Are the Supreme Court and the High Courts not Complying with Section 11(8) of the Amended Arbitration Law?

Section 11(8) of the amended Arbitration and Conciliation Act, 1996 as it now exists in the statute book was inserted through the Arbitration and Conciliation (Amendment) Act, 2015. Sub-section 8 reads:

“(8) The Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court, before appointing an arbitrator, shall seek a disclosure in writing from the prospective arbitrator in terms of sub-section (1) of section 12, and have due regard to—

(a) any qualifications required for the arbitrator by the agreement of the parties; and

(b) the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrator.” (emphasis supplied)

Section 11(8) provides that prior to appointing an arbitrator, the Supreme Court, the High Court or the designated institution should mandatorily seek a disclosure from the prospective arbitrator as mandated in Section 12(1) (disclosure per Schedule VI) and should have due regard to the qualifications of the arbitrators and importantly, the contents of the disclosure and other considerations as are likely to secure the appointment of an independent and impartial arbitrators.

It appears from a perusal of the decisions of the Supreme Court and the High Court that these are not being done post-2015. Take the case of National Collateral Management Services Ltd. v. Food Corporation of India, 2017(5) Arb LR 288 (Del.). The case was pertaining to reference to the CMD of one of the parties for resolution of disputes. The Delhi High Court held that since the CMD was an employee, he could not act as arbitrator owing to the bar in Section 12(5) r/w VII Schedule. Consequently, the High Court appointed an arbitrator with a statement that the arbitrator would decide his fees in consultation with the parties. The decision has nothing to state on whether Section 11(8) was complied or nor. Also, take the recent decision of the Supreme Court in Trans Asian Shipping Services (Pvt.) Ltd. v. Beacon Shipping Lines Ltd. MANU/SC/1014/2018, where the Supreme Court appointed the arbitrator and then directed the Registry to send a copy of the order to the arbitrator. 

With great respect, this procedure is in contravention of Section 11(8) of the 1996 Act as amended vide the 2015 Amendment Act. When the Parliament of India through the 2015 Amendments has laid down a procedure, it is for the High Courts and the Supreme Court to comply with the same in their letter and spirit. The judges of the Supreme Court and the High Court, even if they are acting in their judicial capacity, have to comply with the statute in full. The decision of the Supreme Court and the High Court noted above do not even disclose if the requirements in Section 11(8) were satisfied or not.

When a body is appointing an arbitrator, it is duty bound to ensure that the arbitrators appointed have the capability to decide a dispute and are independent and impartial as regards the dispute. Hence, such a power is endowed upon the Supreme Court and the High Court. The courts cannot shy away from such a duty.  

This blawgger has argued elsewhere:

"The question as to whether prior to appointing a person as arbitrator, consent from such person is taken by the Designate, was answered by six courts on merits. It appears that none of the courts obtain consent from the prospective arbitrator to be appointed in a particular dispute. It may be noted that the schemes made under Section 11(10) of the 1996 Act generally provide that the decision taken by the Designate to appoint an arbitrator shall be communicated to the arbitrator appointed pursuant to the request.This might lead to a few problems. 

One, it may lead to a conflict of interest situation involving the arbitrator and one of the parties. For instance, a person holding a substantial number of shares in a company may be appointed by the Designate as arbitrator in a dispute concerning the said company. Unless the Designate approaches a prospective arbitrator, it would not be possible for the arbitrator to disclose in writing such circumstances prior to appointment. In this regard, Section 12(1) of the Act mandates that when a person is approached in connection with his possible appointment as an arbitrator, he/she shall disclose in writing any circumstances likely to give rise to justifiable grounds as to his/ her independence or impartiality. Even if the arbitrator declines to proceed with the arbitration for that reason after the appointment is made by the Designate, the parties would be put in the same position as they were prior to the filing of the petition under Section 11, leading to delays of several months and, at times, several years (Srinivasan 2012: 27, 29).

Two, a person may make himself/herself available for being appointed as arbitrator. However, subsequently, at the time of appo intment by the Designate, the person might be unable or might not be ready to act as an arbitrator for reasons related to a particular dispute, or might not be ready to act as arbitrator in any dispute owing to illness or any other reason.

Hence, it would be prudent to seek consent prior to appointing a person as the arbitrator in a particular dispute." (See, Badrinath Srinivasan, Appointment of Arbitrators by the Designate under

the Arbitration and Conciliation Act: A Critique, vol xlix no 18, Economic & Political Weekly, p. 59-66- subscription required)

It would do well for the Supreme Court and the High Court to follow the below said procedure:

• Once the Court determines the prospective judge to be appointed depending on the requirements of the arbitration agreement and the nature of the dispute, the prospective candidate has to be informed by the court through the Registry.
• The Registry has to send a letter to the prospective candidate seeking the relevant declarations of independence, impartiality and availability.
• On receipt of the declarations, the High Court or the Supreme Court, as the case may be, should appoint the arbitrator.
• During this process, neither the Registry  nor the prospective arbitrator should interact with the parties or either party.

The Supreme Court and the High Courts should duly follow the law. If there is any difficulty in the above, the Registry could write to the Ministry expressing difficulties or problems with the law so that the same could be corrected. Already there is a Bill to amend the arbitration law pending in the Parliament. If the Ministry finds merit in the issue, it could very well amend the law.