By Akash Rathi, Lawyer Lex Maven
Statutory Provision
Section 11 of the Arbitration and Conciliation Act, 1996 deals with the appointment of arbitrators. A person of any nationality may be appointed arbitrator unless the contrary intention is expressed by the parties. The parties are free to agree on a procedure for appointment of arbitrator or arbitrators. if the parties fail to agree on the arbitrator within 30 days from receipt on a request by one party from the other party to so agree, the appointment shall be made upon request of a party, by the Supreme Court or, as the case may be, the High Court or any person or institution designated by such Court.
Judicial Pronouncement
In National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd. (2009) 1 SCC 267, a Bench of this Court elucidating on SBP & Co. v. Patel Engineering Ltd. (2005) 8 SCC 618 has identified and segregated the issues that could be considered in an application filed under Section 11(6) of the Act of 1996 into three categories. They are enumerated as under:
(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 or leave it to the Arbitral Tribunal to decide; and
(iii) issues which would be left to the Arbitral Tribunal to decide, and thereafter had enumerated them as under:
“22.1. The issues (first category) which the Chief Justice/his designate will have to decide are:
(a) Whether the party making the application has approached the appropriate High Court.
(b) Whether there is an arbitration agreement and whether the party who has applied under Section 11 of the Act, is a party to such an agreement.
22.2. The issues (second category) which the Chief Justice/his designate may choose to decide (or leave them to the decision of the Arbitral Tribunal) are:
(a) Whether the claim is a dead (long-barred) claim or a live claim.
(b) Whether the parties have concluded the contract/transaction by recording satisfaction of their mutual rights and obligation or by receiving the final payment without objection.
22.3. The issues (third category) which the Chief Justice/his designate should leave exclusively to the Arbitral Tribunal are:
(i) Whether a claim made falls within the arbitration clause (as for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration).
(ii) Merits or any claim involved in the arbitration.”
Validity of Arbitration Agreement
Hon’ble Supreme Court in the matter of Damodar Valley Corporation v. K.K. Kar (1974) 1 SCC 141 has observed as under:
(1) an arbitration clause is a collateral term of a contract as distinguished from its substantive terms; but nonetheless it is an integral part of it;
(2) however comprehensive the terms of an arbitration clause may be, the existence of the contract is a necessary condition for its operation; it perishes with the contract;
(3) the contract may be non est in the sense that it never came legally into existence or it was void ab initio;
(4) though the contract was validly executed, the parties may put an end to it as if it had never existed and substitute a new contract for it solely governing their rights and liabilities thereunder;
(5) in the former case, if the original contract has no legal existence, the arbitration clause also cannot operate, for along with the original contract, it is also void; in the latter case, as the original contract is extinguished by the substituted one, the arbitration clause of the original contract perishes with it; and
(6) between the two falls many categories “of disputes in connection with a contract, such as the question of repudiation, frustration, breach, etc. In those cases, it is the performance of the contract that has come to an end, but the contract is still in existence for certain purposes in respect of disputes arising under it or in connection with it. As the contract subsists for certain purposes, the arbitration clause operates in respect of these purposes.
