By Anuj Jhawar and Devika Mehra
In general terms “arbitration” means the process of resolving a dispute and finding an acceptable solution to the parties of such dispute. It is a part of Alternate Dispute Resolution (ADR) which is a legal course of resolving a dispute and reaching at an amicable situation, outside the court of law.
With the advancement of technology, liberalization and globalization the necessity of arbitration has been increased significantly. People prefer the course of arbitration much more than that of pursing proceedings at a court of law, which is usually considered to be lengthy and lethargic process. Thus, arbitration process is much more preferred mainly because it not only saves time and provide speedy justice but also because it is cost effective in nature.
Private and commercial business are also specifically fond of arbitration and thereby in current times every agreement bears an arbitration clause and parties only refer to the court in case the arbitration proceedings did not achieve the expected outcome or were futile in nature, as it provides them an easier way to solve the problems in an efficient manner which does not harm their business.
As per the provisions of Arbitration and Conciliation Act, the Arbitration proceedings shall complete within 12 months from the date on which the tribunal entered upon the reference and if needed the parties may extend it by 6 months[1] . However, it has come to recognition that mere applications for the appointment of Arbitrators are been delayed and not adjudicated by the courts for more than 2 -3 years. Consequently, compromising the spirit of the Arbitration Proceedings and the aforesaid Act.
As a result, recently, the Hon’ble Supreme Court in M/s Shree Vishnu Constructions v. the Engineer in Chief, Military Engineering Service & Ors directed High Courts to adjudicate the pending applications that are been piling up.
Supreme Court’s order to clear the backlog
In the Appeal of M/s Shree Vishnu Constructions v. the Engineer in Chief, Military Engineering Service & Ors[2] , the apex court has directed the High Courts to adjudicate and clear up all the applications for the appointment of arbitrators which has been piling up and creating a huge backlog for over a year now. The judgement not only serves as an aid to the pendency of such applications but has highlighted the significance of designating an arbitral institution to overlook the cases and appoint arbitrator so to as to avoid the delay of such matters.
The present appeal was filed because the application for the appointment of an Arbitrator filed by the Appellant under Section 11 (5) and (6) of the Arbitration and Conciliation Act 1996 has been pending before the High Court of Telangana since 2016. According to which a court owns the power to appoint an arbitrator in a situation where:
i. “Parties cannot agree upon a sole arbitrator”[3] , or
ii. “There is a failure in agreed appointment procedure, that is –
a. A party fails to act as per the required procedure
b. Parties or the appointed arbitrators fails to reach an understanding
c. The party may request the Chief Justice or any person or institution designated by him to adopt necessary measures any person, including an institution unless the agreement on the appointment procedure provides other means for securing the appointment or a person including an institution has failed to perform any function that he was entrusted with as per the procedure”[4].
Initially, the power of the High Court to appoint Arbitrator and its scope was questioned often. It was in the case of Ador Samia (P) Ltd. v. Peekay Holdings Ltd[5] , wherein it was held that the orders passed by the learned Chief Justice under Section 11(6) of the Act is an administrative nature cannot be subjected to any challenge directly under Article 136 of the Constitution of India. However, upon several deliberations and opinion provided by the judiciary in several cases it was in the case of SBP and Co. v. Patel Engg. Ltd.,[6] , wherein it was finally settled that the nature of power exercised by the Chief Justice or his designated under Section 11 of the said Act is a judicial power and not an administrative power.
Effects of the judgement SBP and Co v. Patel Engg Ltd.[7]
The respective judgement was a turning point in the Arbitration history which cleared several hurdles. One of the significant effect of this judgment was regarding the existence and validity of the arbitration agreement and that who shall decide the same. That is, whether the validity and existence of arbitration agreement shall be decided by the Chief Justice or his designate before making an appointment under Section 11 or by the Arbitrator who is appointed under Section 11 of the said Act.
The judgement finally established that it is the duty of the Chief Justice or his designate under Section 11 before making appointment of arbitrator, to decide the validity and the existence of the Arbitration Agreement. The same has been affirmed in the case of National Insurance Co. Ltd. Boghara Polyfab (P) Ltd.[8]
Observation of the Hon’ble Court in the present Appeal
Taking the cognizance of the pending applications for the appointment of the Arbitrators under Sec.11 (5) & (6) of the said Act, the court observed that such delays defeats the purpose of the Arbitration and Conciliation Act as well as of the Commercial Courts Act. It not only compromises the rule of law of by making people doubt upon the speedy justice but also upon the commercial relations of the parties at dispute which further leaves an effect on the growth of business. To have a strong economy and global presence in business, a country must make sure that its commercial dispute have been resolved at the earliest.
Therefore, such pendency of large number of application solely for the appointment of Arbitrators showcases a very sorry and deceiving state of affairs.
Hence, in order to avoid this situation, the apex court passed an order stating that the Chief Justices of respective High Courts must ensure that all the pending cases under Section 11(5) & (6) of the concerned Act and or any other application in regard to substitution or change of Arbitrator must be decided within the period of six month from the date of the respective order that is 19th May 2022.
Conclusion
Over the years especially after the enactment of the Arbitration and Conciliation Act, the Arbitration has emerged as an effective way for the resolution of dispute between the parties that is not only efficient and cost effective but also time saving.
However, as discussed in the present appeal the number of pending applications merely for the appointment of Arbitrator has increased drastically, this happens because parties usually cannot come to an agreement for the procedure or upon the respective Arbitrator which led them to seek judicial guidance for the appointment of the same. Therefore, the Courts are supposed to adjudicate upon the application duly however such has not been efficiently practiced, consequently contravening the purpose of the Arbitration Mechanism as whole.
The respective judgement has played an essential role in restoring the spirit of the Arbitration Act and Commercial Courts Act. Thus, mandating the High Courts to make sure that such unnecessary piling of applications should not occur in future and the ones which are pendent before the court shall be resolved within the period of six months.
[1] Section 29-A, Arbitration & Conciliation Act 1996
[2] M/s Shree Vishnu Constructions v The Engineer in Chief, Military Engineering Service & Ors., SLP (C) No. 5306/2022.
[3] Section 11(5), Arbitration and Conciliation Act 1996
[4] Section 11(6), Arbitration and Conciliation Act 1996
[5] Ador Samia (P) Ltd. v. Peekay Holdings Ltd., (1999) 8 SCC 572.
[6] SBP and Co. v. Patel Engg. Ltd 21 (2005) 8 SCC 618
[7] Id.
[8] National Insurance Co. Ltd. Boghara Polyfab (P) Ltd. , (2009) 1 SCC 267.]