Wednesday, January 4, 2012

Guest Post: Avoiding litigation under Section 11 of the Arbitration Act

(In the following post, Ms. Renu Gupta, Advocate, discusses ways to avoid protracted section 11 litigation)

There is much litigation in courts under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter, “A&C Act”), on appointment of arbitrators. Often, the party resisting the arbitration exploits all its might to stall the appointment of arbitrator, which can easily last a few years. A real threat of rising litigation costs is used to politely arm-twist a weaker party into a settlement, even if the latter has a genuine claim.

This post is aimed at attempting to propose a solution, in order to expedite the actual arbitration proceedings. The solution is Section 11 of the A&C Act, which is the cause of the entire problem as well.

Section 11(2) of the A&C Act provides that the parties are free to agree to the procedure for appointment of arbitrators. It is only in the absence of an agreement between the parties over a procedure, or failure to act according to the agreed procedure, that one of the parties can approach the court for appointment of the arbitrator.

Therefore, the parties are free to agree that if upon expiry of a definite time period, from receiving a request for appointment of an arbitrator, the other party does not appoint its own arbitrator, the former’s arbitrator shall act as a sole arbitrator. This procedure obviates a situation where one party will have to approach the court for appointment of arbitrator. It is a very practical provision, which seems to have been completely ignored in India.

A similar provision, although more clear and elaborate, exists in Section 17 of the English Arbitration Act, 1996.

Relevant portion of the model arbitration clause under London Maritime Arbitrators Association Terms, incorporating the essence of this provision, reads as follows:

The reference shall be to three arbitrators. A party wishing to refer a dispute to arbitration shall appoint its arbitrator and send notice of such appointment in writing to the other party requiring the other party to appoint its own arbitrator within 14 calendar days of that notice and stating that it will appoint its arbitrator as sole arbitrator unless the other party appoints its own arbitrator and gives notice that it has done so within the 14 days specified. If the other party does not appoint its own arbitrator and give notice that it has done so within the 14 days specified, the party referring a dispute to arbitration may, without the requirement of any further prior notice to the other party, appoint its arbitrator as sole arbitrator and shall advise the other party accordingly. The award of a sole arbitrator shall be binding on both parties as if he had been appointed by agreement.”
This is a useful provision, which could be used while drafting an arbitration clause, in order to avoid a situation where a genuine arbitration claim is stalled under Section 11 of A&C Act.

I am uncertain whether this provision for default appointment of arbitrator has ever been tested in courts in India (I would be grateful if someone could bring to my attention a decision where it has been tested). It would be interesting to see whether our courts adopt a non-interventionist approach or indulge in some ingenuous attempts to exercise jurisdiction.


Badrinath Srinivasan said...

An interesting point. Although it might be difficult to make the other party agree to it during negotiations (unless the negotiator is not well-versed with/ overly concerned with dispute resolution clauses), since it operates equally for both parties, such a clause might actually work. The clause is similar to the right to unilaterally appointment the arbitrator, except that the said right comes into play after the expiry of time specified. Clauses with Unilateral appointment has not been struck down by Indian courts. So I don't see any reason why a clause akin to the one suggested in your post would be struck down.

vswami said...

The point is seen to have been well made. But what needs to be appreciated is that so far there has been no indication of the government being interested in thinking of, let alone resorting to any such simplification aimed at making the law the least litigation prone.
For that matter,the idea mooted for simplification of the law even on the limited lines proposed almost a couple of years ago does not seem to have been seriously pursued.Refer the information among others @ the following link>

"Amendments to the Arbitration & Conciliation Act, 1996 – A Consultation Paper has been published by the Ministry of Law & Justice, Government of India on 8th April 2010. Comments are invited on the proposed amendments. See below for the proposed amendments & consultation paper. IIAM has sent its comments & suggestions to the Ministry of Law & Justice. See for details. You are invited to send us your views and comments."

Nothing is known to have really happened since then.

The concerned Ministry's ostensible indifference and inexplicable lethargy, proven time and again,in not taking forward even such matters of profoundly pubic interest, calling for a speedy action, on a priority basis, is deprecating and calls for the strongest condemnation. One keeps wondering, - does not the old saying justifiably require to be re-framed: - 'law making delayed is justice denied'.

Renu Gupta said...

@ Badrinath - I agree with your analogy with the unilateral appointment of arbitrators which are held to be enforceable in most cases. However, in absence of a judicial precedent and the fact that the default appointment provision in the Indian Act is not as clear and elaborate as the one int English Arbitration Act, I will not be surprised if there is ever a twisted logic offered to defeat the provision for default appointment, which clearly exists in Section 11(2) [perhaps lost sight of for being simplistically stated).

I also think it should not be difficult to negotiate a dispute resolution clause with default appointment. At a stage when two parties are agreeing to do business together, it is in their interest to agree to a clause which will expedite resolution of disputes, if any and save them huge litigation costs. I cannot think of an argument which either party could give to resist such a clause. Eventually, a party will lose the right to appoint an arbitrator only if it does not appoint its own arbitrator, which seems most fair.