The Arbitration and Conciliation Act, 1996 (“the Arbitration Act”) provides for minimal judicial intervention. Perusal of various provisions like Sections 8, 9, 13, 16, 34, etc. would show that it provides a time period within which certain things are to be done. In other words, it deals with what can be called as the ‘effect doctrine’. For instance, when, despite the fact that a valid arbitration agreement exists between parties and a party files a civil suit for recovery of an amount, the other party/Defendant can move an application under Section 8 of the Arbitration Act before filing its first statement on defence and seek reference to arbitration. Therefore, the effect of such an application filed under the said provision is to refer the parties to arbitration if existence of arbitration agreement is not dispute. Therefore, the purpose of providing a definite time period is to kick start the arbitration proceedings at the earliest.
Though, the aforementioned provisions provided for a definite time period but, Section 11 of the Arbitration Act, which deals with appointment of arbitrator by court, does not mention any time period within which a party has to file an application for getting an arbitrator appointed. It only mentions that after sending a notice invoking arbitration under Section 21 thereof, a party has to wait for 30 days and in case, of refusal to nominate an arbitrator, a party can file an application before a court. Therefore, the issue is what is the time period within which a party is required to file an application before a court for appointing an arbitrator once the other party has refused to appoint an arbitrator or has not responded to the notice invoking arbitration and 30 days’ time period is over.
SCOPE OF SECTION 11:
Section 11 of the Arbitration Act is an important provision which provides for intervention of the Court before commencement of the arbitration proceedings. It empowers the Court to examine the existence of an arbitration agreement while deciding the application for appointment of an arbitrator.
After implementation of the Arbitration Act, an issue had arisen as to what is the nature of the power exercised by the Chief Justice or his designate under Section 11 – whether it is an administrative order or a judicial order, and also, what enquiry does the Court has to conduct before proceeding to appoint an arbitrator. Initially, the Supreme Court in Konkan Railway Corpn. Ltd. v. Mehul Construction Co., AIR 2000 SC 2821 had held that the powers of the Chief Justice under Section 11(6) of the Act of 1996 are administrative in nature and that the Chief Justice or his designate does not act as a judicial authority while appointing an arbitrator. The same view was later reiterated in Konkan Railway Corpn. Ltd. v. Rani Construction (P) Ltd., AIR 2002 SC 778. However, in the year 2005, the Constitution Bench of the Supreme Court in SBP and Co. v. Patel Engg. Ltd., AIR 2006 SC 450 (7J) over-ruled those judgments and specifically held that the order passed by the Chief Justice is not administrative but judicial in nature and hence, the same is subject to appeal under Article 136 of the Constitution of India. This judgment was, thereafter, further clarified in National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., AIR 2009 SC 170 wherein, the Court listed out certain issues which can be considered in an application filed under Section 11 that is, (i) issues which the Chief Justice or his designate is bound to decide; (ii) issues which he can also decide, that is, issues which he may choose to decide; and (iii) issues which should be left to the Arbitral Tribunal to decide.
AMENDMENT MADE TO SECTION 11 & INSERTION OF SECTION 11(6-A)
As a result of these judgments, the door was wide open for the Chief Justice or his designate to decide a large number of preliminary aspects which could otherwise have been left to be decided by the arbitrator under Section 16 of the Arbitration Act. This position was in sharp contrast to the judgment of the Supreme Court in Shin-Etsu Chemical Co. Ltd. v. Aksh Optifibre Ltd., AIR 2005 SC 3766, where (in the context of Section 45 of the Act of 1996), it had ruled in favour of looking at the issues/controversy only prima facie.
The above position continued till the amendment was brought on 23.10.2015 in the Arbitration Act. Vide the amendment, the words “the Chief Justice or any person or institution designated by him” wherever it occurred in Section 11 was substituted by “Supreme Court or as the case may be the High Court or any person or institution designated by such Court”. Further, Section 11(6-A) was inserted by which, the power of the Court was restricted only to see whether there exists an arbitration agreement. The amended provision in sub-section (7) of Section 11 provided that the order passed under Section 11(6) shall not be appealable and thus, finality is attached to the order passed under this section. Also, sub-section (8) was inserted in Section 11 which required the prospective arbitrator to make disclosure in terms of Section 12(1) of the Act of 1996. It is important to note that sub-section (13) was also inserted in Section 11 and it casts a statutory obligation on the Court to dispose of the application filed under this provision within a period of 60 (sixty) days from the date of service of notice on respondent. Hence, after the amendment, the Court is required to only see whether an arbitration agreement exists – nothing more, nothing less. Hence, by virtue these amendments, the judgments rendered in SBP & Co.’s case and Boghara Polyfab’s case were legislatively overruled.
NO CONCEPT OF ‘IMPLIED CONSENT’ IN APPOINTING ARBITRATOR
Further, the remedy under Section 11 of the Arbitration Act can be invoked only when the procedure prescribed under the arbitration agreement has not been complied with. For instance, if the other party upon receipt of the request to appoint an arbitrator as per the agreed procedure, does not appoint an arbitrator within 30 (thirty) days of receiving notice invoking arbitration, then a party can approach a Court by filing an application under Section 11 seeking appointment of arbitrator. There is no concept of ‘implied consent’ in appointing an arbitrator. Also, a right of the party to appoint an arbitrator does not cease immediately upon the expiry of 30 (thirty) days. It ceases or the party forfeits or waives its right to appoint an arbitrator only when the other party files an application under Section 11 before a Court. No appointment can thereafter be made by a party placing reliance on the arbitration agreement. Therefore, if a party appoints an arbitration after a period of 30 (thirty) days but, before the other party files an application under Section 11 before a Court, such appointment is valid.
NECESSITY OF FURTHER AMENDMENT IN SECTION 11
It is important to point out here that after the Insolvency and Bankruptcy Code 2016, it is the Arbitration Act which being amended very frequently by the Legislature. The Arbitration Act or the new Act was implemented to resolve issues which were being faced in the old Act that is, Arbitration Act, 1940. But, as can be seen, some problems still were left unresolved by the new Act. For instance, the Arbitration Act, 1940 did not provide a time period within which the arbitral proceedings were required to be concluded. Though, Arbitration Act, 1996 was implemented and it repealed the old Act however, the new Act also did not provide any time period to conclude arbitral proceedings. The time period to conclude arbitration was provided by Section 29-A, which was inserted by the 2015 Amendment. If the Legislature would have had the vision, it would have rectified this at the time of implementing the new Act and not by making amendment after almost 20 years.
Another instance is Section 11 of the Arbitration Act. Perusal of Section 11 would show that it does not mention any time period within which a party is supposed to file an application under Section 11 once a notice under Section 21 of the Act of 1996 has been received by the other party and no step has been taken to appoint an arbitrator within 30 days. This is in stark contrast to the other provisions like Sections 8, 9, 13, 16, 34, etc. of the Arbitration Act as well as the object and purpose of said Act.
The question, therefore, arises is what will be the maximum time period within which a party has to file an application under Section 11 after issuance of a notice under Section 21 of the Act of 1996? It is pertinent to mention that though, the provisions of the Limitation Act, 1963 (“Limitation Act”) are applicable to arbitration proceedings however, it also does not specify the time period within which an application seeking appointment of an arbitrator is to be filed before a Court. Also, there is a difference between the period of limitation for filing an application seeking appointment of an arbitrator and period of limitation applicable to the substantive claims made in the underlying contract. For recovery of any amount, the period of limitation is 3 years from the date when the right to sue accrues. Since, none of the Articles in the Schedule to the Limitation Act provides a time period for filing an application under Section 11, therefore, it would be covered by the residual provision Article 137 of the Limitation Act which provides a period of limitation of 3 years from the date when the right to apply accures. Therefore, what flows from the above is that an application under Section 11 can be filed within a period of 3 years from the date of refusal to appoint an arbitrator after receiving notice under Section 21 thereof or, on expiry of 30 days after issuance of notice under Section 21, whichever is earlier.
NORTEL NETWORK’S JUDGEMENT
Recently, the Supreme Court in Bharat Sanchar Nigam Ltd. v. Nortel Networks India Pvt. Ltd, [2021 SCC Online SC 207, C.A. No. 843-844 of 2021 judgment dated 10.03.2021] had the occasion to dwell into this issue. In this case, a contract was awarded by the Appellant to the Respondent for planning, engineering, supply, insulation, testing and commissioning of GSM based cellular mobile network in the southern region covering Kerala, Karnataka, Tamil Nadu, Andhra Pradesh circles and Chennai telephone district. Some disputes arose under the contract and the Appellant withheld an amount of Rs. 99 crores (approx.) of Respondent towards liquidated damages and other levies. Vide letter dated 13.05.2014, the Respondent raised a claim for payment of the said amounts and in response, vide letter dated 04.08.2014, the Appellant rejected the claim. After a period of 5 ½ years, the Respondent issued a notice invoking arbitration under Section 21 of the Arbitration Act and requested appointment of an arbitrator. The Appellant responded to this letter on 09.06.2020 and stated that the claims are ex facie time barred. Thereafter, Respondent filed an application under Section 11 and the High Court referred to the disputes to arbitration. Hence, the appeal was filed by the Appellant before the Supreme Court. The Supreme Court after taking note of Sections 8, 9, 13, 16, 34, etc. of the Act of 1996 and Article 137 of the Limitation Act observed that a period of 3 years for filing an application under Section 11 would run contrary to the scheme of the Arbitration Act. However, since, there was no express provision to regulate this, it thus relied upon Article 137 of the Limitation Act and held that the application filed by Respondent under Section 11 was within limitation but, at the same time, directed the Legislature to make amendment and prescribe a specific period of limitation within which a party may move the court for making an application for appointment of the arbitrator. Further, though, the Court held that the application filed under Section 11 was maintainable but, it also held that the claims of Respondent were ex facie time barred. Hence, it allowed the appeal and set aside the order of the High Court.
CONCLUSION
Hence, the recommendation made by the Supreme Court to make amendment to Section 11 will help in speedy commencement of arbitral proceedings as sub-section (13) already casts a statutory obligation on the Court to dispose of the application filed under this provision within a period of 60 days from the date of service of notice on Respondent. In my personal opinion, an application under Section 11 should be filed within a period of 60 days from (a) the date of refusal to appoint an arbitrator after receiving the notice under Section 21 or, (b) on expiry of 30 days statutory waiting period whichever is earlier. Further, a provision should also be made for condoning delay in filing the application beyond 60 days provided sufficient cause exist. Such period should not exceed a further time of 30 days.
It is important to point out here that after the Insolvency and Bankruptcy Code 2016, it is the Arbitration Act which being amended very frequently by the legislature. The new Act was implemented to resolve issues which were being faced in the Arbitration Act, 1940. But, as can be seen, some problems still were left unresolved by the new Act.
