Appointment of Arbitrator u/s 11 of the Arbitration & Conciliation Act : Extinguishment of Right

Justice RM Lodha
Supreme Court of India

A 3 Judge Bench of the Supreme Court in Deep Trading Company Vs. Indian Oil Corporation and Ors. has upheld the legal position enunciated by the Supreme Court in earlier judgments of Datar Switchgear and Punj Lloyd, which laid down that the right to appoint an arbitrator is not extinguished on the mere expiry of 30 days of a demand from the other side. However, if such party has not appointed an arbitrator before the filing of a petition / application under S. 11 of the Arbitration & Conciliation Act, 1996 the right to appoint is lost by such party. While upholding the above stated position of law, the Supreme Court observed as under;

2. The questions that arise for consideration in this appeal, by special leave are, whether respondent No. 1 has forfeited its right to appoint the arbitrator having not done so after the demand was made and till the appellant had moved the court under Section 11(6) and, if the answer is in the affirmative, whether the appointment of the arbitrator by respondent No. 1 in the course of the proceedings under Section 11(6) is of any legal consequence and the Chief Justice of the High Court ought to have exercised the jurisdiction and appointed an arbitrator? 

3. The above questions arise from these facts : On 01.11.1998, an agreement for kerosene/LDO dealership was entered into between the first respondent – Indian Oil Corporation (for short, “the Corporation”) and the appellant – Deep Trading Company (for short, “the dealer”) for the retail sales supply of kerosene and light diesel oil in the area specified in the schedule. In the course of dealership agreement allegedly some violations were committed by the dealer. Following the show cause notice dated 04.03.2004, the Corporation on 12.03.2004 suspended the sales and supplies of all the products to the dealer with immediate effect. 

4. Aggrieved by the action of the Corporation, the dealer filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (for short, “1996 Act”) before the District Judge, Etawah seeking an order of injunction against the Corporation from stopping the supply of Kerosene/LDO. On 25.03.2004, the District Judge, Etawah passed a restraint order against the Corporation. 

5. The Corporation challenged the order of the District Judge, Etawah dated 25.03.2004 before the Allahabad High Court and also prayed for an interim relief. On 12.07.2004, the Allahabad High Court refused to grant any interim relief to the Corporation. 

6. On 09.08.2004, the dealer made a demand to the Corporation by a written notice to refer the disputes between the parties to the arbitrator under the terms of the agreement. In the demand notice, it was also stated by the dealer that if the Corporation fails to appoint the arbitrator, the dealer may be constrained to approach the court under Section 11 of the 1996 Act. 

7. It appears that the Corporation challenged the order of the Allahabad High Court in the special leave petition before this Court but that was dismissed on 06.12.2004 being an interlocutory order. 

8. On or about 06.12.2004, the dealer moved the Chief Justice of the Allahabad High Court under Section 11(6) for the appointment of an arbitrator as the Corporation had failed to act under the agreement. While the said proceedings were pending, on 28.12.2004, the Corporation appointed Shri B. Parihar, Senior Manager, (LPG Engineering) of its U.P. State Office as the sole arbitrator. 

9. When the above application came up for consideration, the Chief Justice found no reason to appoint the arbitrator, as sought by the dealer, since the arbitrator had already been appointed by the Corporation. The brief order dated 06.12.2007, by which the dealer’s application under Section 11(6) was dismissed by the Chief Justice of the Allahabad High Court, reads as under: 

“1. Heard Mr. Siddharth Singh, in support of this application and Mr. Prakash Padia, learned counsel appearing for the respondents. 

2. The dispute in this matter is regarding suspension of the petitioner’s agency as a kerosene dealer for sometime. The applicant applied for appointment of an arbitrator by writing a letter in March, 2004, but filed the present proceeding on 06.12.2004. An Arbitrator was appointed by the respondents on 28.12.2004. Earlier arbitrator has been replaced by another arbitrator. 

3. The contract of the applicant is continuing with the respondents in view of an injunction granted by the Civil Court. 

4. The submission of the applicant is that the respondents ought to have moved within thirty days from the date of a request being made. In any case arbitrator has been appointed within thirty days from the filing of the application. Mr. Siddharth Singh, says that the arbitrator conduct should have been appointed after filing of an application under Section 11 of the Arbitration and Conciliation Act. 

5. In my view, there is no reason to appoint any fresh arbitrator, as sought by the applicant. 

6. The application is dismissed.” 10. Clause 29 of the agreement dated 01.11.1998 provides as under: 

“29. Any dispute or difference of any nature whatsoever or regarding any right, liability, act, omission on account of any of the parties here to arising out or in relation to this Agreement shall be referred to the sole arbitration of the Director (Marketing) of the Corporation, or of some Officer of the Corporation who may be nominated by the Director (Marketing). It is known to the parties to the Agreement that the arbitrator so appointed is a share holder and employee of the Corporation. In the event of the arbitrator to whom the matter is originally referred being transferred or vacating his office or being unable to act for any reason, the Director (Marketing) as aforesaid at the time of such transfer, vacation of office or inability to act, shall designate another person to act as arbitrator in accordance with the terms of the Agreement. Such person shall be entitled to proceed with the reference from the point at which it was left by his predecessor. It is also a term of this contract that no person other than the Director (Marketing) or a person nominated by such Director (Marketing) of the Corporation as aforesaid shall act as arbitrator hereunder. The award of the arbitrator so appointed shall be final conclusive and binding on all parties, to the Agreement, subject to the provisions of the Arbitration and Conciliation Act, 1996 or any statutory modification of or reenactment thereof and the rules made thereunder and for the time being in force shall apply to the arbitration proceeding under this clause. The award shall be made in writing within six months after entering upon the reference or within such extended time not exceeding further four months as the sole arbitrator shall by a writing under his own hands appoint.” 

11. Sub-sections (1), (2), (6) and (8) of Section 11 are relevant for consideration of the present matter which read as follows : 

“11. Appointment of arbitrators.— (1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. 

(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. 

(3) to (5) xxx xxx xxx (6) Where, under an appointment procedure agreed upon by the parties,- 

(a) a party fails to act as required under that procedure; or 

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or 

(c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. 

(7) xxx xxx xxx 

(8) The Chief Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to- 

(a) any qualifications required of the arbitrator by the agreement of the parties; and 

(b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator. 

(9) to (12) xxx xxx xxx”. 

12. Sub-sections (3), (4) and (5) of Section 11 have no application in the present case as the parties have agreed on a procedure for appointing the arbitrator in Clause 29. Sub-section (2) provides that subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. Sub-section (6) makes provision for making an application to the concerned Chief Justice for appointment of an arbitrator in three circumstances, (a) a party fails to act as required under the agreed procedure or (b) the parties or the two appointed arbitrators fail to reach an agreement expected of them under that procedure or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure. If one of the three circumstances is satisfied, the Chief Justice may exercise the jurisdiction vested in him under Section 11(6) and appoint the arbitrator. In the present case, the dealer moved the Chief Justice of the Allahabad High Court under Section 11(6)(a) for an appointment of the arbitrator as the Corporation failed to act as required under Clause 29. 

13. The three basic facts are not in dispute, namely, (i) on 09.08.2004, the dealer called upon the Corporation by a written notice to appoint an arbitrator in accordance with the terms of Clause 29 of the agreement; (ii) the dealer made an application under Section 11(6) for appointment of the arbitrator on 06.12.2004; and (iii) the Corporation appointed the sole arbitrator on 28.12.2004 after the application under Section 11(6) was already made by the dealer. 

14. On behalf of the appellant, Mr. K.K. Venugopal, learned senior counsel, relied heavily upon decisions of this Court, (one) Datar Switchgears [Datar Switchgears Ltd. v. Tata Finance Ltd. and Another: [(2000) 8 SCC 151]] and (two) Punj Lloyd[Punj Lloyd Ltd. v. Petronet MHB Ltd.: [(2006) 2 SCC 638]] and submitted that the learned Chief Justice erred in holding that there was no reason to appoint any fresh arbitrator since the arbitrator has been appointed by the Corporation. 

15. Mr. Abhinav Vashishta, learned senior counsel for the respondents, on the other hand, relied upon a decision of this Court in Northern Railway Administration[Northern Railway Administration, Ministry of Railway, New Delhi v. Patel Engineering Company Limited: [(2008) 10 SCC 240]] and submitted that while considering application under Section 11(6) for appointment of arbitrator, the Court must keep in view twin requirements of Section 11(8) and, seen thus, the view of the learned Chief Justice in the impugned order does not call for any interference. 

16. In Datar Switchgears, a two-Judge Bench of this Court considered the scheme of Section 11, noted the distinguishing features between Section 11(5) and Section 11(6) and then considered the question whether in a case falling under Section 11(6), the opposite party cannot appoint an arbitrator after the expiry of thirty days from the date of demand. This Court held that in cases arising under Section 11(6), if the opposite party has not made an appointment within thirty days of the demand, the right to make appointment is not forfeited but continues, but such an appointment has to be made before the first party makes application under Section 11 seeking appointment of an arbitrator. If no appointment has been made by the opposite party till application under Section 11(6) has been made, the right of the opposite party to make appointment ceases and is forfeited. 

17. In Punj Lloyd, the agreement entered into between the parties contained arbitration clause. The disputes and differences arose between the parties. Punj Lloyd (appellant) served a notice on Petronet (respondent) demanding appointment of an arbitrator and reference of disputes to him. Petronet failed to act. On expiry of thirty days, Punj Lloyd moved the Chief Justice of the High Court for appointment of the arbitrator under Section 11(6). Petronet had not made appointment till the date of moving the application. The designate Judge refused to appoint the arbitrator holding that the remedy available to it was to move in accordance with the agreement. Aggrieved by the said order, a writ petition was filed which was dismissed and the matter reached this Court. A three- Judge Bench of this Court referred to Datar Switchgears and held that the matter was covered squarely by that judgment and the view taken by the designate Judge in dealing with the application under Section 11(6) and the Division Bench was not right. This Court restored the application under Section 11(6) before the Chief Justice of the High Court for fresh consideration and appointment of the arbitrator in accordance with Section 11(6). 

18. We are in full agreement with the legal position stated by this Court in Datar Switchgears which has also been followed in Punj Lloyd. 

19. Section 11(8) provides that Chief Justice or the designated person or institution, in appointing an arbitrator, shall have due regard to two aspects, (a) qualifications required of the arbitrator by the agreement of the parties; and (b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator. In Northern Railway Administration3, a three-Judge Bench of this Court considered the scheme of Section 11. Insofar as Section 11(8) is concerned, this Court stated that appointment of the arbitrator or arbitrators named in the arbitration agreement is not a must, but while making the appointment the twin requirements mentioned therein have to be kept in view. 

20. If we apply the legal position exposited by this Court in Datar Switchgears1 to the admitted facts, it will be seen that the Corporation has forfeited its right to appoint the arbitrator. It is so for the reason that on 09.08.2004, the dealer called upon the Corporation to appoint the arbitrator in accordance with terms of Clause 29 of the agreement but that was not done till the dealer had made application under Section 11(6) to the Chief Justice of the Allahabad High Court for appointment of the arbitrator. The appointment was made by the Corporation only during the pendency of the proceedings under Section 11(6). Such appointment by the Corporation after forfeiture of its right is of no consequence and has not disentitled the dealer to seek appointment of the arbitrator by the Chief Justice under Section 11(6). We answer the above questions accordingly. 

21. Section 11(8) does not help the Corporation at all in the fact situation. Firstly, there is no qualification for the arbitrator prescribed in the agreement. Secondly, to secure the appointment of an independent and impartial arbitrator, it is rather necessary that someone other than an officer of the Corporation is appointed as arbitrator once the Corporation has forfeited its right to appoint the arbitrator under Clause 29 of the agreement. 

22. Learned senior counsel for the Corporation, however, referred to an unreported order of this Court in Newton Engineering[M/s. Newton Engineering and Chem. Ltd. v Indian Oil Corporation Ltd. & Ors.: [Civil Appeal No. 7587 of 2012; Decided on 18.10.2012]]. The arbitration clause in that case was similar to the arbitration clause in the present case. The contractor had written to the Corporation to appoint E.D. (NR) as sole arbitrator as per the agreement. But the Corporation wrote back to the contractor that office of E.D. (NR) has ceased to exist due to internal re-organisation. The Corporation offered to the contractor to substitute E.D.(NR) with Director (Marketing) to which contractor did not agree. The Corporation then appointed Director (Marketing) as arbitrator. The contractor made an application under Section 11(6)(c) read with Sections 13 and 15 of the 1996 Act for appointment of a retired Judge as a sole arbitrator. The Single Judge dismissed the petition filed by the contractor. Against that order, the special leave petition was filed by the contractor. This Court in paragraph 9 of the order stated as follows : 

“9. Having regard to the express, clear and unequivocal arbitration clause between the parties that the disputes between them shall be referred to the sole arbitration of the ED(NR) of the Corporation and, if ED(NR) was unable or unwilling to act as the sole arbitrator, the matter shall be referred to the person designated by such ED(NR) in his place who was willing to act as sole arbitrator and, if none of them is able to act as an arbitrator, no other person should act as arbitrator, the appointment of Director (Marketing) or his nominee as a sole arbitrator by the Corporation cannot be sustained. If the office of ED(NR) ceased to exist in the Corporation and the parties were unable to reach to any agreed solution, the arbitration clause did not survive and has to be treated as having worked its course. According to the arbitration clause, sole arbitrator would be ED(NR) or his nominee and no one else. In the circumstances, it was not open to either of the parties to unilaterally appoint any arbitrator for resolution of the disputes. Sections 11(6)(c), 13 and 15 of the 1996 Act have no application in light of the reasons indicated above.” 

23. We are afraid that what has been stated above has no application to the present fact situation. In Newton Engineering, this Court was not concerned with the question of forfeiture of right of the Corporation for appointment of an arbitrator. No such argument was raised in that case. The question raised in Newton Engineering4 was entirely different. In the present case, the Corporation has failed to act as required under the procedure agreed upon by the parties in Clause 29 and despite the demand by the dealer to appoint the arbitrator, the Corporation did not make appointment until the application was made under Section 11(6). Thus, the Corporation has forfeited its right of appointment of an arbitrator. In this view of the matter, the Chief Justice ought to have exercised his jurisdiction under Section 11(6) in the matter for appointment of an arbitrator appropriately. The appointment of the arbitrator by the Corporation during the pendency of proceedings under Section 11(6) was of no consequence. 

24. In the course of arguments before us, on behalf of the appellant certain names of retired High Court Judges were indicated to the senior counsel for the Corporation for appointment as sole arbitrator but the Corporation did not agree to any of the names proposed by the appellant. In the circumstances, we are left with no choice but to send the matter back to the Chief Justice of the Allahabad High Court for an appropriate order on the application made by the dealer under Section 11(6). 

25. Civil Appeal is, accordingly, allowed. The impugned order is set aside. Arbitration Case No. 107 of 2004, M/s. Deep Trading Company v. M/s. Indian Oil Corporation and others, is restored to the file of the High Court of Judicature at Allahabad for fresh consideration by the Chief Justice or the designate Judge, as the case may be, in accordance with law and in light of the observations made above. No costs. 

Guest Post : The Jurisdiction of Indian Courts in International Commercial Arbitration

by Raj R. Panchmatia, Associate Partner at Khaitan & Co.

Modern international commercial contracts usually tend to have arbitration as their preferred mode of dispute resolution. One can attribute this largely – other than its less palpable advantages such as party autonomy, confidentiality, venue etc – to the fact that it is relatively faster. However, till a recent change, this was subject to a caveat, for, as an eminent jurist observed, “In the Indian legal system, there is ample – sometimes excessive – due process; and one has to be patient and persevering.”

The recent change was the result of a judgement, dated September 6, 2012, of a Constitution Bench of the Supreme Court of India in the case of Bharat Aluminium Co v Kaiser Aluminium Technical Services Inc (BALCO v Kaiser), which clarified the scope of jurisdiction of Indian Courts in international commercial arbitration. The Constitution Bench overruled the full bench decision of the Supreme Court in Bhatia International v Bulk Trading S A and Anr, (2002) 4 SCC 105) (Bhatia International) and the division bench decision of the Supreme Court, which followedBhatia International, in Venture Global Engineering v Satyam Computer Services Ltd and Anr, (2008) 1 Scale 214) (Venture Global Engineering). In Bhatia International and Venture Global Engineering the Supreme Court had held that Indian Courts could interfere to the fullest extent allowed by Part I of the Arbitration and Conciliation Act, 1996 (Act) even when the seat of arbitration was outside India. 

Law Prior to BALCO v Kaiser

The Act, which was inter alia enacted to consolidate and amend the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards, was made on the basis of the UNCITRAL Model Law on International Commercial Arbitration, with a stated objective of excluding judicial interference in arbitrations. Further, the Act, which was divided into four parts, provided in Section 2 (2) that Part I, entitled “Arbitration”, will apply where the seat of arbitration is in India – thus begging the question of whether the provisions dealing with interim measures by court (Section 9 of the Act), and setting aside arbitral awards (Section 34), contained in Part I of the Act, could be resorted to if the seat of the arbitration was outside India.

The position of law prior to BALCO v Kaiser has been formulated by the Supreme Court in several of its judgments. The very first judgment that laid down the principles governing international commercial arbitration was that of Bhatia International. The issue for consideration before the Supreme Court was whether an application under Section 9 of the Act was maintainable in a foreign seat arbitration.

In what was regarded as a judgement that is in the teeth of the Act, the Supreme Court held that interim reliefs could be granted to a foreign party in India, since the provisions of Part I of the Act would apply to all arbitrations and related proceedings held outside India. While holding that Part I of the Act would compulsorily apply to arbitrations held in India, and parties would be allowed to deviate only from the derogable provisions of said Part I to the extent permitted by the Act, the Court further held that in the case of an international commercial arbitration with its seat outside India, provisions of Part I of the Act would apply unless the parties had expressly or impliedly excluded all or any of its provisions.

The decision in Bhatia International was followed in the later judgment of Venture Global Engineering. The issue for consideration before the Supreme Court in Venture Global Engineering was whether an aggrieved party to a foreign seat arbitration, is entitled to challenge a foreign award in terms of Section 34 of the Act. The Supreme Court held in the affirmative.

Another significant decision which could impact the extent of judicial interference in arbitration, is that of a single judge bench of the Supreme Court in TDM Infrastructure Private Limited v UE Development Private Limited (2008) 14 SCC 271) (TDM Infrastructure). In this case, the Supreme Court observed that Section 28, which inter alia provides that Indian law would apply to the substance of the dispute where place of arbitration is India and parties to the arbitration are Indian, was “imperative” in character. With reference to the provision, it stated that the “intention of the legislature appears to be clear that Indian nationals should not be permitted to derogate from Indian law. This is part of the public policy of the country”. Thus when parties to an arbitration agreement were Indian, the merits of the dispute must be decided in accordance with Indian law.

Thereafter in 2011, came the judgment in Yograj Infrastructure Ltd v Ssang Yong Engineering and Construction Co Ltd (AIR 2011 SC 3517) (Yograj), wherein a division bench of the Supreme Court distinguished the decision rendered in Bhatia International on the basis that the parties had expressly chosen a foreign place as the seat of the arbitration and the rules of a foreign institution to apply to the arbitral process. The legal issue in question was the maintainability of an appeal under Section 37(2) of the Act. The agreement between the parties, one Indian party and the other Korean, was to be conducted in Singapore, in accordance with the Singapore International Arbitration (SIAC) Rules. The governing law of the agreement was Indian law.

The Supreme Court held that Part I of the Act would not be applicable to the arbitration agreement, since the parties had expressly chosen the SIAC Rules as the curial law. The parties were thus bound by Rule 32 of the SIAC Rules that makes Singaporean arbitration law applicable to arbitrations with their seat in Singapore.

The way to BALCO v Kaiser

Given the state of the existing Indian law on international commercial arbitration, every award that was passed outside India became open to challenge in India. This resulted in excessive interference by Indian courts in arbitration that was held outside India (despite the stated objective of the Act and the express provisions of Section 5 of the Act). Several parties started approaching Indian courts for interim reliefs that only delayed and caused hindrances to the smooth conduct and operation of the arbitration proceedings held outside India, thereby defeating the very purpose of choosing arbitration as a favourable option for dispute resolution. BALCO v Kaiser came up for final hearing, at this point of time.[5]

BALCO v Kaiser

In a staggering decision that spawned over a hundred and seventy pages, five judges of the Supreme Court inBALCO v Kaiser unanimously held that Part I of the Act would only apply to arbitrations whose seat was in India. The court reasoned as follows:

a. The Act has adopted the territoriality principle, which emphasizes on the seat of arbitration as opposed to the nationality of parties for the ascertainment of jurisdiction.

b.Part I of the Act and Part II of the Act are mutually exclusive. Part I applies to an award made in India, whether it is rendered in a domestic arbitration or whether it is domestically rendered in an international commercial arbitration (international award). Part II of the Act, applies to only certain foreign awards.

c. Section 2(2) lays down the scope of Part I of the Act by stating that “This Part shall apply where the place of arbitration is in India”. The absence of the word ‘only’ in Section 2(2) does not indicate that Part I was also applicable to arbitrations where the seat was outside India.

d.The ‘seat’ of the arbitration must be distinguished from the ‘venue’ of the arbitration. The seat of arbitration is location by law and the venue of arbitration is location by fact.

e.If parties expressly choose the Act as the law governing the arbitration proceedings, only those provisions of law which are concerned with the internal conduct of the arbitration and are not inconsistent with the foreign procedural law would be applicable to the arbitral proceedings. Hence, Part I would not apply as it applies only to arbitrations held in India.

f. Non-applicability of Part I to foreign seat arbitrations would not create a lacunae with respect to awards which were not made pursuant to either the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 1958 (The New York Convention) or the Protocol on Arbitration Clauses, 1923 and The Convention on the Execution of Foreign Arbitral Awards, 1927 (The Geneva Convention). Parliament had intentionally not included the aforesaid categories of awards within the definition of ‘foreign award’ in Section 44 and Section 53 of the Act since these awards were not included in the three statutes that were consolidated by the Act.

g. Section 28(1)(a) makes it clear that in an arbitration under Part I of the Act to which Section 2(1)(f)[6] does not apply, the dispute has to be resolved using the substantive law applicable to the contract. This ensures that two or more Indian parties do not circumvent the substantive Indian law by resorting to arbitration. On the other hand, if such arbitration is an international commercial arbitration under Part I of the Act within the meaning of Section 2(1)(f) of the Act, then the parties would be free to agree on any substantive law of their choice.

h.Section 9 of the Act must be interpreted in the same way as any other provision of Part I of the Act and so parties to a foreign seat arbitration agreement would not be entitled to relief under Section 9 of the Act.

i.. Non applicability of Part I of the Act to a foreign seat arbitration agreement would not leave the parties to the same ‘remedy-less’ as once parties voluntarily choose the seat of the arbitration to be outside India, they have impliedly accepted the necessary incidents and consequences of such a choice.

j. In a foreign seat arbitration, an inter-parte suit in India for interim relief pending arbitration would not be maintainable even if it is limited to the purpose of protecting the subject matter of the arbitration. In order to obtain an injunction, the existence of a suit seeking final relief, based on a recognised cause of action, is a prerequisite.

k. Ordinarily, international arbitration law recognises the competence of courts of two nations to set aside or suspend an award: the courts in the country where the seat of arbitration is located (first alternative) and the courts of the country whose laws govern the arbitral proceeding (second alternative). The power to suspend or annul an award primarily vests in the courts of the first alternative country, the second alternative country being available only in the event of failure of the first alternative. However, in the context of India, it must be noted that the Act does not confer any jurisdiction on Indian courts to set aside an international commercial award made outside India. This is because under the Act, the power to annul an arbitral award is only provided in Section 34 of the Act. Section 34 however is contained in Part I and is, therefore, limited in its applicability to awards made in India.

The Way Forward

The Supreme Court’s judgment in BALCO v Kaiser reinforces the objective of international commercial arbitration by ensuring minimal legal intervention in arbitral proceedings conducted outside of India. It clarifies the much debated position of law on the applicability of Part I of the Act to an arbitration held outside India. Till the judgment in BALCO vKaiser was rendered, determining whether an arbitration clause had impliedly or expressly excluded Part I of the Act, in accordance with the ruling in Bhatia International, remained a highly subjective test, often resulting in prolonged proceedings. However, some issues remain unresolved.

The remedies available to an Indian party

The Supreme Court ruling, by emphasizing on the sanctity of the seat of the arbitration, has reinforced a governing principle of arbitration - that of respecting parties’ autonomy.

The decision will have a major impact on the way arbitration agreements are drafted. Till now, parties to an arbitration agreement could choose a foreign seat and also state that notwithstanding the choice of the seat, recourse to provisions contained in Part I of the Act would be permitted. Now, express introduction of such exception will also not make any of the provisions of Part I applicable.

Theoretically, a natural conclusion of the judgment should be that Indian parties will choose to make India the seat of their arbitration in future international commercial arbitration agreements, in order to ensure recourse to Indian courts for interim reliefs or for challenging the award. However, whether Indian parties will have the bargaining power to ensure that India is made the seat in an international commercial arbitration agreement is a moot point. It also remains to be seen how many Indian parties will have the resources to initiate and continue legal proceedings in a foreign country. Given these considerations, arguably some Indian parties may have still been left “remedy-less”.

Choice of proper law of Contract in an agreement between two Indian parties

The issue that arose after TDM Infrastructure was whether the Supreme Court’s observation on the applicability of Indian law to arbitrations between Indian parties would extend to such arbitrations if they were held outside India.

In TDM Infrastructure the seat of arbitration was in India and the observation was made only with reference to Section 28(1)(a), a pre-condition of whose application is that the “place of arbitration is situate in India”. However, it can be argued that the “public policy” of India would apply to Indian parties even if they were to choose to arbitrate outside of India. Furthermore, since TDM Infrastructure was rendered when the judgment in Bhatia International was still good law, even when the arbitration clause specified a foreign country as the seat of the arbitration, if on the basis of the test in Bhatia International application of Part I was found to not be excluded, Section 28 of the Act would have applied to the arbitration. Therefore, in such a situation as well, two Indian parties could have been compelled to apply Indian law to the merits of their dispute.

In BALCO v Kaiser, the Supreme Court did not explicitly discuss TDM Infrastructure, noting that it was a case under Section 11 of the Act and so choice of law was not an issue that specifically arose for consideration in the case.

Nonetheless, in BALCO v Kaiser, the Supreme Court clearly stated that with respect to an Indian seated arbitration agreement between Indian parties, there was no choice for the arbitral tribunal but to decide the merits of the dispute by applying Indian law. It is ex facie apparent that such a proposition (of applying Indian law to disputes between Indian parties) cannot be extended to foreign seat arbitrations, since Section 28 is contained in Part I of the Act, which, post the judgment in BALCO v Kaiser, does not apply to a foreign seat arbitration. 

Nonetheless, the Constitution Bench has also stated that the import of Section 28 is to “ensure that two or more Indian parties do not circumvent the substantive Indian law, by resorting to arbitrations”. Arguably, such circumvention is also resorted to when two Indian parties choose foreign law as the proper law of the contract in a foreign seat arbitration agreement.

Status of arbitration petitions currently pending in Indian courts

In the concluding paragraph of its decision the Constitution Bench has stated that the law declared in BALCO vKaiser shall apply prospectively, i.e., to agreements entered into after the date of the judgement. Therefore, with respect to pending petitions filed in relation to arbitration agreements entered into before September 6, 2012, the law prior to BALCO v Kaiser would apply. Therefore, now, two interpretations of the law would be in force till disputes in agreements entered up to September 6, 2012, are resolved.

It is also significant to note that with respect to non-applicability of Section 9 of the Act to foreign seat arbitrations, the Supreme Court has stated that the responsibility of removing any “perceived lacuna” would be with the Parliament and not with it. The Government of India, in its Consultation Paper dated 7 April 2010, proposed to amend the Act so as to extend the application of Section 9 of the Act and Section 27 of the Act to foreign seat arbitrations. Given this proposal and the judgment’s limited applicability, the question of whether this judgment would go a long way in affecting international commercial contracts remain to be seen.

This article has been prepared by Khaitan & Co. Associate Partner, Mr. Raj R. Panchmatia and his associates, R. Arunadhri Iyer, Sukanya Bhaumik, Srinivasan Saimani, and Vatsala Sahay, and has been published after due permission from the author(s).

Disclaimer : This article was originally posted on Bar & Bench, and the weblink to the same is available here.

Exclusion of Arbitration Where Disputes Covered by Specialised Tribunals : The Law

The Full Bench of the Delhi High Court was seized with an interesting question, in HDFC Bank v. Satpal Singh Bakshi, as to whether the remedy of arbitration stands excluded in cases where specific tribunals are set up to decide the disputes between the same parties, more particularly in view of the exclusion of jurisdiction clauses set out in such acts. While distinguishing between rights 'in rem' and 'in personam', the Full Bench carved out a neat distinction between what is arbitrable and what is not. The relevant extracts from this important judgment are reproduced hereinbelow;

2. It is clear from the brief description of the factual matrix noted above that the core issue is which of the two enactments, namely, Arbitration Act and RDB Act is to prevail over the other. The Division Bench has framed this legal question in the following format:

"Whether the provisions of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the Arbitration Act) are excluded in respect of proceedings initiated by banks and financial institutions under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the RDB Act)."

3. When the matter came up for hearing before the Division Bench, another judgment of Division Bench of this Court in Kohinoor Creations and Ors. v. Syndicate Bank, 2005 (2) Arb. LR 324 (Delhi) was referred to wherein it has been inter alia held that in view of the provisions of Section 34 of the RDB Act, the provisions of Arbitration Act stand excluded and on that basis, it was argued that the view held by DRT and DRAT in the impugned orders did not reflect the correct legal position which was contrary to the aforesaid judgment of this Court. The Division Bench considered it proper that the matter required to be settled by a larger bench giving the following reasons therefor:

"Learned counsel for the petitioner has referred to a judgment of Division Bench of this court in Kohinoor Creations and Ors. Vs. Syndicate Bank 2005 (2) ARBLR 324 Delhi wherein it has been inter alia held that in view of the provisions of section 34 of the RDB Act, the provisions of the Arbitration Act stand excluded. In coming to this conclusion, specific emphasis is laid on sub-section (2) of Section 34 of the RDB Act. Section 34 of the RDB Act reads as under:-

"34. Act to have over-riding effect-

(1). Save as otherwise provided in sub-section(2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.

2). The provisions of this Act or the rules made there under shall be in addition to, and not in derogation of the Industrial Finance Corporation Act, 1948, the State Financial Corporation Act, 1951, the Unit Trust of India Act, 1963, the Industrial Reconstruction Bank of India Ltd., 1984, the Sick Industrial Companies (Special Provisions) Act, 1985 and the Small Industries Development Bank of India Act, 1989."

The submission of the learned counsel for the petitioner thus is, relying on the aforesaid judgment, that if a claim is over Rs.10 Lakh then jurisdiction of the Civil Court is excluded qua banks and financial institution, and therefore banks and financial institution have to necessarily approach the DRT for recovery of the amount in terms of the RDB Act. In other words, the applicability of the Arbitration Act stands ousted. In our considered view, sub-section(2) of section 34 of the RDB Act only provides that the provision of that Act are in addition to certain acts specified therein. The question which arises for consideration is whether by implication all other Acts not referred to in sub-section (2) of Section 34 are overridden by the provisions of the RDB Act. While considering this aspect, it will have to be borne in mind that firstly, the Arbitration Act was enacted after the enforcement of the RDB Act and secondly, the exclusivity of jurisdiction conferred on the DRTs‟ is perhaps applicable to public forums as against private forums such as an arbitral tribunal. To test the proposition, if one were to ask whether the DRT would refuse to pass an order on a compromise application where parties agree to an intercession of an arbitrator on a portion of a claim during the pendency of the matter before it; the answer may perhaps be in the negative. There are therefore, to our mind, several unanswered aspects of the matter which require closer examination.

We are thus of the view that this matter is of some importance and thus the question of law as aforesaid, needs to be settled by a Larger Bench of this court..."

4. This is how the matter was placed before this Bench. Keeping in view the importance of the issue involved and also that the respondent has failed to put in appearance inspite of service, we had requested Mr. Parag P. Tripathi, learned senior counsel to assist the Court. Mr. Tripathi stated that after examining the whole matter, he was of the view that RDB Act was a special statute which would prevail over the Arbitration Act. He thus argued on these lines thereby supporting the cause of the bank. Mr.Tripathi opened his submission by explaining the special status of the RDB Act and the raison d'etre behind this enactment. He impressed upon the fact that this Act was enacted in the background of swelling Non Performing Assets (NPAs) and difficulty of banks and financial institutions to recover loans and enforcement of the same. Mostly, these institutions are public financial institutions and monies are public money. The focus was therefore expeditious adjudication and recovery of debts. The validity of the Act was upheld by the Supreme Court in Union of India v. Delhi High Court Bar Association,(2002) 4 SCC 275 which set aside the judgment of the High Court. Referring to preamble of the RDB Act, he pointed out that the same provides for "establishment of tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions". Going by the Objects and Reasons behind the RDB Act, it was crystal clear that the purpose was to unlock the locked potentials of NPAs. In this sense, he submitted, RDB Act was special statute enacted for specific purpose. In this context, explaining the concept of a special law or statute, of Mr.Tripathi endeavored to build step by step edifice of his submissions in the following manner:

(a) Section 9 of CPC makes it clear that every party has a right of recourse to civil remedy before a duly constituted civil court unless the remedy is barred either expressly or by implication. It is also a settled law that any provision ousting the jurisdiction of civil court must be strictly construed. [Sahebgouda v. Ogeppa, (2003) 6 SCC 151].

(b) He then explained the working of RDB Act pointing out that RDB Act is relatable to Entry 45 of List I (Banking). Preamble of this Act provides for "establishment of tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions....". Under Section 19, only a bank or a financial institution [as defined under Section 2(d) and (h) of the RDB Act] can trigger the provisions of the RDB Act when the „debt‟ [as defined under Section 2(g)] is more than `10 Lakhs [Section 1(4)]. Therefore, RDB Act operates within a very narrow compass and deals with a very special situation of recovery of debts due to banks and financial institutions, which clearly makes it a special law dealing with a specific situation.

(c) On the other hand, Arbitration Act relates to Entry 11A (Administration of Justice) and Entry 13 (Civil Procedure, including Arbitration) of List III. As per the preamble of this Act, it "consolidates and amends the law relating to domestic arbitration, the international arbitration and enforcement of foreign arbitral awards as to define the law relating to Constitution....". Premised on this, submission of Mr. Tripathi was that the Arbitration Act takes within its sweep all possible arbitrations dealing with an exceptionally wide cross sections and possible areas of disputes. Any dispute, which is arbitrable in nature, would be governed by the provision of the Arbitration Act, which exposes its general nature as regards the subject matter of disputes it deals with. Further, an arbitral tribunal is an alternative to civil courts and its jurisdiction would coincide with a civil court [Executive Engineer, Dhenkanal Minor Irrigiation Division v. N.C. Budharaj, (2001) 2 SCC 721]. (d) Advancing his plea predicated on his aforesaid submission pointing out the nature of RDB Act and Arbitration Act, Mr. Tripathi argued that the Arbitration Act is a general statute vis-à-vis RDB Act which is a special statute with regard to recovery of debts of banks and financial institutions and, therefore, the provisions of special statute, i.e. RDB Act, would prevail over those of general statute, i.e. Arbitration Act.

(e) Mr. Tripathi accepted that Arbitration Act may be special statute when it is placed in juxtaposition with the jurisdiction of civil courts to entertain and adjudicate civil disputes inasmuch as in that sense, the Arbitration Act provided for special forum, chosen by the parties who wanted to remain away from the civil court for the adjudication of their inter se disputes. His submission, however, was that there have been instances where the same statute has been treated as a special statute vis-à-vis one legislation and as a general statute vis-à- vis another legislation. The issue arose in Life Insurance Corporation of India v. D.J. Bahadur, (1981) 1 SCC 315, viz. whether in the context of a dispute between workmen and management (of LIC), the LIC Act or the Industrial Disputes Act is a special statute. It was observed:

"52. In determining whether a statute is a special or a general one, the focus must be on the principal subject matter plus the particular perspective. For certain purposes, an Act may be general and for certain other purposes it may be special and we cannot blur distinctions when dealing with finer points of law.

The Apex Court further held:

"....vis-a-vis 'industrial disputes' at the termination of the settlement as between the workmen and the Corporation the ID Act is a special legislation and the L.I.C. Act a general legislation. Likewise, when compensation on nationalisation is the question, the L.I.C. Act is the special statute."

Similarly in the case of Damji Valji Shah v. LIC of India, AIR 1966 SC 135, the Supreme Court held:

"Further, the provision of the special Act, i.e. the LIC Act, will override the provisions of the general Act, viz., the Companies Act which is an Act relating to companies in general."

He also drew our attention to the decision of Snehadeep Structures Pvt. Ltd. v. Maharashtra Small-Scale Industries Development Corporation Ltd., (2010) 3 SCC 34, where the Supreme Court while dealing with applicability of provisions of the interest on delayed payment to Small Scale and Ancillary Industrial Undertaking Act, 1993 vis-à-vis Arbitration Act, held:

"38. The preamble of Interest Act shows that the very objective of the Act was "to provide for and regulate the payment of interest on delayed payments to small scale and ancillary industrial undertakings and for matters connected therewith or incidental thereto." Thus, as far as interest on delayed payment to Small Scale Industries as well as connected matters are concerned, the Act is a special legislation with respect to any other legislation, including the Arbitration Act. The contention of the respondent that the matter of interest payment will be governed by Section 31(7) of the Arbitration Act, hence, is erroneous. Section 4 of the Interest Act endorses the same which sets out the liability of the buyer to pay interest to the supplier 'notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force.' Thus, Interest Act is a special legislation as far as the liability to pay interest, or to make a deposit thereof, while challenging an award/decree/order granting interest is concerned."

He, thus, impressed that insofar as comparison of RDB Act with Arbitration Act is concerned, RDB Act is to be treated as special statute vis-à-vis Arbitration Act and on the application of settled principle of generalia specialibus non derogant the former would prevail over the latter to the limited extent of proceeding initiated by the Banks/Financial Institutions for the recovery of debts.

5. In his attempt to carry home these points, other submissions of Mr.Tripathi were as follows:

(i) Section 17 of the RDB Act makes it clear that the DRT alone is to decide the applications of the Banks and Financial Institutions for recovery of debts due to them. Also, Section 18 of the Act clearly bars the jurisdiction of any other court, except High Court and Supreme Court, from entertaining matters specified in Section 17. Furthermore, Section 31 of the Act transfers all such cases pending before any Court to the DRT. It is therefore evident from the scheme of the RDB that an exclusive jurisdiction has been given to the DRT. He argued that the law on this point has already been conclusively settled by the Supreme Court in the matter of Allahabad Bank v. Canara Bank, (2000) 4 SCC 406, where the issue was with regard to jurisdiction of DRT and Recovery Officers under the DRT Act vis-à- vis Company Court (when a winding up petition is pending, or a winding up order has been passed). It was held that the adjudication of liability and execution of the certificate in respect of debt payable to banks and financial institutions is within the exclusive jurisdiction of the DRT and the concerned Recovery Officer, and in such a case the jurisdiction of the Company Court under Section 442, 537 and 446 of the Companies Act, 1956 stands ousted.

(ii) On the other hand, the Arbitration Act is a substitute for a civil Court within the meaning of Section 9 to adjudicate civil disputes, subject to the additional limitation where it is a right in rem, which is to be adjudicated. Taking sustenance from the judgment of Supreme Court in the matter of Booz Allen and Hamilton Inc. v. SBI Home Finance Limited & Ors., (2011) 5 SCC 532, he pointed out that the Supreme Court while dealing with the issue of „arbitrability‟ of dispute held that Arbitral Tribunals are „private fori‟ chosen by the parties in place of Courts or Tribunals which are „public fori‟ constituted under the laws of the country. All disputes relating to „right in personam‟ are considered to be amenable to arbitration and all disputes relating to „right in rem‟ are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. He attempted to apply the ratio of the aforesaid judgment to the given case arguing that when the legislature has expressly made a particular kind of dispute to be decided by a public forum, then the same has been by implication excluded from the purview of arbitrability and therefore cannot be decided by a private forum like arbitration.

(iii) Mr. Tripathi also tried to draw support from Section 34 of the RDB Act which provides a non-obstante clause. Section 34(2) stipulates that RDB Act is „in addition to and not in derogation‟ to any law or force. On the contrary, the Arbitration Act does not have any non- obstante clause except a limited extent insofar as judicial intervention is concerned as provided in Section 5 of the Arbitration Act. He thus submitted that where there are two Acts, the one having a non- obstante clause will prevail over the other and for this reason also, RDB Act should prevail over Arbitration Act. He also submitted that a finer reading of the provisions of RDB Act, particularly Section 34 thereof, would reveal that application of Arbitration Act had been expressly as well as impliedly excluded. He also submitted that even if the Arbitration Act is a latter Act, the concept of arbitration was well known to Parliament right from Arbitration Act, 1891 through to the Arbitration Act, 1940. Apart from Section 34, even Section 18 of the RDB Act ousts jurisdiction of all other courts in relation to matters specified in Section 17. Since arbitration is an alternative to the jurisdiction of civil courts and its jurisdiction would be confined and in alternative to cases where civil courts have jurisdiction, therefore, when the jurisdiction of civil courts are ousted, it would impliedly oust the jurisdiction of the arbitral tribunal also. It is Section 18 which is somewhat in pari materia with Section 5 of the Arbitration Act.

(iv) Mr. Tripathi concluded his submissions by referring to the judgment of the Supreme Court in Nahar Industrial Enterprise Ltd. v. Hong Kong and Shanghai Banking Corporation, (2009) 8 SCC 646 and submitted that the issue at hand stands settled by the aforesaid judgment. In that case, the issue was whether the High Court or Supreme Court has the power to transfer a suit pending in a Civil Court to DRT. The Court enunciated the law as under:

"117. The Act, although, was enacted for a specific purpose but having regard to the exclusion of jurisdiction expressly provided for in Sections 17 and 18 of the Act, it is difficult to hold that a civil court's jurisdiction is completely ousted. Indisputably the banks and the financial institutions for the purpose of enforcement of their claim for a sum below Rs. 10 lakhs would have to file civil suits before the civil courts. It is only for the claims of the banks and the financial institutions above the aforementioned sum that they have to approach the Debt Recovery Tribunal. It is also without any cavil that the banks and the financial institutions, keeping in view the provisions of Sections 17 and 18 of the Act, are necessarily required to file their claim petitions before the Tribunal. The converse is not true. Debtors can file their claims of set off or counter-claims only when a claim application is filed and not otherwise. Even in a given situation the banks and/or the financial institutions can ask the Tribunal to pass an appropriate order for getting the claims of set-off or the counter claims, determined by a civil court. The Tribunal is not a high powered tribunal. It is a one man Tribunal. Unlike some Special Acts, as for example Andhra Pradesh Land Grabbing (Prohibition) Act, 1982 it does not contain a deeming provision that the Tribunal would be deemed to be a civil court."

5. Mr. Puneet Bhalla, learned counsel appearing for the bank adopted the aforesaid arguments. In addition, he heavily relied upon the reasons given by the Division Bench in Kohinoor Creations (supra) and submitted that the approach of the Division Bench in the said case was in tune with the legal position which should be maintained.

6. From the detailed submissions made by Mr. Tripathi and Mr. Bhalla as noted above and the reading of judgment of the Division Bench in Kohinoor Creations (supra), it is clear that the entire rationale sought to be projected is the exclusiveness of the RDB Act to deal with the matters which fall within the jurisdiction of the Debt Recovery Tribunals constituted under the said Act. On that basis, the attempt is to show that all those matters which are covered by the RDB Act for which special machinery in the form of Debt Recovery Tribunal and Debt Recovery Appellate Tribunal is constituted, such matters come within the sole and exclusive domain of Debt Recovery Tribunal and no other body or forum has any jurisdiction to deal with such disputes.

7. There is no doubt that those matters which are covered by the RDB Act and are to be adjudicated upon by the Debt Recovery Tribunal/ Debt Recovery Appellate Tribunal, jurisdiction of civil courts is barred. Up to this point, we are in agreement with the learned counsels. However, the answer to the question posed before us does not depend upon the aforesaid principle. That principle only ousts the jurisdiction of civil courts. Focus of the issue, however, has to be somewhat different viz. even when a special Tribunal is created to decide the claims of banks and financial institutions of amounts more than `10 Lakhs, can the parties by mutual agreement still agree that instead of the Tribunal constituted under the RDB Act, these disputes shall be decided by the Arbitral Tribunal. If answer to this question is in the negative, then those submissions made by the counsels shall prevail. On the other hand, if we find that it is permissible for the parties, by agreement, to agree for domestic forum of their own choice, namely, Arbitral Tribunal under the Arbitration Act to deal with such claims, then the edifice of the apparent forceful submissions of Mr. Tripathi would collapse like house of cards as all those submissions would be relegated to the pale of insignificance.

8. No doubt, for determination of disputes the State provides the mechanism in the form of judicial fora, i.e. administration of justice through the means of judicial system established in this country as per the Constitution and the laws. However, it is also recognized that that is not the only means for determination of lis or resolution of conflicts between the parties. Still the parties are given freedom to choose a forum, alternate to and in place of the regular courts or judicial system for the decision of their inter se disputes. There has been a recognition of the concept that notwithstanding the judicial system, parties are free to chose their own forum in the form of arbitration. This was first recognized by enacting Arbitration Act, 1891. Introduction of Section 89 in the Code of Civil Procedure by amendment to the said Code in the year 2002 takes this concept further by introducing various other forums, known as Alternate Dispute Resolution. Thus, even when the matter is pending in the Court, parties to the dispute are given freedom to resort to Lok Adalat, conciliation, mediation and also the arbitration.

9. All civil societies demand a proper, effective and independent judicial system to resolve the disputes that may arise. Resolution of disputes by Municipal Courts is, therefore, prevalent in all countries and independence of judiciary is endeavoured in democratic set ups. While courts are State machinery discharging sovereign function of judicial decision making, various alternate methods for resolving the disputes have also been evolved over a period of time. One of the oldest among these is the arbitration. This is a forum for dispute resolution in place of municipal court. Important feature of arbitration is that parties to the dispute voluntarily agree to get the disputes decided by one or more persons, rather than the Court. Though the Indian Arbitration and Conciliation Act, 1996 does not contain a definition of "arbitration", Statement of Objects and Reasons contained therein gives an indication of the general principles on which arbitration is founded. These are:

i. The object of arbitration is to ensure a fair resolution of disputes by an impartial tribunal without unnecessary delay or expense. ii. The parties should be free to agree how their disputes are resolved subject only to such safeguards as are necessary in the public interest.

iii. Intervention of the courts should be restricted.

10. Thus, the Courts have not been the only forum for conflict resolutions. As already pointed about above, arbitration in the form of statute was given recognition in the year 1899 though even earlier to that, arbitration in some or other form prevailed in this country. What is important is that arbitration as an alternate to resolution by municipal courts is recognized and in the process, sanctity is attached to the domestic forum which is chosen by the parties themselves. In that sense, party autonomy is recognized as paramount. It is a recognition of the fact that the parties are given freedom to agree how their disputes are resolved. Even the intervention by the Courts is restricted and is minimal.

11. What follows from the above? When arbitration as alternate to the civil courts is recognized, which is the common case of the parties before us, creation of Debt Recovery Tribunal under the RDB Act as a forum for deciding claims of banks and financial institutions would make any difference? We are of the firm view that answer has to be in the negative. What is so special under the RDB Act? It is nothing but creating a tribunal to decide certain specific types of cases which were earlier decided by the civil courts and is popularly known as „tribunalization of justice‟. It is a matter of record that there are so many such tribunals created. Service matters of the civil servants and employees of public bodies/authorities which were hitherto dealt with by the civil courts and the High Court are now given to the Central Administrative Tribunal and State Administrative Tribunals with the enactment of Administrative Tribunals Act, 1985. Disputes of defence personnel are now dealt with by special tribunals called Armed Forces Tribunal constituted under the Armed Forces Tribunal Act, 2007. With the creation of all these special tribunals, the matters which were up to now dealt with by civil courts or High Courts are to be taken up by these tribunals in the first instance. (We would like to point out that in so far as High Court is concerned, constitutional remedy provided under Article 226 of the Constitution of India remains intact as held in L. Chandrakumar v. Union of India, (1994) 5 SCC 539. However, it is not necessary to dilate on this issue as that does not have any bearing on the present issue).

12. With the creation of these alternate fora with all trappings of the Court and with the decision of the disputes which were hitherto dealt with by the civil courts, can it be said that parties are now totally precluded and prohibited of exercising their choice of domestic forum in the form of arbitral tribunal. Before we answer this question, we would like to refer to the judgment in the case of Booz Allen and Hamilton Inc. (supra). The Supreme Court in that case dealt with the issue of "arbitrability of disputes" and held that all disputes relating to „right in personam‟ are considered to be amenable to arbitration and disputes relating to „right in rem‟ are those disputes which are not arbitrable and require to be adjudicated by courts and public tribunals, being unsuited for private arbitration. Law in this respect is explained by the Supreme Court with utmost clarity, precision and erudition in the following terms:

"32. The nature and scope of issues arising for consideration in an application under Section 11 of the Act for appointment of arbitrators, are far narrower than those arising in an application under Section 8 of the Act, seeking reference of the parties to a suit to arbitration. While considering an application under Section 11 of the Act, the Chief Justice or his designate would not embark upon an examination of the issue of 'arbitrability' or appropriateness of adjudication by a private forum, once he finds that there was an arbitration agreement between or among the parties, and would leave the issue of arbitrability for the decision of the arbitral Tribunal. If the arbitrator wrongly holds that the dispute is arbitrable, the aggrieved party will have to challenge the award by filing an application under Section 34 of the Act, relying upon Sub-Section 2(b)(i) of that section.

33. But where the issue of 'arbitrability' arises in the context of an application under Section 8 of the Act in a pending suit, all aspects of arbitrability have to be decided by the court seized of the suit, and cannot be left to the decision of the Arbitrator. Even if there is an arbitration agreement between the parties, and even if the dispute is covered by the arbitration agreement, the court where the civil suit is pending, will refuse an application under Section 8 of the Act, to refer the parties to arbitration, if the subject matter of the suit is capable of adjudication only by a public forum or the relief claimed can only be granted by a special court or Tribunal.

34. The term 'arbitrability' has different meanings in different contexts. The three facets of arbitrability, relating to the jurisdiction of the arbitral tribunal, are as under:

(i) whether the disputes are capable of adjudication and settlement by arbitration? That is, whether the disputes, having regard to their nature, could be resolved by a private forum chosen by the parties (the arbitral tribunal) or whether they would exclusively fall within the domain of public fora (courts).

(ii) Whether the disputes are covered by the arbitration agreement? That is, whether the disputes are enumerated or described in the arbitration agreement as matters to be decided by arbitration or whether the disputes fall under the 'excepted matters' excluded from the purview of the arbitration agreement.

(iii) Whether the parties have referred the disputes to arbitration? That is, whether the disputes fall under the scope of the submission to the arbitral tribunal, or whether they do not arise out of the statement of claim and the counter claim filed before the arbitral tribunal. A dispute, even if it is capable of being decided by arbitration and falling within the scope of arbitration agreement, will not be 'arbitrable' if it is not enumerated in the joint list of disputes referred to arbitration, or in the absence of such joint list of disputes, does not form part of the disputes raised in the pleadings before the arbitral tribunal.

35. Arbitral tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of arbitral tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the Legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by a public fora (courts and Tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes.

36. The well recognized examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal rights, child custody; (iii) guardianship matters; (iv) insolvency and winding up matters; (v) testamentary matters (grant of probate, letters of administration and succession certificate); and (vi) eviction or tenancy matters governed by special statutes where the tenant enjoys statutory protection against eviction and only the specified courts are conferred jurisdiction to grant eviction or decide the disputes.

37. It may be noticed that the cases referred to above relate to actions in rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself. (Vide: Black's Law Dictionary).

38. Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to sub-ordinate rights in personam arising from rights in rem have always been considered to be arbitrable."

13. What is discernible from the above is that all disputes relating to „right in personam‟ are arbitrable and choice is given to the parties to choose this alternate forum. On the other hand, those relating to „right in rem‟ having inherent public interest are not arbitrable and the parties‟ choice to choose forum of arbitration is ousted. Examined in this line, it is obvious that a claim of money by the bank or financial institution against the borrower cannot be treated as „right in rem‟. Each claim involves adjudication whether, on the facts of that case, money is payable by the borrower to the bank/financial institution and if so to what extent. Each case is the decision on the facts of that case with no general ramifications. A judgment/decision of the Debt Recovery Tribunal deciding a particular claim can never be „right in rem‟ and is a „right in personam‟ as it decides the individual case/claim before it with no elements of any public interest.

14. Merely because there were huge NPAs and lot of monies belonging to the banks and financial institutions was stuck up and the legislature in its wisdom decided to create a special forum to have expeditious disposal of these cases would not mean that decisions rendered by Debt Recovery Tribunal come in the realm of „right in rem‟. At the same time, we find from the judgment in Booz Allen and Hamilton Inc. (supra) that certain kinds of disputes for which tribunals are created are held to be non- arbitrable. Examples are Rent Control Tribunal under the Rent Control Act and Labour Court/Industrial Tribunal under the Industrial Disputes Act, 1947. Obviously, question that would immediately strike is as to what would be the yardstick to determine some kind of disputes to be decided by the tribunals are non-arbitrable whereas some other disputes become arbitrable. According to us, cases where a particular enactment creates special rights and obligations and gives special powers to the tribunals which are not with the civil courts, those disputes would be non-arbitrable.

It is a matter of common knowledge that Rent Control Act grants statutory protection to the tenants. Wherever provisions of Rent Control Act are applicable, it overrides the contract entered into between the parties. It is the rights created under the Act which prevail and those rights are not enforceable through civil courts but only through the tribunals which is given special jurisdiction not available with the civil courts. Likewise, Industrial Disputes Act, 1947 creates special rights in favour of the workman or employers and gives special powers to the industrial adjudicators/tribunals to even create rights which powers are not available to civil courts. Obviously such disputes cannot be decided by means of arbitral tribunals which are substitute of civil courts. On the other hand, in so far as tribunal like Debt Recovery Tribunal is concerned, it is simply a replacement of civil court. There are no special rights created in favour of the banks or financial institutions. There are no special powers given to the Debt Recovery Tribunal except that the procedure for deciding the disputes is little different from that of CPC applicable to civil courts. Otherwise, the Debt Recovery Tribunal is supposed to apply the same law as applied by the civil courts in deciding the dispute coming before it and is enforcing contractual rights of the Banks. It is, therefore, only a shift of forum from civil court to the tribunal for speedy disposal. Therefore, applying the principle contained in Booz Allen and Hamilton Inc. (supra), we are of the view that the matters which come within the scope and jurisdiction of Debt Recovery Tribunal are arbitrable.

15. Once that conclusion is arrived at, obviously the parties are given a choice to chose their own private forum in the form of arbitration.

16. Another significant fact which has to be highlighted is that the bank entered into agreement with the respondent herein on its own standard form formats. The terms and conditions of the loan were set out and decided by the bank. The respondent signed on dotted lines. In this scenario, when it was the proposal of the bank to have an arbitration clause to which the respondent had agreed, bank cannot now be permitted to say that this arbitration clause is of no consequence. Accepting the contention of bank would mean that the arbitration clause is rendered nugatory. It defeats the very effect of the said arbitration clause which was foisted by the bank itself upon the respondent, though in law, it becomes mutually acceptable between the parties.

17. Matter can be looked into form another angle as well. Had the bank invoked the arbitration on the basis of aforesaid clause containing arbitration agreement between the parties and referred the matter to the arbitral tribunal, was it permissible for the respondent to take an objection to the maintainability of those arbitration proceedings? Answer would be an emphatic no. When we find that answer is in the negative, the Court cannot permit a situation where such an arbitration agreement becomes one sided agreement, namely, to be invoked by the bank alone at its discretion without giving any corresponding right to the respondent to have the benefit thereof.

No Piecemeal Adjudication in Section 11 Petitions : Supreme Court

Justice Lodha
Supreme Court of India

The Supreme Court in Hindustan Copper Ltd. Vs. Monarch Gold Mining Co. Ltd. was called upon to adjudicate on the procedure adopted by the Calcutta High Court while dealing with a petition under Section 11 of the Arbitration & Conciliation Act, 1996. The Supreme Court has held that there can be no piecemeal adjudication of the existence of arbitrable disputes under Section 11, and once an arbitral dispute is found to be existent, the same Court ought to appoint an arbitrator. The Supreme Court while dealing with this situation has held as under:

2. These appeals have raised the question about the procedure that is being followed by Calcutta High Court in consideration of the applications under Section 11 of the Arbitration and Conciliation Act, 1996 (for short, ‘1996 Act’). 

3. When the special leave petition filed by M/s. Choudhury Construction came up for consideration before the Bench, the learned counsel for the petitioner submitted that the procedure adopted by the Designate Judge while hearing petition under Section 11 of 1996 Act was unknown in law and not sanctioned by Section 11 inasmuch as although the Designate Judge has held that there are live disputes between the parties which have to be resolved through arbitration, yet the matter has been ordered to be placed before the Chief Justice for appointment of the arbitrator. In light of the submission made by the learned counsel, Registrar General, Calcutta High Court was ordered to be impleaded as party respondent. 

4. In the matter of Hindustan Copper Limited, by an order dated 18.7.2012 this Court felt that the views of the Registrar General, Calcutta High Court were necessary as the issue involved was whether an application under Section 11(6) of the 1996 Act for appointment of an arbitrator could be considered in piecemeal by two Designate Judges. 

5. In the matter of Hindustan Copper Limited, one Designate Judge first passed the order on 9.6.2011 holding that the request for appointment of the arbitrator was proper and then ordered that the application should be referred to Hon’ble Delegate of the Chief Justice for appointment of an arbitrator. The relevant part of the order dated 9.6.2011 reads as under : 

“Therefore, the request for appointment of arbitrator was proper. There is an arbitral dispute between the parties, as held above. 

I also notice that the petitioner have not appointed their arbitrator, which they ought to have done by this time. Therefore, in the circumstances, I think this application should be referred to the Hon’ble delegate of the Hon’ble the Chief Justice for appointment of an arbitrator/arbitrators to adjudicate the disputes between the parties as mentioned in the letter of the petitioner dated 28th December, 2009. I order accordingly.” 

6. In pursuance of the order dated 9.6.2011, the matter came up before another Designate Judge and he appointed the arbitrator by an order dated 8.7.2011. The following order reads as under : 

“It appears from the order dated 9th June, 2011 passed by a learned Judge of this Court that His Lordship has already found that there exists an arbitration agreement between the parties and the dispute involved herein is covered by the said agreement. In view of such fact, I, in exercise of power conferred under section 11(6) of the Arbitration & Conciliation Act, 1996 appoint Sri Rudrendra Nath Banerjee, a retired Judge of this Court as the Arbitrator on the fees of Rs. 15,000/- for each sitting.” 

7. In the appeal of M/s. Choudhury Construction, the Designate Judge on 6.9.2011 passed the following order : “The State does not dispute the existence of the arbitration agreement but says that matters specifically excepted by the agreement cannot be made the subject matter of any arbitral reference. If there is any excepted matter which is raised by the petitioner as claimant, it will be open to the State to object thereto, inter alia, under Section 16 of the Arbitration and Conciliation Act, 1996. Since it appears that there are live disputes to go to arbitration and the parties have failed to agree in the composition of the arbitral tribunal, AP No. 394 of 2009 is directed to be placed before the Hon’ble Designate of the Hon’ble The Chief Justice for constitution of an arbitral tribunal in accordance with the agreement between the parties to adjudicate upon the disputes covered thereby. There will be no order as to costs. 

10. Section 11 of 1996 Act provides for the appointment of arbitrators. It reads as under: “S. 11. Appointment of arbitrators.— 

(1) A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. 

(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators. 

(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators, shall appoint the third arbitrator who shall act as the presiding arbitrator. 

(4) If the appointment procedure in sub-section (3) applies and— 

(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or 

(b) the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, 

the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him. 

(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree the appointment shall be made, upon request of a party, by the Chief Justice or any person or institution designated by him. (6) Where, under an appointment procedure agreed upon by the parties, – 

(a) a party fails to act as required under that procedure; or (b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or (c) a person, including an institution, fails to perform any function entrusted to him or it under that procedure, 

a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment. 

(7) A decision on a matter entrusted by sub-section (4) or sub- section (5) or sub section (6) to the Chief Justice or the person or institution designated by him is final. 

(8) The Chief' Justice or the person or institution designated by him, in appointing an arbitrator, shall have due regard to – 

(a) any qualifications required of the arbitrator by the agreement of the parties; and 

(b) other considerations as are likely to secure the appointment of an independent and impartial arbitrator. 

(9) In the case of appointment of sole or third arbitrator in an international commercial arbitration, the Chief Justice of India or the person or institution designated by him may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities. 

(10) The Chief Justice may make such scheme as he may deem appropriate for dealing with matters entrusted by sub- section (4) or sub-section (5) or sub-section (6) to him. 

(11) Where more than one request has been made under sub-section (4) or sub-section (5) or sub-section (6) to the Chief Justices of different High Courts or their designates, the Chief Justice or his designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide on the request. 

(12) (a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8) and (10) arise in an international commercial arbitration, the reference to "Chief Justice" in those sub- sections shall he construed as a reference to the "Chief Justice of India." (b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8), and (10) arise in any other arbitration, the reference to "Chief Justice" in those sub-sections shall be construed as a reference to the Chief Justice of the High Court within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situate and, where the High Court itself is the Court referred to in that clause, to the Chief Justice of that High Court.” 

11. The Division Bench of the Calcutta High Court in Modi Korea Telecommunication Ltd. was concerned with the question of the jurisdiction of a Single Judge who has been given the power for determination to entertain, hear and dispose of arbitration matters under Section 11 of the 1996 Act. The Division Bench dealt with the scheme of the 1996 Act, particularly, with reference to Sections 5,8,11,16 and 37(1). In the opinion of the Division Bench, Section 11 makes a distinction between the procedure for appointment of arbitrator and the actual appointment of the arbitrator. Keeping that distinction in mind, the Division Bench proceeded to consider the matter thus: 

“48. .....Under section 11(2) parties can agree on the procedure for appointing the arbitrator. If there is no such agreement on the procedure section 11(3) prescribes the procedure to be followed. When the arbitration is to be of three arbitrators, section 11(3) provides that “each party shall appoint one arbitrator and the two appointed arbitrators shall appoint a third arbitrator who shall act as the presiding arbitrator”. 

If a party fails to appoint an arbitrator within 30 days from the receipt of request to do so from the other party or the two appointed arbitrators fail to agree on the third arbitrator within 30 days from the date of their appointment, the appointment shall be made, upon request of a party, by the Chief Justice or any person or institute designated by him under sub- section (4) of section 11. 

49. Section 11(5) similarly provides that in the case of the arbitration with a sole arbitrator if the parties fail to agree on the arbitrator within 30 days from the receipt of the request by one party from the other to do so, the appointment shall be made, upon request of a party by the Chief Justice or any person or institute designated by him. Section 11(6) deals with a situation where the appointment procedure has been agreed upon but there is non compliance of the agreed procedure. In this case also any party may request “the Chief Justice or any person or institute designated by him” to take the necessary measures unless the agreement on the appointment provides other means for securing the appointment. 

50. A decision on the matter entrusted by sub-sections (4),(5) and (6) to the Chief Justice or any person or institute designated by him is final by virtue of section 11(7). Section 11(8) provides for considerations to which regard should be had before such power of appointment is exercised. Section 11(9) deals with International Commercial Arbitrations where the Chief Justice of India or any person or institute designated by him is given the powers of appointment. Section 11(11) deals with a situation where several requests are made to the Chief Justices of different High Courts or their designates. Section 11(12)(a) extends the operation of sub-sections (4), (5), (6), (7), (8) and (10) to International Commercial Arbitrations giving power of appointment to the Chief Justice of India in place of Chief Justice of the High Court. Section 11(12)(b) clarifies that the reference to Chief Justice means the Chief Justice of the appropriate High Court. 

51. What does “appointment” mean—is it only limited to naming or does it include the adjudicatory process as to whether appointment should be made? 

52. It is clear from a reading of section 11 that the word “appoint” has been used in section 11 to mean nomination or designation. Thus parties may appoint or name their arbitrator under Section 11(2), (3) and (4). The parties do not, in appointing an arbitrator, do more than name or designate him. 

53. The power which has been conferred exclusively under section 11 on the Chief Justice is the power of appointment or the power to name an arbitrator. The Chief Justice may, if he so chooses, designate some other person or institute to exercise this power. 

54. This power is to be distinguished from the general power of a court to determine whether the pre-conditions for the exercise of that power have been fulfilled. This is a judicial act. The bifurcation between the two powers has been recognized in the unreported decision of Harihar Yadav v. Durgapur Projects Ltd. (supra) when it was said: 

“Undoubtedly the appointment of an arbitrator, on an application made by one of the parties involves a decision making process comprising the twin vital components and elements of consideration with regard to the points in issue, or the points of controversy between the parties and the actual act of appointment of the arbitrator. The act of actual appointment of an arbitrator has always to be preceded by a consideration as to whether in the facts and circumstances of the case the arbitrator in fact is required to be appointed or not. It is not only after this issue is resolved that the question of appointment of an arbitrator arises.” 

55. Given the definition of the word ‘appointment’, in our view, section 11 does not say that the Chief Justice could alone exercise the general power of judicially determining whether the pre- conditions for such appointment have been fulfilled. To hold otherwise would, not only be contrary to the express language of the section, but it would also mean that the Chief Justice could by designation clothe any person or institution with the power to discharge judicial functions. 

56. Besides the legislature could not have intended to burden either the Chief Justice of India (in connection with all international arbitrations) or the Chief Justice of a High Court (in connection with all domestic arbitrations) to be saddled with the impracticable task of determining the existence of the preconditions for appointment of an arbitrator/arbitrators in all cases nor to empower the Chief Justice with the power to clothe any person or authority of his choice with the discharge of judicial functions exercisable by Courts. In facts section 11 does not say anything on the matter. 

57. In our view such judicial determination is to be exercised only by a Court. A Court has been defined in section 2(e) of the Act as : 

“(e) ‘Court’ means the principal Civil Court of original jurisdiction in a district, and includes the High Court in exercise of its ordinary Civil Jurisdiction, having jurisdiction to decide the question forming the subject- matter of the reference if the same had been the subject matter of a suit, but does not include any Civil Court of a grade inferior to such principal Civil Court, or any Court of Small Causes.” 

12. The Division Bench then considered Section 14 of the High Court Act, 1861, Clause 36 of the Letters Patent, Chapter V Rule 1 of the Original Side Rules and Article 225 of the Constitution of India and in paragraph 64 of the Report concluded as under : 

“64. Pursuant to this power the Chief Justice has allocated the business of hearing matters pertaining to arbitrations to a Learned Single Judge. It is for that Learned Single Judge to exercise the general power referred to earlier, leaving the power of naming the arbitrator under section 11 to the exclusive jurisdiction of the Chief Justice.” 

13. We find merit in the submission of Mr. Gourab Banerji, learned senior counsel for one of the appellants that the view taken by the Division Bench of Calcutta High Court in Modi Korea Telecommunication Ltd.1 is completely knocked out by a majority decision of this Court in SBP & Co. v. Patel Engineering Ltd. and another [(2005) 8 SCC 618]. 

14. In SBP & Co., a seven-Judge Bench of this Court was concerned with the question in relation to the nature of function of Chief Justice or his designate under Section 11 of the 1996 Act. The necessity to consider the said question arose as a three-Judge Bench of this Court in Konkan Railway Corporation Limited & Ors. v. Mehul Construction Company [(2000) 7 SCC 201], as approved by a five-Judge Bench of this Court in Konkan Railway Corporation Limited & Anr. v. Rani Construction (P) Ltd., [(2002) 2 SCC 388] had taken the view that the function of the Chief Justice or his Designate under Section 11 was purely an administrative function; it was neither judicial nor quasi judicial and the Chief Justice or his nominee performing the function under Section 11(6) cannot decide any contentious issues between the parties. 

15. The majority in SBP & Co. held that looking at the scheme of the 1996 Act as a whole and the object with which it was enacted, it seemed proper to view the conferment of power on the chief justice as a conferment of judicial power to decide on the existence of the conditions justifying the constitution of an arbitral tribunal. In the majority judgment, it was also observed that the power had been conferred under Section 11(6) on the highest judicial authority in their capacities as Chief Justices to pass an order contemplated under Section 11 of the Act. In paragraphs 42 to 44 of the Report (pg. 662- 663), the majority in SBP & Co.2 held as under : 

“42. In our dispensation of justice, especially in respect of matters entrusted to the ordinary hierarchy of courts or judicial authorities, the duty would normally be performed by a judicial authority according to the normal procedure of that court or of that authority. When the Chief Justice of the High Court is entrusted with the power, he would be entitled to designate another Judge of the High Court for exercising that power. Similarly, the Chief Justice of India would be in a position to designate another Judge of the Supreme Court to exercise the power under Section 11(6) of the Act. When so entrusted with the right to exercise such a power, the Judge of the High Court and the Judge of the Supreme Court would be exercising the power vested in the Chief Justice of the High Court or in the Chief Justice of India. Therefore, we clarify that the Chief Justice of a High Court can delegate the function under Section 11(6) of the Act to a Judge of that Court and he would actually exercise the power of the Chief Justice conferred under Section 11(6) of the Act. The position would be the same when the Chief Justice of India delegates the power to another Judge of the Supreme Court and he exercises that power as designated by the Chief Justice of India. 

43. In this context, it has also to be noticed that there is an ocean of difference between an institution which has no judicial functions and an authority or person who is already exercising judicial power in his capacity as a judicial authority. Therefore, only a Judge of the Supreme Court or a Judge of the High Court could respectively be equated with the Chief Justice of India or the Chief Justice of the High Court while exercising power under Section 11(6) of the Act as designated by the Chief Justice. A non-judicial body or institution cannot be equated with a Judge of the High Court or a Judge of the Supreme Court and it has to be held that the designation contemplated by Section 11(6) of the Act is not a designation to an institution that is incompetent to perform judicial functions. Under our dispensation a non-judicial authority cannot exercise judicial powers. 

44. Once we arrive at the conclusion that the proceeding before the Chief Justice while entertaining an application under Section 11(6) of the Act is adjudicatory, then obviously, the outcome of that adjudication is a judicial order. Once it is a judicial order, the same, as far as the High Court is concerned would be final and the only avenue open to a party feeling aggrieved by the order of the Chief Justice would be to approach the Supreme Court under Article 136 of the Constitution. If it were an order by the Chief Justice of India, the party will not have any further remedy in respect of the matters covered by the order of the Chief Justice of India or the Judge of the Supreme Court designated by him and he will have to participate in the arbitration before the Tribunal only on the merits of the claim. Obviously, the dispensation in our country, does not contemplate any further appeal from the decision of the Supreme Court and there appears to be nothing objectionable in taking the view that the order of the Chief Justice of India would be final on the matters which are within his purview, while called upon to exercise his jurisdiction under Section 11 of the Act. It is also necessary to notice in this context that this conclusion of ours would really be in aid of quick disposal of arbitration claims and would avoid considerable delay in the process, an object that is sought to be achieved by the Act.” 

16. In paragraph 47 (pg. 663) of the Report, this Court in SBP & Co. summed up its conclusions. To the extent they are relevant, the conclusions read as under : 

“47. (i) The power exercised by the Chief Justice of the High Court or the Chief Justice of India under Section 11(6) of the Act is not an administrative power. It is a judicial power. 

(ii) The power under Section 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. 

(iii) 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. 

(iv) 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 designated Judge would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of Section 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 designated Judge.” 

17. The exposition of law by a seven-Judge Bench of this Court in SBP & Co. , leaves no manner of doubt that the procedure that is being followed by the Calcutta High Court with regard to the consideration of the applications under Section 11 of the 1996 Act is legally impermissible. The piecemeal consideration of the application under Section 11 by the Designate Judge and another Designate Judge or the Chief Justice, as the case may be, is not contemplated by Section 11. The function of the Chief Justice or Designate Judge in consideration of the application under Section 11 is judicial and such application has to be dealt with in its entirety by either Chief Justice himself or the Designate Judge and not by both by making it a two-tier procedure as held in Modi Korea Telecommunications Ltd.1. The distinction drawn by the Division Bench of Calcutta High Court in Modi Korea Telecommunications Ltd.1 between the procedure for appointment of arbitrator and the actual appointment of the arbitrator is not at all well founded. Modi Korea Telecommunications Ltd. to the extent it is inconsistent with SBP & Co. stands overruled. 

18. In view of the above, the impugned orders are set aside. The arbitration petitions are restored to the file of the High Court for appropriate consideration, as noted above. The appeals are allowed to the above extent. No order as to costs.