Monday, March 25, 2013

Are consent orders under Section 11 of the Arbitration and Conciliation Act, 1996 valid?

(In the following post, Ms Renu Gupta, Advocate, considers whether the Chief Justice or his designate is entitled to appoint an arbitrator under section 11 without considering whether there is a valid arbitration agreement)

Can the Chief Justice (or his designate), appoint an arbitrator, under Section 11 of the Arbitration and Conciliation Act, 1996 (“Arbitration Act”), without deciding the question of existence of the arbitration agreement, merely on the basis of consent of the parties?

The jurisprudence on Section 11 of the Arbitration Act indicates, with sufficient clarity, that while making an order for appointment of an arbitrator by a Chief Justice (or his designate), a finding on the existence of an arbitration agreement is mandatory.

However, in my experience, several High Courts [Chief Justice or his designate] (I have not come across this in any decision of the Supreme Court), while appointing an arbitrator under Section 11 of Arbitration Act; upon a request being made by the respondent (to which the claimant often concedes since he achieves his objective of appointment of an arbitrator), leave the question of existence of the arbitration agreement open, to be determined by the arbitrator.

A plausible explanation for such approach of appointing an arbitrator, without deciding the question of existence of the arbitration agreement, could be that the jurisdiction of the Chief Justice (or his designate) in making such an appointment emanates from the consent of the parties and not Section 11. But could this be correct?

In my view, this approach may not be correct in view of the decisions of the Supreme Court of India.

The Supreme Court of India in National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., has clearly held that whether there is a valid arbitration agreement or not, is a question which the Chief Justice (or his designate) will have to decide, while appointing an arbitrator.

In Alva Aluminium Ltd., Bangkok v. Gabriel India Limited, the court clarified that the existence of arbitration agreement will have to be decided “because existence of an arbitration agreement is a jurisdictional fact which will have to be addressed while making an order on a petition under Section 11 of the Act” and that “it is quite evident that the question whether or not an arbitration agreement exists between the parties will have to be answered for it is only if the answer to that question is in the affirmative that the Chief Justice or his designate can pass an order of reference of the disputes for adjudication”.

Additionally, where the Chief Justice (or his designate) leaves the question of existence of arbitration open for the arbitrator, does the arbitrator have the jurisdiction to decide such a question?

In my view (which also finds support in Alva Aluminium case), the jurisdiction of an arbitrator to decide his own jurisdiction under Section 16 of the Arbitration Act, including the question of existence of an arbitration agreement, exists only in cases where the appointment of arbitrator is not made under Section 11 of the Arbitration Act. Such jurisdiction does not exist where the arbitrator has been appointed under Section 11 of the Arbitration Act

4 comments:

Anonymous said...

Arbitration agreement comes into force, by implication, once parties consent to appoint arbitrator(s). Therefore whether arbitration agreement was pre-existing or not becomes a moot question, and pursuing the same question further becomes a futile exercise to delve into. The existence or non-existence of arbitration agreement continues to be relevant only when respondent does not relent, and continues to allege non-existence of arbitration agreement.

aarti said...

Interesting post :) I think that reference to the arbitration without a previous agreement between the parties is not according to the Act. Only if the parties have a valid arbitration agreement under section 7 can any reference be made. Any consent order is a new agreement post the dispute and after court's intervention.

Rajeev Universalist said...

The post by Anonymous suggests a more reasonable and commercial approach for resolving the issue.

Vijay said...

I agree. The Patel Engineering and National Insurance cases clearly make out the validity is to be ascertained by the Court. Its more like a public policy issue to be sure parties with agreement are being referred.

I would infact agree with this approach as after Patel Engineering the appointment in Domestic Arbitrations by CJ of the relevant state can only be challenged under Art. 136. While appointments in International Arbitrations via 11(9) cannot be challenged. The Court must surely ascertain that the decision is taken with all foresight possible.