By: Pranav V Kamnani
Editor’s Note: This article forms a part of our theme-based blog posts.
The appointment of an arbitrator is a crucial and mandatory procedural requirement to set the arbitral process into motion. As one may already know, the Arbitration and Conciliation Act, 1996 (the “Act”) was amended by the Arbitration and Conciliation Amendment Act, 2015 (the “2015 Amendment Act”) and the Arbitration and Conciliation Amendment Act, 2019 (the “2019 Amendment Act”) to accelerate India’s vision of becoming an arbitration hub. Consequently, the 2015 Amendment Act and the 2019 Amendment Act have also significantly changed the procedural law for the appointment of the arbitrator.
‘Party autonomy’ being a cardinal principle of any arbitration gives the parties to an arbitration a free hand to determine the number of arbitrators to be appointed to a Tribunal provided that the number of arbitrators is not even. However, if the parties to an arbitration fail to determine the number of arbitrators, the arbitral tribunal shall comprise of a sole arbitrator. Consequently, the parties are also free to decide upon the procedure for the appointment of the member(s) of the arbitral tribunal and a party may approach the High Court or the Supreme Court (High Court, if the arbitration is a domestic arbitration and Supreme Court if the arbitration is an International Commercial Arbitration) under Section 11(6) or Section 11 (9) (as applicable) of the Act if the parties fail to act in accordance with the agreed procedure, if the two arbitrators fail to agree upon the appointment of the third arbitrator or if a person/institution fails to perform any function entrusted to him/her/it under that procedure.
If no procedure for appointment has been agreed to between the parties for the appointment of the member(s) of the arbitral tribunal, the High Court or the Supreme Court (as the case may be) shall appoint the arbitrator upon the request of either party, in accordance with the procedure laid down in Section 11 (4) if the arbitral tribunal is to consist of three arbitrators or in accordance with procedure laid down in Section 11 (5) if the arbitral tribunal comprises of a sole arbitrator.
Therefore, Section 11 of the Act envisages a situation where a party agrees to arbitrate a dispute but refuses to appoint an arbitrator or where the two party-appointed arbitrators fail to agree upon the appointment of the third arbitrator.
Having analyzed the scope and ambit of Section 11 in a nutshell, the author of this article/ post intends to examine the necessary implication and consequences of the insertion of Section 11(6A) by the 2015 Amendment Act and the deletion of Section 11(6A) by the 2019 Amendment Act.
Before the insertion of Section 11(6A) by the 2015 Amendment Act, a majority of the seven-judge Constitution Bench decision of the Supreme Court in the case of SBP Co. v. Patel Engineering Ltd. and Another (“SBP”) while overruling Konkan Railway Corporation Ltd. v. Mehul Construction Co., held that the appointment of an arbitrator is a judicial function and not an administrative function and it also held that the Court need not merely confine itself to the existence of the arbitration agreement or the existence of the condition for the exercise of the respective court’s power but may also go into preliminary questions such as limitation and the stale nature of the claims, accord, and satisfaction, qualifications of the arbitrator, etc.
Consequent to SBP, the Supreme Court in ONGC Mangalore Petrochemicals v. ANS Construction Limited and Another, a case that arose before the insertion of Section 11(6A) dismissed a Section 11 petition on the ground that accord and satisfaction had taken place pursuant to a settlement agreement.
The decision in SBP diluted the principle of ‘Kompetenz Kompetenz’ embodied in Section 16 of the Act which lead to the 246th Law Commission Report examining these decisions and concluding that judicial intervention in a Section 11 application should be restricted to situations where the respective Court finds that the arbitration agreement does not exist or is null and void.
Consequent to the 246th Law Commission Report the law that was laid down in SBP with respect to the scope of intervention by the respective court under a Section 11 application had been legislatively overruled by the insertion of Section 11(6A) in the 2015 Amendment Act.
Despite the insertion of Section 11(6A) in the 2015 Amendment Act, the Supreme Court in United India Insurance Company Limited vs. Antique Art Exports Private Limited, (“United India Insurance”) set aside the a judgment of the Delhi High Court appointing an arbitrator on the ground that the Respondent (before the Supreme Court and applicant before the High Court) had signed a discharge voucher without any demur or protest which led to the claims being settled by accord and satisfaction. The Supreme Court was therefore of the view that the Delhi High Court had appointed the arbitrator without any supporting evidence on record to prove that prima facie an abatable dispute existed between the parties. However, the decision in United India Insurance was recently over-ruled for not having laid down the correct law by a three-judge bench of the Supreme Court in M/s Mayavati Trading Pvt Ltd. v. Pradyuat Deb Burman (“Mayavati”).
Additionally, the Supreme Court in Garware Wall Ropes v. Coastal Marine Constructions & Engineering Ltd (“Garware Wall Ropes“)and in M/s. Uttarakhand Purv Sainik Kalyan Nigam Limited v. Northern Coal Field Limited has reinforced the principle of ‘Kompetenz Kompetenz’ enshrined in Section 16 of the Act by holding that the Supreme Court, or, as the case may be, the High Court while considering any application under Section 11(4) to 11(6) is to confine itself to the examination of the existence of an arbitration agreement and leave all other preliminary issues to be decided by the arbitrator. The 2019 Amendment Act while promoting arbitral institutions has sought to establish the Arbitration Council of India entrusted with the duty to grade arbitral institutions amongst other duties and functions.
The 2019 Amendment Act has inserted Section 11 (3A) which gives the Supreme Court the power to designate arbitral institutions which have been graded by the Arbitration Council of India under Section 43-I for the purposes of the Act and if no arbitral institution is available within the jurisdiction of the High Court then the High Court would maintain a panel of arbitrators for discharging the functions and duties of the arbitral institutions. A reading of the amended Section 11(4), 11(5) and 11(6) also suggests that the appointment of the arbitrator shall be by the arbitral institution designated by the High Court or the Supreme Court (as the case may be) and Section 11 (6A) has been omitted by the 2019 Amendment Act is capable of raising serious doubts with respect to the law as laid down in SBP, Garware Wall Ropes and Mayavati. The doubts that the omission of Section 11 (6A) is capable of nurturing are:
- Does the omission reinstate the earlier position of law as laid down in SBP? or
- Does the arbitral institution examine the validity and existence of the arbitration agreement? or
- Does the arbitral tribunal examine the validity and existence of the arbitration agreement during the phase of jurisdiction and admissibility?
However, it is pertinent to note that despite the 2019 amendments, only certain sections of the amendment have been brought into force and neither Part IA nor Section 11 have been notified to be brought into force. Therefore, the law relating to the appointment of an arbitrator that is applicable today is the law as laid down in, Garware Wall Ropes and Mayavati.
Despite the amended Section 11 not being brought into force, the Supreme Court in Mayavati while analyzing the Justice B.N Srikrishna Committee Report has opined that Section 11(6A) has been omitted because appointment of arbitrators is to be done by arbitral institutions designated by the Supreme Court or the High Court (as the case may be) without determining the existence of the arbitration agreement as the arbitrator is not to be appointed by the High Court or Supreme Court which is the current scheme for appointment till the amendment of Section 11 and Part IA by the 2019 Amendment Act are notified to be brought into force. While the decision in Mayavati does clarify that the reason for omitting Section 11(6A) is because the appointment is to be done by the arbitral institution, the ambiguity that still remains is who shall decide upon objections in relation to the validity and existence of the arbitration agreement?
While the amendments in the 2019 Amendment Act with respect to the appointment of the arbitrator and Part IA of the Act seems promising in letter and spirit, only time can determine the practicality and feasibility of the 2019 Amendment Act which hinges on whether the Ministry of Law and Justice can deliver on India’s vision to become an arbitration hub.
– Pranav is currently an associate in the Dispute Resolution Team of Dua Associates.