Prasha Bhatia is a 4th Year B.A.LL.B (Hons.) Student at the University Institute of Legal Studies, Panjab University, Chandigarh.
Arbitration has become an increasingly opted-for means to resolve disputes, especially the commercial ones. Its promise of speedy and hassle-free redressal as opposed to litigation has led to this growing importance. However, while arbitration was introduced in India with the aim of lessening the burden on courts, the long-drawn history of case laws has portrayed significant deviance from these ideals. In this context, analysing Sections 11, 16 and 34 of the Arbitration and Conciliation Act, 1996 (hereafter, “Act”) becomes pertinent. Despite amendments and liberal judgements, the objectives of arbitration have been undermined by constant judicial intervention.
Section 11 of the Act provides for the appointment of arbitrators. This section is based on UNCITRAL Model Law and provides for court intervention in case the parties fail to appoint an arbitrator(s) or are unable to agree upon the procedure for such appointment under the aforementioned circumstances, either of the parties is entitled to ask the Hon’ble Supreme Court or the High Court, as the case may be, to take action, except where the agreement relating to the appointment process provides for another means for securing the appointment. In this regard, however, the courts have not restricted themselves to examining the appointment of arbitrators but have repeatedly conducted detailed reviews of arbitration agreements, leading to significant delays.
The Hon’ble Supreme Court, in its judgements in Interplay between Arbitration Agreements under Arbitration and Conciliation Act, 1996, and Stamp Act, 1899, and SBI General Insurance Co. Ltd. v. Krish Spinning clarified that the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement and nothing else. Furthermore, in PayU Payments Pvt. Ltd. v. The New India Assurance Co. Ltd., the Hon’ble Delhi High Court expressly recognised that it is now impermissible for a Section 11 Court to dwell on the issues of ‘arbitrability’ or the scope of the arbitration agreement, thus reinforcing the aim of minimal judicial interference. Nonetheless, the courts have time and again entertained petitions under Section 11, adding a significant delay in the process of appointment of arbitrators.
The delay caused by judicial intervention at the appointment stage under Section 11 does not end once an arbitrator is appointed; it resurfaces in how courts treat the tribunal’s authority to rule on its own jurisdiction. Section 16 of the Act postulates the competence-competence principle, which empowers arbitral tribunals to decide their own jurisdiction. This provision aims to grant greater autonomy to arbitral tribunals by restricting judicial intervention and expanding their powers and privileges. In Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern Coal Field Ltd., the Hon’ble Supreme Court upheld that the referral court should restrict its examination to whether an arbitration agreement between the parties exists. Furthermore, in SBI General Insurance Co. Ltd. v Krish Spinning, it has been established that the underlying principle behind arbitral autonomy and judicial non-interference is that when parties mutually decide to settle their disputes through arbitration, they surrender their right to agitate the same before the national courts.
The appointment-stage delay examined under Section 11, and the jurisdictional questions Section 16 was meant to settle definitively, ultimately resurface at the post-award stage. Yet, despite the competence-competence principle, courts continue to evaluate jurisdictional problems at the appellate stage under Section 34, which provides for recourse to a court against an arbitral award by way of an application. This frequently leads to courts invalidating arbitral awards on the grounds that the tribunal lacks jurisdiction, a situation that should have ideally been resolved definitively under Section 16. In United India Insurance Co. Ltd. and Ors. v. Ratlam Synthetic Rope Manufacturing Co., decided by the Hon’ble Madhya Pradesh High Court, an arbitral award passed by the arbitration tribunal in 2004 was held to be non-est in the eyes of law and was set aside. Instances like this result in a prolonged, multi-layered process and call into question the finality of arbitral decisions.
There exists a dire need for reforms to realign Indian arbitration with the noble intent with which it was introduced. Firstly, there must be a definitive construction of arbitration agreements, which clearly establish the arbitrator(s) and the procedure for appointing them in case of disputes. In Goquii Technologies Pvt. Ltd. v. Sokrati Technologies Pvt. Ltd., the Supreme Court clarified that the limited jurisdiction of the referral courts under Section 11 must not be misused by parties for forcing other parties to the arbitration agreement to participate in a time-consuming and costly arbitration process. Secondly, intervention of the courts must be limited to prima facie scrutiny of the existence of an arbitration agreement. Further, there must be a strict application of the competence-competence principle. The courts must refrain from deciding issues related to arbitrability and jurisdiction. The Supreme Court, in Aslam Islaim Khan Deshmukh v. ASAP Fluids Pvt. Ltd. and Anr., observed that,
“In a scenario where the referral court is able to discern the frivolity in the litigation on the basis of bare minimum pleadings, it would be incorrect to assume or doubt that the Arbitral Tribunal would not be able to arrive at the same inference, especially when they are equipped with the power to undertake an extensive examination of the pleadings and evidence adduced before them.”
While the legislative intent and global arbitration practices advocate minimum judicial interference, the implementation of Sections 11, 16, and 34 of the Arbitration and Conciliation Act, 1996, has been subject to increasing judicial overreach. The question of the appointment of arbitrators under Section 11 delays the process of arbitral proceedings; the questions to be decided by the arbitral tribunals are often decided by the courts under the garb of Section 16; and the awards are extensively rejected by the courts long after their passage, making arbitration an even more tedious procedure, with an added burden onto the shoulders of the judiciary. If India is to keep up with the growing importance of arbitration on a global level, it must introduce timely statutory reforms and practice judicial restraint — starting with holding referral courts to the prima facie standard of scrutiny urged above — with an aim to transform India into an arbitration-committed nation as opposed to an arbitration-supportive one.