BY AYUSHI PANDIT, FOURTH-YEAR STUDENT AND PRANJAL PANDEY, FIFTH-YEAR STUDENT AT MNLU, NAGPUR

Introduction

The arbitration regime in India has been changing it facets from changing judicial mindset towards arbitration to making India the hub of ICA. The last quarter of 2019 saw significant developments with the Supreme Court rendering judgments that will have lasting impact on how the arbitrations are concluded in India. If India is to be seen as a country having a mature and efficacious arbitration regime, arbitration should be treated as an independent mechanism. There exists the cardinal rule of minimal judicial intervention under the Arbitration and Conciliation Act, 1996 (‘the Act’). When parties have chosen arbitration as their preferred mode of dispute resolution party autonomy needs to be respected and given full play. Thus, the scope of the same should be kept to minimum possible. Owing to the minimum judicial intervention, courts rarely review/recall their orders.

In case of a pre-existing arbitration agreement, parties have autonomy for the appointment of arbitrator. However, despite a pre-existing agreement to arbitrate it is possible for the party(s) unwilling to arbitrate to frustrate the terms of the agreement and delay the appointment of arbitrator. In any of the similar circumstances it is a right of either of the parties to seek for appointment of arbitrator from courts vide section 11 of the Act for both ICA and domestic Arbitrations.

The present article discusses the contemporary jurisprudence in the appointment of arbitrators by courts in light of the recent judicial pronouncements and legislative amendments. Making a reference to Adani Enterprises Limited v. Antikeros Shipping Corporation wherein the Bombay High Court recalled an order for appointment of arbitrator in an ICA within the meaning of section 2(1)(f) of the Act on the ground of order being null and non-est. HCs lack inherent jurisdiction for appointment of arbitrator, when either of the party fails to appoint an arbitrator in ICA. Recognizing that the body corporate in question is incorporated and functions out of India, an order passed by HC for the appointment of arbitrator calls for want of jurisdiction and was hence recalled in addition to being barred by limitation period. The subsequent portion of the article discusses at what stage of proceeding a review petition is maintainable asking for a review on procedural grounds.

Appointment of Arbitrator u/s 11

When the parties are unable to appoint arbitrators within 30 days from the receipt of request to do so, recourse to section 11 can be taken. In ICA jurisdiction for appointment of sole/third arbitrator vests solely with Apex Court. In any arbitration other than ICA, HCs are vested with the jurisdiction for appointment of sole/third arbitrators on request of the parties vide Section 11(12)(b) of the Act.  In ICA, when the dispute is of a specified value, the jurisdiction for filing all applications or appeals arising out of such arbitration under the Act vests solely with the commercial division of the respective HC. In similar circumstances, arbitrations other than ICA where the subject matter of dispute is commercial with specified value, the jurisdiction for filing all applications or appeals arising out of such arbitration under the Act vests solely with any principal civil court of original jurisdiction in a district and heard and disposed of by the commercial court exercising territorial Jurisdiction.

Jurisdiction of High Courts to recall their Orders

It was a contentious aspect, because the Act does not provide the Chief Justice with the power to review its order passed under section 11, and the Act being a self-contained Code impliedly excludes the applicability of general procedural law. Hence, the legislative intent of judicial non-intervention must be duly acknowledged.  To clarify, the SC carved out the difference between a procedural review and review on merits. It was held that procedural review is an inherent power of the court/tribunal to set aside a palpably erroneous order passed under a misapprehension and  on the contrary, a review on merits is specifically provided by the statute.

However, when the verdict of the court is erroneous due to a procedural default, the petitioners are not precluded from seeking a procedural review of the matter. HCs possess inherent jurisdiction to recall their orders when either of the parties have committed a procedural irregularity which stretches to the root of the matter inter alia, an order for appointment of arbitrator passed by a court lacking jurisdiction or an order for appointment of arbitrator passed in the absence of arbitration agreement.

The division bench of the Bombay HC set aside the order of a single bench in an appeal filed u/s 37 of the Act which recalled an order for appointment of arbitrator on the ground that Part 1 did not prescribe any provision for the court to review its own orders. A petition was raised before SC for consideration of this issue. Then the Apex Court in the case of Municipal Corporation of Greater Mumbai & Anr clarified that HCs being the courts of record must have an inherent jurisdiction to correct the records. The acts and proceedings enrolled in perpetual memory and testimony of the Court must be in accordance with law and entitled for review/recall if vitiated by any patent illegality. The SC relied on various judicial precedents inter alia National Sewing Thread Co. Ltd. v. James Chadwick & Bros. Ltd concluded that HC being constitutional courts and superior court of record have an inherent power to recall its own orders. In the instant case parties did not choose for arbitration as a forum for dispute resolution. The dispute resolution contract expressly stated an in-house dispute resolution mechanism as the first resort and expressly repudiated for arbitration as a method for dispute resolution, Hence, an order for appointment of arbitrator which is bad in law and is a sheer procedural default, must be ratified. 

The power of courts enshrined in section 11(6) is non-derogable. The same cannot be waived of by consent or acquiescence. It can be only vested by a statute. This non-derogable power is not barred by the law of limitation. It is well within the jurisdiction of the courts to condone the delay in filing for a review petition if the impugned order is vitiated by parent illegality. 

Adani Enterprises Limited v. Antikeros Shipping Corporation

The dispute arose between Antikeros Shipping Corporation (company incorporated in Liberia) and Adani Enterprises Limited (company incorporated in India). The parties on failing to appoint an arbitrator resorted to relief envisaged in section 11 of the Act. Being undisputed that the impugned dispute is an ICA. Hence, HCs inherently lacked jurisdiction for appointment of sole/third arbitrator in an ICA. Jurisdiction for the same exclusively vests with the SC.

A review petition was filed seeking a review of the order for appointment of arbitrator on the ground of suffering from procedural default. The Bombay HC concluded that the impugned order called for want of jurisdiction. The impugned dispute qualified to be an ICA. 

The dispute being an ICA, calls for an application for the appointment of arbitrator to be filed before SC and not before the HC. In view of the order being null and non-est in law condoned the delay of eight years and the review petition was allowed and the impugned order was recalled.

In another significant ruling the Allahabad HC refused to exercise its power under section 11 of the Act, as the recourse under section 15(6) was not taken by the applicant. The Court observed that where the mandate of an arbitrator terminates by virtue of section 15(6), a substituted arbitrator shall be appointed according to the rules that were applicable to the appointment of the arbitrator being replaced. Once the parties fail to appoint an arbitrator in terms of the rules, only then the Chief Justice or his delegate under section 11(6) on a request by a party can appoint an arbitration. In the instant case, the procedure was not followed therefore review petition was not held maintainable.

Conclusion

The Law Commission of India observed that ad hoc arbitration in India usually ends up in the shackles of litigation. Thus, to ensure a successful enactment of minimal judicial intervention both judiciary and the legislature are taking efforts for institutionalization of arbitration. This by and large includes referring to the rules of Arbitral Institutions at the stage of formation of arbitration agreement itself. The clause “Any Institution designated by such Court” in the act can be inferred as a statutorily formed Arbitration institution conferred with the status of national importance. In line with this school of thought, the 2019 Amendment Act  seeks to establish the body- The Arbitration Council of India, which is an integral step towards institutionalization of Arbitration. Bodies like Delhi International Arbitration Centre and Mumbai Council of International Arbitration (MCIA) have been successfully implementing the recommendations of the committee and Courts often refer the arbitral disputes to these institutions. Thus, this will thus ensure a paradigm shift to project India as the hub of arbitration.