This article has been written by Saumya Vanwari, pursuing the Certificate Course in Arbitration: Strategy, Procedure and Drafting from LawSikho.
Table of Contents
Introduction
Arbitration is the out-of-court mechanism where the dispute arising between the private players is resolved by the appointment of an arbitral tribunal. The legal sanctity of this procedure rests within the arbitration clause or agreement formed between the parties. Although party autonomy and confidentiality are of utmost relevance in arbitration matters, the lawmakers have even framed laws that at the time required for court intervention. Section 11 of the Arbitration and Conciliation Act, 1996 (“A&C Act”) deals with the appointment of arbitrators.
According to sub-section (6) of this provision, when one of the parties fails to appoint an arbitrator as per the agreement between the parties within 30 days from the notice of appointment by the other party, or when the appointment arbitrators fail to agree upon the presiding arbitrator from the 30 days of their appointment, then the requesting party can approach Supreme Court (in case of international arbitrations), and High Courts (in case of domestic arbitrations) for the request to appoint the arbitrator. So, the question which has been central to most judgments is “whether the courts have the power to nominate the arbitrator selected by the respondent after the petition has been filed under Section 11(6) of A&C Act”.
Courts’ approach for Section 11(6)
In Datar Switchgears Limited v. Tata Finance Limited and Anr, the question was raised before the Apex Court i.e. whether the respondent relinquishes his right to appoint an arbitrator after the advent of 30 days from the notice given by the other party. The Court held that no particular time period has been specified under Section 11 (6) of the A&C Act, hence the other party can nominate the arbitrator even after the expiry of thirty-days. However, the appointment should be before the application filed under Section 11 by the other party. In this case, even though the nomination of an arbitrator was done after thirty days were passed but also before the filing of an application under Section 11(6). Hence, the procedure was held to be valid in the eyes of law.
In the case of Union of India v. Bharat Battery Manufacturing Company Pvt. Ltd., when the disputes arose between the parties, the Bharat Battery invoked the arbitration clause and sent the notice of arbitration to Union of India and requested them to nominate an arbitrator within thirty days. However, after the expiry of an assigned time period, no arbitrator was appointed. Thereby, Bharat Battery applied to the High court under Section 11(6) for the appointment of an arbitrator. But Union of India challenged the order and contended that as they have already appointed an arbitrator, hence the Court does not have the authority to exercise its jurisdiction under Section 11(6).
The Court reasoned that as the Union of India appointed an arbitrator after the filing of an application under Section 11(6), therefore it was not legally valid per se. It was held that once the party approaches the judicial forum i.e. court for appointment of an arbitrator, the arbitration clause in the agreement loses its authority for the appointment of the arbitrator. Hence, in the present case, the selection of arbitrator by the other party i.e. Union of India lacks jurisdiction and therefore the appeal stands dismissed.
In the case of Deep Trading Company v. Indian Oil Corporation and ors., a similar question was again raised before the Allahabad HC. In this case, while the petition for appointment of an arbitrator under Section 11(6) was pending before the court, the respondent i.e. Indian Oil Corporation (“IOC”), nominated an arbitrator. So, the Allahabad High Court did not appoint an arbitrator on the ground that the purpose of petition stands finished. However, this reasoning was challenged by Deep Trading before the Supreme Court. The Apex Court held that the High Court should have exercised its jurisdiction in accordance with the provisions of Section 11(6) as the nomination by IOC while the arbitral proceedings were still pending under Section 11 (6) has no reason or validity.
In another case i.e. Zion Promoters and Developers Pvt. Ltd. v. Ferrous Infrastructure Pvt. Ltd., the same issue was again raised before the Delhi High Court. The facts were that Ferrous Infrastructure nominated the arbitrator after the notice was issued before the High Court concerning the appointment of an arbitrator under Section 11(6). Later then, Zion Promoters opposed this selection and prayed for the nomination of an “independent arbitrator”. The Court held that as the application is filed under Section 11(6) before the Court, the right of Ferrous infrastructure to appoint the arbitrator ultimately stands terminated. Therefore, in the present case, the procedure to appoint the arbitrator stands legally impermissible.
Although from the above-decided cases, the Supreme Court, as well as the High Courts ,have made it clear that as soon as the indignant party approaches court under Section 11, the defaulting party immediately losses the right to appoint the arbitrator. Nevertheless, a different issue has been created because of the unclear position of the court on “whether they can independently appoint the arbitrator suggested by the defaulting party after the Section 11 application has been filed by the aggrieved party?”
Incongruity of Section 11
In the case of Rapti Contractor v. Executive Engineer and ors., the objection was raised that after the petition has been filed under Section 11 before the court, the respondent appointed the arbitrator. Even if we rely on the above-decided cases, the same conclusion would be reached upon. However, the Uttaranchal HC considered the appointed arbitrator by respondent being fit for the job and thereby allowed the appointment of a nominated arbitrator by the respondent after the filing of an application under Section 11. A similar approach was taken by the Karnataka High Court in the case of Malu Sleepers Private Ltd. v. Union of India and Anr. , the arbitrator nominated by the respondent after the Section 11 application was filed, was appointed.
Even in the recent case of Tata Projects Ltd. v. Oil and Natural Gas Corporation, the Delhi High Court faced the same situation. The petitioner relying on the Datar case, Bharat Battery Manufacturing case, and Zion case contended that the respondent lost its right to nominate the arbitrator once the petition was made under Section 11(6) was filed up. However, the Delhi HC analysed the Bharat Battery judgment together with Section 11(6) and interpreted that this provision does not restrict the court either explicitly or impliedly from appointing the arbitrator suggested by the respondent if the Court deemed the person to be fit and qualified for the job. Relying on this, the Court allowed the nominated arbitrator even after the application made under Section 11(6). The judgments of Delhi, Uttaranchal, and Karnataka HCs have created uncertain situations that need to be clarified by the Supreme Court.
Analysis and Conclusion
While we interpret Section 11(6), we can construe that lawmakers have framed this provision to provide the remedy to the aggrieved party against the non-appointment of an arbitrator by the defaulting party within 30 days. The provision clearly states that after an application is filed under Section 11(6), the court would then have the authority to appoint the arbitrator. The appointment made by the defaulting party after the application is filed would be considered invalid before the law. Therefore, if the court is again appointing the same arbitrator suggested by the defaulting party, it would ultimately violate the rights of an aggrieved party.
Although Section 11 does not explicitly or impliedly bars the courts to appoint the same arbitrator suggested by the defaulting party (as the view was adopted in Tata Projects Ltd. case) the court needs to take an independent and unbiased approach while appointing the arbitrator excluding all the information or suggestions made by the defaulting party after application under Section 11 is made. If this independent view is not taken and the court furthers the appointment of an arbitrator nominated by the defaulting party, this would be unfair to the aggrieved party. The anomaly is if, after the filing of an application under Section 11, the appointment of an arbitrator by the respondent has been held to be impermissible, how can the court then appoint the same arbitrator again? The Apex Court needs to come up with a solution for bringing stability to the appointment made post-Section 11 application. The Court should interpret Section 11 (6) in such a way that the purpose of which application was brought before the court should be maintained and the rights of an aggrieved party are even not violated.
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