Supreme Court Holds Delay in Appointment of Presiding Arbitrator Does Not Invalidate Tribunal; Clause Providing ICSID Appointment Is Enabling, Not Mandatory

Held: The Supreme Court held that delay beyond the stipulated period in appointment of the presiding arbitrator does not render the arbitral tribunal invalid, and that a contractual clause permitting appointment through an external authority (ICSID) is merely enabling in nature and does not extinguish the power of co-arbitrators to appoint the presiding arbitrator in the absence of a request by the parties.

Summary: The dispute arose from a World Bank funded consultancy contract between the Municipal Corporation of Greater Mumbai and the respondent, where arbitration was invoked for unpaid dues. The appellant challenged the arbitral award on the ground that the tribunal was improperly constituted, arguing that under Clause 8.3(b), once 30 days had elapsed from appointment of the second arbitrator, the power to appoint the presiding arbitrator vested exclusively in the Secretary General of ICSID. The arbitral tribunal rejected this objection under Section 16, holding the clause to be enabling, not restrictive, and that parties had not invoked the ICSID mechanism. The High Court upheld this view under Sections 34 and 37. Before the Supreme Court, the Court examined the clause in detail and held that it provided a fail-safe mechanism rather than a mandatory exclusive procedure. It further emphasized that contractual interpretation by the arbitrator must be respected if plausible. Additionally, the Court analysed the conduct of the appellant, noting that it had participated in the arbitration process, failed to object at earlier stages despite multiple appointments, and only raised the jurisdictional challenge belatedly, indicating acquiescence. The Court clarified that while statutory waiver under Section 4 may not strictly apply due to timely Section 16 objection, the conduct of the party is a relevant factor in assessing the validity of such challenge.

Decision: The Supreme Court dismissed the appeals, upheld the arbitral award, and affirmed the findings of the Arbitral Tribunal and the High Court, holding that the tribunal was validly constituted and that no ground for interference under Sections 34 or 37 of the Arbitration and Conciliation Act, 1996 was made out, with no order as to costs and all pending applications disposed of accordingly.