File Copyright Online - File mutual Divorce in Delhi - Online Legal Advice - Lawyers in India

Evolution of Section 11 of Arbitration Act- Pre Konkan Railway to 2018 Amendments

The laws regarding arbitration in India has come a long way but the main aim of the Arbitration Act,1966, which is to expedite the arbitration process and curtail judiciarys intrusion, has considerably failed to achieve its object as there are more than one hundred pending cases of the Supreme Court which relate to appointment of arbitrator under section 11(4), (5) and (6) of the Arbitration Act, 1996. Section 11 of the Arbitration Act provides for a variety of conditions where the parties are unable or unwilling to constitute an arbitral tribunal. The apparent purpose of this section is to safeguard that any difficulty in constituting the arbitral tribunal does not stay the commencement of the envisioned arbitral proceedings. This provision has been a cause of conjecture and myriad interpretations by various high courts across the country.

The present article attempts to analyse and determine the permissible extent of judicial intervention in the arbitral process  and the implications of the principle of kompetenz-kompetenz on the various contracting judgments of the Indian Courts. It traces the present position of law through a line of cases beginning  from Ador Samia v. Peekay Holdings Limited[1](1999) and concluding with United India Insurance Co. Ltd. & Anr. v. Hyundai Engineering and Construction Co. Ltd[2] (2018).

Introduction
The very first legislation governing arbitration in India was the Arbitration Act of 1899. Later, the Arbitration Act 1940 was enacted in India and it was further replaced by the Arbitration and Consolidation Act of 1966. The act is largely based upon the UNCITRAL Model Law of Arbitration of 1835 and its basic object is to limit the scope of judicial interference with arbitral proceeding.[3] Under the provisions of the Arbitration Act, parties are free to determine the number of arbitrators, provided it is not an even number[4], as well as the procedure for appointing them.[5]

However, the parties may recourse to a proper remedy under Section 11 of the Arbitration Act, which provides detailed machinery for appointment of arbitrators through judicial interference, if they are unable to agree on the said procedure, or constitute the arbitral tribunal to their mutual satisfaction. Section 11 of the Arbitration Act originally empowered the Chief Justice, or any person designated by it, to appoint arbitrators under the circumstances specified therein.

The said provision corresponds to Article 11 of the UNCITRAL Model Law (MLA)[6]. Nevertheless, fascinatingly, Article 11, MLA, confers the power to appoint an arbitrator on a court, or any other authority specified in Article 6 of the MLA, and not chiefly the Chief Justice.[7] 

Analytical Commentary to the MLA states that Court designated under Article 6 can also refer to the president of a court or the presiding judge of a chamber for those purposes, which are of a more administrative nature.[8] In India, the credit for deviating from the principles established under the MLA, can be attributed to the 176th Report of the Law Commission of India on The Arbitration (Amendment) Bill, 2001[9].

Law Commission proposed to makes it incumbent upon the Supreme Court or the High Court or person designated by them to dispose the proceeding initiated under section 11 of the Act, within 60 days from the date of service of notice on the opposite party[10]. This proposal was eventually brought into force by Arbitration Act,2015.[11]

However, The Amendment Act, 2015, failed to recognise the importance of institutional arbitrations at a period when institutions like the International Chamber of Commerce (ICC) Paris, the London Court of International Arbitration, the Singapore International Arbitration Centre are setting up offices in India and offering their services locally.[12] Hence, The Lok Sabha has passed the Arbitration (Amendment) Bill,2018, that proposes appointment of arbitrators by designated arbitral institutions.[13]

However, before these amendments were brought into picture, a major conundrum in section 11 of the act was regarding the nature of the function performed by the Chief Justice in appointing an arbitrator. The legal issue was whether the function was administrative or judicial. In other words, whether the Chief Justice was not required to go into the merits of the case or whether the function being judicial in nature imposed a duty on the Chief Justice to determine the validity of the arbitration agreement[14]. This caused several challenges, one of them being the legal issue of maintainability of a review petition passed under Section 11 of the 1996 Act[15]. This article will thus look into the various jurisprudential aspects of section 11 of the arbitration and conciliation act, 1966 and its implications on the mechanics of the ADR mechanism.
 

Initial Interpretation : Administrative Nature of Order

The very first time when the issue regarding the nature of order of the Chief Justice came up for consideration was in the case of Ador Samia Private Limited v. Peekay Holdings Limited and Ors.[16] A Special Leave Petition under article 136 of the India Constitution was moved by the petitioner challenging an order of the Chief Justice of the Bombay High Court, given by him under Section 11(6) of the Arbitration and Conciliation Act, 1996.  The issue of law which was involved was that whether an appeal lay under Article 136 of the Constitution from the order made by the chief justice of the High Court appointing an arbitrator.

The two judge Supreme Court bench relied on a case of  Sundaram Finance Ltd. v. NEPC India Ltd[17], where the orders under Section 11 of the Act were held as non-judicial orders. Hence, it was established  that orders passed by the learned Chief Justice under Section 11(6) of the Act cannot be challenged under Article 136 of the Constitution of India because of the administrative nature of the order[18].

The question of reconsideration of the decision in Ador Samias case was brought up in the case of Konkan Railways v. Mehuls Construction Ltd.[19] A three judge bench of the Supreme Court held that the order passed by the Chief Justice under Section 11(6) is administrative in nature and intervention by a court is possible in a case where the Chief Justice or his nominee wrongly refuses to make an appointment. The court observed that an analysis of different sub-sections of Section 11 indicates that use of the expression Chief Justice in preference to a Court, points out towards the administrative capacity of the Chief Justice so as to enable him to is act quickly. Hence, the court acknowledged the Judgement in Ador Samias case and concluded that the power under section 11(6) was administrative in nature.

The decision of this three judge bench was then confirmed by a five Judge Bench (Konkan Railway Corporation v. Rani Construction).[20] The court therefore held that the only function exercised by the Chief Justice is a gap filling one, where the parties fail to agree upon the arbitrator. It also implied that orders under Section 11 could not be subjected to the petitions for leave to appeal under Article 136 of the Constitution, as under Article 136, an appeal lies to the apex Court only from adjudications of Courts and Tribunals.[21]

In all these cases, the decisions by Indian judiciary was in consistency with the mandate of the arbitration act to curtail the interference of judiciary in arbitral proceedings.[22] The judgments were in consonance with the international arbitration doctrine of  Kompetenz - Kompetenz  which confers upon an arbitral tribunal the power to rule on its jurisdiction.[23]

The kompetenz - kompetenz principle is a concept about the distribution of jurisdictional competence between arbitral tribunals and national Courts and to rules concerning the nature of judicial deliberation of challenges to an arbitral tribunals jurisdiction[24].However, regrettably, this state of affairs was not to last.
 

Change in Course: Judicial Nature of Order

A series of civil appeals questioning the judgments in the  Konkan Railway cases paved way for the Supreme Court to constitute a seven judge bench in the case of S.B.P & Co. v. Patel Engineering and Anr.[25] The court noticed that section 11(7) of the Act made the decision of the Chief Justice final and he cannot exercise his power of appointment unless there exists a valid arbitration agreement[26]. Also, when a statue creates an authority and vest in it the power to adjudicate upon a matter, and makes its decision final, the decision could not be said to be as purely administrative in nature.

These observations by the court led to the conclusion that the functions of the chief Justice was judicial in nature. It was also held that section 16 of the Act[27] which basically gives recognition of the principle of Kompetenz is an enabling provision and it would take effect only when section11(6) has not been resorted to. It was also held that an appeal will lie against that order of Chief Justice only under Article 136 of the Constitution of India and not under section 11(6) of the Act[28].

Nevertheless, On the basis of the well-recognized distinction between substantive and procedural review, the Allahabad High Court, in Manish Engineering Enterprises v. The Managing Director[29],  has held that Section 11 Order is amenable to review on grounds of procedural infirmities but cannot be reviewed on substantive grounds. This is because the right to appeal from the decision of a court is not a matter of right but is a privilege granted by statute.[30]

The said conclusions regarding the judicial nature of the order had been subsequently interpreted and  adopted in 2008, by a two-judge bench of the Supreme Court in National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd.[31] Thus, the decision in Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt. Ltd[32] was overruled. The judgment in the Patel Engineering case was subject to a lot of criticism because it ignored the objectives which the Act sought to achieve.[33] But still the law laid down in this case continues to hold force for the arbitrations governed by the un-amended Act.

The criticisms in the earlier arbitration regime paved way for the Law Commission of India to submit a report recommending several changes to the Arbitration Act. In so far as section 11, appointment of arbitrators is concerned, the new law inserted sub section 6(A)which confined the intervention of the judicial authority to the examination of the existence of the arbitration agreement. As per the Arbitration Amendment Act,2016, the expression Chief Justice of India and Chief Justice of High Court used in earlier provision have been replaced with Supreme Court or as the case may be, High Court, respectively and their decision has been made final.

The effects of these amendment  in the section 11 of the act was discussed at length by the Supreme Court in the case of Duro Felguera, S.A. Vs. Gangavaram Port Limited.[34] The bench observed that all that the Courts need to see is whether an arbitration agreement exists - nothing more or less. The legislative policy and purpose is to diminish the judicial interference in the appointment of arbitrator and this intention as incorporated in Section 11(6A) of the Act[35] must be obeyed.
 

Amendment Bill 2018:  Relieving the Courts Burden

According to National Judicial Data Grid (NJDG), the backlog of cases clogging the High Courts and Supreme Court (SC) is 43 lakh and 57,987 cases, respectively and a great number of cases are  reported on arbitration and especially appointment of arbitrator under Sections 11(4), (5) and (6) of the Arbitration Act, 1996.[36] Thus in August 2017, a high-Level Committee was constituted by the Central Government under the Chairmanship of Justice B. N. Srikrishna to examine measures to strengthen arbitral institutions in India and suggest ways to reduce the dependency on the Indian Courts for Justice.[37] The recommendations of this committee is implemented in the  Arbitration and Conciliation (Amendment) Bill, 2018 appears to not focus on the administrative-judicial debate initiated in the judicial corridors of India, but on limiting the scope of intervention under Section11. The Bill endorses the establishment of an independent statutory body called the Arbitration Council of India (the ACI) in Part 1A of the Act.

This institution will be delegated with the accountability of grading arbitral institutions and identifying institutions that provide authorization for arbitrators across India. Under the amended section 11 of the act, the parties will have to approach arbitral institutions for the appointment of arbitrator without having to approach the Court in this regard. This is in line with the kompetence - kompetence principle of an arbitral tribunal itself determining its own jurisdiction[38]. The Courts shall elect such institutions, based on their evaluation by the ACI. The bill also proposes to delete the sub sections 6(A) and 7 of the section 11 of the Act. However, the bill is passed only in the Lok Sabha and awaits clearance from the Rajya Sabha to become an Act[39].

In August 2018, Supreme Court in the case of United India Insurance Co. Ltd. & Anr. vs. Hyundai Engineering and Construction Co. Ltd. & Ors[40] decided the matter regarding appointment of arbitrator , acting contrary to the section 11(6A) and thus practically restored the law as it was prior to the amendment to Section 11 of the Arbitration and Conciliation Act, 1996 (Act) by overturning a judgment of the Madras High Court appointing an arbitrator. The issue before the High Court was with respect to a contract of insurance. In the contract, arbitration was permissible only where the insurer had not disputed the liability meaning thereby that the only reference could be with respect to quantum and other such issues which did not involve liability.

Therefore, where liability was not accepted, no reference could be made of such dispute to arbitration. This was a specific defence taken by the insurer in the proceedings before the Madras High Court. The High Court, however,  concluded that with the determination on the existence of arbitration clause, an arbitrator would have to be appointed leaving open all questions including arbitrability to the arbitrator .Hence they appointed an arbitrator. But the Supreme Court opined that an arbitration clause needs to be interpreted strictly and the matter shall not be referred to arbitration for a claim which the parties did not intent to arbitrate.

The Court delved into the issue of arbitrability  a matter which even in Patel Engineering (as interpreted in Boghara Polyfab) was an issue not to be considered by the Chief Justice .The power of the High Court stands enlarged to what the Supreme Court held in the Patel Engineering case. This is precisely what sub-section 6A intended to avert. The UIIC case being a judgment of a three-judge bench binds all Courts throughout the country and will automatically result in huge delays in the appointment of arbitrators. The judgment of this case opens with the statement  The conundrum in this appeal but in real sense it can be considered as the conundrum in the law because unless section 11(6A) is declared unconstitutional , the question of acting contrary to it should not arise.
 
Conclusion
The Indian arbitration scenario had always been abysmal and a number of contrasting judgments has further more added confusion in the mechanism of arbitration.The conferment of the power to appoint arbitrator(s) on the Chief Justice, or its designate, under the un-amended Arbitration Act posed several questions that continuously troubled the Indian judiciary. It took the Supreme Court of India almost a decade, and four separate benches of varying strengths, to finally determine that the proceedings under Section 11 of the Arbitration Act are judicial in nature.

While the proposed bill is intended towards filling the gaps created by the previous amendment, the extent of it effectively plugging all the loopholes is still debatable. Relevantly, the question of redundancy of section 11 of the Act arises because of the establishment of an institution like ACI, for securing speedy appointment of the arbitrator. Further, there is no fixed course of action to be adopted in a case where the party objects to the validity of the arbitration agreement itself because of the contracting judgments.

However, the genesis of the amendments reflect the international best practices approach being adopted by our legal regime. After all, empowering an arbitral tribunal to address the questions as to its own jurisdiction appreciates the principle of kompetenz - kompetenz in its entirety.[41] Also, any transition from this principle can endanger the very characterization of commercial arbitration as an efficient method of alternate dispute resolution.

End-Notes:
  1. 1999 SC 3246 (India Sup. Ct.)
  2. United India Insurance Co. Ltd. & Anr. vs. Hyundai Engineering and Construction Co. Ltd , CIVIL APPEAL NO. 8146 OF 2018, https://www.sci.gov.in/supremecourt/2018/4141/4141_2018_Judgement_21-Aug-2018.pdf
  3. Konkan 2000
  4. The Arbitration & Conciliation Act, 1996, No. 26 of 1996 , Section 10(1). However, the said provision has been held to not be mandatory in nature by a three-judge-bench of the Supreme Court of India in Narayan Prasad Lohia v. Nikunj Kumar Lohia & Ors., (2002) 3 S.C.C. 572 (India).
  5. Id at Section 11(2)
  6. P. C. Markanda Et Al., Law Relating To Arbitration And Conciliation 11 (8th Ed., 2013).
  7. Model Law on International Commercial Arbitration of the United Nations Commission on International Trade Law, G.A. Res. 40/72, U.N. Doc. A/RES/40/72, art. 11(3) & (4) (Dec. 11, 1985).
  8. United Nations Commission on International Trade Law, Analytical Commentary on Draft Text of a Model Law on International Commercial Arbitration, U.N. Doc.A/CN.9/264 20 (1985)
  9. Harshad Pathak , On The Maintainability Of Review Against A Section 11 Order, IJAL Volume 4 Issue 2
  10. Law Commission of India, 176th Report on the Arbitration and Conciliation (Amendment) Bill, 2001,77 (2001) available at http://lawcommissionofindia.nic.in/arb.pdf.
  11. The Arbitration & Conciliation (Amendment) Act, 2015, No. 3 of 2015
  12. Arbitral Institutions & Procedural Rules , International Commercial Arbitration Research Guide, Gorgetown Law, http://guides.ll.georgetown.edu/c.php?g=363504&p=2455947
  13. The Arbitration And Conciliation (Amendment) Bill, 2018, Bill No. 100-C of 2018, https://www.arbitrationindia.com/pdf/acbill2018.pdf
  14. Gautam Bhatia, Section 11 of the Arbitration and Conciliation Act of 1996: The Jurisprudence of the Supreme Court and Implications for the Jurisdiction of an Arbitral Tribunal, National Law School of India Review Vol. 21, No. 2 (2009), pp. 65-75 , https://www.jstor.org/stable/44283804?read-now=1&seq=11#page_scan_tab_contents
  15. Badrinath Srinivasan, Appeal Against The Order Of The Chief Justice Under Section 11 Of The Arbitration And Conciliation Act, 1996: An Empirical Analysis, IJAL Volume 1 Issue 1
  16. Supra note 1
  17. [1999] 2 SCC 479
  18. Vishal P. Bhat , Appointment of Arbitrator under Sections 11(4), (5) and (6) of the Arbitration Act: A never ending saga , (2011) PL May S-25, http://www.supremecourtcases.com/index2.php?option=com_content&itemid=1&do_pdf=1&id=21219
  19. (2000) 7 SCC 201
  20. (2000) 8 SCC 159
  21. Jaswant Sugar Mills Ltd. v. Lakshmichand & Ors., (1963) Supp. (1) S.C.R. 242.
  22. Section 5 of the Act
  23. Brown v. Genossenschaft Osterreichischer Waldbesitzer  [1954] 1 Q..B. 8
  24. GARY B. BORN, INTERNATIONAL COMMERCIAL ARBITRATION 852 (2010).
  25. (2002) 2 SCC 388
  26. The Arbitration and Conciliation Act, 1996, Section 11(7)
  27. The Arbitration and Conciliation Act, 1996, Section 16
  28. The Arbitration and Conciliation Act, 1996, Section 11(6)
  29. Manish Engineering Enterprises v. The Managing Director, Indian Farmers Fertilizer Cooperative Ltd., A.I.R. 2008 All. 56 (India)
  30. Purshotam Das Goyal v. Honble Mr. Justice BM Dhillon, A.I.R. 1978 S.C. 1014
  31. (2009) 1 S.C.C. 267.
  32. Supra note 20
  33. See Ministry of Law and Justice, Government of India, Proposed Amendments to the Arbitration & Conciliation Act, 1996: A Consultation Paper, vii-viii (Apr., 2010), http://lawmin.nic.in/la/consultationpaper.pdf
  34. (2017) 9 SCC 729
  35. The Arbitration & Conciliation (Amendment) Act, 2015, No. 3 of 2015, Section 11(6A)
  36. Harish Nair ,3.3 crore backlog cases in courts, pendency figure at highest: CJI Dipak Misra, India Today (Jun 28,2018), https://www.indiatoday.in/india/story/3-3-crore-backlog-cases-in-courts-pendency-figure-at-highest-cji-dipak-misra-1271752-2018-06-28
  37. High Level Committee on Making India Hub of Arbitration Submits Report , Ministry Of Law & Justice, (Aug 4, 2017) , http://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=1498552
  38. Amokura Kawharu, Arbitral Jurisdiction, 23 N.Z.UNIV. L. REV., 238, 243 (2008)
  39. Supra note 13
  40. Supra note 2
  41. Alan Redfern Et. Al., Law And Practice Of International Commercial Arbitration, 346 (5th Ed., 2009).

Law Article in India

Ask A Lawyers

You May Like

Legal Question & Answers



Lawyers in India - Search By City

Copyright Filing
Online Copyright Registration


LawArticles

Section 482 CrPc - Quashing Of FIR: Guid...

Titile

The Inherent power under Section 482 in The Code Of Criminal Procedure, 1973 (37th Chapter of th...

Whether Caveat Application is legally pe...

Titile

Whether in a criminal proceeding a Caveat Application is legally permissible to be filed as pro...

How To File For Mutual Divorce In Delhi

Titile

How To File For Mutual Divorce In Delhi Mutual Consent Divorce is the Simplest Way to Obtain a D...

Copyright: An important element of Intel...

Titile

The Intellectual Property Rights (IPR) has its own economic value when it puts into any market ...

The Factories Act,1948

Titile

There has been rise of large scale factory/ industry in India in the later half of nineteenth ce...

Law of Writs In Indian Constitution

Titile

Origin of Writ In common law, Writ is a formal written order issued by a body with administrati...

Lawyers Registration
Lawyers Membership - Get Clients Online


File caveat In Supreme Court Instantly