Wednesday, April 30, 2014

Guest Post: Named arbitrators – No petition under Section 11 of Arbitration and Conciliation Act, 1996

(The following post is contributed by Ms Renu Gupta, Advocate)

Arbitration clauses in most contracts with government corporations specify that in case of a dispute between the parties, an employee occupying a designated post of the corporation or some other person nominated by him, shall be the arbitrator.

It is settled law that arbitration agreements in government contracts providing that an employee of the department will be the arbitrator are neither void nor unenforceable (see Executive Engineer v. Gangaram Chhapolia and Ace Pipeline Contracts (P) Ltd., v. Bharat Petroleum Corpn. Ltd). Despite this settled law, there is endless litigation where private parties resist the appointment of the employee or person of the government corporation as an arbitrator, in order to seek the appointment of an independent arbitrator.

In addition to the settled law which already creates an impediment in the strategy of the private parties, this article explores another point which reduces their ability to seek appointment of an independent arbitrator.

Clauses of the nature discussed above are referred to as clauses with “named arbitrators”, i.e., the parties have already named the arbitrator when they signed the agreement, by referring to an ascertainable designation/post. These clauses have full force of law as was held by the Supreme Court of India in Indian Oil Corporation Ltd. v. Raja Transport (P) Ltd. The Court held that where a clause provides for a named arbitrator, the “courts should normally give effect to the provisions of the arbitration agreement”. Further, “referring the disputes to the named arbitrator shall be the rule” and the “Chief Justice or his designate will have to merely reiterate the arbitration agreement by referring the parties to the named arbitrator”. It further clarifies that ignoring the named arbitrator “shall be an exception to the rule, to be resorted for with valid reasons”.

Based on this decision, one could argue that where an arbitration clause specifies a “named arbitrator”, the stage of “appointment” of an arbitrator is already over/complete on the date the parties signed the arbitration agreement.

Section 11 of the Arbitration and Conciliation Act, 1996, deals only with “appointment of arbitrators”. But in “named arbitrator” clauses, if an arbitrator already stands “appointed”, in my view, Section 11 cannot be invoked for seeking “appointment” of an arbitrator. Such petitions are nothing more than a disguised attempt at seeking appointment of an independent arbitrator, thus deviating from the procedure agreed to originally by the parties in their agreement.

Taking this argument to its logical conclusion, if a government corporation wants to invoke arbitration, it can simply inform the opposite party about its claim which will lie before the “named arbitrator”, since the stage of “appointment” is already past and the next stage is merely the arbitrator entering upon reference and initiating proceedings.

Several decisions of the Supreme Court (see Northern Railway Administration v. Patel Engineering Co. Ltd), deal with situations where despite “named arbitrator” clauses, one party invokes Section 11 for “appointment” of an independent arbitrator. Based on the decision in Indian Oil Corporation case, in my view, the only situation where despite a “named arbitrator” clause, Court in a petition under Section 11 could appoint any other person as an arbitrator is where circumstances exist, giving rise to justifiable doubts as to the independence and impartiality of the named arbitrator and reasons will have to be recorded for ignoring the “named arbitrator” and appointing someone else. Mere allegations of bias and partiality of the “named arbitrator” merely because he is an employee of the government corporation are not sufficient.


vswami said...

“…..courts should NORMALLY give effect…”, “ignoring the named arbitrator “shall be an exception to the rule, to be resorted for with VALID reasons”. The marked words (FONT) are, in one’s longstanding conviction, are dubious concepts , rather vulnerable, having every potential to provide ample scope for leaving such disputes wide open to eternity; and for lawyers to try and distinguish everyone case from the other. So much so, court litigation, to the delight of the profession but to the chagrin of the contracting parties, is left the most certainty as ice age (to be precise, as polar ice or an ‘icebound’ ship!)

vswami said...

To put it point-blank /forthright, with courage of conviction to face the truth, if closely read, such write-ups, of the "run -of -the- mill" kind, merely reviewing case law, that too in a superficial style, do not lend any credence to the concept of 'arbitration'; on the contrary, contribute to ridiculing the very concept. Thereby, help in betraying the futility of the whole exercise centred on what was originally conceived as a desirable alternative to the always dreaded 'court litigation'.
Anyone truly desiring to try and bring back to the said concept its original glory of commendable purpose, might do well to first make a study of certain fundamentals clinching the concept.
One such material, among numerous of them in public domain, to begin with, is HERE (link) >
"General Arbitration Concepts and Alternatives"

Rajeev Universalist said...

Ms. Renu Gupta,

Your first point has been accepted and pronounced by Supreme Court repeatedly and it is clear that named arbitrators can be legally appointed by government companies.
However, I express humble disagreement with your second argument firming up foregone/ established conclusion regarding Non-maintainability of Section 11 petition in High Court/ Supreme Court (as applicable).

We should appreciate that in law certainty and appointment are polar opposite states notwithstanding that non-legal world hardly spots the significant difference. In present context, naming an arbitrator may not result into appointment of such person in all possibility. (A) The two parties may agree on another junior or senior officer, or specialized officer to be appointed as arbitrator. (B) That post no longer may exist in the government company. (C) Force Majeure events related to arbitration agreement may happen. (D) The named arbitrator may herself specifically abdicate from arbitration duty while discharging other official duties(E) Parties may recuse the named arbitrator on statutory grounds. (F) When will period of 30 days start if one arbitrator is to be appointed by each party as no notice of appointment would be given. (G) When will commencement of arbitration take place as no notice of appointment would be required to be given. In addition to accepted view that named arbitrator is also required to be appointed, above seven points raise logical inconsistencies in scheme of arbitration if it is held that a named arbitrator is not required to be appointed.