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
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
Konkan Railway Vs Rani Construction Company
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:
- Chief Justice or his designate can decide their own Jurisdiction
- They can decide whether their exists a live claim and
- 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
The question which arose in this case was a reconsideration by a 5 Judge
Constitutional Bench of Konkan Railway Construction Ltd vs Rani Construction
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
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:
- A Live Claim(whether the claim has not been withered away by Limitation)
- Whether the claim has not been satisfied by mutual accord and
- 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
National Insurance Company Vs Boghara Polyfab (After effects of SBP & Co
vs Patel Engineering 
The Respondent (Insured) had availed a Standard Fire and other
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
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
 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
 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
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
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
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
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
M/S Uttarakhand Purv Sainik Sanshtha Vs Northern Coal Field Limited
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.
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
Oriental Insurance Company Vs Dicitex Furnishing Ltd
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.
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
 to contend that there is no question of arbitral dispute subsisting
in light of the discharge voucher, and Dicitex accepting the full and final
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-
- 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:
- An arbitration clause which forms part of a contract shall be treated as
an agreement independent of the other terms of the contract; and
- 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
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.
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
 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
. 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
 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
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
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
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?
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.
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
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.