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11/20/10

Law under section 11 of Arbitration and Conciliation Act, 1996?

There are many complicated issues with the Arbitration and Conciliation Act, 1996 and I feel that we require certain reforms. I strongly feel that no one should be forced to submit himself to the Arbitration Mechanism unless he consents for the appointment of an Arbitrator when the disputes arises irrespective of the terms dealing with the rights of the parties to appoint an Arbitrator. When the arbitration clause is silent on the Arbitrator and when a party approaches the Hon’ble Chief Justice of a High Court or his designate under section 11 of the Arbitration and Conciliation Act, 1996 seeking for appointment of arbitrator, the powers of the appointing authority under section 11 of the Act led to much discussion and the issue was extensively discussed by the Hon’ble Apex Court. No more the power of the Chief Justice or his designate under section 11 of the Arbitration and Conciliation Act, 1991 is merely administrative. There are many complications basically with the Arbitration mechanism and there are people supporting the ADR through Arbitration and there are people to oppose the mechanism for various reasons. All issues were comprehensively addressed by the Hon’ble Apex Court and effort is made to prevent the unnecessary litigation at the stage of getting an Arbitrator appointed under section 11 or at the stage of filing an application before an authority under section 8 of the Act. It is not an issue and it’s a complicated issue and if it is not addressed property, then, it will have drastic implications on the litigants. Referring to the law under section 11 of the Arbitration and Conciliation Act, 1996, Hon’ble Mr.Justice S.Thakur of Hon’ble Apex Court in Arbitration Petition No.2 of 2010 between Alva Aluminium Ltd. Bangkok Vs. Gabriel India Limited, has observed as follows:

“There is a long line of decisions of this Court in which this Court has examined the nature and the scope of the enquiry and the jurisdiction of the Chief Justice or his designate while dealing with petitions under Section 11 of the Arbitration and Conciliation Act, 1996. References to all those decisions is unnecessary for the question that falls for determination here, stands concluded by two recent decisions of this Court which alone should suffice for the present.
In National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. 2009 (1) SCC 267, this Court examined the provisions of Section 11 of the Act and categorized the issues that may arise for determination in a petition under Section 11 before the Chief Justice or his designate and the approach to be adopted qua the same. The Court said:
"22.1. The issues (first category) which the 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.
22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) 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.
22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:
(i) Whether a claim made 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).
(ii) Merits or any claim involved in the arbitration."
The question 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 in terms of the above decision falls in category (1) and has, therefore, to be decided by the Chief Justice or his designate.
The above decision was followed in A.P. Tourism Development Corpn. Ltd. v. Pampa Hotels Ltd. 2010 (5) SCC 425 where also one of the questions that fell for determination was whether existence or validity of the arbitration agreement is a matter to be decided by the Chief Justice/designate while considering a petition under Section 11 of the Act or the same has to be decided by the Arbitrator. Relying upon the decision of this Court in SBP & Co. v. Patel Engg. Ltd. 2005 (8) SCC 618 and National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. 2009 (1) SCC 267, this Court held that the question had to be decided by the Chief Justice or his designate. The Court observed:
"It is held in SBP & Co. v. Patel Engg. Ltd.and National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. that the question 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, is an issue which is to be decided by the Chief Justice or his designate under Section 11 of the Act before appointing an arbitrator. Therefore there can be no doubt that the issue ought to have been decided by the learned designate of the Chief Justice and could not have been left to the arbitrator.”
On account of the prospective overruling direction in SBP, any appointment of an arbitrator under Section 11 of the Act made prior to 26-10-2005 has to be treated as valid and all objections including the existence or validity of the arbitration agreement, have to be decided by the arbitrator under Section 16 of the Act. The legal position enunciated in the judgment in SBP will govern only the applications to be filed under Section 11 of the Act from 26-10-2005 as also the applications under Section 11(6) of the Act pending as on 26-10-2005 (where the arbitrator was not yet appointed)."
It is in the light of above pronouncements, unnecessary to delve any further on this issue. It is clear that once the existence of the arbitration agreement itself is questioned by any party to the proceeding initiated under Section 11 of the Act, the same will have to be decided by the Chief Justice/designate as the case may be. That is because existence of an arbitration agreement is a jurisdictional fact which will have to be addressed while making an order on a petition under Section 11 of the Act. The position may be different where arbitration proceedings are initiated before a nominated arbitral Tribunal but the opposite party appears to dispute the existence of the arbitration agreement. In any such situation the Arbitral Tribunal can itself decide the issue in exercise of its powers under Section 16(1) of the Act which reads as under:
"Jurisdiction of arbitral tribunals:
16. Competence of arbitral tribunal to rule on its jurisdiction.- (1) The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose, -
(a) an arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
(b) a decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause."
So also the parties may without approaching the Chief Justice refer the matters in dispute to the nominated Tribunal including the question whether there exists an arbitration agreement. In any such case also the Arbitral Tribunal can determine the existence of the arbitration agreement. Suffice it to say that the power available to the Arbitral Tribunal under Section 16 of the Act does not imply that the issue can be or ought to be left to be determined by the Arbitral Tribunal even in cases where one of the parties has filed a petition under Section 11 of the Act and the other party opposes the making of a reference on the ground that there exists no arbitration agreement between them. It is quite evident that the question whether or not an arbitration agreement exists between the parties will have to be answered for it is only if the answer to that question is in the affirmative that the Chief Justice or his designate can pass an order of reference of the disputes for adjudication."

Note: I personally feel that the law laid down by the Hon’ble Apex Court in SBP & Co. v. Patel Engg. Ltd. 2005 (8) SCC 618 is elaborate and sound, the Court in the judgment referred to had discussed wide of range of issues and the judgment is not overruled as far as I know.

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