As you are aware, arbitration is one of the most popular alternate dispute resolution methods. It is a less time-consuming, private, economic, and effective dispute resolution process. Individual, partnership, and corporate entities favored this process. There is no internationally approved definition of arbitration.
The parties' agreement to arbitrate across jurisdictions is generally required to be in writing. An arbitration agreement may be contained in a commercial contract in the form of a clause or be a distinct agreement in itself. Sometimes, arbitration agreements are also signed and entered into subsequent to a dispute having arisen among the parties. However, the prospect of the parties mutually agreeing to sign anything, including an arbitration agreement, post-disagreement is bleak. Thus, it is usually a preferred practice for parties to embed an arbitration agreement as a clause in the underlying contract initially while their commercial relations are still strong and amicable.
When individuals opt for arbitration to settle their disagreements, they forfeit their right or entitlement to have their conflicts adjudicated in a national court or other competent judicial body for the state. Instead of approaching the national courts, the disputants mutually consent to resolve the issues confidentially, distinct from the state's judicial system.
Section 11 of the ARBITRATION & RECONCILIATION ACT, 1996
APPOINTMENT OF ARBITRATORS
(1) A person of any nationality may be an arbitrator, unless otherwise agreed upon by the parties.
(2) Subject to sub-section (6), the parties are free to agree on a procedure for appointing the arbitrator or arbitrators.
(3) Failing any agreement referred to in sub-section (2), in an arbitration with three arbitrators, each party shall appoint one arbitrator, and the two appointed arbitrators shall appoint the third arbitrator, who shall act as the presiding arbitrator.
(4) If the appointment procedure in sub-section (3) applies and
(a) a party fails to appoint an arbitrator within thirty days from the receipt of a request to do so from the other party; or
(b) If the two appointed arbitrators fail to agree on the third arbitrator within thirty days from the date of their appointment, the appointment shall be made, upon request of a party, by [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court];
(5) Failing any agreement referred to in sub-section (2), in an arbitration with a sole arbitrator, if the parties fail to agree on the arbitrator within thirty days from receipt of a request by one party from the other party to so agree, the appointment shall be made, upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court.
(6) Where, under an appointment procedure agreed upon by the parties,
(a) a party fails to act as required under that procedure; or
(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or
(c) If a person, including an institution, fails to perform any function entrusted to him or her under that procedure, a party may request [the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court] to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.
(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4), sub-section (5), or sub-section (6), shall, notwithstanding any judgment, decree, or order of any court, confine itself to the examination of the existence of an arbitration agreement.
(6B) The designation of any person or institution by the Supreme Court or, as the case may be, the High Court for the purposes of this section shall not be regarded as a delegation of judicial power by the Supreme Court or the High Court.
(7) A decision on a matter entrusted by sub-section (4), sub-section (5), or sub-section (6) to [the Supreme Court, or, as the case may be, the High Court, or the person or institution designated by such Court] is final, and no appeal, including a letter patent appeal, shall lie against such a decision..
(8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to:
(a) any qualifications required for the arbitrator by the agreement of the parties; and
(b) the contents of the disclosure and other considerations that are likely to secure the appointment of an independent and impartial arbitrator.
(9) In the case of the appointment of a sole or third arbitrator in an international commercial arbitration, [the Supreme Court or the person or institution designated by that Court] may appoint an arbitrator of a nationality other than the nationalities of the parties where the parties belong to different nationalities.
[(10) The Supreme Court or, as the case may be, the High Court, may make such scheme as the said Court may deem appropriate for dealing with matters entrusted by sub-section (4), sub-section (5), or sub-section (6) to it.
(11) Where more than one request has been made under sub-section (4), sub-section (5), or sub-section (6) to the Chief Justices of different High Courts or their designates, the High Court or its designate to whom the request has been first made under the relevant sub-section shall alone be competent to decide on the request.
8[(12) (a) Where the matters referred to in sub-sections (4), (5), (6), (7), (8), and sub-section (10) arise in an international commercial arbitration, the reference to the "Supreme Court or, as the case may be, the High Court" in those sub-sections shall be construed as a reference to the "Supreme Court"; and
(b) Where the matters referred to in sub-sections (4), (5), (6), (7), (8), and sub-section (10) arise in any other arbitration, the reference to the Supreme Court or, as the case may be, the High Court in those sub-sections shall be construed as a reference to the "High Court" within whose local limits the principal Civil Court referred to in clause (e) of sub-section (1) of section 2 is situated, and where the High Court itself is the Court referred to in that clause, to that High Court.
(13) An application made under this section for the appointment of an arbitrator or arbitrators shall be disposed of by the Supreme Court, the High Court, or the person or institution designated by such Court, as the case may be, as expeditiously as possible, and an endeavor shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.
(14) For the purpose of determining the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal, the High Court may frame such rules as may be necessary, after taking into consideration the rates specified in the Fourth Schedule.
Explanation.: For the removal of doubts, it is hereby clarified that this sub-section shall not apply to international commercial arbitration or arbitrations (other than international commercial arbitration) in cases where parties have agreed to the determination of fees as per the rules of an arbitral institution.
At the core of the principle of competence is the power to determine jurisdiction. If there is no challenge to the arbitral tribunal's competence-competence decision, it takes effect within the state of the seat, and the resulting award is recognized under the New York Convention in the same way as an award from an arbitral tribunal whose competence-competence was challenged before the courts of the seat but upheld.
Any limitation of competence over a question for which jurisdiction may potentially be exercised will be used by respondents to delay and complicate the proceedings. Relying solely on the will of the parties is logically insufficient to encompass competence-competence determinations on the operability of such will and to give effect to arbitral decisions denying jurisdiction due to the inoperability of party will.
Regarding the principle of competence in India, it is important to consider the extent of powers exercised by a judicial authority when appointing an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.
This scope has been subject to constant changes over time. Before the Arbitration and Conciliation (Amendment) Act, 2015, the section's wording did not provide much clarity on the matters that could be reviewed when granting or denying an application under Section 11.
The scope of powers exercised by a judicial authority appointing an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996, which has been constantly evolving, is relevant in the context of the principle of competence.
The scope of power exercised under Section 11—the case of SBP & Co. v. Patel Engineering Ltd.—is as follows:
(a) determining whether there is a valid arbitration agreement between the parties;
(b) determining whether the party that has made the request under Section 11 is a party to the arbitration agreement; and
(c) whether the party making the motion had approached the appropriate High Court.
The court pointed out that the competence-competence principle would only apply if the parties had gone to the arbitral tribunal without recourse to Section 8 or 11 of the Act. If jurisdictional issues are decided under these sections before a reference is made, Section 16 cannot be used by the Arbitral Tribunal to ignore the decision given by the judicial authority.
The court held that the finality conferred on an order passed prior to the reference by the statute that creates it cannot be reopened by the arbitrator during the proceeding before the tribunal. Therefore, the case undermined the importance of the competence-competence principle enshrined in Section 16 of the Act.
As a result of this case, the Law Commission, in its 246th report, recommended that the scope of judicial intervention under Section 11 should be restricted to only examining the existence of the arbitration agreement. This recommendation was incorporated through the insertion of Section 11(6A) by the 2015 amendment.
The purpose of this doctrine is to minimize judicial interference in disputes submitted to the tribunal by parties.
The case of Duro Felguera S.A. v. Gangavaram Port Ltd. also upheld the same. When there is a jurisdictional issue and a determination of competence, the question of limitation often arises.
The Hon'ble Supreme Court held in Pandurang Dhoni Chougule v. Maruti Hari Jadhav that "a plea of limitation is a plea of law which concerns the jurisdiction of the court which tries the proceedings, as a finding on these pleas in favor of the party raising them would oust the jurisdiction of the concerned court."
The Supreme Court in Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd. has ruled that if an application under Section 11 is rejected on the grounds of limitation, the issue should be left for determination by the arbitrator. However, there are exceptions to this doctrine, such as when the arbitration agreement is procured by fraud or deception or when parties have only entered into a draft agreement as a proposal to arbitrate.
THE GENERAL RULE LAID IN UTTRAKAHAND PURV SAINIK KALYAN NIGAM LTD. V. NORTHERN COAL FIELD LTD. In UTTRAKAHAND PURV SAINIK KALYAN NIGAM LTD. V. NORTHERN COAL FIELD LTD., the Supreme Court of India dealt with an important question: whether a court acting under Section 11 of the Arbitration Act could, at the pre-reference stage, consider the issue of limitation. While answering the moot question, the Supreme Court referred to the observations in the 246th Report of the Law Commission of India (Report).
In the report, the Law Commission of India (Commission), while explaining the rationale behind the amendments suggested to Sections 8 and 11 of the Arbitration Act, observed that the amendments pertain to limiting judicial intervention. This limited judicial intervention was envisaged only when the court or judicial authority determined that the arbitration agreement was non-existent or invalid. The Commission believed that if the court or judicial authority is reasonably convinced on a prima facie basis against arguments challenging the arbitration agreement's validity, it should refer the matter to arbitration.
The proposed amendment required that the court or judicial authority refrain from referring the parties to arbitration only when it concludes that there is no valid arbitration agreement in place. If the court or judicial authority, at first glance, is of the view that the arbitration agreement is valid, it should then direct the dispute to arbitration and defer the final determination of the arbitration agreement's existence to the Arbitral Tribunal.
Based on the above observations, Section 11 of the Arbitration Act came to be substantially amended by the Arbitration and Conciliation (Amendment) Act, 2015 (2015 Amendment)
In the 2015 Amendment, sub-section (6-A) was added to Section 11, which prescribed that the Supreme Court or the High Court, as the case may be, while considering an application seeking reference to arbitration, shall confine its examination to the existence of an arbitration agreement. The introduction of sub-section (6-A) had the effect of legislatively overruling the judgments of the Supreme Court in SBP & Co. v. Patel Engg. Ltd. 13 and National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd. and other similar decisions, which prescribed a much wider scope of judicial intervention at the pre-reference stage.
The Supreme Court in the Uttrakahand Purv case observed that the doctrine commonly known as "competence-competence" or "competence de la recognized" confers authority upon the Arbitral Tribunal to decide matters concerning its own jurisdiction. This includes adjudicating all questions related to jurisdiction and assessing the existence and validity of the arbitration agreement. The purpose of this doctrine is to minimize judicial interference, ensuring that the arbitration process is not hindered at the threshold, especially when a preliminary objection is raised by one of the parties. There are, however, exceptions to the general application of this doctrine, as acknowledged by the Supreme Court. The principle does not hold in cases where the arbitration agreement itself is impeached on the grounds of fraud or deception.
Further, the principle would also not apply to cases where the parties in the course of negotiations may have entered into a draft agreement as a step before the execution of the final contract.
While concluding, the Supreme Court in the Uttrakahand Purv case observed that the point of limitation was a mixed question of fact and law and was also a question of jurisdiction. In this regard, the Supreme Court relied on the decision in NTPC Ltd. v. Siemens Aktiengesellschaft to opine that the Arbitral Tribunal would deal with limitation under Section 16 of the Arbitration Act.
Hence, the Arbitral Tribunal's competence to rule upon its jurisdiction was upheld.
The decision in Bharat Broadband Network Ltd. v. United Telecoms Ltd., carving out an exception to the general rule in India, suggests that the question of limitation is to be referred to the Arbitral Tribunal. But what if the very invocation of the arbitration itself appears to be time-barred?
In BSNL v. Nortel Networks India (P) Ltd., the Supreme Court of India dealt with a peculiar case. The issue involved in the appeal was whether an application filed under Section 11 of the Arbitration Act was liable to be rejected on grounds of
- the application being time-barred; and
- the claims being ex facie time barred.
While allowing the appeal, the Supreme Court held that the object of the Arbitration Act is to resolve disputes expeditiously. While Section 11 of the Arbitration Act did not prescribe any period for filing an application under sub-section (6) for the appointment of an arbitrator, the Supreme Court opined that Section 43 of the Limitation Act, 1963 (Limitation Act) clearly provided that the provisions of the Limitation Act would apply to arbitrations as well.
Further, since none of the articles in the Schedule to the Limitation Act provided for a time period for filing an application for the appointment of an arbitrator under Section 11, the residual provision under Article 137 was held to be applicable. In terms of Article 137, the limitation for filing an application under Section 11(6) was held to be three years, which would trigger from the date of refusal to appoint the arbitrator or on the expiry of 30 days in terms of Section 11, whichever is earlier.
While rendering these observations, the Supreme Court was careful to point out that the period of limitation for filing a petition seeking the appointment of arbitrator(s) could not be confused with or conflated with the period of limitation applicable to substantive claims made under the underlying contract. The period of limitation for such claims would be prescribed under various articles of the Limitation Act. The limitation for deciding the underlying disputes was therefore held to be necessarily distinct from that of filing an application for the appointment of an arbitrator. On whether the court acting under Section 11 of the Arbitration Act was mandated to appoint an arbitrator even in a case where the claims are ex facie time-barred, the Supreme Court observed that in view of the legislative mandate contained in amended Section 11(6-A), a court was required to only examine the existence of the arbitration agreement, and all other preliminary or threshold issues were left to be decided by the arbitration under Section 16, which enshrined the principle of kompetenz-kompetenz.
The Supreme Court concluded that it is only in a very limited category of cases, where there is not even a vestige of doubt that the claim is ex facie time-barred or that the dispute is non-arbitrable, that the Court may decline to refer the disputes to arbitration. However, if there is even the slightest doubt, the general rule would continue to apply, and the matter would be referred to arbitration.
Disclaimer: The article presented here is only for sharing information with readers. In cases of necessity, consult with professionals.
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