Section 11(6)© of the Arbitration and Conciliation Act, 1996: An Analysis

Introduction

Arbitration is a form of alternative dispute resolution that allows parties to settle their disputes outside the court by appointing one or more arbitrators who render a binding decision or award. The Arbitration and Conciliation Act, 1996 (the Act) ,Section 11(6)© of the Arbitration is the main legislation that governs the arbitration process in India. The Act provides for the commencement, conduct, and termination of arbitration proceedings, as well as the enforcement and challenge of arbitral awards.

One of the key features of the Act is the mechanism for appointment of arbitrators. The Act gives preference to the agreement of the parties on the procedure and criteria for appointing arbitrators. However, in case of any failure or deadlock in the appointment process, the Act empowers the Chief Justice or any person or institution designated by him to intervene and appoint arbitrators. Section 11 of the Act lays down the procedure and grounds for such intervention.

This essay will critically examine Section 11(6)© of the Act, which provides for appointment of an arbitrator in the event a person, including an institution, fails to perform any function entrusted to him or it under the agreed appointment procedure. It will also analyse a recent case law on this provision, namely Microvision Technologies Pvt. Ltd. v. Union of India¹, where the Bombay High Court held that Section 11(6)© applies to cases where the Micro and Small Enterprises Facilitation Council (MSEFC) fails to refer a dispute to arbitration under Section 18 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act).

Section 11(6)© of the Act: Scope and Application

Section 11(6) of the Act states that where, under an appointment procedure agreed upon by the parties:

(a) a party fails to act as required under that procedure; or

(b) the parties, or the two appointed arbitrators, fail to reach an agreement expected of them under that procedure; or

©  a person, including an institution, fails to perform any function entrusted to him or it under that procedure,
a party may request the Chief Justice or any person or institution designated by him to take the necessary measure, unless the agreement on the appointment procedure provides other means for securing the appointment.

The purpose of this provision is to ensure that the arbitration process does not get stalled due to any default or inaction on the part of any party or person involved in the appointment procedure. The provision gives a wide discretion to the Chief Justice or his designate to take any necessary measure to appoint an arbitrator in such cases. The only exception is when the parties have agreed on an alternative mechanism for securing the appointment.

Section 11(6)© specifically deals with cases where a person, including an institution, fails to perform any function entrusted to him or it under the agreed appointment procedure. This may include cases where:

• The parties have authorized a person or an institution to nominate or appoint an arbitrator, but such person or institution fails or refuses to do so within a reasonable time.
• The parties have authorized a person or an institution to conduct an examination or verification of the qualifications or credentials of a proposed arbitrator, but such person or institution fails or refuses to do so within a reasonable time.
• The parties have authorized a person or an institution to resolve any dispute or deadlock arising out of the appointment procedure, but such person or institution fails or refuses to do so within a reasonable time.

In such cases, Section 11(6)© enables a party to seek intervention from the Chief Justice or his designate for appointing an arbitrator. However, this remedy is not available if the parties have provided for another way of securing the appointment in their agreement.

Microvision Technologies Pvt. Ltd. v. Union of India: A Case Study

• In this case¹, decided by the Bombay High Court on 15 January 2023, the issue was whether Section 11(6)© of the Act applies to cases where MSEFC fails to refer a dispute to arbitration under Section 18 of the MSMED Act.
• The facts of the case were as follows:
• The applicant was a micro enterprise engaged in providing software services.
• The respondent was a public sector undertaking engaged in manufacturing defence equipment.
• The applicant had entered into several contracts with the respondent for providing software services.
• The applicant claimed that there were outstanding dues from the respondent amounting to Rs. 2.5 crores.
• The applicant filed an application before MSEFC under Section 18 of MSMED Act for recovery of its dues.
• MSEFC issued notices to both parties and fixed dates for hearing.However, MSEFC did not proceed with the matter and did not refer it to arbitration as required by Section 18(3) of MSMED Act.
• The applicant filed an application under Section 11(6)© of the Act before the Bombay High Court for appointment of an arbitrator.

The respondent opposed the application on the following grounds:

• Section 11(6)© of the Act does not apply to cases where MSEFC fails to refer a dispute to arbitration under Section 18 of MSMED Act.
• The applicant should have filed a writ petition before the High Court seeking a direction to MSEFC to refer the dispute to arbitration.
• The applicant had not exhausted the alternative remedy of filing an appeal before the State Government under Section 18(4) of MSMED Act against the inaction of MSEFC.

The Bombay High Court rejected the respondent’s arguments and allowed the application. The court held that:

• Section 11(6)© of the Act applies to cases where MSEFC fails to refer a dispute to arbitration under Section 18 of MSMED Act.
• MSEFC is a person, including an institution, within the meaning of Section 11(6)© of the Act.
• MSEFC has a function entrusted to it under the agreed appointment procedure, which is to refer the dispute to arbitration within 90 days from the date of making an application under Section 18 of MSMED Act.
• MSEFC has failed to perform its function within a reasonable time, thereby causing prejudice and hardship to the applicant.
• The applicant has a right to request the Chief Justice or his designate to appoint an arbitrator under Section 11(6)© of the Act in such cases.
• There is no merit in the submission that the applicant should have filed a writ petition or an appeal before the State Government, as these are not alternative means for securing the appointment as envisaged by Section 11(6)© of the Act.
• The writ petition or appeal would only result in further delay and litigation, whereas Section 11(6)© of the Act provides a speedy and effective remedy for appointment of an arbitrator.

Conclusion

Section 11(6)© of the Act is a useful provision that enables a party to seek appointment of an arbitrator in cases where a person, including an institution, fails to perform any function entrusted to him or it under the agreed appointment procedure. The provision gives a wide discretion to the Chief Justice or his designate to take any necessary measure to appoint an arbitrator in such cases. The provision also ensures that the arbitration process does not get stalled due to any default or inaction on the part of any party or person involved in the appointment procedure.
The case of Microvision Technologies Pvt. Ltd. v. Union of India¹ illustrates the application and scope of Section 11(6)© of the Act in cases where MSEFC fails to refer a dispute to arbitration under Section 18 of MSMED Act. The Bombay High Court held that Section 11(6)© of the Act applies to such cases and that MSEFC is a person, including an institution, within its meaning. The court also held that filing a writ petition or an appeal before the State Government is not an alternative means for securing the appointment as envisaged by Section 11(6)© of the Act. The court appointed an arbitrator for resolving the dispute between the parties.

References

¹: Microvision Technologies Pvt. Ltd. v. Union of India, (2023) ibclaw.in 726 HC <1> accessed 25 April 2023

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