HUAWEI TECHNOLOGIES CO. LTD. Vs. STERLITE TECHNOLOGIES LTD.

Tags Arbitration

Supreme Court of India (Single Judge)

Arbitration Case, 27 of 2015, Judgment Date: Sep 04, 2015

NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL ORIGINAL JURISDICTION

ARBITRATION CASE (CIVIL) NO.27 OF 2015

HUAWEI TECHNOLOGIES CO. LTD. ...PETITIONER

VERSUS

STERLITE TECHNOLOGIES LTD. ...RESPONDENT

J U D G M E N T

1. This application under Section 11(6) of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as “the Act”) has been
filed seeking appointment of a Sole Arbitrator in terms of clause 22.3 of
the Supply Contract between the parties which was entered into in the
following circumstances:

In March 2006, MTNL issued a tender for supply, installation,
testing, commissioning of Broadband Access Network. Both the petitioner
and the respondent together bid against the tender floated and the
respondent acted as the lead bidder. The contract was awarded in favour of
the respondent by the MTNL. On 9th April, 2007, the parties entered into a
Supply Contract for the aforesaid project. According to the petitioner,
though it had complied with all the terms and conditions of the said supply
contract and had shipped/delivered all equipments on time, the respondent
had failed to make full payment of the amounts due and an amount quantified
at USD 13,390,000 is due and payable. The petitioner sent a legal notice
dated 28th November, 2014 calling upon the respondent to make payment of
the outstanding dues along with interest thereon within seven days failing
which it was stated in the notice that the petitioner would be invoking
clause 22 of the Supply Contract which provided for arbitration and will
proceed to appoint Mr. Justice S.K. Dubey, a former judge of the High Court
of Madhya Pradesh as the sole Arbitrator.

As no response was received to the aforesaid notice, the
petitioner by letter dated 29th December, 2014 appointed Shri Justice S.K.
Dubey which appointment was accepted. Thereafter the respondent raised a
dispute with regard to the reference to the arbitration and rejected the
appointment of Shri Justice S.K. Dubey as the sole Arbitrator.

In these facts the learned sole Arbitrator Shri Justice S.K.
Dubey by order dated 21st January, 2015 recused himself from the
proceedings. It is in the aforesaid circumstances that the present
application/arbitration petition has been filed under Section 11(6) of the
Act for appointment of a sole Arbitrator.

2. A counter affidavit has been filed on behalf of the respondent
wherein it has been, inter alia, stated that upon appointment of Shri
Justice S.K. Dubey as the sole Arbitrator the notice invoking the
arbitration clause had spent its force; Shri Justice S.K. Dubey having
recused himself from the proceedings the fresh appointment of a learned
sole Arbitrator has to be made by, once again, resorting to the provisions
of clause 22 of the Supply Contract and by following the procedure
prescribed therein. Certain other objections have also been raised on the
merits of the dispute contending that the petitioner had not fulfilled its
obligations under the Supply Contract so as to be entitled to the amounts
as claimed.

3. The Court has heard the learned counsels for the parties.

4. Under Section 15(2) of the Act in a situation where the mandate
of an arbitrator terminates, a substitute arbitrator is required to be
appointed according to the rules that were applicable to the appointment of
the arbitrator who is replaced. In Yashwith Constructions (P) Ltd. Versus
Simplex concrete Piles India Ltd. and another [(2006) 6 SCC 204], the term
'rules' appearing in Section 15(2) of the Act has been understood to be
referring to the provisions for appointment contained in the arbitration
agreement or any rules of any institution under which the disputes are to
be referred to arbitration. In the present case, admittedly, there are no
institutional rules under which the disputes between the parties are to be
referred to arbitration and, therefore, the expression “rules” appearing in
Section 15(2) of the Act will have to be understood with reference to the
provisions for appointment contained in the Supply Contract.
5. Clause 22.3 of the Supply Contract which deals with the matter
may be extracted at this stage:

“22.3 All disputes, controversies or claims arising out of or in
connection with or in relation to this Contract of its negotiation,
performance, breach, existence or validity, whether contractual or
tortuous, shall be referred to arbitration in accordance with the Indian
Conciliation and Arbitration Act, 1996 and conducted by a single arbitrator
to be appointed by the Parties by mutual consent. The cost of arbitration
shall be shared by the Parties. The place of the arbitration shall be
India and the applicable law in relation to the procedure of the
arbitration shall be determined by reference to the law of the place of the
arbitration is to be held. The arbitration proceedings shall be conducted
in English language. The award of the arbitration shall be final and
binding against the Parties hereto.”

6. Clause 22.3 of the Supply Contract contemplates appointment of
a sole arbitrator by the parties by mutual consent. In a situation where
the original arbitrator i.e. Shri Justice S.K. Dubey had recused himself
the substitute or new arbitrator is required to be appointed according to
the rules that were applicable to the appointment of the original
arbitrator. This is the mandate of Section 15(2) of the Act. It was,
therefore, incumbent on the petitioner to give notice and explore the
possibility of naming an arbitrator by mutual consent and only on failure
thereof the present application under Section 11(6) of the Act could/should
have been filed. The above recourse is required to be followed by virtue
of the provisions of Section 15(2) of the Act and the decision of this
Court in Yashwith Constructions (P) Ltd. (supra). Admittedly, the same had
not been followed. In these circumstances, the Court will understand the
present application/arbitration petition to be premature. It is
accordingly not entertained leaving it open for the petitioner to act
appropriately, if so advised, in terms of the present order and thereafter
seek its remedies as provided by law.

7. The Arbitration Petition is disposed of in the above terms.

……………………...............,J.
(RANJAN GOGOI)

NEW DELHI
SEPTEMBER 04, 2015

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