APPOINTMENT OF AN ARBITRATOR
By G.Ashokapathy Co Founder of
The Council for National International Commercial Arbitration (CNICA)
The endeavour to resolve the dispute by arbitration results in the primary ingredient of appointing an arbitrator. The foundation of an arbitration process, subsist on mutuality between the parties, at any given time, the said consensus becomes an acute necessity in the appointment of arbitrator.
One of the prime causes which stalls and defeats the object of arbitration is when there is no consensus in the appointment of an arbitrator. This adversity arises only because of inaccurate or due to lack of accomplished drafting, of an arbitration clause.
Section 11 of the Arbitration and Conciliation Act 1996 provides the scope for appointment of arbitrators. As in most of the provisions in the Act this provision also divulges, that the parties’ consensus is pertinent, failing such consensus provision of sub section 3 to 12 of the section come in to operation and the same predictability attributes to delay and cost and this may also lead to an unviable situation.
In several agreements it is seen that the arbitration clause does not state (i) the number of arbitrator or arbitrators required to preside over the arbitral proceedings and (ii) with whom the responsibility of appointing an arbitrator is conferred. Section 10 of the Act states that if the parties fail to determine the number of arbitrator then the arbitral tribunal shall consist of a sole arbitrator. Though the Act stipulates that the number of person determined to resolve a dispute shall not be even, the apex court upholding the principle of mutuality has in M.M.T.C Limited Vs Sterlite Industries (India)Ltd 1996 (6) SCC 716; AIR 1997 SC 605 and in Narayan Prasad Lohia Vs Nikunj Kumar Lohia And Others; 2002 (3) SCC 572: 2002 (1) Arb.LR 493; AIR 2002 SC 1139 held that if the parties agree that their disputes can be resolved by even number of arbitrators or if the parties have not objected and have participated in the proceedings, then, such an award passed by even number of arbitrators is valid and cannot be challenged.
If the arbitration agreement does not specify the appointing authority of an arbitrator, then one person may appoint an arbitrator and seek the approval of the other party and in case the other party objects or does not reply within 30 days, then the party seeking appointment has to approach the Chief Justice of the High Court or the Supreme court or their delegate, as the case may be, in case of Domestic and Intentional arbitration, for the appointment of arbitrator.
Invariably, the parties in such cases culminate in appointing two arbitrators and the two arbitrators have to mutually appoint the third arbitrator and if the two arbitrators do not agree then one of the party has to approach the Chief Justice of the High Court or the Supreme court or their delegate as the case may be, in case of domestic and Intentional arbitration for the appointment of a third arbitrator. This ultimately leads to the escalation of cost and loss of time. The common form of arbitration clause or agreement that is found does not enumerate the appointing authority or the manner in which the parties agree for the appointment of the arbitrator/s. In such case as stated above the ultimate aim of incorporating the arbitration clause is defeated. It is a universal phenomenon that after the dispute having been arisen, the consensus of the parties to the dispute is scanty. This scarcity of consensus leads to disagreement in appointment of arbitrator by one party, thus, ensuing in the claimant approaching the court for the appointment of an arbitrator. Until, the recent judgment pronounced by the apex court in M/s. S.B.P. & Co. Versus M/s. Patel Engineering Ltd. and another the appointment of arbitrator by the court was an administrative order. The Chief Justice or his delegate of the High Court or the Supreme court as the case may be, in the appointment of an arbitrator had to consider the qualification if any that the parties have agreed upon and also secure the appointment of an independent and impartial arbitrator. Reading of the Act it is perceptible that the legislation wanted limited interference by the court. The legislation has vests the arbitrator with the power to decide on the challenge of his appointment, jurisdiction and all preliminary objections. The constitutional benches verdict in M/s. S.B.P. & Co. Versus M/s. Patel Engineering Ltd. and another has now eclipsed on the provisions of the section 16 of the Act and has outmoded the said provision in so far as it relates to case where the court appoints the arbitrator. It has now been held, overruling judgment in Konkan Railway Corpn. Ltd. & anr. Vs. Rani Construction Pvt. Ltd. [(2000) 8 SCC 159] that the order passed by the Chief Justice or his delegate of the High Court, appointing the arbitrator is now appealble, thus enunciating that the order passed under section 11 is not an administrative order but a judicial order. Subsequent to the change in law the High Courts are now burden and court while appointing the arbitrator can not summarily dispose off the application under section 11 by appointing the arbitrator as per the guidelines mentioned in the Act on the contrary the Courts will now have to also decide the preliminary objections that may be raised. The preliminary objections may be, relating to the Courts own jurisdiction to entertain the request, the existence of a valid arbitration agreement, the existence or otherwise of a live claim, the existence of the condition for the exercise of power and on the qualifications of the arbitrator or arbitrators. The Courts can now anticipate long-drawn-out arguments in majority of the petitions for appointment of arbitrators. The Courts which are already burdened with contested litigation will now have to add to their numbers, the applications filed for appointment of arbitrators. In so far as the litigant is concerned his waiting period for the commencement of the arbitration proceedings is now prolonged, all the same the respondent on his success can argue that he has not been dragged on to a litigation which is not maintainable.
In certain contracts it is seen that management staff present or the past is agreed to be appointed as arbitrator. Courts have come down on such manner of appointment as the same contradicts the legal maxim that no party can be a judge of his own case. It is further seen that the awards passed by such arbitral tribunal are successfully challenged on the ground of bias.
The other popular form of agreement is where the appointing authority of the arbitrator vests with the managing director or some other person from the management. Again the ground of bias is raised often.
The parties in an agreement can also agree to seek the assistance of arbitration institutions to resolve their disputes. This is recognized under section 6 of the Act. In case of dispute the claimant by writing intimates the named institution and seeks its assistance to appoint arbitrator and administer the proceedings. The institution shall after going to the facts and circumstance appoint an arbitrator and intimate the same to the parties and the proceedings commences.
The advantages of institutional arbitration are of many folds. When the parties incorporate the name of the arbitration institution they accept to the procedure for the conduct of the arbitration stated in the rules of the institution, thus there is no litigation or objection in the conduct of the arbitration. Institution’s offer conducive and professional set up for conducting arbitration. Institutions also provide a wide range of arbitrators in its panel who possess expertise knowledge and experience. As the appointment of the arbitrator is by an independent body the question of bias is eradicated.
Some of the main aspects that the parties should lookout before incorporating an institution clause are a) the rules of the institution relating to the conduct of the arbitration should be acceptable to the parties, b) the parties should go through list of the panel of arbitrators, maintained by the institution and see if panel consist of well qualified and technically sound arbitrators who will be suitable to resolve the disputes that may arise, c) The institution is equipped or is in a position to provide arbitral assistant at the venue the parties agree and finally the most important aspect d) The quantum of the arbitrators fees, administration fee etc fixed by the Institution. The Council for National and International Commercial Arbitration (CNICA) situate in Chennai, cater to all arbitration needs in a professional and economical manner.
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