INTRODUCTION

In order to broaden the scope and strengthen the status of Institutional Arbitration in our country, the Central Government constituted a High-Level Committee under the Chairmanship of Justice B.N. Shrirkishna. The terms of reference of the Committee, inter-alia, included:-

  1. Examination of the effectiveness of the existing arbitration mechanism by studying the functioning and performance of arbitral institutions in India;
  2. Devising a road map to promote the institutional arbitration mechanism in India and,
  3. Evolution of an effective and efficient arbitration eco-system for commercial dispute resolution and the suggestion of reforms in the Arbitration and Conciliation Act, 1996 ('Act').

Subsequently, the Arbitration and Conciliation (Amendment) Bill, 2019 was introduced in the Rajya Sabha by the Ministry of Law and Justice on July 15, 2019. On August 9, 2019, the President of India gave his assent to the amendments to the Act and the same has been published in the Official Gazette of India ("2019 Amendments"). The salient/key features of the amended Act are1 :-

  1. The establishment and incorporation of an independent & autonomous body namely, the "Arbitration Council of India";
  2. An amendment to Section 11 of the Act i.e. "Appointment of Arbitrators";
  3. An amendment to Section 23 of the Act i.e. relating to Statement of Claim, Statement of Defence and the time period for completion of pleadings and,
  4. To ensure that the Arbitrator and Arbitral Institute maintain confidentiality of information.

One of the substantial amendments introduced by the 2015 amendments to the Act ("2015 Amendment") was insertion of sub-section (6A) to Section 11 of the Act, which was introduced to broaden the role of Arbitral Tribunal to rule on in its own jurisdiction and limit the role of the Court only to the "examination of an Arbitration Agreement".

The intention was to minimise judicial intervention, so that the arbitral proceeding is not thwarted at the threshold, when preliminary objections are raised by one of the parties. In the recent 2019 Amendments to the Act, sub-section (6A) has been omitted (though yet to be notified).

The objective of this article is to discuss the scope of the Court's role whilst appointing an arbitrator in the backdrop of Section 11(6A) inserted vide the 2015 Amendment and its subsequent omission in 2019. Part II of this Article seeks to analyze Section 11 (6) prior to the 2015 Amendment in lieu of the judgment passed by the Supreme Court in the matter of SBP vs. Patel Engineering,2 and the subsequent judgment of National Insurance vs Boghra Polycab.3 Part II also sets out the scope of the Courts subsequent to the 2015 Amendment and interpretation of the Courts thereto. Part III of the Article talks about the dual test of examining the "existence" and "validity" of an arbitration agreement under Section 11 of the Act. Part IV discusses the amendments made to the Act in the year 2019 and the recent judgments passed by the Supreme Court and Part V concludes the article.

NATURE OF SECTION 11

Scope of Section 11 Prior To 2015 Amendment

The Supreme Court has had the occasion to deliberate upon the scope and nature of permissible pre-arbitral judicial intervention, especially in the context of Section 11 of the Act. Whilst one of the questions was framed in terms of whether such a power is a "judicial" or an "administrative" power, the real issue underlying such nomenclature/description was the scope of the Courts` powers - i.e. the scope of arguments which a Court will consider while deciding whether to appoint an arbitrator or not - i.e. whether the arbitration agreement exists, whether it is null and void, whether it is voidable etc.; and which of these it should leave for decision of the Arbitral Tribunal, and the nature of such intervention - i.e. would the Court consider the issues in detail or whether the same be left for determination by the Arbitral Tribunal?

After a series of cases culminating in the decision in SBP v Patel Engineering (supra), the Supreme Court held that the power to appoint an arbitrator under Section 11 is a "judicial" power. The judgment, inter-alia, also held that the Chief Justice could delegate the power to appoint arbitrators to another Judge and not an institution. Therefore, the arbitral institutions, which were qualified to act as appointing authorities, were not taken into consideration.

Following this judgment, the scope of intervention was subsequently clarified in National Insurance Co. Ltd. v Boghara Polyfab Pvt. Ltd.,4 where the Court laid down the following -

  1. "The issues (first category) which Chief Justice/his designate will have to decide are (a) Whether the party making the application has approached the appropriate High Court? (b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement?
  2. The issues (second category) which the Chief Justice/his designate may choose to decide are: (a) Whether the claim is a dead (long barred) claim or a live claim? (b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection?
  3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the arbitral tribunal are: (a) Whether a claim falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration)? (b) Merits of any claim involved in the arbitration."

The scope of the judicial intervention was essentially restricted to situations where the Court/Judicial authority finds that the arbitration agreement does not exist or is null and void. In so far as the nature of intervention is concerned, it was recommended that in the event the Court/Judicial authority is prima facie satisfied against the argument challenging the arbitration agreement, it shall appoint the arbitrator and/or refer the parties to arbitration, as the case may be.

To summarise, prior to the 2015 Amendment, under the section the Chief Justice,5 or any person or institution designated by him had the power to appoint an arbitrator where:-

  1. The parties have not agreed on a procedure for the appointment of arbitrator(s) and the default appointment procedure under Section 11(3) or Section 11(5) fails; or
  2. The parties have agreed upon an appointment procedure and such agreed procedure has not been followed.

The Courts have,6 further went on to broaden its role/scope to say that the Chief Justice or his designate is bound to decide even some preliminary aspects, including on existence of a valid arbitration agreement, existence or otherwise of a live claim, and the qualification of arbitrator(s). The Courts also dealt with preliminary issues including jurisdiction, arbitration agreement, and limitation. The introduction of sub-section (6A) to Section 11 minimized the scope of the Courts.

2015 Amendment to the Act

By the 2015 amendment, the Act geared towards facilitating the speedy disposal of Section 11 applications by:-

  1. Enabling the designation of any person or institution as an appointing authority for arbitrators in addition to the High Court or Supreme Court under Section 11;
  2. Limiting challenges to the decision made by the appointing authority; and,
  3. Requiring the expeditious disposal of Section 11 applications, preferably within the prescribed sixty (60) days' time period.

Based on the recommendations of the Law Commission in the 246th Report,7 Section 11 was substantially amended by the 2015 Amendment Act, to reduce the judicial intervention while appointing an arbitrator by non-obstante sub-section, and to reinforce the "Kompetenz- kompetenz",8 principle enshrined under Section 16 of the Act.

Sub-section (6-A) as inserted under the 2015 Amendment reads as under:

"(6-A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any court, confine to the examination of the existence of arbitration agreement."

(emphasis supplied)

As per sub-section (6-A), the power of the Court had been restricted only to the examination of the existence of an arbitration agreement. Earlier, the Courts had been given the power to examine other aspects as well i.e. limitation, whether the claims were referable for arbitration etc. However, the 2015 Amendment achieved in giving power to the arbitral tribunal to decide other preliminary issues if at all raised.

The amendment envisaged that the Courts shall not refer the parties to arbitration, only if it finds that there does not exist an arbitration agreement or that the arbitration agreement is null and void. If the Judicial authority is of the opinion that prima facie the arbitration agreement exists, then it shall refer the dispute to arbitration and leave the existence of the arbitration agreement to be finally determined by the arbitral tribunal. However, if the Judicial authority concludes that the agreement does not exist, then the conclusion will be final and not prima facie.

By virtue of the non-obstante clause incorporated in Section 11(6-A) previous judgments passed by the Supreme Court in SBP & Co. vs. Patel Engineering Ltd. (supra) and in National Insurance Co. Ltd. vs. Boghara Polyfab (P.) Ltd. (supra) were essentially overruled and/or no longer relevant.

Judgments after 2015 Amendment to the Act

In the judgment passed by the Delhi High Court in the matter of Picasso Digital Media (P) Ltd. v. Pick-A-Cent Consultancy Service (P) Ltd.,9 the Delhi High Court followed the same line of thoughts wherein it held that the Court, at the stage of appointment of arbitrator, cannot examine whether the respondent has a justified claim of misrepresentation against the petitioner as that would be a question to be examined by the arbitrator in the arbitration proceedings. This is one of the first case under Section 11(6-A) of the Act.

Subsequently, the Supreme in the matter of Duro Felguera S.A. vs. Gangavaram Port Ltd.,10 in explicit terms clarified its role at the stage of Section 11(6-A) which is to prima facie examine the existence of a valid arbitration agreement and not its validity. The Apex Court concluded that:

"The scope of the power under Section 11 (6) of the 1996 Act was considerably wide in view of the decisions in SBP and Co. (supra) and Boghara Polyfab (supra). This position continued till the amendment brought about in 2015. After the amendment, all that the Courts need to see is whether an arbitration agreement exists - nothing more, nothing less. The legislative policy and purpose is essentially to minimize the Court's intervention at the stage of appointing the arbitrator and this intention as incorporated in Section 11 (6A) ought to be respected."

(emphasis supplied)

However, in the judgment of United India Insurance Company Ltd. vs. Antique Art Exports Pvt. Ltd.,11 passed by the Supreme Court, the Court, while relying on Duro Felguera S.A. (supra), took a contradictory view. In the present case, a petition under Section 11 of the Act was filed by the respondent before the Delhi High Court, after 11 weeks of the settlement of claim and release of discharge voucher for seeking appointment of an arbitrator, alleging that the appellant had used undue influence/coercion at the time of signing these documents. The High Court passed an order, directing the Arbitral Tribunal to adjudicate the disputes between the parties. The Apex Court by setting aside the order of the Delhi High Court stated that prima facie no dispute subsisted as the document in question was signed without any demur or protest. Further, there was no question of undue influence or coercion upon the execution of the letter of subrogation and the claim was settled with due accord/satisfaction leaving no arbitral dispute to be examined by an arbitrator. As apparent, the Apex Court seemed to have exceeded the intended scope/jurisdiction in deciding issues beyond merely deciding whether there existed an arbitration agreement between the parties.

In another recent judgment passed by the Supreme Court in the matter of Garware Wall Ropes Ltd. vs. Coastal Marine Constructions & Eng. Ltd.,12 dealt with the effect of an arbitration clause contained in a contract, which is insufficiently stamped, under Section 11 of the Act. After considering the facts, it held that Courts could decide an arbitration application only after the contract containing an arbitration clause is adequately stamped. In other words, Courts cannot appoint arbitrator(s) when the contract containing the arbitration clause is insufficiently stamped. This is a landmark judgment which lays down the law that for a Court to act in any manner whatsoever upon any document/agreement/instrument, the same should be adequately stamped.

It could, however, be debated whether Courts need to analyze if an agreement is adequately stamped in the backdrop of sub-section (6A) of Section 11 of the Act, rather than merely decide "existence" of an arbitration agreement and let the Arbitral Tribunal adjudicate if the agreement is adequately stamped.

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Footnotes

1. The following features have been adopted from the Statement of Objects and Reasons of the Arbitration and Conciliation (Amendment Bill, 2019).

2. (2005) 8 SCC 618.

3. 2009 (1) SCC 267.

4. [(2009) 1 SCC 267].

5. Chief Justice of India in international commercial arbitrations and the Chief Justice of the relevant High Court for other arbitrations.

6. National Insurance Co. Ltd. vs. Boghara Polyfab (P) Ltd. [(2009) 1 SCC 117].

7. Amendments to the Arbitration and Conciliation Act, 1996, Report No. 246, Law Commission of India (August 2014).p.20.

8. A doctrine whereby a Court or Arbitral Tribunal is empowered and has the competence to rule on its own jurisdiction, including determining all jurisdictional issues, and the existence or validity of an arbitration agreement.

9. 2016 SCC Online Del (5581).

10. 2017 (9) SCC 764.

11. 2019 (5) SCC 362.

12. 2019 (9) SCC 209. Decided on April 10, 2019.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.