronouncement which will be binding upon the inferior Courts, unless the earlier was of a larger Bench.  If the later decision is that of a larger Bench, the previous decision will be deemed to have been overruled and completely wiped out.  This rule is followed by the Supreme Court itself.


Conclusion  :


5.3       The law declared by the Supreme Court in Narayan Prasad Lohia case (supra) is binding on the Bombay High Court and therefore, it is respectfully submitted that the point of law decided in Haresh Chinnubhai Shah Vs. Rajesh Prabhakar Jhaveri and Anr. (supra) does not appear to be correct.  It seems that the judgement of Supreme Court in Narayan Prasad Lohia case (supra) was not taken into the notice of Hon’ble Bombay High Court.

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