DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

VISAKHAPATNAM, A.P., INDIA

TOPIC

ROLE OF COURTS IN APPOINTMENT OF AN ARBITRATOR

SUBJECT

ALTERNATE DISUTE RESOLUTION

FACULTY

K. SUDHA

STUDENT NAME

K KALYAN SUNDAR HARSHA

ROLL.NO/SEC

2016050-A
ACKNOWLEDGEMENT

I am using this opportunity to express my gratitude to everyone who supported me through

the course of the project. I would like to thank our teacher who encouraged and supported me
for doing this project. And I am sincerely grateful to them
ROLE OF COURTS IN APPOINTMENT OF AN ARBITRATOR

ABSTRACT

The statute called ‘Arbitration and Conciliation Act of 1996’ governs arbitration process in
India. It was amended in the year 2o15 to fasten the arbitration procedure. The main aim of
arbitration is resolve issues outside the framework of court in order to save time and money.
However, court intervention cannot be fully done at certain stages of arbitration, the
conflicting parties may need the laws to help them out which poorly constructed arbitration
agreements cannot provide.

Chief Justice of High Courts as well as Supreme Court (when one of the parties is foreign)
may initiate such interventions in many cases. The function of the Chief Justice would be
administrative as well as judicial.

Improper drafting of arbitration agreement or even lack of one are the causes of such
intervention by courts. As per the arbitrator appointment provision of the agreement, there
shall be only one arbitrator jointly appointed by both parties and multiple arbitrators. In most
of the cases, two arbitrators would be separately appointed by each party and third would be
jointly appointed by the two arbitrators. As it often happen sometimes that arbitrators may
not get appointed within the legally required timeframe of 3o days. In such cases, on
receiving a formal request from any party, the Chief Justice can himself/herself preside or as
is common, appoint another arbitrator who is usually a retired judge.1 This is the
administrative function of the Chief Justice. These powers are conferred on Chief Justice
under sub-section (1o) of Section 11 of 1996 Arbitration ordinance. We shall discuss the
procedure and case laws regarding such appointment by the Chief Justice in the coming
research project.
INTRODUCTION

The statute called ‘Arbitration and Conciliation Act of 1996’ governs arbitration process in
India. It was amended in the year 2o15 to fasten the arbitration procedure. The main aim of
arbitration is resolve to issues outside the framework of court in order to save time and
money. However, court intervention cannot be fully done at certain stages of arbitration, the
conflicting parties may need the laws to help them out which poorly constructed arbitration
agreements cannot provide. Even after so many years after its enactment, we find every year
that there are no less than a 1oo cases of the Supreme Court reported on arbitration and
especially appointment of Arbitrator under Sec. 11 (4) , (5) & (6) of the Arbitration Act,
1996. This has been adding to the existing burden of the Court and in spite of that, a large
number of appeals are filed in the Supreme Court. t makes it clear that an arbitrator can be
appointed under the Act at the instance of a party to an arbitration agreement only in respect of
disputes with another party to the arbitration agreement. If there is a dispute between a party to an
arbitration agreement, with other parties to the arbitration agreement as also nonparties to the
arbitration agreement, reference to arbitration or appointment of arbitrator can be only with respect to
the parties to the arbitration agreement and not the non-parties2.

The source of the jurisdiction of the arbitrator is the arbitration clause. The arbitration clause is
normally a part of the main contract governing the parties. An arbitration agreement on the other hand
constitutes a separate agreement, distinct from the main contract, and is binding on the parties. Parties
can, even after the disputes have arisen, agree to have their disputes referred to arbitration. The
agreement, however, must be in writing. Although contracts are required to be signed by the parties,
arbitration clause need not be signed by the parties. An arbitration clause is binding if the parties have
given their express or implied or tacit consent to refer the disputes to arbitration. Subject to the law of
limitation, parties can refer their disputes to arbitration any time.

There are two forms of arbitration namely, ad hoc and institutional arbitration. Both forms have
separate mechanism for appointment of arbitrators. In ad hoc arbitrations, parties make their own
arrangements for selection of arbitrators and for designation of rules, applicable law, procedures and
administrative support. However, an institution administers the arbitral process as per the institutional
rules on payment of administrative fees by the parties. The institution also allows the parties to select
arbitrator(s) from the institution's panel of arbitrators comprising experts drawn from various parts of
the world.
Situation before 2o15

Section 11 of The Arbitration and Conciliation Act, 1996 provides for the appointment of
Arbitrator(s).

An arbitrator is appointed under the following means:-

 Appointment by parties
 Appointment by court

The parties may agree to appoint a sole (one) arbitrator or more than one arbitrator. An
arbitrator named by the parties and so appointed can proceed with the arbitration proceedings.
If the parties do not name their own arbitrator, they may mutually agree that arbitrator(s) may
be appointed by a third designated person.

The Parties to an arbitration are free to agree on the procedure for appointing of
arbitrators.The situations suitable for intervention of the Chief Justice or his designate
naming an arbitrator are:

 The procedure agreed is not followed

 There is no agreement on procedure

In both situations, the intervention of the Chief Justice or his designate are necessary. Under
the first situation, if a party fails to act under such procedure, or the parties (or the two
arbitrators, one appointed by each party) are unable to reach an agreement expected of them
under such procedure, or a third party (including an institution) fails to perform any function
entrusted to it under such procedure, any part may request the Chief Justice or his designate
to take necessary measure, unless such other measure have been provided in the agreement
for securing such appointment.
APPOINTMENT OF AN ARBITRATOR: ADMINISTRATIVE OR JUDICIAL

Section 11 provides for the procedure of appointment of Arbitrator by the Chief Justice. S. 11
(7) of the 1996 Act provides that 'a decision on a matter entrusted by ss. (4) or ss.(5) or ss.(6)
to the Chief Justice or the person or institution by him is final.' This led to a number of
disputes regarding the nature of the order passed by the Chief Justice on appointment of
Arbitrators and whether the same was judicial or administrative in nature?

1. Initial Interpretation: Order is Administrative:

Amongst some of the earliest interpretations of the provision of S.11 (7) was the case of
Sundaram Finance Ltd v. NEPC India Ltd.1 In this case it was held "Under the 1996 Act
appointment of arbitrator/s is made as per the provision of Section 11 which does not
require the Court to pass a judicial order appointing arbitrator/s." This decision was
reiterated in the case of Ador Samia Private Ltd v. Peekav Holdings Limited2 , where it
was held by the Hon'ble Supreme Court that "It is now well settled that petition under
Article 136 can lie for challenging a judgment, decree, determination, sentence or order in
any cause of matter passed or made by any court or tribunal in the territory of India. As
the learned Chief Justice or his designate under Section 11(6) of the Act acts in
administrative capacity as held by this Court in the aforesaid decision it is obvious that
this order is not passed by any court exercising any judicial function nor it is a tribunal
having trappings of a judicial authority... In view of this settled legal position therefore,
there is no escape from the conclusion that orders passed by the learned Chief Justice
under Section 11(6) of the Act being of an administrative nature cannot be subjected to
any challenge directly under Article 136 of the Constitution of India."

2. Doubting Thomas:

This view of the Supreme Court in Ador Samia6 was referred by a two judge bench of the
Supreme Court referred for re-consideration by a larger bench. The decision of the bench

1
[1999] 1 SCR 89 : MANU/SC/oo12/1999
2
AIR 1999 SC 3246
of three judges in Konkan Railway Corporation Ltd & ors v. Mehul Construction Co., 7
affirmed the view taken in Ador Samia, namely, that the order of the Chief Justice or his
designate in exercise of the power under S.11 of the Act was an administrative order and
that such an order was not amenable to the Jurisdiction of the Supreme Court under
Article 136. The effect of this judgment was that the decision of the Chief Justice being
an administrative order was now amenable to the Writ Jurisdiction under Article 226 of
the Constitution and hence, as one may say "The High Courts were flooded with Writ
Petitions challenging the appointment of the Arbitrators."

Thereafter, in Konkan Railway Corporation Ltd Anr v. Rani Construction Pvt. Ltd.,8 a
bench of two learned judges of the Supreme Court referred to a larger bench the decision
of the three judge bench for re-consideration, which was taken up for hearing in the case
of by a bench of five judges in the case Konkan Railway Corporation Ltd Anr v. Rani
Construction Pvt. Ltd.9 The issue before the Court may be summed up in the following
words of the referral order "It appears that the Chief Justice or his nominee, acting under
Section 11 of the Arbitration and Conciliation Act, 1996, have decided contentious issues
arising between the parties to an alleged arbitration agreement and the question that we
are called upon to decide is whether such an order deciding issues is a judicial or an
administrative order?"

The Hon'ble Supreme Court after examining the intricacies involved and after careful
examination of the case laws held that "In conclusion, we hold that the order of the Chief
Justice or his designate under Section 11 nominating an arbitrator us not an adjudicatory
order and the Chief Justice or his designate is not a tribunal. Such an order cannot
properly be made the subject of a petition for special leave to appeal under Article 136.
The decision of the three Judge Bench in Konkan Railway Corporation & ors v. Mehul
Construction Co. is affirmed."

3. Final position:

This decision of the Supreme Court was again challenged in challenged in the case of
S.B.P. & Co v. Patel Engineering & Anr.,1o where the question before the Hon'ble
Supreme Court was the nature of the function of the Chief Justice or his designate under
S. 11 of the Arbitration and Conciliation Act, 1996. The main issues which were
examined in this case are:
  What is the nature of the function of the Chief Justice or his designate under S. 11
(6) of the Arbitration and Conciliation Act, 1996?
 What is the scope and power of the Chief Justice under S. 11?

The Hon'ble Supreme Court examined the aforementioned issues in detail and held that the
power exercised by the Chief Justice or his designate under S. 11 of the Act is a judicial
power and not an administrative power. The ratio decidendi of the aforementioned case is
reproduced for ready reference:

 The power exercised by the Chief Justice of the High Court or the Chief Justice of
India under S. 11(6) of the Act is not an administrative power. It is a judicial power.
 The power under S. 11(6) of the Act, in its entirety, could be delegated, by the Chief
Justice of the High Court only to another judge of that court and by the Chief Justice
of India to another judge of the Supreme Court.
 In case of designation of a judge of the High Court or of the Supreme Court, the
power that is exercised by the designated, judge would be that of the Chief Justice as
conferred by the statute.
 The Chief Justice or the designated judge will have the right to decide the preliminary
aspects as indicated in the earlier part of this judgment. These will be, his own
jurisdiction, to entertain the request, the existence of a valid arbitration agreement, the
existence or otherwise of a live claim, the existence of the condition for the exercise
of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice
or the judge designated would be entitled to seek the opinion of an institution in the
matter of nominating an arbitrator qualified in terms of S. 11(8) of the Act if the need
arises but the order appointing the arbitrator could only be that of the Chief Justice or
the judge designate.
 Designation of a district judge as the authority under S. 11(6) of the Act by the Chief
Justice of the High Court is not warranted on the scheme of the Act.
 once the matter reaches the arbitral tribunal or the sole arbitrator, the High Court
would not interfere with orders passed by the arbitrator or the arbitral tribunal during
the course of the arbitration proceedings and the parties could approach the court only
in terms of Section 37 of the Act or in terms of S. 34 of the Act.
 Since an order passed by the Chief Justice of the High Court or by the designated
judge of that court is a judicial order, an appeal will lie against that order only under
Article 136 of the Constitution of India to the Supreme Court.
 There can be no appeal against an order of the Chief Justice of India or a judge of the
Supreme Court designated by him while entertaining an application under S. 11(6) of
the Act.
 In a case where an arbitral tribunal has been constituted by the parties without having
recourse to S. 11(6) of the Act, the arbitral tribunal will have the jurisdiction to decide
all matters as contemplated by S. 16 of the Act.
 Since all were guided by the decision of this Court in Konkan Railway Corporation
Ltd. and Anr. v. Rani Construction Pvt. Ltd and orders under S. 11(6) of the Act have
been made based on the position adopted in that decision, we clarify that
appointments of arbitrators or arbitral tribunals thus far made, are to be treated as
valid, all objections being left to be decided under S. 16 of the Act. As and from this
date, the position as adopted in this judgment will govern even pending applications
under Section 11(6) of the Act.
 Where District Judges had been designated by the Chief Justice of the High Court
under S. 11(6) of the Act, the appointment orders thus far made by them will be
treated as valid; but applications if any pending before them as on this date will stand
transferred, to be dealt with by the Chief Justice of the concerned High Court or a
Judge of that court designated by the Chief Justice.
 The decision in Konkan Railway Corporation Ltd. and Anr. v. Rani Construction Pvt.
Ltd., is overruled.
EFFECT OF JUDGMENT IN S.B.P. & CO V. PATEL ENGINEERING & ANR. (SBP)

One of the most important effects of the judgment was the prospective ruling direction, which
provided that any appointment of an arbitrator under S. 11 made prior to 26.1o.2oo5 had to
be treated as valid and objections including the existence or validity of the arbitration
agreement, have be decided by the arbitrator under S.16 of the Act. The legal position
enunciated by SBP would govern only application to be filed under S.11 of the Act from
26.1o.2oo5 as also applications under S.11 (6) of the Act pending as on 26.1o.2oo5 where
arbitrator was not appointed. The decision of the Hon'ble Supreme Court was reiterated in the
case of Maharishi Dayanand University v. Anand Coop. L/C Society Ltd & Anr.,11 wherein
it was observed by the Court that if an appointment of an arbitrator has been made before
26.1o.2oo5, that appointment has to be treated as valid even if it challenged before this Court.

The next issue which has been raised in many an appeal i.e. who should decide whether there
is an arbitration agreement or not. Should it be decided by the Chief Justice or his designate
before making an appointment of arbitrator under S.11 or the arbitrator who is appointed
under S.11 of the Act? This issue is no longer res-integra. Ever since the decision in SBP., it
is recognised law, that any question on whether there is an arbitration agreement or not, or
whether the party who has applied under S.11 of the Act, is a party to such an agreement, is
an issue which has to be decided by the Chief Justice or his designate under S.11 before
making appointment of arbitrator.

Situation after 2o15

Government promulgated the Arbitration and Conciliation (Amendment) ordinance, 2o15 to

amend certain provisions of the Arbitration and Conciliation Act 1996 which received assent
from the President on 23rd october, 2o15. The Arbitration and Conciliation (Amendment)
Bill, 2o15 (Amendment Bill) was introduced in both houses of Parliament to replace the
Arbitration and Conciliation (Amendment) ordinance, 2o15 and was subsequently passed by
the Lok Sabha and Rajya Sabha on 17th December, 2o15 and on 23rd December, 2o15
respectively. This Amendment Bill became an Act after having received the President’s
assent on 31.12.2o15 and came into force on the 23rd october, 2o15.
Amendment to Section 11: Appointment of arbitrator shall now be made by the Supreme
Court or the High Court, as the case may be, instead of the Chief Justice of India or the Chief
Justice of the High Court. An application for appointment of arbitrator(s) shall be disposed of
as expeditiously as possible and an endeavor shall be made to dispose of the matter within a
period of sixty days from the date of service of notice on the opposite party. The High Court
is empowered to frame rules for the purpose of determination of fees of the arbitral tribunal
and the manner of such payment. The High Court while framing rules shall take into account
the rates of fee specified in the Fourth Schedule to the Act.

As on May 4, 2o18, 54,o13 cases were pending in the Indian Supreme Court. Likewise, as
per the data available, around 4.2 million cases are pending in the twenty-four High Courts in
India. The rate at which these cases are disposed, for various reasons like the vacancies for
the position of judges, inefficient procedures, etc., nowhere matches with the pendency.
Unlike many countries in the world, in addition to the judicial function of decision-making,
the Chief Justice of India (Supreme Court), and the Chief Justices of the various High Courts
(collectively ‘Chief Justices’) are also vested with the performance of administrative
functions. These functions include maintenance of roster, allocation of matters to other
judges, etc.

Along with these functions, so far as arbitration is concerned, before the 2o15 Amendment to
the Indian Arbitration and Conciliation Act, 1996, the Chief Justices, where the parties failed
to do so, were also required to appoint arbitrators in pursuance of an arbitration agreement for
arbitrations seated in India.

Also, this power of appointment of arbitrators on the failure of parties to do so, was
characterized as a judicial power, instead of an administrative power, which meant that the
scope and nature of this judicial intervention in an arbitration, was broader than it would
otherwise be. In other words, the Chief Justices while appointing arbitrators could hold a
detailed trial and hear detailed arguments concerning whether the arbitration agreement exists
or not (as opposed to making a prima facie determination, and leaving the final determination
for the arbitrator). [See, SBP v Patel Engineering, ; National Insurance Co. Ltd. v Boghara
Polyfab Pvt. Ltd.,]

This naturally led to delays in the appointment of arbitrators, sometimes the Section 11 [the
concerned provision in the Arbitration Act for the appointment of arbitrators] applications
being pending for years, consequently resulting in delay in the making of arbitral awards as
well. Even when speedy disposal of the disputes indeed might have been one of the reasons
why parties might have opted for arbitration over litigation at the first place. In this
background, the Law Commission of India in its 246th Report recommended that the
appointment of arbitrators be made instead by the High Court or the Supreme Court, such
power being administrative in nature, and thus delegable to an arbitral institution.

The possibility of such a delegation was made explicit in the amended Section 11. Section 11
provides, inter alia, “the Supreme Court or, as the case may be, the High Court or any person
or institution designated by such Court” can appoint the arbitrator(s) when a party(s) fails to
do so, with the stated purpose of the amendment being to “provide greater incentive for the
High Court and/or Supreme Court to delegate the power of appointment (being a non-judicial
act) to specialized, external persons or institutions”. The amendment also prescribed a time
limit of sixty days from the date of service of notice on the opposite party, within which the
court should endeavor to dispose of the application requesting appointment of arbitrators.

The UNCITRAL Model Law also does not disallow for such a possibility, as is evident from
a combined reading of Articles 6 and 11, which suggests that any suitable authority as
prescribed by the legislature, not necessarily courts, can appoint arbitrators.

Yet, neither the Supreme Court nor any of the High Courts have yet designated an
institution/expert to make appointments. Until now, this power was not even exercised on an
ad hoc basis. However recently in Arbitration Case no. 33 of 2o14, the Supreme Court of
India, has by order dated May 3, 2o17, directed the Mumbai Centre for International
Arbitration (MCIA) to appoint an arbitrator, in an international commercial dispute between
Sun Pharmaceutical Industries Ltd., Mumbai and M/s Falma organics Limited Nigeria. This
is the first instance where the Supreme Court has made use of the power under Section 11,
and this is indeed a pro-arbitration development in India. It is hoped that this process is
systemized whereby the parties can approach designated arbitral institutions directly for such
purpose, instead of the court acting as an intermediary for every such appointment.

Indeed this function can be systemized by assigning it to a central arbitral institution like the
ICADR (International Centre for Alternative Dispute Resolution), after creating the necessary
infrastructure, which would in turn also help in popularizing the Institution, which presently
hardly deals with any cases in comparison with its competitors. Regional institutions like the
MCIA in Mumbai or the Nani Palkhivala Arbitration Centre (NPAC) in Chennai, etc. can
also be designated, depending upon the seat of arbitration, which would also promote
institutionalized arbitration in India.
CONCLUSION

The scope of Section 11 of the Act containing the scheme of appointment of arbitrators may
be summarized thus:

(i) Where the agreement provides for arbitration with three arbitrators (each party to
appoint one arbitrator and the two appointed arbitrators to appoint a third
arbitrator), in the event of a party failing to appoint an arbitrator within 3o days
from the receipt of a request from the other party (or the two nominated arbitrators
failing to agree on the third arbitrator within 3o days from the date of the
appointment), the Chief Justice or his designate will exercise power under sub-
section (4) of Section 11 of the Act.
(ii) Where the agreement provides for arbitration by a sole arbitrator and the parties
have not agreed upon any appointment procedure, the Chief Justice or his
designate will exercise power under sub-section (5) of Section 11, if the parties
fail to agree on the arbitration within thirty days from the receipt of a request by a
party from the other party.
(iii) Where the arbitration agreement specifies the appointment procedure, then
irrespective of whether the arbitration is by a sole arbitrator or by a three-member
Tribunal, the Chief Justice or his designate will exercise power under sub-section
(6) of Section 11, if a party fails to act as required under the agreed procedure (or
the parties or the two appointed arbitrators fail to reach an agreement expected of
them under the agreed procedure or any person/institution fails to perform any
function entrusted to him/it under that procedure).
(iv) While failure of the other party to act within 3o days will furnish a cause of action
to the party seeking arbitration to approach the Chief Justice or his designate in
cases falling under sub-sections (4) and (5), such a time-bound requirement is not
found in sub-section (6) of Section 11. The failure to act as per the agreed
procedure within the time-limit prescribed by the arbitration agreement, or in the
absence of any prescribed time-limit, within a reasonable time, will enable the
aggrieved party to file a petition under Section 11(6) of the Act.
(v) Where the appointment procedure has been agreed between the parties, but the
cause of action for invoking the jurisdiction of the Chief Justice or his designate
under clauses (a), (b) or (c) of sub-section (6) has not arisen, then the question of
the Chief Justice or his designate exercising power under sub-section (6) does not
 arise. The condition precedent for approaching the Chief Justice or his designate
for taking necessary measures under subsection (6) is that:
 a party failing to act as required under the agreed appointment procedure;
or
 the parties (or the two appointed arbitrators) failing to reach an agreement
expected of them under the agreed appointment procedure; or
 a person/institution who has been entrusted with any function under the
agreed appointment procedure, failing to perform such function.
(vi) The Chief Justice or his designate while exercising power under sub-section (6) of
Section 11 shall Endeavour to give effect to the appointment procedure prescribed
in the arbitration clause.
(vii) If circumstances exist, giving rise to justifiable doubts as to the independence and
impartiality of the person nominated, or if other circumstances warrant
appointment of an independent arbitrator by ignoring the procedure prescribed,
the Chief Justice or his designate may, for reasons to be recorded ignore the
designated arbitrator and appoint someone else.

The position has changed after the amendment of 2o15, where Section 11 provides, inter alia,
“the Supreme Court or, as the case may be, the High Court or any person or institution
designated by such Court” can appoint the arbitrator(s) when a party(s) fails to do so, with the
stated purpose of the amendment being to “provide greater incentive for the High Court
and/or Supreme Court to delegate the power of appointment (being a non-judicial act) to
specialized, external persons or institutions”. The amendment also prescribed a time limit of
sixty days from the date of service of notice on the opposite party, within which the court
should endeavor to dispose of the application requesting appointment of arbitrators.

However, neither the Supreme Court nor the High Court has designated the power to appoint
the arbitrator on some special institution or expertise. With the increase in number of pending
cases in both SC as well as HC, these functions need to delegated and a separate institution
should be constituted to look into the matters of arbitration process.
BIBLIOGRAPHY

 https://www.hg.org/legal-articles/law-of-and-procedure-for-appointment-of
arbitrators-in-india-27514, 28th August, 2018
 https://www.scconline.in/default.aspx
 https://singhania.in/selection-and-appointment-of-arbitrators-in-india/, 30th August,
2018
 https://www.manupatrafast.com/