Arbitration has become the preferred mode of Dispute Resolution all over the globe. It has become so mainly due to timely rendering of decisions, flexibility of procedure and predictable outcomes as compared to the National Courts which are perceived to be slow, antediluvian in their approach to business parlance and much too rigid in terms of procedural norms. The Arbitral mechanism seeks to avoid the long winded delays which are the defining characteristics of National Courts.

The foremost aim of Arbitration is to avoid the bringing of private squabbles into the domain of public scrutiny, however often even the best of Arbitration friendly jurisdictions are unable to remedy the anomaly and recourse has to be taken to the National Courts. The National Courts have to be approached for seeking of Interim Relief before the Arbitral Tribunal has been appointed, for challenging the Arbitral Award, challenging the interim orders of Arbitral Tribunal and in some cases for constituting the Tribunal itself.

This Article will analyse the judicial trends which have been applied to decide Appointment of Arbitrator starting from Konkan Railway to the latest judicial pronouncements pertaining to Appointment of Tribunal or Sole Arbitrator by the Courts when a Section 11 Petition is preferred before it and which issues should the Court decide and which issues should be left for the Arbitral Tribunal to decide as per its wisdom.

Why Do We Have To Take Recourse To The National Courts For Appointment Of Arbitrator?

A pertinent question can arise in the minds of readers as to why recourse needs to be taken to National Courts for appointment of Sole Arbitrator or Arbitral Tribunal when usually the Arbitration Agreement or the Arbitration clause itself provides for appointment of Arbitrator.

While it is usually the case that appointment mechanism is specified or the Arbitrator or the Arbitral Tribunal has been chosen as per mutual concurrence, there can be a number be a situations when succour has to be found in the power of the National Courts under Section 11 of The Arbitration and Conciliation Act, 1996. A situation may arise if the parties fail to appoint, in the case of Sole Arbitrator, parties fail to appoint the Arbitrator or the two appointed Arbitrators fail to appoint the 3rd Arbitrator. A Section 11 Petition may also be necessary if one of the parties to the Arbitration agreement or the Clause fail to act as per mandated procedure or an Arbitral Institution fails to perform function entrusted to it.

After this the Article will explore a timeline of Case Laws which will explore the evolution of Section 11 from being an administrative power of the Chief Justice or his designate to being a Judicial function and finally being relegated to its present day modern avatar, that is an administrative function mainly, with the Court only being concerned about the validity of the Arbitration Agreement.

Konkan Railway Vs Rani Construction Company[1]

The issue that arose before the Constitution bench of the Supreme Court of India was as follows-what issues should the Chief Justice or his designate decide when a Petition is preferred before them under Section 11 of The Arbitration and Conciliation Act, 1996? The Constitutional Bench went on to hold that the power under Section 11 of The Arbitration Act is largely an administrative function and the Court should circumscribe itself to only the following:

1. Chief Justice or his designate can decide their own Jurisdiction
2. They can decide whether their exists a live claim and
3. lastly whether the Arbitration agreement is capable of being acted upon, in other words it should not be non est.

This decision of the Supreme Court was in synchronization with the intentions of the Legislature as well as the UNICTRAL Model Law on Arbitration and also similar best practises across the globe, of the Court functioning mostly as an administrative body when Petition for appointment of Arbitrator or Tribunal was preferred before it. It was also a validation of the Kompetenz-Kompetenz principle which has been recognized under Section 16 of The Arbitration and Conciliation Act, 1996.

SBP & Co Vs Patel Engineering[2]

The question which arose in this case was a reconsideration by a 5 Judge Constitutional Bench of Konkan Railway Construction Ltd vs Rani Construction Pvt Ltd wherein it had been stipulated that power of Chief Justice or his designate under Section 11 was mainly administrative in nature, of mainly quasi-judicial contours, and the Chief Justice or his nominee cannot decide any contentious issues between contesting parties.

The Supreme Court in this held that when Authority is conferred with power to act under a statute has the Jurisdiction to satisfy itself whether conditions for the exercise of its power have been satisfied. It went on to hold that when a Statute creates an Authority, confers power on it and makes it decision final on matters decided by it, such power cannot be said to be administrative in nature.

It was further held in this case herein that when the Chief Justice or his designate appoints a Sole Arbitrator or constitutes an Arbitral Tribunal or declines to do so after deciding on the existence of an Arbitration Agreement or whether the conditions for the exercise of its power have been satisfied, it cannot be said that this is not adjudication of the right of parties, and that it is merely an administrative power.

The submission that since this power was confined exclusively to Chief Justice or his designate and not the other Judges, the intention of the Legislature was to minimize Court interference in Arbitration was held not to be sufficient reason for holding that power under Section 11 of The Arbitration and Conciliation Act is administrative in nature.

The Court also went on to hold that the Doctrine of Kompetenz- Kompetenz would only operate in respect of Arbitral Tribunals or Sole Arbitrator when such appointments have not been made by the Court.

It was further held that merely because the purpose of the Court was to appoint Sole Arbitrator or constitute Arbitral Tribunal, it cannot be said that this power is merely administrative in nature. The Bench went on to hold that rights of parties are adjudicated by Courts in Petition under Section11 and hence the power of Chief Justice or his designate under Section 11 is not an administrative power, rather a judicial power.

Finally it was held that when Chief Justice or his designate are deciding a Petition under Section 11 of the Act they must decide whether there is:

1. A Live Claim(whether the claim has not been withered away by Limitation)
2. Whether the claim has not been satisfied by mutual accord and satisfaction.
3. Whether there exists a valid Arbitration Clause or an Arbitration Agreement on the day of the filing of the Petition.

The decision was criticized for weakening Arbitration Jurisprudence in India as it incentivized the adopting of dilatory parties adopted by parties to delay reference to Arbitration. This decision was criticized as being against the system of Arbitration prevalent worldwide and against the letter and spirit of UNICTRAL Model Law on Arbitration adopted by India.

The dichotomy is perhaps best recognized by the words of Lord Mustill when he said how much more delay can be countenanced when parties have decided that their disputes will be resolved elsewhere[3]?

National Insurance Company Vs Boghara Polyfab (After effects of SBP & Co vs Patel Engineering [4]
Facts: The Respondent (Insured) had availed a Standard Fire and other Perils insurance policy for their goods kept in a Surat warehouse. The stock suffered heavy damage due to rainfall and Surveyor assessed damage to the extent of 12 Crores, which was later revised to 6 crores. The Bombay High Court allowed application under Section 11 despite protests of Petitioner which asserted that a no dues voucher had been obtained from the Respondent. The Petition was allowed as the Court opined that there were serious doubts that the discharge voucher had been obtained under coercion from the Petitioner. The Apex Court was reached by Appeal.

Issues-The main issue which arose for consideration was Will Court refer disputes to Arbitration when a no-dues voucher has been issued by the Claimant/Respondent?
The Hon'ble Supreme Court said that Arbitration Agreement/clause is an collateral term of the contract, however an integral part of it. The Court remarked that contract in some scenarios may be non-est from the beginning, or it may have been discharged by mutual accord and satisfaction in terms of the Discharge voucher issued by the Appellant herein.

The Hon'ble Supreme Court referred to the case of Damodar Valley Corporation vs KK Krar[5] wherein the Court remarked- Contract is an creature of agreement between the parties, and when parties incorporate an arbitration clause in such contract, the clause stands apart from the rights and liabilities of the contract. Questions related to the repudiation of the contract relate to the performance and discharge of the contract. Parties can also terminate the old contract and substitute a new one in its place.

The Hon'ble Supreme Court when a discharge voucher is given which says  all claims have been satisfied it can be said that the contract has been discharged by discharged by performance, and no obligation is subsisting. If both parties to the dispute have given in writing that all the claims have been satisfied, then there is no claim for the Arbitrator left to adjudicate, and hence the dispute will not be referred to Arbitration.

The Hon'ble Court proceeding as per the dictum of SBP and Co vs Patel Engineering[6] proceeded to decide on the validity and the subsistence of the arbitration agreement/clause entered between the parties.

In this case the Respondent (Claimant) has stipulated that the no dues certificate had been obtained after coercion, based on the threat that amount will not be released till the certificate is provided. In light of this claim the Hon'ble Court felt that the question whether the claim subsists or not should be decided by an Arbitral Tribunal as based on the arguments lead in front of it, the Hon'ble Court could not come to the conclusion that the Arbitration Clause had been nullified in terms of the discharge voucher, and the matter should be decided by the Arbitral Tribunal.

This case can said to be directly an after effect of SBP & Co vs Patel Engineering as here the Court delved deep into the question, whether the arbitration clause or arbitration agreement has been not nullified as a result of mutual accord and satisfaction? This decision now is no longer Res Integra on account of the 2015 Amendment and subsequent Judicial pronouncements on this issue.

2015 Amendment Of The Arbitration And Conciliation Act, 1996

Parliament brought an amendment to The Arbitration and Conciliation Act, 1996 by virtue of which Section 11 also came to be amended. The relevant Section now reads as follows:-Section [11(6A)]-The Supreme Court or as the case maybe, the High Court while considering any application under sub-section 4 or 5(pertaining to appointment) or (6), shall notwithstanding any judgement, decree or order of the Court, confine itself to the examination of the existence of an arbitration agreement.

The Parliament has by virtue of this amendment circumscribed the role of the National Courts in Petitions preferred before it under Section 11 of The Arbitration and Conciliation Act, 1996 to only verify the existence to the Arbitration Agreement or Arbitration clause, nothing more and nothing less. This was done as per the recommendations of the Law Commission, to make the Indian Arbitration Jurisprudence as per the UNICTRAL Model Law on Arbitration.

M/S Duro Felguera S.A vs M/S. Gangavaram Port Limited[7]
Facts: The Respondents awarded contract for modernization of Gangavaram Port to M/S Duro Felguera. The Work Contract envisaged 5 sub- contracts,each containing its own dispute resolution clause, envisaging setting up of Arbitral Tribunal for resolving disputes under that particular contract. Petition for appointment of Arbitral Tribunal was filed. It was contended before the Court that splitting up of the contract into 5 different contracts was only a matter of convenience and a single Tribunal should be constituted for the purpose.

The Hon'ble Supreme Court delineated the role of the Court in adjudicating Petitions under Section 11 of The Arbitration and Conciliation Act, 1996. The Hon'ble said that post the 2015 amendment, the Court is only required to enquire into the existence of the Arbitration Agreement and since as per the express wordings of the Arbitration clauses six distinct tribunals were to be formed, Court directed the formation of such Tribunals in terms of the Arbitration Clauses. The Plea of the Respondent was allowed by the Court. The case reached the Hon'ble Supreme Court.

M/S Uttarakhand Purv Sainik Sanshtha Vs Northern Coal Field Limited[8]

Facts: There was an agreement between the parties, in terms of which the Petitioner Company was to supply security to Respondent Company on round the clock basis, as per the agreed contractual rate. Certain Disputes arose between the parties. The Agreement contained an arbitration clause, in terms of which the Petitioner send a notice to the Respondent company, and called upon to them to ratify the appointment of the Sole Arbitrator. The Respondent Company contended before the Court that the claim of the Petitioner was time barred.
The Plea of the Respondent was allowed by the Court. The case reached the Hon'ble Supreme Court.

Issue: Can the issue of Limitation be decided by the National Courts in an Petition preferred under Section 11 of The Arbitration and Conciliation Act, 1996 after the 2015 Amendment?
Supreme Court- It was held by the Hon'ble Supreme Court post the 2015 Amendment of The Arbitration and Conciliation Act, 1996 the Court was not required to go into the question whether the claim was live or not, and it was only required to ascertain the existence of the Arbitration Agreement or clause. The Hon'ble Supreme Court stipulated that the issue of Limitation will be decided by the Arbitral Tribunal or Sole Arbitrator as per the Doctrine of Kompetenz-kompetenz.

Oriental Insurance Company Vs Dicitex Furnishing Ltd[9]

Facts: Dicitex obtained a:
Standard Fire and Peril Insurance Policy from the Petitioner, it was taken to cover the cost of goods lying in the storage facility. The policy contained an arbitral clause. Fire broke out and the goods lying there got destroyed. The surveyors assessed the loss to 13 cr. Dicitex accepted this and issued a discharge voucher to Oriental Insurance, absolving them of all liability under the insurance policy, and accepting the final settlement of 7 Crores. Dicitex denied the settlement and contended that the discharge voucher had been obtained due to threat of coercion from them.

They preferred a Petition under Section 11 of The Arbitration and Conciliation Act, 1996 and sought appointment of Arbitrator in terms of the arbitration clause entered between the parties. The said Petition was allowed by the Bombay High Court. Appeal was made to the Supreme Court.

Issue- Can Sole Arbitrator or Arbitral Tribunal be constituted when Claimant has issued no dues certificate?
Supreme Court- Appellant contended that the Bombay High Court had erred in constituting the Tribunal, they relied on National Insurance Company vs Boghara Polyfab [10] to contend that there is no question of arbitral dispute subsisting in light of the discharge voucher, and Dicitex accepting the full and final settlement.

The Supreme Court finally remarked that:
When a claim is made that no – dues certificate has been given, the Chief Justice or his designate will only examine the existence of the arbitration clause or agreement in an petition under Section 11 of The Arbitration and Conciliation Act. The Chief Justice or his designate will not make an inquiry whether the claim has been settled by the issuance of the discharge voucher after the 2015 Amendment, that issue will be decided by the Sole Arbitrator or Arbitral Tribunal.

In these cases we have seen that how the 2015 Amendment has changed the approach of the National Courts when dealing with Petitions under Section 11 of The Arbitration and Conciliation Act, 1996. The Court is only required to examine whether the agreement or clause exists, and if the answer is in the affirmative, parties will be referred to Arbitration.

The question which can next arise is in what scenario, will the High Court or if in the case of International Commercial Arbitration, the Supreme Court can decline reference to Arbitration when petition under Section 11 of The Arbitration and Conciliation Act, 1996 is preferred before it?

The National Courts can only decline reference when the arbitration agreement or arbitration clause ceases to exist. This is a scenario which occurs but rarely, mainly due to Section 16 of The Arbitration and Conciliation Act, 1996 which mandates that ‘16. Competence of arbitral tribunal to rule on its jurisdiction-

1. The arbitral tribunal may rule on its own jurisdiction, including ruling on any objections with respect to the existence or validity of the arbitration agreement, and for that purpose:
   
   1. An arbitration clause which forms part of a contract shall be treated as an agreement independent of the other terms of the contract; and
   2. A decision by the arbitral tribunal that the contract is null and void shall not entail ipso jure the invalidity of the arbitration clause.

Despite this provision of Kompetenz-Kompetenz, scenarios can arise when the arbitration clause or agreement ceases to exist by action of the contracting parties. The following case Laws will illustrate these scenarios.

United India Insurance Company Vs Hyundai Engineering & Construction Company[11]

Facts:
The joint venture Company comprising of Respondent 1 (Hyundai Engineering and construction) and 2 (Gammon India) executed a Contractor All Risk Insurance Policy valued at Rs. 2,13,58,76,000/-. The clause contained that the disputes arising as to the quantum of the claim shall be referred to arbitration and further contained that arbitration shall not be invoked if the company disputes or does not accept the liability at all.

Following an accident, the respondent company filed for the claim of Rs.1,51,59,94,543/- and accordingly two reports were formed one by the appellant and the other by the Ministry of Road Transport and Highways, Government of India which concluded that the accident occurred due to faulty design and deficient workmanship and thus in pursuance of the report the appellant rejected the claim under clause 7 of the agreement. The JV Company then approached the Madras High court under section 11(4) and 11(6) for the appointment of an arbitrator.

The Issue before the Court-Whether the arbitration clause under the agreement shall be interpreted strictly?
The Madras High Court held that insertion of the clause 6A in section 11 of the new Arbitration and Conciliation Act, 2015 limits the mandate of the court to just examination of the existence of the arbitration agreement.

Judgment
The Court in order to determine the arbitrability of a dispute relied upon the judgement passed by the Supreme Court in Oriental Insurance Company v. Narbheram Power and Steel Pvt Ltd[12] that any expression in a clause shall unequivocally show the intent of arbitration but if a clause contains specific disputes that cannot be referred to arbitration then arbitration clause cannot be invoked.

While observing another judgement passed by the Madras High Court in Jumbo Bags Ltd. Vs. The New India Assurance Co.[13] that the dispute which is not referable to arbitration being not covered by the clause cannot be over the subject matter of the arbitration.

The court did not rely upon the judgement cited by the respondent in Duro Felguera S. A. v. Gangavaram Port Limited[14] as it is a two-judge bench and the issue in that case, was a general issue and not specific in mentioning as to what is arbitrable in nature.

The Supreme Court also, while upholding its decision in Vulcan Insurance Company Ltd. v. Maharaj Singh [15]and another, stated that the question of quantum of claim does not arise at all when the claim itself has been repudiated.

After analysing the relevant judicial precedents, the court concluded that the high court had made no efforts to properly examine clause 7 of the said agreement and has plainly read clause 6A of section 11. Such an arbitration clause will only come into force if the dispute between the parties is limited to the quantum to be paid under the policy. The liability should be unequivocally admitted by the insurer. The reason given by the appellant for repudiation of the claim is also specific and also no plea was raised by the respondent challenging the clause. Therefore, the court ordered to set aside the judgment passed by the Madras High court and held that the issue is not subject to arbitration and that the respondent should resort to remedy of a suit.

Wapas Company Limited Vs Salma Dam Joint Venture Limited[16]

Facts: The Ministry of External Affairs and the Appellant, which is a Public Sector enterprise entered into an agreement for reconstruction, rehabilitation and completion of the Salma dam project. Appellant was given the responsibility of providing financial, administrative and contractual management services for the dam project.

Salma Joint Venture Management Company was awarded the tender for the project. This was followed by a contract agreement dated 9.3.2006 for executing the said project.

Subsequent to the entering of this contract, the contracting parties in meeting decided to rescind the contract completely, and subsequently entered into a new Amended Agreement to decide their rights and obligations in the contract. The new Agreement did not provide for an Arbitration Clause and provided that in case of any dispute between the contracting parties pertaining to the contract, the dispute will be referred to the Chief Engineer of WAPCOS, whose decision will be final and binding.

Disputes arose between the parties and Respondent/Claimant sought to invoke the Arbitration clause in the contract. WAPCOS wrote back saying that the arbitration clause was not existing on this date, and refused to agree for Arbitration. Petition under Section11 was preferred. The Delhi High Court constituted the Tribunal as it opined that on the date of filing of petition, the agreement was in force. Matter reached the Apex Court by way of appeal

Issues:-Whether on date of filing of Petition the Arbitration Agreement was valid and subsisting?
Supreme Court:
The Hon'ble Court said it is not unknown in the commercial world for parties to amend original contract and give up their claims under the old agreement. In this case the parties had consciously and with full understanding executed Amendment of Agreement, which states with absolute clarity that there will no arbitration for settlement of claims. The Hon'ble Court held that when the contractor has agreed to these terms, they cannot turn back and now claim Arbitration. Thus the Court declined reference to Arbitration as it concluded that on the date of filing Petition, the Arbitration clause had ceased to exist.

Conclusion
The above mentioned case Laws illustrate and show how Section11 of The Arbitration and Conciliation Act, 1996 has evolved. The intention of the Legislature had always been to adopt a hands off  approach in terms of National Court interference in Arbitration, and that is why it was intended that the National Courts will only deal with Section 11 Petitions as an administrative duty.

The intention of the Legislature was to some extent changed due to interpretations of the Hon'ble Supreme Court in certain Judgements wherein the Hon'ble Court held that the power of the Chief Justice or his designate was quasi-judicial in nature and certain aspects could be decided by the Court, such as existence of live claim, whether the claim had been discharged by mutual accord and satisfaction etc.

These decisions to some extent hampered India's image as an Arbitration friendly jurisdiction, as parties started adopting dilatory tactics to avoid reference to Arbitration. The 2015 Amendment to The Arbitration and Conciliation Act, 1996 rectified this anomaly as it stipulated that when Petition under Section 11 is brought before the Court, the Court is only required to ascertain whether the Arbitration agreement or clause is in existence on that date.

After the amendment the National Courts have given a wider autonomy to the Arbitral Tribunal by refusing to adjudicate when claim of Limitation and discharge of contract by way of settlement have been raised before it.

The National Courts have only declined reference to Arbitration when it has been conclusively established that the Arbitration Agreement or clause does not exist on that date. An Arbitration friendly system is one of the essential requisites for attracting investment in the country and with this approach of the National Courts, a huge positive step has been taken for making India an arbitration friendly.