Case BriefsSupreme Court

Supreme Court: The bench of AM Khanwilkar and Ajay Rastogi, JJ has held that the Chief Justice or   his Designate, in exercise of power under Section 11(6) of the  Arbitration and Conciliation Act, 1996, cannot directly make an appointment of an independent arbitrator without, in the first instance, resorting to ensure that the remedies provided under the arbitration agreement are exhausted.

Clause (c) of sub­section (6) of Section 11 relates to failure to perform any function entrusted to a person including an institution and also failure to act under the procedure agreed upon by the parties. Noticing the intent behind the said clause, the Court explained the scheme of Section 11(6) and said,

“clause(a) refers to the party failing to act as required under that procedure; clause(b) refers to the agreement where the parties fails to reach to an agreement expected of them under that procedure and clause (c ) relates to a person which may not be a party to the agreement but has given his consent to the agreement and what further transpires is that before any other alternative is resorted to, agreed procedure has to be given its precedence and the terms of the agreement has to be given its due effect as agreed by the parties to the extent possible.“

The Court hence held that corrective measures have to be taken first and the Court is the last resort.

The Court also noticed that by appointing an arbitrator in terms of sub­section (8) of Section 11 of Act, 1996, due regard has to be given to the qualification required for the arbitrator by the agreement of the parties and also the other considerations such as to secure an independent and impartial arbitrator.

The Court, hence, held,

“To fulfil the object with terms and conditions which are cumulative in nature, it is advisable for the Court to ensure that the remedy provided as agreed between the parties in terms of the contract is first exhausted.”

[Union of India v. Parmar Construction Company, 2019 SCC OnLine SC 442, decided on 29.03.2019]

Case BriefsHigh Courts

Karnataka High Court: A Single judge bench comprising of Dinesh Maheshwari, J. while hearing a civil writ petition for appointment of arbitrator noted that even after termination of an agreement entered into between the parties, the arbitration agreement survives.

Brief background of the case was that the respondent had entered into a MoU with one Sandip Foundation. After a certain period of time, Sandip Foundation passed a resolution under which all its activities under the said MoU were transferred to the petitioner institution which specialized in developments and distribution of course material for various technical and non-technical courses. Respondent – University issued a notification withdrawing certain courses from the academic collaborative institutions and despite assuring that the students already admitted would not be affected and could continue their courses, it failed to conduct examinations. This led to the petitioner issuing a notice calling upon the respondent to commence arbitration proceedings in terms of the MoU. The respondent replied by terminating the MoU and did not respond to petitioner’s multiple requests and notices for arbitrating their dispute. The sole contention raised on behalf of the respondent was that since the MoU had been terminated, the arbitration clause contained therein did not survive. Hence, the petitioner was constrained to file the instant petition for appointment of a sole arbitrator to adjudicate their disputes.

The sole question posed before the court was as to whether there was an arbitration agreement between the parties. The court went through clauses of the MoU entered into between the parties and noted that clause 14 of the MoU clearly stipulated that disputes between parties be referred to arbitration. It was observed that despite issuing a notice to the respondent, it did not take steps for appointment of an arbitrator. Further, the court rejected the argument that the termination of MoU had the effect of terminating arbitration clause as well.

On the aforesaid holding and observations, the writ petition was disposed of by giving directions for appointment of an arbitrator. [SCOPE v Karnataka State Open University,2018 SCC OnLine Kar 1568, decided on 03-10-2018]

Case BriefsSupreme Court

Supreme Court: Deciding the question relating to the entertainability of an application by this Court for making an award passed by the arbitral tribunal, when it retains seisin over arbitral proceeding, as Rule of the Court, the 5-judge bench of Dipak Misra, CJ and Dr. AK Sikri, AM Khanwilkar, Dr. DY Chandrachud and Ashok Bhushan, JJ overruled the rulings in State of Madhya Pradesh v. Saith and Skelton (P) Ltd., (1972) 1 SCC 702 and Guru Nanak Foundation v. Rattan Singh and Sons, (1981) 4 SCC 634, wherein it was held:

“when an arbitrator is appointed by this Court and further directions are issued, it retains seisin over the arbitration proceedings and in such circumstances, the Supreme Court is the only court for the purposes of Section 2(c) of the Arbitration Act, 1940.”

Stating that the jurisdiction of a Court conferred under a statute cannot be allowed to shift or become flexible because of a superior court’s interference in the matter in a different manner, the bench explained:

“When arbitrator is not appointed under the Act and the matter is challenged before the High Court or, for that matter, the Supreme Court and, eventually, an arbitrator is appointed and some directions are issued, it will be inappropriate and inapposite to say that the superior court has the jurisdiction to deal with the objections filed under Sections 30 and 33 of the Act.”

The Bench further explained that the Section 39 of the Act provides for an appeal and solely because a superior court appoints the arbitrator or issues directions or has retained some control over the arbitrator by requiring him to file the award in this Court, it cannot be regarded as a court of first instance as that would go contrary to the definition of the term ‘court’ as used in the dictionary clause as well as in Section 31(4) of the Act. The bench said that the Supreme Court:

“may make a reference to an arbitrator on consent but to hold it as a legal principle that it can also entertain objections as the original court will invite a fundamental fallacy pertaining to jurisdiction.”

The Court, hence, overruled the above-mentioned verdicts and all the other verdicts of this Court that state the law on the basis of the said verdicts. [State of Jharkhand v. Hindustan Construction Co. Ltd, 2017 SCC OnLine SC 1458, decided on 14.12.2017]

Case BriefsHigh Courts

Karnataka High Court: While deciding a civil petition under Section 11(6) and (8) read with Section 15(2) of the Arbitration and Conciliation Act, 1996, a Single Judge Bench comprising of Vineet Kothari, J. dismissed the petition holding that the essentials required for exercise of Court’s power under S. 11(6) of the Act were not fulfilled.

The petitioner filed the petition against the respondent, praying before the Court to appoint an arbitrator. Learned counsel for the petitioner submitted that the Arbitral Tribunal constituted in terms of the contract between the parties was re-constituted at the request of the respondent. The said Tribunal was directed by the High Court to conclude the proceedings within a period of six-months. It was submitted that the said Tribunal had failed to conclude the proceedings even after a long time. And being aggrieved by non admission of his claim before the Tribunal, the petitioner preferred a writ petition before the High Court which was pending. Hence, he prayed that a fresh arbitrator may be appointed in the present case.

The Court perused the record as well as submissions made on behalf of the parties and opined that Section 11(6) of the Act envisages intervention and appointment of an arbitrator by the Court, only if the parities to the agreement fail to act as required under the procedure agreed between them or the arbitrator fails to perform the functions entrusted to him. Therefore, it is only on the failure of the parties or the arbitrator that such a petition under Section 11(6) can be preferred and not where the arbitral tribunal was already seized of the arbitration proceedings under the agreed procedure.

In the instant case, the Court found that the Arbitral Tribunal was already constituted and it was seized of the dispute. It was not a case where the Tribunal failed to perform its functions. In fact, the petitioner was himself responsible for the delay in proceedings by filing unnecessary writ petition which was still pending before the Court. Accordingly, the petition was found to be sans merits and dismissed. [Hindustan Steel Works Construction Ltd. v. Union of India, CMP No. 102 of 2015, order dated  02.11.2017]