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The Perceived Mandatory Nature Of Section.10: Review Of Lohia v/s Lohia

Carrying on business activities entails many issues one of which is parties entering into various contracts that lay down the terms and conditions. Although generally, efforts are made for unhindered implementation of the contracts, it may so happen that, in their performance, disputes could arise which the existing stipulations could not have taken into account. In fact, it is not humanly possible to provide for all eventualities which can give rise to disputes and lay down ways and means to avoid them.

Therefore, a mechanism has to be in place which will help in amicable settlement of disagreements. While knocking at the doors of the courts for justice is pervasive, the delays and the costs involved in the court process cannot be wished away. Alternative machinery, which is expeditious, offers swifter and less formal procedure as compared to courts, flexible and which is also cost-effective with legal backing, was always in demand. And this machinery is Arbitration.

It simply means out of court settlement of disputes through a third party who is non-partisan and picked by the parties themselves. This process is well-accepted throughout the world. In the Indian context the Arbitration Act 1940 was in the statute book for long but with the globalization of the Indian Economy, it has given way to The Arbitration and Conciliation Act, 1996 Act.[1]

The Arbitration and Conciliation Act, 1996 Act has a beauty that it promotes the party autonomy by facilitating the parties to choose their own Arbitrator and that too without any limitations on the number the of arbitrator but there is only one requirement that the number arbitrator should not be an even number.

Section 10 of the Act says that the number of arbitrators:

  1. The parties are free to determine the number of arbitrators, provided that such number shall not be an even number.
  2. Failing the determination referred to in sub-section (1), the arbitral tribunal shall consist of a sole arbitrator.

The parties are at liberty to determine the number of arbitrators, but such number shall not be an even number. If the parties fail to provide for an odd number of arbitrators, the arbitral tribunal shall be constituted by a sole arbitrator.[2]

Most countries including India has accepted Arbitration, Mediation, and Conciliation as the best ADR techniques for the resolution of civil disputes, particularly those relating to money suits, injunctions and specific performance of contracts.

In this project, the author has perceived the mandatory nature of Section 10 of The Arbitration and Conciliation Act, 1996 by the appraisal of the Case Lohiav. Lohia.

Assimilation Of The Section

An arbitral tribunal (or arbitration tribunal) is a panel of one or more adjudicators which are convened and sit to resolve a dispute by way of arbitration. The tribunal may consist of a sole arbitrator, or there may be more arbitrators but the number of arbitrators can never be even number under the Arbitration & Conciliation Act, 1996.

As per Section 10 of The Arbitration and Conciliation Act, 1996 the parties are free to choose the desired number of arbitrator but the number shall not be an even number, and if the parties are unable to do so then the tribunal shall consist of a sole arbitrator. It is the mandatory provision of the Act and even the parties can’t derogate this provision.

We can see this from various cases like in Wipro Finance Ltd. v. SandplastIndia Ltd.[3] & in Marine Container Services Pvt. Ltd. v. Atma Steels Ltd[4]. the agreement was for the appointment of two Arbitrators, appointed a Sole Arbitrator. In both the said judgments, reliance was placed on Section 10 of the Act.

It was held that Section 10(1) provided that the parties are free to determine the number of Arbitrators provided that such number shall not be an even number. Section10(2) provides that failing the determination referred to in Sub-section (1) the Arbitral Tribunal shall consist of a Sole Arbitrator.

It was held that when the parties have agreed to an even number of Arbitrators, the same is not a determination/agreement within the meaning of Sub-section (1) and thus the agreement had to be deemed to be of reference to a Sole Arbitrator.[5]

Case Review

1. Background Facts
  • There was a family settlement under the memorandum of understanding dated June 24, 1996 between five parties.
     
  • All the parties agreed to resolve their disputes and differences through one Mr. Pramod Kumar Khaitan. Subsequently, on 29th September 1996 they agreed that the said Mr. Pramod Kumar Khaitan and one Mr. Sardul Singh Jain resolves their disputes.
     
  • The parties made their respective claims before these two persons. All parties participated in the proceedings.
     
  • On 6th October 1996, an Award came to be passed by the said Mr. Pramod Kumar Khaitan and Mr. Sardul Singh Jain.
     
  • In furtherance of the award and for its implementation, the appellant and the respondent entered into a memorandum of understanding dated May 4, 1997.
     
  • The award was challenged by the first and second respondents who prayed for setting aside of the award. Several grounds were urged in support of the applications, one of them being that the arbitration by two arbitrators was not permissible under the Act.
     
  • It was contended before the High Court that section 10 of the Arbitration and Conciliation Act, 1996 provides against the number of arbitrators being even.
     
  • Objections to the award were filed in the Calcutta High Court by the respondent Nikunj Kumar Lohia and Bal Govind Lohia. A single judge of the High Court allowed both the objection cases and set aside the arbitrators award.
     
  • The main judgment was passed on November 17, 1998, filed by Bal Govind Lohia.
     
  • The objection filed by the respondent too was allowed by another order passed on the same day following the judgment passed in 1998.
     
  • Against the judgment and orders passed by the single judge the appellant filed two appeals before the division bench of The court, arising out of Bal Govind's objection and of 1999 arising from the respondent's objection.
     
  • Both the appeals were dismissed by the division bench. Once again the main judgment dated May 18, 2000, was passed.
2. Issues Raised
There were several issues raised before the Hon’ble High Court against Award of Arbitral Tribunal, one of them was as under:
  • Whether the Award passed by the Arbitral Tribunal consisting of the even number of Arbitrators is legal.
     
  • Can Do parties derogate the mandatory provisions of Section 10 of the Act?

3. Laws involved
  • Section 10 of Arbitration and Conciliation Act, 1996.
  • Section 4 of Arbitration and Conciliation Act,1996.
4. Submissions
  • The Award was being challenged before the Hon’ble High court of Calcutta.
     
  • The Respondents contended before the High Court that section 10 of the Arbitration and Conciliation Act, 1996 provides against the number of arbitrators being even.
     
  • Their further submission was that since the composition of Arbitration Tribunal was against the provision of the Act, the Award passed by the Tribunal is bad and illegal therefore it should be set aside.
     
  • Mr. Pal, learned senior advocate appearing for the Appellant contended that there is nothing in the Arbitration and Conciliation Act, 1996 whereby it can be said that an Arbitration Agreement cannot provide for reference of disputes to two Arbitrators and that in the absence of any such stipulation in the 1996 Act, the reference to two Arbitrators cannot be bad, illegal, or unwarranted.
     
  • His further submission is that in any case, the parties chose these two Arbitrators for settlement of their disputes through mediation in terms of section 30 of the Act and strictly speaking, mediation under section 30 not being an arbitration award, strict rules regarding the composition and constitution of an arbitral Tribunal comprising of an odd number of Arbitrators cannot be applicable in the case like the present one.
     
  • The parties have accepted the award, in terms of section 4 of the Act they waived any such objection with regard to such legal requirement.
     
  • Mr. Pal's submission was that the composition of the arbitral Tribunal being even in number also cannot be considered to be a legal infirmity because again, in terms of section 4 of the Act the parties by participating in the arbitration proceedings had waived the right to object to the composition of the arbitral Tribunal, even if it was required to be of odd number.[6]

5. Judgment
  • The single judge upheld this objection, amongst others, and, accordingly, set aside the award. The division bench dismissed the appeals on this short point.
     
  • Since the appeals before this Court involved the question of interpretation of section 10 of the Arbitration and Conciliation Act those were first laid before a bench of three judges.
     
  • “What we, therefore, gather from a bare look at the aforesaid provisions contained in the Act is that even though the definition of arbitration agreement as would be discernible by a combined reading of section 2(b) and section 7 of the Act does not say so in the specific terms as to what number an Arbitral Tribunal is to be composed of, keeping in view the clear the language employed in section 10 read with sub-section (3) of section 11 of the Act. we have no hesitation in holding that an Arbitration Agreement, to be in conformity with the requirement of Law as per the 1996 Act, when dealing with the composition of an Arbitral Tribunal either has to provide for a sole Arbitrator, or when the number required is more than one, it has to provide for an odd number of Arbitrators to constitute an Arbitral Tribunal. In an Arbitration Agreement, therefore, which provides for an even number of Arbitrators to constitute an Arbitral Tribunal would not be in conformity with either section 10, or sub-section (3) of section 11 of the Act and therefore, on a combined reading of section 2(b) and section 7 of the Act, such an Arbitration Agreement would be bad in law.”[7]
     
  • A Three-Judge Bench of the Hon’ble Supreme Court of India, speaking through Variava, J.has, contrary to the legislative intent, held that Section 10 of The act is a derogable provision, and hence the parties are free to appoint an even number of arbitrators.
     
  • Section 4 of the Act in the present case cannot be attracted and therefore it cannot be said that the aforesaid two legal infirmities from which the Award suffered would be deemed to have been waived by any party.
     
  • On both the counts, therefore, we find that the arbitration award suffered from the aforesaid legal infirmities and was liable to be set aside.

6. Ratio
  • The mandate as contained and prescribed in section 10 of the Act clearly suggests that Arbitration proceedings have to be conducted by a multi-member Arbitral Tribunal only if such Tribunal consists of an odd number of Arbitrators, if therefore Arbitration Proceedings per se cannot be conducted by an Arbitral Tribunal fixing of even number of Arbitrators there is no purpose whatsoever in the Arbitration Agreement providing for an even number of Arbitrators for constituting an Arbitral Tribunal.
     
  • A bare look at section 4 clearly suggests that, first of all the waiver of the right has to be deliberate, purposeful and knowingly made, and that waiver should be in respect of a provision of the Act as contained in Part-1, from which the parties may derogate, or it should be in addition to a requirement under the Arbitration Agreement which may not have been complied with and yet the parties proceed with the arbitration without slating their objection.[8]

Legislative Intent On Section 10

Before the present Act came into force, the legislation governing arbitration in India was the Arbitration Act, 1940. However, there was no express provision in the 1940 Act relating to the number of arbitrators. The provisions that governed the constitution of the Arbitral Tribunal Were Rule 15 and Rule 26 of the First Schedule to 1940 Act. Rule 2 contemplated a situation wherein if an even number of arbitrators were appointed, it was mandatory for the arbitrators to appoint an umpire.

However, with the repeal of the 1940 Act, the institution of Umpire has been done away with. The present Act not only abolishes the institution of an Umpire, but also expressly proscribes an Arbitral Tribunal composed of an even number of arbitrators. the present Act is significantly based on the UNCITRAL Model Law on International Commercial Arbitration. However, while incorporating Article 10(1) of the UNCITRAL model into the present Act, the legislators added a proviso to the same. That proviso clearly mandates that the number of arbitrators shall not be even. The inclusion of this proviso brings out the clarity in the legislative intent to forbid an even number of arbitrators.

Conclusion
It is respectfully submitted that the Hon’ble Supreme Court erred in interpreting Section 10 as being a derogable provision. Section 10(1) uses the word shall which makes it mandatory to have an odd number of arbitrators. Applying the maxim "absolut asententia expositore non indigetea” a clear proposition does not need exposition it can be concluded that there was no requirement in law to interpret Section 10(1) of the Act so as to suggest that an odd number of arbitrators was not mandatory. Such interpretation of the provision goes against the legislative intent and is opposed to public policy.[9]

Section 10 of the Arbitration and conciliation Act, 1996 is a mandatory provision that cannot be derogated. Even though the parties are free to determine the number of arbitrators such numbers cannot be an even number. We can say that any agreement which permits the parties to appoint an even number of arbitrators would be contrary to this mandatory provision of the said Act and such an agreement would be invalid and void as the Arbitral Tribunal would not have been validly constituted. The composition of the arbitral tribunal itself being invalid the proceedings and the Award, even if one be passed would be invalid and unenforceable.

Thus, the validity of arbitration does not depend on the number of Arbitrators being appointed but the numbers should be in accordance with the provisions of section 10 of the Act that is it should always be Odd in number and if any Award passed by the Tribunal consists of even number of Arbitrator will be illegal and bad.

It is submitted that a clause in the arbitration agreement providing for an even a number of arbitrators should be considered to be invalid. In such cases, recourse must be taken to Section 10(2) of the Act, which clearly mandates that where the number of arbitrators is not determined in consonance with Section 10(1), the Arbitral Tribunal shall consist of a sole arbitrator. It is submitted that the phrase failing such determination in Section 10(2) of the Act, read with Section 10(1), must be interpreted to include instances where the parties to the agreement had agreed on an even number of arbitrators. Moreover, as a final submission, such sole arbitrator must be appointed in accordance with the procedure laid down in Section 11 of the Act.

Therefore, the author concludes that the provisions of Section 10 of the Act are a mandatory to be followed and it cannot be derogated by the parties by making an agreement.

End-Notes:
  1. AmitavGanguly, Comments on The Arbitration and Conciliation Act, 1996
  2. Sri Venkateshwara Construction Co. v. Union of India, AIR 2001 AP 284.
  3. Wipro Finance Ltd. v. Sandplast2006(3) Raj. 524 (Delhi)
  4. Marine Container Services Pvt. Ltd. v. Atma Steels Ltd2001(1) Arb.L.R.341 (Delhi)
  5. Dr. Deepashree Vs. Sultan Chand and Sons 2008(4) ARBLR94(Delhi)
  6. Narayan Prasad Lohia Vs.Nikunj Kumar Lohia and ors (2000)3CALLT177
  7. Narayan Prasad Lohia Vs.Nikunj Kumar Lohia and ors(2000)3CALLT177
  8. Narayan Prasad Lohia Vs.Nikunj Kumar Lohia and ors(2000)3CALLT177
  9. by Aashish Gupta and Gantavya “Arbitration: an Uneven" Affair

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