REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL ORIGINAL JURISDICTION ARBITRATION PETITION NO. 27 OF 2013 Reliance Industries Ltd.

& Ors. Petitioners Versus Union of India .Respondent JUDGMENT

SURINDER SINGH NIJJAR,J. 1. This petition has been filed under Section 11( ! of the "rbitration of "ct# the 1$$ # third %ith and a the pra&er for

appoint'ent

presidin(

arbitrator# as the t%o arbitrators no'inated b& the parties ha)e failed to reach a consensus on the appoint'ent of the third arbitrator.

2. Petitioner *o.1 is a co'pan& incorporated and

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re(istered under the pro)isions of the +o'panies "ct# 1$, Petitioner in +a&'an *o.. is a co'pan& Vir(in

incorporated

Islands#

/ritish

Islands- Petitioner *o.0 is a co'pan& incorporated accordin( to the la%s of 1n(land & 2ales. The Respondent herein is Union of India (hereinafter referred to as 3UOI4!# represented b& the 5oint Secretar&# 6inistr& of Petroleu' and *atural 7as.

3. /riefl& stated# the rele)ant facts are as under8 4. In 1$$$# UOI announced a polic&9*e% 1:ploration and Licensin( Polic& (hereinafter referred to as 3*1LP4!. Under *1LP# certain bloc;s of h&drocarbon reser)es %ere offered for e:ploration# de)elop'ent and production to pri)ate contractors under the a(ree'ents %hich %ere in the nature of Production Sharin( +ontract. One of the said bloc;s %as /loc; <79=2*9$>?0 (3/loc; <79= 4!. The @oint bid 'ade b& the Petitioners *o.1 and . for the /loc; <79= %as accepted b& the UOI. Thereafter on 1. th "pril#
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.AAA#

Production

Sharin(

+ontract

(hereinafter

referred to as BPS+C! %as e:ecuted bet%een the Petitioners *o.1 and . as Contractor on one side and UOI on the other. The "rbitration "(ree'ent in the PS+ is contained in "rticle 00. thereof# is in the follo%in( %ords8 3"RTI+L1 00 SOL1 1DP1RT# +O*+ILI"TIO* "*= "R/ITR"TIO* 00.1 E E E 00.. E E E 00.0 Sub@ect to the pro)isions of this +ontract# the Parties hereb& a(ree that an& contro)ers&# difference# disa(ree'ent or clai' for da'a(es# co'pensation or other%ise (hereinafter in this +lause referred to as a FdisputeF! arisin( bet%een the Parties# %hich cannot be settled a'icabl& %ithin ninet& ($A! da&s after the dispute arises# 'a& (e:cept for those referred to in "rticle 00..# %hich 'a& be referred to a sole e:pert! be sub'itted to an arbitral tribunal for final decision as hereinafter pro)ided. 00.G The arbitral tribunal shall consist of three arbitrators. 1ach Part& to the dispute shall appoint one arbitrator and the Part& or Parties shall so ad)ise the other Parties. The t%o arbitrators appointed b& the Parties shall appoint the third arbitrator. 00., "n& Part& 'a&# after appointin( an arbitrator# reHuest the other Part&(ies! in %ritin( to appoint the second arbitrator. If such
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Rele)ant facts

other Part& fails to appoint an arbitrator %ithin thirt& (0A! da&s of receipt of the %ritten reHuest to do so# such arbitrator 'a&# at the reHuest of the first Part&# be appointed b& the +hief 5ustice of India or b& a person authorised b& hi' %ithin thirt& (0A! da&s of the date of receipt of such reHuest# fro' a'on(st persons %ho are not nationals of the countr& of an& of the Parties to the arbitration proceedin(s. 00. If the t%o arbitrators appointed b& or on behalf of the Parties fail to a(ree on the appoint'ent of the third arbitrator %ithin thirt& (0A! da&s of the appoint'ent of the second arbitrator and if the Parties do not other%ise a(ree# at the reHuest of either Part&# the third arbitrator shall be appointed in accordance %ith "rbitration and +onciliation "ct# 1$$ . : 999999999999999 : 999999999999999: 999999999999: 99999999999: 00.1. The )enue of the sole e:pert# conciliation or arbitration proceedin(s pursuant to this "rticle# unless the Parties a(ree other%ise# shall be *e% =elhi# India and shall be conducted in the 1n(lish lan(ua(e. Insofar as practicable# the Parties shall continue to i'ple'ent the ter's of this +ontract not%ithstandin( the initiation of arbitral proceedin(s before a sole e:pert# conciliator or arbitral tribunal and an& pendin( clai' or dispute. 00.10 E E E4 5. On >th "u(ust# .A11# UOI (ranted its appro)al to the Petitioner *o.1 to assi(n 0AI of its participatin( interest in the /loc; <79= # under the PS+ to
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Petitioner *o.0. On the sa'e date# i.e. > th "u(ust# .A11# Petitioner *o. 0 also entered into PS+ as a part&. Jurther# Petitioner *o.1 %as appointed as the BOperatorC for /loc; <79= # both under the ter's of the PS+# and the 5oint Operatin( "(ree'ent that %as e:ecuted bet%een Petitioner *o. 1 and

Petitioners *o. . & 0.

6. It appears that in the financial &ear .A1A9.A11# differences relatin( to the scope and interpretation of the pro)isions of the PS+ arose bet%een the Petitioners and Respondent after the publication of so'e 'edia reports. These reports# accordin( to the Petitioners# su((ested that the Respondent %as plannin( to disallo% cost reco)er& of the

e:penditures incurred b& the Contractor since the productions le)els fro' the (as fields had fallen drasticall&. "ccordin( to the Petitioners# all the disa(ree'ents and differences that ha)e arisen bet%een the' and UOI %ill ine)itabl& lead to serious
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proble's in the %or;in( of the PS+. To resol)e this dispute# len(th& correspondence ensued bet%een Petitioner *o.1 and the officers?representati)es of Respondent *o.1.

7. On 1

th

Septe'ber# .A11# RIL (Petitioner no.1! %rote

to the Respondent and pointed out that an& atte'pt to disallo% or to restrict cost reco)er& of

e:penditures incurred b& the Contractor since the production le)els fro' (as fields had fallen# %ould be contrar& to the pro)isions of the PS+ and# reHuested that no such action should be ta;en. There %as no response to the aforesaid letter fro' the Respondent. . On .0rd *o)e'ber# .A11# Petitioner *o.1 (RIL!# throu(h its "d)ocates# ser)ed upon the Respondent a notice in)o;in( arbitration# in accordance %ith the arbitration a(ree'ent contained in "rticle 00 of the PS+. In this letter# Petitioner no.1 also no'inated 6r. 5ustice S.P. /harucha# for'er +hief 5ustice of
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India#

as

its

arbitrator

and

called

upon

the

Respondent to no'inate its arbitrator %ithin 0A da&s of the receipt of this letter. Respondent replied to this letter on .1 st =ece'ber# .A11# and

inti'ated Petitioner *o.1 that the 'atter is under consideration and that 3the 6inistr& needs 'ore ti'e to respond and %ould do so b& 01 st 5anuar&# .A1..4 In its letter dated .nd 5anuar&# .A1.# the Petitioners pointed out to the Respondent that# 3the PS+# the U*+ITR"L Rules and the Indian "rbitration and +onciliation "ct# 1$$ K set a period of thirt&

da&s for &our 'a;in( appoint'ent of an "rbitrator.4 *e)ertheless# as a 'atter of (ood faith# ti'e for no'ination of an arbitrator b& the Respondent %as e:tended until 01st 5anuar&# .A1..

!. The Respondent# ho%e)er# b& a letter dated ., th 5anuar&# .A1. addressed to Petitioner *o.1 called upon the Petitioner to %ithdra% the *otice of "rbitration on the (round that the sa'e %as
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pre'ature# 3for the reason that no BdisputeC has arisen bet%een the parties to the Production Sharin( +ontract.4 It is note%orth& that no ob@ection %as ta;en %ith re(ard to Petitioner *o.1 bein( the onl& part& under the PS+ that see's to be raisin( the disputes.

10. Thereafter on .nd Jebruar&# .A1.# Petitioner *o.1 replied to the Respondent# b& a letter throu(h its ad)ocates# %herein it %as reiterated that there ha)e been a lon( standin( contro)ers&# differences

and?or disa(ree'ent as to %hether the contractorCs ri(ht to reco)er its contract cost is capable of bein( li'ited b& the 7o)ern'ent# in the 'anner and on the (rounds as is sou(ht to be done under the PS+. It %as also stated that8 3Our client treats and construes &our letter under repl& as &our refusal and failure to appoint an arbitrator.4

11. On 1Lth Jebruar&# .A1.# Respondent %rote a

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letter to Petitioner *o.1# %herein it %as reiterated that no dispute concernin( the cost reco)er& under the PS+ has arisen bet%een the parties to the PS+. The Respondent once a(ain called upon the

Petitioners to %ithdra% the notice of arbitration dated .0rd *o)e'ber# .A11.

12. In response to the aforesaid letter# Petitioner *o.1# throu(h its "d)ocates# addressed a letter dated $th 6arch# .A1. to the Respondent# %herein the de'and 'ade in the notice of arbitration dated .0rd *o)e'ber# .A11 %as reiterated. The letter inter alia stated as under8 32e are instructed to state that the assertion that disputes and differences ha)e not arisen bet%een the 7o)ern'ent and the Contractor o)erloo;s the pre)ious correspondence that the ensured (sic8 ensued! bet%een the parties4 EEE 3The underl&in( reason for all this appears to be disputes that ha)e arisen bet%een the +ontractor and the =7M4 EEE 3The =7M# on its part has disa(reed %ith the contractor inter alia on %hether the factualassertion that drillin( of 'ore %ells %ould not au('ent the rate of production4
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"nne:ure9I to the aforesaid letter listed so'e of the issues that ha)e alread& arisen bet%een the parties- %hich are as under8 (I! 2hether the J=P i'plies a co''it'ent of the

contractor to produce particular or at a particular rateN (II! 2hether the J=P i'plies a co''it'ent of the

contractor to do a series of de)elop'ent acti)ities e)en if there is a difference of opinion bet%een the 7o)ern'ent and the +ontractor as to the efficac& of these acti)itiesN (III! 2hether the J=P is re)ised pro tanto b& 2P & /Cs fro' ti'e to ti'e appro)ed b& 6+N (IV! 2hether the )ariation bet%een the costs

proposed in the J=P and the actual cost can be a basis for disallo%in( +ape:N (V! Is the reco)er& of cost related in an& 'anner to

the esti'ates of production e)en if the costs are %ithin the sanctioned bud(etsN (VI! Is the reco)er& of costs of facilities in an& 'anner
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related to the attain'ent of production esti'ates of the J=P or the esti'ates of deposits or reser)oir characteristicsN (VII! 2hether the J=P %as a representation b& the contractor to produce at a particular rate or to produce a particular Huantit& for a defined period# %hich b& conduct beca'e a bindin( contract bet%een the partiesN (VIII! 2ould the drillin( of additional %ells result in increased production rates?)olu'es. (ID! =id the appro)al of the 2P & /Cs OJP .AA$91A (R1! and .A1A911 (/1!Q result in a 'odification of J=PN (D! 2ere the reasons (i)en b& the 6oP*7?=7M for

declinin( appro)al to the 2P & /Cs for JP .A1A911(R1! and .A1191. )alidN (DI! If the ans%er to (ID! and (D! is in the ne(ati)e# %hat is the conseHuenceN4

13. On 1

th

"pril# .A1.# Petitioners *o.1 & . filed

"rbitration Petition *o. > of .A1. under Section

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11( ! of the "rbitration "ct# 1$$ (hereinafter referred to as

before this +ourt 3".P. *o. >4!#

see;in( constitution of "rbitral Tribunal in ter's of "rticle 00., of the PS+. "fter filin( of this petition# correspondence ensued bet%een the Petitioners and the Respondent# %herein the sub@ect 'atter related to cost reco)er& of e:penditure incurred b& the +ontractor for the &ears .A1A9.A11 %as

discussed. This %as done throu(h letters?notice dated .nd 6a&# .A1.- Gth 6a&# .A1. and > th

5une# .A1.. In the letter dated .nd 6a&# .A1.# the Respondent 'a;es a reference to the PS+ dated 1.th "pril# .AAA in the follo%in( ter's8 32e %rite %ith reference to the Production Sharin( +ontract (3PS+4! dated "pril 1.# .AAA bet%een 6inistr& of Petroleu' and *atural 7as (37o)ern'ent4!# Reliance Industries Li'ited (bein( the operator! and *i;o Resources Li'ited (collecti)el& 3+ontractor4!# in relation to bloc; <79=2*9$>90. The e:pressions used and not defined herein and defined in the PS+# shall ha)e the 'eanin( ascribed thereto in the PS+.4 The letter clai's that the Petitioners ha)e failed8
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3to fulfil &our obli(ations and to adhere to the ter's of the PS+ and are in deliberate and %ilful breach of PS+ and ha)e thereb& caused i''ense loss and pre@udice to the 7o)ern'ent. Pou ha)e also repeatedl& failed to 'eet &our tar(ets under the PS+.4 Thereafter the

specific instances of the breach ha)e been hi(hli(hted in detail. Jinall&# it is recorded as under89 3In this re(ard# %e ha)e been instructed to state that an& such purported atte'pt to unilaterall& ad@ust an& a'ounts as threatened or other%ise %ould be co'pletel& ille(al and constitute a serious breach of the pro)isions of the PS+ and that our client reser)es all its ri(ht under the PS+# the "rbitration "ct# and the U*+ITR"L "rbitration Rules if the 7o)ern'ent atte'pts to proceed to i'ple'ent the purported decision threatened or other%ise.4 14. The Petitioners b& an eHuall& detailed letter denied the clai's 'ade b& the Respondent on > th 5une# .A1.. In para(raph 01 of the aforesaid letter# the Petitioners a(ain called upon the Respondent to appoint an arbitrator forth%ith (%ithout raisin( an& other procedural issues desi(ned to dela& the dispute resolution process! so that the )ital pro@ect
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underta;en b& the parties is not put in @eopard& on account of the continuin( uncertaint&.

15. In its letter dated ,th 5ul&# .A1.# the Respondent 'a;es a reference to the letter dated .nd 6a&# .A1. addressed to +ontractors of the bloc; <79=2*9$>?0 and to the letter dated > th 5une# .A1. %ritten b& the Solicitors on behalf of Petitioner *o.1 and stated that the 6inistr& had no'inated 6r. 5ustice

V.*.<hare# for'er +hief 5ustice of India as the arbitrator on behalf of the 7o)ern'ent of India. The letter also called upon the Petitioners to %ithdra% the ".P. *o. >. On 1
th

5ul&# .A1.# the Petitioners#

throu(h its ad)ocates# addressed a letter to the Re(istrar of this +ourt# %herein it %as reHuested that the ".P. *o. > 'a& be disposed of. "ccordin(l&# the ".P. *o. > %as disposed of b& this +ourt b& an order dated Lth "u(ust# .A1.. It %ould be

appropriate to notice here the rele)ant e:tract of the order8

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3/oth the parties ha)e no ob@ection to the "rbitrators no'inated b& each other. Under the arbitration clause# the t%o no'inated "rbitrators are to no'inate the third "rbitrator. In )ie% of the abo)e# in '& opinion# no further orders are reHuired to be passed in this "rbitration Petition. The "rbitration Petition is disposed of as such.4 16. On 1.th 5ul&# .A10# Petitioner *o.1 addressed a letter to 6r. 5ustice S.P. /harucha and 6r. 5ustice V.*. <hare# reHuestin( the' to no'inate the third arbitrator. On 1st "u(ust# .A10# 6r. 5ustice

/harucha %rote a letter to Petitioner *o.1# inter alia, as follo%s 8 3Undoubtedl&# there has been a dela& in the appoint'ent of a third arbitrator. I had 'ade a su((estion to '& fello% arbitrator# %hich %as not acceptable to hi'. I as;ed hi' to 'a;e a counter su((estion %hich he said he %ould do. I ha)e not heard an& counter su((estion as &et. In the circu'stances# &ou 'ust consider %hether the court should be approached for the appoint'ent of a third arbitrator.4 17. It %as in these circu'stances that the present arbitration petition ca'e to be filed under Section 11( ! of the "rbitration "ct# 1$$ .

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S"#$%&&%'(&) 1 . I ha)e heard elaborate ar(u'ents# and perused the %ritten sub'issions sub'itted b& the learned senior counsel appearin( for the parties.

1!. 6r. Marish *. Sal)e# learned senior counsel# appearin( for the Petitioners has 'ade the follo%in( sub'issions8

I. R*) I(+*,(-+%'(-. C'$$*,/%-. A,#%+,-+%'( 20. It %as sub'itted that the present arbitral

proceedin(s relate to an International +o''ercial "rbitration# as defined under Section . (1! (f! of the "rbitration "ct# 1$$ . Ld. senior counsel pointed out that t%o out of the four parties to the arbitration a(ree'ent are based outside India- Petitioner *o. . bein( a U.<. based co'pan& and Petitioner *o.0 bein( based in +anada. Substantiatin( this

sub'ission# it %as pointed out b&

6r. Sal)e that

each of the Petitioners is a part& to the PS+# as

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defined under "rticle .>.1 of PS+- and each of the Petitioners co'prise a 3Contractor4# under "rticle . of PS+.

21. It %as also sub'itted that Petitioner *o. 1# as 3Operator#4 perfor's each and e)er& function of the Contractor under the PS+ on behalf of all the constituents of the Contractor# as defined under "rticles L.1 and L.0 of the PS+. 6r. Sal)e 'entioned that the "ppendi: B+C to the PS+ pro)ides

accountin( procedure %hich is reHuired to be follo%ed b& the Contractor and the 7o)ern'ent. Learned senior counsel also brou(ht to our

attention the accountin( procedure that is reHuired to be follo%ed b& the contractor and the

7o)ern'ent. Sections 1.G.. and 1.G.G of "ppendi: B+C to the PS+ indicate that the accounts are to be 'aintained b& the Operator on behalf of the Contractors. On the basis of the aforesaid it %as sub'itted that for the purpose of cost reco)er&#
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onl& one set of accounts# as opposed to three sets of accounts# has to be 'aintained. Thus# accordin( to the sub'ission# the a%ard %ill affect the cost reco)er& under the PS+ and i'pact all the parties# particularl& Petitioners# eHuall&. In the li(ht of the aforesaid# it %as sub'itted that the Operator %as# therefore# obli(ed to raise a dispute on behalf of all the parties?Petitioners. This %as also 'ade clear in the ".P. *o. >

22. Lastl& it is sub'itted b& 6r. Sal)e that the Respondent itself has al%a&s understood and

accepted that the substance of the dispute is related to and has i'plications for all the parties to PS+. It %as also pointed out that the *otice dated .nd 6a&# .A1. %as addressed b& the UOI to all the three Petitioners and that the no'ination of the "rbitrator b& the UOI %as %ith reference to notice dated .nd 6a&# .A1..

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II. R*) J",%&0%/+%'( '1 +2* S"3,*$* C'",+) 23. 6r. Sal)e sub'itted that the parties cannot confer @urisdiction on the Supre'e +ourt# it flo%s fro' the fact that there is an international

arbitration. Me sub'its that the stand of the UOI is inconsistent. On the one hand it has accepted that this court has the @urisdiction to entertain the petition# and on the other hand it Huestions the assertion that this petition concerns an international arbitration. It is further sub'itted b& hi' that ".P. *o. > %as filed in .A1. on the pre'ise that the arbitration bet%een the Petitioner and the UOI %as an international arbitration on account of the fact that Petitioner *o.. is a co'pan& incorporated outside India. It %as pointed out that no dispute# as to the 'aintainabilit& of the petition# %as raised at that ti'e. ".P. *o. > %as disposed of b& this +ourt on 'erits and not for the %ant of @urisdiction. *o dispute %as raised to the effect that this +ourt has no @urisdiction to entertain the petition# %hich %as
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filed under Section 11( ! of the "rbitration "ct# 1$$ . On the basis of the abo)e# he sub'its that the ob@ection %as raised b& the Respondents that Petitioner *o.1 is the onl& part& raisin( disputes in relation to PS+# and clai'in( reference to

arbitration is an afterthou(ht. 24. 6r. Sal)e further sub'its that the contention of the UOI that this +ourt has no @urisdiction to entertain the present petition in )ie% of Section 11(.! of the "rbitration "ct# 1$$ # is 'isconcei)ed. It is also sub'itted that Sub9section (.! of Section 11 is sub@ect# e:pressl&# to subsection ( ! thereof. Section 11( ! pro)ides that in case the appoint'ent procedure a(reed upon b& the parties is not co'plied %ith# a part& 'a& reHuest the +hief 5ustice to ta;e the necessar& 'easures. The e:pression sub9

3+hief 5ustice4 has been defined under

section (1.!(a! of Section 11 as the +hief 5ustice of India# in the case of an international co''ercial arbitration. In other arbitrations under Section
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11(1.!(b!# it %ould be the +hief 5ustice of the Mi(h +ourt. It %as then sub'itted that a procedure a(reed to b& the parties for appoint'ent of arbitrator(s! is sub@ect to Sub9section ( !- it cannot o)erride sub9section ( ! and pro)ide that in respect of a do'estic arbitration# not9%ithstandin( sub9 section(1.!# the parties %ould onl& 'o)e the +hief 5ustice of India# or )ice )ersa in the case of an international arbitration. On the basis of the

aforesaid# it %as sub'itted that the contention of the UOI that this +ourt has no @urisdiction to entertain the petition under Section 11( ! is

'isconcei)ed.

III. R*) N'+%/* ) 25. Jurther# it %as stated that the 5oint Operatin( "(ree'ent entitles the Operator to initiate liti(ation on behalf of all the parties. It %as also sub'itted that it is si(nificant to note that there is

inconsistenc& in the stand ta;en b& the Respondent.

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On the one hand# Respondent clai's that the arbitral a%ard %ould bind not 'erel& Petitioner *o.1 but also Petitioners other hand# the *o. . and 0- ho%e)er on the Respondent insists that the

arbitration proceedin(s are onl& bet%een Petitioner *o. 1 and UOI. This stand of the Respondents has been sub'itted to be contrar& to the established @urisprudence that an arbitral a%ard is bindin( onl& on the parties to the arbitration.

IV. R*) A,#%+,-+', '1 N*"+,-. N-+%'(-.%+4 26. 6r. Sal)e sub'itted that since the arbitration is an international one# this court# in accordance %ith the established international practise# should

consider appointin( an arbitrator of a nationalit& other than the nationalities of the parties. In this conte:t# it %as pointed out that the statute

e:pressl& obli(ates the +ourt to e:a'ine the issue of nationalit& of the arbitrator )is9R9)is the

nationalit& of the parties. It %as asserted that "rticle

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00(,! of the PS+ is conclusi)e on this issue. It pro)ides that if one of the parties fails to appoint its arbitrator# the +ourt %ould appoint an arbitrator of a nationalit& other than that of the defaultin( part&. It %as sub'itted that this clause indicates the

si(nificance that the parties ha)e attached to the neutralit& of the arbitrators. arbitrator A should fortiori, be of the a

chair'an?presidin(

nationalit& other than Indian. The contention of the UOI that absence of a pro)ision si'ilar to "rticle 00(,! of the "rbitration "(ree'ent in relation to the appoint'ent of the third arbitrator su((ests that the presidin( arbitrator could be Indian has been sub'itted b& 6r. Sal)e to be 'isconcei)ed.

27. It %as also brou(ht to our notice that the U*+ITR"L Rules# in force at the ti'e %hen the PS+ %as drafted and entered into# reco(nised that %hile the appointin( authorit& could appoint an arbitrator of the sa'e nationalit& as that of the defaultin(
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part& (in the e)ent %here a part& fails to no'inate its arbitrator!# but the presidin( arbitrator that has to be appointed %ould be of the nationalit& other than that of the parties. The Petitioners states that the PS+ pro)ides for e)en a (reater de(ree of neutralit& than the U*+ITR"L b& pro)isionin( that in case one of the parties 'a;es a default in no'inatin( its arbitrator then the arbitrator has to be appointed fro' a neutral nationalit&. It %as then sub'itted that there %as no need of a si'ilar pro)ision in relation to the presidin( arbitrator since the arbitration %as to be in accordance %ith U*+ITR"L Rules. counsel relied In this conte:t# learned senior upon L%$%+*0 the Vs. la% laid in A(+,%5

C',3',-+%'(

D*6-&

M".+%$*0%-

P,%6-+* L+01, %herein it %as inter alia held that the reference to such rules (I++ in that case! %ould include the process of constitution of a tribunal. 2 . 6r. Sal)e also referred to the sub'ission of the Respondent that the PS+ bein( (o)erned b& the
1 2013 (7) SCALE 216 (Para 34)

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Indian la% or?and that it in)ol)es the issues of public polic& for India as irrele)ant. The fact that a part& no'inee had to be fro' a neutral countr&

establishes that the parties did not consider the (o)ernin( la% of the contract to be of an& rele)ance to the nationalit& of the arbitrator. It %as also sub'itted that the trend of appointin( presidin( arbitrator fro' a 3neutral nationalit&4 is no% uni)ersall& accepted under )arious arbitration rules as %ell as under the "rbitration "ct# 1$$ .

2!. 6r. Sal)e also pointed out that "rticle 00 ($! of the PS+ adopts the U*+ITR"L Rules for the

arbitration "(ree'ent and that at the ti'e of si(nin( the "rbitration "(ree'ent the U*+ITR"L Rules# 1$L %ere in force. 6r. Sal)e also referred to "rticle of U*+ITR"L Rules# 1$L . Me laid particular (G!.

stress on "rticle

30. It %as further 'entioned that the U*+ITR"L Rules

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of .A1A are no% at par %ith the procedure under "rticle 00.,# e)en %ith respect to appoint'ent of second arbitrator. 31. Rel&in( upon the @ud('ent of this +ourt in N',+2*,( R-%.7-4 A0$%(%&+,-+%'(, M%(%&+,4 '1 R-%.7-4, N*7 D*.2% Vs. P-+*. E(8%(**,%(8

C'$3-(4 L%$%+*02, it %as sub'itted that the sche'e of Section 11 e'phasises that the ter's of an "rbitration "(ree'ent should be (i)en effect as closel& as possible.

32. Lastl&# it %as sub'itted that the Respondents had lost their ri(ht to no'inate the second arbitrator in the earlier round of liti(ation# i.e. ".P. *o. > and hence# the Petitioners could ha)e insisted under "rticle 00., that the Tribunal 'ust be constituted of t%o non9Indian "rbitrators b& in addition Petitioner. to It the is#

arbitrator

appointed

the

therefore# i'perati)e that the third arbitrator should ha)e a neutral nationalit&.
2 (2008) 10 SCC 240

26
Page 26

R*&3'(0*(+9& S"#$%&&%'(& 33. 6r. "nil /. =i)an and 6r. =ush&ant ". =a)e# learned senior counsel# appeared for the

Respondents. "t the outset# it %as pointed out that the present arbitration petition has been filed under Sections 11( ! and 11($! of the "rbitration "ct# 1$$ # read %ith "rticle 00. of the PS+. It %as then of the PS+# unli;e

sub'itted that the "rticle 00.

"rticle 00.,# does not reHuire that the arbitrator to be appointed should be a forei(n national. The learned senior counsel su((ested that the aforesaid o'ission is both deliberate and si(nificant. It %as further sub'itted that the Petitioners# b& choosin( not to ob@ect to the appoint'ent of 6r. 5ustice V.*. <hare# ha)e %ai)ed of the reHuire'ent that a forei(n national be appointed as an arbitrator b& the parties# under "rticle 00., of the PS+. It %as further sub'itted that this %ai)er also beco'es clear fro' the letter dated 1
th

5ul&# .A1.# %hich %as sent on

27
Page 27

behalf of the Petitioners to the Respondent# %herein the no'ination of 6r. 5ustice <hare %as accepted %ithout an& reser)ation. The Petitioners are#

therefore# as stated b& the learned senior counsel# estopped fro' insistin( upon appoint'ent of a forei(n arbitrator.

34. *e:t# learned senior counsel sub'itted that that the PS+ is one of the 'ost )alued# crucial and sensiti)e contracts for the nation# in as 'uch as it deals %ith the PS+ in offshore areas- and it deals inter alia %ith License and 1:ploration# =isco)er&# =e)elop'ent and Production of the 'ost )aluable natural resources# )iS. petroleu' products#

includin( crude oil and?or natural (as. Propoundin( further# it %as sub'itted that these products are )ital to the sur)i)al of the nation. UOI

entered into the PS+ %ith Petitioners *o. 1 and .# %ith a)o%ed ob@ecti)e of e:ploitin( the aforesaid natural resources(s! in the 'ost efficient#
28
Page 28

producti)e 'anner and in a ti'el& fashion. The PS+# therefore# has (reat si(nificance for the nation. It %as also sub'itted that the entire sub@ect 'atter of the contract is situated in India and hence# the applicable la% is the Indian la% for both the substanti)e contract and the "rbitration "(ree'ent.

35. Placin( stron( reliance on the factual situation# it %as sub'itted that the PS+# its interpretation# and its e:ecution in)ol)e intricate and co'ple:

Huestions of la% and facts relatin( to Indian conditions and Indian la%s. It %as further sub'itted that since the parties %ere a%are about the aforesaid nature of PS+# the& consciousl& refrained fro' ha)in( the reHuire'ent that the third

arbitrator should be a forei(n national. Thus# it %as sub'itted b& the learned senior counsel# that the issue relatin( to the appoint'ent of the third arbitrator has been left sHuarel& to the t%o

no'inated arbitrators# and that the t%o arbitrators

29
Page 29

are not to be influenced b& an& reHuire'ent that the third arbitrator should be a forei(n national.

36. In the support of the aforesaid sub'ission# learned counsel relied upon the letter dated 1. th 5ul&# .A10 %ritten b& the Petitioner to the t%o arbitrators# %herein a reHuest %as 'ade to

co'plete the constitution of the arbitral tribunal. The follo%in( e:cerpt has been relied upon8 32hile it is understood that it is so'eti'es a ti'e consu'in( e:ercise# Pour Monour %ill appreciate that the issues %hich are sub@ect 'atter of the arbitration proceedin(s are of si(nificant i'portance to the +lai'ants. "ccordin(l&# on behalf of our clients %e hu'bl& reHuest Pour Monour to co'plete the constitution of the "rbitral Tribunal at &our earliest con)enience.4 37. Learned senior counsel also relied upon the letter dated 1st "u(ust# .A10 %ritten b& 6r. 5ustice /harucha to sub'it that there is not e)en a su((estion that the third arbitrator has to be a forei(n national.
30
Page 30

3 . The ne:t sub'ission of the Respondent is that Petitioners *o . and 0 ha)e not raised an& dispute under the PS+ at an& sta(e. It is onl& the Petitioner alone that has raised the dispute and co'e for%ard as the Claimant. To substantiate the sub'issions# Respondents rel& upon the follo%in( docu'ents8 (i! (ii! Letter dated .0.11..A11*otice of "rbitration dated .0.11..A11dated dated A..A1..A11 A..A...A11# on on behalf behalf of of Petitioner (i)! Letter ()! Petitioner *o. 1 b& its solicitors. *o. 1 b& its solicitors.

(iii! Letter

Letter dated A,.AL..A1. of the Respondent to the Solicitors of RIL.

()i! Letter dated 1st "u(ust# .A10 of 6r. 5ustice /harucha# as per the Respondent sho%s that the India. 3!. It %as also e'phasised that all the arbitration %as bet%een Reliance Industries Li'ited and the 7o)ern'ent of

co''unications anne:ed %ith the present petition identif& the clai'ant to be Petitioner
31
Page 31

*o. 1. It %as also hi(hli(hted that the contents of the letter dated .nd 6a&# .A1. %ritten b& the Respondents# %hich inter-alia deals %ith

inad'issibilit& of reco)er& of costs has not been disputed b& Petitioners *o. . and 0. Learned senior counsel also relies upon the letter dated 1. th 5ul&# .A10# sent on behalf of Petitioner *o.1 b& its Solicitors to the "rbitrators. This letter %as sent after the order dated L th "u(ust .A1.

%as passed b& this +ourt in ".P. *o. > of .A1.. "ccordin( to the Respondents this letter also sho%s that the dispute is onl& bet%een RIL and the Respondent.

40. 6r. =i)an also sub'itted that Petitioners *o. . and 0 ha)e not confor'ed to "rticle 00 of the PS+# for the purposes of in)o;in( arbitration. Such non9 co'pliance cannot be considered as 'erel& an o'ission. In the li(ht of the aforesaid# it %as sub'itted that Petitioner *o.1# an Indian +o'pan&#
32
Page 32

is

the

onl&

part&

to

the

dispute

%ith

the

Respondents and therefore# there is no need to appoint a forei(n arbitrator. Jurther# it %as

sub'itted e)en if it is assu'ed that Petitioners *o. . and 0 ha)e raised the disputes in ter's of "rticle 00. # there is no Huestion of appoint'ent of a forei(n arbitrator as the dispute raised is onl& bet%een t%o Indian parties# )iS. Petitioner *o.1 and the Respondents.

41. The ne:t sub'ission of 6r. =i)an is that Section 11(1! of the "rbitration "ct# 1$$ arbitrator can be of an& pro)ides that an unless

nationalit&#

other%ise a(reed b& the parties. It %as sub'itted that since the parties did not choose to ha)e a forei(n national to be appointed as the third arbitrator in "rticle 00. # the parties did not choose to 'a;e Section 11(1! applicable to the'. Learned senior counsel also pointed out that the parties instead a(reed to proceed under Section 11(.! as
33
Page 33

the&

a(reed

to

appoint

an

arbitrator

%ithout

reHuirin( hi' to be of an& forei(n nationalit&.

42. 6r. =i)an then points out that Section 11($! has been authoritati)el& interpreted in M-.-4&%-(

A%,.%(*& S4&+*$& BHD II Vs. STIC T,-6*.& :P; L+0.3 and MSA N*0*,.-(0 B.V. Vs. L-,&*( < T'"#,' L+0.4 "ccordin( to the learned senior

counsel# U*+ITR"L Rules cannot o)erride Sections 11(1! & (.!# read %ith "rticle 00. # nor can these Rules aid in interpretin( Section 11($!. It %as

further sub'itted that the appoint'ent of the third arbitrator under "rticle 00. of PS+ has to be 'ade

under "rbitration and +onciliation "ct# 1$$ . The U*+ITR"L Rules %ill co'e into pla& onl& after the "rbitral Tribunal has been constituted. "ccordin( to learned senior counsel# follo%in( factors ne(ate the application of U*+ITR"L Rules in 'a;in( the appoint'ent of the arbitrators8 (a!
3 4 (2001) 1 SCC 509 (2005) 13 SCC 719

The

la%

(o)ernin(

the

arbitration
34
Page 34

a(ree'ent is Indian La%(b! The seat of the arbitration is in India %hich 'a;es the curial la% of the arbitration as Indian la%. (c! (d! The (o)ernin( la% of the contract is the Indian la%. "ll these factors %ould sho% that U*+ITR"L Rules %ould beco'e rele)ant onl& after the "rbitral Tribunal has been constituted.

43. Lastl&# it %as sub'itted that the appoint'ent of a forei(n national as the third arbitrator is not onl& le(all& untenable# but also undesirable# in the facts and circu'stances of the present case. To

substantiate this# Petitioners co'panies# *o. %ith .

it %as sub'itted that both and 0 are *o. in 'ulti9national 0 ha)in( >A

Petitioner connections

presence?business

about

countries. These countries include the countries %hose nationals are sou(ht to be no'inated b& the Petitioners. It %as further sub'itted that unra)ellin( all the countries in %hich Petitioner *o. 0 'a& ha)e a connection %ould be difficult# if not i'possible.
35
Page 35

Thus# the )er& ob@ect of neutrality, impartiality and independence %ill be defeated b& appointin( a forei(n national as the third arbitrator. On the contrar&# it %as sub'itted# appoint'ent of a for'er @ud(e of this +ourt %ould be the 'ost suitable arran(e'ent.

44. In response# 6r. Sal)e sub'itted that8 (i! The reliance placed b& the Respondents upon the la% laid in M-.-4&%-( A%,.%(*& S4&+*$& BHD II Vs. STIC T,-6*.& :P; L+0. :&"3,-; and MSA

N*0*,.-(0 B.V. Vs. L-,&*( :&"3,-; is 'isplaced as

< T'"#,' L+0. these cases are

inapplicable in the present case. (ii! The contention of the UOI that nationals of the >A countries in %hich Petitioner *o. 0 has operations %ould beco'e ineli(ible to be appointed as arbitrators is

'isconcei)ed. In this conte:t# it %as sub'itted that the "rbitration "ct# 1$$ and the into related account
36
Page 36

international

practices

ta;es

nationalit&

but

not

area

of

operation.

This

sub'ission of the Respondent# accordin( to 6r. Sal)e# is not tenable because it confuses the Huestion of independence and impartiality %ith neutrality. The aspect of neutralit& is dealt %ith in Section 11(>! and Section 1.- %hereas# nationalit& is considered in Sections 11(1! & ($! of "rbitration "ct# 1$$ . Jurther# it %as sub'itted that these t%o pro)isions %ould be rendered otiose if the

sub'ission of the UOI is accepted.

45. /efore partin( %ith sub'issions 'ade on behalf of the parties# it 'ust also be noticed that the learned senior a counsel each for of the parties ha)e

sub'itted

list

proposed?su((ested

arbitrators- %hich accordin( to the' %ould satisf& the reHuire'ents of the arbitration a(ree'ent contained in PS+.

46. I ha)e considered the sub'issions 'ade b& the

37
Page 37

learned senior counsel for the parties.

47. I a' not inclined to accept the sub'issions 'ade b& 6r. "nil /. =i)an# learned senior counsel

appearin( on behalf of the UOI. Initiall&# "rbitration Petition *o.> %as filed b& Reliance Industries Li'itedK RIL (Petitioner *o.1! and *i;o (Petitioner *o..!. In para(raph of the arbitration petition# it

%as specificall& a)erred as follo%s89 3The Respondent b& its letter dated >th "u(ust# .A11# (ranted its appro)al to Petitioner *o.1 to assi(n 0AI of its Participatin( Interest under the PS+ to /P# thereb& also 'a;in( /P a partner in the /loc; <79= . .4 Therefore# it is apparent that reference to arbitration %as sou(ht on behalf of the three partners to the PS+.

4 . The "rbitration Petition %as disposed of as both the parties had no ob@ection to the arbitrator no'inated b& each other. Therefore# the 'atter %as left to the t%o arbitrators to no'inate the third
38
Page 38

arbitrator %ho shall be the +hair'an of the "rbitral Tribunal. Mo%e)er# b& letter dated 1 st "u(ust# .A10# 6r. 5ustice /harucha pointed out that the t%o arbitrators ha)e not been able to a(ree on the third arbitrator. Therefore# the Petitioners had to

approach this court for appoint'ent of a third arbitrator. In these circu'stances# the present Petition ca'e to be filed under Section 11( !.

4!. There is an additional reason for not acceptin( the sub'ission 'ade b& 6r. "nil =i)an# learned senior counsel# that the Petitioner is not actin( on behalf of all the three +ontractors . The notice %as ser)ed b& RIL in the capacit& of Operator, %hich included all the three +ontractors# i.e.# RIL# *i;o and /ritish Petroleu' (/P!.

50. "

perusal

of

so'e

of

the

correspondence that the

reproduced

earlier

clearl&

indicates

Respondent reco(nised that the Petitioner *o.1 is

39
Page 39

the Operator on behalf of all the +ontractors# na'el&# Reliance# *i;o and /P.

51. I find 'uch substance in the sub'ission of 6r. Sal)e that the contentions raised in the counter affida)it reflect a 'isunderstandin( of89 (i! (ii! the ter's of the PS+realit& of the of PartiesC the co''ercial and relationship(iii! application "rbitration +onciliation "ct# 1$$ - and (i)! U*+ITR"L "rbitration Rules and the practise of lar(e scale arbitrations in)ol)in( forei(n parties. 52. It is also not possible to accept the sub'ission of 6r. "nil =i)an that *i;o and /P are not operators under the PS+ and# therefore# ha)e forfeited an& ri(ht to operations under the PS+. It is also not possible to accept the sub'ission that *i;o and /P are not the parties to Respondent. the dispute %ith the

I a' of the considered opinion that

the pro)isions of the PS+ clearl& identified the

40
Page 40

parties to the PS+. The disputes that ha)e arisen bet%een the parties are also clearl& identified in the correspondence e:chan(ed bet%een the parties. The three na'ed contractors are# in fact# freHuentl& 'entioned in the correspondence bet%een the parties. It has been correctl& hi(hli(hted b& 6r. Sal)e that the ter's of the PS+ ha)e to be considered in the li(ht of the fact that the

Respondent e:pressl& consented# after detailed inHuir&# to the assi(n'ent of participation interests in the PS+ to /P. It is a 'atter of record that *i;o has been a part& to the PS+ fro' the be(innin(. Therefore# at9least at this sta(e# it %ould not be possible to accept the sub'ission of 6r. =i)an that /P and *i;o are not 3operating4 under the PS+.

53. I a' also unable to accept the sub'ission of 6r. =i)an that (i)en the nature of operations under the PS+# the issues in)ol)ed thereunder are of public la% and public polic&. 6r. =i)an# on the basis of
41
Page 41

the aforesaid sub'ission# has insisted that the third arbitrator ou(ht to be fro' India. It %as pointed out b& 6r. =i)an that e)en if it is accepted that the disputes raised b& the Petitioner %ould also include the disputes of Petitioner *os. . and 0# the arbitration still essentiall& re'ains an Indian

arbitration. Such a sub'ission cannot be accepted as the Respondents ha)e not at an& sta(e earlier raised an ob@ection that the disputes had been raised b& Petitioner *o.1 onl& on its o%n behalf and did not relate to the disputes of Petitioner *o.. and 0 also.

54. In '& opinion# the sub'ission is 'isconcei)ed and proceeds on a 'isunderstandin( of the PS+# RIL# *i;o and /P are all parties to the PS+. The& are all contractors under the PS+. The PS+ reco(niSes that the operator %ould act on behalf of the contractor. "ll in)est'ents are funded b& not @ust the Petitioner *o.1 but also b& the other parties#
42
Page 42

and the& are eHuall& entitled to the costs reco)ered and the profits earned. Jor the sa;e of operational efficienc&# the Operator acts for and on behalf of the other parties. Therefore# I find substance in the sub'ission of 6r. Sal)e that the disputes ha)e been raised in the correspondence addressed b&

Petitioner *o.1 not @ust on its o%n behalf but on behalf of all the parties. =urin( the course of his sub'issions# 6r. "nil =i)an had# in fact# sub'itted that *i;o and /P %ill be affected b& the arbitral a%ard and it %ould be bindin( upon the' too. Therefore# if the Petitioner *o.1 %as to succeed in the arbitration# the a%ard %ould enure not onl& to the benefit of Petitioner *o.1 but to all the parties to the PS+. +on)ersel&# if the 7o)ern'ent of India %ere to succeed before the tribunal# a(ain the a%ard %ould ha)e to be enforced a(ainst all the parties. In other %ords# each of the Contractors %ould ha)e to perfor' the obli(ations cast upon the'. In that )ie% of the 'atter# it is not possible to
43
Page 43

accept the sub'ission of arbitration in the present

6r. =i)an that the case is not an

international arbitration.

55. It is eHuall& not possible to accept the contention of 6r. =i)an that *i;o and /P ha)e not raised

an& arbitrable dispute %ith Union of India. " perusal of so'e of the pro)isions of PS+ %ould 'a;e it clear that all three entities are parties to the PS+. "ll three entities ha)e ri(hts and obli(ations under the PS+ Osee "rticle .>.1(a!Q# includin( %ith respect to the +ost Petroleu'# Profit Petroleu' and +ontract +osts (see "rticle ...!# all of %hich are funda'ental issues in the underl&in( dispute. 2here RIL acts under the PS+# includin( b& co''encin(

arbitration# it does so not onl& on behalf of itself# but also 3on behalf of all constituents of the

contractors4 includin( *i;o and /P. I a' inclined to accept the sub'ission of 6r. Sal)e that there is a si(nificant and broad ran(in( dispute bet%een RIL#
44
Page 44

*i;o and /P on the one hand and the UOI on the other hand# that (oes to the heart of the 'ain contractual ri(hts and obli(ations under the PS+. Jurther'ore# it is a 'atter of record that in the correspondence leadin( to the filin( of the earlier petition bein( ".P.*o.> of .A1.# no such ob@ection about *i;o and /P not bein( a part& to the dispute had been ta;en. In fact# the petition %as disposed of on a @oint reHuest 'ade b& the parties that t%o arbitrators ha)in( been no'inated# no further orders %ere reHuired. Therefore# there see's to be substance in the sub'ission of 6r. Sal)e that all these ob@ections about *i;o and /P not bein( the parties are an afterthou(ht. Such ob@ections# at this sta(e# can not be countenanced as the

co''ence'ent of arbitration has alread& been 'uch dela&ed.

56. /oth the parties had brou(ht to the attention of the +ourt the correspondence fro' their o%n
45
Page 45

perspecti)e.

Ma)in(

considered

the

aforesaid

correspondence# rele)ant e:tract of %hich ha)e been noticed earlier# it is not possible to hold that the correspondence is onl& on behalf of the RIL. I# therefore# do not accept the sub'ission of 6r. "nil =i)an that this is an arbitration bet%een the t%o Indian parties onl&.

57. Jurther

'ore

the

accountin(

procedure

("ppendi: + to PS+! clearl& pro)ides that RIL shall ;eep the accounts for the purposes of cost reco)er& state'ent. Therefore# it cannot be said that the clai's 'ade b& the Petitioner are onl& on behalf of RIL. The @oint operatin( a(ree'ent e:pressl&

pro)ides that the operator 3to initiate liti(ation on behalf of all the parties.4 The fallac& of the stand ta;en b& UOI is patent. On the one hand# the Respondent clai's that the arbitral a%ard %ould bind not onl& Petitioner *o.1 but also Petitioner *os. . and 0# but on the other hand# is insistin( that the
46
Page 46

arbitration proceedin(s are onl& bet%een Petitioner *o.1 and UOI.

5 . This no% brin(s 'e to the 'a@or di)er(ence of )ie%s bet%een 6r. Sal)e and 6r. =i)an on the interpretation to be placed on "rticles 00., and 00. of the PS+. /oth the learned senior counsel accept that %hen e:ercisin( po%er under Section 11( ! of the "rbitration "ct# the B+hief 5ustice of India or the person or the institution desi(nated b& hi'C

(hereinafter referred to as 3+5I4 for con)enience! is reHuired to appoint the . nd "rbitrator fro' a'on(st persons %ho are not nationals of the countr& of an& of the parties to the arbitration proceedin(s.

Thereafter# both the learned senior counsel ha)e e:pressed di)er(ent )ie%s. "ccordin( to 6r. Sal)e# the pro)isions contained in "rticle 00., indicates the si(nificance that the parties ha)e attached to the neutrality of the arbitrators. Therefore# necessarily the +hair'an?Presidin( "rbitrator %ould ha)e to be
47
Page 47

of a nationality other than India. "ccordin( to hi'# appoint'ent of an Indian "rbitrator under "rticle 00. %ould not be an option open to the +5I. On the

other hand# 6r. =i)an e'phasised that there is no reHuire'ent in "rticle 00. forei(n arbitrator# identical for appoint'ent of a or si'ilar to the

pro)ision in "rticle 00.,. Mis )ie% is that the absence of such a reHuire'ent is deliberate and si(nificant. "ccordin( to hi'# it clearl& si(nifies that only an Indian *ational can be appointed as the third arbitrator. I a' of the opinion that both the learned senior counsel are onl& partiall& correct. /oth sides ha)e adopted e:tre'e positions on the pendulu'. I accept the interpretation of both the learned senior counsel %ith re(ard to "rticle 00., as the reHuest %ill (o to the +hief 5ustice of India for appoint'ent of an arbitrator# 3fro' a'on(st

persons %ho are not nationals of the countr& of an& of the parties to the arbitration proceedin(s4. In e:ercise of the @urisdiction under Section 11( !# the
48
Page 48

+5I %ould usuall& appoint the third arbitrator in accordance %ith the reHuest. I ha)e no hesitation in acceptin( the sub'ission of 6r. =i)an that e)en the third arbitrator is an Indian *ational# it %ould not be contrar& to "rticle 00. . /ut it %ould not be possible for 'e to accept the e:tre'e )ie%s e:pressed b& 6r. =i)an that only an Indian *ational can be appointed# as there is an absence of a reHuire'ent of appointin( a forei(n national as the third arbitrator. In '& opinion# "rticle 00. )irtuall&

lea)es it to the +hief 5ustice of India to appoint the third arbitrator %ho %ould be neutral, impartial and independent fro' an&%here in the %orld including India. 5ust as India cannot be e:cluded# si'ilarl&# the countries %here /ritish Petroleu' and *i;o are do'iciled# as an option fro' %here the third arbitrator could be appointed# cannot be ruled out. Ma)in( said this# it 'ust be pointed out that this is the purely legal position. This %ould be a )er& pedantic )ie% to ta;e %hereas international
49
Page 49

arbitration proble's necessaril& ha)e to be )ie%ed pragmatically. Jortunatel&# "rbitration "ct# 1$$ has 'ade e:press pro)ision for adoptin( a pragmatic approach. 2hen the +5I e:ercises his @urisdiction

under Section 11( ! he is to be (uided b& the pro)isions contained in the "rbitration "ct# 1$$ and generally accepted practices in the other international @urisdictions. +5I %ould also be an:ious to ensure that no doubts are cast on the neutrality, impartially and independence of the "rbitral

Tribunal. In international arbitration# the surest 'ethod of ensurin( atleast the appearance of neutrality %ould be to appoint the sole or the third arbitrator fro' nationalit& other than the parties to the arbitration. This )ie% of 'ine %ill find support fro' nu'erous internationall& reno%ned

co''entators on the practice of international arbitration as %ell as @udicial precedents.

5!. "t this sta(e# it %ould be appropriate to ta;e

50
Page 50

notice of the obser)ations 'ade b& t%o such co''entators.

60. Redfern and Munter on International "rbitration# Jifth 1dition (.AA$! Para G.,$ e:presses si'ilar )ie%s %ith re(ard to the i'portance of the

nationalit& of the sole or the third arbitrator bein( fro' a countr& different fro' that of the parties to the arbitration. The opinion of the learned authors is as follo%s89 3In an ideal %orld# the countr& in %hich the arbitrator %as born# or the passport carried# should be irrele)ant. The Hualifications# e:perience# and inte(rit& of the arbitrator should be the essential criteria. It ou(ht to be possible to proceed in the spirit of the 6odel La% %hich# addressin( this Huestion# pro)ides si'pl&8 B*o person shall be precluded b& reason of his nationalit& fro' actin( as an arbitrator# unless other%ise a(reed b& the parties.C *e)ertheless# as stated abo)e# the usual practice in international co''ercial arbitration is to appoint a sole arbitrator (or a presidin( arbitrator! of a different nationalit& fro' that of the parties to the dispute.4 61. 7ar& /. /orn in International +o''ercial

"rbitration# Volu'e I (.AA$! has an elaborate

51
Page 51

discussion on the i'pact of the U*+ITR"L 6odel La%s as %ell as U*+ITR"L Rules on the appoint'ent of the sole or the third arbitrator. Me points out that so'e arbitration le(islations contain different

nationalit& pro)isions# si'ilar to those applicable under leadin( institutional rules# %hich appl& %hen a national court acts in its default capacity to select an arbitrator (in li'ited circu'stances!.

62. "rticle 11(,! of the U*+ITR"L 6odel La% reads as under89 3" decision on a 'atter entrusted b& para(raph (0! or (G! of this "rticle to the court or other authorit& specified in "rticle shall be sub@ect to no appeal. The court or other authorit&# in appointin( an arbitrator# shall ha)e due re(ard to an& Hualifications reHuired of the arbitrator b& the a(ree'ent of the parties and to such considerations as are li;el& to secure the appoint'ent of an independent and i'partial arbitrator and# in the case of a sole or third arbitrator# shall ta;e into account as %ell the ad)isabilit& of appointin( an arbitrator of a nationalit& other than those of the parties.4 63. "rticle (G! of U*+ITR"L Rules# 1$L in al'ost

identical ter's reads as under 89

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3In 'a;in( the appoint'ent# the appointin( authorit& shall ha)e re(ard to such considerations as are li;el& to secure the appoint'ent of an independent and i'partial arbitrator and shall ta;e into account as %ell ad)isabilit& of appointin( an arbitrator of a nationalit& other than the nationalities of the parties.4 64. Ta;in( note of the aforesaid t%o "rticles# it is obser)ed b& the learned author as follo%s 8 3"rticle 11(,! does not restrict the partiesC autono'& to select arbitrators of %hate)er nationalit& the& %ish. It 'erel& affects the actions of national courts# %hen actin( in their default roles of appointin( arbitrators after the partiesC efforts to do so ha)e failed. "rticle 11(,! does not forbid the appoint'ent of forei(n nationals as arbitrators# but on the contrar& encoura(es the selection of an internationall&9neutral tribunal. Jar fro' rese'blin( national la% prohibitions a(ainst forei(n arbitrators# "rticle 11(,! ai's at e:actl& the opposite result. Indeed# "rticle 11(1! of the U*+ITR"L 6odel La% also pro)ides# li;e the 1uropean and Inter9"'erican +on)entions# that 3no person shall be precluded b& reason of his nationalit& fro' actin( as an arbitrator# unless other%ise a(reed b& the parties. That properl& reflects the international consensus# e'braced b& the 1uropean# Inter9"'erican and *e% Por; +on)entions# that 'andator& nationalit& prohibitions are inco'patible %ith the basic pre'ises of international arbitration.4
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65. 1arlier in the sa'e )olu'e at pa(e 1G01# %hile discussin( the 3+riteria for 5udicial Selection of the "rbitrator4# he re9states the general practice

adopted in appoint'ent of an independent and impartial arbitrator. The opinion of the learned author is as follo%s 8 3*ational arbitration le(islation pro)ides onl& li'ited (uidance for courts actuall& to 'a;e the selection of arbitrators in international arbitrations. "rticle 11(,! of the U*+ITR"L 6odel La% pro)ides that 3in appointin( an arbitrator# Othe courtQ shall ha)e due re(ard to an& Hualifications reHuired of the arbitrator b& the a(ree'ent of the parties and to such considerations as are li;el& to secure the appoint'ent of an independent and i'partial arbitrator#4 the sa'e pro)ision reHuires the court to 3ta;e into account as %ell as the ad)isabilit& of appointin( an arbitrator of a nationalit& other than those of the parties.4 This lan(ua(e reHuires courts to ha)e 3due re(ard4 to the partiesC contractuall& specified reHuire'ents for arbitrators9%hich )er& ar(uabl& accords such reHuire'ents inadeHuate %ei(ht# (i)en the i'portance of part& autono'& in the arbitrator selection process. Si'ilarl&# it is doubtful that it is sufficient for courts 'erel& to 3ta;e Othe arbitratorCs nationalit&Q into account4# rather it should (enerall& be essential that the presidin( arbitrator ha)e a neutral nationalit&.4 66. Redfern and Munter on International "rbitration#
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Jifth 1dition (.AA$! at Pa(e . 0# e:presses a si'ilar opinion# after ta;in( into consideration the

U*+ITR"L Rules- I++ Rules- L+I" Rules and I+=R Rules# %hich is as follo%s 89 3The fact that the arbitrator is of a neutral nationalit& is no (uarantee of independence or i'partialit&. Mo%e)er# the appearance is better and thus it is a practice that is (enerall& follo%ed4. 67. Section 11 of the "rbitration "ct# 1$$ uses

si'ilar phraseolo(& as "rticle 11 of the U*+ITR"L 6odel La%. Therefore# it %ould not be possible to accept the sub'ission of 6r. =i)an that the +ourt cannot loo; to 6odel La%s or the U*+ITR"L La%s as le(iti'ate aids in (i)in( the appropriate

interpretation to the pro)isions of Section 11# includin( Section 11( !.

6 . In an& e)ent# the neutralit& of an arbitrator is assured b& Section 11(1! of the "rbitration "ct# 1$$ # %hich pro)ides that a person of an&

nationalit& 'a& be an arbitrator# unless other%ise

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a(reed b& the parties. There is no a(ree'ent bet%een the parties in this case that e)en a third arbitrator 'ust necessaril& be an Indian national. In fact# Section 11($! of the "rbitration "ct# 1$$ specificall& e'po%ers the +5I to appoint an

arbitrator of a nationalit& other than the nationalit& of the parties in)ol)ed in the liti(ation. Therefore# I a' unable to accept the sub'ission of 6r. "nil =i)an that it %ould not be per'issible under the "rbitration "ct# 1$$ to appoint the third arbitrator

of an& nationalit& other than Indian. 6erel& because the t%o arbitrators no'inated b& the parties are Indian %ould not ipso facto lead to the conclusion

that the parties had ruled out the appoint'ent of the third arbitrator fro' a neutral nationalit&. In

this case# both the arbitrators had been appointed b& the parties# therefore# the condition precedent for appointin( an arbitrator# fro' a'on(st persons# %ho are not nationals of the countr& of an& of the parties to the arbitration proceedin(s# had not e)en
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arisen.

6!. I also do not find 'erit in the sub'ission 'ade b& 6r. "nil =i)an on the basis of "rticles 00., of the PS+. " bare perusal of "rticle 00.,# PS+ %ould sho% that it deals onl& %ith the situation %here the other part& fails to appoint an arbitrator and a reHuest is 'ade to the +hief 5ustice of India or a person authorised b& hi' to appoint the second arbitrator. In such a situation# the +hief 5ustice is reHuired to choose the second arbitrator fro' a'on(st the persons %ho are not nationals of a countr& of an& of the parties to the arbitrator proceedin(s. "rticle 00. is in)o;ed %hen the t%o arbitrators appointed

b& the parties fail to no'inate the third arbitrator. In such circu'stances# the +hief 5ustice or the no'inees of the +hief 5ustice is reHuired to appoint the third arbitrator in accordance %ith the

"rbitration and +onciliation "ct# 1$$ . "t that sta(e# Section 11($! of the "rbitration "ct# 1$$ %ould
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beco'e rele)ant. It %ould be necessar& for the +hief 5ustice of India to ta;e into consideration the %ill of the Indian Parlia'ent e:pressed in Section 11($!. It appears to 'e that the sub'ission 'ade b& the Petitioners cannot be said to be %ithout an& 'erit. I a' unable to read into "rticle 00. # an

e'bar(o on the appoint'ent of a forei(n national as the third arbitrator as sub'itted b& 6r. =i)an. It is not possible to accept the sub'ission that the parties ha)e specificall& decided to e:clude the appoint'ent of a forei(n arbitrator under "rticle 00. # as no specific pro)ision %as 'ade para materia to "rticle 00.,. 1)en in the absence of a

specific pro)ision# the appoint'ent of the third arbitrator under "rticle 00. %ould ha)e to be

(uided b& the pro)isions contained under Section 11($! of the "rbitration "ct.

70. I a' also unable to accept the sub'ission of 6r. =i)an that since the pro)ision contained in Section
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11($! of the "rbitration "ct# 1$$

is not 'andator&-

the +ourt ou(ht to appoint the third arbitrator# %ho is an Indian *ational. This +ourt# in the case of

M-.-4&%-( A%,.%(*& S4&+*$& BHD II :&"3,-;, interpretin( Section 11($! after ta;in( into

consideration the position in so'e other countries %here the U*+ITR"L 6odel La% is adopted# has co'e to the follo%in( conclusions89 =25. It is# therefore# clear that in se)eral countries %here the U*+ITR"L 6odel is adopted# it has been held that it is not i'per'issible to appoint an arbitrator of a nationalit& of one of the parties to arbitration. 26. In the li(ht of the abo)e rules in )arious countries and rulin(s of the court and also in )ie% of the fact that the 1$$ "ct is based on U*+ITR"L 6odel La% %hich in "rticle (G! onl& spea;s of 3taking into account4 the nationalit& as one of the factors# I a' of the )ie% that the %ord 3'a&4 in Section 11($! of the "ct is not intended to be read as 3'ust4 or 3shall4. 27. I a'# therefore# of the )ie% that %hile nationalit& of the arbitrator is a 'atter to be ;ept in )ie%# it does not follo% fro' Section 11($! that the proposed arbitrator is necessaril& disHualified because he belon(s to the nationalit& of one of the parties. The %ord 3'a&4 is not used in the sense of 3shall4. The pro)ision is not 'andator&. In case the part& %ho belon(s to a nationalit& other than that of
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the proposed arbitrator# has no ob@ection# the +hief 5ustice of India (or his no'inee! can appoint an arbitrator belon(in( to a nationalit& of one of the parties. In case# there is ob@ection b& one part& to the appoint'ent of an arbitrator belon(in( to the nationalit& of the opposite part&# the +hief 5ustice of India (or his no'inee! can certainl& consider the ob@ection and see if an arbitrator not belon(in( to the nationalit& of either parties can be appointed. 2hile ta;in( that decision# the +hief 5ustice of India (or his no'inee! can also ;eep in 'ind# in cases %here the parties ha)e a(reed that the la% applicable to the case is the la% of a countr& to %hich one of the parties belon(# %hether there %ill be an o)erridin( ad)anta(e to both the parties if an arbitrator ha)in( ;no%led(e of the applicable la% is appointed. 2 . In the result# I a' of the )ie% that under Section 11($! of the "ct it is not 'andator& for the court to appoint an arbitrator not belon(in( to the nationalit& of either of the parties to the dispute.4 71. The aforesaid ratio of la% in M-.-4&%-( A%,.%(*& S4&+*$& BHD II :&"3,-; has been reiterated b& this +ourt in MSA N*0*,.-(0 B.V. :&"3,-; in the follo%in( %ords89 =3. The learned counsel appearin( for the petitioner dre% '& attention to the fact that the petitioner +o'pan& is a co'pan& incorporated in the *etherlands %hile the respondent +o'pan& is a co'pan& incorporated in India. Me pra&ed that in )ie% of
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the pro)isions of Sections 11($! of the "rbitration and +onciliation "ct# an arbitrator ha)in( a neutral nationalit& be appointed# 'eanin( thereb& that the sole arbitrator should neither be a =utch national nor be an Indian national. Section 11($! is reproduced as under8 311. ($! In the case of appoint'ent of sole or third arbitrator in an international co''ercial arbitration# the +hief 5ustice of India or the person or institution desi(nated b& hi' 'a& appoint an arbitrator of a nationalit& other than the nationalities of the parties %here the parties belon( to different nationalities.4 The ;e& %ord in the abo)e pro)ision is 3'a&4 %hich lea)es a discretion in the +hief 5ustice or his no'inee in this behalf and it is not 'andator& that the sole arbitrator should be of a nationalit& other than the nationalities of the parties to the a(ree'ent.4 72. /ut the ratio in the aforesaid cases can not be read to 'ean that in all circu'stances# it is not possible to appoint an arbitrator of a nationalit& other than the parties in)ol)ed in the liti(ation. It is a 'atter of record that +lause 00., of the PS+ pro)ides that on failure of the second party to no'inate its arbitrator# the +hief 5ustice of India 'a& be reHuested to appoint the second arbitrator
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fro' a'on(st persons %ho are not nationals of the countr& of an& of the parties to the arbitration proceedin(s. Therefore# in principle# it beco'es

apparent that the Respondents ha)e accepted the appoint'ent of the second arbitrator fro' a neutral countr&. 6erel& because# the seat of arbitration is in India# the applicable la% is Indian La%- it does not beco'e incu'bent on the +ourt to appoint the third arbitrator# %ho is an Indian national. The concern of the +ourt is to ensure neutrality# impartiality and independence of the third arbitrator. +hoice of the parties has little# if an&thin(# to do %ith the choice of the +hief 5ustice of India or his no'inee in appointin( the third arbitrator. It is true that e)en at the sta(e of e:ercisin( its @urisdiction under Section 11( ! at the final sta(e# the +hief 5ustice of India or his no'inee can infor'all& enHuire about the preference of the parties. /ut it is entirel& upto the +hief 5ustice of India# %hether to accept an& of the preferences or to appoint the third arbitrator not
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'entioned b& an& of the parties. In 'a;in( such a choice# the +hief 5ustice of India %ill be (uided b& the rele)ant pro)isions contained in the "rbitration "ct# U*+ITR"L 6odel La%s and the U*+ITR"L Rules# %here the parties ha)e included the applicabilit& of the U*+ITR"L 6odel La%s?U*+ITR"L Rules b& choice.

73. I 'ust e'phasise here that the trend of the third arbitrator?presidin( officer of a neutral nationalit& bein( appointed is no% 'ore or less uni)ersall& accepted under the "rbitration "cts and "rbitration Rules in different @urisdictions.

74. In the present case# "rticle 00($! of the PS+ adopts the U*+ITR"L Rules for the arbitration a(ree'ent under "rticle 0$. The applicable

U*+ITR"L Rules at the ti'e %hen the arbitration a(ree'ent %as si(ned %ere the 1$L Rules.

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75. The

aforesaid

Rules

ha)e

been

literall&

paraphrased in Section 11($! of the "rbitration "ct# 1$$ . Rule G of U*+ITR"L states that in 'a;in( the appoint'ent# the appointin( authorit& shall ha)e re(ard to such consideration as are li;el& to secure appoint'ent of an independent and impartial

arbitrator. Superi'posed on those t%o conditions is a pro)ision that the appointin( authorit& shall ta;e into account# as %ell# the ad)isabilit& of arbitrator of a nationalit& other than the nationalities of the parties. These rules in '& opinion are al'ost parallel to "rticle 00(,! of the PS+.

76. 6r. "nil =i)an had# ho%e)er# raised serious doubts about the i'partialit& of the third arbitrator due to the o'nipresence of /ritish Petroleu' all o)er the %orld. I a' of the considered opinion that the apprehension e:pressed b& the learned senior counsel is i'a(inar& and illusor&. Such a proposition cannot possibl& be accepted as a (eneral practice
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for

the

appoint'ent

of

+hair'an?Presidin(

Officer?Third "rbitrator (uided b& the principle consideration that there must not only be the neutrality, but appearance of neutrality of the third arbitrator. In that )ie% of the 'atter# I ha)e no hesitation in re@ectin( this sub'ission of 6r. =i)an that onl& an Indian *ational can be appointed as the third arbitrator.

77. This apart# I 'ust notice here the @ud('ent of this +ourt in the case of N',+2*,( R-%.7-4 A0$%(%&+,-+%'(, M%(%&+,4 '1 R-%.7-4, N*7 D*.2% :&"3,-;# %hilst considerin( the contin(encies under %hich a part& 'a& reHuest the +hief 5ustice or an& person or institution desi(nated b& hi' under Section 11 to ta;e necessar& 'easures held as follo%s89 =11. The crucial e:pression in sub9section ( ! is 3a part& 'a& reHuest the +hief 5ustice or an& person or institution desi(nated b& hi' to take the necessary measure4 (underlined for e'phasisE!. This e:pression has to be read alon( %ith reHuire'ent in sub9section (>! that
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the +hief 5ustice or the person or an institution desi(nated b& hi' in appointin( an arbitrator shall ha)e 3due re(ard4 to the t%o cu'ulati)e conditions relatin( to Hualifications and other considerations as are li;el& to secure the appoint'ent of an independent and i'partial arbitrator. 12. " bare readin( of the sche'e of Section 11 sho%s that the e'phasis is on the ter's of the a(ree'ent bein( adhered to and?or (i)en effect as closel& as possible. In other %ords# the +ourt 'a& as; to do %hat has not been done. The +ourt 'ust first ensure that the re'edies pro)ided for are e:hausted. It is true as contended b& 6r =esai# that it is not 'andator& for the +hief 5ustice or an& person or institution desi(nated b& hi' to appoint the na'ed arbitrator or arbitrators. /ut at the sa'e ti'e# due re(ard has to be (i)en to the Hualifications reHuired b& the a(ree'ent and other considerations. 13. The e:pression 3due re(ard4 'eans that proper attention to se)eral circu'stances ha)e been focused. The e:pression 3necessar&4 as a (eneral rule can be broadl& stated to be those thin(s %hich are reasonabl& reHuired to be done or le(all& ancillar& to the acco'plish'ent of the intended act. *ecessar& 'easures can be stated to be the reasonable steps reHuired to be ta;en.4 7 . <eepin( in )ie% the aforesaid principles# I ha)e e:a'ined the sub'issions of 6r. =i)an and 6r. Sal)e on the issue %ith re(ard to the neutrality,
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impartiality arbitrator.

and

independence

of

the

third

"s held earlier#

the apprehension

e:pressed b& the Respondent Union of India see's to be i'a(inar& and illusor&. 2hate)er is bein( said about the influence?presence of /ritish Petroleu' in other @urisdictions %ould appl& eHuall& to the Union of India# if the third arbitrator is an Indian national# %ithin the Indian @urisdiction.

7!. The apprehension e:pressed b& 6r. =i)an that if a forei(n national is appointed as a third arbitrator# the Tribunal %ould be at a disad)anta(e as all applicable la%s are Indian# in '& opinion# o)erloo;s the fact that the t%o arbitrators alread& appointed are Jor'er +hief 5ustices of India and can be )er& safel& relied upon to ad)ise the third arbitrator of an& le(al position# %hich is peculiar to India.

0. "t this sta(e# nor'all& the 'atter ou(ht to be re'itted bac; to the t%o arbitrators appointed b&
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the parties to choose the third arbitrator on the basis of the obser)ations 'ade in the @ud('ent. Mo%e)er# (i)en the sharp difference of opinion bet%een the t%o arbitrators# I dee' it appropriate to perfor' the tas; of appointin( the third arbitrator in this +ourt itself. Therefore# I had reHuested the learned senior counsel for the parties to suppl& a list of e'inent indi)iduals one of %ho' could be appointed as the third arbitrator. "lthou(h t%o lists ha)e been dul& supplied b& the learned counsel for the parties# I a' of the opinion# in the peculiar facts and circu'stances of this case# it %ould be

appropriate if an indi)idual not na'ed b& an& of the parties is appointed as the third arbitrator. I ha)e discretel& conducted a sur)e& to find a suitable third arbitrator %ho is not a *ational of an& of the parties in)ol)ed in the dispute.

1. Upon

due

consideration#

hereb&

appoint

Monourable 5a'es Spi(el'an "+ T+# for'er +hief

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5ustice and Lieutenant 7o)ernor of *e% South 2ales# "ustralia as the third "rbitrator %ho shall act as the +hair'an of the "rbitral Tribunal. The 19

'ail address %hich has been supplied to this +ourt is as follo%s 8 spi(elUbi(pond.net.au 2. In )ie% of the considerable dela&# the "rbitral Tribunal is reHuested to enter upon the reference at the earliest and to render the a%ard as

e:peditiousl& as possible.

3. The "rbitration Petition is allo%ed in the aforesaid ter's. *o costs.

>>>>>>>>>>>J. ?S",%(0*, S%(82 N%@@-,A N*7 D*.2%B M-,/2 31, 2014.

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70
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ITEM NO.1A

COURT NO.6 S U P R E M E

SECTION XVIA

C O U R T O F I N D I A RECORD OF PROCEEDINGS

ARBITRATION PETITION NO. 27 OF 2013 RELIANCE INDUSTRIES LTD. & ORS. VERSUS U.O.I. Date: 31/03/2014 This Petition pronouncement of judgment today. was Respondent(s) called on for Petitioner(s)

For Petitioner(s) M/S. Parekh & Co., Advs.

For Respondent(s) Mr. Shailendra Swarup, Adv.

Hon'ble Mr. Justice Surinder Singh Nijjar pronounced the judgment. The petition is allowed in terms of the signed

reportable judgment.

[Nidhi Ahuja] Court Master

[Indu Bala Kapur] Court Master

[Signed reportable judgment is placed on the file.]

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