Telangana HC Restores ₹168 Crore Award, Says Pending Plea No Bar To Consensual Appointment Of Arbitrator

The Telangana High Court has set aside a Commercial Court order that annulled a Rs. 168.36 crore arbitral award against the Hyderabad Metropolitan Development Authority and others in a contract dispute with Ramky Elsmex Hyderabad Ring Road Limited.

The court held that the consensual appointment of a presiding arbitrator is not rendered invalid only because an application for such appointment was pending before the court.

Rejecting the Hyderabad Metropolitan Development Authority's contention that the arbitral tribunal was improperly constituted on this ground, the court held: “We are of the considered view that the respondents' argument runs contrary to the leitmotif of the A&C Act which roots for party autonomy. The essence of the respondents' argument is that the Court can force its choice of presiding arbitrator on the party overriding a consensus arrived between the parties or the arbitrators, once an application under section 11(6) is filed in Court. Such a construction is anathema to the A&C Act which gives primacy to the intention of parties at every stage of the arbitration process. There is nothing on record to suggest that the nominee arbitrators were at variance with regard to the appointment/selection of the presiding arbitrator"

A Division Bench of Justices Moushumi Bhattacharya and Gadi Praveen Kumar allowed the appeal and set aside the order dated August 5, 2024 passed by the Commercial Court, which had nullified the arbitral award dated June 18, 2018.

The dispute arose from an agreement dated August 18, 2007 between Ramky Elsmex Hyderabad Ring Road Limited and the Hyderabad Metropolitan Development Authority and others. Arbitration was invoked on July 23, 2012. Although a tribunal was initially constituted in 2013, it was disbanded in January 2015, necessitating a fresh constitution.

Both parties appointed their nominee arbitrators by February 5, 2016, but the nominees initially failed to agree on a presiding arbitrator. Ramky, thereafter, filed an arbitration application under Section 11(6) on November 16, 2016 seeking appointment of the third arbitrator.

During the pendency of that application, however, the two nominee arbitrators reached a consensus on June 2, 2017 and appointed the presiding arbitrator. This development was placed before the High Court, which permitted withdrawal of the Section 11 application on June 16, 2017.

The arbitral proceedings eventually led to an award on June 18, 2018, directing the Hyderabad Metropolitan Development Authority and others to pay Rs. 168.36 crore to Ramky, along with interest at the State Bank of India's Prime Lending Rate in case of default.

That award did not stand unchallenged. The Authority moved the Commercial Court, arguing that the tribunal itself was flawed since the presiding arbitrator had been appointed while the Section 11(6) proceedings were still pending. The court agreed and set the award aside.

Ramky, however, took a different view before the High Court. It pointed out that the law does not bar a consensual appointment and stressed that the High Court had been informed of the development at the time and had allowed the earlier application to be withdrawn on that basis.

The Authority maintained that once the court had been approached, the right to appoint stood forfeited, making the subsequent appointment legally untenable.

Rejecting this, the High Court held that the very basis for invoking Section 11(6) is the existence of a continuing disagreement. Once the nominee arbitrators reached consensus, that basis ceased to exist.

The court also noted that the Authority's counsel was present when the Section 11 application was withdrawn and did not raise any objection at that stage, making the issue of appointment judicially concluded.

The bench was not persuaded by the precedents cited by the Authority, noting that those decisions dealt with situations where one party went ahead with an appointment without the other's consent.

That was not the case here, where the presiding arbitrator was chosen jointly by the nominee arbitrators.

It found that the Commercial Court had missed both the factual backdrop and the central role of party autonomy under the arbitration law.

On that basis, the High Court set aside the order annulling the award, effectively restoring the arbitral award in favour of Ramky.

For Appellant (Ramky Elsmex Hyderabad Ring Road Limited): Advocates A. Venkatesh, Pratusha Bopanna.

For Respondents (Hyderabad Metropolitan Development Authority & Ors.): Advocates C.V. Mohan Reddy, Dhananjaya Naidu Kolla.