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Published: Fri, 02 Feb 2018
Composition Of An Arbitral Tribunal
Prior to the Arbitration and Conciliation Act, 1996 (hereinafter called ‘the Act’), the Arbitration Act, 1940 (hereinafter called ‘the 1940 Act’) by virtue of its First Schedule provided-
“1. Unless otherwise expressly provided, the reference shall be to a sole arbitrator.
2. if the reference is to an even number of arbitrators, the arbitrators shall appoint an umpire…”
“Number of arbitrators:
The parties are free to determine the number of arbitrators.
Failing such determination, the number of arbitrators shall be three.”
Now, the Indian Parliament realized that the law of the 1940 Act was obsolete and that it could not match up to the fast developments in the field of global trading; mostly because it could not curtail courts’ intervention, thereby making the whole arbitration a long drawn process. Thus, it enacted ‘the Act’ in 1996 keeping much in sync with the spirit of the UNCITRAL Model. In particular, the S.10 of the Act provided the following with regard to composition of an arbitral tribunal:-
“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.”
Clearly, the S.10 in the Act is a modification to the Art. 10 of the UNCITRAL Model in the sense that the default number of arbitrators (in case the arbitration agreement doesn’t provide for the number of arbitrators) is one in our law while it is three according to the latter. Moreover, in the 1940 Act, the parties by agreement could agree upon any number of arbitrators; provided that if it was an even number, they were required to appoint an umpire later on. But the Act has now repealed these provisions and has also abolished the office of the umpire.
At this stage, it is sufficient to bear in mind that both the Act and the UNCITRAL Model sought to bestow greatest possible freedom to the parties regarding choice of number of arbitrators in the arbitral tribunal; as is clear from their texts.
overview of the ‘lohia case’
It is widely recognized that the parties are given a great deal of autonomy by the Act wherein they are ‘free’ to agree by way of an agreement with the other party regarding a gamut of mutual obligations and procedures under the contingencies contemplated therein. One such important situation is when the parties agree upon the composition of an arbitral tribunal, i.e., when the parties decide among themselves that a certain number of arbitrators shall arbitrate a dispute between them at the relevant time.
One such case was that of N.P. Lohia v. N.K. Lohia  , the relevant facts of which are as follows:–
The Appellant and the Respondents were family members who had disputes and differences in respect of the family businesses and properties. Thereafter, each party appointed one arbitrator and then took part in the arbitration process consisting of these two arbitrators (thus containing an even number of arbitrators). Later, an award was passed by this tribunal which was challenged by the Respondent before the single Judge of Calcutta High Court by way of an application to set aside this award.
One of the grounds in the afore-mentioned application was that the Arbitration was by two Arbitrators whereas under S.10 of the Act there cannot be an even number of arbitrators. It was contended that an arbitration by two arbitrators was against the statutory provision of the said Act and therefore void and invalid. It was contended that consequently the Award was unenforceable and not binding on the parties. These contentions found favour with the High Court which was pleased to set aside the Award. Later, an Appeal against this decision was also dismissed. Hence, an Appeal was filed with the Supreme Court.
Decision:- It was held that S. 10 of the Act is a derogable provision (despite the word ‘shall’) and that the arbitral award can be set aside by the Court under S. 34(2)(a)(v)  only under the circumstance when the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement between the parties. Moreover, it was also held that an arbitral award can be challenged on the ground of composition of arbitral tribunal only when an objection is first taken before the Tribunal under S. 16(1) of the Act, and the Tribunal has rejected this objection  . The judges were of the opinion that it amounts to a waiver of right under S. 4 of the Act if such an objection is not raised within the time period specified in S. 16(2)  .
In the due course of the paper, the following research questions shall be addressed:-
Whether the Supreme Court adopted the correct reasoning to hold that S. 10 of the Act is a derogable provision?
Looking at the current Indian scheme of things and in the light of public policy, whether the Supreme Court’s decision in today’s time appears justified in holding that parties are ‘free’ to agree to an even number of arbitrators?
THE EVEN-ODD JUGGLE: A CRITIQUE OF LOHIA CASE
Wrong application of Konkan Railway case-
The court considered the case of Konkan Railway Corporation Ltd. v. Rani Construction Pvt. Ltd.  to deduce that Section 16 enables the arbitral tribunal to rule on its own jurisdiction  . In the instant case, it was held that the arbitral tribunal’s authority under Section 16 is not confined to the width of its jurisdiction but goes also to the root of its jurisdiction  .
Thus, in Lohia, the SC held that it is no longer open to contend that, under Section 16, party cannot challenge the composition of the arbitral tribunal before the arbitral tribunal itself. Such a challenge must be taken, under Section 16(2), not later than the submission of the statement of defense. It was also said that S. 16(2) makes provides that such a challenge can be taken even though the party may have participated in the appointment of the arbitrator and/or may have himself appointed the arbitrator  . Thus, the court gave a conjoint reading of Sections 10 and 16 to hold that an objection to the composition of the arbitral tribunal is a matter which is derogable. The reasoning given was that it is derogable because a party is free not to object within the time prescribed in Section 16(2)  .
It is humbly submitted that the Konkan case was wrongly applied by the SC in Lohia to read S.16 along with S.10 because the SC said the following in Konkan  :-
It might also be that in a given case the Chief Justice or his designate may have nominated an arbitrator although the period of thirty days had not expired. If so, the arbitral tribunal would have been improperly constituted and be without jurisdiction. It would then be open to the aggrieved party to require the arbitral tribunal to rule on its jurisdiction. Section 16 provides for this. It states that the arbitral tribunal may rule on its own jurisdiction (emphasis added).
So, in Konkan, the SC itself held that an ‘improperly constituted’ arbitral tribunal shall be without jurisdiction. But it contradicted itself by saying that it is open to the party to require the tribunal to rule its jurisdiction, because there is no point in asking the tribunal to do so. Instead, such a tribunal should be deemed to be non-existent since its inception.
But the SC, humbly stating, didn’t take cognizance of the above view and thus, failed to consider that S. 16 contemplates a ‘properly constituted’ tribunal.
Defect of jurisdiction is incurable—
It was held that there is a deemed waiver of right to object under S. 4 if an objection under S. 16(1) is not raised within the time prescribed under S. 16(2). Besides, it was also held that unless an objection made under S. 16(1) has been rejected by the tribunal, an application to set aside the award can’t be made to the court under S. 32(2)(a)(v). Now it should be borne in mind that defect of jurisdiction strikes the very root of the matter and strikes at the authority of a court to pass any decree. Now, the well-known legal principle that consent can’t either confer or take away jurisdiction can be taken cognizance of at this stage. So, notwithstanding how precisely certain or technically sound a judgment or order of a court is, such a fundamental defect in jurisdiction can’t be cured by the consent of the parties  . So, if a decree has been passed by a court without jurisdiction, its validity can be challenged whenever it is sought to be enforced because such a decree is as good as non est. Similarly, by analogy it can be said that the award of an arbitral tribunal not having jurisdiction, can also be challenged whenever it is sought to be enforced  . So, merely the reason that the parties didn’t object to the jurisdiction should not give the clothing of jurisdiction upon the tribunal.
Wrong analogy drawn from S.11 regarding S. 10
The SC said that just by way of ‘example’ Section 10 permits the parties to determine the number of arbitrators, provided that such number is not an even number. A reading of Section 11 would show that it only provides for appointments in cases where there is only one arbitrator or three arbitrators. By agreement parties may provide for appointment of 5 or 7 arbitrators. Undoubtedly the procedure provided in Section 11 will mutatis mutandis apply for appointment of 5 or 7 or more arbitrators. Then the SC said that the agreement doesn’t become invalid just because parties provided for appointment of two arbitrators. Under Section 11(3) the two arbitrators should then appoint a third arbitrator at a later stage who shall act as the presiding arbitrator  .
It is humbly submitted that it was in fact S.11 which is in the nature of an ‘example’ and not S. 10 which is crystal clear and unambiguous. But the overstretching of the meaning of S. 10 in the above manner doesn’t amount to statutory interpretation but judicial arm-twisting of an unambiguous law.
a look at other jurisdictions
English law– The English law also draws a lot from the UNCITRAL Model but with some modifications. The English Arbitration Act, 1996  provides that the parties are free to agree on the number of arbitrators and also upon whether there is to be a chairman or umpire. Unless otherwise agreed by the parties, an agreement that the number of arbitrators shall be two or any other even number shall be understood as requiring the appointment of an additional arbitrator as chairman of the tribunal  . If there is no agreement as to the number of arbitrators, then like Indian law, their tribunal would consist of a sole arbitrator.
Clearly, the English law left open two options to the parties, i.e., either to appoint a chairman of an umpire. But the Indian law deliberately deviated from the above and abolished the office of the ‘umpire’ in the 1940 Act. Thus, in the Act the legislature is heavily pressing on having an odd number of arbitrators  to prevent any kind of deadlock. But in Lohia, the way the SC allowed the parties to appoint a ‘third arbitrator’ in case of a deadlock rather amounts to appointing an ‘umpire’; because an ‘arbitrator’ is required to sit through the arbitral proceedings and not sit in an adversarial way like an umpire. As a result, this decision is against the psyche of the principle that what can’t be done directly can’t be permitted to be done indirectly  .
Other jurisdictions—There are some other jurisdictions also which require an uneven number of arbitrators in the tribunal, e.g., Netherlands, Egypt and Italy; apart from the Washington Convention  . According to their laws, an arbitral agreement which provides for an even number of arbitrators shall be considered null and void  . The reasoning is simple, that these jurisdictions don’t want the possibility of a deadlock; thereby making the statutory law to prevail over party autonomy in this regard. At present, there is a slight modification in the law of Netherlands in the sense that such an agreement providing for an even number of arbitrators is not considered as a nullity. It was by virtue of Hoge Raad case  where the court took the view that only that part of the agreement will be considered void which provides for an even number of arbitrators. Hence, effect is again the same for our purpose as the Central idea is still to prevent a stalemate.
TWIST IN THE TALE: JUSTIFICATION OF LOHIA CASE
‘true intent’ of the legislature
since economic liberalization started in the 1990s, there has been a surge in need for foreign investment in infrastructure and retail sector in domestic market which pressed Government of India to not only bring effective economic reforms in industrial and infrastructural areas but also to pay heed to the need of structural changes in the legal setup so as to instill confidence in the parties looking forward to enter commercial ventures. The 1940 Act was a thorn in the flesh of legislature as it failed to cater to the problem of arbitration process continuing for several years; apart from the usual judicial intervention  . So, in my view, the SC in Lohia was correct in agreeing with the UNCITRAL Model to broaden the scope of party autonomy with regard to choosing number of arbitrators; so as to further avoid court intervention. This argument also finds support from Kanhai Engineering (Towers) Pvt. Ltd. v. Telecommunications Consultants India Ltd.  which held that whenever there are two possible interpretations of a statute, the one that subserves the objective of an enactment and leads to the advancement of the object and purpose of the legislation is to be accepted  . So, Lohia actually reflects the ‘true intent’ of the legislature and conforms to public policy.
JUDICIAL FORESIGHTEDNESS and PUBLIC POLICY
According to a reliable consensus  , as of July 2009, 53000 cases are pending with the Supreme Court, 40 lakh with High Courts and 2.7 crore with Lower Courts. This is an increase of 139% for the Supreme Court, 46% for High Courts and 32% for Lower Courts from their pendency numbers in January 2000. Moreover, number of cases also exceeds the number of cases getting resolved  . Besides, the hallmark of the Act is to enable the parties to settle their disputes more proficiently, economically and expeditiously; thereby prompting the SC to allow parties to have two rather than three arbitrators. So, in my opinion, the judgment in Lohia showed the court’s foresightedness regarding increasing pendency of court-cases in future.
I think that the SC was also right in saying that there would be waste of time, money and expense if a party, with open eyes, agrees to go to Arbitration of two persons and then participates in the proceedings. Allowing such a party to resile would not be in furtherance of any public policy and would be most inequitable  .
So, in my view, Lohia served the ‘interest of India’ because of above reasons. In the light of landmark decisions in Renusagar Power Co. Ltd. v. GE Co.  and ONGC v. Saw Pipes Ltd.  , ‘interest of India’ is a component of ‘public policy’  . Hence, the Lohia judgment served the public policy of India; and was justified from this angle.
CONCLUDING REMARKS AND SUGGESTIONS
The foregoing discussion shows that the issue of choosing an even number of arbitrators is highly contentious the world over. It is humbly submitted that the judgment in Lohia case suffered from many theoretical and technical defects but nevertheless, it amounted to a ‘dynamically correct’ decision by allowing the parties to agree upon an even number of arbitrators u/S. 10 of the Act; keeping in mind the Indian scenario. At this juncture, this case is reminiscent of ‘Pitamah Bhishma’ in the great epic war ‘Mahabharata’ where despite being on the ‘wrong side’ his motive was to protect the interest of the kingdom of his home-state Hastinapur; for which he is revered even today.
By virtue of this judgment, our case law on the point of appointment of even number of arbitrators is more developed than other jurisdictions as shown above (as those jurisdictions follow a stricter rule of holding such an agreement void). Besides, there Lohia case will not have an adverse bearing on our interest because it is recognized that majority of arbitral tribunals have either a sole arbitrator or three arbitrators  .
I think that the English law on this point is more dynamic as it gives the option to the parties to either choose a ‘chairman’ or an ‘umpire’ in their arbitral agreement because it allows the parties to decide what is best for them.
Thus, it is humbly suggested that the S.10 of the Act should have an amending clause which would allow the parties freedom to chose:-
A ‘chairman-mode’, in case the number of arbitrators agreed upon is odd but more than one; or
An ‘umpire-mode’, in case the number of arbitrators agreed upon is even; provided that the umpire shall be free to be inquisitorial rather than adversarial in nature.
Hence, it is submitted that if the afore-mentioned suggestion is implemented, it shall dynamically serve the true legislative intent of the Act as well as the public policy of India.
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