India: Appointment Of Arbitrator By A Party During Pendency Of Section 11(6) Petition: Hon'ble Supreme Court Provides An Exception To The Rule

INTRODUCTION

Indian courts have constantly reiterated that the principle of party autonomy is the 'brooding and guiding spirit'¹ of arbitration. A superficial reading of these words may imply a complete absence of judicial intervention in the appointment of the arbitrators, however, certain provision of the Arbitration and Conciliation Act, 1996 (the Act) provides for the same where guidance from the courts will further the cause of expeditious and just resolution of disputes.

Incipiently, Section 11 of the Act lays down the procedure for the appointment of arbitrators. While the first right of appointment rests with the parties, if they fail to act or appoint the arbitrator(s) as per due procedure, the court(s) can be approached for the same purpose. The right of appointment of the arbitrator, then, resides with the court/s or the person designated by it.

In its recent judgment in 'M/s. Durga Welding Works vs. Chief Engineer, Railway Electrification, Allahabad and Anr'², the hon'ble Supreme Court (the Court) laid down an exception to the general rule under which a party was free to appoint an arbitrator even when a petition for appointment of arbitrator under Section 11 (6) of the Act had been filed. This article attempts to analyse the aforementioned judgement of the hon'ble Court.

FACTS OF THE CASE

While the facts of the present case were not disputed, their discussion is apposite to understanding the Court's rationale. In 2006, pursuant to the acceptance of the tender bid by M/s. Durga Welding Works (the Appellant), the parties entered into a commercial contract containing a clause for referring the disputes arising out of it to arbitration. On 03.08.2009, pursuant to some unsettled claims, a notice invoking arbitration, and for the appointment of an arbitrator, was duly served to the Chief Engineer, Railway Electrification, Allahabad and other relevant authorities (the Respondents), by the Appellant. As the Respondents failed to appoint an arbitrator within the prescribed time limit, the Appellant filed a petition under Section 11 (6) of the Act in the High Court of Orrisa. The Respondent, however, was not notified about this Petition and no notice with respect to this petition was served to the Respondents.

Subsequently, the Respondents replied to the notice regarding the appointment of arbitrators and required the Appellant to select two persons from a panel of four, being proposed by Respondents. This, in turn, compelled the Appellant to file another arbitration petition seeking restraint against the Respondents from appointing arbitrator. In this petition too, as in the previous petition under Section 11(6) of the Act, no further action was taken by the Appellant.

Interestingly, it was at this point that the Appellant proceeded to select the arbitrator from the list of arbitrators suggested by the Respondents, in consequence of which an arbitral tribunal was constituted. Soon thereafter, the Statement of Claim and Defence were also filed by the respective parties. Thereafter, the Appellant raised an objection before the arbitral tribunal on the ground that the tribunal was not appointed within the appropriate legal timeframe and that the tribunal did not possess the requisite authority to pass an award. After this application was dismissed, the Appellant decided not to participate in further arbitral proceedings which led to an ex-parte arbitral award being passed on 21.06.2013, rejecting the claims of Appellant. 

Astonishingly, after passing of the ex-parte arbitral award, notices in the Section 11 (6) petition filed by the Appellant were issued in 2016 and the petition was dismissed by the Orissa High Court in the facts and circumstances of the case by its order dated 26.07.2019, with liberty to Appellant to submit objections against ex-parte award dated 21.06.2013. The Appellant thereafter, approached the hon'ble Supreme Court against the dismissal of its Section 11(6) Application.

THE HON'BLE COURT'S ANALYSIS

At the very outset of its analysis, the hon'ble Court took note of the law as it stands on the subject matter of appointment of an arbitrator. Referring to the precedents set by the Supreme Court in the cases of Datar Switchgears Ltd. Vs. Tata Finance Ltd. & Anr³ and Punj Lloyd Ltd. Vs. Petronet MHB Ltd⁴, the bench noted that "once an application under Section 11(6) of the Act has been filed for appointment of an Arbitrator before the High Court, the Respondents forfeited their right to appoint an Arbitrator and the High Court alone holds jurisdiction to appoint an Arbitrator in exercise of power under Section 11(6) of the Act". The Court further noted that the Respondents had not disputed the fact that they acted on the appointment of Arbitrator only after the petition under Section 11(6) of the Act was filed by the Appellant.

Pertinently, in view of the law as its stands, the arbitral tribunal did not have jurisdiction to entertain the dispute between the parties. However, the hon'ble Court found that the peculiar facts of the case were pertinent and merited special consideration.

The Court took note of the Appellant's failure to notify the opposite party in its arbitration petition. The acts of the Appellant to select names of arbitrators from a panel suggested by Respondents, was also taken note of. In the factual backdrop of the case, the Court observed that, after the initiation of arbitral proceedings, the Appellant actively participated in it by submitting the Statement of Claim. It was also noted that the notices in Section 11(6) petition were issued to the Respondents after three years of the passing of the ex-parte award. Consequently, the hon'ble Court held, while dismissing the Appeal, that even though the Respondents had forfeited their right to appoint an arbitrator, the circumstances of the case show that the High Court was not in error in dismissing the application under Section 11(6). 

CONCLUSION

The hon'ble Supreme Court, vide this decision, has re-emphasized the very principle which we referred to at the beginning of the present article i.e., – Party Autonomy. In consonance with the legal truism that parties have the right to determine the conditions of their reference to arbitration, the Appellant, by its actions, had shown their consent/agreement with the valid constitution of the tribunal and its jurisdiction for passing an award in the dispute between the parties. Through the present judgment, the hon'ble Court has carved out the exception to the settled law that after filing of Section 11(6) Application, the right of opposite party to appoint arbitrator stands forfeited.

Footnotes

1. PASL Wind Solutions Private Limited v. GE Power Conversion India Private Limited; 2021 SCC OnLine SC 331.

2. Civil Appeal No(S).54 of 2022

3. 2000(8) SCC 151

4. 2006(2) SCC 638

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