India: Appointment Of Arbitrator Under Section 11 (4), (5) & (6) Of The Arbitration Act: A Never-Ending Saga Of Judicial Interpretation

Last Updated: 4 October 2011

Article by Vishal Bhat, Associate1

Introduction

The docket of the Supreme Court has been growing larger and larger by the year and this has been affecting its quality and efficacity in the delivery of justice. It has time and again been articulated by a number of jurists in this country that the Supreme Court should curtail its wide jurisdiction and confine itself to a set of core issues. In several cases before the Apex Court, it has often been observed that the area of controversy is limited, law well settled and does not require attention of the Apex Court of this country to decide such matter. Yet, it has time and again been noticed that the Apex Court adjudicates on the issue and delivers judgments that run into several pages where no great proposition of law requiring the attention of the Supreme Court is laid down.

One such area of concern is the field of Arbitration which is now a growing and fertile field of litigation for lawyers. The Arbitration and Conciliation Act of 1996 was the result of recommendations for reform,2 particularly in the matter of speeding up the arbitration process3 and reducing intervention by the court and reducing litigation in the country.4 The 1996 Act is also no different from the 1940 Act. Even 14 years after its enactment, we find every year that there are no less than a 100 cases of the Supreme Court reported on arbitration and especially appointment of Arbitrator under Sec. 11 (4) , (5) & (6) of the Arbitration Act, 1996.5 This has been adding to the existing burden of the Court and in spite of that, a large number of appeals are filed in the Supreme Court.

Appointment of Arbitrator by Chief Justice

The Parties to an arbitration are free to agree on the procedure for appointing of arbitrators.6 The situations suitable for intervention of the Chief Justice or his designate naming an arbitrator are:

  1. The procedure agreed is not followed;
  2. There is no agreement on procedure.

In both situations, the intervention of the Chief Justice or his designate7 are necessary. Under the first situation, if a party fails to act under such procedure, or the parties (or the two arbitrators, one appointed by each party) are unable to reach an agreement expected of them under such procedure, or a third party (including an institution) fails to perform any function entrusted to it under such procedure, any part may request the Chief Justice or his designate to take necessary measure, unless such other measure have been provided in the agreement for securing such appointment.8

Contentious Issues under Chief Justice's Powers

In a petition moved under Section 11 of the 1996 Act, the Supreme Court has in a catena of cases held that the broad issues which can be decided by the Chief Justice are as follows9

  1. Territorial Jurisdiction;10
  2. Existence of an Arbitration Agreement;11
  3. Appointment of an Arbitrator;12
  4. Subsistence of an Arbitrable Dispute;13

Appointment of an Arbitrator: Administrative or Judicial

Section 11 provides for the procedure of appointment of Arbitrator by the Chief Justice. S. 11 (7) of the 1996 Act provides that 'a decision on a matter entrusted by ss. (4) or ss.(5) or ss.(6) to the Chief Justice or the person or institution by him is final.' This led to a number of disputes regarding the nature of the order passed by the Chief Justice on appointment of Arbitrators and whether the same was judicial or administrative in nature?

(i) Initial Interpretation: Order is Administrative

Amongst some of the earliest interpretations of the provision of S.11(7) was the case of Sundaram Finance Ltd v. NEPC India Ltd.14 In this case it was held "Under the 1996 Act appointment of arbitrator/s is made as per the provision of Section 11 which does not require the Court to pass a judicial order appointing arbitrator/s."  This decision was reiterated in the case of Ador Samia Private Ltd v. Peekav Holdings Limited,15 where it was held by the Hon'ble Supreme Court that "It is now well settled that petition under Article 136 can lie for challenging a judgment, decree, determination, sentence or order in any cause of matter passed or made by any court or tribunal in the territory of India. As the learned Chief Justice or his designate under Section 11(6) of the Act acts in administrative capacity as held by this Court in the aforesaid decision it is obvious that this order is not passed by any court exercising any judicial function nor it is a tribunal having trappings of a judicial authority... In view of this settled legal position therefore, there is no escape from the conclusion that orders passed by the learned Chief Justice under Section 11(6) of the Act being of an administrative nature cannot be subjected to any challenge directly under Article 136 of the Constitution of India."

(ii) Doubting Thomas

This view of the Supreme Court in Ador Samia16 was referred by a two judge bench of the Supreme Court referred for re-consideration by a larger bench. The decision of the bench of three judges in Konkan Railway Corporation Ltd & Ors v. Mehul Construction Co.,17 affirmed the view taken in Ador Samia,18 namely, that the order of the Chief Justice or his designate in exercise of the power under S.11 of the Act was an administrative order and that such an order was not amenable to the Jurisdiction of the Supreme Court under Article 136. The effect of this judgment was that the decision of the Chief Justice being an administrative order was now amenable to the Writ Jurisdiction under Article 226 of the Constitution and hence, as one may say "The High Courts were flooded with Writ Petitions challenging the appointment of the Arbitrators."

Thereafter, in Konkan Railway Corporation Ltd Anr v. Rani Construction Pvt. Ltd.,19 a bench of two learned judges of the Supreme Court referred to a larger bench the decision of the three judge bench for re-consideration, which was taken up for hearing in the case of by a bench of five judges in the case Konkan Railway Corporation Ltd Anr v. Rani Construction Pvt. Ltd.20 The issue before the Court may be summed up in the following words of the referral order "It appears that the Chief Justice or his nominee, acting under Section 11 of the Arbitration and Conciliation Act, 1996, have decided contentious issues arising between the parties to an alleged arbitration agreement and the question that we are called upon to decide is whether such an order deciding issues is a judicial or an administrative order?"

The Hon'ble Supreme Court after examining the intricacies involved and after careful examination of the case laws held that "In conclusion, we hold that the order of the Chief Justice or his designate under Section 11 nominating an arbitrator us not an adjudicatory order and the Chief Justice or his designate is not a tribunal. Such an order cannot properly be made the subject of a petition for special leave to appeal under Article 136. The decision of the three Judge Bench in Konkan Railway Corporation & Ors v. Mehul Construction Co. is affirmed."21

(iii) Final Position

This decision of the Supreme Court was again challenged in challenged in the case of S.B.P. & Co v. Patel Engineering & Anr.,22 where the question before the Hon'ble Supreme Court was the nature of the function of the Chief Justice or his designate under S. 11 of the Arbitration and Conciliation Act, 1996. The main issues which were examined in this case are:

  1. What is the nature of the function of the Chief Justice or his designate under S. 11 (6) of the Arbitration and Conciliation Act, 1996?
  2. What is the scope and power of the Chief Justice under S. 11?

The Hon'ble Supreme Court examined the aforementioned issues in detail and held that the power exercised by the Chief Justice or his designate under S. 11 of the Act is a judicial power and not an administrative power. The ratio decidendi of the aforementioned case is reproduced for ready reference:

  1. The power exercised by the Chief Justice of the High Court or the Chief Justice of India under S. 11(6) of the Act is not an administrative power. It is a judicial power.
  2. The power under S. 11(6) of the Act, in its entirety, could be delegated, by the Chief Justice of the High Court only to another judge of that court and by the Chief Justice of India to another judge of the Supreme Court.
  3. In case of designation of a judge of the High Court or of the Supreme Court, the power that is exercised by the designated, judge would be that of the Chief Justice as conferred by the statute.
  4. The Chief Justice or the designated judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. These will be, his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the judge designated would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of S. 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the judge designate.
  5. Designation of a district judge as the authority under S. 11(6) of the Act by the Chief Justice of the High Court is not warranted on the scheme of the Act.
  6. Once the matter reaches the arbitral tribunal or the sole arbitrator, the High Court would not interfere with orders passed by the arbitrator or the arbitral tribunal during the course of the arbitration proceedings and the parties could approach the court only in terms of Section 37 of the Act or in terms of S. 34 of the Act.
  7. Since an order passed by the Chief Justice of the High Court or by the designated judge of that court is a judicial order, an appeal will lie against that order only under Article 136 of the Constitution of India to the Supreme Court.
  8. There can be no appeal against an order of the Chief Justice of India or a judge of the Supreme Court designated by him while entertaining an application under S. 11(6) of the Act.
  9. In a case where an arbitral tribunal has been constituted by the parties without having recourse to S. 11(6) of the Act, the arbitral tribunal will have the jurisdiction to decide all matters as contemplated by S. 16 of the Act.
  10. Since all were guided by the decision of this Court in Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd23 and orders under S. 11(6) of the Act have been made based on the position adopted in that decision, we clarify that appointments of arbitrators or arbitral tribunals thus far made, are to be treated as valid, all objections being left to be decided under S. 16 of the Act. As and from this date, the position as adopted in this judgment will govern even pending applications under Section 11(6) of the Act.
  11. Where District Judges had been designated by the Chief Justice of the High Court under S. 11(6) of the Act, the appointment orders thus far made by them will be treated as valid; but applications if any pending before them as on this date will stand transferred, to be dealt with by the Chief Justice of the concerned High Court or a Judge of that court designated by the Chief Justice.
  12. The decision in Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd.,24  is overruled.

Effect of judgment in S.B.P. & Co v. Patel Engineering & Anr. (SBP)

One of the most important effects of the judgment was the prospective ruling direction, which provided that any appointment of an arbitrator under S. 11 made prior to 26.10.2005 had to be treated as valid and objections including the existence or validity of the arbitration agreement, have be decided by the arbitrator under S.16 of the Act. The legal position enunciated by SBP would govern only application to be filed under S.11 of the Act from 26.10.2005 as also applications under S.11 (6) of the Act pending as on 26.10.2005 where arbitrator was not appointed. The decision of the Hon'ble Supreme Court was reiterated in the case of Maharishi Dayanand University v. Anand Coop. L/C Society Ltd & Anr.,25 wherein it was observed by the Court that if an appointment of an arbitrator has been made before 26.10.2005, that appointment has to be treated as valid even if it challenged before this Court.

The next issue which has been raised in many an appeal i.e. who should decide whether there is an arbitration agreement or not. Should it be decided by the Chief Justice or his designate before making an appointment of arbitrator under S.11 or the arbitrator who is appointed under S.11 of the Act? This issue is no longer res-integra. Ever since the decision in SBP., it is recognised law, that any question on whether there is an arbitration agreement or not, or whether the party who has applied under S.11 of the Act, is a party to such an agreement, is an issue which has to be decided by the Chief Justice or his designate under S.11 before making appointment of arbitrator.26

Conclusion

The decision of the Supreme Court in SBP was a watershed moment in the history of the Arbitration Act in India. The decision in SBP has gone a long way in clearing many a legal hurdle in appointment of arbitrators under the Act. It has clearly laid down the law applicable to the exercise of powers by the Chief Justice or his designate under S. 11 of the Act.

The aim of this Article would hence be achieved by summarizing the powers of the Chief Justice or his designate under S.11 - his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for exercise of his power and on the qualifications of the arbitrator or arbitrators, and by believing that it has cleared many a doubt on the subject.

Footnotes

1. The author is an LL.M in Business Laws from the National Law School of India University, Bangalore and is an Associate at Vaish Associates.

2. Prior to the promulgation of the 1996 Act the law on arbitration in India was substantially contained in three enactments, namely, The Arbitration Act, 1940, the Arbitration (Protocol and Convention) Act, 1937 and the Foreign Awards (Recognition and Enforcement) Act, 1961. In the Statement of Objects and Reasons appended to the Bill it was stated that the 1940 Act, which contained the general law of arbitration, had become outdated. The said objects and reasons noticed that the United Nations Commission on international Trade Law (UNCITRAL) adopted in 1985 the Model Law on International Commercial Arbitration. The General Assembly had recommended that all countries give due consideration to the said Model Law which, along with the rules, was stated to have harmonised concepts on arbitration and conciliation of different legal systems of the world and thus contained provisions which were designed for universal application. The above said Statement of Objects and Reasons in para 3 states that "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 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".

3. The Supreme Court in Food Corporation of India v. Joginderpal, AIR 1989 SC 1263 observed that the law of arbitration must be `simple, less technical and more responsible to the actual reality of the situations', `responsive to the canons of justice and fair play'.

4. In Guru Nanak Foundations v. Rattan Singh, AIR 1981 SC 2075, the Supreme Court, while referring to the 1940 Act, observed that "the way in which the proceedings under the Act are conducted and without an exception challenged in courts, has made lawyers laugh and legal philosophers weep" in view of "unending prolixity, at every stage providing a legal trap to the unwary."

5. D.V. Subba Rao, "Towards a Final Court that is truly Supreme", AIR 2010 Jour 136, 140.

6. S. 11 (2) of the Arbitration and Conciliation Act, 1996.

7. S. 11 of the Arbitration and Conciliation Act, 1996. under ss. (12) (a) clarifies that in relation to International Arbitration, the reference in the relevant sub-sections to the 'Chief Justice' would mean the 'Chief Justice of India'. Ss. 12 (b) indicates that otherwise the expression 'Chief Justice' shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal Court is situated. 'Court' is defined under S. 2 (e) as the principal Civil Court of original jurisdiction in a district.

8. S. 11 (6) of the Arbitration and Conciliation Act, 1996.

9. In the case of SBP Co v. Patel Engineering Ltd & Anr., (2005) 8 SCC 618 the broad issues which can be decided by the Chief Justice are "his own jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for exercise of his power and on the qualifications of the arbitrator or arbitrators."

10. Anil Kumar v. B.S. Neelkanta, AIR 2010 SC 2715 at para 14 it has been observed that the 'Chief Justice or his designate has to decide the issues if raised, regarding: (i) territorial jurisdiction; (ii) existence of Arbitration Agreement; (iii) Arbitrable Dispute.'

11. A.P.T.D.C v. Pampa Hotels Ltd, AIR 2010 SC 1806

12. Ador Samia Private Ltd v. Peekay Holding Ltd., AIR 1999 SC 3246

13. Sukanya Holdings v. Jayesh H. Pandya, (2003) 5 SCC 531: AIR 2003 SC 2252;

14. [1999] 1 SCR 89 : MANU/SC/0012/1999  

15. AIR 1999 SC 3246. This was a case pertaining to a Special Leave Petition under Article 136 of Constitution of India moved by the petitioner challenging an order of the learned Chief Justice of the High Court of Bombay under Section 11 Sub-section (6) of the Arbitration and Conciliation Act, 1996 

16. Supra note 12

17. AIR 2000 SC 2821: MANU/SC/0523/2000

18. Supra note 12

19. (2000) 8 SCC 159

20. MANU/SC/0053/2002 : AIR 2002 SC 778 : (2002) 2 SCC 388

21. AIR 2000 SC 2821: MANU/SC/0523/2000

22. (2005) 8 SCC 618

23. MANU/SC/0653/2000 : (2000) 2 SCC 388

24. Supra note 23

25. 2007 (5) SCC 295: AIR 2007 SC 2441. See also Andhra Pradesh Tourism Development Corpn. v. Pampa Hotels Limited, AIR 2010 SC 1811.

26. National Insurance Co. Ltd v. Boghara Polyfab Pvt Ltd., 2009 (1) SCC 267: AIR 2009 SC 170.

© 2011. All rights reserved with Vaish Associates Advocates, IPR & IT Laws Practice Division
Flat # 903, Indra Prakash Building, 21, Barakhambha Road, New Delhi 110001 (India)

The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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