SCHOOL OF EXCELLENCE IN LAW

A STUDY ON DATAR SWITCHGEARS VS TATA FINANCE LTD

NAME: NIMYA ROY V N

REG NO: HC18081

COURSE: B.B.A. LL. B (HONS.)

YEAR: IV

SECTION: B

SUBJECT: ALTERNATE DISPUTE RESOLUTION

Contents
INTRODUCTION

BRIEF OF THE CASE

Facts of the case

Points of Appellant

Points of Respondent

The decision of the Supreme Court

Conclusions based on the decision of the Supreme Court

BACKGROUND OF THE CASE / FACTS

Procedural history:

ISSUES

ARGUMENTS

Allegations:

Contentions:

PROVISIONS

Section 11 in THE ARBITRATION AND CONCILIATION ACT, 1996

Section:11 Appointment of arbitrators.

JUDGEMENT

Decision of the court

CONCLUSION
DATAR SWITCHGEARS LTD VS. TATA FINANCE LTD

INTRODUCTION

Case name: Data Switchgears Ltd. V/s. Tata Finance Ltd. & Amr.

Case number: Civil appeal number-5986 of 2000

Court: The Supreme Court of India

Bench: Justice M.J. Rao, Justice K.G. Balakrishna

Decided on: October 18, 2000

Relevant Act/Sections: Section 11 of the Arbitration and Conciliation Act,

BRIEF OF THE CASE

Appellant (Datar switchgear Limited) got into a lease agreement with the respondent (Tata

finance Limited) concerning certain machinery. 

Clause 20.9 mentioned in the agreement is about the arbitration clause, which mentions that "

in case of any dispute under this lease the same shall be referred to an arbitrator to be
nominated by the lessor and the award of the arbitrator shall be final and binding on all the

parties concerned ".

When the dispute arose between both the parties then on 5.8.1999, the respondent centre

notice to the appellant and demanded payment of rupees 2,84,58,701 within a limit of 14 days

and also stated that if there is a case of failure in payment of this amount, then the notice will

be treated as the notice which has been issued under clause 20.9 of the lease agreement. After

that, there was no payment by the appellant in it, and neither the respondent appointed an

arbitrator even when the 30 days’ time limit lapsed. But the respondent filed an arbitration

petition on 26.10.1999 under section 9 of the arbitration act for interim protection. On the

25th of November 1999, the respondent then appointed sole arbitrator by enforcing clause

20.9 of the lease agreement, and in turn, the arbitrator issued notice for the appellant, asking

them to appear before him on 13.3.2000. 

Before the Bombay High Court, the appellant applied for the appointment of the arbitrator.

Still, the petition was rejected by the High Court, stating that the respondent has already

appointed the arbitrator petition was not maintainable. After that, the order was challenged

before the Supreme Court.

Points of Appellant

 The power of appointing an arbitrator should have been exercised within a reasonable

period. A unilateral appointment was not a good act and could have been asked to the

appellant or could have proposed the name to the appellant before appointing an arbitrator.

Points of Respondent

No period is mentioned or prescribed, and the party can make an appointment even after

passing 30 days as per section 11(6), provided that it should be made before the filing of an

application to the court under section 11.

There wasn't any agreement's failure, nor the respondent failed to act according to the

agreement. There was no cause of action to sustain the same.

Conclusions based on the decision of the Supreme Court

In section 11(2) of the Arbitration and Conciliation Act, 1996, the parties are free and do not

have any foundation for appointing the arbitrator; it means that they can follow any procedure

for the arbitrator's appointment.

 BACKGROUND OF THE CASE / FACTS

 The appellant had entered into a lease agreement with the 1st respondent in respect of

certain machineries. Dispute arose between the parties and the 1st respondent sent a

notice to the appellant on 5.8.1999 demanding payment of Rs.  2,84,58,701 within

fourteen days and in the notice, it was specifically stated that in case of failure to pay

the amount, the notice be treated as one issued under Clause 20.9 (Arbitration clause)

of the Lease Agreement. The appellant did not pay the amount as demanded by the 1st

respondent.  

 The 1st respondent did not appoint   an Arbitrator even after the lapse of thirty days,

but filed Arbitration Petition No.  405/99 on 26.10.99 under Section 9 of the Act for

interim protection.  On 25.11.99, the 1st respondent   appointed the 2nd   respondent as

the sole Arbitrator by invoking clause 20.9 of the Lease Agreement and the Arbitrator

in turn issued a notice to the appellant asking them to make their appearance before

him on 13th March, 2000.

 Thereafter, the appellant filed Arbitration Application No.  2/2000 before Hon’ble the

Chief Justice of Bombay and prayed for appointment of another Arbitrator and the 1st

respondent opposed this application.  This petition was rejected by the Chief Justice

holding that as the Arbitrator had already been   appointed by the first respondent, the

Lessor, the petition was not maintainable. This order is challenged before supreme

court.

 The appellant challenges an order passed by the Chief Justice of Bombay High Court,

under Section 11 of the Arbitration and Conciliation Act, 1996.

ISSUES

 Whether in a case falling under Section 11(6) of the Arbitration and Conciliation Act,

1996 the arbitrator has to be appointed within 30 days from the date mentioned in the

notice for appointment of arbitrator?

 Whether there was any real failure of the mechanism provided under the lease

Agreement.

ARGUMENTS

Allegations:

 The power of appointment should have been exercised within a reasonable time. The

unilateral appointment of Arbitrator was not envisaged under the Lease Agreement

and the respondent should have obtained the consent of the appellant by proposing

the name of the Arbitrator before appointment.

amounts to failure of the procedure contemplated under the Agreement. Even though

Section 11(6) of the Act does not prescribe a period of 30 days, it must be implied

that 30 days is a reasonable time for purposes of Section 11(6) and thereafter, the

right to appoint is forfeited. Three judgments of the High Courts from Bombay, Delhi

and Andhra Pradesh were relied upon in this connection.

Contentions:

 The Bombay, Delhi and Andhra Pradesh High Court cases relied upon are

distinguishable. Under Section 11(6), no period of time is prescribed and hence the

opposite party can make an appointment even after 30 days, provided it is made

before the application is filed to the Court under Section 11.

PROVISIONS

Section 11 in THE ARBITRATION AND CONCILIATION ACT, 1996

Section:11 Appointment of arbitrators.

(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties.

(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the

arbitrator or arbitrators.

(3) Failing any agreement referred to in sub-section (2), in an arbitration with three

arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall

appoint the third arbitrator who shall act as the presiding arbitrator.

(4) If the appointment procedure in sub-section (3) applies and—

so from the other party; or

(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from

the date of their appointment, the appointment shall be made, upon request of a party, by the

Chief Justice or any person or institution designated by him.

(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole

arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a

request by one party from the other party to so agree the appointment shall be made, upon

request of a party, by the Chief Justice or any person or institution designated by him.

(6) Where, under an appointment procedure agreed upon by the parties, —

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them

under that procedure; or

(c) a person, including an institution, fails to perform any function entrusted to him or it

under that procedure, a party may request the Chief Justice or any person or institution

designated by him to take the necessary measure, unless the agreement on the appointment

procedure provides other means for securing the appointment.

(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to

the Chief Justice or the person or institution designated by him is final.

(8) The Chief Justice or the person or institution designated by him, in appointing an

arbitrator, shall have due regard to—

(a) any qualifications required of the arbitrator by the agreement of the parties; and
(b) other considerations as are likely to secure the appointment of an independent and

impartial arbitrator.

(9) In the case of appointment of sole or third arbitrator in an international commercial

arbitration, the Chief Justice of India or the person or institution designated by him may

appoint an arbitrator of a nationality other than the nationalities of the parties where the

parties belong to different nationalities.

(10) The Chief Justice may make such scheme 1 as he may deem appropriate for dealing with

matters entrusted by sub-section (4) or sub-section (5) or sub-section (6) to him.

(11) Where more than one request has been made under sub-section (4) or sub-section (5) or

sub-section (6) to the Chief Justices of different High Courts or their designates, the Chief

Justice or his designate to whom the request has been first made under the relevant sub-

section shall alone be competent to decide on the request.

(12) (a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in an

international commercial arbitration, the reference to ‘‘Chief Justice'' in those sub-sections

shall be construed as a reference to the ‘‘Chief Justice of India''.

(b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in any

other arbitration, the reference to “Chief Justice” in those sub-sections shall be construed as a

reference to the Chief Justice of the High Court within whose local limits the principal Civil

Court referred to in clause (e) of sub-section (1) of section 2 is situate and, where the High

Court itself is the Court referred to in that clause, to the Chief Justice of that High Court.

JUDGEMENT

 The court observed that the Arbitration and Conciliation   Act, 1996 made certain

drastic changes in the Law of Arbitration. Section 11 of the Act deals with the
 procedure for appointment of Arbitrator.  Section 11(2) says that the parties are free to

agree to any procedure for appointing the Arbitrator.   If only there is any failure of

that procedure, the aggrieved party can invoke sub-clause (4), (5) or (6) of Section 11,

as the case may be.  In the instant case, the Arbitration clause in the Lease Agreement

contemplates appointment of a sole Arbitrator.  If the parties fail to reach any

agreement as referred to in Sub-Section (2), or if they fail to agree on the Arbitrator

within thirty days from receipt of the request by one party, the Chief Justice can be

moved for appointing an Arbitrator either under sub-clause (5) or sub-clause (6) of

Section 11 of the Act.

 The appellant in his application does not mention under which sub- section of Section

11 the application was filed.   Evidently it must be under Sub-section (6) (a) of

Section 11, as the appellant has no case that a notice was issued but an Arbitrator was

not appointed or that there was a failure to agree on certain Arbitrator.  The contention

of the appellant might be that the first respondent failed to act as required under the

procedure.

 The appellant contended that the 1st respondent did not appoint the Arbitrator within

a reasonable period and that amounts to failure of the procedure contemplated under

the Agreement.  The court’s attention was drawn to a decision of the Bombay High

Court reported in 1999(2) Bombay CR.   189 (Naginbhai C.   Patel  Vs.  Union of 

India).

 The court held that the above decision has no application to the facts of this case as in

the present case, the Arbitrator was already appointed before the appellant invoked

Section 11 of the Act.   The Counsel for the appellant contended that the Arbitrator

was appointed after a long lapse of time and that too without any previous
 consultation with the appellant and therefore it was argued that the Chief Justice

should have appointed a fresh arbitrator.  We do not find much force in this

contention, especially in view of the specific words used in the Arbitration clause in

the Agreement, which is extracted above.  

 The court observed that this is not a case where the appellant requested and gave a

notice period for appointment of arbitrator and the latter failed to comply with that

request. The amount allegedly due from the appellant was   substantial and the   1st

respondent cannot be said to be at fault for having given a larger period for payment

of the amount and settling the dispute.  It is pertinent to note that the appellant did not

file an application even after the 1st respondent invoked Section 9 of the Act and filed

a petition seeking interim relief.   Under such circumstances, it cannot be said that

there was a failure of the procedure prescribed under the contract.

 In court’s view, therefore, so far as Section 11(6) is concerned, if one party demands

the opposite party to appoint an arbitrator and the opposite party does not make an

appointment within 30 days of the demand, the right to appointment does not get

automatically forfeited after expiry of 30 days. If the opposite party makes an

appointment even after 30 days of the demand, but before the first party has moved

the Court under Section 11, that would be sufficient.

 In   the   present case   the respondent made   the appointment before the appellant

filed the application under Section 11(6) though it was beyond 30 days from the date

of demand.   In our view, the appointment of the arbitrator by the respondent is valid

and it cannot be said that the right was forfeited after expiry of 30 days from the date

of demand.
  The court settled that When parties have entered into a contract and settled on a

procedure, due importance has to be given to such procedure. Even though rigor of

the doctrine of “freedom of contract” has been whittled down by various labour and

social welfare legislation, still the court has to respect http://JUDIS.NIC.IN

SUPREME COURT OF INDIA Page 6 of 6 the terms of the contract entered into by

parties and endeavour to give importance and effect to it. When the party has not

disputed the arbitration clause, normally he is bound by it and obliged to comply with

the procedure laid down under the said clause.

Decision of the court

 In this case the judgment was given by JUSTICE K.G BALKRISHNA that the court

do not think that the first respondent, in appointing the second respondent as the

Arbitrator, failed to follow the procedure contemplated under the Agreement or acted

in contravention of the Arbitration clause.

 Lastly, the appellant   alleged that “nomination” mentioned in the arbitration clause

gives the 1st respondent a right to suggest the name of the Arbitrator to the appellant

and the appointment could be done only with the concurrence of the appellant.  The

bench did not find any force in the contention.

 The appellant, while filing the application under Section 11 of the Act had no cause of

action to sustain the same as there was no failure of the agreement or that the 1st

respondent failed to act in terms of the agreement.   The application was rightly

rejected.   The appeal deserves to be and is accordingly dismissed, however,

without      any order as to costs.

In conclusion, it is submitted that until the relevant sections of the 2019 Amendment Act are

notified, the mantle of ensuring quicker disposal of Section 11 applications continues to be

held by the Supreme Court. While it may seem that it is too late in the day to undertake any

structural changes, the Supreme Court could set an example for the courts below by adapting

and adopting mechanisms which promote a more efficient justice delivery system. To make

India a more arbitration-friendly jurisdiction, the changes such as the ones suggested above

could be adopted, especially since commercial disputes resolution by arbitration has over the

last few decades become a more preferred means of dispute resolution, a preference escalated

due to the pandemic. Section 11 applications are filed to kickstart arbitral proceedings and

therefore any and all measures should be taken by the Supreme Court to ensure that

appointment of the arbitral tribunal is completed in the least possible time once the parties

appear before it.

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