DR.RAM MANOHAR LOHIYA NATIONAL LAW UNIVERSITY LUCKNOW Final draft INTERNATIONAL COMMERCIAL ARBITRATION S.B.P. & Co Vs. Patel Engineering case – A critical analysis SUBMITTED TO: MR. PRASENJIT KUNDU (asst. prof. of law) SUBMITTED BY: AASHISH KAVIYA 8th SEMESTER (ROLL NO. 02) (SEC. A) TABLE OF CONTENT 11(7) was the case of Sundaram Finance Ltd v. NEPC India Ltd.1 In this case it was held "Under the 1996 Act appointment of arbitrator is made as per the provision of Section 11 which does not require the 1 [1999] 1 SCR 89 . Background: Prior to Patel engineering Discussion regarding Relevant issues of SBP & Co v Patel Engineering Ltd Reasoning behind reaching conclusion: Ratio Critical analysis and flaws in reasoning Final Position Conclusion Bibliography Background.Prior to Patel engineering Amongst some of the earliest interpretations of the provision of S. 4 held that the order of the Chief Justice or his designate in exercise of the power under S. This was a case pertaining to a Special Leave Petition under Article 136 of Constitution of India moved by the petitioner challenging an order of the learned Chief Justice of the High Court of Bombay under Section 11 Sub-section (6) of the Arbitration and Conciliation Act. (5) & (6) Of The Arbitration Act: A Never-Ending Saga Of Judicial Interpretation available at http://www... The effect of this judgment was that the decision of the Chief Justice being an administrative order was now amenable to the Writ Jurisdiction under Article 226 of the Constitution and hence.com/india/x/147394/Arbitration+Dispute+Resolution/Appointment+Of+Arbitrator+Under+Sect ion+11+4+5+6+Of+The+Arbitration+Act+A+NeverEnding+Saga+Of+Judicial+Interpretation accessed on April 6. In view of this settled legal position therefore." This decision was reiterated in the case of Ador Samia Private Ltd v."3 The decision three judge bench in Konkan Railway Corporation Ltd & Ors v. 2014 4 AIR 2000 SC 2821 . Peekav Holdings Limited 2. Mehul Construction Co. where it was held by the Hon'ble Supreme Court that "It is now well settled that petition under Article 136 can lie for challenging a judgment. there is no escape from the conclusion that orders passed by the learned Chief Justice under Section 11(6) of the Act being of an administrative nature cannot be subjected to any challenge directly under Article 136 of the Constitution of India.11 of the Act was an administrative order and that such an order was not amenable to the Jurisdiction of the Supreme Court under Article 136. 1996 3 Appointment Of Arbitrator Under Section 11 (4). As the learned Chief Justice or his designate under Section 11(6) of the Act acts in administrative capacity as held by this Court in the aforesaid decision it is obvious that this order is not passed by any court exercising any judicial function nor it is a tribunal having trappings of a judicial authority. 2 AIR 1999 SC 3246. determination. decree. sentence or order in any cause of matter passed or made by any court or tribunal in the territory of India..mondaq.Court to pass a judicial order appointing arbitrator/s. as one may say that the High Courts were flooded with Writ Petitions challenging the appointment of the Arbitrators. we hold that the order of the Chief Justice or his designate under Section 11 nominating an arbitrator is not an adjudicatory order and the Chief Justice or his designate is not a tribunal. is affirmed. 22 thus the question before the Hon'ble Supreme Court was “the nature of the function of the Chief Justice or his designate under S.B. Patel Engineering & Anr. including questions pertaining to the validity of the arbitration agreement. were to be 5 AIR 2002 SC 778 6 (2000) 7 SCC 201 . The Court held that the Act advocated extreme Kompetenz-Kompetenz. have decided contentious issues arising between the parties to an alleged arbitration agreement and the question that we are called upon to decide is whether such an order deciding issues is a judicial or an administrative order?" The Hon'ble Supreme Court after examining the intricacies involved and after careful examination of the case laws held that "In conclusion.6 the role of the Chief Justice under section 11 was merely to act as an appointing authority in case of failure of the appointment procedure agreed upon by the parties. according to the Court.” The issues which were examined in this case are: According to a three judge bench of the Supreme Court in Konkan Railway Corporation v. Ltd again came for reconsideration before 7 judge bench in the case of S." SBP & Co v Patel Engineering Ltd This decision of the Supreme Court in Konkan Railway Corporation Ltd Anr v.Thereafter. Rani Construction Pvt. the decision of the Chief Justice was an administrative decision and all jurisdictional questions. 1996. & Co v. Rani Construction Pvt. Mehul Construction Co. Such an order cannot properly be made the subject of a petition for special leave to appeal under Article 136. 11 of the Arbitration and Conciliation Act. 5 a bench of five judges The issue before the Court may be summed up in the following words of the referral order "It appears that the Chief Justice or his nominee. Mehul Constructions. 1996. Ltd. Hence.. acting under Section 11 of the Arbitration and Conciliation Act.P. The decision of the three Judge Bench in Konkan Railway Corporation & Ors v. in Konkan Railway Corporation Ltd Anr v. Section 11(7) provides that the Chief Justice’s decision is final. Section 11(6) provides that where the appointment procedure agreed directly or indirectly by the parties fails. a party could approach the Chief Justice or his designate to aid in the constitution of the tribunal. such decision is judicial in character. has to be satisfied of the existence of the jurisdictional facts. 8 (2002) 2 SCC 388 9 (2005) 8 SCC 618 . The issue was whether the Chief Justice should decide any contentious jurisdictional issue before referring the parties to arbitration. it has to be satisfied with the existence of conditions. This decision was confirmed by a five judge Bench in Konkan Railway Corporation v. 11 of the Model Law was an administrative decision. according to the Court. In Patel Engineering. the Court held that the Chief Justice has to necessarily be satisfied of the existence of jurisdictional facts such as the existence 7 This interpretation is supported by the understanding in the UNCITRAL that the decision of a court under Art. when a statute confers power to the tribunal “to adjudicate” and makes its decision final i. sub-Section (7) of Section 11 has given a finality to the decisions taken by the Chief Justice or any person or institution designated by him. Rani Constructions8. The Court supported its conclusion with the following reasons: Ratio The Court said when any tribunal exercises jurisdiction.e. The provision is silent on questions such as whether he is bound to refer a dispute to arbitration irrespective of whether arbitration of such disputes is not permitted by law. It does not describe the nature of this function of the Chief Justice.9 a seven judge Bench of the Supreme Court had to decide on the nature of function of the Chief Justice (or his designate) under section 11 of the Act. known as jurisdictional facts. which permit it to do so. According to the Court. The tribunal.taken before the arbitral tribunal7. Consequently. So in most of the States the concerned court would be the District Court. has to be appreciated in the context of the statute. the Parliament did not want to confer the power on the District Court. It has also the power to entertain a challenge to the award that may ultimately be made. When a statute confers power on the highest judicial authority. It is easily possible to contemplate that they did not want the power under Section 11 to be conferred on the District Court or the High Court exercising original jurisdiction. The framers of the statute must certainly be taken to have been conscious of the definition of 'court' in the Act. But at the same time. The High Courts in India exercising ordinary original civil jurisdiction are not too many. Section 11 is in the place of Article 11 of the Model Law. it has made some departures from the model law. The principal civil court of original jurisdiction is normally the District Court. the authority has to necessarily act judicially unless the statute states otherwise. etc. existence of such agreement between the parties to the application.of an arbitration agreement. The intention apparently was to confer the power on the highest judicial authority in the State and in the country. Such a provision is necessarily intended . are "the Chief Justice or the person or institution designated by him". the District Court or the High Court exercising original jurisdiction. Conscious deviation from UNCITRAL Model Law: It is common ground that the Act has adopted the UNCITRAL Model Law on International Commercial Arbitration. to entertain a request for appointing an arbitrator or for constituting an arbitral tribunal under Section 11 of the Act. Obviously. has the power to make interim orders prior to. The words in Section 11 of the Act. 'Court' is defined in the Act to be the principal civil court of original jurisdiction of the district and includes the High Court in exercise of its ordinary original civil jurisdiction. during or even post arbitration. the powers are conferred on the Chief Justice. The fact that instead of the court. The Model Law provides for the making of a request under Article 11 to "the court or other authority specified in Article 6 to take the necessary measure". It has to be noted that under Section 9 of the Act. on Chief Justices of High Courts and on the Chief Justice of India. the Court held that once the Chief Justice decides that jurisdictional facts exists and constitutes the tribunal. grants the tribunal the power to rule on questions pertaining to the existence and validity of the arbitration clause and other questions pertaining to its jurisdiction. stands negatived only because of the power given to designate another. When under Section 8 a court decides on the existence of the arbitration agreement. titled “competence of arbitral tribunal to rule on its jurisdiction”. the respondent has to wait till the final award is passed and apply for setting the award aside. was an appeal from a decision by the Chief . Section 16. Such a decision might have serious monetary consequences on the respondent. according to the Court. There would be no credibility in the decision of the Chief Justice if he refers the matter to arbitration when the dispute ought not to have been referred to arbitration for reasons such non-existence or invalidity of arbitration agreement. Impartiality and Credibility is the reason for the statute to grant such a function to the Chief Justice. the decision is binding on the parties and the tribunal. the tribunal cannot have the power to decide contrary to the Chief Justice’s pronouncement on the same question. Therefore. This is to ensure the utmost authority to the process of constituting the arbitral tribunal.to add the greatest credibility to the arbitral process. The intention of the legislature appears to be clear that it wanted to ensure that the power under Section 11(6) of the Act was exercised by the highest judicial authority in the concerned State or in the country. it is inappropriate that the highest judicial authority cannot decide under section 11 on the existence of the arbitration agreement. The argument that the power thus conferred on the Chief Justice could not even be delegated to any other Judge of the High Court or of the Supreme Court. The only exception. This view is fortified by the fact that in case a mechanical reference is done by the Chief Justice and the tribunal refuses to accept the respondent’s genuine contention of non-existence or invalidity of the arbitration agreement. Section 16(1) came in the way of the Court’s view on the nature of the Chief Justice’s decision if the “highest judicial authority” decides on a jurisdictional question. This approach is advantageous as the tribunal need not decide on issues pertaining to jurisdiction in view of the court’s confirmation of the existence of jurisdictional facts. This. the Delhi High Court. significantly increase the costs. it has taken almost fourteen months to constitute the arbitral tribunal than it would have taken. The flaw here is the assumption that Chief Justice was the proper authority for the respondent to raise such arguments in the first place. had the decision of the Chief Justice of the Delhi High Court been final. There are many flaws in the Court’s reasoning. 136 of the Constitution of India. a determination on the existence or non-existence of the jurisdictional facts. for the court. 136 of the Constitution of India. substantial delay would ensue in the constitution of the tribunal. decree. The applicant appealed to the Supreme Court under Art. Also. determination. . Indian Oil Corporation v. SPS Engineering11 is a typical example. In this case. a decision by the Chief Justice to appoint the arbitrator despite the respondent’s contentions that jurisdictional facts did not exist was. after deciding on jurisdictional questions. 2011. sentence or order in any cause or matter passed or made by a court or tribunal. a decision of the Chief Justice of the High Court on appointment of the arbitrator is subject to appeal to the Supreme Court under Art. passed an order dismissing the application for appointment of arbitrator on December 8. 2. 136 deals with appeal by special leave of the Supreme Court on a decision from any judgment. Critical analysis – Court legislating The decision has altered the law on several aspects. 136 of the Constitution. For instance. 11 (2011) 3 SCC 507. Thus. The fee for senior and junior counsels for representation and for conferences. it is submitted. A corollary to the faulty assumption is branding the appointment by the Chief Justice as “adjudication”. is not an indication of an efficient 10 Art.10 Such appeal before the additional forum is needless and would only result in increased costs.Justice of the High Court constituting the tribunal to the Supreme Court under Art. 1. 2009. After Patel Engineering. court fee etc. The Court appointed the arbitrator only on February 3. leading to partial or absolute redundancy of some provisions of the Act. As regards institutional arbitration. the institution itself constitutes the tribunal on behalf of the parties. rare. the Chief Justice has been given the power by the Act to aid the parties. in the constitution of the arbitral tribunal. however.arbitration system.12 the Supreme Court held that since a question as to whether there exists an arbitration agreement is a condition precedent for the Chief Justice to appoint an arbitrator under section 11 of the Act where serious allegations of fraud and fabrication are made as regards the formation of the agreement. the Court held that the role of an arbitral institution designated by the Chief Justice under section 11 was to merely aid the Chief Justice in selecting the arbitrator. For instance. however. the Singapore International Arbitration Act expressly gives the power to the Chief Justice to designate arbitral institutions to act as appointing authorities. however. the Act contemplates a role that is equivalent to that of 12 Civil Appeal No. Institutional Arbitration: In institutional arbitrations. 3. By holding that a decision under Section 11 constituting the arbitral tribunal is a quasi-judicial decision. In ad hoc arbitrations. in Bharat Rasiklal Ashra v. An arbitral institution cannot have quasi-judicial powers unless mandated by a statute. Such clauses are. there is no alternative if the appointment mechanism agreed by the parties fails. The Supreme Court in Patel Engineering foreclosed the possibility of an arbitral institution performing the role of constituting the arbitral tribunal in case the party appointed mechanism failed. either by himself or through others. parties might provide. 7334 of 2011. Even if no appeal is filed under Art. Many jurisdictions grant the Chief Justice the power to nominate arbitral institutions to exercise the function of constituting the arbitral tribunal. notwithstanding the delay in disposal of the application for appointment. Consequently. that they would approach a particular institution or a person to aid them in the constitution of the tribunal. the Chief Justice had to decide on such allegations. 136. there are chances of delay in disposing of the application for appointment of the arbitrator. decided on 25-08-2011. in their arbitration agreement. The Act does not contemplate such a meek role to arbitration institutions. . To avoid this situation. if the parties fail to agree on the arbitrators. In the absence of such a provision. For instance. Gautam Rasiklal Ashra. by the Chief Justice of the High Court only to another judge of that court and by the Chief Justice of India to another judge of the Supreme Court. It is a judicial power. The decision has hindered the growth of institutional arbitration in India. in its entirety. could be delegated. iii. i. 11 (6) of the Arbitration and Conciliation Act. The power under S. The power exercised by the Chief Justice of the High Court or the Chief Justice of India under S. In case of designation of a judge of the High Court or of the Supreme Court. 11(6) of the Act is not an administrative power. 1996? 2) What is the scope and power of the Chief Justice under S. 2014 . judge would be that of the Chief Justice as conferred by the statute. Appeal against the order of the chief justice under section 11 of the arbitration and conciliation act. 1996: an empirical analysis. 13 Badrinath Srinivasan. ii.13 4. Kompetenz-Kompetenz: The Act advocated extreme Kompetenz-Kompetenz. 11(6) of the Act.in/sites/default/files/APPEAL%20AGAINST%20THE%20ORDER%20OF%20THE%20CHIEF %20JUSTICE_0. the power that is exercised by the designated.pdf accessed on April 6.the Chief Justice for appointment of the tribunal. 11? The Hon'ble Supreme Court examined the aforementioned issues in detail and held that the power exercised by the Chief Justice or his designate under S. available at Indian Journal of Arbitration Law http://ijal. considerably watered it down and held that the jurisdictional questions were to be decided by the court under section 11 and not by the arbitrator. The Supreme Court. 11 of the Act is a judicial power and not an administrative power. however. Final Position The main issues which were examined in this case are: 1) What is the nature of the function of the Chief Justice or his designate under S. the existence or otherwise of a live claim. 16 of the Act. 34 of the Act. 11(6) of the Act. and Anr. v. the existence of a valid arbitration agreement. x. the arbitral tribunal will have the jurisdiction to decide all matters as contemplated by S. The Chief Justice or the judge designated would be entitled to seek the opinion of an institution in the matter of nominating an arbitrator qualified in terms of S. Designation of a district judge as the authority under S. 11(8) of the Act if the need arises but the order appointing the arbitrator could only be that of the Chief Justice or the judge designate. we clarify that appointments of .iv. his own jurisdiction. Rani Construction Pvt. to entertain the request. Once the matter reaches the arbitral tribunal or the sole arbitrator. Since an order passed by the Chief Justice of the High Court or by the designated judge of that court is a judicial order. There can be no appeal against an order of the Chief Justice of India or a judge of the Supreme Court designated by him while entertaining an application under S. 11(6) of the Act have been made based on the position adopted in that decision. vii. 11(6) of the Act. vi. an appeal will lie against that order only under Article 136 of the Constitution of India to the Supreme Court. 11(6) of the Act by the Chief Justice of the High Court is not warranted on the scheme of the Act. These will be. viii. the existence of the condition for the exercise of his power and on the qualifications of the arbitrator or arbitrators. The Chief Justice or the designated judge will have the right to decide the preliminary aspects as indicated in the earlier part of this judgment. Since all were guided by the decision of this Court in Konkan Railway Corporation Ltd. ix. Ltd and orders under S. In a case where an arbitral tribunal has been constituted by the parties without having recourse to S. v. the High Court would not interfere with orders passed by the arbitrator or the arbitral tribunal during the course of the arbitration proceedings and the parties could approach the court only in terms of Section 37 of the Act or in terms of S. Ltd. but at the same time. Section 11 is in the place of Article 11 of the Model Law. the position as adopted in this judgment will govern even pending applications under Section 11(6) of the Act. the appointment orders thus far made by them will be treated as valid. in matters covered by this Part (Part I). are to be treated as valid. The decision in Konkan Railway Corporation Ltd. all objections being left to be decided under S. Consequently. and Anr. which amply demonstrate that the objective is to see that the disputes are not unduly prolonged.arbitrators or arbitral tribunals thus far made. 11(6) of the Act.15 The fact that instead of “Court” the powers are conferred on the Chief Justice has to be appreciated in the context of the statute. 16 of the Act. it has made some departures from the Model Law. Where District Judges had been designated by the Chief Justice of the High Court under S. no judicial authority shall intervene except where so provided in this Part. xii. Conclusion A reading of the 1996 Act shows that speedy arbitration and least court intervention are its main objectives. Rani Construction Pvt.14 This basic provision is found in the laws of all the countries which have adopted the UNCITRAL Model Law. v. . it 14 Section 5 declares: Notwithstanding anything contained in any other law for the time being in force. is overruled. but applications if any pending before them as on this date will stand transferred. As and from this date. The limitation on the intervention by the courts is clearly enunciated in Section 5 of the Act.. to be dealt with by the Chief Justice of the concerned High Court or a Judge of that court designated by the Chief Justice. xi. The consequence of the Patel Engineering Case is that the judiciary is frequently adopting the law and reason laid down in it and concomitantly upsetting the process of arbitration. Though the Act has adopted the UNCITRAL Model Law on International Commercial Arbitration. The question raises the Patel Engineering and Konkan Railway i. the consequence of the Patel Engineering Case is that the judiciary is frequently adopting the law and reason laid down in it and concomitantly upsetting the process of arbitration. Appeal against the order of the chief justice under section 11 of the arbitration and conciliation act.com/files/Publication/What_Next_for_Indian_Arbitration_Article2 .0 accessed on April 5.e. It is settled that when an application is filed under Section 11. that is whether the party making the application has approached the appropriate court and whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act. whether the power of the Chief Justice is judicial or administrative. the Chief Justice or his Designate is required to decide only two issues. .in/sites/default/files/APPEAL%20AGAINST%20THE%20ORDER%20OF %20THE%20CHIEF%20JUSTICE_0.whitecase. the Chief Justice exercising jurisdiction under Section 11 of the Act has to only consider whether there is an arbitration agreement between the petitioner and the respondent in the application under Section 11 of the Act. What Next for Indian Arbitration?.can be said that the power to appoint arbitrators was laid in the hands of the Chief Justice not in their judicial capacity. available at http://www. 2014 Aloke Ray and Dipen Sabharwal. 2014 15 Article 11 of the UNCITRAL Model Law confers the duty to appoint the arbitrators upon the Court and to restrict judicial intervention. is a party to such agreement. In effect.pdf accessed on April 5. 2014 http://www.legalserviceindia. on the other hand Arbitration and conciliation Act confers such duty on the Chief Justice or his designate.com/lawforum/index.php?topic=2024.pdf accessed on April 6. Any wider examination in such a summary proceeding will not be warranted. Therefore. available at Indian Journal of Arbitration Law http://ijal. Bibliography E-Sources: Badrinath Srinivasan. 1996: an empirical analysis. in/2010/07/recent-developments-on-scope-of-s-11. 2014 Online legal data base: www.html accessed on April 5.com .blogspot.manupatra. http://lexarbitri.blogspot.html accessed on April 6. 2014 http://perspectivesonlaw.in/2010/01/appointment-of-arbitrator-by-cj.