Arbitration In IndiaAppointment of Arbitrator by Courts

INTRODUCTION

In the current era, Arbitration has predominantly emerged as a judicial-intervention free mode of adjudicating domestic and international disputes of various natures, including commercial disputes, civil disputes, investment disputes, and so on.

Furthering the object of Arbitration to function as an autonomous mode of dispute resolution, the Arbitration and Conciliation Act, 1996 (“the Act”) envisages provisions which enable party autonomy, neutrality and independent decision making.

Arbitration, as a mode of independent dispute resolution, is susceptible to certain drawbacks which impair the ability of the Arbitrator to act in an impartial, neutral or independent manner. Similarly, the conduct of the parties to the Arbitration in some circumstances may hamper, prejudice or result in the failure of the Arbitral proceedings.

To avoid such lapses, the Act empowers the Courts of Law to interfere in the Arbitral proceeding whenever necessary to ensure that the Arbitral proceeding is conducted in consonance with the principles of natural justice.

One such power granted to the Courts under the Act is the power to appoint Arbitrator for the conduct of Arbitration proceeding, when certain situations arise which hinder the ability of the parties to mutually appoint Arbitrator(s).

Notably, the authority of the Courts to appoint Arbitrator under the Act is in accordance with Article 11(3) of the United Nations Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration, 1985.

In continuation of our previous Blog on Appointment of Arbitrator, this Blog shall elaborate upon the Court’s role in the appointment of Arbitrator as laid down by the Act and discuss certain judicial precedents regarding the same.

POWER OF JUDICIAL AUTHORITY TO INTERFERE IN ARBITRABLE MATTERS

According to the non-obstante clause of Section 5 of the Act, a ‘Judicial Authority’ does not have the power to interfere in the matters governed by the Act, except where so provided in the Act.

The term ‘Judicial Authority’ holds significance as it covers not only Courts of law but also Quasi-Judicial Authorities which have jurisdiction under special legislation, such as the National Company Law Tribunal, the Securities and Exchange Board of India, amongst others, as held in Bharat Aluminium Cooperation v. Kaiser Aluminium Technical Service Inc. (2012) 4 SCC 810.

PROVISIONS ENABLING JUDICIAL INTERVENTION FOR THE APPOINTMENT OF ARBITRATOR

Upon commencement of Arbitration, parties to the Arbitration agreement initiate the procedure for appointment of Arbitrator(s) as provided by the Arbitration agreement. As provided in Section 11(2) of the Act, the parties to an Arbitration agreement are at the liberty to mutually agree upon the procedure for appointment and number of Arbitrator(s).

Arbitral Institutions designated by the High Court and the Supreme Court

Sub-section (3A) of Section 11 of the Act, inserted vide the Arbitration and Conciliation (Amendment) Act, 2019, empowers the High Court and the Supreme Court to designate, Arbitral Institutions, from time to time, which the Indian Arbitration Council grades under Section 43-I of the Act.

Provided in case no such graded Arbitral Institution is situated within the territorial jurisdiction of the High Court, the Chief Justice of such concerned High Court may maintain a panel of Arbitrators to discharge the functions and duties of an Arbitral Institution.

Appointment of Arbitrator by Courts

The scope of judicial intervention at the stage of appointment of Arbitrator arises when the parties to the Arbitration agreement fail to mutually appoint the Arbitral Tribunal, for reasons such as failure to mutually agree on the procedure for appointment or number of Arbitrator(s), non-compliance of the mutually agreed procedure for appointment, etc.

In such a situation, either of the party to the Arbitration agreement may make an application to the Court for the purpose of appointment of Arbitrator under the sub-sections 4,5 and 6 of Section 11 of the Act.

Jurisdiction of Courts to entertain an application for appointment of Arbitration

As per Section 11, sub-sections (4), (5) and (6) of the Act, an application can be made by any party to the Arbitration agreement for the appointment of Arbitrator through judicial intervention. Such application can be made to:

1. The Supreme Court; or
2. As the case may be, the High Court; or
3. Any person or institution designated by the Supreme Court or High Court.

• International Commercial Arbitration

 For the appointment of Arbitrator through judicial intervention in an International Commercial Arbitration, the application can be made only to the Supreme Court, or any person or institution designated by the Supreme Court as provided by Section 11(12)(a) of the Act.

• Any other Arbitration

 Where the dispute is to be referred to any other form of Arbitration other than International Commercial Arbitration, the application can be made only to the High Court within whose local limits the principal Civil Court of original jurisdiction in a district is situated, which has the ordinary original civil jurisdiction to decide the questions forming subject matter of the Arbitration.

Appointment of Arbitrator when the agreed appointment procedure is not followed

Section 11(4) of the Act empowers the concerned Court, person or institution to appoint Arbitrator(s) in an Arbitration with three Arbitrators, when:

1. A party fails to appoint the Arbitrator within 30 days from the receipt of a request to do so from the other party; or
2. The two appointed Arbitrators fail to reach consensus on the third presiding Arbitrator within thirty days from their appointment.

Similarly, sub-section (5) of Section 11 of the Act empowers the concerned Court, person or institution to appoint the Sole Arbitrator when no appointment has been made by the parties within 30 days from receipt of a request from one party to the other party to agree to the appointment.

Section 11(6) empowers the concerned Court, person or institution to appoint Arbitrator(s) in light of the appointment procedure agreed between the parties, in the following circumstances:

1. A party does not act as per the appointment procedure; or
2. The parties or the appointed Arbitrators fail to reach an agreement as expected from them under the procedure; or
3. A person or an institution fails to perform the function entrusted to it under the procedure.

Miscellaneous provisions concerning appointment of Arbitrator(s) through judicial intervention

Scope of adjudication: The scope of adjudication by Supreme Court or High Court, while considering any application under Section 11 (4), (5) or (6) of the Act, is confined only to the examination of the existence of an Arbitration agreement, as provided by Section 11 (6A) of the Act.

Limits on the power of the person or institution designated by the Supreme Court/High Court to entertain applications under Section 11: When the Supreme Court or the High Court designates any person or institution to entertain applications for appointment of Arbitrator, such designation shall not amount to delegation of judicial power by the Supreme Court or High Court according to Section 11 (6B) of the Act.

No scope of Appeal: As per Section 11(7) of the Act, any decision made by the Supreme Court or High Court, or the designated person or institution, on an application under Section 11(4), (5) or (6) of the Act shall be final and no appeal, including Letters Patent Appeal, shall lie against such decision.

Disclosures to be sought by the concerned Court, person or institution: Section 11(8) of the Act requires the concerned Court, person or institution to seek a written disclosure in terms of Section 12(1) of the Act from the prospective Arbitrator sought to be appointed. The Court, person or institution shall have due regard to:

1. Any qualification(s) of the Arbitrator prescribed by the Arbitration agreement; and
2. Contents of the disclosure and other considerations which are likely to secure the appointment of an independent and impartial Arbitrator.

Appointment of Arbitrator in International Commercial Arbitration: In an International Commercial Arbitration, the Supreme Court, or the designated person or institution, is empowered under Section 11(9) of the Act to appoint an Arbitrator of any nationality other than the nationality of the parties to the dispute, when such parties belong to different nationalities.

Time period for disposal of applications: Section 11(13) of the Act requires the Supreme Court, the High Court, or the designated person or institution, to expeditiously dispose applications for appointment of Arbitrator, with an endeavour to dispose of matters within 60 days from service of notice on the opposite party.

JUDICIAL PRECEDENTS

In the case of Datar Switchgears Ltd. v. Tata Finance Ltd. (2000) 8 SCC 151, both the parties to the Arbitration agreement did not appoint an Arbitrator within 30 days from the date of demand. The Respondent appointed an Arbitrator at a later stage and a notice was issued to the Appellant to appear before the Arbitrator.

Thereafter, the Appellant preferred an application for appointment of Arbitration before the High Court under Section 11(6) of the Act. The High Court dismissed the application on the ground that the Arbitrator was already appointed for the dispute. Aggrieved, the Appellant sought a special leave to appeal from the Supreme Court under Article 136 of the Constitution.

The Supreme Court held that on lapse of 30 days from the date of demand, the right of the opposite party to appoint an Arbitrator does not get automatically forfeited. Similarly, an application under Section 11(6) of the Act shall be allowed only if the Arbitrator is not appointed till the date of filing the application under Section 11(6) of the Act.

A similar view was taken by the Supreme Court in Punj Lloyd Ltd. v. Petronet MHB Ltd (2006) 2 SCC 638.

In Union of India v. Bharat Battery Manufacturing Co. (P) Ltd. 2007(7) SCC 684, the Petitioner had invoked the Arbitration clause after disputes arose and request the Respondent to appoint the Arbitrator within 30 days. The Respondent failed to appoint an Arbitrator within the stipulated time period and the Petitioner thereafter filed an application before the High Court of Delhi for appointment of Arbitrator under Section 11(6) of the Act. The High Court passed an Order under the application and appointed a retired Judge as the Arbitrator.

Subsequently, the Respondent challenged the High Court’s Order before the Supreme Court on the ground that they had already nominated an Arbitrator and that the Court did not have the jurisdiction under Section 11(6) of the Act.

The Supreme Court relied on the decisions in Datar Switchgear and Punj Lloyd and held that once an application under Section 11(6) of the Act is filed by a party, the other party extinguishes its right to appoint an Arbitrator in terms of the Arbitration agreement. Therefore, the Supreme Court disallowed the appeal of the Respondent as the Arbitrator was appointed after the filing of Section 11(6) application.

 In Deep Trading Company v. Indian Oil Corporation & Ors. (2013) 4 SCC 35, the Arbitrator was appointed by the Respondent after an application for appointment of Arbitrator under Section 11(6) of the Act was already filed and pending before the High Court. The High Court took note of the appointment and erroneously refused to intervene in the appointment.

The High Court’s decision was challenged before the Supreme Court. The Supreme Court held that the High Court had committed error of law by not exercising its jurisdiction under Section 11(6) of Act without any reason, when the Arbitrator was appointed by the Respondent while the Section 11(6) application was still pending.

In the case of Durga Welding Works v. Chief Engineer, Railway Electrification, Allahabad (2022) 3 SCC 98, the Appellant filed an application for appointment of Arbitrator under Section 11(6) of the Act, when the Respondent failed to comply with the appointment procedure. Thereafter, the Respondent complied with the appointment procedure and suggested a panel of four persons for appointment as Arbitrators.

The Appellant chose two Arbitrators from the panel suggested by the Respondent, subsequent to which the Arbitral Tribunal was constituted. Both the parties appeared before the Tribunal and made their respective submissions.

However, after making the submissions, the Appellant submitted an application to the Tribunal stating that the constitution of the Tribunal is invalid as it was not appointed within the prescribed time period.’

The Appellant’s application was rejected by the Tribunal and the Appellant did not participate in the proceedings thereafter. The Tribunal thereafter passed an Ex-Parte Award rejecting the Appellant’s claim.

After a lapse of three years from the filing of the Section 11(6) application, notices were issued and the High Court dismissed the application considering the peculiar facts and circumstances. Aggrieved, the Appellant sought special leave to appeal from the Supreme Court.

The Supreme Court observed that the Appellant took no action under the Section 11(6) application filed by it, and later consented to the appointment of Arbitrator by the Respondent and made submissions before the Arbitral Tribunal. Thus, the Supreme Court held that the High Court did not commit any error of law, and that the application under Section 11(6) of the Act was rightly dismissed by the High Court.

AMLEGALS REMARKS

The provisions envisaged under the Act for judicial intervention at the stage of appointment of Arbitrator attempt to impart a balanced approach of the Court’s supervisory power and the parties’ autonomy, with an emphasis on the smooth, independent and neutral functioning of the Arbitral Tribunal.

The Act has consistently ensured that any judicial intervention in the Arbitral proceedings shall occur only on an explicit request or application from either party to the Arbitration. Without such request or application of a party to the Arbitration, the Court is not empowered to interfere in the Arbitral proceeding at the stage of appointment and constitution of Arbitral Tribunal.

The prevalent judicial position regarding the appointment of Arbitrator by Courts, beyond the prescribed appointment procedure, is that a party forfeits the right to appoint Arbitrator as per the appointment procedure when the other party files an application for appointment of Arbitrator under Section 11 (4), (5) or (6) of the Act.

Thus, once an application for appointment of Arbitrator is made before the Court, the appointment procedure stipulated by the Arbitration agreement cannot be enforced against the parties.

For any queries or feedback, please feel free to get in touch with rohit.lalwani@amlegals.com or riddhi.dutta@amlegals.com.