This article is written by Adhila Muhammed Arif, a student of Government Law College, Thiruvananthapuram. This article seeks to elucidate upon Section 11 of the Arbitration and Conciliation Act, 1996, the amendments throughout the years, and the scope of judicial intervention in the matter of appointment of arbitrators.  

It has been published by Rachit Garg.

Introduction 

Section 11 of the Arbitration and Conciliation Act, 1996, deals with the provision of appointment of arbitrators in an arbitration settlement. It provides for different courses of action that parties to a dispute can take in order to appoint arbitrators. Section 11 allows the parties to choose arbitrators by themselves by agreeing upon a procedure for appointment. In case the parties cannot appoint arbitrators by themselves, they can get arbitrators appointed through any one of the procedures prescribed in Section 11. Over the years, the section has gone through several changes via amendments in the years 2015 and 2019, substantially reducing the influence of the judiciary in arbitration. 

What is arbitration 

Arbitration is essentially one of the methods of Alternative Dispute Resolution (ADR) whereby a dispute between two parties is heard and determined by a third party without involving the court. It allows parties to seek an expeditious settlement of disputes in a manner similar to that of litigation. However, unlike litigation, it takes place outside of the court and the decision is final and cannot be reexamined. It results in the declaration of an award which is similar to an order given by the court. Matters concerning arbitration are governed by the Arbitration and Conciliation Act, 1996. 

Appointment of arbitrators under Section 11 of the Arbitration and Conciliation Act

Clauses 

1. The nationality of an arbitrator is not essential unless the parties otherwise agree upon it. 
2. The parties can also form an agreement on the procedure for appointing arbitrators. 
3. In case of failure to reach an agreement on the procedure of appointment, clause (3) prescribes the following procedure for the appointment of three arbitrators: 
   1. Each party appoints an arbitrator. 
   2. The two arbitrators then jointly appoint the third arbitrator, who acts as the presiding arbitrator. 
4. The Supreme Court and high courts have the power to designate arbitral institutions. The arbitral institutions are graded by the Arbitration Council of India under Section 43-I of the Act. If a high court has no graded arbitral institution, the Chief Justice of the concerned high court may maintain a panel of arbitrators and also review it from time to time. 
5. Clause 4 states that when the procedure mentioned in clause (3) is applied, there are two conditions, which are the following: 
   1. Each party must appoint an arbitrator within thirty days of receiving the request from the other party to do so. 
   2. The two arbitrators must reach an agreement on appointing the third arbitrator within thirty days from the date of their appointment.

In case of failure of either of the two conditions, the appointment shall be made by the arbitral institution designated by the Supreme Court or a high court upon the application or request of a party. 

6. Clause 5 provides that in case of failure to reach an agreement on the procedure of appointment, the parties must agree on appointing a sole arbitrator within thirty days of receipt of the request by either party. 

If there is no such appointment within thirty days, an appointment shall be made by the arbitral institution designated by the Supreme Court or a high court upon the application or request of a party. 

7. Clause 6 states that where an agreement on the appointment procedure has been made by the parties, if 
   1. A party fails to act as prescribed by the procedure, or
   2. The parties or the appointed arbitrators fail to reach an agreement as prescribed by the procedure, or  
   3. The person or institution entrusted with a function by the procedure fails to perform it, 

then the parties may perform the alternative steps provided by the agreement, if any. Or, an appointment shall be made by the arbitral institution designated by the Supreme Court or a high court upon the application or request of a party. 

8. Designation by the Supreme Court or the high court shall not be treated as a delegation of judicial power. 
9. When the decision is given by the arbitral institution, it should be done while considering the following factors: 
   1. Qualifications required for an arbitrator as per the agreement of the parties,
   2. Contents of disclosure and other considerations for appointing an independent and impartial arbitrator 
10. In cases where the parties belong to multiple nationalities and there is a need to appoint a sole arbitrator or a third arbitrator, the arbitral institution designated by the Supreme Court or a high court may appoint an arbitrator of a nationality other than the nationalities of the parties.  
11. If there has been more than one request or application made to several arbitral institutions during the application of any of the aforementioned provisions, the arbitral institution receiving the first request alone will be competent. 
12. In matters concerning international commercial arbitration, only the arbitral institution of the Supreme Court gets involved and not those of the high courts. 
13. An application or request for the appointment of arbitrators shall be disposed of expeditiously by the arbitral institution. It shall be disposed of within thirty days from the date of service of notice on the opposite party. 
14. When there is an involvement of a high court, it is always the high court within whose local limits the principal civil court of the district is situated. 
15. The arbitral institution shall determine the fee and manner of its payment to the arbitral tribunal after considering the rates prescribed in the Fourth Schedule of the Act. However, the explanation of this subsection provides that in the case of international arbitration in non-commercial matters, the parties may agree to determine fees as per the rules prescribed by an arbitral tribunal. 

Evolution of clauses in Section 11 of Arbitration and Conciliation Act

1. Before the 2015 Amendment Act 

• In situations where the parties did not make the appointment, it was made by the Chief Justices of high courts or their designates. In matters of international commercial arbitration, it was the Chief Justice of India who made the appointments. 

2. Important changes brought by the 2015 Amendment Act 

• The amendment struck down the word “Chief Justice” with “Supreme Court or high court”.  
• By inserting Clause 6A and 6B, the role of judicial involvement was reduced at the pre-arbitration stage. As per the new clause 6A, the Chief Justices had to reduce their role to the examination of the existence of an arbitration agreement. Clause 6B clarifies that designation does not amount to delegation of judicial capacity. 
• Through an amendment of Clause 7, it was added that it is not possible to appeal against the decision of the court or its designate in any form. The section had only stated that the decision is “final”, prior to this amendment. The amendment made the finality of the orders more rigid compared to the section prior to the amendment. 
• The amendment specifically expressed contents of disclosure as a requirement while appointing an arbitrator. 
• Two new clauses were also added. Clause 13 provides for the expeditious settlement of the application within sixty days, and Clause 14 provides that the concerned high court has the power to determine the fees.

3. Changes brought by the 2019 Amendment Act

• The amendment made a significant change where it shifted the power of appointment from the courts to the arbitral institutions designated by the courts, thus institutionalising arbitration in India. 
• It reduced the time period for expeditious settlement from sixty days to thirty days. 
• Clauses 6A and 7 were removed. Clause 6A was concerned with the judicial examination of the existence of an arbitral agreement. Clause 7 provides that the order of the court would be final and that there would be no appeal against it. 
• With the deletion of Clause 6A, it is clear that the arbitral institutions do not have to confine their examination to the existence of an arbitral agreement while appointing arbitrators. 
• With the deletion of Clause 7, it can be interpreted that the order of appointment given by the arbitral institutions can be challenged. 

Scope of judicial intervention 

1. Pre-2015 amendment 

• In the case of National Insurance Co. Ltd. v. Boghara Polyfab (2008), the Supreme Court categorised issues pertaining to arbitration into what the court can interfere in and what the court may interfere in. The judgement also specified the third category of issues that can only be decided by the arbitral tribunal, which is essentially the sole arbitrator or panel of arbitrators appointed as per Section 11. The categories of issues are listed below: 

1. Issues that are to be decided by the Chief Justice or his designate: 

1. Whether the high court approached by the party is appropriate.

2. Whether an arbitration agreement exists and whether the party making the application is a party to the agreement. 

2. Issues that may or may not be decided upon by the Chief Justice or his designate: 

1. Whether the claim is long barred or alive.

2. Whether the parties have concluded the transaction by recording their satisfaction or receiving payment with no objection. 

3. Issues to be decided solely by the arbitral tribunal: 

1. Whether the claim is within the ambit of the arbitration clause.

2. Merits of any claim. 

• In the cases of Deepak Galvanising & Engg Industries (P) Ltd v. Government of India, (1997) and Continental Constructions Ltd v. National Hydroelectric Power Corpn Ltd, (1998), it was held that once the parties fail to appoint arbitrators by themselves, it leads to the forfeiture of their right to appoint. This gives the right of appointment to the Chief Justice or his designate. 

2. Post – 2015 amendment

• Judicial intervention was reduced by the insertion of 6A, whereby the courts had to confine their role to the examination of the existence of an arbitration agreement. The new section does not allow the court to conduct an examination of its validity. This provision helps to avoid delays in the proceedings. 
• In the case of Duro Felguera, S.A. v. Gangavaram Port Limited (2017), the literal interpretation of Clause 6A was adopted, restricting the judicial examination to the existence of an agreement. Additionally, the judgement laid down the key to the determination of its existence, which is to examine whether the agreement contains a clause providing for arbitration in case of dispute on the agreement. 
• Despite the restrictive nature of Clause 6A, the courts seem to have ignored it in several judgements. 
• In Garware Wall Ropes Ltd. v. Coastal Marine Constructions & Engg. Ltd. (2019), the Supreme Court held that the agreement must be sufficiently stamped. 
• In the case of Prime Market Reach Pvt. Ltd. v. Supreme Advertising Ltd. (2019), the Delhi High Court refused to refer the parties to arbitration after finding that the agreement was invalid as it did not abide by the requirements laid down in Section 7 of the Act. 

3. Post-2019 amendment 

• This amendment brought in significant change by shifting the responsibility of appointment to arbitral institutions. This amendment significantly reduced judicial intervention and institutionalised the system of arbitration. 
• The reduction in the time period given for disposing of the applications not only provides for expeditious settlement but also reduces the judicial involvement in such applications. 
• However, the drafting of this Amendment Act suffers a few deficiencies. There is a lack of clarity regarding the power of the courts to review the panel of arbitrators, and whether it extends to the ones maintained by the arbitral institutions. 

Other relevant judgements 

• In the case of Vishram Varu and ors. v. Union of India (2022), the Supreme Court held that an application made under Clause 6 of Section 11 is barred by limitation. In this case, the arbitration clause was invoked nearly thirty-two years after the emergence of the dispute. 
• In the case of New Eureka Travels Club v. South Bengal State Transport Corporation (2022), the Calcutta High Court held that an interested party can neither be the arbitrator to a dispute or appoint an arbitrator to a dispute under Section 11. 

Conclusion

The appointment of arbitrators under Section 11 started with significant involvement from the judiciary. However, it has now become the responsibility of the arbitral institutions. It is evident that the 2019 Amendment Act has been a milestone in the evolution of Section 11, which institutionalised the system of arbitration and which helped in truly achieving the objective of reducing judicial intervention. However, the drafting of the Act suffers from a few flaws. The amendments in 2015 and 2019 could be clearer in their wording, as the ambiguity leaves room for more judicial intervention. 

Frequently Asked Questions regarding Section 11

1. Question: Is the order of appointment of arbitrators under Section 11 judicial or administrative? 

Answer: Earlier, the order of appointment under Section 11 was considered as a judicial one and not administrative. It was also upheld as judicial in nature in the case of S.B.P. & Co. v. Patel Engineering Ltd, (2005). With the 2019 Amendment Act, the order of appointment of arbitrators has become an administrative one due to the institutionalisation of arbitration. 

2. Question: Is it possible to challenge an order of appointment under Section 11?

Answer: Section 11 does not have any impediment to the challenging of an appointment made under it due to the removal of Clause 7. Hence, a party may initiate proceedings to challenge such an appointment in the court. Further, the grounds for challenging the appointment of an arbitrator are laid down in Section 12 of the Act. 

3. Question: Can a party to an arbitration agreement appoint a sole arbitrator on his own and impose it on the other party?

Answer: While it is possible for a party to a dispute to appoint a sole arbitrator, there must be an agreement between the parties to do so and the procedure prescribed by it must be followed. Thus, a party cannot appoint a sole arbitrator and impose the appointment on the other party if the agreed procedure is not followed. 

References 

• https://blog.ipleaders.in/analyzing-the-ambit-of-section-11-of-the-arbitration-act-in-light-of-the-case-of-bharat-sanchar-nigam-ltd-anr-v-m-s-nortel-networks-pvt-ltd/#Section_11_of_the_Arbitration_Act 
• https://blog.ipleaders.in/arbitration-definition/ 
• https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3353646 
• https://www.scconline.com/blog/post/2020/12/05/section-11-after-2019-amendment-act-an-opportunity-to-strengthen-institutional-arbitration-in-india/ 
• https://blog.ipleaders.in/arbitration-conciliation-amendment-act-2019-key-amendments-critical-analysis/