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In India, arbitration is the most overpriced and time-consuming process for dispute resolution. This phrase became very popular amongst the members of the bar and bench, in recent years. The intent of the legislature to make India a hub of arbitration by introducing timelines right from invoking arbitration to parties completing their pleadings and in last pronouncement of the award by the Arbitrator. Furthermore, the legislature has introduced Section 11 and Section 16 the Arbitration and Conciliation Act, 1996 (hereinafter “the Act”), wherein the former allows parties to appoint arbitrator (s) and later gives a party to arbitral proceedings an option to challenge the jurisdiction of the arbitral tribunal as appointed under Section 11 of the Act. However, it is relevant to note that this option of challenging the jurisdiction of the arbitral tribunal is to be exercised not later than the submission of the statement of defence. This gives rise to several important questions that strike at the very core of Section 16 of the Act, particularly regarding how it is sometimes misused as a tool to delay arbitral proceedings.

QUESTIONS FOR CONSIDERATION:

1. Whether an order issued under Section 11 (6A) of the Act can be challenged once the arbitral proceedings have already commenced before the tribunal on the ground of no privity of contract between parties.

2. Whether an application under Section 16 of the Act be filed at any stage of the arbitral proceedings.

QUESTION: 1

Whether an order issued under Section 11 (6A) of the Act can be challenged once the arbitral proceedings have already commenced before the tribunal on the ground of no privity of contract between parties?

The circumstances in which an order made under Section 11 (6A) can (not) be challenged before a Court of law has been deliberated by the Supreme Court in various of its rulings. The most recent being the Hindustan Construction Company Ltd. vs Bihar Rajya Pul Nirman Nigam Ltd & Ors, wherein the Supreme Court held that the power under Section 11 is narrow and the statute provides no provision to seek review or reconsideration of an Order passed under Section 11 by a competent Court. Thus, the above ruling by the Supreme Court is in sync with the intent of the legislature in excluding any statutory provision enabling a party to challenge the appointment of an arbitrator made under Section 11 of the Act. It is to be noted that the proceedings under Section 11 of the Act are strictly facilitative and not adjudicatory in nature.

A party aggrieved may take this argument that the competent Court while appointing an arbitrator under Section 11 (6A) failed to take into consideration the requirements of Section 7 of the Act and no agreement exist between the parties, therefore review of the order passed by the competent Court is a primary remedy. However, the Supreme Court in Glencore International AG vs Shree Ganesh Metals has held that the intention to submit disputes to arbitration can also be inferred from correspondence exchanged between the parties. It has also been settled by the Supreme Court in catena of cases that the arbitral tribunal is competent to rule on its jurisdiction, including the issue of validity of the arbitration clause for violating the equality principle under the Act. It is stated that once the High Court had accepted the existence of a valid arbitration agreement and appointed an arbitrator, its later interference on same agreement with same clauses, in substance, to an appeal disguised as supervisory review.

The Supreme Court in Kamal Gupta & Anr. vs M/s L.R. Builders Pvt Ltd & Anr, while dealing with an issue of whether, after appointment of arbitrator had attained finality under Section 11 (6A), whether it is permissible for Courts to issue any further ancillary directions concerning the arbitration proceedings. The Supreme Court in Kamal Gupta held that once an arbitrator is appointed by the competent Court and the proceedings became final, the Court further did not have jurisdiction to entertain any application whatsoever, since the Court had become functus officio on conclusion of proceedings. The Supreme Court further relied upon Section 5 of the Act and the Constitution bench ruling in Interplay between Arbitration Agreements under the Arbitration and Conciliation Act, 1996 and the Indian Stamp Act, 1899, to hold that every provision of the Act ought to be construed in view of Section 5 of the Act to give true effect to the legislative intention of minimal judicial intervention.

The Supreme Court in one recent ruling in Hindustan Petroleum Corporation Limited vs. BCL Secure Premises Pvt Ltd, has held that a non-signatory assignee cannot compel arbitration if there exist no direct privity of contract with the parent company. The Court based its analysis on veritable party doctrine which allows non-signatories to be bound by an arbitration agreement if they are true parties, deeply involved in contract negotiation, performance, termination, etc. Nonetheless, it is relevant to note that in BCL Secure Premises, the arbitration between the parties had not yet begun and it is only after Section 11 Order the party aggrieved approached the Supreme Court on the ground that there is no privity of contract.

Therefore, it is evident from a plethora of judgments of the Supreme Court that reopening of Section 11 (6A) proceedings once it attained finality is gross abuse of process of law and is against the intention of the legislature. It is also to be noted that the only remedy available to a party aggrieved is to approach the Supreme Court under Article 136 for seeking Special Leave to Appeal or to raise objections under Section 16 against the order of appointment under Section 11 (6A) of the Act. However, it is to be strictly noted that approaching the Supreme Court under Article 136 after commencement of arbitral proceedings i.e., after parties have filed their pleadings and evidence would result in waiver of their right to object provided under Section 4 of the Act.

QUESTION: 2

Whether applications under Section 16 of the Act be filed at any stage of the arbitral proceedings?

The legislature by incorporating Section 16 in the Act, has made a conscious decision with an intention to minimise the judicial intervention in the arbitration process and vested a power to decide the jurisdiction of the arbitral tribunal with the arbitrator itself under the kompetenz-kompetenz principle. The language of Section 16 allows a party file an appropriate application before the arbitral tribunal challenging the jurisdiction of an arbitrator to adjudicate the disputes between the parties but not later than the submission of the statement of defence. A straightforward answer to the above question would be a 'Yes', that a party a may file multiple applications under Section 16, if they focus on different aspects. However, it is relevant to note that multiple Section 16 applications may result in delay in arbitral process and goes against the nature of the Act.

The above question can be reframed as 'whether filing of pleadings (Statement of Claims & Statement of Defence), evidence affidavits, cross examination, etc amounts to an express or implied waiver under Section 4 of the Act. Now, suppose if on commencement of arbitral proceedings, a party pleads under Section 16 challenging the jurisdiction of the arbitral tribunal and thereafter complete pleadings, file their evidence affidavits, and cross examination of witnesses is also complete. A party then files an application under Section 16 challenging the jurisdiction on ground that there is no valid arbitration agreement between the parties to continue with the arbitration. Whether at this stage a Section 16 application is a bonafide or a malafide act with an intention to delay the proceedings?

The Supreme Court while dealing with questions in relation to waiver of right under the Act in Ellora Paper Mills Ltd. vs State of Madhya Pradesh has held that mere participation in an arbitral proceeding does not amount to waiver of statutory ineligibility. On the contrary, the Supreme Court in Quippo Construction Equipment Ltd. vs Janardan Nirman Private Limited has categorically held that objections may be raised at any stage, but not after a party has through conduct or delay, waived its right. It is also apposite to note that a Section 16 application if filed after cross examination without a valid justification for the delay, the tribunal may dismiss it, forcing a party to challenge the jurisdiction only after the final award is passed. The Supreme Court in Hindustan Construction Company Ltd, was dealing with an issue where a party after filing joint extension of the mandate under Section 29A, objects or seeks termination of the proceedings is held to be against the fundamentals of the Act when viewed through the lens of Section 4 of the Act.

In conclusion, it is evident that the legislature has decided a timeline for every event under the Act in order to make arbitration a speedy dispute resolution mechanism. And the judicial precedents as laid down by the Supreme Court in catena of judgments has provided an affirmation to this intention of the legislature. Once proceedings before the arbitral tribunal have begun and the parties have submitted their pleadings and evidence, delays in the arbitration should not be permitted, unless circumstances arise that are contrary to the Act or appear, on the face of it, to conflict with the parties' intention to resolve their disputes through arbitration.

Author is an Advocate practicing at Supreme Court and Delhi High Courts. Views are personal.

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