The Arbitration and Conciliation Act was enacted by the legislature to ensure party autonomy in deciding the dispute adjudication process. The UNCITRAL Code (Model Law and Rules) has also adopted and promulgated the theory of parties being self-sufficient by providing that parties are free to agree on the process to be followed in conducting the proceedings. In India, the arbitration process is governed by the Arbitration and Conciliation Act, 1996 (based on UNCITRAL Code) which clearly upholds parties' autonomy as the prime and fundamental aspect. The parties are free to opt for arbitration as their adjudication process and while preparing an arbitration agreement (Sec.7), parties even have the ease to agree on the process being governed by an ad hoc or an institutional arbitration, number of arbitrators (Sec.10), governing law, seat and the venue. Thus, it can be summed up that the independency in adopting or determining the process in appointing an arbitrator by the parties clearly upholds the autonomy aspect.

In a recent ruling by the Apex Court in the matter of State Trading Corporation of India Ltd v/s Jindal Steel and Power Limited & Ors [Civil Appeal No. 2747 of 2020], the Court has duly relied on the aforesaid principle and set aside the impugned order of the High Court wherein the latter had suo moto appointed an arbitrator. The Apex Court has duly clarified the position that the Court needs to look into the agreement and cannot act on its own in appointing an arbitrator if the parties have agreed on a procedure for the same.

FACTS OF THE CASE

In the aforesaid matter, dispute arose between the parties pertaining to an agreement executed between the Appellant and the first Respondent. The said Respondent was to supply 1.50 lakh MT of steel rail manufactured by it to Iranian Islamic Republic Railways valuing around Rs. 820 Crores in 12 shipments between October 2016 and November 2017. Respondent had furnished a performance bank guarantee to the tune of Rs. 88.40 Crore and the same was extended from time to time. When the dispute arose, the Respondent approached the Hon'ble Delhi High Court u/s 9 of the Act seeking restraining order against the Appellant from encashing the performance bank guarantee and its release along with other reliefs. The Hon'ble Court vide its order dated 20.04.2020 declined to restrain the encashment or release of the bank guarantee and directed the Respondent to extend the bank guarantee and the same got extended till 22.07.2020. Thereafter, the Respondent appealed against the order dated 20.04.2020 and the Hon'ble Division Bench vide its order dated 04.06.2020 suo moto appointed an arbitrator.

Thereafter, challenging the impugned order and contending that suo moto appointment of the arbitrator in the proceedings under Section 9 of the Act is contrary to the agreed Clause 19 of the Agreement between the parties the appellant has filed the appeal. After going through the agreement, the Hon'ble Apex Court duly held that "Clause 19 of the Agreement between both the parties provides a mechanism to settle the dispute arising between the parties by arbitrations in accordance with the Rules of Arbitration of the Indian Council of Arbitration. When the parties have agreed upon the procedure for appointment of arbitrator, ignoring the same, in the appeal arising out of the proceedings under Section 9 of the Act, the High Court, in our view, was not right in suo moto appointing an arbitrator".

RATIO DECIDENDI

The Hon'ble Apex Court duly ruled and upheld the autonomy of the parties in terms of the reference of the dispute and the mechanism as adopted by them to resolve it, and ruled that the procedure adopted by the parties must be followed and be adhered to in the spirit of law and public policy. The Court cannot interfere in the opted mechanism unless the same is in violation of any law and thus, the interference by the High Court in appointing an arbitrator, bypassing the set procedure, was contrary to the rule of law.

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