Supreme Court on Appointment of Arbitrator under Section 11 of the Arbitration Act

 

INTRODUCTION

 

Today, I will discuss the case of DLF Home Developers Limited v. Rajapura Homes Private Limited & Another, 2021 SCC OnLine SC 781, wherein the Hon’ble Supreme Court discussed Section 11 of the Arbitration & Conciliation Act, 1996 (in short, “Arbitration Act”), that deals with appointment of arbitrators. The facts of the case are not necessary for the purposes of this show and hence, the same are not being discussed here.

 

SECTION 11 OF THE ARBITRATION ACT

 

But before adverting any further, let us understand the basics of Section 11 of the Arbitration Act. Section 11 (1) provides that a person of any nationality may be appointed as an arbitrator. S. 11 (2) provides that the parties are free to agree on a procedure for appointing the arbitrator. S. 11 (6) provides that where the parties to fail to reach an agreement relating to appointment of arbitrator or fails to appoint the same and if the agreement does not provide for any means for securing the appointment, then the parties may approach the Supreme Court or the High Court, as the case may be, for such appointment. Under S. 11 (6A), the Court must confine its examination to the existence of an arbitration agreement and designate an appropriate arbitrator. In order to understand S. 11 of the Arbitration Act in a better manner, let us go through the pertinent observations by the Supreme Court.

 

OBSERVATIONS BY THE COURT

 

Firstly, the Court observed that “the jurisdiction of this Court under Section 11 is primarily to find out whether there exists a written agreement between the parties for resolution of disputes through arbitration and whether the aggrieved party has made out a prima facie arbitrable case. The limited jurisdiction, however, does not denude this Court of its judicial function to look beyond the bare existence of an arbitration clause to cut the deadwood.”

 

Secondly, it was noted that the Court, “with a view to prevent wastage of public and private resources, may conduct ‘prima facie review’ at the stage of reference to weed out any frivolous or vexatious claims.”

 

Thirdly, the Court opined that the stage of appointment of arbitrator “is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but” the real purpose is “to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism.”

 

Fourthly, the Court clarified that under S. 11, the Court “has to refer a matter to arbitration or to appoint an arbitrator, as the case may be, unless a party has established a prima facie (summary findings) case of nonexistence of valid arbitration agreement, by summarily portraying a strong case that he is entitled to such a finding.”

 

Fifthly, the Court discussed the three guiding principles with respect to the scope of the Court to examine the prima facie validity of an arbitration agreement: -

 

1. Whether the arbitration agreement was in writing?

2. Whether the arbitration agreement constitutes as a valid and legal contract?

3. Whether the subject-matter of the dispute is arbitrable?

 

Sixthly, it was observed that the Courts “are not expected to act mechanically merely to deliver a purported dispute raised by an applicant at the doors of the chosen Arbitrator. On the contrary, the Court(s) are obliged to apply their mind to the core preliminary issues, albeit, within the framework of Section 11(6-A) of the Act. Such a review…. is not intended to usurp the jurisdiction of the Arbitral Tribunal but is aimed at streamlining the process of arbitration. Therefore, even when an arbitration agreement exists, it would not prevent the Court to decline a prayer for reference if the dispute in question does not correlate to the said agreement.”

 

And lastly, the Court noted that in cases where there are two valid arbitration clauses in a dispute, the Court is expected to harmonize such arbitration clauses and find a way forward.

 

Those were the observations by the Court. So, what are my concluding remarks?

 

CONCLUDING REMARKS

 

In conclusion, it could be said that in order to attract applicability of S. 11 of the Arbitration Act: -

 

a. The Arbitration Agreement must be in writing.

b. The Arbitration Agreement must be a valid and a legal contract.

c. The subject-matter of the dispute must be arbitrable and not frivolous or vexatious.

d. The dispute raised must relate to the agreement between the parties; and

e. In case of existence of two valid arbitration clauses, the Court must harmonize such clauses to uphold the integrity and efficacy of arbitration as an alternate dispute resolution mechanism.