In India, Section 11(6) of the Arbitration and Conciliation Act, 1996 ("A&C Act"), addresses the appointment of arbitrators when parties cannot agree on a choice or mechanism for their selection. This provision empowers the Chief Justice of the High Court or the Supreme Court, depending on the case, to appoint an arbitrator or an arbitral tribunal. The scope of Section 11(6) involves the Court's role in ensuring that an arbitration agreement is honored and that the appointment process is handled fairly.
Last week, the scope of Section 11(6) of the A&C Act was examined by Delhi High Court in the case of Hitesh Chhabra & Anr. Vs Sandeep Chhabra[1], wherein in view of the disputes arising between the partners of a partnership firm, petition was filed by petitioners under Section 11(6) of the A&C Act for reference of the disputes between the parties to arbitration. It was informed by petitioners before the Court that the Partnership Deed dated 22 April 2006, executed between the petitioners and the respondent envisaged resolution of disputes by arbitration mentioning that any controversy or claim arising out of or relating to the contract or breach shall be settled by Arbitration under the Arbitration Act then in force and that the decision given thereunder shall be binding on all the partners.
As disputes had arisen among the parties, the petitioners, by notice dated 16 May 2024 under Section 21 of the A&C Act, invoked Clause 14 of the Partnership Deed and sought reference of the disputes to arbitration. The said request for appointment of an arbitrator was opposed by the Counsel for the respondent who submitted that the notice for invocation of arbitration did not set out the particulars of the petitioners' claims and merely baldly averred that there were disputes between them.
The High Court, however, allowed the petition for appointment of an arbitrator by observing that the recent decision of the Supreme Court in SBI General Insurance Co Ltd v. Krish Spinning[2] has restricted the scope of examination by a Court exercising jurisdiction under Section 11(6-A) of the A&C Act. The Court implied that the legislative intent underlying the A&C Act is party autonomy and minimal judicial intervention in the arbitral process. Under this regime, once the arbitrator is appointed, or the tribunal is constituted, all issues and objections are to be decided by the Arbitral Tribunal. The Court is only required to examine whether there exists an arbitration agreement between the parties and nothing else. The only other aspect that the Court exercising jurisdiction under Section 11(6) can examine is whether the petition under Section 11(6) has been filed within three years of issuance of Section 21 notice invoking arbitration. That condition is found to be satisfied in the present case.
The High Court thus exercised its jurisdiction under Section 11(6-A) of the A&C Act and accordingly, appointed an arbitrator to arbitrate on the disputes between the parties under the aegis of the Delhi International Arbitration Centre (DIAC).
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The judgment is significant as the issue of the scope of inquiry for the appointment of an arbitrator under Section 11(6) of A&C Act has been a contentious issue before the Courts in India for long.
Under Section 11(6) of the A&C Act, as it stood prior to Amendment made in the year 2016, on an application made by any of the parties, the Chief Justice of the High Court used to appoint an arbitrator for adjudication. Initially, the line of decisions ruled that the appointment of arbitrator was an administrative order passed by the Chief Justice and that the Chief Justice or his designate did not act as a judicial authority while appointing an arbitrator. However, in the year 2005, a Constitution Bench of Seven Judges in SBP and Co. v. Patel Engineering Limited and Another[3], made a departure from the previous judgments and held that the order passed by the Chief Justice is not administrative but judicial in nature and hence the same is subject to appeal under Article 136 of the Constitution of India. The Court further held that in deciding the appointment of an arbitrator, the Chief Justice could first by way of a preliminary decision decide the court's own jurisdiction of that matter to entertain the arbitration petition, the existence of a valid arbitration agreement and the subsistence of a "live claim" i.e. the claim that 11 is not barred by limitation". As the said judgment was found to causing delays in the disposal of Section 11 petitions, Section 11(6-A) was introduced in the A&C Act in the year 2015 to limit the scope of inquiry by the Courts in India under Section 11 only to the extent of determining the "existence" of an arbitration agreement. This intention was acknowledged and given effect by the Supreme Court of India in the decision in Duro Felguera vs. Gangavaram Port Ltd.[4] wherein it was held that the inquiry under Section 11 only entailed an examination whether an arbitration agreement existed between the parties or not and "nothing more or nothing less". Later, the judgment of Mayavati Trading Private Limited v. Pradyut Deb Burman[5] reiterated the view taken in Duro Felguera judgment and held that post the 2015 amendment to the A&C Act it was no more open to the Court while exercising its power under Section 11 of the A&C Act to go into the question of whether "accord and satisfaction" had taken place. The decision of the Supreme Court in Vidya Drolia & Ors v. Durga Trading Corporation[6] although adopted the view taken in Mayawati Trading (supra) yet it provided that in exceptional cases, where it was manifest that the claims were ex-facie time barred and deadwood, the Court could interfere and refuse reference to arbitration. The said view in the context of "accord and satisfaction" was adopted in NTPC v. SPML[7] wherein the "eye of the needle" test was elaborated. The said position was confirmed by Supreme Court in the latest judgment of SBI General Insurance Co Ltd v. Krish Spinning[8].
Interestingly, Section 11(6-A) was omitted by the 2019 amendment to the A&C Act on the basis of a report of the High-Level Committee to Review the Institutionalisation of Arbitration Mechanism in India. However, in the absence of the omission being notified, Section 11(6-A) of the A& Act continues to remain on the statute book and thus has to be given effect as such.
Thus, the latest position after the decisions is that ordinarily, the Court while acting in exercise of its powers under Section 11 of the A&C Act will only look into the existence of the arbitration agreement.
Thus, because of the legislative mandate contained in Section 11(6-A), the Court is now required only to examine the existence of the arbitration agreement. All other preliminary or threshold issues are left to be decided by the arbitrator under Section 16, which enshrines the kompetenz-kompetenz principle which implies that the Arbitral Tribunal is empowered and has the competence to rule on its own jurisdiction, including determining all jurisdictional issues, and the existence or validity of the arbitration agreement.
Originally published in Lexology.
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