SHAILESH DHAIRYAWAN versus MOHAN BALKRISHNA LULLA
[2015] 12 S.C.R. 70, Supreme Court of India, 2015
Outcome: Dismissed (Dismissed)
Segment: Ratio
A 
8 
c 
[2015] 12 S.C.R. 70 
SHAILESH DHAIRYAWAN 
v. 
MOHAN BALKRISHNA LULLA 
(CivilAppeal No. 8731 of2015) 
OCTOBER 16, 2015 
(A. K. SIKRI AND ROHINTON FALi NARIMAN, JJ.] 
Arbitration and Conciliation Act, 1996: s. 15(2) -
Alppointment of substitute arbitrator on resignation of named 
arbitrator - Applicability of s. 15(2) when arbitrator to whom 
the matter was referred earlier with the consent of the parties 
0 
Withdraws therefrom- Held: If arbitration agreement that was 
arrived at between the parties did not specifically bar the 
appointment of another arbitrator on the withdrawal of earlier 
arbitrator appointed by the parties with mutual agreement, 
s. 15(2) of the Act would be attracted and a substitute arbitrator 
E could be appointed - Courts have the power to appoint 
s1.1bstitute arbitrator, which power is given by s. 15(2) of the 
Act as this provision is to be given liberal interpretation so 
as to apply to all possible circumstances under which the 
mandate of the earlier arbitrator may be terminated -
F Arbitration Act, 1940 - s. 8. 
Interpretation of statutes: Purposive interpretation -
H¢1d: Though literal rule of interpretation, till some time ago, 
was treated as the .'golden rule', it is now the doctrine of 
G purposive interpretation which is predominant, particularly 
in those cases where literal interpretation may not serve the 
purpose or may lead to absurdity- If it brings about an end 
which is at variance with the purpose of statute, that cannot
be countenanced. 
H 
Dismissing the appeal, the Court 
70
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
71 
LULLA 
HELD: PERR. F. NARIMAN, J.: 1. Under Section A 
8(1 )(b) read with Section 8(2) if a situation arises in which 
an arbitrator refuses to act, any party may serve the other 
parties or the arbitrators, as the case may be, with a 
written notice to concur in a fresh appointment, and if 
such appointment is not made within 15 clear days after B 
service of notice, the Court steps in to appoint such fresh 
arbitrator who, by a deeming fiction, is to act as if he has 
been appointed by the consent of all parties. This can 
only be done where the arbitration agreement does not 
show that it was intended that the vacancy caused be C 
not supplied. However, under Section 15(2), where the 
mandate of an arbitrator terminates, a substitute 
arbitrator "shall" be appointed. Had Section 15(2) ended 
there, it would be clear that in accordance with the object D 
sought to be achieved by the Arbitration and Conciliation 
Act, 1996 in all cases and for whatever reason the 
mandate of an arbitrator terminates, a substitute 
arbitrator is mandatorily to be appointed. The arbitration 
agreement between the parties has now to be seen, and E 
it is for this reason that unless it is clear that an arbitration 
agreement on the facts of a particular case excludes 
either expressly or by necessary implication the 
substitution of an arbitrator, whether named or 
otherwise, such a substitution must take place. In fact, F 
sub-sections (3) and (4)
of Section 15 also throw 
considerable light on the correct construction of sub-
section (2). Under sub-section (3), when an arbitrator is 
replaced, any hearings previously held by the replaced 
arbitrator may or may not be repeated at the discretion G 
of the newly appointed Tribunal, unless parties have 
agreed otherwise. Equally, orders or rulings of the earlier 
arbitral Tribunal are not to be invalid only because there 
has been a change in the composition of the earlier 
Tribunal, subject, of course, to. a contrary agreement by H
72 
SUPREME COURT REPORTS 
[2015] 12 S.C.R. 
A parities. This also indicates that the object of speedy 
resolution of disputes by arbitration would best be sub-
served by a substitute arbitrator continuing at the point 
at which the earlier arbitrator has left off. [Para 20) [93-
0-H; 94-A-E] 
B 
2. On the facts of the present case, it is clear that 
there is nothing in clause 8 of the consent terms to show 
that the resignation of the named arbitrator would lead 
to her vacancy not being supplied. All that the parties 
C have done by the said clause is to agree to refer their 
disputes to the arbitration of an independent retired 
Judge belonging to the higher Judiciary. There is no 
personal qualification of the named arbitrator that is 
required to decide the dispute between the parties. In 
D faot, she belongs to a pool of independent retired High 
Court and Supreme Court Judges, from which it is 
always open to the appointing authority to choose a 
substitute arbitrator. There is no expression such as 
"011Jly" which would indicate that the confidence of the 
E parties was in only the named arbitrator and in nobody 
else. In fact, Section 89 of the CPC specifically provides 
that a Court hearing a suit may formulate terms of 
settlement between the parties and may either settle the 
F same or refer the same for settlement by conciliation, 
juqicial settlement, mediation or arbitration. On the facts 
in the present case, following the mandate of Section 
89~ the High
Court disposed of the suit between the 
patties by recording the settlement between the parties 
G in clauses 1. to 7 of the consent terms and by referring 
the remaining disputes to arbitration. Therefore, it is the 
Bombay High Court that was the appointing authority 
which had in fact appointed the named arbitrator in 
terms of clause 8 of the consent terms. It is clear that 
H the Bombay High Court applied its mind· to the consent
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
73 
LULLA 
terms as a whole and appointed the named arbitrator as A 
arbitrator for the disputes that were left to be resolved 
by the parties. The said appointing authority has been 
approached by the respondent for appointment of a 
substitute arbitrator, which was then done by the 
impugned judgment. This would therefore be "according B 
to the rules that were applicable to the appointment of 
the arbitrator being replaced" in accordance with Section 
15(2) of the Act. , The High Court correctly appointed 
another independent retired Judge as substitute 
arbitrator in terms of Section 15(2) of the Arbitration Act, C 
1996. [Paras 21, 22] [94-F-H; 95-C, D-F, G-H; 96-A-C] 
C.F. Angadi v. YS. Hirannayya (1972) 2 SCR 
515- relied on. 
Yashwith Constructions (P) Ltd. v. Simplex 
Concrete Piles India Ltd. (2006) 6 SCC 
204: 2006 (3) Suppl. SCR 96; SBP and Company 
(2) v. Patel Engineering. Ltd. and Anr. (2009) 10 
sec 293: 2009 (15) SCR 340; ACC Ltd. II. Global 
Cements Ltd. (2012) 7 SCC 71: 2012 (6) 
SCR 215 - referred to. 
D 
E 
PER A.K. SIKRI, J. (SUPPLEMENTING) : 1. The 
statutory interpretation of a provision is never static but 
is always dynamic. Dynamic statutory interpretation F 
also persuades to take into consideration ethoes of 
arbitration process, including the spirit behind Section 
89 of the CPC. Once the said fundamental aspects of 
the arbitration are kept in mind, the irresistible conclusion G 
would be that whenever
parties agree for mediation, and. ' 
even name a specific arbitrator with no specific provision 
for appointment of another arbitrator on the recusal/ 
withdrawal of the said arbitrator, the said omission is 
made up by Section 15(2) of the Act and unless H
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SUPREME COURT REPORTS 
[2015] 12 S.C.R. 
A arbitration agreement between the parties provides a 
categorical prohibition or debarment in resolving a 
question or dispute or difference between the parties by 
a substitute arbitrator in case of death or the named 
arbitrator or non-availability of the said arbitrator, Courts 
B have the power to appoint substitute arbitrator, which · 
power is given by Section 15(2) of the Act as this 
provision is to be given liberal interpretation so as to 
apply to all possible circumstances under which the 
mandate of the earlier arbitrator may be terminated. 
C [Paras 11to13] [100-G-H; 101-C-F] 
ACC Ltd. v. Global Cements Ltd. (2012) 7 SCC 
71: 2012 (6) SCR 215; 
P Anand Gajapati 
Raju & Ors. v. P VG. Raju (0) & Ors. (2000) 4 SCC 
D 
539 : 2000 (2) SCR 684 - referred to. 
E 
F 
G 
H 
Case Law Reference 
Per R.F. Nariman, J. 
2006 (3 ) Suppl. SCR 96 
referred to. 
Para 13 
2009 (15) SCR 340 
referred to. 
Para 14 
2012 (6) SCR 215 
referred to. 
Para 16 
(1972) 2 SCR 515 
relied on. 
Para 22 
Per A.K. Sikri, J. 
2012 (6) SCR 215 
referred to. 
Para 1 
2000 (2) SCR 6~4 
referred to. 
Para 3 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 
8731 of2015 
From the Judgment and Order dated 12.06.2015 of the 
High Court of Judicature at Bombay in Arbitration Application 
No. 252 of2014
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
75 
LULLA 
T. R. Andhyaru Jina, Viral Amin, Bhargava V. Desai, 
A 
Sauinya Mehrotra, Shardul Singh for the Appellant. 
Santosh Paul, Arvind Gupta, Raghav Shekhar, Ranjan 
Kumar for the Respondent. 
The Judgments of the Court were delivered by 
R. F. NARIMAN, J. 1. Leave granted. 
B 
2. The respondent had filed a suit in the Bombay High 
Court, being Suit No.1927 of 2007, against the appellant and C 
some others seeking a declaration that a development 
agreement dated 27 .12.2004 together with a Power of Attorney 
of even date had stood terminated, and for certain other reliefs. 
3. On 3.10.2008, the parties to the suit entered into D 
consent terms largely settling the disputes between them. 
However, with regard to two specific differences, the plaintiff 
and defendant No.1 agreed to refer the said differences to the 
arbitration of a retired Supreme Court Judge as follows:-
E 
"8). The Plaintiff and the Defendant No.1 agree to and 
hereby do refer to Arbitration of Mrs. Justice Sujata 
Manohar (Retd.) the dispute as to (i) the difference in 
carpet area of the 5 flats agreed to be allotted as per the 
Development Agreement dated 27-12-2004 being 
F 
Exhibit-B to the Plaint by Defendant No.1 to the Plaintiff 
and his family members (i.e. 800 sq. ft. area) as provided 
in the said Development Agreement dated 27-12-2004 
and the actual carpet area of the said 5 flats hereby 
allotted and handed over and (ii) the valuation of the G
deficient area if any, and the damages for the same. The 
Learned Arbitrator to make an award with regard to the 
compensation and the damages to be paid by Defendant 
No.1 to the plaintiff for the deficient area, if any, Defendant 
No.1 shall not raise any dispute as to the jurisdiction of H
76 
A 
B 
c 
D 
E 
F 
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SUPREME COURT REPORTS 
[2015] 12 S.C.R. 
the arbitrator. The Arbitrator shall decide the same as 
expeditiously as possible in accordance with law and 
under the provisions of the Arbitration & Conciliation Act, 
. 1996." 
The said consent terms were taken on record by a Single 
Judge of the Bombay High Court who passed an order dated 
8.10.2008 disposing of the suit in the following terms: 
"1. Pursuant to the suggestion given by this Court, 
parties were exploring the possibility of settleme~t 
and therefore the matter was kept part heard. 
2. Today, the parties are tendering Consent terms. 
Consent terms are taken on record and marked 
"X" for the purpose of identification. Consent Terms 
are signed by the Plaintiff, Defendant No.1, 
Defendant No.3 and their respective Advocates. 
Undertakings, if any, given in the Consent terms by 
any of the parties is accepted. Decree is passed 
in terms of the consent terms. 
3. In respect of the dispute regarding 
compensation, the matter by consent is referred to 
Mrs. Justice Sujata Manohar (Retd.) for arbitration. 
The issue regarding the allotment of parking spaces 
or plaintiffs returning the promissory note can also 
be decided by the learned arbitrator. Plaintiff is 
permitted to withdraw the amount which is 
deposited by Defendant No.1 and which is lying in 
the suspense account of Oriental Bank of 
Commerce, Khar Branch, Mumbai. 
1. Plaintiff and Defendants are present in court. 
2. Suit is disposed
off in the aforesaid terms. 
3. Refund of court fees be paid in accordance 
H 
with the rules.
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
77 
LULLA [R. F. NARIMAN, J.) 
4. Since the suit itself is disposed of, Notice of 
A 
motion if any, does not survive and the same is 
also disposed of." 
· 
4. Nothing much seems to have materialised in the 
arbitration, and despite several meetings held by the named B 
arbitrator, the arbitration proceedings continued to drag on, 
until by a letter dated 22.01.2011, the Arbitrator resigned as 
arbitrator in the aforesaid matter. 
5. The plaintiff-respondent then applied vide Notice of C 
Motion No.2245 of 2012 in the disposed of suit No. 1927 of 
2007 for appointment of a substitute arbitrator. This Notice of 
Motion was dismissed by order dated 20.9.2013 stating that 
an appointment can only be made for a substitute arbitrator 
under Section 11 (5) of the Arbitration Act and not by a Notice 0 
of Motion in a disposed of suit. 
6. Pursuant to the dismissal of the said Notice of Motion, 
the plaintiff moved the Bombay High Court under Section 11 
by an application of January, 2014 for appointment of a E 
substitute arbitrator. By the impugned judgment dated 
12.6.2015, the Bombay High Court appointed a retired Judge 
of the said High Court, namely Dr. Justice S. Radhakrishnan, 
as substitute arbitrator. 
7. Shri TR. Andhyarujina, learned senior advocate F 
appearing on behalf of the appellant, has argued before us 
that as this was the case of a named arbitrator, the arbitration 
agreement contained in the consent terms in the Suit
No. 1927 
of 2007 spent its force when the named arbitrator resigned, it G 
being clear that the said clause would only apply to the named 
arbitrator and hobody else, parties having faith only in the 
named arbitrator. He cited three decisions of this Court to 
buttress his submission and further argued that under Section 
15(2) of the Arbitration and Conciliation Act, 1996, where the H
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[2015] 12 S.C.R. 
A mandate of a named arbitrator terminates, there being no rules 
that would apply to the appointment of the arbitrator being 
replaced, the said Section would, therefore, not apply and the 
Hig~ Court having missed this vital fact is, therefore, wrong in 
B 
appointing a substitute arbitrator. 
8. Shri Santosh Paul, learned advocate appearing on 
behalf of the respondent has, however, supported the judgment 
of the Bombay High Court and has argued thatthe mandate of 
Section 89 of the Code of Civil Procedure (in short "CPC") 
C requires a Court to attempt to either settle disputes raised in a 
suit by the means outlined by the Section or refer them to 
arbitration, in which case the arbitration shall be deemed as if 
it is an arbitration commenced under the Arbitration and 
Conciliation Act, 1996. He further argued that it is not correct 
D to say that no rules were applicable to the appointment of the 
arbitrator in the present case as the appointment was made 
by the High Court and, therefore, when his client went back to 
the self same High Court to appoint a substitute arbitrator, that 
High Court would necessarily have jurisdiction to appoint 
E another person in the place of the named arbitrator. 
9. The Arbitration and Conciliation Act, 1996, replaced 
three other Acts dealing with arbitration: the Arbitration 
(Protocol and Convention) Act, 1937, the Arbitration Act, 1940, 
F and the Foreign Awards (Recognition and
Enforcement) Act, 
1961. 
10. Since we are concerned with a domestic arbitration 
clause, it would be useful to extract Section 8( 1 ){b) and Section 
G 20 of the old repealed 1940 Act to show what was the position 
in law under the 1940Act on supplying vacancies created by 
arbitrators neglecting, refusing or being incapable of acting, 
or dying before or in the proceedings referred to arbitration. 
These Sections read as under:-
H
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
79 
LULLA [R. F. NARIMAN, J.] 
"Section 8. Power of Court to appoint arbitrator or A 
umpire. 
(1) In any of the following cases-
(b) if any appointed arbitrator or umpire neglects or 
refuses to act, or is incapable of acting, or dies, and the B 
arbitration agreement does not show that it was intended 
that the vacancy should not be supplied, and the parties 
or the arbitrators, as the case may be, do not supply the 
vacancy; 
c 
any party may serve the other parties or the arbitrators, 
as the case may be, with the written notice to concur in 
the appointment or appointments or in supplying the 
vacancy. 
(2) If the appointment is not made within fifteen clear D 
days after the service of the said notice, the Court may, 
on the application of the party who gave the notice and 
after giving the other parties an opportunity of being 
heard, appoint an arbitrator or arbitrators or umpire, as 
the case may be, who shall have like power to act in the E 
reference and to make an award as if he is or they had 
been appointed by consent of all parties. 
Section 20 .. Application to file in Court arbitration 
agreement. 
(1) Where any persons have entered into an arbitration 
agreement before the institution of any suit with respect 
F 
to the subject-matter of the agreement or any part of it, 
and where a difference has arisen to which the 
agreement applies, they or any of them, instead of G 
proceeding under Chapter 11, may apply to a
Court 
having jurisdiction in the matter to which the agreement 
relates, that the agreement be filed in Court. 
(2) The application shall be in writing and shall be 
H
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SUPREME COURT REPORTS 
[2015] 12 S.C.R. 
A 
numbered and r-egistered as a suit between one or more 
of the parties 5 interested or claiming to be interested 
as plaintiff or plaintiffs and the remainder as defendant 
or defendants, if the application has been presented by 
all the parties, or, if otherwise, between the applicant as 
B 
plaintiff and the other parties as defendants. 
(3) On such application being made, the Court shall direct 
notice thereof to be given to all parties to the agreement 
other than the applicants, requiring them to show cause 
C 
within the time specified in the notice why the agreement 
should not be filed. 
(4) Where no sufficient cause is shown, the Court shall 
order the ag:eement to be filed, and shall make an order 
o 
of reference to the arbitrator appointed by the parties, 
whether in the agreement or otherwise, or, where the 
parties cannot agree upon an arbitrator, to an arbitrator 
appointed by the Court. 
E 
(5) Thereafter the arbitration shall proceed in accordance 
with, and shall be governed by, the other provisions of 
this Act so far as they can be made applicable." 
11. The law under the aforesaid repealed Sections was 
F laid down in a judgment of this Court which has since then 
been followed repeatedly. In Parbhat General Agencies v. 
Union of India, (1971) 1 SCC 79, the arbitration clause in 
.that case was set out as follows:-
G 
H 
"lf any question, difference or objection whatsoever shall 
arise in anyway connected
with or arising out of this or 
the meaning or operation of any part thereof or the rights, 
dues or liabilities of either party, then save in so far as 
the decision of any such matter is hereinbefore provided 
for and has been so decided, every such matter including
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
81 
LULLA [R. F. NARIMAN, J.] 
whether its decision has been otherwise provided for and A 
whether it has been finally decided accordingly or 
whether the contract should be terminated or has been 
rightly terminated and as regards the rights and 
obligations of the parties as the result of such termination 
shall be referred for arbitration to the Judicial B 
Commissioner, Himachal Pradesh and his decision shall 
be final and binding and where the matter involves a claim 
for or the payment or recovery or deduction of money, 
only the amount, if any, awarded in such arbitration shall 
be recoverable in respect of the matter so referred." [at C 
para 1 ]" 
After referring to Section 8(1)(b) and Section 20, this 
Court held: 
D 
"Section 20 is merely a machinery provision. The 
substantive rights of the parties are found in Section· 
8(1)(b). Before Section 8(1)(b) can come into operation 
it must be shown that ( 1) there is an agreement between 
the parties to refer the dispute to arbitration; (2) that they E 
must have appointed an arbitrator or arbitrators or umpire 
to resolve their dispute; (3) anyone or more of those 
·arbitrators or umpire must have neglected or refused to 
act or is incapable of acting or has died; (4) the arbitration 
agreement must not show that it was intended that the 
F 
vacancy should not be filled and (5) the parties or the 
arbitrators as the case may be had not supplied the 
vacancy. 
In the cases
before us it is admitted that there is an G 
agreement to refer the dispute to arbitration. It is also admitted 
· that the parties had designated the Judicial Commissioner of 
Himachal Pradesh as the arbitrator for resolving any dispute 
that may arise between them in respect of the agreement. The 
Judicial Commissioner had refused to act as the arbitrator. 
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[2015] 12 S.C.R. 
A The parties have not supplied that vacancy. Therefore the only 
question is whether the agreement read as a whole shows 
either explicitly or implicitly that the parties intended that the 
vacancy should not be supplied. It may be noted that the 
language of the provision is not "that the parties intended to 
B supply the vacancy" but on the other hand it is that "the parties 
did not intend to supply the vacancy". In other words if the 
agreement is silent as regards supplying the vacancy, the law 
presumes that the parties intended to supply the vacancy. To 
take the case out of Section 8(1)(b) what is required is not the 
C intention of the parties to supply the vacancy but their intention 
not to supply the vacancy. We have now to see whether the 
agreements before us indicate such an intention. 
As mentioned earlier, the only relevant provision in the 
D agreements before us is the provision relating to arbitration. 
The other provisions in the agreements do not throw any light 
as regards the intention of the parties. We have earlier 
mentioned thatthe Judicial Commissioner, Himachal Pradesh, 
could not have been appointed as the arbitrator for any 
E specialised knowledge possessed by him relating to any 
dispute that may arise under the agreement. What the Judicial 
Commissioner could have competently done if he had acted 
as an arbitrator could certainly be done by an independent 
F and impartial person possessing
adequate knowledge of law. 
In our opinion the language of Section 8(1)(b) is plain and 
unambiguous and the terms of the agreement before us do 
not in the least show that the parties intended not to supply the 
vacancy." [at paras 3, 4 & 5]. 
G 
H 
12. This was the state of the law in India until the 1996 
Act repealed inter a/ia the 1940 Act. Since we are concerned 
with the correct interpretation of Section 15 of this Act, it is set 
out hereinbelow:-
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
83 
LULLA [R. F. NARIMAN, J.] 
"Section 15.Termination of mandate and A 
substitution of arbitrator.- (1) In addition to the 
circumstances referred to in section 13 or section 14, 
the mandate of an arbitrator shall terminate--
( a) where he withdraws from office for any reason; or 8 
(b) by or pursuant to agreement of the parties. 
(2) Where the mandate of an arbitrator terminates, a 
substitute arbitrator shall be appointed according to the 
rules that were applicable to the appointment of the C 
arbitrator being replaced. 
(3) Unless otherwise agreed by the parties, where an 
arbitrator is replaced under sub-section (2), any hearings 
previously held may be repeated at the discretion of the 
arbitral tribunal. 
D 
(4) Unless otherwise agreed by the parties, an order or 
ruling of the arbitral tribunal made prior to the replacement 
of an arbitrator under this section shall not be invalid 
solely because there has been a change in the E 
composition of the arbitral tribunal." 
The reason for the change in law under the 1996 Act is 
because it was modeled on the Uncitral Model Law on 
International Commercial Arbitration. The Statement of Objects 
and Reasons for the 1996 Act makes this clear as follows: 
F 
"2. The United Nations Commission on International 
Trade Law (UNCITRAL) adopted in 1985 the Model Law 
on International Commercial Arbitration. The General 
Assembly of the United Nations has recommended that G 
all countries
give due consideration to the said Model 
Law, in view of the desirability of uniformity of the law of 
arbitral procedures and the specific needs of international 
commercial arbitration practice. The UNCITRAL also 
adopted in 1980 a set of Conciliation Rules. The General 
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[2015] 12 S.C.R. 
A 
Assembly of the United Nations has recommended the 
use of these Rules in cases where the disputes arise in 
the context of international commercial relations and the 
parties seek amicable settlement of their disputes by 
recourse to conciliation. An important feature of the said 
B 
UNCITRAL Model Law and Rules is that they have 
harmonised concepts on arbitration and conciliation of 
different legal systems of the world and thus contain 
provisions which are designed for universal application. 
c 
3. Though the said UNCITRAL Model Law and Rules are 
intended to deal with international commercial arbitration 
and conciliation, they could, with appropriate 
modifications, serve as a model for legislation on 
domestic arbitration and conciliation. The present Bill 
D 
seeks to consolidate and amend the law relating to 
domestic arbitration, international commercial arbitration, 
enforcement of foreign arbitral awards and to define the 
law relating to conciliation, taking into account the said 
UNCITRAL Model Law and Rules." 
E 
F 
G 
Article 15 of the Model Law, on which Section 15(2) is 
based, reads as follows: 
"Where the mandate of an arbitrator terminates under 
article 13of14 or because of his withdrawal from office 
for any other reason or because of the revocation of his 
mandate by agreement of the parties or in any other case 
of termination of his mandate, a substitute arbitrator shall 
be appointed according to the
rules that were applicable 
to the appointment of the arbitrator being replaced." 
13. Three judgments of this Court have thrown 
considerable light on the correct construction of Section 15(2) 
of the Act. In Yashwith Constructions (P) Ltd. v. Simplex 
H Concrete Piles India Ltd., (2006) 6 SCC 204, the arbitration
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
85 
LULLA [R. F. NARIMAN, J.] 
clause stated that the Managing Director of the respondent A 
company was to appoint an arbitrator in terms of the said 
clause. The appointed arbitrator resigned, after which the 
Managing Director of the respondent company promptly 
appointed another arbitrator. The correctness of the second 
appointment was challenged in an application made by one B 
of the parties under Section 11 (5) of the Act read with section 
15(2) praying that the Chief Justice of the High Court may 
appoint a substitute arbitrator to resolve the disputes between 
the parties. This application under Section 11 was dismissed, 
which dismissal was upheld by a Division Bench of the High C 
Court. This Court agreeing with the Division Bench judgment 
held as under:-
"ln our view, the learned Chief Justice and the Division 
Bench have rightly understood the scope of Section 15 D 
of the Act. When the arbitrator originally appointed in 
terms of the arbitration agreement withdrew for health 
reasons, the Managing Director, as authorised originally 
by the arbitration agreement, promptly appointed a 
substitute arbitrator. It is true that in the arbitration E 
agreement there is no specific provision authorising the 
Managing Director to appoint a substitute arbitrator if 
the original appointment terminates or if the originally 
appointed arbitrator withdraws from the arbitration. But, 
this so-called omission in the arbitration
agreement is 
F 
made up by the specific provision contained in Section 
15(2) of the Act. The withdrawal of an arbitrator from the 
office for any reason is within the purview of Section 
15(1)(a) of the Act. Obviously, therefore, Section 15(2) G 
would be attracted and a substitute arbitrator has to be. 
appointed according to the rules that are applicable for 
the appointment of the arbitrator to be replaced. 
Therefore, what Section 15(2) contemplates is an 
appointment of the substituted arbitrator or the replacing 
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86 
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8 
c 
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SUPREME COURT REPORTS 
[2015] 12 S.C.R. 
of the arbitrator by another according to the rules that 
were applicable to the appointment of the original 
arbitrator who was being replaced. The term "rules" in 
Section 15(2) obviously referred to the provision for 
appointment contained in the arbitration agreement or 
any rules of any institution under which the disputes were 
referred to arbitration. There was no failure on the part of 
the party concerned as per the arbitration agreement, to 
fulfil his obligation in terms of Section 11 of the Act so as 
to attract the jurisdiction of the Chief Justice under 
Section 11 (6) of the Act for appointing a substitute 
arbitrator. Obviously, Section 11 (6) of the Act has 
application only when a party or the person concerned 
had failed to act in terms of the arbitration agreement. 
When Section 15(2) says that a substitute arbitrator can 
be appointed according to the rules that were applicable 
for the appointment of the arbitrator originally, it is not 
confined to an appointment under any statutory rule or 
rule framed under the Act or under the scheme. It only 
means that the appointment of the substitute arbitrator 
must be done according to the original agreement or 
provision applicable to the appointment of the arbitrator 
at the initial stage. We are not in a position to agree with 
the contrary view taken by some of the High Courts." [at 
para 4] 
14. In SBP and Company (2) v. Patel Engineering. 
Ltd. and
Anr., (2009) 10 SCC 293, this Court had to construe 
Section 15(2) in the light of the arbitration clause in that case. 
G The arbitration clause read as follows:-
" 19. During the continuance of this piece-work 
agreement/contract or at any time after the termination 
thereof, if any difference or dispute shall arise between 
the parties hereto in regard to the interpretation of any of 
H 
the provisions herein contained or act or thing in relation
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
87 
LULLA [R. F. NARIMAN, J.] 
to this agreement/contract, such difference or dispute A 
shall be forthwith referred to two arbitrators for arbitration 
in Bombay, one to be appointed by each party with liberty 
to the arbitrators in case of differences or their failure to 
reach an agreement within one month of the appointment, 
to appoint an umpire residing in Bombay and the award B 
which shall be made by two arbitrators or umpire as the 
case may be shall be final, conclusive and binding on 
the parties hereto. 
If either party to the difference or dispute shall fail to c 
appoint an arbitrator within 30 calendar days after notice 
in writing having been given by the parties or shall 
appoint an arbitrator who shall refuse to act then the 
arbitrator appointed by the other party shall be entitled 
to proceed with the reference as a sole arbitrator and to D 
make final decision on such difference or dispute and 
the award made as a result of such arbitration shall be 
a condition precedent to any right of action against any 
two parties hereto in respect of any such difference and 
dispute." [at para 7] 
E 
15. On the facts in that case, two arbitrators were 
appointed by each of the parties. The arbitrator appointed by 
respondent No.1 declined to arbitrate in the matter for the 
reasons stated by him. Thereafter, respondent No.1 requested 
F 
another person to act as arbitrator on its behalf, which person 
communicated his
consent. However, respondent No.2, who 
was the arbitrator appointed by the petitioner, sent a letter 
informing the parties that in view of respondent No. 1 's 
arbitrator refusing to act, he had become the sole arbitrator in G 
the case as per the arbitration clause between the parties. It 
is at this stage that respondent No.1 filed an arbitration 
application under Section 11 for appointment of a third 
arbitrator by asserting that the second person nominated by it 
had agreed to be a substitute arbitrator and that, therefore, H
88 
SUPREME COURT REPORTS 
[2015] 12 S.C.R. 
A 
the third a.rbitrator should be appointed by the Court under 
Section 11. This very matter travelled all the way up to this 
Court which in a 7-Judge Bench ultimately decided that the 
power exercised by the Chief Justice of the High Court under 
Section 11 of the Act is not an administrative power but is a 
B judicial power. The matter, on facts, having been reverted to a 
Division Bench of this Court, this Court was then asked to 
decide as to whether the appointment of the substitute 
arbitrator by respondent No.1 was correct in law. After setting 
out the various provisions of the Arbitration Act, this Court held: 
c 
"Section 15 specifies additional circumstances in which 
the mandate of an arbitrator shall terminate and also 
provides for substitution of an arbitrator. Sub-section ( 1) 
of this section lays down that in addition to the 
D 
circumstances referred to in Sections 13 and 14, the 
mandate of an arbitrator shall terminate where he 
withdraws from office for any reason or pursuant to 
agreement of the parties. Sub-section (2) of Section 15 
postulates appointment of a· substitute arbitrator in 
accordance with the rules that were applicable to the 
appointment of the original arbitrator. 
F 
G 
H 
What is significant to be noticed in the aforementioned 
provisions is that the legislature has repeatedly laid 
emphasis on the necessity of adherence to the terms of 
agreement between the parties in the matter of
appointment of arbitrators and procedure to be followed 
for such appointment. Even Section 15(2), which 
regulates appointment of a substitute arbitrator, requires 
that such an appointment shall be made according to 
the rules which were applicable to the appointment of an 
original arbitrator. The term "rules" used in this sub-section 
is not confined to statutory rules or the rules framed by 
the competent authority in exercise of the power of
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
89 
LULLA [R. F. NARIMAN, J.] 
delegated legislation but also ·includes the terms of A 
agreement entered into between the parties. 
There is nothing in Clause 19 from which it can be inferred 
that in the event of refusal of an arbitrator to accept the 
appointment or arbitrate in the matter, the party B 
appointing such arbitrator has an implicit right to appoint 
a substitute arbitrator. Thus, in terms of the agreement 
entered into between the parties, Respondent 1 could 
not appoint Shri S.L. Jain as a substitute arbitrator simply 
because Shri S.N. Huddar declined to accept the c 
appointment as an arbitrator. The only consequence of 
Shri S.N. Huddar's refusal to act as an arbitrator on behalf 
·of Respondent 1 was that Respondent 2 who was 
appointed as an arbitrator by the appellants became the 
sole arbitrator for deciding the disputes or differences D 
between the parties. 
At the cost of repetition, we consider it necessary to 
observe that the agreements entered into between the 
appellant and Respondent 1 do not contain a provision E 
for_ appointment of a substitute arbitrator in case the 
arbitrator appointed by either party was to decline to 
accept appointment or refuse to arbitrate in the matter. 
Therefore, Respondent 1 cannot draw support from the 
ratio of the judgment in Yashwith Constructions (P) 
F 
Ltd. v. Simplex Concrete Piles India Ltd. [(2006) 6 SCC 
204]." [at paras 30, 31, 40 and 48] 
16. In ACC Ltd. v.
Global Cements Ltd., (2012) 7 SCC 
71, the arbitration clause with which this Court was confronted G 
read as follows:-
"21. If any question or difference or dispute shall arise 
between the parties hereto or their representatives at 
any time in relation to or with respect to the meaning or 
effect of these presents or with respect to the rights and H
90 
SUPREME COURT REPORTS 
[2015] 12 S.C.R. 
A 
liabilities of the parties hereto then such question or 
dispute shall be referred either to Mr. N.A. Palkhivala or 
Mr. D.S. Seth, whose decision in the matter shall be final 
and binding on both the parties." [at para 2] 
8 
17. As both Shri Palkhivala and Shri Seth had died, it 
was contended by the petitioner before this Court that the 
arbitration clause would not survive as the two named 
arbitrators were the only persons who the parties had reposed 
their faith in. In arriving at the conclusion that substitute 
c arbitrators could be appointed, this Court held: 
D 
E 
F 
G 
H 
"Section 15(2) of the Act provides that where a substitute 
arbitrator has to be appointed due to termination of the 
mandate of the previous arb~rator, the appointment must 
be made according to the rules that were applicable to 
. the appointment of the arbitrator being replaced. No 
further application for appointment of an independent 
arbitrator under Section 11 will lie where there has been 
compliance with the procedure for appointment of a 
substitute arbitrator. On appointment cif the substitute 
arbitrator in the same manner as the first, oo application 
for appointment of independent arbitrator under Section 
11 could be filed. Of course. the procedure agreed upon 
by the parties for the appointment of the original arbitrator 
is equally applicable to the appointment of a substitute 
arbitrator, even if the agreement does not
specifically say 
so. Reference may be made to the judgment of this Court 
in Yashwith Constructions (P) Ltd. v. Simplex Concrete 
Piles India Ltd. [(2006) 6 SCC 204]. 
Sections 14 and 15 provide the grounds for termination 
of the mandate of the arbitrator on the ground of 
incapability of the arbitrator to act or if he withdraws from 
his office or when the parties agree to the termination of 
the mandate of the arbitrator. Section 15(2) states that a
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
91 
LULLA [R. F. NARIMAN, J.] 
substitute arbitrator shall be appointed as per the rules A 
that were applicable to the appointment of the arbitrator 
being replaced. Section 15(2), therefore, has to be given 
a liberal interpretation so as to apply to all possible 
circumstances under which the .mandate may be 
terminated. 
The legislative policy embodied in Sections 14 and 15 
of the Act is to facilitate the parties to resolve the dispute 
by way of arbitration. The arbitration clause if clearly spells 
B 
out any prohibition or debarment, the court has to keep c 
its hands off and there is no question of persuading or 
pressurising the parties to resolve the dispute by a 
· substitute arbitrator. Generally, this stands out as an 
exception and that should be discernible from the 
language of the arbitration clause and the intention of D 
the parties. In the absence of such debarment or 
prohibition of appointment of a substitute arbitrator, the 
court's duty is to give effect to the policy of law that is to 
promote efficacy of arbitration. 
The incident of the death of the named arbitrators has E 
no nexus or linkage with the expression "at any time" used 
in Clause 21 of the agreement. The time factor 
mentioned therein is the time within which the question 
or dispute or difference between the parties is resolved 
F 
as per the agreement. The arbitration clause would have 
life so long as any question or dispute or difference 
.
between the parties exists unless the language of the 
clause clearly expresses an intention to the contrary. 
The question may also arise in a given case that the G 
named arbitrators may refuse to arbitrate disputes; in 
such a situation also, it is possible for the parties to 
appoint a substitute arbitrator unless the clause provides 
to the contrary. Objection can be raised by the parties H
92 
SUPREME COURT REPORTS 
[2015] 12 S.C.R. 
A 
only if there is a clear prohibition or debarment· in 
• 
resolving the question or dispute or difference between 
the parties in case of death of the named arbitrator or 
their non-availability, by a substitute arbitrator. 
·B 
We are of the view that Clause 21 does not prohibit or 
debar the parties in appointing a substitute arbitrator in 
place of the named arbitrators and, in the absence of 
any prohibition or debarment, parties can persuade the 
court for appointment of an arbitrator under Clause 21 of 
C 
the agreement." [at paras 17, 18, 21, 28- 30] 
18. Thus, it will be seen that in the Yashwith 
Constructions case this Court construed Section 15(2) 
liberally and held that the expression "the rules" that were 
D applicable to the appointment of the arbitrator would include 
the arbitration clause or agreement itself, apart from any 
institutional rules or other rules which may apply. Since it was 
clear that the Managing Director in the aforesaid case was 
the appointing authority for a particular arbitrator, in case the 
8 said arbitrator appointed refuses to act, the Managing Director 
was stated to be the authority under the arbitration agreement 
that could always appoint a substitute arbitrator in terms of 
Section 15(2). Similar is the case in the ACC Ltd. judgment 
where this Court held that despite two named arbitrators having 
P died, substitute arbitrators could be appointed in terms of the 
said clause
unless there is a clear prohibition or debarment 
that could be read on a true construction of the arbitration 
agreement. It found that the expression "at any time" clearly 
showed that the arbitration clause had no nexus with the lifetime 
G of the named arbitrator and therefore no such prohibition could 
be read. It also held that the procedure agreed upon by the 
parties for the appointment of the original arbitrator is equally 
applicable to the appointment of a substitute arbitrator, even if 
H the agreement does not specifically say so, as this is the 
mandate of Section 15(2) of the Act.
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
93 
LULLA [R. F. NARIMAN, J.] 
19. On the other hand, in the SBP and Company case, A 
the arbitration clause itself indicated that one of two appointed 
arbitrators who refused to act would not be liable to be 
substituted by another arbitrator as the other appointed 
arbitrator would then continue with the reference as sole 
arbitrator. This Court, therefore, held that since Section 15(2) B 
referred to the arbitration agreement, the arbitration agreement 
had to be strictly followed which would on the facts of that case -
indicate that no substitute arbitrator is to be appointed in the 
place of the arbitrator who refused to act but the other 
appointed arbitrator would continue as the sole arbitrator. 
C 
20. The scheme of Section 8 of the 1940 Act and the 
scheme of Section 15(2) of the 1996 Act now needs to be 
appreciated. Under Section 8(1)(b) read with Section 8(2) if a 
situation arises in which an arbitrator refuses to act, any party D 
may serve the other parties or the arbitrators, as the case may 
be, with a written notice to concur in a fresh appointment, and 
if such appointment is not made within 15 clear days after 
service of notice, the Court steps in to appoint such fresh 
arbitrator who, by a deeming fiction, is to act as if he has been E 
appointed by the consent of all parties. This can only be done 
where the arbitration agreement does not show that it was 
intended that the vacancy caused be not supplied.
However, 
under Section 15(2), where the mandate of an arbitrator F 
terminates, a substitute arbitrator "shall" be appointed. Had 
Section 15(2) ended there, it would be clear that in accordance 
with the object sought to be achieved by the Arbitration and 
Conciliation Act, 1996 in all cases and for whatever reason 
the mandate of an arbitrator terminates, a substitute arbitrator G 
is mandatorily to be appointed. This Court, however, in the 
judgments noticed above, has interpreted the latter part of the 
Section as including a reference to the arbitration agreement 
or arbitration clause which would then be "the rules" applicable 
to.the appointment of the arbitrator being replaced. It is in this H
94 
SUPREME COURT REPORTS 
[2015] 12 S.C.R. 
A 
manner that the scheme of the repealed Section 8 is 
resurrected while construing Section 15(2). The arbitration 
agreement between the parties has now to be seen, and it is 
for this reason that unless it is clear that an arbitration 
agreement on the facts of a particular case excludes either 
B expressly or by necessary implication the substitution of an 
arbitrator, whether named or otherwise, such a substitution must 
take place. In fact, sub-sections (3) and (4) of Section 15 
also throw considerable light on the correct construction of sub-
section (2). Under sub-section (3), when an arbitrator is 
C replaced, any hearings previously held by the replaced 
arbitrator may or may not be repeated at the discretion of the 
newly appointed Tribunal, unless parties have agreed 
otherwise. Equally, orders or rulings of the earlier arbitral 
0 
Tribunal are not to be invalid only because there has been a 
. change in the composition of the earlier Tribunal, subject, of 
course, to a contrary agreement by parties. This also indicates 
that the object of speedy resolution of disputes by arbitration 
would best be sub-served by a substitute arbitrator continuing 
E at the point at which the earlier arbitrator has left off. 
21. On the facts of the present case, it is clear that there 
is nothing in clause 8 of the consent terms extracted above to 
show that the resignation of Justice Sujata Manoharwould lead 
F to her vacancy not
being supplied. All that the parties have 
done by the said clause is to agree to refer their disputes to 
the arbitration of an independent retired Judge belonging to 
the higher Judiciary. There is no personal qualification of Mrs. 
Justice Sujata Manoharthat is required to decide the dispute 
G between the parties: In fact, she belongs to a pool of 
independent retired High Court and Supreme Court Judges, 
from which it is always open to the appointing authority to 
choose a substitute arbitrator. One example will suffice to show 
that clause 8 in the present case cannot be construed to either 
H expressly or by necessary implication exclude the appointment
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
95 
LULLA [R. F. NARI MAN, J.] 
of a substitute arbitrator. Take the case of a family dispute in A 
which the arbitration clause clearly specifies that a particular 
grand uncle of a joint family is the only person in whom all 
members of the family have confidence as a result of which he 
has been appointed arbitrator to resolve their disputes. In the 
case of resignation or death of such grand uncle, it could 
B 
possibly be contended that by necessary implication no other 
person was competent to arbitrate disputes betweer. the family 
members and that, therefore, on such resignation or death, 
the arbitration clause would spend its force. In the present 
case, as has been noted above, we do not have any such C 
factual scenario.nor do we have expressions such as "only" 
which would indicate that the confidence of the parties was in 
only the named arbitrator and in nobody else. 
22. In fact, as has correctly been pointed out by learned D 
counsel for the respondent, Section 89 of the CPC specifically 
provides that a Court hearing a suit may formulate terms of 
settlement between the parties and may either settle the same 
or refer the same for settlemerli by conciliation, judicial 
settlement, mediation or arbitration. On the facts in the present E 
case, it is clear that following the mandate of Section 89, the 
Bombay High Court disposed of the suit between the parties 
by recording the settlement between the parties in clauses
1 
to 7 of the consent terms and by referring the remaining 
F 
disputes to arbitration. In the present case therefore it is clear 
that it is the Bombay High Court that was the appointing 
authority which had in fact appointed Mrs. Justice Sujata 
Manohar as arbitrator in terms of clause 8 of the consent terms. 
We must remember, as was held in C.F. Angadi v. Y.S. G 
Hirannayya, [1972] 2 S.C.R. 515 at 523 that an order by 
consent is not a mere contract between the parties but is 
something more because there is super-added to it the 
command of a Judge, On the facts of the present case, it is 
clear that the Bombay High Court applied its mind to the H
96 
SUPREME COURT REPORTS 
[2015) 12 S.C.R. 
A· con$ent terms as a whole and appointed Mrs. Justice Sujata 
Manohar as arbitrator for the disputes that were left to be 
resolved by the parties. The said appointing authority has been 
approached by the respondent for appointment of a substitute 
arbitrator, which was then done by the impugned judgment. 
B This would therefore be "according to the rules that were 
applicable to the appointment of the arbitrator being replaced" 
in accordance with Section 15(2) of the Act. We, therefore, 
find that the High Court correctly appointed another 
ind(lpendent retired Judge as substitute arbitrator in terms of 
C Seation. 15(2) of the Arbitration Act, 1996. The appeal is, 
the~efore, dismissed. 
A. K. SIKRI, J. 1. I am entirely in agreement with the 
conclusion arrived at by my learned Brother R.F. Nariman, J. 
D in his accompanying judgment on the interpretation of Section 
15(2) oftheArbitration and ConciliationAct, 1996 (hereinafter 
referred to as the 'Act'). It is held by my learned Brother that 
sinc:e arbitration agreement that was arriveEI at between the 
parties herein did not specifically bar the appointment of 
E another arbitrator on the recusal/withdrawal of the earlier 
arbitrator appointed by the parties with mutual agreement, 
Sec:tion 15(2) of the Act would be attracted and a substitute 
arbitrator could be appointed according to 'Rules' that govern 
F the field. In the instant case, it was the agreement between 
the
parties which is treated as 'Rules' for the purposes of 
Section 15(2) of the Act. My learned Brother has given cogent 
reasons while interpreting the said provision of law in the 
aforesaid manner, which, inter alia, includes reliance upon the 
G earlier judgment of this Court in ACC Ltd. v. Global Cements 
Ltd. 1 
2. While concurring with the judgment authored by my 
learned Brother, I would like to give some additional reasons 
H 
1 c2012i 1sec11
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
97 
LULLA [R. F. NARIMAN, J.] 
in support, which are as under: 
A 
Section 15(2) of the Act is also to be interpreted 
keeping in mind the ethos of the arbitration generally and also 
in the light of the spirit behind Section 89 of the Code of Civil 
Procedure, 1908 (for short, 'CPC') in particular. No doubt, in 
B 
the instant case, there was no arbitration agreement between 
the parties when the suit was filed by the respondent herein. 
However, in the said suit which was filed, parties arrived at an 
agreement whereby it was agreed between them that the 
matter be decided through arbitration and not by the court of C 
law. 
3. It was held in P. Anand Gajapati Raju & Ors. v. P. V.G 
Raju (D) & Ors. 2 that the Arbitration Act governs the case 
where arbitration is agreed upon before a pending suit by all D 
parties. This Act, however, does not contemplate a situation 
as in Section 89 of the CPC where the Court asks the parties 
to choose one or the other ADR methods, including arbitration,. 
and the parties choose arbitration as their option. At the same 
time, once the parties agree for arbitration under the Act and E 
the matter is referred to arbitration, thereafter the situation is 
almost at par with what is contemplated in Section 89 of the 
CPC, to which aspect we shall advert little later. What is 
emphasized at this stage is that in a suit which is filed in the 
Court, when the parties agree for deciding the disputes by F
means of arbitration, they have obviously agreed that the court 
of law may stay its hands of such a dispute as the parties have 
chosen alternate method, namely, one of the forms of ADR. 
4. It. hardly needs to be emphasized that the parties G 
choose arbitration as a dispute resolution mechanism keeping 
in view that it offers a timely, private, less formal and cost 
effective approach for the binding determination of disputes. 
It provides the parties with greater control of the process than 
2 c2000) 4 sec 539 
H
98 
SUPREME COURT REPORTS 
[2015) 12 S.C.R. 
A a Qourt hearing. The non-judicial nature of arbitration makes it 
both attractive and effective for several reasons. Apart from it 
being cost effective and speedier method of settling the 
disputes when compared with court adjudicatory method, the 
confidentiality of the arbitration process may appeal to those 
B wl;lo do not wish the terms of settlement to be known. Therefore, 
first thing that has to be kept in mind, when in a pending suit 
the parties agree for reference to arbitration, though there was 
no arbitration agreement when the suit was filed, is that they 
have consciously preferred arbitration rather than the court 
C process. It, thus, follows that the intention is to settle the 
disputes through arbitration and not the Court. 
5. Secondly, in such a situation, Section 89 of the CPC 
also springs into action, which provides for 'settlement of 
D disputes outside the Court'. As per this provision, where it 
appears to the Court that there exists elements of a settlement 
which may be acceptable to the parties, the Court shall 
formulate the terms of settlement and give them to the parties 
fo,r their observ~tions and after receiving the observations of 
E the parties, the Court may re-formulate the terms of a possible 
F 
settlement and refer the same for -
a) arbitration; 
b) conciliation; 
c) judicial settlement, including settlement through /ok 
adalat; or 
d) mediation. 
6. It has been noticed by this Court
in some earlier 
G judgments that Section 89 of the CPC is not very happily 
worded. Be that as it may, Section 89 provides for alternate 
methods of dispute resolution, i.e. those methods which are 
alternate to the Court and are outside the adjudicatory function 
of the Court. One of them with which we are concerned is the 
H settlement of dispute through arbitration. Insofar as reference
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
99 
LULLA [R. F. NARIMAN, J.] 
of dispute to arbitration is concerned, it has been interpreted A 
by this Court that resort to arbitration in a pending suit by the 
orders of the Court would be only when parties agree for 
settlement of their dispute through arbitration, in contra-
distinction to the Alternate Dispute Mechanism (for short, 'ADR') 
through the process of mediation where the Judge has the B 
discretion to send the parties for mediation, without even 
obtaining the consent of the parties. Thus, reference to 
arbitration is by means of agreement between the parties. It 
is not in dispute that there was an agreement between the 
parties for reference of dispute to the arbitration and it was so C 
referred. 
7. On making such an application based on arbitration 
agreement between the parties, order is passed in terms of 
Section 89 of the CPC referring the matter to arbitration. The D 
purpose for enacting Section 89 is to encourage the parties 
to the dispute to settle their dispute by adopting one of the four 
methods provided therein. Not only that it results in lessening 
the burden of the court, experience has shown that many cases 
which come to the Court can be resolved more suitably and 
E 
with better outcomes if the methods of ADR prescribed in 
Section 89 of the CPC are resorted to. It is here that depending 
upon the nature of dispute and relationship between the parties 
etc., the Court may suggest a particular
form of ADR, whether 
arbitration or mediation etc. can be chosen. Therefore, what F 
is to be kepf in mind is that once arbitration agreement was 
entered into between the parties, that too in a pending suit, 
tl)e intention of the parties was to settle the matter through 
arbitration and not to come back to the Court again for decision 
of the same dispute by court adjudicatory process. 
G 
8. It is in this backdrop we have to decide the applicability 
of Section 15(2) of the Act when the arbitrator to whom the 
matter was referred earlier with the consent of the parties 
withdraws therefrom. 
· 
H
100 
SUPREME COURT REPORTS 
[2015] 12 S.C.R. 
A 
9. The aforesaid two reasons given by me, in addition to 
the reasons already indicated in the judgment of my learned 
Brother, would clearly demonstrate that provisions of Section 
15(2) of the Act require purposive interpretation so that the 
aforesaid objective/ purpose of such a provision is achieved 
B thereby. The principle of 'purposive interpretation' or 'purposive 
construction' is based on the understanding that the Court is 
supposed to attach that meaning to the provisions which serve 
the 'p1J1rpose' behind such a provision. The basic approach is 
to ascertain what is it designed to accomplish? To put it 
C otherwise, by interpretative process the Court is supposed to 
realise the goal that the legal text is designed to realise. As 
Aharan Barak puts it: 
"Purposive interpretation is based on three components: 
D 
f~nguage, purpose, and discretion. Language shapes 
the range of semantic possibilities within which the 
interpreter acts as a linguist. Once the interpreter defines 
the range, he or she chooses the legal meaning of the 
text from among the (express or implied) semantic 
E 
possibilities. The semantic component thus sets the limits 
of interpretation by restricting the interpreter to a legal 
meaning that the text can bear in its (public or private) 
language. "3 
F 
10. Of the aforesaid three components, namely, language, 
purpose and discretion 'of the Court', insofar as purposive 
component is
concerned, this is the ratio juris, the purpose at 
the core of the text. This purpose is the values, goals, interests, 
policies and aims that the text is designed to actualize. ft is 
G the function that the text is designed to fulfil. 
11. We may also emphasize that the statutory 
interpretation of a provision is never static but is always 
dynamic. Though literal rule of interpretation, tiff some time 
ago, was treated as the 'golden rule', it is now the doctrine of 
H 
3 Aharan Barak- Purposive Interpretation in Law
SHAILESH DHAIRYAWAN v. MOHAN BALKRISHNA 
101 
LULLA [R. F. NARIMAN, J.] 
purposive interpretation which is predominant, particularly in 
A 
those cases where literal interpretation may not serve the 
purpose or may lead to absurdity. If it brings about an end which 
is at variance with the purpose of statute, that cannot be 
countenanced. Not only legal process thinkers such as Hart 
and Sacks rejected intentionalism as a grand strategy for B 
statutory interpretation, and in its place they offered 
purposivism, this principle is now widely applied by the Courts 
not only in this country but in many other legal systems as well. 
12. Dynamic statutory interpretation also persuades us C 
to take into consideration ethoes of arbitration process, 
including the spirit behind Section 89 of the CPC. 
13. Once we keep in mind the aforesaid fundamental 
aspects of the arbitration, the irresistible conclusion would be 
that whenever parties agree for mediation, and even name a D 
specific arbitrator with no specific provision for appointment 
of another arbitrator on the recusal/withdrawa.1 of the said 
arbitrator, the said omission is made up by Section 15(2) of 
the Act and unless arbitration agreement between the parties 
provides a categorical prohibition or debarment in resolving a E 
question or dispute or difference bet:Ween the parties by a 
substitute arbitrator in case of death or the named arbitrator 
or non-availability of the said arbitrator, Courts have the power 
to
appoint substitute arbitrator, which power is given by Section 
F 
15(2) of the Act as this provision is to be given liberal 
interpretation so as to apply to all possible circumstances 
under which the mandate of the earlier arbitrator may be 
terminated. 
14. The aforesaid are my additional grounds to support G 
the view taken by my learned Brother, thus, dismissing the 
appeal of the appellant herein. 
Devika Gujral 
Appeal dismissed.