Scope of Judicial Examination and Intervention: A Conundrum vis-à-vis Section 11 of the Act


[This article has been authored by Parv Verma, an LL.M. in ADR student at JGLS, Sonipat.]


Keywords: Section 11, Section 16, Arbitration, Judicial, Administrative, Kompetenz-Kompetenz


Introduction

Party Autonomy is an elementary objective of the Arbitration and Conciliation Act, 1996 (hereinafter, “the Act”). Notwithstanding such objective, the legislative intent has been to ensure that appropriate provisions are inserted in the Act to tackle issues which necessitate judicial intervention. One such focal provision under the Act is Section – 11, which talks about the “appointment of arbitrators”. The provision accords liberty to the parties to appoint arbitrators of their choice, subject to other provisions of the Act. It also provides the degree to which this liberty can be exercised and role of the Courts in the appointment procedure. The Hon’ble Supreme Court of India has time and again deliberated on the nature of scope under Section 11 of the Act, determining the extent to which pre – arbitral judicial examination and intervention is permissible.


The discussion has mainly been around the nature of power of courts under the said Section of the Act, which essentially means whether it is “administrative” or “judicial”. In other words, whether the Court would consider the following issues in depth, or refer them to the Arbitral Tribunal for effective adjudication. The objective of this article would be to analyze the construction of Section 11 of the Act, and the subsequent amendments which have been instituted for its purposive interpretation, as well as the judgements which have been delivered by the Hon’ble Supreme Court of India over the years while contemplating these issues.


History of Section 11 and subsequent Amendments to rectify the anomalies

The key objective behind establishment of the Act was to shape up India as a nation favourable for instituting arbitral proceedings, wherein the Act would have provisions which adequately address the contemporary demands of arbitral procedures. To bring the Indian arbitration law in consonance with the prevalent principles of international arbitration, the Act was enacted flowing from the UNCITRAL Model Law. Under the Act, Section 11 has been the center of judicial intervention and has undergone considerable changes over the last few years via the Amendment Acts of 2015 and 2019 respectively. Under this section originally, there were various procedures laid down to assist parties in appointing arbitrators of their choice. The role of courts came into play under sub – section (4) and (5) of Section 11, wherein the parties could approach courts if they mutually fail to appoint an arbitrator. But, under sub – section (6) of the Section, the scope of the role of courts becomes broader because of the insertion of the expression “necessary measures”. Thus, it has been a topic of debate ever since because the courts could step into the shoes of an arbitral tribunal and undermine the whole procedure.


In the early 2000s, the scope of power under section 11 attracted a set of complex questions. In the cases of Konkan Railway Corporation v. Mehul Construction [2000] and Konkan Railway Corporation v. Rani Construction [2002], the Hon’ble Supreme Court of India delved into the same question and adjudged that power of courts under Section 11 of the Act are ‘administrative’ in nature, i.e., it is neither judicial nor quasi-judicial in nature and neither the Chief Justice nor any of its nominees (according to the language pre-2015 amendment) could rule on any “contentious issues” that arise between the parties to an arbitration agreement. In a subsequent judgment of SBP v. Patel Engineering [2005], a seven – judge Constitutional Bench of the Hon’ble Supreme Court decided on the same question and came to a conclusion overturning the earlier stance, that the nature of power under the said section is “judicial” in nature, thereby granting courts the authority to go into the entirety of the arbitral tribunal’s jurisdiction. This effectively meant that courts could then not only examine the existence and validity of an arbitration agreement between the parties, but also go onto determine the preliminary issues with respect to the subject – matter.


Since the Patel Engineering judgment became the law of the land vis-à-vis arbitral procedures at that time, it thwarted the very existence of the 1996 Act and negated the motive behind it, at a pre – arbitral stage itself. It became a dilatory mechanism for the parties because they would approach the court under section 11 to appoint arbitrators for them and made it a common practice to challenge the validity of the arbitration agreement altogether. As a result, this conduct of the parties unnecessary made the process complicated at the pre – arbitral stage, as the dispute ended up being entirely litigated before the courts, by challenging the validity of the agreement and arbitrability of the dispute, thereby clashing heads on with the underlining principle of “Kompetenz – Kompetenz”, which implies that the arbitral tribunal is competent to decide its own jurisdiction.[1]


To put a restraint on this malpractice and fill the lacunae in Section 11 of the Act, the 246th Law Commission Report (2014) suggested the insertion of sub – section (6A) and (6B) to Section 11. The Arbitration (Amendment) Act, 2015 brought in the suggested changes and added a “non – obstante” provision via sub – section (6A) which states that the courts should only confine themselves to the “examination of the existence of an arbitration agreement”. Even though, the Patel Engineering judgment remained intact after this amendment, it curbed the authority of the courts to examine, intervene and delve deeper into the arbitration agreements. Subsequently, in 2019, another amendment was made to Section 11 to omit sub – section (6A) and take away the court’s authority to appoint an arbitrator for the parties to an arbitration agreement. Instead, it gave that power to designated arbitration institutions. This move could pave the way for India to strengthen their institutional arbitration regime, though the amendment has not been officially inserted into the Act.


Evolving through Judicial Pronouncements –

Under the 1996 Act, Section 16 was adopted in conformity with Article 16 of the UNCITRAL Model Law, which entails the principle of “Kompetenz – Kompetenz” in Arbitration. Under Section 16 (1) of the Act, the arbitral tribunal has been empowered to “rule on its own jurisdiction”, including ruling on any objections in relation to existence and validity of the arbitration agreement between the contracting parties. However, the scope of Section 16 on the question – whether the arbitral tribunal constituted as per the agreement between the parties is empowered to determine preliminary issues at the time of Section 16 application or not, is still to be answered. If the scope has to be ascertained vis-à-vis the jurisdiction of the arbitral tribunal to examine the existence and validity of an arbitration agreement in the first place, the courts post the 2015 amendment have been of the opinion that the arbitral tribunal is the right institution to approach in such cases and have tied their hands only to intervene and examine the basic question, as to whether there is an arbitration agreement between the parties or not.


In the case of Duro Felguera v. Gangavaram Ports, the Hon’ble Supreme Court, while discussing the scope of section 11(6) read with section 16, adjudged that the courts are restrained to only discover whether there lies an arbitration agreement and that the written agreement between the parties contains a clause to arbitrate the subsequent disputes which have actually arisen. However, in the recent landmark judgment of Vidya Drolia v. Durga Trading Corporation, the three – judge Bench of the Hon’ble Supreme Court held that the arbitral tribunal should be the adjudicating authority in case of arbitrable disputes, while reiterating that the courts must intervene to run a ‘prima facie review’, in order to eliminate unreasonable arbitration agreements and frivolous disputes which are inherently non – arbitrable in nature. With this judgment, the court set out its stance that an out-and-out “hands off” approach cannot be taken by the judicial authorities to interpret the provisions of the Act, but rather they should be interpreted in a holistic manner so, as to uphold the principles of arbitration and facilitate an effective arbitral process.


In another recent judgment of the Hon’ble Supreme Court in DLF Home Developers v. Rajapura Homes, it has been held that the courts cannot be seen as institutions which will function mechanically to merely pass on a certain dispute brought up by the aggrieved party at the “doors of the chosen arbitrator” so as to uphold the integrity of arbitral tribunals. With this judgment, it has been made clear by the Hon’ble Supreme Court of India that it is necessary to give independence to the arbitral tribunals to function in an effective manner, upholding the internationally-attained best practices, but it is equally important to run a thorough review of the application before passing it onto the instituted tribunal for effectuate adjudication and therefore, streamlining the whole arbitration procedure.


Conclusion and Comments –

Before the 2015 Amendment to the Act, there were important decisions by the courts in the early Indian arbitration judicial history which gave India the not-so-popular image of being an anti – arbitration landscape. The parties would circumvent the arbitral process due to the loopholes in the provisions under the Act and the courts would uphold the same to act within the strict contours of the said provision. Before the amendments of 2015 and 2019, an extra step had been added by the parties by their abhorrent conduct at the pre – arbitral stage and it started to undermine the direct principles enacted in the 1996 Act. It is through the timely intervention of the Law Commission that necessary measures were suggested and subsequently accepted by the legislature in India, to bring the Act in consonance with international arbitral standards. The 2015 Amendment addressed the question of judicial versus administrative power under Section 11 of the Act and limited the scope of judicial intervention to cases of judging the validity of arbitration agreements between parties.


In one way, through these amendments, the principles of natural justice were also upheld because the courts were tied to hear both the parties with respect to the arbitration process, instead of only proceeding based on the claims put forth by the aggrieved party in a dispute. Post the amendment in 2015, the courts have made efforts to not intervene unnecessarily and apply their judicial mind so as to uphold the arbitral process and its inherent principles, thereby saving on precious judicial time. However, with respect to Section 16 and the principle of Kompetenz – Kompetenz mentioned therein, the courts have rightly opined that a prima facie test is necessary before the arbitral tribunal adjudicates because that would then limit the practice of challenging and setting aside the eventual award in the courts once the arbitral tribunal renders its final decision.

[1] GARY B. BORN, INTERNATIONAL COMMERCIAL ARBITRATION 164 (2d ed. 2014)

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