Friday, January 6, 2012

Avoiding litigation under Section 11 of the Arbitration Act

 
January 4, 2012
Avoiding litigation under Section 11 of the Arbitration Act

There is much litigation in courts under Section 11 of the Arbitration and Conciliation Act, 1996 (hereinafter, "A&C Act"), on appointment of arbitrators. Often, the party resisting the arbitration exploits all its might to stall the appointment of arbitrator, which can easily last a few years. A real threat of rising litigation costs is used to politely arm-twist a weaker party into a settlement, even if the latter has a genuine claim.

This post is aimed at attempting to propose a solution, in order to expedite the actual arbitration proceedings. The solution is Section 11 of the A&C Act, which is the cause of the entire problem as well.

Section 11(2) of the A&C Act provides that the parties are free to agree to the procedure for appointment of arbitrators. It is only in the absence of an agreement between the parties over a procedure, or failure to act according to the agreed procedure, that one of the parties can approach the court for appointment of the arbitrator.

Therefore, the parties are free to agree that if upon expiry of a definite time period, from receiving a request for appointment of an arbitrator, the other party does not appoint its own arbitrator, the former's arbitrator shall act as a sole arbitrator. This procedure obviates a situation where one party will have to approach the court for appointment of arbitrator. It is a very practical provision, which seems to have been completely ignored in India.

A similar provision, although more clear and elaborate, exists in Section 17 of the English Arbitration Act, 1996.

Relevant portion of the model arbitration clause under London Maritime Arbitrators Association Terms, incorporating the essence of this provision, reads as follows:

"The reference shall be to three arbitrators. A party wishing to refer a dispute to arbitration shall appoint its arbitrator and send notice of such appointment in writing to the other party requiring the other party to appoint its own arbitrator within 14 calendar days of that notice and stating that it will appoint its arbitrator as sole arbitrator unless the other party appoints its own arbitrator and gives notice that ithas done so within the 14 days specified. If the other party does not appoint its own arbitrator and give notice that it has done so within the 14 days specified, the party referring a dispute to arbitration may, without the requirement of any further prior notice to the other party, appoint its arbitrator as sole arbitrator and shall advise the other party accordingly. The award of a sole arbitrator shall be binding on both parties as if he had been appointed by agreement."

This is a useful provision, which could be used while drafting an arbitration clause, in order to avoid a situation where a genuine arbitration claim is stalled under Section 11 of A&C Act.

I am uncertain whether this provision for default appointment of arbitrator has ever been tested in courts in India (I would be grateful if someone could bring to my attention a decision where it has been tested). It would be interesting to see whether our courts adopt a non-interventionist approach or indulge in some ingenuous attempts to exercise jurisdiction.

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