Datar Switchgears Ltd v. Tata Finance Ltd. (2000) 8 SCC 151

Introduction

The case deals with Section 11(2) of the Arbitration & Conciliation Act, 1996 (A&C Act) which consists of law for appointment of arbitrator.

Facts

• Two companies, Datar Switchgear Limited and Tata Finance Limited, made an agreement to lease some machinery.
• In the agreement, there's a rule (Clause 20.9) that says if they have any disagreements, they should use an arbitrator chosen by the company leasing the machinery.
• Later, Tata Finance asked Datar Switchgear to pay a certain amount within 14 days. The parties agreed that if Datar Switchgear did not pay, a dispute would be considered under the agreement's Clause 20.9 which was an arbitration clause.
• Datar Switchgear did not pay, and Tata Finance did not choose an arbitrator within the time specified in their contract.
• Instead, they filed a petition under Section 9 of A&C Act for interim protection.
• Later on, Tata Finance appointed an arbitrator and asked Datar Switchgear to appear before them.
• Datar Switchgear went to the Bombay High Court to ask for the appointment of an arbitrator, but the court refused the plea because Tata Finance had already appointed an arbitrator, according to the agreement.
• Datar Switchgear then challenged this decision in the Supreme Court stating that Tata Finance did not have the power to appoint arbitrator under the contract.

Issue Involved

• Whether one party has the power to appoint an arbitrator without concurrence with the other party in the arbitration agreement?

Observation

• The Court held that the term nomination mentioned in the arbitration clause of contract gives power to the respondent to appoint an arbitrator. And the contract between them has no clause which mentions that nomination by one party requires concurrence with the other hence the nomination amounts to appointment of arbitrator.
• The court further said that under Section 11(2) of the A&C Act, the parties have complete autonomy and are not bound by any specific criteria when selecting an arbitrator. This implies that they have the flexibility to adopt any method for appointing the arbitrator.

Note

• Section 11(2) of A&C Act:

Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.